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Exhibit 10.2   CONSULTING AGREEMENT FIFTH AMENDED ADDENDUM   This Consulting Agreement Fifth Amended Addendum (the “Fifth Addendum”) is entered into as of March 7, 2006 and effective as of the Effective Date (as defined below) by and between F.Y.I. Incorporated (n/k/a SOURCECORP, Incorporated), a Delaware corporation, (the “Company”) with its principal office located at 3232 McKinney Avenue, Suite 1000, Dallas, Texas 75204 and David Lowenstein (“Consultant”).   RECITALS   A.                                   Whereas, the Company and Consultant have previously entered into that certain Consulting Agreement of January 1, 2000, as amended (the “Agreement”) pursuant to which Consultant is employed by the Company; and   B.                                     Whereas, the Company is entering into an Agreement and Plan of Merger among CorpSource Holdings, LLC, a Delaware limited liability company, CorpSource MergerSub, Inc., a Delaware corporation, and the Company (the “Merger Agreement”).   Therefore, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, it is hereby agreed as follows:   1.               Amendments.   (a)          The Agreement is hereby amended and supplemented by adding the following new subsection ”(c)” to the end of paragraph 4 of the Agreement:   “(c) At the Effective Time (as defined in the Merger Agreement, as defined below) of the merger contemplated by that certain Agreement and Plan of Merger (the “Merger Agreement”), among CorpSource Holdings, LLC, a Delaware limited liability company, CorpSource MergerSub, Inc., a Delaware corporation, and the Company, this Agreement shall terminate in accordance with paragraph 9(h) hereof.”   (b)         The Agreement is hereby further amended and supplemented by replacing “$1.5 million” in Section 9(b) of the Agreement with “$1,368,983”.   (c)          The Agreement is hereby further amended and supplemented by replacing “$1.5 million” in the third sentence of Section 9(c) of the Agreement with “$1,368,983”.   (d)         The Agreement is hereby further amended and supplemented by adding the following new subsection “(h)” to the end of paragraph 9 of the Agreement:   “(h) Notwithstanding anything to the contrary in this Agreement, but subject to paragraph 17 of this Agreement, at the Effective Time (as defined in the Merger Agreement) of the merger contemplated by the Merger Agreement, the Company shall pay Consultant by wire transfer of immediately available funds the Consulting Compensation and the other amounts due and owing to Consultant as set forth on Schedule A hereof; provided, that the payments referenced in items 1 through 3 of Schedule A shall be made in the ordinary course consistent with past practice, but not later than the Effective Time. Such payment shall be made in compliance with the terms of the Agreement, including Section 17. Upon such payment all other rights and obligations of the Company and Consultant under this Agreement shall cease as of the Effective Time (as defined in the Merger Agreement), except that paragraphs 6, 7, 8, 9(g) and 11 through 18 shall survive such termination in accordance with their terms. Nothing in this Agreement shall have any impact on Consultant’s rights under his existing options, warrants or restricted stock.”   (e)          The Agreement is hereby further amended and supplemented by adding Schedule A attached hereto as Schedule A to the Agreement.   --------------------------------------------------------------------------------   (f)            The Agreement is hereby further amended and supplemented by adding the following new paragraph 18:   “18. RELEASE AND INDEMNIFICATION. (a) As of the Effective Time (as defined in the Merger Agreement), the Company irrevocably and unconditionally releases, waives and forever discharges Consultant, and his successors, heirs, legatees and legal representatives, from any and all causes of action, claims, damages, judgments and agreements arising out of claims by the Company and its subsidiaries or their direct and indirect stockholders (but only such stockholders from and after the Effective Time (as defined below)) relating to the calculation of Consultant’s Change in Control payment in accordance with paragraph 9 hereof, whether known or unknown, express or implied in contract, federal, state or local statute, executive order, law, common law, ordinance, tort or otherwise.   (b) As of the Effective Time (as defined in the Merger Agreement), Consultant irrevocably and unconditionally releases, waives and forever discharges the Company and its subsidiaries and their direct and indirect stockholders (but only such stockholders from and after the Effective Time) from any and all causes of action, claims, damages, judgments and agreements arising out of claims by the Consultant, and his successors, heirs, legatees and legal representatives, relating to the calculation of Consultant’s Change in Control payment in accordance with paragraph 9 hereof, whether known or unknown, express or implied in contract, federal, state or local statute, executive order, law, common law, ordinance, tort or otherwise.   (c) The Company agrees to indemnify and hold Consultant, and his successors, heirs, legatees and legal representatives, harmless from and against any damages, losses, liabilities, obligations, claims of any kind, interest and expenses (including without limitation, reasonable attorneys fees and expenses) suffered, incurred or paid in connection with or arising out of any claims by the Company and its subsidiaries or their direct and indirect stockholders (but only such stockholders from and after the Effective Time) relating to the calculation of Consultant’s Change in Control payment in accordance with paragraph 9 hereof.   (d) Consultant agrees to indemnify and hold the Company and its subsidiaries and their direct and indirect stockholders (but only such stockholders from and after the Effective Time) harmless from and against any damages, losses, liabilities, obligations, claims of any kind, interest and expenses (including without limitation, reasonable attorneys fees and expenses) suffered, incurred or paid in connection with or arising out of any claims by Consultant, and his successors, heirs, legatees and legal representatives, the calculation of Consultant’s Change in Control payment in accordance with paragraph 9 hereof.”   2.               Effective Date. This Fifth Addendum shall be effective as of the Effective Time (as defined in the Merger Agreement) (the “Effective Time”).   3.               Termination. Notwithstanding paragraph 2 of this Fifth Addendum, this Fifth Addendum shall be null, void and without effect if (i) the Merger Agreement is not executed and entered into by the parties thereto and publicly announced on or prior to 11:59 p.m. (EST) on March 8, 2006, (ii) at the Effective Time, David Delgado is not an employee of the Company or is not an equityholder of CorpSource Holdings, LLC in each case on terms that are substantially similar, in all material respects, to those in the Employment Agreement, dated as of March 6, 2006, between CorpSource MergerSub, Inc. (which is expected to be merged into the Company) and David Delgado or (iii) the Merger Agreement is terminated.   4.               Defined Terms. Except as otherwise expressly provided herein, any capitalized term used in this Fifth Addendum that is not defined herein will have the meaning ascribed to such term in the Agreement.   2 --------------------------------------------------------------------------------   5.               No Other Amendment. Except as otherwise expressly provided in this Fifth Addendum, all terms, conditions and provisions of the Agreement will remain in full force and effect.   6.               Governing Law. This Fifth Addendum shall in all respects be construed according to the laws of the State of Texas, without regards to conflicts of laws thereof.   7.               Entire Agreement. This Fifth Addendum, together with the Agreement and the Prior Addendums, set forth the entire agreement and understanding of the parties relating to the subject matter herein. No modification of or amendment to this Fifth Addendum, nor any waiver of any rights under this Fifth Addendum, shall be effective unless given in a writing signed by the party to be charged.   8.               Counterparts. This Fifth Addendum may be executed originally or by facsimile signature, in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.   [Signature Page Follows]   3 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties have entered into this Fifth Addendum as of the date first written above.     SOURCECORP , Incorporated    (f/k/a F.Y.I., Inc.)   By: /s/ Ed H. Bowman, Jr.       Name: Ed H. Bowman, Jr.     Title: President and CEO           CONSULTANT:       /s/ David Lowenstein     David Lowenstein     --------------------------------------------------------------------------------   SCHEDULE A   1.               Subject to receipt by the Company of reasonable documentation evidencing such fees and expenses, all aggregate Consulting Compensation and other amounts due and owing to Consultant with respect to services provided and acquisitions closed on or before the date of the Merger Agreement; provided that such amount shall not exceed $65,000 of out-of-pocket expenses and $100,000 of consulting fees; provided, further, that such amounts shall be in addition to, and without duplication of, the other amounts referenced on this Schedule A;   2.               The fee payable with respect to the proposed acquisition of Complete Claim Solutions, Inc. (the “Acquisition”) shall be $15,000 plus, subject to receipt by the Company of reasonable documentation evidencing such fees and expenses, the Consultant’s customary hourly fees and reimbursement of out-of-pocket expenses. The fees and expenses shall be payable regardless of whether or not the Acquisition is consummated on the earlier of (i) the Effective Time of the Merger and (ii) the completion of the Acquisition; provided, that such amounts shall be in addition to, and without duplication of, the other amounts referenced on this Schedule A;   3.               Subject to receipt by the Company on a weekly basis of reasonable documentation evidencing such fees and expenses, all aggregate Consulting Compensation and other amounts due and owing to Consultant for services rendered from and after the date of the Merger Agreement through the Effective Time of the Merger and not related to the acquisition of Complete Claim Solutions, Inc.; provided that such amount shall not exceed $25,000 per calendar month, plus reasonable out-of-pocket expenses, without the prior written consent of Purchaser (as defined in the Merger Agreement); provided, further, that such amounts shall be in addition to, and without duplication of, the other amounts referenced on this Schedule A; and   4.               A lump-sum termination payment of $1,368,983; provided, that such amount shall be in addition to, and without duplication of, the other amounts referenced on this Schedule A.   --------------------------------------------------------------------------------

THIRD AMENDMENT TO SUB-LEASE AGREEMENT THIRD AMENDMENT TO SUB-LEASE AGREEMENT (“Amendment”), made this 29th day of September, 2006 between COLUMBIA 677, L.L.C., a New York limited liability company with offices at 302 Washington Avenue Extension, Albany, New York 12203 (the "Landlord"), and FIRST ALBANY COMPANIES INC., with an office at 677 Broadway, Albany, New York  12207 (the "Tenant"). WHEREAS, Landlord and Tenant entered into a Sub-Lease Agreement dated August 12, 2003 as amended pursuant to a First Amendment dated October 11, 2004  and Second Amendment dated February 28, 2005 (as amended, the Sublease”) concerning the lease of approximately 48,056 square feet in the building located at 677 Broadway, City and County of Albany, State of New York (“Leased Property”); and WHEREAS, Tenant desires to surrender a portion of the Leased Property prior to the expiration date set forth in the Sublease and Landlord is willing to accept such surrender in the manner and upon and subject to the terms and conditions hereinafter set forth; and WHEREAS, Landlord will enter into new leases (collectively the "New Leases") for the portion of the Leased Property being surrendered with new tenants (collectively the "New Tenants"); and WHEREAS, Landlord and Tenant desire to amend certain terms and conditions of the Sublease as specifically set forth herein. NOW, THEREFORE, in consideration of the foregoing premises, of the mutual covenants set forth herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1.   All capitalized terms not specifically defined herein shall have the meaning set forth in the Sublease. 2. Pursuant to the Sublease, Tenant is leasing 15,358 square feet of space located on the 11th floor in the Building ("Surrender Premises").  Tenant wishes to surrender possession of the Surrender Premises and Landlord hereby agrees to release the Tenant from its lease obligations under the Sublease for its use and occupancy of the Surrender Premises pursuant to the terms and conditions of this Amendment. 3. Tenant hereby agrees to vacate that portion of the Surrender Premises shown on Exhibit "A" by October 9, 2006  and provided and on condition that Landlord has completed the improvements to the 10th floor of the Premises and provided that Landlord shall have previously executed and delivered the New Leases, Tenant hereby agrees  to vacate that portion of the Surrender Premises shown on Exhibit "B" by October 16, 2006 (collectively the “Surrender Date”).  If Tenant fails to vacate the Surrender Premises on or prior to the Surrender Date, subject to such delay by Landlord and provided that Landlord shall have previously executed and delivered the New Leases, such failure shall be subject to the holdover provisions of Section 3(C) with respect to the Surrender Premises and Landlord shall be entitled to recover damages suffered by Landlord as the result of Tenant's failure to surrender the Surrender Premises on or prior to the Surrender Date.  Tenant acknowledges and agrees that Landlord shall enter into new leases with respect to the Surrender Premises and deliver the Surrender Premises to New Tenants.  Therefore, Tenant's surrender of the Surrender Premises on the Surrender Date is OF THE ESSENCE.  Landlord acknowledges and agrees that the current condition of the Surrender Premises to be vacated on or before October 9, 2006 and as shown on Exhibit "A" complies with the terms and conditions of Section 15 of the Sublease and Tenant shall not be required to perform and additional work, improvements or alterations prior to vacating the Surrender Premises. 4. As of the Surrender Date and provided the conditions of this Amendment are satisfied, the rentable square footage of the Leased Property as defined in the Sublease is hereby reduced from 48,056 sf to 32,698 sf. 5. Landlord and Tenant hereby agree that, in consideration of Landlord agreeing to the surrender of the Surrender Premises, Tenant shall make payments to Landlord for the Surrender Premises for a four month period (November 1, 2006 through and including February 1, 2007) equal to $30,113.35 per month.   In addition, Tenant hereby agrees to an early termination payment to Landlord in the amount of $650,000 for a  total amount due to Landlord of $770,453.40 ("Surrender Fee") which shall be payable as follows: November 1, 2006 $192,613.35 (25%) January 1, 2007 $192,613.35 (25%) April 1, 2007 $385,226.70 (50%) The Surrender Fee shall constitute additional rent under the Sublease and Tenant's failure to make any of the above payments when due shall be subject to the provisions of Section 17 of the Lease.  Any late fees for late payment of rent set forth in the Sublease shall be applicable to the late payment of the Surrender Fee.  Notwithstanding anything set forth in this Agreement to the contrary, Tenant shall owe Base Rent and additional Rent for the Surrender Premises for the entire month of October 2006 pursuant to the terms and conditions of the Sublease. 6. Subject to the return of the Surrender Premises in the manner provided herein and the execution by Landlord and New Tenants of the New Leases, Landlord shall accept such surrender of the Surrender Premises as of the Surrender Date.  If the New Leases are not executed by Landlord and the New Tenants on or before October 31, 2006, this Agreement shall be null and void and notwithstanding that Tenant shall have vacated the Surrender Premises, the Surrender Premises shall continue to be part of the Premises for all purposes under the Sublease. 7. As of the Surrender Date, Tenant's parking spaces, as provided in the Sublease, shall be reduced from 5 spaces to 3 spaces and the Parking Rent under the Sublease shall be reduced accordingly. 8. This Amendment may be executed in several counterparts, and any signed counterpart shall constitute a legal original for all purposes.  Any such counterparts may be introduced into evidence in any action or proceeding without having to produce the others. 9. Except as specifically amended in this Amendment, all terms and provisions of the Sublease shall remain unchanged and in full force and effect. 10. This Amendment (i) shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, (ii) shall be governed by and construed in accordance with the laws of the State of New York, and (iii) may be executed in multiple counterparts, each of which shall constitute an original and all of which shall constitute one and the same agreement. [remainder of page left blank intentionally] IN WITNESS WHEREOF, the parties have executed this Third Amendment to Sublease as of the date first above written. Columbia 677, L.L.C. By:  /s/Joseph R. Nicolla Joseph R. Nicolla, Member First Albany Companies Inc. By:  /s/C. Brian Coad Name:  C. Brian Coad Title:    CFO   STATE OF NEW YORK ) )SS.: COUNTY OF ALBANY ) On the 4th day of October in the year 2006 before me, the undersigned, personally appeared Joseph R. Nicolla, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. /s/ Annette M. Harris Notary Public STATE OF NEW YORK ) )SS.: COUNTY OF ALBANY ) On the 29th day of September in the year 2006 before me, the undersigned, personally appeared C. Brian Coad, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. /s/ Carole B. Simmons Notary Public  

Exhibit 10.2 THIRD AMENDMENT AND RESTATEMENT OF THE POWER PURCHASE AND OPERATING AGREEMENT BY AND BETWEEN WESTMORELAND — LG&E PARTNERS AS SUCCESSOR IN INTEREST TO BECKLEY COGENERATION COMPANY AND VIRGINIA ELECTRIC AND POWER COMPANY -------------------------------------------------------------------------------- THIRD AMENDMENT AND RESTATEMENT OF THE POWER PURCHASE AND OPERATING AGREEMENT Table of Contents   ARTICLE 1:   Definitions 5   1.1    "Actual Capacity Factor" 5   1.2    "Annual O&M Capacity Component" 6   1.3    "Average Capacity Factor" 6   1.4    "Business Day" 7   1.5    "Calendar Day" or "Day" 7   1.6    "Calendar Month" or "Month" 7   1.7    "Calendar Quarter" or "Quarter" 7   1.8    "Calendar Year" or "Year" 7   1.9    "Capacity Purchase Payment" 8   1.10    "Capacity Purchase Payment Adjustment" 8   1.11    "Capacity Unit Price" 8   1.12    "Commercial Operations Date" 8   1.13    "Delivered Capacity" 8   1.14    "Design Limits" 9   1.15    "Dispatch" 10   1.16    "Effective Date" 10   1.17    "Emergency" 10   1.18    "Energy Purchase Price" 11   1.19    "Extended Term" or "Extended Terms" 11   1.20    "FERC" 11   1.21    "Facility" 11   1.22    "Financial Closing" 11   1.23    "Fixed Capacity Component" 11   1.24    "Forced Outage" 11   1.25    "Initial Term" 11   1.26    "Interconnection Facilities" 12   1.27    "Interconnection Point" 12   1.28    "Interest" 12   1.29    "Maintenance Outage" 12   1.30    "Maximum Annual Capacity Payment" 12   1.31    "Maximum Capacity Summer" 13   1.32    "Maximum Capacity 13   1.33    "Maximum Capacity Unit Price" 13   1.34    "NCUC" 14   1.35    "NERC" 14   1.36    "Net Electrical Output" 14   1.37    "O&M Capacity Component" 14   1.38    "Off Peak Hours" 14   1.39    "Prudent Electrical Practices" 14 1 --------------------------------------------------------------------------------   1.40    "Prudent Utility Practices" 15   1.41    "PURPA" 15   1.42    "Qualifying Facility" or "QF" 15   1.43    "SCC" 15   1.44    "Scheduled Outage" 15   1.45    "Summer Period" 15   1.46    "Term" 15   1.47    "Tracking Account" 15   1.48    "Winter Period" 16 ARTICLE 2:   Sale and Purchase of Energy and Capacity 16 ARTICLE 3:   Notices 17 ARTICLE 4:   Pre- and Post-Operation Period 18 ARTICLE 5:   Term and Termination 20 ARTICLE 6:   Representations and Warranties of Operator 21 ARTICLE 7:   Control and Operation of the Facility 25 ARTICLE 8:   Interconnection 31 ARTICLE 9:   Metering 32 ARTICLE 10:   Compensation. Payment, and Billings 35 ARTICLE 11:   Capacity Ratings 43 ARTICLE 12:   Insurance 43 ARTICLE 13:   Liability, Noncompliance and Guarantees 45 ARTICLE 14:   Force Majeure 50 ARTICLE 15:   Taxes and Claims for Labor and Materials 51 ARTICLE 16:   Choice of Law 52 ARTICLE 17:   Miscellaneous Provisions 52 ARTICLE 18:   Statutory and Regulatory Changes 53 ARTICLE 19:   Entirety 55 2 -------------------------------------------------------------------------------- THIRD AMENDMENT AND RESTATEMENT OF THE POWER PURCHASE AND OPERATING AGREEMENT BY AND BETWEEN WESTMORELAND - LG&E PARTNERS AS SUCCESSOR IN INTEREST TO BECKLEY COGENERATION COMPANY AND VIRGINIA ELECTRIC AND POWER COMPANY         THIS THIRD AMENDMENT AND RESTATEMENT, effective as of the Effective Date, of the POWER PURCHASE AND OPERATING AGREEMENT effective January 11, 1989 and executed January 24, 1989, first amended and restated March 28, 1990 (“First Amendment and Restatement”), and subsequently amended and restated November 15, 1991 (“Second Amendment and Restatement”), is by and between WESTMORELAND — LG&E PARTNERS, a Virginia general partnership with its principal office located in Charlottesville, Virginia (“Operator”), as successor in interest to BECKLEY COGENERATION COMPANY, a Delaware limited partnership, and VIRGINIA ELECTRIC AND POWER COMPANY, a Virginia public service corporation with its principal office located in Richmond, Virginia, operating in North Carolina as North Carolina Power (“North Carolina Power” or “Company”). As used herein, the term “Original Agreement No. 1” shall refer to the Power Purchase and Operating Agreement as executed on January 24, 1989. The term “Agreement” shall refer to the Second Amendment and Restatement as amended and restated hereby and as the same may hereafter be amended and in effect. Both Operator and North Carolina Power are herein individually referred to as “Party” and collectively referred to as “Parties”. R E C I T A L S         WHEREAS, the Company had entered into the Original Agreement No. 1, executed January 24, 1989, with Beckley Cogeneration Company, a partnership whose general partners were Westpower-Beckley L.P., a partnership whose general partner was Westmoreland-Beckley, Inc., Borealis Power Partners, a limited partnership whose general partner was Borealis Power Company, Inc., and S.N.W./Beckley, L.P., a partnership whose general partner was Stone & Webster Beckley Corporation; and 3 --------------------------------------------------------------------------------         WHEREAS, such partnership was going to develop an electric generating facility known as The Beckley Project in Beckley, West Virginia; and         WHEREAS, such partnership chose not to develop such facility in Beckley, West Virginia; and         WHEREAS, S.N.W./Beckley, L.P. withdrew from the partnership; and         WHEREAS, Hadson Roanoke Valley, L.P., a California limited partnership whose general partner was Hadson Power 16 Incorporated, bought the interest of Borealis Power Partners; and         WHEREAS, Westmoreland-Roanoke Valley, L.P., formerly Westmoreland-Beckley, Inc., and Hadson Roanoke Valley, L.P., as Westmoreland-Hadson Partners, planned to own and operate a new generation facility located inside North Carolina Power’s certificated retail service area in Halifax County, North Carolina, with a maximum nameplate rating of 203,250 KVA; such facility in all future correspondence to be identified as the Roanoke Valley Project (or the “Facility”); and         WHEREAS, the Original Agreement No. 1 was first amended and restated March 28, 1990 pursuant to the First Amendment and Restatement to reflect the above changes; and         WHEREAS, the First Amendment and Restatement was then amended and restated November 15, 1991 pursuant to the Second Amendment and Restatement; and 4 --------------------------------------------------------------------------------         WHEREAS, Hadson Roanoke Valley, L.P., subsequently changed its name to LG&E Roanoke Valley, L.P., whose general partner is LG&E Power 16 Incorporated, and Westmoreland-Hadson Partners subsequently changed its name to Westmoreland — LG&E Partners.         WHEREAS, the Parties now want to further amend and restate the Agreement; and         WHEREAS, the Commercial Operations Date occurred on May 29, 1994; and         WHEREAS, Operator wishes to sell exclusively to North Carolina Power all of the Facility’s Net Electrical Output, such sale to be pursuant to the terms and conditions set forth herein; and         WHEREAS, North Carolina Power wishes to purchase energy and capacity, which may be dispatched by North Carolina Power pursuant to the terms and conditions set forth herein;         NOW, THEREFORE, in consideration of these premises and of the mutual covenants and agreements hereinafter set forth, Operator and North Carolina Power covenant and agree, and amend and restate the Second Amendment and Restatement in its entirety, as follows: ARTICLE 1: Definitions         Whenever the following terms appear in this Agreement, whether in the singular or in the plural, present or past tense, they shall have the meaning stated below:         1.1    “Actual Capacity Factor” — For any Year, the quotient (expressed as a percentage) obtained by dividing: (a) the Delivered Capacity for such Year by (b) the sum of (i) the product of the Maximum Capacity — Summer and the number of hours in the Summer Period during such Year, and (ii) the product of the Maximum Capacity — Winter and the number of hours in the Winter Period during such Year. Notwithstanding the foregoing provisions, (A) the Actual Capacity Factor for each of 1998 and 1999 shall be deemed conclusively to be 91.629% and 85.721%, respectively, and (B) the Actual Capacity Factor for each of 2004, 2009, 2014 and 2019 shall be deemed conclusively to be the quotient obtained pursuant to the calculation in the preceding sentence, plus three percent (3%). Without limiting the generality of the foregoing provisions, the Actual Capacity Factor shall also be calculated for all of the Year 2000. 5 --------------------------------------------------------------------------------         1.2    “Annual O&M Capacity Component”— For any Year during which the O&M Capacity Component increases or decreases, the Annual O&M Capacity Component shall be the quotient obtained by dividing (a) the sum of (i) the product obtained by multiplying the O&M Capacity Component in effect as of January 1 of such Year by the number of days from and including January 1 of such Year through the Day preceding the effective date of such increase or decrease, and (ii) the product obtained by multiplying the O&M Capacity Component after giving effect to such increase or decrease by the number of days from and including the effective date of such increase or decrease through the last Day of such Year, by (b) the total number of days in such Year. Notwithstanding the foregoing provisions, the Annual O&M Capacity Component for any Year during which the O&M Capacity Component does not increase or decrease shall equal such O&M Capacity Component.         1.3    “Average Capacity Factor” — For any Year other than 2000, the average of the Actual Capacity Factor for each of the three (3) preceding Years; provided that in no event shall the Average Capacity Factor be deemed to be less than (a) 86% in any Year from 2001 through 2009, or (b) 85% in 2010 or any Year thereafter during the Initial Term; provided that the minimum Average Capacity Factor, if any, during any Extended Term shall be subject to the mutual agreement of the Parties. Notwithstanding the foregoing provisions, the Average Capacity Factor for each of 2004, 2009, 2014 and 2019 shall be deemed conclusively to be the average referred to in the preceding sentence, plus three percent (3%). 6 --------------------------------------------------------------------------------         1.4    “Business Day” — Monday through Friday excluding holidays recognized by North Carolina Power. As of the date of this Agreement, these holidays include New Year’s Day, Martin Luther King’s Birthday, Good Friday, Memorial Day, Fourth of July, Labor Day, Veteran’s Day, Thanksgiving Day, day after Thanksgiving Day, Christmas Eve and Christmas Day. The Day North Carolina Power observes such holidays may be changed by North Carolina Power upon ten (10) Days written notice to Operator.         1.5    “Calendar Day” or “Day” — A Calendar Day shall be the 24-hour period beginning and ending at 12:00 midnight Eastern Time. The terms Day and Calendar Day may be used interchangeably and shall have the same definition.         1.6    “Calendar Month” or “Month” — A Calendar Month shall begin at 12:00 midnight on the last Day of the preceding Month and end at 12:00 midnight on the last Day of the current Month. The terms Month and Calendar Month may be used interchangeably and shall have the same definition.         1.7    “Calendar Quarter” or “Quarter” — A Calendar Quarter shall be a 3-Month period beginning 12:00 midnight on December 31, March 31, June 30, or September 30. The terms Calendar Quarter and Quarter shall be used interchangeably and shall have the same definition.         1.8    “Calendar Year” or “Year” — A Calendar Year shall be the 12-Month period beginning 12:00 midnight on December 31 and ending at 12:00 midnight on the subsequent December 31. The terms Year and Calendar Year may be used interchangeably and shall have the same definition. Notwithstanding the foregoing provisions, if the Initial Term is canceled, expires or otherwise terminates on any Day other than December 31, the terms Year and Calendar Year shall also be deemed to refer to the time from and including January 1 of such Year through the effective date of such cancellation, expiration or termination for purposes of this Agreement. 7 --------------------------------------------------------------------------------         1.9    “Capacity Purchase Payment” — The amount North Carolina Power will pay Operator for Delivered Capacity in accordance with Article 10.         1.10    “Capacity Purchase Payment Adjustment” — The amount calculated as such in Section 10.15(b).         1.11    “Capacity Unit Price” — At any time, the quotient obtained by dividing the sum of the applicable Fixed Capacity Component and the applicable O&M Capacity Component by the applicable Average Capacity Factor, expressed in cents/kWh; provided that, at any time during the Years 2004, 2009, 2014 and 2019, the divisor in the foregoing calculation shall be the applicable Average Capacity Factor minus three percent (3%).         1.12    “Commercial Operations Date” — May 29, 1994.         1.13    “Delivered Capacity”— The amount of capacity that Operator delivers from the Facility to North Carolina Power, which, for all purposes, shall be deemed to be the sum of (a) the Net Electrical Output that is delivered to North Carolina Power and that, during any Off Peak Hour, does not exceed 101% of the Maximum Capacity — Summer or Maximum Capacity — Winter, as the case may be, expressed in kWh, and (b) during those hours that North Carolina Power (i) has Dispatched the Facility off-line, or to produce Net Electrical Output at less than the applicable Maximum Capacity – Summer or Maximum Capacity — Winter, or (ii) was unable, refused or otherwise failed to receive Net Electrical Output for any reason, including, without limitation, pursuant to Section 7.5, the difference obtained by subtracting the Net Electrical Output actually delivered during such Dispatch, inability, refusal or failure, if any, from the kilowatt-hours that Operator potentially could have delivered if the Facility had operated at the Maximum Capacity – Summer or Maximum Capacity – Winter, as the case may be, during such Dispatch, inability, refusal or failure. For purposes of the preceding sentence, any hour during which Operator increases or reduces the production of Net Electrical Output in response to Dispatch by North Carolina Power shall be deemed for all purposes hereunder to be an hour described in clause (b)(i) of this Section 1.13. Notwithstanding the foregoing provisions, if Operator is first in a Scheduled Outage, Maintenance Outage, or Forced Outage, and North Carolina Power thereafter (A) Dispatches the Facility off-line, or to produce Net Electrical Output at less than the applicable Maximum Capacity – Summer or Maximum Capacity —Winter, or (B) is unable, refuses or otherwise fails to receive Net Electrical Output, then, to the extent, if any, that such Scheduled Outage, Maintenance Outage, or Forced Outage is concurrent with such Dispatch, inability, refusal or failure by North Carolina Power, the Delivered Capacity during such period of concurrence shall only include the Net Electrical Output actually delivered. during such period, as specified in clause (a) of this Section 1.13. 8 --------------------------------------------------------------------------------         1.14    “Design Limits” — When the Facility operates in accordance with this Agreement, it is capable of operation over the continuous range from 52,500 kW (summer) and 53,200 kW (winter) (“Minimum Operating Level”) and through a maximum operating level which shall be the Maximum Capacity – Summer or Maximum Capacity – Winter, as the case may be. After the Facility has been off line, it can achieve the levels of operation specified below within the time periods indicated below:   (a)   If the Facility has been off line for less than 8 hours (hot start), it can be resynchronized  within 3 hours following notice to start-up and can achieve its Minimum Operating Level within 6 hours following notice to start-up. 9 --------------------------------------------------------------------------------   (b)   “Effective Date” — If the Facility has been off line between 8 hours and 24 hours (warm start), it can be resynchronized within 7 hours following notice to start-up and can achieve its Minimum Operating Level within 10 hours following notice to start-up.   (c)   If the Facility has been off line for more than 24 hours (cold start), it can be resynchronized within 12 hours following notice to start-up and can achieve its Minimum Operating Level within 15 hours following notice to start-up. Once the Facility has been synchronized with North Carolina Power’s system and brought to its Minimum Operating Level, its Net Electrical Output may be increased at the rate of 7% of the Minimum Operating Level per minute. If the Facility is operating above its Minimum Operating Level, its Net Electrical Output may be reduced at the rate of 10% of the Minimum Operating Level per minute down to the Minimum Operating Level. The maximum cold starts caused by North Carolina Power shall not exceed 20 per year not including starts after any Facility outages. Minimum run time, at or above the Minimum Operating Level, between shutdowns is twelve (12) hours.         1.15    “Dispatch” — The right of North Carolina Power, or its exercise, in accordance with Prudent Utility Practices, to schedule and control, directly or indirectly, manually or automatically from any of its division or system operating centers, the generating level of the Facility in order to commence, increase, decrease or cease the delivery of Net Electrical Output pursuant to the conditions set forth in Article 7.         1.16    “Effective Date”— December 1, 2000, or such later effective date as is approved by the FERC.         1.17    “Emergency” — A condition or situation which, in the sole judgment of North Carolina Power, affects or will affect North Carolina Power’s ability to meet its obligations to maintain safe, adequate and continuous electric service to North Carolina Power’s customers and/or the customers of any member of NERC. 10 --------------------------------------------------------------------------------         1.18    “Energy Purchase Price” — The price per kilowatt hour that North Carolina Power will pay, in accordance with Article 10, Operator for Net Electrical Output delivered to North Carolina Power.         1.19    “Extended Term” or “Extended Terms” — Shall have the meanings given to such terms in Section 5.2.         1.20    “FERC” — The Federal Energy Regulatory Commission or any successor thereto.         1.21    “Facility”— Operator’s generation facility, including land, primary and auxiliary equipment and all transmission equipment, whether owned by Operator or others (except that which is owned by North Carolina Power), installed on Operator’s side of the Interconnection Point, necessary for the delivery of the Net Electrical Output of the Facility and that are not Interconnection Facilities.         1.22    “Financial Closing”— December 18, 1991, which is .the date on which documents providing funding for the construction of the Facility were executed.         1.23    “Fixed Capacity Component” — (a) during each of the Years 2000 through 2008, and from and including January 1, 2009 through May 28, 2009, 3.185 cents/kWh, and (b) from and including May 29, 2009 through the end of the Initial Term, 0.822 cents/kWh; provided that the Fixed Capacity Component during any Extended Term shall be subject to the mutual agreement of the Parties.         1.24    “Forced Outage” — Any unplanned interruption or reduction of Net Electrical Output that is attributable to breakdown or failure of Facility equipment or that, in Operator’s Judgment, is required by safety considerations.         1.25    “Initial Term” —Shall have the meaning given to such torn in Section 5.1. 11 --------------------------------------------------------------------------------         1.26    “Interconnection Facilities” — All the facilities installed by North Carolina Power to enable North Carolina Power to receive Net Electrical Output, or Net Electrical Output and Delivered Capacity, from the Facility, including but not limited to all metering equipment; transmission and distribution lines and associated equipment; transformers and associated equipment on its side of the Interconnection Point; relay and switching equipment; protective devices and safety equipment; and telemetering equipment, wherever located.         1.27    “Interconnection Point” — The physical point(s) where the Net Electrical Output of the Facility is delivered to the North Carolina Power system at a voltage acceptable to North Carolina Power. This point will be on the high voltage side of the Operator’s step-up transformer.         1.28    “Interest” — The compensation for the accrual of monetary obligations under this Agreement computed Monthly and prorated daily from the time each such obligation arises based on an annual interest rate equal to the Prime Rate plus two (2) percent. For purposes of this Agreement, Prime Rate shall mean the rate of interest from time to time publicly announced by The Chase Manhattan Bank, NA., (or its successor) at its principal office, presently located at 1 Chase Manhattan Plaza, New York, New York 10081, as its prime commercial lending rate, determined for each obligation to pay interest at the time such obligation arises.         1.29    “Maintenance Outage”— An interruption or reduction of the Facility’s availability that (i) is not a Forced Outage or a Scheduled Outage, and (ii) Operator elects to take in good faith for the purpose of performing work on the Facility that should not, in the reasonable opinion of Operator, be postponed until the next Scheduled Outage.         1.30    “Maximum Annual Capacity Payment” — During any Year is the sum of (a) the product of (i) the Maximum Capacity — Summer, (ii) the Maximum Capacity Unit Price, and (iii) the number of hours in the Summer Period during that Year, and (b) the product of (i) the Maximum Capacity — Winter, (ii) the Maximum Capacity Unit Price, and (iii) the number of hours in the Winter Period during that Year. Notwithstanding the foregoing provisions, the Maximum Annual Capacity Payment for the Year 2009 shall be the sum of (a) the product of (i) the Maximum Capacity — Summer, (ii) the applicable Maximum Capacity Unit Price, and (iii) the number of hours in the Summer Period during that Year to which such Maximum Capacity Unit Price applies, and (b) the product of (i) the Maximum Capacity —Winter, (ii) the applicable Maximum Capacity Unit Price, and (iii) the number of hours in the Winter Period during that Year to which such Maximum Capacity Unit Price applies. Notwithstanding the foregoing provisions, the Maximum Annual Capacity Payment for each of the Years 2004, 2009, 2014 and 2019 shall be deemed conclusively to be the amount derived from the foregoing calculations for such Year, plus the aggregate amount of the additional payments for such Year provided for in Section 10.15(c) hereof. 12 --------------------------------------------------------------------------------         1.31    “Maximum Capacity Summer” — The amount of capacity designated as such in Section 11.1.         1.32    “Maximum Capacity — Winter” — The amount of capacity designated as such in Section 11.1.         1.33    “Maximum Capacity Unit Price” — During any Year, is the sum of the Fixed Capacity Component for such Year, and the Annual O&M Capacity Component for such Year, expressed in cents/kWh. Notwithstanding the foregoing provisions, there shall be two (2) Maximum Capacity Unit Prices for the Year 2009, one applicable to the time from and including January 1, 2009 through May 28, 2009 and calculated using the Fixed Capacity Component in effect at that time, and the second applicable to the time from and including May 29, 2009 through December 31, 2009 and calculated using the Fixed Capacity Component in effect at that time. 13 --------------------------------------------------------------------------------         1.34    "NCUC" - The North Carolina Utility Commission or any successor thereto.         1.35    “NERC” — The North American Electric Reliability Council, including any successor thereto and subdivisions thereof.         1.36    “Net Electrical Output” — All of the Facility’s generating output made available for sale; such Net Electrical Output shall be measured by the North Carolina Power-owned metering (on a kilowatt-hour basis) that would be located both (i) on the high voltage side of the Operator’s step-up transformer and (ii) on the North Carolina Power owned side of the Interconnection Point         1.37    “O&M Capacity Component” — 2.160 cents/kWh in 2000 dollars, which shall be increased or decreased, as appropriate, on April 1, 2001 and on each April 1 thereafter by the percentage change in the Gross Domestic Product Implicit Price Deflator Index first published for the previous Calendar Year as specified by the US Department of Commerce, or such other organization as the Parties may mutually agree.         1.38    “Off Peak Hours”— During the periods March 1 through June 14 and September 16 through November 30, those hours from 2200 hour to 0600 hour Monday through Friday and all day Saturday and Sunday.         1.39    “Prudent Electrical Practices” — The practices, methods and use of equipment required to protect North Carolina Power’s system, employees, agents, and customers from malfunctions occurring at the Facility and to protect the Facility, and Operator’s employees and agents at the Facility, from malfunctions occurring on North Carolina Power’s system or on any other electric utility with which North Carolina Power is directly or indirectly electrically connected, and to adhere to applicable industry codes, standards, and regulations. 14 --------------------------------------------------------------------------------         1.40    “Prudent Utility Practices” — The practices generally followed by the electric utility industry, as changed from time to time, which generally include, but are not limited to, engineering and operating considerations.         1.41    "PURPA" - The Public Utility Regulatory Policies Act of 1978.         1.42    “Qualifying Facility”or “QF” — A cogeneration facility or a small power production facility which is a Qualifying Facility under Subpart B of Subchapter K, Part 292 of Chapter I, Title 18, Code of Federal Regulations, promulgated by the FERC. Such a facility must be “new capacity” pursuant to PURPA, construction of which began on or after November 9, 1978.         1.43    “SCC” — The State Corporation Commission of Virginia or any successor thereto.         1.44    “Scheduled Outage” — A planned interruption of the Facility’s generation exceeding seven (7) consecutive Days that is required or recommended in Operator’s sole discretion, for inspection, preventive maintenance, corrective maintenance or repair or replacement of equipment and that is scheduled as such pursuant to the provisions of Section 7.2.         1.45    “Summer Period” —The Summer Period shall be the six (6) Month period beginning 12:00 midnight on March 31 and ending at 12:00 midnight on the following September 30.         1.46    “Term” —Shall have the meaning given to such term in Section 5.1.         1.47    “Tracking Account” — A notional account in which amounts are added and subtracted as provided in Section 10.15(b). 15 --------------------------------------------------------------------------------         1.48    “Winter Period” —The Winter Period shall be the six (6) Month period beginning 12:00 midnight on September 30 and ending at 12:00 midnight on the following March 31. Any references in this Agreement to specific Sections shall be deemed to be references to Sections of this Agreement, unless the context requires otherwise. ARTICLE 2: Sale and Purchase of Energy and Capacity         2.1    Operator agrees to sell, and North Carolina Power agrees to purchase, the Net Electrical Output of the Facility, but only to the extent that the Facility is Dispatched by North Carolina Power, and subject to the terms and conditions of this Agreement.         2.2    Operator agrees to sell, and North Carolina Power agrees to purchase, Delivered Capacity from the Facility, subject to the terms and conditions of this Agreement.         2.3    The Parties agree that Operator has fulfilled its obligation to provide the information, documentation and other materials required pursuant to Section 2.3 of the Second Amendment and Restatement.         2.4    Operator has provided North Carolina Power, within ninety (90) Days after the Commercial Operations Date, a copy of a completion certificate issued by a widely recognized engineering firm that was acting as unaffiliated independent engineer for the lenders representing to the lenders, after construction was substantially completed, that the constructed Facility, if maintained in accordance with Prudent Electrical Practices, Prudent Utility Practices, and the terms of this Agreement could be reasonably expected to have a useful life at least equal to the Initial Term.         2.5    The information, documentation and other materials referred to in Section 2.3 are for North Carolina Power’s use in administering this Agreement only. 16 -------------------------------------------------------------------------------- ARTICLE 3: Notices         3.1    Any notice or communication required to be in writing hereunder shall be given by any of the following means: registered, certified, or first class mail, ground or air courier, telex, telecopy, or telegram. Such notice or communication shall be sent to the respective Parties at the address listed below. Except as expressly provided herein, any notice shall be deemed to have been given when sent. Any notice given by first class mail shall be considered sent at the time of posting and, if sent by ground or air courier, such notice shall be deemed sent one business Day after delivery to the courier. Communications by telex, telecopy, or telegram shall be deemed given when confirmed by telecopy machine report indicating satisfactory transmission and shall be followed up by depositing a copy of the same in the post office for transmission by registered, certified, or first class mail in an envelope properly addressed as follows:   In the case of Operator to:   Westmoreland - Roanoke Valley, L.P. c/o WEI - Roanoke Valley, Inc. 2 North Cascade Avenue, 14th Floor Colorado Springs, Colorado 80903 Attn: President   With copy to:   LG&E Roanoke Valley, L.P. c/o LG&E Power 16 Incorporated 12500 Fair Lakes Circle, Suite 350 Fairfax, Virginia 22033-3804 Attn: President   In the case of North Carolina Power to:   Virginia Electric and Power Company (if by hand) Director - Capacity Acquisition One James River Plaza 701 East Cary Street, 15th Floor Richmond, Virginia 23219 17 --------------------------------------------------------------------------------   Virginia Electric and Power Company (if by mail) Director - Capacity Acquisition P.O. Box 26666 Richmond, Virginia 23261         3.2    Either Party may, by prior written notice to the other, change the representative or the address to which such notices and communications are to be sent. ARTICLE 4: Pre- and Post-Operation Period         4.1    Operator shall, at its expense, acquire, and maintain in effect, from the FERC and from any and all other federal, state, and local agencies, commissions and authorities with jurisdiction over Operator and/or the Facility, all permits, licenses, and approvals, and complete or have completed all environmental impact studies necessary as follows:   (a)   For the construction, operation, and maintenance of the Facility,   (b)   For Operator to perform its obligations under this Agreement,   (c)   To obtain and maintain certification as a Qualifying Facility, until the Commercial Operations Date. If in the future (i) there is no QF certification available under PURPA, FERC regulations or any similar statute or regulations; (ii) PURPA, the FERC regulations or similar statutes or regulations alter the requirements for maintenance of QF certification for the Facility by imposing significant new criteria or procedures which are more stringent than criteria or procedures in effect on November 15, 1991; or (iii) Operator elects, after the Commercial Operations Date, to change from QF status to Exempt Wholesale Generator (EWG) status, then Operator shall not be obligated to maintain QF certification. However if Operator does not maintain QF certification. then Operator agrees to obtain approval of any state or federal agencies flooded for this Agreement if it is deemed a wholesale electric contract (for example, under Section 205 of the Federal Power Act). Operator covenants that it shall use its best efforts to obtain such approvals. Operator agrees not to elect dropping QF status under item (iii) above unless all such approvals are obtained. Notwithstanding the foregoing provisions, the Parties hereby acknowledge that Operator previously elected to change from QF status to Exempt Wholesale Generator status and, in connection therewith, has obtained all such necessary approvals.         4.2    Not used. 18 --------------------------------------------------------------------------------         4.3    Operator has provided North Carolina Power with generator manufacturer’s capability curves, relay types, and proposed relay settings for review and inspection by North Carolina Power, and, within sixty (60) Days of receiving such material, North Carolina Power informed Operator, in writing, that the proposed relay types and relay settings were acceptable. Operator also has provided North Carolina Power with Facility design heat balance diagram, flow diagrams, Automatic Generation Control logic, and major equipment list for review. Operator shall notify North Carolina Power of any changes to any information provided in this Section in a timely manner.         4.4    Operator and North Carolina Power have mutually developed written pre-commercial operations and post-commercial operations operating procedures consistent with the terms and conditions of this Agreement. The operating procedures discussed in this Section 4.4 are intended as a guide and shall be limited to how the Operator’s Facility and output are integrated into North Carolina Power’s bulk electric system. Topics covered include, but are not necessarily limited to, method of day-to-day communications; key personnel list for both Operator and utility operating centers; clearances and switching practices; outage scheduling; daily capacity and energy reports; unit operations log; and reactive power support.         4.5    North Carolina Power prepared and submitted to Operator a written voltage schedule, North Carolina Power may change such voltage schedule upon thirty (30) Days prior written notice to Operator. Operator shall use such voltage schedule in the operation of its Facility. This voltage schedule shall be based on the normally expected operating conditions for the Facility and the reactive power requirements of North Carolina Power’s system. 19 -------------------------------------------------------------------------------- ARTICLE 5: Term and Termination         5.1    The Initial Term of this Agreement is for a period of twenty-five (25) years commencing with the Commercial Operations Date, unless extended under this Article 5, terminated, or canceled. The Initial Term, as extended under this Article 5 during any Extended Term, is sometimes hereafter referred to as the “Term.” In the event a Force Majeure condition delays a Party’s performance as stipulated in Article 14 of this Agreement after the Commercial Operations Date, then North Carolina Power may at its sole option extend the Term of this Agreement a period of time equal to the Force Majeure delay. North Carolina Power must provide the Operator a notice of its intent to extend this Agreement no less than 2 years prior to the end of the Initial Term, unless such Force Majeure occurs less than 2 years from the end of the Initial Term, in which case such notice must be provided to Operator by North Carolina Power sixty (60) Days after the end of the Force Majeure delay period.         5.2    This Agreement may be extended for periods of up to five (5) years each (individually, an “Extended Term” and, collectively, the “Extended Terms”), provided that two (2) years prior to the end of the Initial Term, or any subsequent Extended Term, as the case may be, the Parties agree in writing to such extension.         5.3    If either Party defaults under this Agreement, then the non-defaulting Party shall give the defaulting Party written notice describing such default. The defaulting Party shall be given sixty (60) Days from the receipt of such notice to cure such default. However, if the default cannot be cured within sixty (60) Days with the exercise of reasonable diligence, then the non-defaulting Party shall grant an additional reasonable period of time to cure such default, if the default is an Operator default. If the defaulting Party fails to cure such default within the prescribed period of time, then the non-defaulting Party may, in addition to any other rights or remedies available at law or in equity, immediately terminate this Agreement and consider defaulting Party in material breach of its obligations under this Agreement. Any of the following conditions shall be considered defaults by Operator under this Section 5.3, including without limitation: 20 --------------------------------------------------------------------------------   (a)   Failure to comply with the requirements of Section 13.4; or   (b)   Unless excused by Force Majeure as specified in Article 14, abandonment of operation of the Facility at any time; or   (c)   Attempts by Operator, its employees, contractors or subcontractors of any tier, to operate, maintain, or tamper with the Interconnection Facilities without the prior written consent of North Carolina Power.         5.4    Termination of this Agreement shall not be construed as a forfeiture or waiver of any statutory right of a Qualifying Facility to sell to North Carolina Power non-firm energy produced from the Facility. ARTICLE 6: Representations and Warranties of Operator         6.1    Operator represents and warrants that, as of December 1, 1990 and at all times thereafter during the Term of this Agreement, Operator will have a reliable supply of fuel of quality and in quantity sufficient to deliver energy and capacity as provided hereunder. From time to time, as North Carolina Power may reasonably request, Operator shall provide North Carolina Power evidence of its compliance with this obligation. Alternate supplies of fuel will be considered in determining whether Operator has a reliable supply of fuel.         6.2    Operator warrants that the Facility will be operated and maintained in accordance with (i) operating procedures developed pursuant to Section 4.4, (ii) generally accepted Prudent Utility Practices, including without limitation, synchronizing, voltage and reactive power control, and (iii) generally accepted Prudent Electrical Practices. 21 --------------------------------------------------------------------------------         6.3    Operator warrants that the Facility will be operated in such a manner so as not to have an adverse effect on North Carolina Power’s voltage level or voltage waveform.         6.4    Operator warrants that the Facility will be operated at the voltage levels determined pursuant to Section 4.5, provided such operation is within the Design Limits.         6.5    Operator shall, at all times, conform to all laws, ordinances, rules and regulations applicable to it. Operator shall give all required notices, shall procure and maintain all governmental permits, licenses and inspections necessary for its performance of this Agreement, and shall pay all charges and fees in connection therewith.         6.6    Operator agrees to comply with all applicable provisions, and successor provisions thereto, of Executive Order 11246, as amended; § 503 of the Rehabilitation Act of 1973, as amended; § 402 of the Vietnam Era Veterans Readjustment Assistance Act of 1974, as amended; and implementing regulations sot forth in 41 C.F.R, §§ 60-1, 60-250, and 60-741 and the applicable provisions relating to the utilization of small and minority business concerns as set forth in 15 U.S.C. § 637, as amended. Operator agrees that the equal opportunity clause set forth in 41 C.F.R. § 60-1.4 and the affirmative action clauses set forth in 41 C.F.R. § 60-250.4 and 41 C.F.R. § 60-741.4 and the clauses relating to the utilization of small and minority business concerns set forth in 15 U.S.C. § 637(d)(3) and 48 C.F.R. § 52-219-9 are hereby incorporated by reference and made a part of this Agreement. Operator will adopt and comply with a small business and small disadvantaged business subcontracting plan which will conform to .the requirements set forth in 15 U.S.C. § 637(d)(6). The provisions of this section shall apply to Operator only to the extent that (i) such provisions are required of Operator under existing law, (ii) Operator is not otherwise exempt from said provisions and (iii) compliance with said provisions is consistent with and not violative of 42 U.S.C. §2000e et seq., 42 U.S.C. § 1981 et seq., or other acts of Congress. 22 --------------------------------------------------------------------------------         6.7    Any fines or other penalties incurred by Operator or its agents, employees or subcontractors for noncompliance by Operator, its employees, or subcontractors with laws, rules, regulations or ordinances shall not be reimbursed by North Carolina Power but shall be the sole responsibility of Operator. If fines, penalties or legal costs are assessed against North Carolina Power by any government agency or court due to noncompliance by Operator with any of the laws, rules, regulations or ordinances referred to in Sections 6.5 and 6.6 above or any other laws, rules, regulations or ordinances with which compliance is required herein, or if the work of Operator or any part thereof is delayed or stopped by order of any government agency or court due to Operator’s noncompliance with any such laws, rules, regulations or ordinances, Operator shall indemnify and hold harmless North Carolina Power against any and all fines or penalties imposed on North Carolina Power clearly attributable to the solo failure of Operator to comply therewith. Operator shall also reimburse North Carolina Power for any and all legal or other expenses (including attorneys’ fees) reasonably incurred by North Carolina Power in connection with such fines or penalties.         6.8    The Operator and general partners of Operator hereby represent and warrant that:   (a)   (i)      The Operator is a partnership duly organized, validly existing and in good standing  under the laws of the Commonwealth of Virginia; (ii) the general partners of Operator are Westmoreland-Roanoke Valley, L.P., a limited partnership whose general partner is WEI-Roanoke Valley, Inc., both of which are duly organized, validly existing and in good standing under the laws of the State of Delaware, and LG&E Roanoke Valley, L.P., a limited partnership whose general partner is LG&E Power 16 Incorporated, both of which are duly organized, validly existing and in good standing under the laws of the State of California. Operator and the general partners of Operator are or will be qualified to do business in North Carolina and in each other jurisdiction where the failure so to qualify would have a material adverse effect upon their business or financial condition; and each has all requisite power and authority to conduct its business, to own its properties, and to execute, to deliver, and to perform its obligations under this Agreement. 23 --------------------------------------------------------------------------------   (b)   The execution, delivery and performance by the Operator of this Agreement have been duly authorized by all necessary partnership or corporate action as applicable, and do not and will not (i) require any consent or approval of the Operator’s Board of Directors, partners or shareholders as applicable, other than that which has been obtained (evidence of which shall be, if it has not heretofore been, delivered to North Carolina Power), (ii) violate any provisions of the Operator’s corporate bylaws or other organic documents, any indenture, contract or agreement to which it is a party or by which it or its properties may be bound, or any law, rule, regulation, order, writ, judgement, injunction, decree, determination, or award presently in effect having applicability to the Operator, or (iii) result in a breach or constitute a default under the Operator’s corporate bylaws, other organic documents or other material indentures, contracts, or agreements, and the Operator is not in default under its corporate bylaws or other organic documents or other material indentures, contracts, or agreements to which it is a party or by which it or its property may be bound.   (c)   No authorizations or approval by any governmental or other official agency is necessary for the due execution and delivery by the Operator of this Agreement as in effect on the date of this Agreement.   (d)   This Agreement is a valid and binding obligation of the Operator.   (e)   There is no pending or threatened action or proceeding affecting the Operator before any court, governmental agency or arbitrator that could reasonably be expected to affect materially and adversely the financial condition or operations of the Operator or the ability of the Operator to perform its obligations hereunder, or which purports to affect the legality, validity or enforceability of this Agreement (as in effect on the date of this Agreement).         6.9    Not used.         6.10    Operator agrees that, upon request of North Carolina Power, it shall deliver or cause to be delivered from time to time to North Carolina Power certifications of its officers, accountants, engineers, or agents as to such matters directly related to Operator’s ability to perform its obligations under this Agreement as North Carolina Power may reasonably request.         6.11    The general partners of Operator agree to preserve and keep in force and effect Operator’s and their own corporate existence (if applicable) and all franchises, licenses and permits necessary to the proper conduct of its business, including without limitation the business of constructing, owning and operating the Facility. 24 --------------------------------------------------------------------------------         6.12    Operator will keep proper books of record and account in which full and correct entries will be made of all dealings or transactions of or in relation to its business and affairs, in accordance with generally accepted accounting principles consistently applied. From time to time through the Term of this Agreement, but no more frequently than annually, North Carolina Power, at Operator’s cost, shall have the right to designate an independent public accounting firm to conduct a review of the Operator’s auditor’s audit of the books and records of Operator under a confidentiality agreement with Operator to the limited extent necessary (i) to verify that they are being kept in accordance with generally accepted accounting principles, and (ii) to advise North Carolina Power of the financial condition of Operator and that Operator is not in default under any loan agreements, transmission agreements or fuel supply agreements. Operator shall make all pertinent records available at its office at Charlottesville, Virginia during normal business hours.         6.13    Operator will provide to North Carolina Power, on a Monthly basis, a statement of the total quantity and total delivered cost of all fuel consumed in the Facility. ARTICLE 7: Control and Operation of the Facility         7.1    Operator shall inform the North Carolina Power operations center designated in the interconnection study performed pursuant to Article 8 as to the daily operating schedule and generation capability of its Facility, including, without limitation, during any Forced Outage. In addition, by the 5th of each Month after the first Month after the Commercial Operations Date, Operator shall provide North Carolina Power with Facility performance and events data for the preceding Month in a format consistent with the most current NERC Generating Availability Data Systems (“GADS”) reporting standards. Event reporting terminology and definitions under the NERC GADS reporting standards do not modify the terms of this Agreement. 25 --------------------------------------------------------------------------------         7.2    Operator shall submit to North Carolina Power, in writing, by September 1 of each Year, its planned Scheduled Outage periods for the next Year. Operator may modify its Scheduled Outage periods by notifying North Carolina Power. of any such modifications at least ninety (90) Days (or less if North Carolina Power agrees) in advance. Such Scheduled Outages shall not exceed 30 Days in each Year, except for those Years where major maintenance overhauls are planned. Operator may only schedule major maintenance overhauls to occur in 2004, 2009, 2014 and 2019, unless mutually agreed otherwise. During such major maintenance overhaul years, Scheduled Outages shall not exceed 42 Days. North Carolina Power shall have the right to approve the start date of any Scheduled Outage, such approval not to be unreasonably withheld, delayed or conditioned, and, in any event, shall notify Operator of such approval or disapproval no later than the October 31 next following the submission by Operator of its planned Scheduled Outage periods for the next Year. At least thirty (30) days prior to any Scheduled Outage, Operator shall provide North Carolina Power with whatever schedule for such Scheduled Outage that Operator then has. Operator shall not schedule a Scheduled Outage during the Months of December, January, February or during the period from June 15 through September 15 of any Year without the prior written consent of North Carolina Power. In addition to Scheduled Outages, Operator is entitled to an unlimited number of Maintenance Outages and Forced Outages during any Year. Operator shall provide North Carolina Power with forty-eight (48) hours advance notice, or such lesser notice as is practicable under the circumstances, of the timing and estimated duration of any Maintenance Outage, and shall provide North Carolina Power with such notice as is practicable under the circumstances of the occurrence and estimated duration of any Forced Outage. Each such notice shall identify, to the extent then known by Operator, the equipment involved in such outage and the capacity that will not be available for Dispatch. During any such outage, Operator shall notify North Carolina Power promptly of any material changes in the notice information previously provided to North Carolina Power. The Parties shall work together in good faith to coordinate the start date of any Maintenance Outage. If North Carolina Power reasonably requests Operator to return all or part of that portion of the Facility that is affected by a Maintenance Outage or Forced Outage, as the case may be, to operational status, Operator shall complete its maintenance and repair work as soon as reasonably practical. 26 --------------------------------------------------------------------------------         7.3    North Carolina Power shall have the right, upon six (6) months prior written notice, to revise the six (6) Months during which Operator shall not, unless mutually agreed, schedule a Scheduled Outage.         7.4    Each Party shall keep complete and accurate records and all other data required by each of them for the purposes of proper administration of this Agreement.   (a)   All such records shall be maintained for a minimum of five (5) years after the creation of such record or data and for any additional length of time required by regulatory agencies with jurisdiction over the Parties; provided, however, that Operator shall not dispose of or destroy any such records even after the five (5) years without thirty (30) Days prior notice to North Carolina Power.   (b)   Operator shall maintain an accurate and up-to-date operating log at the Facility with records of: (i) real and reactive power production for each clock hour, (ii) changes in operating status, Scheduled Outages and Forced Outages; and (iii) any unusual conditions found during inspections and operations.   (c)   Either Party shall have the right from time to time, upon fourteen (14) Days written notice to the other Party, to examine the relevant records and data of the other Party relating to this Agreement at any time during the period the records are required to be maintained. 27 --------------------------------------------------------------------------------   (d)   North Carolina Power shall have the right to monitor Operator’s operation and maintenance practices regarding the Facility and to conduct physical inspections of the Facility at reasonable intervals; provided that North Carolina Power shall not conduct such inspections more frequently than once every Calendar Quarter, except during any Facility outage. Operator shall consider all reasonable requests by North Carolina Power resulting from such monitoring and inspections. Operator shall cooperate in such operations and maintenance reviews and physical inspections of the Facility as may be reasonably requested by North Carolina Power. North Carolina Power’s reviews and inspections of the Facility and recommendations as a result thereof shall not be construed as endorsing the design thereof nor as any warranty of the safety, durability or reliability of the Facility.         7.5    Subject to the provisions of this Agreement, North Carolina Power can Dispatch the Facility, and make changes in Dispatch, but only to the extent consistent with the Design Limits. Subject to the provisions of this Agreement, Operator shall control and operate the Facility consistent with North Carolina Power’s Dispatch of the Facility; provided, however, that from time to time North Carolina Power shall not be obligated to accept or receive, and may require Operator to reduce or cease the delivery of, Net Electrical Output if:   (a)   North Carolina Power has declared a system Emergency;   (b)   Force Majeure prevents North Carolina Power from receiving the Net Electrical Output;   (c)   It is necessary to construct, install, maintain, repair, replace, remove, investigate, inspect or test any part of the Interconnection Facilities or any other affected part of North Carolina Power’s system; or   (d)   For any other reason consistent with Prudent Electrical Practices or Prudent Utility Practices. North Carolina Power will make a reasonable effort to notify and coordinate such reductions and cessations of delivery of Net Electrical Output to North Carolina Power with Operator. If North Carolina Power requires Operator to reduce or cease the delivery of Net Electrical Output in any of the circumstances described in clauses (b), (c) or (d) of this Section 7.5, North Carolina Power shall provide Operator with forty-eight (48) hours prior notice thereof, or such lesser notice as is practicable under the circumstances. Any reduction or cessation in the delivery of Net Electrical Output to North Carolina Power required of Operator hereunder shall be implemented and completed as soon as possible consistent with Prudent Utility Practices. 28 --------------------------------------------------------------------------------         7.6    When North Carolina Power Dispatches the Facility off-line pursuant to the provisions of Section 7.5, North Carolina Power will provide Operator with an estimate, to the nearest hour, of when the Facility can commence the delivery of Net Electrical Output. North Carolina Power will provide Operator with twenty (20) minutes notice of changes in operating levels to be achieved by the Facility, except that when the Facility is operated with Automatic Generation Control, North Carolina Power shall not be required to provide such notice.         7.7    Operator shall employ qualified personnel for operating and monitoring the Facility and for maintaining communications between the Facility and North Carolina Power and shall ensure that such personnel are on duty at all times, twenty-four (24) hours a Day and seven (7) Days a week. During Scheduled Outages, Maintenance Outages, Forced Outages or any event of Force Majeure, Operator shall only be required to ensure that personnel are on duty to respond to North Carolina Power requests.         7.8    The Parties recognize that North Carolina Power is a member of NERC and that, to ensure continuous and reliable electric service, North Carolina Power operates its system in accordance with the operating criteria and guidelines of NERC. If an Emergency is declared, North Carolina Power’s operations center will notify Operator’s personnel and, if requested by North Carolina Power, Operator’s personnel shall place the Net Electrical Output within the exclusive control of North Carolina Power’s operations center for the duration of such Emergency. Without limiting the generality of the foregoing, North Carolina Power’s operations center may require Operator’s personnel to raise or lower production of energy generated by the Facility to maintain safe and reliable load levels and voltages on North Carolina Power’s transmission and/or distribution system; provided, however, any changes in the level of the Net Electrical Output required of Operator hereunder shall be implemented in a manner consistent with safe operating procedures and within the Facility’s Design Limits. 29 --------------------------------------------------------------------------------         7.9    Operator shall cooperate with North Carolina Power in establishing Emergency plans, including without limitation, recovery from a local or widespread electrical blackout; voltage reduction in order to effect load curtailment; and other plans which may arise. The Operator shall make technical references available concerning start-up times, black-start capabilities and minimum load-carrying ability.         7.10    Operator shall, during an Emergency, supply such power as the Facility is able to generate within its Design Limits and North Carolina Power is able to receive. If Operator has a Scheduled Outage or any other outage, and such Scheduled Outage or other outage occurs or would occur coincident with an Emergency, Operator shall make all good faith efforts to reschedule the Scheduled Outage or other outage, or, if the Scheduled Outage or other outage has begun, to expedite the completion thereof.         7.11    Operator shall operate the Facility with its speed governor and voltage regulator in-service whenever the Facility is connected to or operated in parallel with the North Carolina Power system at the sole discretion of North Carolina Power. The Parties recognize that the Automatic Generation Control (AGC) equipment at the Facility is not operational as of the Effective Date. Within ninety (90) Days after written notice from North Carolina Power to do so, Operator shall make such AGC equipment operational and thereafter shall operate the Facility with such AGC equipment in-service, subject to Prudent Utility Practices, whenever the Facility is connected to or operated in parallel with the North Carolina Power system at the sole discretion of North Carolina Power. If North Carolina Power subsequently directs Operator to operate the Facility with such AGC equipment out-of-service, North Carolina Power may thereafter re-direct Operator to operate the Facility with such AGC equipment in-service, but only after giving Operator such advance notice as shall be reasonable under the circumstances. Operator shall have its protective relays recalibrated and operationally checked at least once every two years by a person qualified to perform such service and shall give North Carolina Power ten (10) Days prior notice of such recalibrations and checks. North Carolina Power may have a person present at such checks. North Carolina Power shall be notified by Operator of the results of those operational checks. 30 -------------------------------------------------------------------------------- ARTICLE 8: Interconnection         8.1    North Carolina Power had the Interconnection Facilities completed and capable of transmitting electricity to and from the Facility by August 1, 1993.         8.2    Operator shall be responsible for the design, construction, installation, maintenance and operation of the Facility and any auxiliaries and interconnection equipment at the Facility that interfaces with North Carolina Power’s equipment located at the Facility. Operator shall also be responsible for the delivery of the Facility’s Net Electrical Output to the Interconnection Point.         8.3    If it is determined in the interconnection study performed by North Carolina Power pursuant to Sections 8.6 below that the North Carolina Power owned metering facilities (which may include current and potential transformers and telemetering equipment) should be installed on Operator’s property, Operator shall be responsible for the installation of such metering facilities which would be provided to Operator by North Carolina Power. The installation of any North Carolina Power owned metering facilities on Operator’s side of the Interconnection Point shall be subject to North Carolina Power’s approval, which approval shall not be unreasonably withheld. 31 --------------------------------------------------------------------------------         8.4    North Carolina Power, shall be responsible for the design, construction, installation (except as provided in Section 8.3), maintenance and ownership of the Interconnection Facilities.         8.5    Not used.         8.6    North Carolina Power performed and provided to Operator an interconnection study. The interconnection study (i) determined the Interconnection Point and the time required to complete the Interconnection Facilities and (ii) designated the North Carolina Power operations center that coordinates the operation of the Facility.         8.7    Not used.         8.8    North Carolina Power constructed the Interconnection Facilities in accordance with the design determined in the interconnection study performed pursuant to Section 8.6.         8.9    North Carolina Power reserves the right to modify or expand its requirements for protective devices to conform with Prudent Electrical Practices.         8.10    Each Party shall notify the other in advance of any changes to its system that will affect the proper coordination of protective devices on the two systems. ARTICLE 9: Metering         9.1    North Carolina Power shall own and maintain all meters and metering devices (including remote terminal units) used to measure the delivery and receipt of Net Electrical Output, or Net Electrical Output and Delivered Capacity, for payment purposes. Nothing in this Agreement shall prevent Operator from installing meters and metering devices for backup purposes. 32 --------------------------------------------------------------------------------         9.2    Operator shall provide at its expense:   (a)   For the purpose of telemetering, a telecommunication circuit to the operations center designated by North Carolina Power.   (b)   A voice telephone extension for the purpose of accessing North Carolina Power’s dial-up metering equipment and for communicating with the designated North Carolina Power operations center.   (c)   An extension of North Carolina Power’s System Operations Center’s PBX system in the control room of the Facility.   (d)   Equipment to transmit and receive telecopies for the purpose of administering this Agreement. Items provided by Operator in accordance with this Section 9.2 shall be subject to the approval of North Carolina Power, which approval shall not unreasonably be withheld.         9.3    All meters and metering equipment used to determine the Net Electrical Output, or Net Electrical Output and Delivered Capacity, delivered to North Carolina Power shall be sealed, and the seals broken only by North Carolina Power personnel when the meters are to be read, inspected, tested, or adjusted. North Carolina Power shall give Operator two (2) weeks prior written notice whenever North Carolina Power is going to inspect, test or adjust meters, and Operator shall have the right to be present.         9.4    On a regular schedule and, in addition, upon two (2) weeks prior written notice by Operator, North Carolina Power will test the meter(s) in accordance with the provisions for meter testing in North Carolina Power’s approved Terms and Conditions for Supplying Electricity as filed with the NCUC at the time the test is performed. Operator may have a representative present during any metering inspection, test, or adjustment. When, as a result of such a test, a meter is found to be no more than two (2) percent fast or slow because of incorrect calibration or tampering, no adjustment will be made in the amount paid to Operator for Net Electrical Output, or Net Electrical Output and Delivered Capacity, delivered to North Carolina Power. If the meter is found to be more than two (2) percent fast or slow, North Carolina Power will calculate the correct amount delivered to North Carolina Power for the actual period during which inaccurate measurements were made or, if the actual period cannot be determined to the mutual satisfaction of the Parties, for a period equal to one-half of the time elapsed since the most recent test, but in no case for a period in excess of twelve (12) months. The previous payments by North Carolina Power for this period shall be subtracted from the amount of payments that are calculated to have been owed under this Agreement. The difference shall be offset against or added to the next payment to either Party as appropriate under this Agreement or other agreements between the Parties. The percentage registration of a meter will be calculated by the “weighted average”of light load and full load, which is calculated by giving a value of one (1) to the light load and a value of four (4) to the full load. 33 --------------------------------------------------------------------------------         9.5    Whenever it is found that, for any reason other than incorrect calibration or tampering, the metering apparatus has not registered the true amount of electricity which has been delivered by Operator to North Carolina Power, the electricity delivered during the entire period of incorrect registration shall be estimated, and the amount of electricity so estimated will be used in calculating the corrected amounts to be paid to Operator. The adjusted amount will be for the actual period during which inaccurate measurements were made or, if the actual period cannot be determined to the mutual satisfaction of the Parties, for a period equal to one-half of the time elapsed since the most recent test of the metering apparatus, but in no case for a period in excess of twelve (12) Months. Any overpayments or underpayments by North Carolina Power for Net Electrical Output, or Net Electrical Output and Delivered Capacity, delivered by Operator to North Carolina Power shall be corrected in the manner described in Section 9.4. 34 -------------------------------------------------------------------------------- ARTICLE 10: Compensation. Payment, and Billings         10.1    The Operator shall be compensated for the Net Electrical Output of the Facility on a per kWh basis at a rate equal to the Energy Purchase Price. The Energy Purchase Price is composed of the Fuel Compensation Price, specified in Sections 10.2 through 10.7 below, and the O&M Price specified in Section 10.14.         10.2    The Base Fuel Compensation Price, BFCP, for Net Electrical Output received from the Facility shall be 0.280 cents/kWh, effective October 1, 2000. The Base Fuel Compensation Price shall be subject to adjustment only as specified herein.         10.3    For the purpose of this Section, the following terms, whether in the singular or in the plural, shall have the meaning stated below:   (a)   Base Index — The GDP Implicit Price Deflator Index for the 2nd Quarter of 2000 as first published by the US Department of Commerce equal to 106.8. (Base year 1996 = 100)   (b)   Reference Index — The GDP Implicit Price Deflator Index first published for the 2nd Calendar Quarter prior to the Quarter for which the Fuel Compensation Price is being determined. Should the index specified herein be discontinued, an index specified by the appropriate government agency as the replacement index, if any, shall be used. If no replacement index is specified, a new index which most accurately reflects changes for the applicable cost component shall be substituted by agreement of the Parties. If the basis of the calculation of the index specified herein is substantially modified, the index as modified may continue to be used or another index may be substituted by agreement of the Parties. A change in the base year reporting basis, minor changes in weighting, and minor changes in benchmarks shall not be construed as substantial modification to the index, and the affected values shall be established in accordance with the instructions issued by the appropriate government agency. 35 --------------------------------------------------------------------------------         10.4    At least two (2) weeks prior to the beginning of each Calendar Quarter, the Fuel Compensation Price that will be effective during that Calendar Quarter shall be calculated as follows: Fuel Compensation Price = Reference Index X BFCP ----------------- Base Index         10.5    Not used.         10.6    Operator may, with at least two (2) weeks prior written notice, specify, revise, or revoke a discount to the Fuel Compensation Price to be used in the following Calendar Month. This discount shall then be applied against the Fuel Compensation Price as calculated herein, and the resultant price will be used in lieu of the Fuel Compensation Price for the purposes of establishing the Energy Purchase Price used for payments. When no such specification, revision or revocation is made, the undiscounted Fuel Compensation Price shall be used for said purposes. This discount will be effective, in the form specified in the Operator’s notice, until Operator provides further notice as specified in this Section 10.6, except, however, that such discount shall be effective for at least one Calendar Month. The resultant discounted Fuel Compensation Price shall not exceed the undiscounted Fuel Compensation Price calculated in accordance with this Article 10.         10.7    North Carolina Power agrees to pay for Net Electrical Output delivered prior to the Commercial Operations Date at the rate set forth in this Article 10.         10.8    Not used. 36 --------------------------------------------------------------------------------         10.9    Not used.         10.10    Not used.         10.11    Not used         10.12    Not used         10.13    Not used         10.14    North Carolina Power shall also pay Operator, on a per kWh basis, a variable operation and maintenance adjustment. This O&M Price shall be 0.240 cents/kWh in 2000 dollars and shall be increased or decreased, as appropriate, on April 1, 2001 and on each April 1 thereafter by the percentage change in the Gross Domestic Product Implicit Price Deflator Index first published for the previous Calendar Year as specified by US Department of Commerce, or such other organization as the Parties may mutually agree.         10.15    North Carolina Power shall pay Operator for Delivered Capacity a Capacity Purchase Payment plus any Capacity Purchase Payment Adjustment, as follows:   (a)   The Capacity Purchase Payment shall be payable monthly and shall be the product of the applicable (i) Delivered Capacity (expressed in kWh) and (ii) Capacity Unit Price; provided that, for each of the Years 2004, 2009, 2014 and 2019 the term “Capacity Purchase Payment”shall also include the additional payments provided in Section 10.15(c) for such Year. Notwithstanding the foregoing provisions, North Carolina Power shall not be obligated in any Year to pay Capacity Purchase Payments that, in the aggregate, exceed the Maximum Annual Capacity Payment for such Year, except for Capacity Purchase Payment Adjustments as hereafter provided.   (b)   Notwithstanding the foregoing provisions, and in order to determine Capacity Purchase Payment Adjustments and changes in the Tracking Account:   (i)      If the Actual Capacity Factor for any Year is less than the Average Capacity Factor, the difference obtained by subtracting (A) the aggregate Capacity Purchase Payments for such Year from (B) the Maximum Annual Capacity Payment for such Year, shall be subtracted from the Tracking Account;   (ii)      If the Actual Capacity Factor for any Year is greater than the Average Capacity Factor, the difference obtained by subtracting (A) the Maximum Annual Capacity Payment for such Year from (B) the sum of (y) the product of the applicable Delivered Capacity (expressed in kWh) and Capacity Unit Price, and (z) the aggregate additional payments provided for in Section 10.15(c), for such Year, shall be added to the Tracking Account; 37 --------------------------------------------------------------------------------   (iii)      If the Actual Capacity Factor for any Year is less than the Average Capacity Factor and, prior to subtracting from the Tracking Account with respect thereto as provided in Section 10.15(b)(i), there is a net positive balance in the Tracking Account, North Carolina Power shall pay Operator a Capacity Purchase Payment Adjustment equal to the lesser of (A) such net positive balance, or (B) the amount to be subtracted as provided in Section 10.15(b)(i). The amount of any such Capacity Purchase Payment Adjustment shall be paid by North Carolina Power prior to the twenty-fifth (25th) Day following the end of such Year.   (iv)      If the Actual Capacity Factor for any Year is greater than the Average Capacity Factor and, prior to adding to the Tracking Account with respect thereto as provided in Section 10.15(b)(ii), there is a net negative balance in the Tracking Account, North Carolina Power shall pay Operator a Capacity Purchase Payment Adjustment equal to the lesser of (A) the absolute value of such net negative balance, or (B) the amount to be added as provided in Section 10.15(b)(ii), but,     (x)   for any such Year occurring prior to 2014, such Capacity Purchase Payment Adjustment, when added to the aggregate Capacity Purchase Payments for such Year, shall not exceed 104% of the Maximum Annual Capacity Payment for such Year;       (y)   for 2014, such Capacity Purchase Payment Adjustment, when added to the aggregate Capacity Purchase Payments for such Year, shall not exceed 105.19% of the Maximum Annual Capacity Payment for such Year; and       (z)   for any such Year occurring after 2014, such Capacity Purchase Payment Adjustment, when added to the aggregate Capacity Purchase Payments for such Year, shall not exceed 106% of the Maximum Annual Capacity Payment for such Year.     The amount of any such Capacity Purchase Payment Adjustment shall be paid by North Carolina Power prior to the twenty-fifth (25th) Day following the end of such Year.   (v)      Notwithstanding the provisions of Section 10.15(b)(ii), if, (A) there is a net negative balance in the Tracking Account as of the beginning of any Year, (B) the Actual Capacity Factor is greater than the Average Capacity Factor for such Year, and (C) but for the applicable provisions of Section 10.15(e) and clause (x), (y) or (z) of Section 10.15(b)(iv), the Capacity Purchase Price Adjustment, together with the aggregate Capacity Purchase Payments for such Year, would exceed the applicable limitation provided therein, the excess of the sum of the aggregate Capacity Purchase Payments and the amount that otherwise would be added to the Tracking Account pursuant to Section 10.15(b)(ii) for such Year over: 38 --------------------------------------------------------------------------------     (x)   104% of the Maximum Annual Capacity Payment for any such Year occurring prior to 2014;     (y)   105.19% of the Maximum Annual Capacity Payment for the Year 2014;     (z)   106% of the Maximum Annual Capacity Payment for any such Year occurring after 2014;   shall not be included in the amount added to the Tracking Account with respect to such Year, but shall be carried over and added to the Tracking Account for the following Year, and used in the calculation of a Capacity Purchase Payment Adjustment for such following Year, as follows:     (1)   If the Actual Capacity Factor is less than the Average Capacity Factor for such following Year,       first, the difference described in Section 10.15(b)(i) with respect to such following Year shall be subtracted from the negative Tracking Account balance as of the beginning of such following Year,       second, North Carolina Power shall pay Operator a Capacity Purchase Payment Adjustment equal to the lesser of (A) the absolute value of the net negative balance in the Tracking Account at the end of such following Year (after subtracting such difference), or (B) such carried over amount, and       third, such carried over amount shall then be added to the Tracking Account; or     (2)   If the Actual Capacity Factor is greater than the Average Capacity Factor for such following Year,       first, the difference described in Section 10.15(b)(ii) with respect to such following Year shall be added to such carried over amount,       second, North Carolina Power shall pay Operator a Capacity Purchase Payment Adjustment equal to the lesser of (A) the absolute value of the negative balance in the Tracking Account, or (B) the sum of such carried over amount and such difference, and       third, the sum of such carried over amount and such difference shall then be added to the Tracking Account; or 39 --------------------------------------------------------------------------------     (3)   If the Actual Capacity Factor equals the Average Capacity Factor for such following Year,       first, North Carolina Power shall pay Operator a Capacity Purchase Payment Adjustment equal to the lesser of (A) the absolute value of the net negative balance in the Tracking Account, or (B) such carried over amount, and       second, such carried over amount shall then be added to the Tracking Account.   The amount of any such Capacity Purchase Payment Adjustment shall be paid by North Carolina Power prior to the twenty-fifth (25th) Day following the end of such following Year and shall be subject to the applicable limitations set forth in Section 10.15(b)(iv)(x), (y) or (z).     (vi)   Notwithstanding any contrary provisions of this Section 10.15:     (x)   In lieu of any Capacity Purchase Payment or Capacity Purchase Payment Adjustment with respect to all or any portion of the Year 2000, from and after the Effective Date through December 31, 2000, North Carolina Power shall make monthly capacity payments to Operator as provided in Section 10.17 each in the amount of $6,523,726.00 (as appropriately prorated for any partial Month).     (y)   If the Actual Capacity Factor for the Year 2000 is less than 89.000%, Operator shall refund to North Carolina Power as provided in Section 10.17 an amount equal to the product of (1) the difference obtained by subtracting such Actual Capacity Factor (expressed as a decimal rounded to 5 places (e.g., .88417)) from .89000, and (2) the aggregate capacity payments made by North Carolina Power to Operator with respect to the Year 2000, including, without limitation, the monthly capacity payments described in Section 10.15(b)(vi)(x) and any capacity payments made pursuant to the applicable provisions of the Second Amendment and Restatement with respect to the Year 2000, and the amount of such refund shall be subtracted from the Tracking Account as of January 1, 2001.     (z)   If the Actual Capacity Factor for the Year 2000 is greater than 89.064%, an amount shall be added to the Tracking Account as of January 1, 2001 equal to the product of (1) the difference obtained by subtracting .89064 from such Actual Capacity Factor (expressed as a decimal rounded to 5 places (e.g., .89417)), and (2) the aggregate capacity payments made by North Carolina Power to Operator with respect to the Year 2000, including, without limitation, the monthly capacity payments described in Section 10.15(b)(vi)(x) and any capacity payments made pursuant to the applicable provisions of the Second Amendment and Restatement with respect to the Year 2000. 40 --------------------------------------------------------------------------------   (vii)      Sample calculations pursuant to this Section 10.15 are attached as Exhibit A.     (c)   For each Month of the Year 2004, an amount calculated as follows shall be added to each monthly Capacity Purchase Payment payable with respect to such Month:       (applicable Capacity Unit Price (expressed in $/kWh)) * (166,100) * (8784) * ((1/12)(.03))       For each Month of the Years 2009, 2014, and 2019, an amount calculated as follows shall be added to each monthly Capacity Purchase Payment payable with respect to such Month (provided that the amount payable with respect to May, 2009 shall be calculated by prorating such Month in accordance with the different Capacity Unit Prices that are applicable thereto):       (applicable Capacity Unit Price (expressed in $/kWh)) * (166,100) * (8760) * ((1/12)(.03)).     (d)   Not used.     (e)   As provided in clauses (x), (y) and (z) of Section 10.15(b)(iv), in no case shall the aggregate of the Capacity Purchase Payments and any Capacity Purchase Payment Adjustment (1) for any Year before 2014 exceed 104% of the Maximum Annual Capacity Payment for such Year, (2) for 2014 exceed 105.19% of the Maximum Annual Capacity Payment for 2014, or (3) for any Year after 2014 exceed 106% of the Maximum Annual Capacity Payment for such Year, as the case may be.         10.16    Operator shall pay North Carolina Power an amount reflecting all reasonable costs incurred by North Carolina Power for meter reading and billing. The monthly meter reading and billing charge per meter shall equal the basic customer charge in Schedule 6 — Large General Service. 41 --------------------------------------------------------------------------------         10.17    Meters shall be read, and bills rendered, according to the meter reading and billing schedule established by North Carolina Power except that not more than forty-five (45) Days shall pass between readings. Payment for the Net Electrical Output, or Net Electrical Output and Delivered Capacity, delivered to North Carolina Power during the billing period shall be made on the third (3rd) Business Day of the second (2nd) Month after the Month that such Net Electrical Output and Delivered Capacity are delivered; provided that, if such third (3rd) Business Day is a holiday for North Carolina Power, payment will be made on the next Business Day. Interest shall accrue on the outstanding payments due Operator commencing on the Day after such payments are required to be made as aforesaid. However, any amounts due North Carolina Power arising out of this Agreement or from the Facility’s purchase of electricity from North Carolina Power may, at the sole option of North Carolina Power, be offset against the amounts due Operator, and, in such event, the net result shall be paid to the appropriate party by the date specified in the second (2nd) sentence of this Section 10.17. Payment to North Carolina Power shall be made by check to the following address:   Virginia Power P.O. Box 26019 Richmond, Virginia 23260-6019 Payment to Operator shall be made by wire transfer to the following account:   Bank of New York ABA 021000018 Credit CSFB — Westmoreland LG&E ROVA I & II Account Number 8900410639 For further credit to Westmoreland-LG&E Roanoke Valley I & II Project Control Acct Account Number 331309-02 Either Party may, by prior written notice to the other, change the address to which such payments are to be sent. 42 -------------------------------------------------------------------------------- ARTICLE 11: Capacity Ratings         11.1    Notwithstanding any contrary provisions of this Agreement, the Maximum Capacity — Summer shall be deemed to be 165,000 kW and the Maximum Capacity – Winter shall be deemed to be 167,200 kW for all purposes hereunder.         11.2    Not used.         11.3    Not used.         11.4    Not used.         11.5    Not used.         11.6    Not used.         11.7    Not used.         11.8    Not used.         11.9    Not used. ARTICLE 12: Insurance         12.1    Operator shall obtain and maintain the following policies of insurance during the Term of this Agreement:   (a)   Worker’s Compensation insurance which complies with the laws of the State of North Carolina and Employers’Liability Insurance with a limit of $1,000,000; and   (b)   Comprehensive or Commercial General Liability insurance with bodily injury and property damage combined single limit of $5,000,000 per occurrence. Such insurance shall include, but not necessarily be limited to, specific coverage for contractual liability encompassing the indemnification provisions in Article 13, broad form property damage liability, personal injury liability, explosion and collapse hazard coverage, products/completed operations liability, and, where applicable, watercraft protection and indemnity liability; and   (c)   Comprehensive Automobile Liability insurance with bodily Injury and property damage combined single limit of $5,000,000 per occurrence covering vehicles owned, hired or non-owned; and 43 --------------------------------------------------------------------------------   (d)   Excess Umbrella Liability Insurance with a single limit of at least $5,000,000 per occurrence in excess of the limits of insurance provided in subparagraphs (a), (b), and (c) above.         12.2    The amounts of insurance required in Section 12.1 above may be satisfied by the Operator purchasing primary coverage in the amounts specified or by buying a separate excess Umbrella Liability policy together with lower limit primary underlying coverage. The structure of the coverage is the Operator’s option, so long as the total amount of insurance meets North Carolina Power’s requirements.         12.3    The coverage requested in Section 12.1(b) above and any Umbrella or Excess coverage should be “occurrence” form policies. In the event Operator has “claims-made” form coverage, Operator must obtain prior approval of all “claims made” policies from North Carolina Power.         12.4    Operator shall cause its insurers to amend its Comprehensive or Commercial General Liability and, if applicable, Umbrella or Excess Liability policies with the following endorsement items (a) through (e); and to amend Operator’s Workers’ Compensation and Auto Liability policies with endorsement item (e):   (a)   North Carolina Power, its directors, officers, and employees are additional insureds under this Policy for their liability arising out of Operator’s operation and not for their independent acts; and   (b)   This insurance is primary with respect to the interest of North Carolina Power, its directors, officers, and employees and any other insurance maintained by them is excess and not contributory with this insurance; and   (c)   The following Cross Liability clause is made a part of the policy: “In the event of claims being made by reason of (i) personal and/or bodily injuries suffered by any employee or employees of one insured hereunder for which another insured hereunder is or may be liable, or (ii) damage to property belonging to any insured hereunder for which another insured is or may be liable, then this policy shall cover such insured against whom a claim is made or may be made in the same manner as if separate policies have been issued to each insured hereunder, except with respect to the limits of insurance”; and 44 --------------------------------------------------------------------------------   (d)   Insurer hereby waives all rights of subrogation against North Carolina Power, its officers, directors and employees; and   (e)   Notwithstanding any provision of the policy, this policy may not be canceled, non-renewed or materially changed by the insurer without giving thirty (30) Days prior written notice to North Carolina Power. All other terms and conditions of the policy remain unchanged.         12.5    Operator shall cause its insurers or agents to provide North Carolina Power with certificates of insurance evidencing the policies and endorsements listed above. Failure of North Carolina Power to obtain certificates of insurance does not relieve Operator of the insurance requirements set forth herein. Failure to obtain the insurance coverage required by this Article 12 shall in no way relieve or limit Operator’s obligations and liabilities under other provisions of this Agreement. ARTICLE 13: Liability, Noncompliance and Guarantees         13.1    Neither Party shall hold the other Party (including its corporate affiliates, parent, subsidiaries, directors, officers, employees and agents) liable for any claims, losses, costs and expenses of any kind or character (including, without limitation, loss of earnings and attorneys’fees) for damage to property of North Carolina Power or Operator in any way occurring incident to, arising out of, or in connection with a Party’s performance under this Agreement, except as provided in Section 13.2 below.         13.2    Operator and North Carolina Power agree to indemnify and hold each other harmless from and against all claims, demands, losses, liabilities and expenses (including reasonable attorneys’ fees) for personal injury or death to persons and damage to each other’s property or facilities or the property of any other person or corporation to the extent arising out of, resulting from or caused by their negligent or intentional acts, errors, or omissions. 45 --------------------------------------------------------------------------------         13.3    Not used.         13.4    Commencing with the Commercial Operations Date, Operator shall provide and maintain, at Operator’s sole expense, security for Operator’s performance under this Agreement as described in Section 13.5 below, in an amount equal to $4,500,000. Such security shall be maintained throughout the Term of this Agreement.         13.5    Security for compliance with Section 13.4 above shall consist of one or more of the following:   (a)   An unconditional and irrevocable direct pay letter of credit issued by a bank acceptable to North Carolina Power in a form and with substance acceptable to North Carolina Power,   (b)   A payment or performance bond issued by a company acceptable to North Carolina Power for payment to North Carolina Power in the event of a material breach by Operator in a form and with substance acceptable to North Carolina Power,   (c)   A corporate guarantee which North Carolina Power, at its discretion, deems to be equivalent in quality to the security detailed in (a) and (b) above in a form and with substance acceptable to North Carolina Power.         13.6      (a)   North Carolina Power shall have an exclusive right to purchase any Transfer Interest or Equity Interest (as hereinafter defined) on the terms and conditions set forth herein; provided, however, Operator may grant the steam buyer a right of first refusal to purchase any Transfer Interest, which right shall be prior to North Carolina Power’s right of first refusal. Any such right of first refusal granted to the steam buyer shall require the steam buyer to continue operating the Facility in accordance with the provisions of this Agreement. North Carolina Power’s rights, as specified herein with respect to transfer of an Equity Interest, shall not apply to transfers to an entity which is directly or indirectly controlled by, in control of, or under common control with the Operator.   (b)   If Operator or any of its subsidiaries, affiliates or other related entities ever desire to dispose of its or their right, title, or Interest in the Facility, or any part thereof (hereinafter referred to as a “Transfer Interest”), other than a transfer solely as a financial device (e.g. a sale and leaseback of the Facility or the granting of a mortgage as security interest in the Facility), or if Operator receives a bona fide offer to purchase or lease the Facility, or any part thereof (hereinafter also referred to as a “Transfer Interest”), which offer Operator is prepared to accept, or if any interest in Operator, (hereinafter referred to as an “Equity Interest”) is to be transferred or sold, Operator shall give notice thereof in writing to North Carolina Power (the “Notice”). The Notice shall (i) specify the terms under which such Transfer Interest or Equity Interest is to be transferred or disposed of, including the purchase price of the Transfer Interest or Equity Interest, and (ii) include a copy of the acceptable offer, if any, received by Operator, as the case may be. 46 --------------------------------------------------------------------------------   (c)   If the steam buyer has been granted a right of first refusal as set forth above, the Operator shall offer the Transfer Interest to the steam buyer in accordance with the terms of the steam buyer’s right of first refusal. If the steam buyer waives its right with respect to the Transfer Interest or the steam buyer does not have a right of first refusal, Operator shall offer such Transfer Interest to North Carolina Power on the terms set forth in the Notice.   (d)   For a period of one hundred twenty (120) Days after receipt by North Carolina Power of the Notice, or ninety (90) Days after North Carolina Power receives Notice from the Operator that the steam buyer has waived its right of first refusal, whichever is longer; North Carolina Power shall have the right to exercise its right to purchase the Transfer Interest or Equity Interest by giving written notice thereof to Operator.   (e)   In the event North Carolina Power elects not to exercise its right to purchase pursuant to the foregoing provisions then for a period of one year from the date North Carolina Power notifies Operator of such election, Operator shall be free to transfer such Transfer Interest to a Transferee, or such Equity Interest, at a price no lower than and on terms. not materially more favorable than those offered in the Notice. For the purpose of this Section 13.6 and Article 17, Transferee shall mean a person who either is an experienced power plant operator, legally permitted to operate the Facility, or shall have engaged the services of another person who is an experienced power plant operator legally permitted to operate the Facility. Operator shall ensure that by the terms of such transfer, North Carolina Power’s right of first refusal, shall continue on the terms and conditions contained herein with respect to any subsequent transfer. Any sale of any Transfer Interest or Equity Interest shall not extinguish North Carolina Power’s right to purchase with respect to any portion of the Facility or the Operator, as the case may be, not transferred pursuant to such sale. Any lease of any Transfer Interest shall not extinguish North Carolina Power’s right to purchase with respect to any extensions of such lease or with respect to any other leases, sales or other dispositions of any Transfer Interest. Notwithstanding any other provisions, Operator agrees (i) that it will ensure that the terms of any transfer (other than a transfer to North Carolina Power) of all or a portion of its interest in the Facility or the Operator provides for the continued operation of the Facility in accordance with and under the terms of this Agreement; and (ii) any transfer (other than a transfer to North Carolina Power) which results in a transfer of management control over the operation of the Facility shall require the transferee’s acceptance of an assignment of the transferor’s obligations under this Agreement with respect to the operation of the Facility pursuant to Section 17.1 of this Agreement. 47 --------------------------------------------------------------------------------   (f)   If North Carolina Power elects to exercise its right to purchase with respect to the Transfer Interest or Equity Interest, the Parties shall endeavor to fully consummate the transfer within 120 Days after North Carolina Power exercises its right to purchase.   (g)   Notwithstanding the foregoing, in the event of a transfer of an Equity Interest, North Carolina Power agrees not to exercise its right to purchase if, but only if, the transfer of such interest shall be made to a party reasonably acceptable to, and approved by, North Carolina Power.   (h)   Operator may not consolidate with or be a Party to a merger with any other entity; provided, however, that:     (1)   Any subsidiary of Operator may merge or consolidate with or into Operator or any wholly-owned subsidiary of Operator so long as, in any such merger or consolidation, Operator shall be the surviving or continuing entity;     (2)   Operator may consolidate or merge with any other entity if (i) the successor formed by or resulting from such consolidation or merger shall be a solvent entity organized under the laws of the United States of America or a state thereof or the District of Columbia, (ii) after giving effect to such merger or consolidation, no default under this Agreement shall exist, (iii) such successor or transferee entity shall expressly assume in writing the due and punctual performance and observance of all the terms, covenants, agreements and conditions of this Agreement and shall furnish North Carolina Power an opinion of independent counsel to the surviving entity to the effect that each of the entities participating in such consolidation or merger or transfer of assets was, at the time thereof, duly created, validly existing, in good standing and otherwise in compliance with the applicable provisions of the corporation, partnership, trust or limited liability company laws of its respective state of formation, that the surviving entity is duly formed, validly existing and in good standing, that the surviving entity has all requisite power and authority to assume and perform this Agreement, that such assumption and performance have been duly authorized by all necessary corporate, partnership, trust or limited liability company action, as the case may be, on the part of the surviving entity and that compliance by the surviving entity with the terms of this Agreement will not conflict with, or result in any breach of any of the provisions of, or constitute a default under any agreement to which it is a party, or result in the creation or imposition of a lien upon the property of the surviving entity. 48 --------------------------------------------------------------------------------   (i)   Each Party to this Agreement covenants and agrees to sign, execute and deliver, or cause to be signed, executed and delivered, and to do or make, or cause to be done or made, upon the written request of the other Party, any and all agreements, instruments, papers, deeds, acts or things, supplemental, confirmatory or otherwise, as may be reasonably required by other Party for the purpose of or in connection with North Carolina Power’s right to purchase established hereby.   (j)   North Carolina Power’s right to purchase under this Section 13.6 shall not apply to:     (1)   any transfer among the general partners named in this Agreement;     (2)   any transfer from one of the general partners of Operator to a limited partnership, the sole general partner of which is such general partner,     (3)   the admission or substitution of limited partners to a partnership.         13.7    Not used.         13.8    The Parties agree that the provisions of Article 10 concerning the Energy Purchase Price and the Capacity Purchase Payment, the calculation thereof and any resulting decrease therein, constitute North Carolina Power’s sole and exclusive remedies with respect to any Scheduled Outage, Maintenance Outage, Forced Outage or any other failure not constituting a breach of Operator’s obligations under this Agreement to produce, make available or deliver electric energy or capacity to North Carolina Power, and that they fairly and reasonably compensate North Carolina Power for any harm or loss that North Carolina Power is likely to suffer in connection with any such failure by Operator. It is further understood, and agreed that such provisions are in lieu of any actual damages for such occurrences. North Carolina Power hereby waives any and all other damages and remedies for or with respect to such occurrences. The Parties hereby waive any defense challenging the validity of any such provisions on the grounds that they are void as penalties or are not reasonably related to actual damages. It is further understood and agreed that, should Operator broach its obligations under this Agreement, North Carolina Power has not waived its right to seek any and all damages, in equity or at law, against Operator for its breach. 49 -------------------------------------------------------------------------------- ARTICLE 14: Force Majeure         14.1    Neither Party shall be responsible or liable for or deemed in breach of this Agreement because of any delay in the performance of their respective obligations hereunder due solely to circumstances beyond the reasonable control of the Party experiencing such delay, including but not limited to acts of God; unusually severe weather conditions; strikes or other labor difficulties; war; riots; requirements, actions or failures to act on the part of governmental authorities preventing performance; inability despite due diligence to obtain required licenses; or Certificate of Convenience and Necessity; accident; fire; damage to or breakdown of necessary facilities; or transportation delays or accidents (such causes hereinafter called “Force Majeure”); provided that:   (a)   The non-performing Party gives the other Party within forty-eight (48) hours written notice describing the particulars of the occurrence;   (b)   The suspension of performance is of no greater scope and of no longer duration than is required by the Force Majeure;   (c)   The non-performing Party uses its best efforts to remedy its inability to perform;   (d)   When the non-performing Party is able to resume performance of its obligations under this Agreement, that Party shall give the other Party written notice to that effect; and   (e)   The Force Majeure was not caused by or connected with any negligent or intentional acts, errors, or omissions, or failure to comply with any law, rule, regulation, order or ordinance or any breach or default of this Agreement.         14.2    The term Force Majeure does not include changes in market conditions or governmental action to the extent that they affect the cost or availability of Operator’s supply of fuel or any alternate supplies of fuel or the demand for Operator’s products or products of the steam host. 50 --------------------------------------------------------------------------------         14.3    Not used.         14.4    Except as otherwise provided in Article 5, in no event will any condition of Force Majeure extend this Agreement beyond its stated Term. If any condition of Force Majeure delays a Party’s performance for a time period greater than thirty six (36) Months, the Party not delayed by such Force Majeure may terminate this Agreement, without further obligation, or extend such period at its sole discretion if the Party delayed by such Force Majeure is exercising due diligence in its efforts to cure the condition of Force Majeure. ARTICLE 15: Taxes and Claims for Labor and Materials         15.1    All present or future federal, state, municipal or other lawful taxes applicable by reason of the sale of Net Electrical Output or Delivered Capacity shall be paid by Operator.         15.2    Operator will promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon it or upon or in respect of all or any part of its property or business, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials which, if unpaid, might become a lien or charge upon any of its property; provided, however, that Operator shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if:   (a)   The validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any property of Operator or any material interference with the use thereof by Operator and   (b)   Operator shall sot aside on its books reserves doomed by it to be adequate with respect thereto. 51 -------------------------------------------------------------------------------- ARTICLE 16: Choice of Law         16.1    This Agreement shall be interpreted, construed and governed by the laws of the Commonwealth of Virginia. The Parties hereby submit to the jurisdiction of courts located in, and venue is hereby stipulated to be in, Richmond, Virginia. ARTICLE 17: Miscellaneous Provisions         17.1    Neither Party shall assign this Agreement or any portion thereof without the prior written consent of the other Party which consent shall not be unreasonably withheld; provided, however, such consent shall not be required prior to an assignment to a parent, subsidiary or affiliated entity; but provided, further that:   (a)   Any assignee shall be a Transferee as defined in Section 13.6 of this Agreement and shall expressly assume assignor’s obligations hereunder;   (b)   No such assignment shall impair any security given by Operator hereunder; and   (c)   Unless expressly agreed by the other Party, no assignment, whether or not consented to, shall relieve the assignor of its obligations hereunder in the event its assignee fails to perform. North Carolina Power shall consent to the assignment by Operator of its rights herein as security for financing obtained for the Facility and shall execute documents reasonably satisfactory to North Carolina Power requested by Operator to evidence such consent.         17.2    This Agreement, including the appendices hereto, can be amended only by agreement between the Parties in writing.         17.3    The failure of either Party to insist in any one or more instances upon strict performance of any provisions of this Agreement, or to take advantage of any of its rights hereunder, shall not be construed as a waiver of any such provisions or the relinquishment of any such right or any other right hereunder, which shall remain in full force and effect, 52 --------------------------------------------------------------------------------         17.4    The headings contained in this Agreement are used solely for convenience and do not constitute a part of the agreement between the Parties hereto, nor should they be used to aid in any manner in the construction of this Agreement.         17.5    This Agreement is intended solely for the benefit of the Parties hereto. Nothing in this Agreement shall be construed to create any duty to, or standard of care with reference to, or any liability to, any person not a Party to this Agreement.         17.6    This Agreement shall not be interpreted or construed to create an association; joint venture, or partnership between the Parties or to impose any partnership obligation or liability upon either Party. Neither Party shall have any right, power or authority to enter into any agreement or undertaking for, or act on behalf of, or to act as or be an agent or representative of, or to otherwise bind, the other Party.         17.7    Cancellation, expiration or earlier termination of this Agreement shall not relieve the Parties of obligations that, by their nature, should survive such cancellation, expiration or termination, including, without limitation, warranties, remedies, promises of indemnity and confidentiality.         17.8    Notwithstanding any contrary provisions hereof, the Second Amendment and Restatement shall remain in full force and effect until this Agreement is accepted for filing by the FERC and becomes effective under the Federal Power Act. ARTICLE 18: Statutory and Regulatory Changes         18.1    The Parties recognize and hereby agree that if any federal, state or municipal government or regulatory authority, including, without limitation, the SCC, should for any reason enter an order, modify its rules, or take any action whatsoever, having the effect of disallowing North Carolina Power the recovery from its customers of all or any portion of the payments for Delivered Capacity and Net Electrical Output hereunder in excess of the energy and capacity prices established (notwithstanding any limitations on the size of the Facility) by the SCC pursuant to 18 C.F.R. 292.304(c) (currently represented by Schedule 19 POWER PURCHASES FROM COGENERATION AND SMALL POWER PRODUCTION QUALIFYING FACILITIES) and in effect for the period of disallowance, hereinafter referred to as the Disallowance (except where such disallowance is due to North Carolina Power’s failure to seek recovery or comply with procedural requirements governing recovery of such costs), then: 53 --------------------------------------------------------------------------------   If the Disallowance occurs before the eighteenth anniversary of the Commercial Operations Date, North Carolina Power shall continue to make the payments specified in Article 10 through the eighteenth anniversary of the Commercial Operations Date. Payments for Delivered Capacity beginning on the eighteenth anniversary of the Commercial Operations Date shall not exceed the amount unaffected by the Disallowance. Further, North Carolina Power may, at its option, beginning on the eighteenth anniversary of the Commercial Operations Date withhold up to seventy-five (75) percent of the payments for Delivered Capacity after said eighteenth anniversary until the sooner of (i) the twentieth anniversary of the Commercial Operations Date or (ii) the entire amount of the Disallowance is repaid with Interest from the date each part of the Disallowance was paid to Operator. In the event that such withholding does not fully repay the Disallowance and accrued Interest by the twentieth anniversary of the Commercial Operations Date, the Operator shall pay the remainder to North Carolina Power within one hundred and twenty (120) Days after the twentieth anniversary of the Commercial Operations Date in a lump sum, or;   If the Disallowance occurs after the eighteenth anniversary of the Commercial Operations Date all future payments for Delivered Capacity shall not exceed the amount unaffected by the Disallowance. Further, the Operator shall repay the full amount of the Disallowance with Interest by the later of (i) one year from the date of such Disallowance or (ii) the twenty-first anniversary of the Commercial Operations Date. The Parties obligate themselves to all good faith efforts to establish, if practicable, an appeal and overruling of the Disallowance or a superseding order, approval of modified rules or tariffs, or other action so as to allow timely resumption of full, or failing that, adjusted payments hereunder. 54 -------------------------------------------------------------------------------- ARTICLE 19: Entirety         19.1    This Agreement is intended by the Parties as the final expression of their Agreement and is intended also as a complete and exclusive statement of the terms of their Agreement with respect to the Net Electrical Output and Delivered Capacity sold and purchased hereunder. All prior written or oral understandings, offers or other communications of every kind pertaining to the sale of Net Electrical Output and Delivered Capacity hereunder between the Parties or between Westmoreland-Hadson Partners and North Carolina Power are hereby abrogated and withdrawn.         IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed the ______ day of _________, 2000.   WESTMORELAND-LG&E PARTNERS, a Virginia general partnership by its GENERAL PARTNERS:   WESTMORELAND-ROANOKE VALLEY, L.P., a Delaware limited partnership, by WEI-ROANOKE VALLEY, INC., a Delaware corporation, its general partner Date:_______________ By: /s/ W. Michael Lepchitz Title: President   LG&E ROANOKE VALLEY, L.P., a California limited partnership, by LG&E POWER 16 INCORPORATED, a California corporation, its general partner 55 -------------------------------------------------------------------------------- Date:_______________ By: /s/ George W. Basinger Title: President and Chief Financial Officer   VIRGINIA ELECTRIC AND POWER COMPANY, a Virginia public service corporation operating in North Carolina as North Carolina Power Date:_______________ By: /s/ E. Paul Hilton Name: E. Paul Hilton Title: Senior Vice President-Bulk Sales 56 -------------------------------------------------------------------------------- EXHIBIT A EXAMPLES OF PAYMENTS FOR DELIVERED CAPACITY ASSUME: MAXIMUM CAPACITY — SUMMER = 165,000 kW MAXIMUM CAPACITY — WINTER = 167,200 kW FIXED CAPACITY COMPONENT = 3.185¢/kWh O&M CAPACITY COMPONENT = 2.160¢/kWh from 1/1 through 3/31; 2.203¢/kWh from 4/1 through 12/31 (reflecting GDPIPD adjustment as of 4/1 of + 2%) ANNUAL O&M CAPACITY COMPONENT = 2.192¢/kWh MAXIMUM CAPACITY UNIT PRICE = 5.377¢/kWh A MONTH HAS 720 HOURS A YEAR HAS 8,760 HOURS ALL EXAMPLES ASSUME DISPATCH OF THE FACILITY AT 100%, EXCEPT AS OTHERWISE NOTED IN ANY EXAMPLE, AND, IN ANY EVENT, DO NOT TAKE INTO ACCOUNT THE SPECIAL REQUIREMENTS FOR CALCULATING DELIVERED CAPACITY DURING RAMP-UP OR RAMP-DOWN PERIODS IN RESPONSE TO DISPATCH AS PROVIDED IN SECTION 1.13. ABBREVIATIONS:   ACF = ACTUAL CAPACITY FACTOR AO&MCC = ANNUAL O&M CAPACITY COMPONENT AVCF = AVERAGE CAPACITY FACTOR CPP = CAPACITY PURCHASE PAYMENT CPPA = CAPACITY PURCHASE PAYMENT ADJUSTMENT CUP = CAPACITY UNIT PRICE DC = DELIVERED CAPACITY FCC = FIXED CAPACITY COMPONENT FM = FORCE MAJEURE FO = FORCED OUTAGE GDPIPD = GROSS DOMESTIC PRODUCT IMPLICIT PRICE DEFLATOR MO = MAINTENANCE OUTAGE MACP = MAXIMUM ANNUAL CAPACITY PAYMENT MCS = MAXIMUM CAPACITY — SUMMER MCW = MAXIMUM CAPACITY — WINTER MCUP = MAXIMUM CAPACITY UNIT PRICE NCPF = NORTH CAROLINA POWER FAILURE TO RECEIVE NEO NEO = NET ELECTRICAL OUTPUT OMCC = O&M CAPACITY COMPONENT SO = SCHEDULED OUTAGE TA = TRACKING ACCOUNT 57 -------------------------------------------------------------------------------- MONTHLY CAPACITY PURCHASE PAYMENTS EXAMPLE NO. 1 — Average Capacity Factor = 88.000%. Monthly Capacity Purchase Payment for a Winter Period month (during which OMCC is 2.160¢/kWh) with no SO, MO, FO, FM, or NCPF and NEO equal to MCW in every hour.   CUP   [Section 1.3, 1.11, 1.23, & 1.37]     = (FCC + OMCC) / AVCF =(3.185¢/kWh + 2.160¢/kWh) / .88000 = 6.074¢/kWh   (DC)   [Section 1.13(a)]     = NEO = (720) * (MCW) = 120,384,000 kWh   CPP   [Section 10.15(a)(i) & (ii)]     = (DC)*(CUP) = (120,384,000) * (.06074) = $7,312,124.16 EXAMPLE NO. 2 — Average Capacity Factor = 88.000%. Monthly Capacity Purchase Payment for a Winter Period month (during which OMCC is 2.160¢/kWh) with no SO, MO, FO, FM, or NCPF and Facility operates at 50% of MCW in every hour.   (DC)   [Section 1.13(a)]     = NEO = (720) * (MCW) * (50%) = 60,192,000 kWh   CPP   [Section 10.15(a)(i) & (ii)]     = (DC) * (CUP) = (60,192,000) * (.06074) = $3,656,062.08 EXAMPLE NO. 3 — Average Capacity Factor = 88.000%. Monthly Capacity Purchase Payment for a Winter Period month (during which OMCC is 2.160¢/kWh) with either a SO, MO, FO, or FM, that reduces NEO to zero during such event for 50 hours, and no NCPF and NEO equal to MCW in every other hour. 58 --------------------------------------------------------------------------------   DC   [Section 1.13(a)]     = NEO = (720-50) * (MCW) = 112,024,000 kWh   CPP   [Section 10.15(a)(i) & (ii)]     = (DC) * (CUP) = (112,024,000) * (.06074) = $6,804,337.76 EXAMPLE NO. 4 — Average Capacity Factor = 88.000%. Monthly Capacity Purchase Payment for Winter Period month (during which OMCC is 2.160¢/kWh) with no SO, MO, FM, FO, or NCPF, NEO exceeds 101% of MCW in 50 Off Peak Hours and NEO equal to MCW in every other hour.   DC   [Section 1.13(a)]     = ((MCW) * (50) * (101%)) + ((MCW) * (720-50)) = 120,467,600 kWh   CPP   [Section 10.15(a)(i) & (ii)]     = (DC) * (CUP) = (120,467,600) * (.06074) = $7,317,202.02 EXAMPLE NO.5 — Average Capacity Factor = 88.000%. Monthly Capacity Purchase Payment for a Winter Period month during which (a) OMCC is 2.160¢/kWh, (b) an NCPF reduces NEO to zero for 50 hours, (c) the Facility is first in a zero generation SO, MO, FO, or FM when the NCPF occurs, (d) such SO, MO, FO, or FM lasts 20 hours during the NCPF and (e) NEO equal to MCW in every other hour.   DC   [Section 1.13(a) & (b)]     = ((50-20) * (MCW)) + ((MCW) * (720-50)) = 117,040,000 kWh   CPP   [Section 10.15(a)(i) & (ii)]     = (DC) * (CUP) = (116,204,000) * (.06074) = $7,109,009.60 59 -------------------------------------------------------------------------------- EXAMPLE NO. 6 — Average Capacity Factor = 88.000%. Monthly Capacity Purchase Payment for January, 2004 during which (a) OMCC is 2.160¢/kWh, (b) there is no SO, MO, FO, FM, or NCPF and (c) NEO equal to MCW in every hour.   (DC)   [Section 1.13(a)]     = NEO = (744) * (MCW) = 124,396,800 kWh   CPP   [Section 10.15(a)(i) & (ii) & 10.15(c)]     = ((DC)*(CUP)) + (Monthly Additional Payment under Section 10.15(c) = ((124,396,800) * (.06074)) + ((.06074) * (166,100) * (8784) * ((1/12)(.03))) = $7,555,861.63 + $221,552.55 = $7,777,414.18 END OF YEAR TRACKING ACCOUNT BALANCING AND CAPACITY PURCHASE PAYMENT ADJUSTMENTS EXAMPLE NO. 1 — Tracking Account has a negative $750,000 balance at start of a Year (that is not a leap year or a major maintenance outage year) [Section 1.47 & 10.15(b)]. AVCF equals 88.000%. The Facility produces constant NEO of 149,733 kW during each Winter Period hour and 147,762 kW during each Summer Period hour, yielding an ACF of 89.553%, i.e., DC / ((MCS * Hours in the Summer Period) + (MCW * Hours in the Winter Period)). [Section 1.1]   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Jan – Mar     = (3.185(cent)/kWh + 2.160(cent)/kWh) / .88000 = 6.074(cent)/kWh   CUP   [Section 1.3,1.11.1.23, & 1.37] Apr – Dec     = (3.185(cent)/kWh + 2.203(cent)/kWh) / .88000 = 6.123(cent)/kWh   MCUP   [Section 1.33. 1,23, & 1.2]     = FCC + AO&MCC = 3.185(cent)/kWh + 2.192(cent)/kWh = 5.377(cent)/kWh 60 --------------------------------------------------------------------------------   MACP allowed for the Year [Section 1.30 & 10.15(a)]     = ((MCW) * (Hours in the Winter Period) * (MCUP)) + ((MCS) * (Hours in the Summer Period) * (MCUP)) = ((167200) * (4368) * (.05377)) + ((165,000) * (4392) * (.05377)) = $39,269,822.59 + $38,966,043.60 = $78,235,866.19   Total Capacity Purchase Payments made during the Year are capped at MACP or $78,235,866.19 [Section 1.30 & 10.15(a)]   Product of the applicable Delivered Capacity and Capacity Unit Price for the Year     = ((NEC, from 1/1 through 3/31) * (applicable CUP)) + ((NEO from 4/1 through 9/30) * (applicable CUP)) + ((NEO from 10/1 through 12/31) * (applicable CUP)) = ((149,733) * (90) * (24) * (.06074)) + ((147,762) * (183) * (24) * (.06123)) + ((149,733) * (92) * (24) * (.06123)) = $79,624,484.94   CPPA   [Section 1.10 & 10.15(b)(iv)]     = Least of (a) 4% of MACP, (b) amount by which product of DC and CUP for the year exceeds the MACP or (c) absolute value of negative Tracking Account balance = Least of (a) (MACP)*(.04), (b) $1,388,618.75 or (c) $750,000 = Least of (a) ($78,235,866.19)*(.04), (b) $1,388,618.75 or (c) $750,000 = Least of (a) $3,129,434.65, (b) $1,388,618.75 or (c) $750,000 = $750,000   Tracking Account balance at the end of the Year [Section 10.15(b)(ii)]     = (negative Tracking Account balance at the beginning of the Year) + ((Product of DC and CUP for the Year) - (MACP)) = (negative $750,000) + (($79,624,484.94) - ($78,235,866.19)) = (negative $750,000) + ($1,388,618.75) = positive $638,618.75 61 -------------------------------------------------------------------------------- EXAMPLE NO. 2 — Tracking Account has a positive $750,000 balance at start of a Year (that is not a leap year or a major maintenance outage year) [Section 1.47 & 10.15(b)]. AVCF equals 88.000%. The Facility produces constant NEO of 149,733 kW during each Winter Period hour and 147,762 kW during each Summer Period hour, yielding an ACF of 89.553%, i.e., DC / ((MCS * Hours in the Summer Period) + (MCW * Hours In the Winter Period)). [Section 1.1]   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Jan – Mar     = (3.185(cent)/kWh + 2.160(cent)/kWh) / .88000 = 6.074(cent)/kWh   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Apr – Dec     = (3.185(cent)/kWh + 2.203(cent)/kWh) / .88000 = 6.123(cent)/kWh   MCUP   [Section 1.33, 1.23, & 1.2]     = FCC +AO&MCC = 3.185(cent)/kWh + 2.192(cent)/kWh = 5.377(cent)/kWh   MACP  allowed for the Year [Section 1.30 & 10.15(a)]     = ((MCW) * (Hours in the Winter Period) * (MCUP)) + ((MCS) * (Hours in the Summer Period) * (MCUP)) = ((167200) * (4368) * (.05377)) + ((165,000) * (4392) * (.05377)) = $39,269,822.59 + $38,966,043.60 = $78,235,866.19 Total Capacity Purchase Payments made during the Year are capped at MACP or $78,235,866.19 [Section 1.30 & 10.15(a)] Product of the applicable Delivered Capacity and Capacity Unit Price for the Year     = ((NEC from 1/1 through 3/31) * (applicable CUP)) + ((NEC from 4/1 through 9/30) * (applicable CUP)) + ((NEO from 10/1 through 12/31) * (applicable CUP)) = ((149,733) * (90) * (24) * (.06074)) + ((147,762) * (183) * (24) * (.06123)) + ((149,733) * (92) * (24) * (.06123)) = $79,624,484.94 62 --------------------------------------------------------------------------------   CPPA = Tracking Account has positive balance and ACF is greater than AVCF, therefore no CPPA. [Section 10.15(b)(iii) & (iv)]   Tracking Account balance at the end of the Year [Section 10.15(b)(ii)]     = (positive Tracking Account balance at the beginning of the Year) + ((Product of DC and CUP for the Year) — (MACP)) = (positive $750,000) + (($79,624,484.94) - ($78,235,866.19)) = (positive $750,000) + ($1,388,618.75) = positive $2,138,618.75 EXAMPLE NO.3 — Tracking Account has a negative $4,260,000 balance at start of a Year (that Is not a leap year or a major maintenance outage year) [Section 1.47 & 10.15(b)(iv)]. AVCF equals 88.000%. The Facility produces constant NEO of 159,248 kW during each Winter Period hour and 157,153 kW during each Summer Period hour, yielding an ACF of 95.244%, i.e., DC / ((MCS * Hours in the Summer Period) + (MCW * Hours in the Winter Period)). [Section 1.1]   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Jan – Mar     = (3.185(cent)/kWh + 2.160(cent)/kWh) 1.88000 = 6.074(cent)/kWh   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Apr – Dec     = (3.185(cent)/kWh + 2.203(cent)/kWh) / .88000 = 6.123(cent)/kWh   MCUP   [Section 1.33, 1.23, & 1.2]     = FCC + AO&MCC = 3.185(cent)/kWh + 2.192(cent)/kWh = 5.377(cent)/kWh   MACP allowed for the Year [Section 1.30 & 10.15(a)]     = ((MCW) * (Hours in the Winter Period) * (MCUP)) + ((MCS) * (Hours in the Summer Period) * (MCUP)) = ((167200) * (4368) * (.05377)) + ((165,000) * (4392) * (.05377)) = $39,269,822.59 + $38,966,043.60 = $78,235,866.19   Total Capacity Purchase Payments made during the Year are capped at MACP or $78,235,866.19 [Section 1.30 & 10.15(a)] 63 --------------------------------------------------------------------------------   Product of the applicable Delivered Capacity and Capacity Unit Price for the Year     = ((NEO from 1/1 through 3/31) * (applicable CUP)) + ((NEO from 4/1 through 9/30) * (applicable CUP)) + ((NEO from 10/1 through 12/31) * (applicable CUP)) = ((159,248) * (90) * (24) * (.06074)) + ((157,153) * (183) * (24) * .06123)) + ((159,248) * (92) * (24) * (.06123)) = $84,684,674.14   CPPA   [Section 10.15(b)(iv)]     = Least of (a) 4% of MRCP, (b) amount by which product of DC and CUP for the year exceeds the MACP or (o) absolute value of negative Tracking Account balance = Least of (a) ($78,235,866.19) * (.04), (b) $6,448,807.95 or (c) $4,250,000 = Least of (a) $3,129,434.65, (b) $6,448,807.95 or (c) $4,250,000 = $3,129,434.65   Tracking Account balance at the end of the Year [Section 10.15(b)(v)]     = (negative Tracking Account balance at the beginning of the Year) + ((MACP) * (.04)) = (negative $4,250,000) + ($3,129,434.65) = negative $1,120,565.35.   The amount by which the product of DC and CUP for the Year exceeds the sum of MACP and CPPA, i.e., $3,319,373.30, shall not be included in the amount added to the Tracking Account with respect to such Year pursuant to Section 10.15(b)(ii), but shall be carried over and added to the Tracking Account for the following Year, and used in the calculation of any applicable Capacity Purchase Payment Adjustment, under Section 10.15(b)(iii) or (iv), for such following Year, after first making the applicable adjustments provided under Section 10.15(b)(v)(1) or (2). EXAMPLE NO.4 — Tracking Account has a negative $1,120,565.35 balance at start of the Year (that is not a leap year or a major maintenance outage year) following the Year described in Example No. 3, with $3,319,373.30 carried over from such preceding Year. [Section 1.47 & 10.15(b)(iv)]. AVCF equals 88.000%. The Facility produces constant NEO of 159,248 kW during each Winter Period hour and 157,153 kW during each Summer Period hour, yielding an ACF of 95.244%, i.e., DC / ((MCS * Hours in the Summer Period) + (MCW * Hours in the Winter Period)). [Section 1.1] 64 --------------------------------------------------------------------------------   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Jan – Mar     = (3.185(cent)/kWh + 2.160(cent)/kWh) / .88000 = 6.074(cent)/kWh   CUP   [Section 1.3. 1.11, 1.23, & 1.37] Apr – Dec     = (3.185(cent)/kWh + 2.203(cent)/kWh) / .88000 = 6.123(cent)/kWh   MCUP   [Section 1.33, 1.23, & 1.2]     = FCC + AO&MCC = 3.185(cent)/kWh + 2.192(cent)/kWh = 5.377(cent)/kWh   MACP allowed for the Year [Section 1.30 & 10.15(a)]     = ((MCW) * (Hours in the Winter Period) * (MCUP)) + ((MCS) * (Hours in the Summer Period) * (MCUP)) = ((167200) * (4368) * (.05377)) + ((165,000) * (4392) * (.05377)) = $39,269,822.59 + $38,966,043.60 = $78,235,866.19   Total Capacity Purchase Payments made during the Year are capped at MACP or $78,235,866.19 [Section 1.30 & 10.15(a)]   Product of the applicable Delivered Capacity and Capacity Unit Price for the Year     = ((NEO from 1/1 through 3/31) * (applicable CUP)) + ((NEO from 4/1 through 9/30) * (applicable CUP)) + ((NEO from 10/1 through 12/31) * (applicable CUP)) = ((159,248) * (90) * (24) * (.06074)) + ((157,153) * (183) * (24) * (.06123)) + ((159,248) * (92) * (24) * (.06123)) = $84,684,674.14   CPPA   [Section 10.15(b)(v)(2)]     = Least of (a) 4% of MACP, (b) the carried-over amount from the preceding Year plus the amount by which the product of DC and CUP for the Year exceeds the MACP, or (c) absolute value of negative Tracking Account balance = Least of (a) ($78,235,866.19) * (.04), (b) ($3,319,373.30) + ($6,448,807.95) or (c) $1,120,565.35 = Least of (a) $3,129,434.65, (b) $9,768,181.25 or (c) $1,120,565.35 = $1,120,565.35 65 --------------------------------------------------------------------------------   Tracking Account balance at the end of the Year [Section 10.15(b)(v)(2)]     = ((negative Tracking Account balance at the beginning of the Year) + (Carried-over amount from the preceding Year)) + ((Product of DC and CUP for the Year) – (MACP)) = ((negative $1,120,565.35) + ($3,319,373.30)) + ($6,448,807.95) = positive $8,647,615.90. EXAMPLE NO. 5 — Tracking Account has a negative $1,120,565.35 balance at start of the Year (that is not a leap year or a major maintenance outage year) following the Year described in Example No. 3, with $3,319,373.30 carried over from such preceding Year [Section 1.47 & 10.15(b)(iv)]. AVCF equals 88.000%. The Facility produces constant NEO of 143,792 kW during each Winter Period hour and 141,900 kW during each Summer Period hour, yielding an ACF of 86.000%, i.e., DC / ((MCS * Hours in the Summer Period) + (MCW * Hours in the Winter Period)), [Section 1.1]   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Jan – Mar     = (3.185(cent)/kWh + 2.160(cent)/kWh) / .88000 = 6.074(cent)/kWh   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Apr – Dec     = (3.185(cent)/kWh + 2.203(cent)/kWh) / .88000 = 6.123(cent)/kWh   MCUP   [Section 1.33, 1.23, & 1.2]     = FCC + AO&MCC = 3.185(cent)/kWh + 2.192(cent)/kWh = 5.377(cent)/kWh   MACP allowed for the Year [Section 1.30 & 10.15(a)] 66 --------------------------------------------------------------------------------     = ((MCW) * (Hours in the Winter Period) * (MCUP)) + ((MCS) * (Hours in the Summer Period) * (MCUP)) = ((167200) * (4368) * (.05377)) +((165,000) * (4392) * (.05377)) = $39,269,822.59 + $38,966,043.60 = $78,235,866.19   Total Capacity Purchase Payments made during the Year are capped at MACP or $78,235,866.19 [Section 1.30 & 10.15(a)]   Product of the applicable Delivered Capacity and Capacity Unit Price for the Year     = ((NEO from 1/1 through 3/31) * (applicable CUP)) + ((NEO from 4/1 through 9/30) * (applicable CUP) + (NEO from 10/1 through 12/31) * (applicable CUP)) = ((143,792) * (90) * (24) * (.06074)) + ((141,900) * (183) * (24) * (.06123)) + ((143,792) * (92) * (24) * (.06123)) = $76,465,415.06   (which, since it is less than MACP, equals the total Capacity Purchase Payments for the Year.) [Section 10.15(a)]   CPPA   [Section 10.15(b)(v)(1)]     = Least of (a) 4% of MRCP, (b) the carried-over amount from the preceding Year, or (c) absolute value of negative Tracking Account balance (after subtracting ((MACP) – (Product of DC and CUP for the Year))) = Least of (a) ($78,235,866.19) * (.04), (b) $3,319,373.30, or (c) (1,120,565.35) + (1,770,451.13) = Least of (a) $3,129,434.65, (b) $3,319,373.30, or (c) $2,891,016.48 = $2,891,016.48   Tracking Account balance at the end of the Year [Section 10.15(b)(v)(1)     = ((negative Tracking Account balance at the beginning of the Year) — ((MACP) – (Product of DC and CUP for the Year))) + (Carried-over amount from the preceding Year) = ((negative $1,120,565.35) - ($1,770,451.13)) + ($3,319,373.30) = (negative $2,891,016.48) + ($3,319,373.30) = positive $428,356.82 67 -------------------------------------------------------------------------------- EXAMPLE NO. 6 — Tracking Account has a negative $2,000,000 balance at start of a Year (that is not a leap year or a major maintenance outage year) [Section 1.47 & 10.15(b)(iv)]. AVCF equals 88.000%. The Facility produces constant NEO of 159,248 kW during each Winter Period hour and 157,153 kW during each Summer Period hour, yielding an ACF of 95.244%, i.e., DC / ((MCS * Hours in the Summer Period) + (MCW * Hours in the Winter Period)). [Section 1.1]   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Jan – Mar     = (3.185(cent)/kWh + 2.160(cent)/kWh) / .88000 = 6.074(cent)/kWh   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Apr – Dec     = (3.185(cent)/kWh + 2.203(cent)/kWh) / .88000 = 6.123(cent)/kWh   MCUP   [Section 1.33, 1.23, & 1.2]     = FCC + AO&MCC = 3.185(cent)/kWh + 2.192(cent)/kWh = 5.377(cent)/kWh   MACP allowed for the Year [Section 1.30 & 10.15(a)]     = ((MCW) * (Hours in the Winter Period) * (MCUP)) + ((MCS) * (Hours in the Summer Period) * (MCUP)) = ((167200) * (4368) * (.05377)) + ((165,000) * (4392) * (.05377)) = $39,269,822.59 + $38,966,043.60 = $78,235,866.19   Total Capacity Purchase Payments made during the Year are capped at MACP or $78,235,866.19 [Section 1.30 & 10.15(a)]   Product of the applicable Delivered Capacity and Capacity Unit Price for the Year     = ((NEO from 1/1 through 3/31) * (applicable CUP)) + ((NEO from 4/1 through 9/30) * (applicable CUP)) + ((NEO from 10/1 through 12/31) * (applicable CUP)) = ((159,248) * (90) * (24) * (.06074)) + ((157,153) * (183) * (24) * (.06123)) + ((159,248) * (92) * (24) * (.06123)) = $84,684,674.14 68 --------------------------------------------------------------------------------   CPPA   [Section 10.15(b)(iv)]     = Least of (a) 4% of MACP, (b) amount by which product of DC and CUP for the year exceeds the MACP or (c) absolute value of negative Tracking Account balance = Least of (a) ($78,235,866.19) * (.04), (b) $6,448,807.95 or (c) = Least of (a) $3,129,434.65, (b) $6,448,807.95 or (c) $2,000,000 = $2,000,000   Tracking Account balance at the end of the Year [Section 10.15(b)(ii)]     = (negative Tracking Account balance at the beginning of the Year) + ((Product of DC and CUP for the Year) – (MACP)) = (negative $2,000,000) + (($84,684,674.14) - ($78,235,866.19)) = (negative $2,000,000) + ($6,448,807.95) = positive $4,448,807.95 EXAMPLE NO. 7 — Tracking Account has a negative $2,000,000 balance at start of the Year 2014 [Section 1.47 & 10.15(b)(iv)]. AVCF equals 91.000%, i.e., the average of the ACF for the three-preceding Years (88.000%) + (3%). The Facility produces constant NEO of 143,792 kW during each Winter Period hour and 141,900 kW during each Summer Period hour, yielding an ACF of 89.000%, i.e., (DC / ((MCS * Hours In the Summer Period) + (MCW * Hours in the Winter Period))) + (3%). [Section 1.1]   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Jan – Mar     = (3.185(cent)/kWh + 2.160(cent)/kWh) / .88000 = 6.0740/kWh   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Apr – Dec     = (3.185(cent)/kWh + 2.203(cent)/kWh) /.88000 = 6.123(cent)/kWh   MCUP   [Section 1.33, 1.23, & 1.2]     = FCC + AO&MCC = 3.185(cent)/kWh + 2.192(cent)/kWh = 5.377(cent)/kWh   MACP allowed for the Year [Section 1.30, 10.15(a) & 10.15(c)]     = ((MCW) * (Hours in the Winter Period) * (MCUP)) + ((MCS) * (Hours in the Summer Period) * (MCUP)) + (Total Additional Payments under Section 10.15(c)) = ((167200) * (4368) * (.05377)) + ((165,000) * (4392) * (.05377)) + ((.06074) * (166,100) * (8760) * ((1/4)(.03))) + ((.06123) * (166100) * (8760) ((3/4)(.03))) = $39,269,822.59 + $38,966,043.60 + $662,841.65 + $2,004,566.72 = $80,903,274.56 69 --------------------------------------------------------------------------------   Total Capacity Purchase Payments made during the Year are capped at MACP or $80,903,274.56 [Section 1.30 & 10.15(a)]   Product of the applicable Delivered Capacity and Capacity Unit Price for the Year     = ((NEO from 1/1 through 3/31) * (applicable CUP)) + ((NEO from 4/1 through 9/30) * (applicable CUP)) + ((NEO from 10/1 through 12/31) * (applicable CUP)) = ((143,792) * (90) * (24) * (.06074)) i- ((141,900) * (183) * (24) * (.06123)) + ((143,792) * (92) * (24) * (.06123)) = $76,465,415.06   Total Additional Payments for the Year     = ((.06074) * (166,100) * (8760) * ((1/4)(.03))) + ((.06123) * (166100) * (8760) ((3/4)(.03))) = $662,841.65 + $2,004,566.72 = $2,667,408.37   Sum of total Additional Payments for the Year and the Product of the applicable Delivered Capacity and Capacity Unit Price for the Year     = $2,667,408.37 + $76,465,415.06 = $79,132,823.43   (which, since it is less than MACP, equals the total Capacity Purchase Payments for the Year.) [Section 10.15(a)]   CPPA = Tracking Account has negative balance and ACF is less than AVCF, therefore no CPPA. [Section 10.15(b)(iii) & (iv)]   Tracking Account balance at the end of the Year [Section 10.15(b)(ii)] 70 --------------------------------------------------------------------------------     = (negative Tracking Account balance at the beginning of the Year) – (Amount by which MACP exceeds aggregate CPP for the Year) = (negative $2,000,000) – (($80,903,274.56) – ($79,132,823.43)) = (negative $2,000,000) – ($1,770,451.13) = negative $3,770,451.13 EXAMPLE NO.8 — Tracking Account has a positive $750,000 balance at start of a Year (that is not a leap year or a major maintenance outage year) [Section 1.47 & 10.15(b)]. AVCF equals 88.000%. The Facility produces constant NEO of 143,792 kW during each Winter Period hour and 141,900 kW during each Summer Period hour, yielding an ACF of 86.000%, i.e., DC / ((MCS * Hours in the Summer Period) + (MCW * Hours in the Winter Period)). [Section 1.1]   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Jan – Mar     = (3.185(cent)/kWh + 2.160(cent)/kWh) 1.88000 = 6.074(cent)/kWh   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Apr– Dec     = (3.185(cent)/kWh + 2.203(cent)/kWh) / .88000 = 6.123(cent)/kWh   MCUP   [Section 1.33, 1.23, & 1.2]     = FCC + AO&MCC = 3.185(cent)/kWh + 2.192(cent)/kWh = 5.377(cent)/kWh   MACP allowed for the Year [Section 1.30 & 10.15]     = ((MCW) * (Hours in the Winter Period) * (MCUP)) + ((MCS) * (Hours in the Summer Period) * (MCUP)) = ((167200) * (4368) * (.05377)) + ((165,000) * (4392) * (.05377)) = $39,269,822.69 + $38,966,043.60 = $78,235,866.19   Total Capacity Purchase Payments made during the Year are capped at MACP or $78,235,866.19 [Section 1.30 & 10.15(a)]   Product of the applicable Delivered Capacity and Capacity Unit Price for the Year 71 --------------------------------------------------------------------------------     = ((NEO from 1/1 through 3/31) * (applicable CUP)) + ((NEO from 4/1 through 9/30) * (applicable CUP)) + ((NEO from 10/1 through 12/31) * (applicable CUP)) = ((143,792) * (90) * (24) * (.06074)) + ((141,900) * (183) * (24) * (.06123)) + ((143,792) * (92) * (24) * (.06123)) = $76,465,415.06   (which, since it is less than MACP, equals the total Capacity Purchase Payments for the Year.) [Section 10.15(a)]   CPAA   [Section 10.15(b)(iii)]     = Lesser of (a) amount by which MACP exceeds aggregate CPP for the Year, or (b) positive Tracking Account balance = Lesser of (a) $1,770,451.13 or (b) $750,000 = $750,000   Tracking Account balance at the end of the Year [Section 10.15(b)(i)]     = (positive Tracking Account balance at the beginning of the Year) – (Amount by which MACP exceeds aggregate CPP for the Year) = (positive $750,000) – (($78,235,866.19) – ($76,465,415.06)) = (positive'$750,000)-- ($1,770,451.13) = negative $1,020,451.13 EXAMPLE NO. 9 — Tracking Account has a negative $750,000 balance at start of a Year (that is not a leap year or a major maintenance outage year) [Section 1.47 & 10.15(b)]. AVCF equals 88.000%. The Facility produces constant NEO of 143,792 kW during each Winter Period hour and 141,900 kW during each Summer Period hour, yielding an ACF of 86.000%, i.e., DC / ((MCS * Hours in the Summer Period) + (MCW * Hours in the Winter Period)). [Section 1.1]   CUP   [Section 1.3, 1.11, 1.23, & 1.37] Jan – Mar     = (3.185(cent)/kWh + 2.160(cent)/kWh) / .88000 = 6.074(cent)/kWh   CUP   (Section 1.3, 1.11, 1.23, & 1.37] Apr - Dec     = (3.185(cent)/kWh + 2.203(cent)/kWh) / .88000 = 6.123(cent)/kWh   MCUP   [Section 1.33, 1.23, & 1.2]     = FCC +AO&MCC = 3.185¢/kWh + 2.192¢/kWh = 5.377¢./kWh 72 --------------------------------------------------------------------------------   MACP allowed for the Year [Section 1.30 & 10.15(a)]     = ((MCW) * (Hours in the Winter Period) * (MCUP)) + ((MCS) * (Hours in the Summer Period) * (MCUP)) = ((167200) * (4368) * (.05377)) + ((165,000) * (4392) * (.05377)) = $39,269,822.59 + $38,966,043.60 = $78,235,866.19   Total Capacity Purchase Payments made during the Year are capped at MACP or $78,235,866.19 [Section 1.30 & 10.15(a)]   Product of the applicable Delivered Capacity and Capacity Unit Price for the Year     = ((NEO from 1ll through 3/31) * (applicable CUP)) + ((NEO from 4/1 through 9/30) * (applicable CUP)) + ((NEO from 10/1 through 12/31) * (applicable CUP)) = ((143,792) * (90) * (24) * (.06074)) + ((141,900) * (183) * (24) * (.06123)) + ((143,792) * (92) * (24) * (.06123)) = $76,465,415.06   (which, since it is less than MACP, equals the total Capacity Purchase Payments for the Year.) [Section 10.15(a)]   CPPA = Tracking Account has negative balance and ACF is less than AVCF, therefore no CPPA [Section 10.15(b)(iii) or (iv)]   Tracking Account balance at the end of the Year [Section 10.15(b)(i)]     = (the negative Tracking Account balance at the beginning of the Year) – (Amount by which MACP exceeds aggregate CPP for the Year) = (negative $750,000) — (($78,235,866.19) — ($76,465,415.06)) = (negative $750,000) — ($1,770,451.13) = negative $2,520,451.13 MAJOR MAINTENANCE OVERHAUL YEAR ANNUAL CAPACITY FACTOR CONSIDERATIONS 73 -------------------------------------------------------------------------------- EXAMPLE NO. 1 — Assume ACF for 2007 = 88.567% and for 2008 = 87.255%. The quotient (expressed as a percentage) obtained by dividing: (a) the Delivered Capacity for 2009 by (b) the sum of (i) the product of MCS and the number of hours in the Summer Period, and (ii) the product of MCW and the number of hours in the Winter Period = 84.688% [Section 1.1(a)&(b)]. ACF for 2009     = (84.688%)+(3%) = 87.688%. [Section 1.1(B)] AVCF for 2010     = ((ACF for 2007)+(ACF for 2008)+(ACF for 2009))/3 = ((88.567%)+(87.255%)+(87.688%))/3 = 87.837%. [Section 1.3] 74 --------------------------------------------------------------------------------

Exhibit 10.2 AMENDMENT NUMBER THREE TO THAT LEASE AGREEMENT DATED NOVEMBER 2, 1999 BETWEEN RYAN OAKS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY (AS SUCCESSOR-IN-INTEREST TO SPIEKER PROPERTIES, L.P.), AS LANDLORD, AND EXCELLIGENCE LEARNING CORPORATION, A DELAWARE CORPORATION, FORMERLY KNOWN AS LEARNINGSTAR CORP., AS TENANT, FOR PREMISES LOCATED AT 2 LOWER RAGSDALE DRIVE, SUITE 125, MONTEREY, CALIFORNIA. Effective May 1, 2006, the above described Lease Agreement will be amended as follows: 1. Paragraph 3 – Term: Scheduled Term Expiration Date: August 31, 2011. Tenant’s early termination rights per Amendment Number Two of the Lease Agreement shall be null and void. Tenant agrees to accept the premises in “as-is” condition. 2. Paragraph 6 – Rent: Base Rent for the Premises shall be as follows: May 2006—Base Rent shall be $0.00. Tenant shall be responsible for its proportionate share of Operating Expenses per Paragraph 7 of the Lease Agreement. June 2006—Base Rent for the period June 1, 2006 through April 30, 2007 shall be $1.50 per square foot per month net of Operating Expenses. Base Rent shall be adjusted annually at the end of each 12 month period from the effective date of this Amendment by any increase in the Consumer Price Index (CPI) for all Urban Consumers for the San Francisco/Oakland/San Jose area. In no event shall the increase be more than three percent (3%). Tenant shall be responsible for its proportionate share of operating Expenses per Paragraph 7 of the Lease Agreement. May 2007—Base Rent shall be $0.00. Tenant shall be responsible for its proportionate share of Operating Expenses per Paragraph 7 of the Lease Agreement. May 2008—Base Rent shall be $0.00. Tenant shall be responsible for its proportionate share of Operating Expenses per Paragraph 7 of the Lease Agreement. May 2009—Base Rent shall be $0.00. Tenant shall be responsible for its proportionate share of Operating Expenses per Paragraph 7 of the Lease Agreement. 3. Paragraph 7 (3) (g)—Operating Expenses: A management and accounting cost recovery fee equal to four percent (4%) of the sum of the Project’s base rents and Operating Expenses (other than such management and accounting fee and exclusive of property taxes and property insurance). 4. Paragraph 39.B.—Option to Renew: Tenant shall, provided this Lease is in full force and effect and Tenant is not and has not been in default under any of the terms and conditions of the Lease, have two (2) consecutive options to renew this Lease for a term of three (3) years each for the Premises in “as is” condition and on the same terms and conditions set forth in the Lease, except as modified by the terms, covenants and conditions set forth below: (a) If Tenant elects to exercise such option(s), then Tenant shall provide Landlord with written notice no earlier than the date which is 270 days prior to the expiration of the then current term of the Lease, but no later than 5:00 p.m. (Pacific Standard Time) on the date which is 180 days prior to the expiration of the then current term of the Lease. If Tenant fails to provide such notice, Tenant shall have no further or additional right to extend or renew the term of this Lease. (b) During the first option term, the Base Rent in effect at the end of the then current term of the Lease shall be increased annually by any increase in the Consumer Price Index (CPI) for all Urban Consumers for the San Francisco/Oakland/San Jose area. In no event shall the increase be more than three percent (3%). Base rent for the second option term shall be based upon ninety percent (90%) of the then current fair market rental for comparable space in the Building or Project and in other similar buildings in the same rental market, as of the date the renewal term is to commence, taking into account the specific provisions of the Lease which will remain constant, and the Building amenities, location, identity, quality, age, condition, term of lease, tenant improvements, services provided, and other pertinent items. (c) Landlord shall advise Tenant of the new Base Rent for the Premises for the applicable renewal terms which will be based on Landlord’s determination of fair market rental value, as well as -------------------------------------------------------------------------------- additional terms and conditions for the renewal term, no later than fifteen (15) days after receipt of notice of Tenant’s exercise of its option to renew. Tenant shall have forty-five (45) days after receipt of such notification from Landlord to accept the new Base Rent, terms and conditions. If Tenant does not accept Landlord’s determination of the new Base Rent, Landlord and Tenant shall diligently attempt in good faith to agree on the new Base Rent on or before the tenth (10th) day after Tenant’s objection to the new Base Rent. If Tenant and Landlord are still unable to agree on a mutually acceptable new Base Rent, then Landlord and Tenant shall each appoint a licensed real estate broker with at least ten (10) year’s experience in leasing office space in the area in which the Building is located to act as arbitrators. The two (2) arbitrators so appointed shall determine the new Base Rent and each shall submit his or her determination of such new Base Rent to Landlord and Tenant in writing, within thirty (30) days after their appointment. If the two (2) arbitrators so appointed cannot agree on the new Base Rent for the applicable increase period within such 30-day period, the two (2) arbitrators shall within five (5) days thereafter appoint a third arbitrator who shall be a licensed real estate broker with at least ten (10) year’s experience in leasing office space in the area in which the Building is located. The third arbitrator so appointed shall independently determine the new Base Rent for the Premises for the applicable increase period within fifteen (15) days after appointment, by selecting from the proposals submitted by each of the first two arbitrators the one that most closely approximates the third arbitrator’s determination of such new Base Rent. The third arbitrator shall have no right to adopt a compromise or middle ground or any modification of either of the proposals submitted by the first two arbitrators. The proposal chosen by the third arbitrator as most closely approximating the third arbitrator’s determination of the fair market value for the new Base Rent for the applicable increase period shall constitute the decision and award of the arbitrators and shall be final and binding on the parties. Each party shall pay the fees and expenses of the arbitrator appointed by such party and one-half (1/2) of the fees and expenses of the third arbitrator. If either party fails to appoint an arbitrator, or if either of the first two arbitrators fails to submit his or her proposal of new Base Rent to the other party, in each case within the time periods set forth above, then the decision of the other party’s arbitrator shall be considered final and binding. (d) Notwithstanding anything to the contrary contained in this Paragraph, in no event shall the Base Rent for any renewal term be less than the Base Rent in effect at the expiration of the previous term. In addition, Landlord shall have no obligation to provide or pay for any tenant improvements or brokerage commissions during any renewal term. (e) Tenant’s right to exercise any options to renew under this Paragraph shall be conditioned upon Tenant occupying the entire Premises and the same not being occupied by any assignee, subtenant or licensee other than Tenant or its affiliate at the time of exercise of any option and commencement of the renewal term. Tenant’s exercise of any option to renew shall constitute a representation by Tenant to Landlord that as of the date of exercise of the option and the commencement of the applicable renewal term, Tenant does not intend to seek to assign this Lease in whole or in part, or sublet all or any portion of the Premises. (f) Any exercise by Tenant of any option to renew under this Paragraph shall be irrevocable. If requested by Landlord, Tenant agrees to execute a lease amendment or, at Landlord’s option, a new lease agreement on Landlord’s then standard lease form for the Building, reflecting the foregoing terms and conditions, prior to the commencement of the renewal term. The options to renew granted under this Paragraph are not transferable; the parties hereto acknowledge and agree that they intend that each option to renew this Lease under this Paragraph shall be “personal” to the specific Tenant named in this Lease and that in no event will any assignee or sublessee have any rights to exercise such options to renew. (g) The exercise of the second renewal option shall be contingent upon Tenant exercising the first renewal option. Only one renewal option may be exercised at a time. Upon exercise of the second renewal option, Tenant shall have no further right to extend the term of this Lease. 5. Tenant Improvements: Landlord agrees to provide Tenant a tenant improvement allowance in the amount of $27,681.00 for improvement to the Premises, subject to Paragraph 12 of the Lease Agreement. Tenant Improvements must be completed no later than August 1, 2006. All other terms and conditions of the Lease Agreement shall remain in full force and effect.   LANDLORD:     TENANT: RYAN OAKS, LLC, a California limited liability company     EXCELLIGENCE LEARNING CORPORATION, a Delaware corporation By:   APSARA, INC.,     By:   /s/ Judith McGuinn a California corporation       Its:   Managing Member     Its:   EVP/Chief Operating Officer By:   /s/ Patrick M. Gardner         Patrick M. Gardner       Its:   President     Date: May 5, 2006 Date: May 8, 2006

-------------------------------------------------------------------------------- [EXECUTION COPY]   FIRST AMENDMENT AGREEMENT   This First Amendment Agreement, dated as of August 24, 2006 (this “First Amendment Agreement” or this “Agreement”), amends the Employee Agreement, dated as of January 26, 2006 (the “Employee Agreement”), by and between SOUTHERN UNION COMPANY, a Delaware corporation (“Seller”), and UGI CORPORATION, a Pennsylvania corporation (“Buyer”), and the Purchase and Sale Agreement, dated as of January 26, 2006 (the “Sale Agreement”), between Seller and Buyer.   RECITALS   WHEREAS, the parties desire to make certain amendments to the Employee Agreement and the Sale Agreement to the extent and in the manner hereinafter set forth; and   WHEREAS, Section 10.1 of the Sale Agreement incorporates the terms and provisions of the Employee Agreement, and Section 13.12 of the Sale Agreement permits the amendment of the Sale Agreement only by an instrument in writing executed by Seller and Buyer.   NOW, THEREFORE, in consideration of the premises and agreements contained herein, and for other 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:   1. Defined Terms. All capitalized terms used, but not defined, in this Agreement shall have the meanings ascribed or given to them under the terms of the Employee Agreement or the Sale Agreement.   2. Amendments to the Employee Agreement. The parties hereby agree to the following amendments to the Employee Agreement:   (a) Section 1.1. Section 1.1 of the Employee Agreement shall be amended to add the following definition:   “Unfunded ABO under Seller’s Pension Plan” shall mean the unfunded accumulated benefit obligation under Seller’s Pension Plan, determined by Seller’s actuaries in accordance with Statement of Financial Accounting Standard No. 87 as of the last day of the month preceding the Closing Date, based on (1) the most recently available January 1st census data projected to such last day of the month preceding the Closing Date, (2) asset values determined as of such last day of the month preceding the Closing Date, and (3) the discount rate, determined using the Citigroup Pension Discount Curve, determined as of the end of the month preceding the Closing Date, as posted on the Society of Actuaries’ website; provided, however, that such determination by Seller’s actuaries shall be subject to confirmation of such calculation by Buyer’s actuaries.”   -------------------------------------------------------------------------------- (b) Section 1.2. Section 1.2 of the Employee Agreement shall be amended to delete the reference to “Buyer’s Pension Plan,” which was defined in Section 3.1 of the Employee Agreement.     (c) Section 2.6. Section 2.6 of the Employee Agreement shall be amended to delete the final sentence of Section 2.6.   (d) Section 3.1. Section 3.1 of the Employee Agreement shall be amended and restated in its entirety to read as follows:   Section 3.1 Pension Plans. Seller has no defined benefit plan that covers the Employees and that is intended to be a qualified plan other than the Employees’ Retirement Plan of Southern Union Company Pennsylvania Division (“Seller’s Pension Plan”). No later than the Closing Date, Seller shall contribute, in cash, to Seller’s Pension Plan an amount equal to the Unfunded ABO under Seller’s Pension Plan, plus interest, at the discount rate as of the end of the month preceding the Closing Date used to determine the Unfunded ABO under Seller’s Pension Plan, for the period beginning on the last day of the month preceding the Closing Date until the Closing Date. Effective as of the Closing Date, Buyer shall assume sponsorship of, and all assets (held in trust), liabilities and obligations under, Seller’s Pension Plan, including liability for any contributions due after the Closing Date. Seller acknowledges and confirms to Buyer that, as a result of Seller’s contribution of an amount equal to the Unfunded ABO under Seller’s Pension Plan no later than the Closing Date, no further contributions with respect to Seller’s Pension Plan will be required for the 2005 plan year. Seller also acknowledges and confirms to Buyer that Seller has made, on a timely basis, the first two required quarterly contributions with respect to Seller’s Pension Plan for the 2006 plan year. On the Closing Date, or as soon as administratively feasible following the Closing Date, but in no event later than five business days after the Closing Date, the assets held in trust under Seller’s Pension Plan shall be transferred, in accordance with the letter agreement between the parties relating to such transfer of assets, to a trust designated by Buyer to fund Seller’s Pension Plan following the Closing Date. Seller and Buyer shall take all action necessary and appropriate to establish Buyer, effective as of the Closing Date, as successor to Seller as to all rights, assets (held in trust), duties, liabilities and obligations under or with respect to Seller’s Pension Plan. Buyer shall be responsible for the preparation and filing of any annual reports relating to plan years that include the Closing Date; provided, however, that Seller shall furnish Buyer with such information concerning Seller’s Pension Plan as is necessary to prepare such forms, specifically including an executed Schedule B attachment for the 2006 Form 5500, which Buyer may choose to use in connection with such filing. Seller shall be responsible for the preparation and filing of any annual reports relating to all plan years ending prior to the Closing Date.   3. Amendments to the Sale Agreement. The parties hereby agree to the following amendments to the Sale Agreement:   (a) Section 1.1. Section 1.1 of the Sale Agreement shall be amended by (i) amending clause (i) of the definition “Excluded Assets” by inserting at the beginning   188571-3 1-PH/2461139.8  2 -------------------------------------------------------------------------------- thereof the phrase “Except as otherwise provided in Section 6.9,” and (ii) deleting the figure “$67,500,000” appearing in the definition “Working Capital Target” and substituting therefor the figure “$68,100,000”.   (b) Section 2.2(c). Section 2.2(c) shall be amended to read in its entirety: “(c) obligations and liabilities of Buyer and its Affiliates under the Employee Agreement and all liabilities or obligations relating to the matter set forth on Schedule 2.2(c).   (c) Section 2.3. Section 2.3 shall be amended by deleting from clause (e) thereof the phrase “, and all liabilities or obligations relating to the matter set forth on Schedule 2.3(b)”.   (d) Schedule 2.3(b). Schedule 2.3(b) shall be redesignated as Schedule 2.2(c).   (e) Section 5.13. Section 5.13 of the Sale Agreement shall be amended and restated in its entirety to read as follows:   Section 5.13 Employee Benefit Matters.   (a) Schedule 5.13 lists (i) each “Employee Benefit Plan,” as such term is defined in Section 3(3) of ERISA, that is covered by any provision of ERISA and that is maintained by Seller for the benefit of the Employees and each other material fringe benefit plan, policy or arrangement currently maintained by Seller for the benefit of the Employees that provides for pension, deferred compensation, bonuses, severance, employee insurance coverage or similar employee benefits (collectively, the “Employee Plans”); and (ii) each collective bargaining, union or other employee association agreement, employment agreement and other material agreement, policy or arrangement maintained by Seller for the Employees. Seller has made available to Buyer copies of all documents setting forth the terms of such plans, policies, agreements and arrangements, or summaries of any such plans, policies, agreements and arrangements not otherwise in writing.   (b) Seller’s Pension Plan and Seller’s 401(k) Plan are the only Employee Plans that are intended to be qualified under Section 401(a) of the IRC.   (c) The Subsidiary does not employ any Employees or any other individuals and does not currently maintain any Employee Plan.   (d) To the Seller’s Knowledge, each Employee Benefit Plan maintained by Seller for the benefit of the Employees has been established and administered in all material respects in accordance with its terms and the applicable provisions of ERISA and the IRC.   (e) Seller has delivered to Buyer true, correct and complete copies of (i) all current documents governing Seller’s Pension Plan, and all amendments thereto, and to the extent that Seller has possession of same, any predecessor or prior versions of Seller’s Pension Plan, (ii) all reports filed on or after November 4, 1999 by Seller, a   188571-3 1-PH/2461139.8  3 -------------------------------------------------------------------------------- Benefits Affiliate or a Plan official with the United States Department of Labor, the IRS or any other federal or state regulatory agency with respect to Seller’s Pension Plan, (iii) all summary plan descriptions, notices and other reporting and disclosure material furnished to participants in Seller’s Pension Plan, (iv) all actuarial, accounting and financial reports, if any, prepared with respect to Seller’s Pension Plan on or after November 4, 1999, (v) all current manuals, procedures, guidelines, forms, files and data pertaining to the administration of Seller’s Pension Plan, (vi) all post-November 4, 1999 minutes, resolutions, determinations of any committee, person or other entity serving as plan administrator or otherwise acting in a fiduciary capacity with respect to the administration or management of Seller’s Pension Plan, and (vii) all currently effective IRS ruling or determination letters on Seller’s Pension Plan. The term “Benefits Affiliate” shall include (i) any corporation which is a member of a controlled group of corporations (as defined in section 414(b) of the IRC) which includes Seller, (ii) any trade or business (whether or not incorporated) which is under common control (as defined in section 414(c) of IRC) with Seller, (iii) any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in section 414(m) of the IRC) which includes Seller and (iv) any other entity required to be aggregated with Seller pursuant to the regulations issued under section 414(o) of the IRC.   (f) Seller’s Pension Plan and provisions thereof, any trusts created thereby and the operation of Seller’s Pension Plan are (and at all times have been) in compliance in all material respects with the terms of Seller’s Pension Plan and conform (and at all times have been in compliance with and conformed) in all material respects to the applicable provisions of the IRC, ERISA and all other applicable statutes and governmental rules and regulations.   (g) Seller’s Pension Plan has been determined by the IRS to be qualified in form under section 401(a) of the IRC and exempt from tax under section 501(a) of the IRC, and each such determination remains in effect and has not been revoked. To the Seller’s Knowledge, nothing has occurred with respect to the design or operation of Seller’s Pension Plan that could cause the loss of such qualification or exemption or the imposition of any liability, lien, penalty or tax under ERISA or the IRC. Any amendment to Seller’s Pension Plan to comply with current law and regulations that is required to be made on or before the Closing Date has been timely made.   (h) With respect to Seller’s Pension Plan, there has occurred no non-exempt “prohibited transaction” (within the meaning of section 4975 of the IRC or section 406 of ERISA) or breach of any fiduciary duty described in section 404 of ERISA that could result in any liability, direct or indirect, for Seller or a Benefits Affiliate or any shareholder, officer, director or employee of Seller or a Benefits Affiliate. Seller and its Benefits Affiliates have paid all amounts that Seller and its Benefits Affiliates are required to pay as contributions to Seller’s Pension Plan as of the Closing Date.   (i) Seller and its Benefits Affiliates have not incurred any liability for any excise, income or other taxes or penalties with respect to Seller’s Pension Plan, and to the Seller’s Knowledge, no event has occurred and no circumstance exists or has existed that could give rise to any such liability. There are no pending or, to the Knowledge of Seller,   188571-3 1-PH/2461139.8  4 -------------------------------------------------------------------------------- threatened claims by or on behalf of Seller’s Pension Plan, or by or on behalf of any participants in or beneficiaries of Seller’s Pension Plan or other persons, alleging any breach of fiduciary duty on the part of Seller or any Benefits Affiliate or any of their officers, directors or employees under ERISA or any applicable law, or except as set forth in Schedule 5.13(i), claiming benefit payments other than those made in the ordinary operation of Seller’s Pension Plan, nor is there any basis for any such claim. Seller’s Pension Plan is not presently under audit or examination (nor has notice been received of a potential audit or examination) by the IRS, the Department of Labor or any other governmental entity, and no matters are pending with respect to Seller’s Pension Plan under any IRS program. Seller has delivered to Buyer any memorandum pertaining to self-correction of any operational defects with regard to Seller’s Pension Plan.   (j) Neither Seller nor any Benefits Affiliate has made any plan or commitment, whether or not legally binding, to modify or change the terms of Seller’s Pension Plan. Seller’s Pension Plan may be amended or terminated without penalty by Buyer or its Benefits Affiliates at any time on or after the Closing, subject to any requirements under the collective bargaining agreements referred to in Section 2.2 of the Employee Agreement and subject to applicable legal requirements, specifically including the anti-cutback requirements under section 411(d)(6) of the IRC.   (k) The only representations and warranties given in respect of employee benefit matters are those contained in this Section 5.13 and none of the other representations and warranties contained in this Agreement shall be deemed to constitute, directly or indirectly, a representation or warranty in respect of employee benefit matters.   (f) Schedule 5.13. The attached revised Schedule 5.13 to the Sale Agreement is hereby substituted for the original Schedule 5.13 to the Sale Agreement. The original Schedule 5.13 incorrectly listed the Southern Union Company Severance Pay Plan as the Southern Union Company Severance Plan, and it failed to list collective bargaining agreements. The Schedules to the Sale Agreement are further amended by the addition of new Schedule 5.13(i) in the form attached hereto.   (g) Section 6.9. Section 6.9 of the Sale Agreement shall be amended in its entirety to read as follows:   Section 6.9. Insurance.   (a) At Buyer’s request and expense, Seller agrees to use commercially reasonable efforts to assert and diligently pursue all rights to insurance coverage under the Policies (other than with respect to Workman’s Compensation and punitive damage policies) and any other past insurance policies of Seller relating to the Business or the Assets (such insurance policies shall collectively be referred to herein as the “Insurance Policies”) with respect to claims arising from the Business or Assets relating to Assumed Liabilities, whether asserted prior to or after the Closing Date. Seller shall advise Buyer of material developments in respect of such claims and shall not settle or otherwise resolve any claims so asserted without the prior consent of Buyer, such consent not to be unreasonably withheld, provided, however, that Seller may settle claims or policies   188571-3 1-PH/2461139.8  5 -------------------------------------------------------------------------------- relating to the Business or the Assets relating to Assumed Liabilities (other than claims under or policies constituting AEGIS Policies, as defined in clause (b) below) without the prior consent of Buyer in connection with a settlement of policies of Seller relating to the Excluded Assets or Retained Liabilities, including Seller’s businesses other than the Business, subject to remittance by Seller to Buyer of an allocable portion of the proceeds of such settlement (net of Seller’s costs and expenses), as determined by the insurers with whom such claims are settled (or in the absence of such allocation by the insurers, by Seller in proportion to the claims attributable to the Assumed Liabilities to the totality of Seller’s claims to such insurers). Seller shall remit to Buyer all insurance proceeds obtained after Closing in respect of claims arising from the Business or Assets relating to Assumed Liabilities. Seller agrees to use commercially reasonable efforts to negotiate with each of its insurance companies in order to provide Buyer the benefit of the coverage under the policies for all claims arising prior to the Closing from the Business or Assets related to the Assumed Liabilities whether asserted before or after the Closing Date and to cooperate with Buyer with any efforts to obtain “tail” coverage, at Buyer’s sole cost, with respect to any “claims made policies.” Notwithstanding anything herein to the contrary, any recovery of insurance proceeds by Buyer shall be net of all Seller’s cost and expenses. Seller shall give access to Buyer to all of the non-privileged information relating to these matters and shall consult with Buyer on the progress thereof from time to time. Nothing set forth in this Section 6.9 shall limit Seller’s right to assert claims under any Insurance Policies in respect of Retained Liabilities.   (b) Upon Buyer’s request, except as otherwise provided herein, to the maximum extent permitted by the terms of the Insurance Policies listed on Part I of Schedule 6.9(b) (the “AEGIS Policies”), Seller shall transfer, assign, convey and deliver to Buyer all Seller’s rights, if any, under the AEGIS Policies solely to the extent of coverage arising from the Business or Assets relating to Assumed Liabilities. Anything in this Agreement to the contrary notwithstanding, this Section 6.9(b) shall not be construed to operate as an assignment of any rights under any such AEGIS Policy if an attempted assignment thereof, without the Consent of a third party thereto, would render such AEGIS Policy null and void or otherwise adversely affect the aggregate amount or terms of coverage available thereunder. In addition, Seller shall use commercially reasonable efforts to cause the insurer in respect of Policy No. X0012A1A06 (constituting one of the AEGIS Policies) to issue an endorsement substantially in the form attached hereto as Part II of Schedule 6.9(b), and Buyer acknowledges that issuance of such endorsement shall satisfy Seller’s obligations under the fourth sentence of Section 6.9(a) with respect to such AEGIS Policy. In the event that the insurer under the AEGIS Policies shall fail to pay a claim arising from the Business or Assets relating to the Assumed Liabilities, Seller agrees that, at Buyer’s request, Seller shall use commercially reasonable efforts to pursue such claim against the insurer, including through litigation, at the sole expense of Buyer. Seller shall advise Buyer of material developments in respect of such claims and shall not settle or otherwise resolve any such claim without the prior consent of Buyer, such consent not to be unreasonably withheld. Buyer hereby acknowledges that Seller has asserted, and there are currently outstanding, claims under certain of the AEGIS Policies in an aggregate amount equal to $2.3 million in respect of environmental costs and expenses incurred by Seller prior to the Closing (“Seller’s Environmental Claim”). Except as provided in this Section 6.9(b), Seller shall keep the   188571-3 1-PH/2461139.8  6 -------------------------------------------------------------------------------- AEGIS Policies in full force and effect, take no action with respect to the AEGIS Policies to terminate or reduce the coverage available thereunder and make all required payments thereunder. Notwithstanding anything herein to the contrary, Seller shall not be obligated, in respect of any policy period after the Closing Date, to continue to purchase insurance coverage from AEGIS. To the extent that the AEGIS Policies provide coverage for the benefit of both Buyer and Seller, both parties reserve the right to submit claims under those policies and to use commercially reasonably efforts to prosecute such claims provided the resolution of the claim does not reduce the amount of coverage available to the other party by more than the amount of proceeds recovered by such party. (c) Except as provided in this Section 6.9(c), after the Closing, Buyer shall be responsible for, and neither Seller nor any of its Affiliates shall have any responsibility for, the payment of any deductible amounts, underlying limits or excess or excluded amounts attributable to the Insurance Policies, provided that Seller shall retain such responsibility for claims that relate to the Retained Liabilities and Seller’s Environmental Claim. Buyer acknowledges that certain of the Insurance Policies may require Seller or any of its Affiliates to provide an indemnity to the insurer for deductible amounts and to provide collateral to secure such indemnity obligations. Buyer shall enter into an indemnification agreement in form mutually acceptable to Buyer and Seller wherein Buyer agrees to indemnify and hold harmless Seller or any of its Affiliates (as applicable) for any and all of the costs of maintaining such collateral and for any charges made against such collateral or indemnification payments or for any expenses reasonably incurred by Seller in connection with claims arising or alleged to arise from the operations of the Business under or with respect to such Insurance Policies from and after the Closing Date. If there is a retrospective adjustment in respect of any of the Insurance Policies, Buyer shall pay to Seller its allocable portion of such adjustment. (d) Seller makes no representation or warranty with respect to the applicability, validity or adequacy of any Insurance Policies, and Seller shall not be responsible to Buyer or any of its Affiliates for the failure of any insurer to pay under such Insurance Policy. (e) Nothing in this Agreement is intended to provide or shall be construed as providing a benefit or release to any insurer or claims service organization of any obligation under any Insurance Policy. Nothing herein shall be construed as creating or permitting any insurer or claims service organization the right of subrogation against Seller or Buyer or any of their Affiliates in respect of payments made by one to the other under any Insurance Policy.   (h) Schedule 6.9. The Sale Agreement shall be amended by adding thereto new Schedules 6.9(a) and 6.9(b) in the forms attached hereto.   (i) Section 6.13. Section 6.13 of the Sale Agreement shall be amended by amending the second sentence thereof to read in its entirety as follows: “Seller shall deliver the Audited Financials to Buyer not later than five (5) Business Days after the Closing.”   188571-3 1-PH/2461139.8  7 -------------------------------------------------------------------------------- (j) Section 6.15. The Sale Agreement shall be amended by inserting therein a new Section 6.15 to read in its entirety as follows:   Section 6.15. Further Assurances; Cooperation. From time to time after the Closing Date, without further consideration, Seller will execute and deliver such documents to Buyer as Buyer may reasonably request in order to more effectively consummate the sale and purchase of the Assets or to more effectively vest in Buyer good and indefeasible title to the Assets subject to the Permitted Encumbrances. Seller shall cooperate with Buyer, at Buyer’s expense, in Buyer’s efforts to cure or remove any Permitted Encumbrances that Buyer reasonably deems objectionable. From time to time after the Closing Date, without further consideration, Buyer will execute and deliver such documents to Seller as Seller may reasonably request in order to evidence Buyer’s assumption of the Assumed Liabilities. (k) Section 12.3. The first sentence of Section 12.3(b) shall be amended in its entirety to read as follows:   Except as provided below, the representations and warranties of Seller set forth in this Agreement shall survive the Closing until the first anniversary of the Closing Date; provided, however, that (i) the representations and warranties set forth in Section 5.2 (Authority Relative to this Agreement and Binding Effect), Section 5.5 (Title to Assets; Encumbrances), and Section 5.17 (Brokers) shall survive indefinitely, (ii) representations and warranties set forth in Section 5.9 (Taxes) shall survive for a period equal to the applicable statute of limitations for the taxable year for each Tax, and (iii) representations and warranties set forth in clauses (e) through (j) of Section 5.13 shall survive until the second anniversary of the Closing Date.   (l) Section 12.4. Section 12.4 shall be amended by adding at the end thereof the following sentence: “Buyer shall have no liability for any claim or Loss to the extent of insurance proceeds actually received by Seller in respect thereof under insurance maintained by or for the benefit of Seller or any Affiliate of Seller.”   4. No Other Modification. This First Amendment Agreement amends the Sale Agreement and the Employee Agreement only to the extent and in the manner herein set forth. In all other respects, the terms and conditions of the Sale Agreement and the Employee Agreement shall remain in full force and effect.   5. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.   [Remainder of this page intentionally left blank] 188571-3 1-PH/2461139.8  8 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first written above.   SOUTHERN UNION COMPANY   By: /s/ ROBERT M. KERRIGAN III Name: Robert M. Kerrigan III Title: Vice President - Assistant General                                                                                                           Counsel and Secretary   UGI CORPORATION   By: /s/ ROBERT H. KNAUSS Name: Robert H. Knauss Title: Vice President and General Counsel   [Signature page to First Amendment Agreement between Southern Union Company and UGI Corporation]   188571-3 1-PH/2461139.8  9 -------------------------------------------------------------------------------- Schedule 6.9(b) Part I AEGIS Policies: 168  168A  168NJ  X0168A1A89 X0168A1A90 X0168A1A91 X0168A1A92 X0168A1A93 X0168A1A94 X0168A1A95 X0168A1A96 X0012A1A06 188571-3 1-PH/2461139.8  10 -------------------------------------------------------------------------------- Schedule 6.9(b) Part II Effective "Date of Sale" ["In consideration of the return premium of $xxxxxx it is herein agreed that this POLICY shall no longer provide coverage for CLAIMS arising out of the "assets sold to UGI" which occur on or after the date of  Closing .   In accordance with Definition P(3), CLAIMS arising out of the "assets sold to UGI" which occurred prior to the date of Closing will be covered by this POLICY subject to the terms and conditions herein."] 188571-3 1-PH/2461139.8  11 --------------------------------------------------------------------------------

  GUARANTEE      FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, and in connection with that certain funding agreement (the “Funding Agreement”), entered into by and between Principal Life Insurance Company, an Iowa insurance company (“Principal Life”), and Principal Life Income Fundings Trust 2006-24, a New York common law trust (the “Trust”), relating to the notes (the “Notes”) issued by the Trust, Principal Financial Group, Inc., a Delaware corporation and the indirect parent company of Principal Life (the “Guarantor”), hereby furnishes to the Trust its full and unconditional guarantee of the Guaranteed Amounts (as hereinafter defined) as follows:      1. Guarantee.           (a) The Guarantor hereby fully, irrevocably, absolutely and unconditionally guarantees, as a guarantee of payment and not merely as a guarantee of collection, immediate payment when due to the Trust any payments required to be made by Principal Life to the Trust under the Funding Agreement which shall become due and payable regardless of whether such payment is due at maturity, on an interest payment date or as a result of redemption or otherwise (the “Scheduled Payments”) but shall be unpaid by Principal Life (the “Guaranteed Amounts”). Notwithstanding anything to the contrary contained herein, in no event shall the Guaranteed Amounts exceed the Deposit (as defined in the Funding Agreement) of the Funding Agreement, plus accrued but unpaid interest and any other amounts due and owing under the Funding Agreement, less any amounts paid by Principal Life to the Trust.           (b) In the event that Principal Life fails to make a Scheduled Payment in full when due (the “Payment Notice Date”), then the Trust or Citibank, N.A., as indenture trustee for the benefit of the holders of the Notes (the “Indenture Trustee”), pursuant to the indenture (the “Indenture”) between the Trust and the Indenture Trustee, may present the Guarantor with notice (each, a “Payment Notice”) of such failure in writing on or after the Payment Notice Date. The Payment Notice shall identify (1) the Funding Agreement, (2) the Trust, (3) the Payment Notice Date and (4) the amount of the Scheduled Payments not paid by Principal Life to the Trust as of the Payment Notice Date. Upon receipt of such Payment Notice, the Guarantor will immediately pay the Guaranteed Amounts pursuant to Section 7.           (c) In the event that, after receipt of a Payment Notice from the Trust, the Guarantor fails to make immediate payment to the Trust or the Indenture Trustee of the Guaranteed Amounts, then the Trust and the Indenture Trustee may enforce the obligations of the Guarantor under this Guarantee, including by immediately bringing suit directly against the Guarantor (without first bringing suit against Principal Life) for the Guaranteed Amounts not paid to the Trust as of the Payment Notice Date.           (d) This Guarantee is an unsecured, unsubordinated and contingent obligation of the Guarantor and ranks equally with all other unsecured and unsubordinated obligations of the Guarantor. --------------------------------------------------------------------------------        2. Termination. This Guarantee is a continuing and irrevocable guarantee of the Guaranteed Amounts now or hereafter existing and shall terminate and be of no further force and effect with respect to the Funding Agreement and the Notes upon the full payment of the Scheduled Payments or upon the earlier extinguishment of the obligations of Principal Life under the Funding Agreement.      3. Amendments. Subject to the trust agreement relating to the Trust and the Indenture, no provision of this Guarantee may be waived, amended, supplemented or modified, except by a written instrument executed by the Trust and the Guarantor.      4. Assignment; Governing Law. This Guarantee shall inure to the benefit of the Trust and its successors, assigns and pledgees. This Guarantee shall be governed by, and construed in accordance with, the laws of the State of New York without regard to conflict of law principles.      5. Notices. All notices given pursuant to this Guarantee shall be in writing, and shall either be delivered, mailed or telecopied to the locations listed below or at such other address or to the attention of such other persons as such party shall have designated for such purpose in a written notice complying as to delivery with the terms of this Section 5. Each such notice shall be effective (i) if given by telecopy, when transmitted to the applicable number so specified in this Section 5 (such notice shall also be sent by mail, with first class postage prepaid), (ii) if given by mail, three days after deposit in the mails with first class postage prepaid, or (iii) if given by any other means, when actually delivered at such address. If to the Guarantor: Principal Financial Group, Inc. 711 High Street Des Moines, Iowa 50392 Attention: General Counsel Telephone: (515) 247-5111 Facsimile: (515) 248-3011 With a copy to: Principal Life Insurance Company 711 High Street Des Moines, Iowa 50392 Attention: Jim Fifield Telephone: (515) 248-9196 Facsimile: (866) 496-6527 If to the Trust: Principal Life Income Fundings Trust (followed by the number of the Trust specified in this Guarantee) 2 --------------------------------------------------------------------------------   c/o U.S. Bank Trust National Association 100 Wall Street, 16th Floor New York, New York 10005 Attention: Thomas E. Tabor Telephone: (212) 361-6184 Facsimile: (212) 809-5459 With a copy to: Citibank, N.A. Citibank Agency and Trust 388 Greenwich Street, 14th Floor New York, New York 10013 Attention: Nancy Forte Telephone: (212) 816-5685 Facsimile: (212) 816-5527      6. Representations and Warranties. The Guarantor represents and warrants that: (i) it is duly organized and in good standing under the laws of the jurisdiction of its organization and has full capacity and right to make and perform this Guarantee, and all necessary authority has been obtained; (ii) this Guarantee constitutes a legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights and general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or at law; (iii) the making and performance of this Guarantee does not and will not violate the provisions of any applicable law, regulation or order, and does not and will not result in the breach of, or constitute a default under, any material agreement, instrument or document to which it is a party or by which it or any of its property may be bound or affected, except to the extent disclosed in the registration statement registering the issuance of this Guarantee and the Funding Agreement, as amended, supplemented or modified from time to time (the “Registration Statement”), and to the extent that any such violation, breach or default does not result in a material adverse effect on the Guarantor; and (iv) all consents, approvals, licenses and authorizations of, and filings and registrations with, any governmental authority required under applicable law and regulations for the making and performance of this Guarantee have been obtained or made and are in full force and effect, except to the extent disclosed in the Registration Statement and to the extent that the failure to acquire any such consent, approval, license, authorization, filing or registration does not result in a material adverse effect on the Guarantor.      7. Notice of, and Consent to, Security Interest. The Trust hereby notifies the Guarantor that it has granted to the Indenture Trustee, on behalf of the holders of the Notes, a security interest in the Collateral (as defined in the Indenture), including, but not limited to, any and all payment to be made by the Guarantor to the Trust under this Guarantee. The Trust hereby notifies the Guarantor that it has collaterally assigned to the Indenture Trustee, for the benefit of the holders of the Notes, this Guarantee. The Guarantor, by executing this Guarantee, hereby (i) affirms that it has made or simultaneously will make changes to its books and records to reflect such security interest and collateral assignment, (ii) consents to the security interest 3 --------------------------------------------------------------------------------        granted, and collateral assignment made, by the Trust to the Indenture Trustee of this Guarantee, (iii) agrees to make all payments due under this Guarantee to the Collection Account (as defined in the Indenture) or any other account designated in writing to the Guarantor by the Indenture Trustee and (iv) agrees to comply with all orders of the Indenture Trustee with respect to this Guarantee without any further consent from the Trust.      8. WAIVER OF JURY TRIAL; FINAL AGREEMENT. TO THE EXTENT ALLOWED BY APPLICABLE LAW, THE GUARANTOR WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING ON OR ARISING OUT OF THIS GUARANTEE. THIS GUARANTEE REPRESENTS THE FINAL AGREEMENT BETWEEN THE GUARANTOR AND THE TRUST AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS AMONG SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.             PRINCIPAL FINANCIAL GROUP, INC.       By:   /s/ Elizabeth D. Swanson           Name:   Elizabeth D. Swanson          Title:   Counsel         Date:    The Effective Date (as defined in the Funding Agreement)    Acknowledged and Agreed:               THE PRINCIPAL LIFE INCOME FUNDINGS TRUST DESIGNATED IN THIS GUARANTEE                   By:   U.S. Bank Trust National Association, not in its individual capacity, but solely in its capacity as trustee               By:   Bankers Trust Company, N.A., under Limited Power of Attorney, dated February 16, 2006               By:   /s/ Diana L. Cook                                     Name:        Diana L. Cook                                     Title:        Vice President                                     Date:   The Effective Date (as defined in the Funding Agreement)

  Exhibit 10.1 TERMINATION AGREEMENT      This TERMINATION AGREEMENT (this “Termination Agreement”) is made and entered into as of September 5, 2006, between Phelps Dodge Corporation, a New York corporation (“Portugal”), and Inco Limited, a corporation organized and existing under the laws of Canada (“Italy”). With reference to the Combination Agreement, dated as of June 25, 2006, between Portugal and Italy, as amended by the Waiver and First Amendment to Combination Agreement, made and entered into as of July 16, 2006, between Portugal and Italy (as so amended, the “Combination Agreement”), and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties to this Termination Agreement agree as follows: 1.   Pursuant to Section 9.1(a) of the Combination Agreement, the Combination Agreement is hereby terminated and is of no further force or effect, effective as of the date hereof.   2.   In connection with such termination of the Combination Agreement, Italy shall pay to Portugal, in immediately available funds, the amount of US$125 million, on the date hereof.   3.   If an Italy Competing Proposal is consummated on or prior to September 7, 2007, then Italy shall pay to Portugal, within one (1) business day after demand by Portugal, the amount of US$350 million.   4.   Except for the payments contemplated by paragraphs 2 and 3 of this Termination Agreement, Portugal and Italy agree that neither party hereto shall have any obligations to make any other payments to the other party, under Section 9.3 of the Combination Agreement or otherwise, and notwithstanding anything in Section 9.2 of the Combination Agreement to the contrary, each of Portugal and Italy, on behalf of itself and each of its parents, partners, Affiliates and Subsidiaries, and its directors, officers, employees, successors and assigns (collectively, the “Releasing Parties”), hereby irrevocably releases, acquits, forever discharges and covenants not to sue the other, and each and all of its parents, partners, Affiliates and Subsidiaries, and their past and present officers, directors, employees, agents, representatives, attorneys, successors and assigns (collectively, the “Released Parties”) of and from any and all claims, demands and causes of action that the Releasing Parties, severally or jointly with others, had, has or may have against the Released Parties, or any of them by reason of, arising out of or relating to any aspect of the Combination Agreement (collectively, the “Released Claims”), including without limitation any claim relating to any intentional or willful breach of the Combination Agreement. Notwithstanding the foregoing, the Released Claims shall not include any claims, demands or causes of action that arise out of or relate to the Confidentiality Agreements or this Termination Agreement.   5.   Each of Italy and Portugal hereby represents and warrants that: (a) it has full power and authority to enter into this Termination Agreement and to perform its obligations hereunder in accordance with its provisions, (b) it has duly authorized, executed and delivered this Termination Agreement, and (c) this Termination Agreement constitutes a legal, valid and binding obligation of such party, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, moratorium or other similar laws affecting creditors’ rights generally and by general principles of equity.   --------------------------------------------------------------------------------   6.   All capitalized terms used herein without being specifically defined are used as defined in the Combination Agreement.   7.   This Termination Agreement may be executed in one or more counterparts, which may be delivered by facsimile transmission, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart.   8.   This Termination Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with, and any disputes arising out of or related to this Termination Agreement shall be interpreted, construed and governed by and in accordance with, the laws of the State of New York. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of New York solely in respect of the interpretation and enforcement of the provisions of this Termination Agreement and of the documents referred to herein, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any Action for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such Action may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Termination Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such Actions shall be heard and determined in such New York court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such Action in the manner provided in Section 10.2 of the Combination Agreement or in such other manner as may be permitted by Law shall be valid and sufficient service thereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] - 2 - --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have caused this Termination Agreement to be executed by their duly authorized respective officers as of the date first written above.             PHELPS DODGE CORPORATION       By:   /s/ S. David Colton       Name:   S. David Colton       Title:   Senior Vice President and General Counsel       INCO LIMITED       By:   /s/  Simon A. Fish        Name:   Simon A. Fish, Esq.        Title:   Executive Vice President, General Counsel and Secretary      

  Exhibit 10.1 ARCC COMMERCIAL LOAN TRUST 2006 U.S.$75,000,000 CLASS A-1A NOTES DUE 2019 U.S.$14,000,000 CLASS A-1B NOTES DUE 2019 U.S.$75,000,000 CLASS A-2A NOTES DUE 2019 U.S.$33,000,000 CLASS A-2B NOTES DUE 2019 U.S.$23,000,000 CLASS B NOTES DUE 2019 U.S.$44,000,000 CLASS C NOTES DUE 2019 PURCHASE AGREEMENT June 27, 2006 [                               ], as the Initial Purchaser (the “Initial Purchaser”) Ladies and Gentlemen: Section 1.              Authorization of Notes. ARCC CLO 2006 LLC (the “Trust Depositor”), has duly authorized the sale of the ARCC Commercial Loan Trust 2006 Notes, consisting of the U.S.$75,000,000 Class A-1A Floating Rate Notes (the “Class A-1A Notes”), U.S.$50,000,000 Class A-1A VFN Revolving Floating Rate Notes (the “Class A-1A VFN Notes”), U.S.$14,000,000 Class A-1B Floating Rate Notes (the “Class A-1B Notes” and, together with the Class A-1A Notes and the Class A-1A VFN Notes, the “Class A-1 Notes”), U.S.$75,000,000 Class A-2A Floating Rate Notes (the “Class A-2A Notes”), U.S. $33,000,000 Class A-2B Floating Rates Notes (the “Class A-2B Notes” and, together with the Class A-2A Notes, the “Class A-2 Notes” and, the Class A-2 Notes together with the Class A-1 Notes, the “Class A Notes”), U.S.$23,000,000 Class B Floating Rate Deferrable Interest Notes (the “Class B Notes”), U.S.$44,000,000 Class C Floating Rate Deferrable Interest Notes (the “Class C Notes” and, together with the Class A-1A Notes, the Class A-2 Notes, and the Class B Notes, the “Purchased Notes”, and the Purchased Notes together with the Class A-1A VFN Notes, the “Offered Notes”), U.S.$32,000,000 Class D Floating Rate Deferrable Interest Notes (the “Class D Notes”) and the U.S.$54,000,000 Class E Principal Only Notes (the “Class E Notes” and, together with the Offered Notes and the Class D Notes, the “Notes”) of ARCC Commercial Loan Trust 2006, a Delaware statutory trust (the “Trust”). The Trust was formed pursuant to (i) a Trust Agreement, dated as of June 21, 2006 as amended and restated on July 7, 2006 (the “Trust Agreement”) between the Trust Depositor and Wilmington Trust Company, as the owner trustee (the “Owner Trustee”) and (ii) a Certificate of Trust filed with the Secretary of State of the State of Delaware on June 21, 2006. The Class A-1A Notes will be issued in an aggregate initial principal amount of $75,000,000, the Class A-1A VFN Notes will be issued in a maximum initial principal amount of $50,000,000, the Class A-1B --------------------------------------------------------------------------------   Notes will be issued in a maximum initial principal of $14,000,000, the Class A-2A Notes will be issued in a maximum initial principal of $75,000,000, the Class A-2B Notes will be issued in a maximum initial principal of $33,000,000, the Class B Notes will be issued in an aggregate initial principal amount of $23,000,000, the Class C Notes will be issued in an aggregate initial principal amount of $44,000,000, the Class D Notes will be issued in an aggregate initial principal amount of $32,000,000, and the Class E Notes will be issued in an aggregate initial principal amount of $54,000,000. In addition to the Notes, the Trust is issuing a Trust Certificate (the “Certificate”). The Notes will be secured by the assets of the Trust. The Certificate will represent a fractional undivided ownership interest in the Trust. The Certificate will be issued pursuant to the Trust Agreement. The Notes will be issued pursuant to an Indenture, dated as of July 7, 2006 (the “Indenture”), between the Trust and U.S. Bank National Association, as the trustee (the “Trustee”). The primary assets of the Trust will be a pool of commercial loans, or interests thereon, originated or purchased by the Company or acquired by the Trust directly from a third party in transactions arranged and underwritten by the Company or any transaction in which the Trust is the designee of the Company under the instruments of conveyance relating to such loans (collectively, the “Commercial Loans”). The Trust Depositor will acquire the Commercial Loans from the Company pursuant to a Commercial Loan Sale Agreement, dated as of July 7, 2006 (the “Loan Sale Agreement”), between the Company and the Trust Depositor. Pursuant to a Sale and Servicing Agreement, dated as of July 7, 2006 (the “Sale and Servicing Agreement”), among the Trust, the Company, as the Originator and as the Servicer, the Trust Depositor, Lyon Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services), as the Backup Servicer, the Owner Trustee and the Trustee, the Trust Depositor will sell, transfer and convey to the Trust, without recourse, all of its right, title and interest in the Commercial Loans. Pursuant to the Indenture, as security for the indebtedness represented by the Notes, the Trust will pledge and grant to the Trustee a security interest in the Commercial Loans, and its rights under the Loan Sale Agreement and the Sale and Servicing Agreement. This Purchase Agreement (the “Agreement”), the Trust Agreement, the Loan Sale Agreement, the Sale and Servicing Agreement and the Indenture are referred to collectively as the “Transaction Documents.” Capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Sale and Servicing Agreement, or if not defined therein, in the Indenture. The Purchased Notes are to be offered without being registered under the Securities Act of 1933, as amended (the “Securities Act”), to “qualified institutional buyers” (as defined in Rule 144A under the Securities Act (“QIBs”)) in compliance with the exemption from registration provided by Rule 144A under the Securities Act (“Rule 144A”) in offshore transactions in reliance on Regulation S under the Securities Act (“Regulation S”), and to institutional “accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) (“Institutional Accredited Investors”). In connection with the sale of the Purchased Notes, the Trust has prepared a preliminary confidential offering memorandum dated June 9, 2006 (including any exhibits thereto and all information incorporated therein by reference, the “Preliminary Memorandum”), as supplemented by a further preliminary confidential offering memorandum dated June 23, 2006 (including any exhibits thereto and all information incorporated therein by reference, the “Preliminary Memorandum Supplement”), and a final confidential offering memorandum dated as of the date hereof (including any exhibits, amendments or supplements thereto and all 2 --------------------------------------------------------------------------------   information incorporated therein by reference, the “Final Memorandum”, and each of the Preliminary Memorandum, the Preliminary Memorandum Supplement and the Final Memorandum, a “Memorandum”) including a description of the terms of the Purchased Notes, the terms of the offering, and a description of the Trust. It is understood and agreed that 11:09 a.m. on June 27, 2006 constitutes the time of the contract of sale for each purchaser of the Purchased Notes offered to the investors for purposes of Rule 159 under the Securities Act (the “Time of Sale”) and that (i) the Preliminary Memorandum Supplement, which supplements, amends and restates the Preliminary Memorandum and (ii) the term sheet setting forth the pricing terms relating to each Class of Purchased Notes constitute the entirety of the information conveyed to investors as of the Time of Sale (the “Time of Sale Information”). It is understood and agreed that nothing in this Agreement shall prevent the Initial Purchaser from entering into any agency agreements, underwriting agreements or other similar agreements governing the offer and sale of securities with any issuer or issuers of securities, and nothing contained herein shall be construed in any way as precluding or restricting the Initial Purchaser’s right to sell or offer for sale any securities issued by any person, including securities similar to, or competing with, the Notes. During each Interest Period, the Class A-1A Notes shall bear interest at a per annum rate equal to the then applicable LIBOR plus 0.25% per annum, Class A-1B Notes shall bear interest at a per annum rate equal to the then applicable LIBOR plus 0.37% per annum, the Class A-2A Notes shall bear interest at a per annum rate equal to the then applicable LIBOR plus 0.22% per annum, Class A-2B Notes shall bear interest at a per annum rate equal to the then applicable LIBOR plus 0.35% per annum, the Class B Notes shall bear interest at a per annum rate equal to the then applicable LIBOR plus 0.43% per annum and the Class C Notes shall bear interest at a per annum rate equal to the then applicable LIBOR plus 0.70% per annum. Each of the Trust Depositor and the Trust, as applicable, hereby agrees with you, as the Initial Purchaser, as follows: Section 2.              Purchase and Sale of Purchased Notes. Subject to the terms and conditions and in reliance upon the representations and warranties set forth herein, the Trust agrees to sell to the Initial Purchaser the Purchased Notes, and the Initial Purchaser has agreed to use its reasonable best efforts to place the aggregate principal amount of Purchased Notes set forth on Schedule I hereto with investors in accordance with the terms hereof. It is understood and agreed that the Initial Purchaser is not acquiring, and has no obligation to acquire, the Class A-1A VFN Notes, the Class D Notes, the Class E Notes or the Certificate. The Class A-1A VFN Notes will be acquired by the initial Class A-1A VFN Noteholder pursuant to the Class A-1A VFN Purchase Agreement, dated as of July 7, 2006 (the “Class A-1A VFN Purchase Agreement”), between the Trust, the Class A-1A VFN Agent and the other Class A-1A VFN Holders party thereto. The Class D Notes, the Class E Notes and the Certificate will be acquired by the Trust Depositor on the Closing Date pursuant to the Sale and Servicing Agreement. It is further understood and agreed that the Initial Purchaser may purchase the Purchased Notes for its own account, or sell the Purchased Notes to its affiliates or to any other investor, in accordance with the applicable provisions hereof and of the Indenture. 3 --------------------------------------------------------------------------------   Section 3.              Delivery. Delivery of the Purchased Notes shall be made in the form of one or more global certificates delivered to The Depository Trust Company, except that any Purchased Note to be sold by the Initial Purchaser to an Institutional Accredited Investor that is not a QIB (as defined herein) shall be delivered in fully registered, certificated form in the minimum denominations set forth in the Memorandum at the offices of Dechert LLP at 10:00 a.m. Charlotte, North Carolina time, on July 7, 2006, or such other place, time or date as may be mutually agreed upon by the Initial Purchaser and the Trust (the “Closing Date”). Subject to the foregoing, the Purchased Notes will be registered in such names and such denominations as the Initial Purchaser shall specify in writing to the Trust and the Trustee. The Class A-1A VFN Notes, the Class D Notes, the Class E Notes and the Certificate shall be delivered on the Closing Date in fully registered, certificated form in the minimum denominations and the required proportions set forth in the Memorandum. Section 4.              Representations and Warranties of the Trust. The Trust represents and warrants to the Initial Purchaser as of the date hereof and as of the Closing Date, that: (i)            The Final Memorandum does not and will not and any amendments thereof or supplement thereto and any additional information and documents concerning the Purchased Notes, including but not limited to one or more marketing books, delivered by or on behalf of the Trust to prospective purchasers of the Purchased Notes (collectively, such information and documents, the “Additional Offering Documents”), did not or will not, each as of their respective dates or date on which such statement was made, and as of the Closing Date do not and will not, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements in each, in light of the circumstances under which they were made, not misleading; provided that the Trust makes no representation or warranty as to the information contained in or omitted from the Final Memorandum or the Additional Offering Documents in reliance upon and in conformity with information furnished in writing to the Trust by or on behalf of the Initial Purchaser referenced in the last sentence of Section 9(a). (ii)           The Time of Sale Information, as of the Time of Sale, did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that the Trust makes no representation or warranty as to the information contained in or omitted from the Time of Sale Information in reliance upon and in conformity with information furnished in writing to the Trust by or on behalf of the Initial Purchaser referenced in the last sentence of Section 9(a). (iii)          The Trust is a statutory trust, duly organized and validly existing and in good standing under the laws of the state of Delaware, and has all power and authority necessary to own or hold its properties and conduct its business in which it is engaged as described in each Memorandum and has all licenses necessary to carry on its business as it is now being conducted and is licensed and qualified in each jurisdiction in which the 4 --------------------------------------------------------------------------------   conduct of its business (including, without limitation, the acquisition of Commercial Loans and Related Property and the performance of its obligations hereunder and under the Transaction Documents) requires such licensing or qualification and in which the failure so to qualify would have a material adverse effect on the business, properties, assets, or condition (financial or otherwise) of the Trust. (iv)          This Agreement has been duly authorized, executed and delivered by the Trust, and, assuming due authorization, execution and delivery thereof by the other parties hereto, constitutes a valid and legally binding obligation of the Trust enforceable against the Trust in accordance with its terms, subject, as to enforcement only, to the effect of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or the application of equitable principles in any proceeding, whether at law or in equity. (v)           The Sale and Servicing Agreement has been duly authorized, executed and delivered by the Trust and, assuming due authorization, execution and delivery thereof by the other parties thereto, constitutes a valid and binding agreement of the Trust, enforceable against the Trust in accordance with its respective terms, subject, as to enforcement only, to the effect of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or the application of equitable principles in any proceeding, whether at law or in equity. (vi)          The Purchased Notes have been duly authorized, and when executed and authenticated in accordance with the Indenture and delivered to and paid for by the Initial Purchaser in accordance with this Agreement, the Purchased Notes will constitute valid and binding obligations of the Trust, enforceable against the Trust in accordance with their terms, subject, as to enforcement only, to the effect of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or the application of equitable principles in any proceeding, whether at law or in equity, and will be entitled to the benefits of the Indenture. (vii)         There is not pending or, to its knowledge, threatened against the Trust or against any of its Affiliates, any action, suit or proceeding at law or in equity or before any court, tribunal, government body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against the Trust of this Agreement or the Indenture or its ability (as a matter of law) to perform its obligations under this Agreement or the Indenture. (viii)        The execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and the consummation by the Trust of the transactions contemplated herein and therein and in all documents relating to the Notes will not result in any breach or violation of, or constitute a default under, any agreement or instrument to which the Trust is a party or to which any of its properties or assets are subject, except for such of the foregoing as to which relevant waivers or amendments have been obtained and are in full force and effect, nor will any such action result in a violation of the trust agreement of the Trust or any law or any order, decree, rule or 5 --------------------------------------------------------------------------------   regulation of any court or governmental agency having jurisdiction over the Trust or its properties. (ix)           Neither the Trust nor the pool of Commercial Loans is, nor after giving effect to the transactions contemplated by the Transaction Documents will be, required to be registered as an “investment company” under the 1940 Act. (x)            Assuming the Initial Purchaser’s representations are true and accurate, it is not necessary in connection with the offer, sale and delivery of the Purchased Notes in the manner contemplated by this Agreement and each Memorandum to register the Purchased Notes under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended. (xi)           The Trust has taken no action, and will take no future action, which would cause the Purchased Notes to fail to satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act. (xii)          At the time of execution and delivery of the Sale and Servicing Agreement, the Trust Depositor owned the Commercial Loans conveyed to it on the Closing Date free and clear of all liens, encumbrances, adverse claims or security interests (“Liens”) other than Liens permitted by the Transaction Documents, and the Trust Depositor had the power and authority to transfer such Commercial Loans to the Trust. (xiii)         Upon the execution and delivery of the Transaction Documents, payment by the Initial Purchaser and the Trust Depositor for the Purchased Notes and delivery to the Initial Purchaser and the Trust Depositor of the Purchased Notes, the Trust will own the Commercial Loans conveyed to it on the Closing Date and the Initial Purchaser and the Trust Depositor will acquire title to the Purchased Notes, in each case free of Liens except such Liens as may be created or granted by the Initial Purchaser and those permitted in the Transaction Documents. (xiv)        No consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the issuance and sale of the Purchased Notes or the execution, delivery and performance by the Trust of this Agreement or the other Transaction Documents to which it is a party, except such consents, approvals, authorizations, registrations or qualifications as have been obtained or as may be required under state securities or Blue Sky laws in connection with the sale and delivery of the Purchased Notes in the manner contemplated herein. (xv)         The Commercial Loans, individually and in the aggregate, in all material respects have the characteristics described in the Final Memorandum. (xvi)        Each of the representations and warranties of the Trust and the Trust Depositor set forth in each of the other Transaction Documents is true and correct in all material respects. 6 --------------------------------------------------------------------------------   (xvii)       Any taxes, fees and other governmental charges payable in connection with the execution, delivery and issuance of this Agreement and the other Transaction Documents and the Notes have been or will be paid by the Trust prior to the Closing Date. (xviii)      No adverse selection procedures were used in selecting the Commercial Loans from among the loans that meet the representations and warranties of the Company contained in the Loan Sale Agreement and that are included in the Loan Assets. (xix)         Neither the Trust nor any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act (“Regulation D”)) of the Trust nor anyone acting on their behalf, other than the Initial Purchaser as to which the Trust makes no representation, has, directly or indirectly, sold or offered, or attempted to offer or sell, or solicited any offers to buy, or otherwise approached or negotiated in respect of, any of the Purchased Notes and neither the Trust nor any of its affiliates will do any of the foregoing. As used herein, the terms “offer” and “sale” have the meanings specified in Section 2(3) of the Securities Act. (xx)          Neither the Trust nor any affiliate (as defined in Rule 501(b) of Regulation D) of the Trust has directly, or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Purchased Notes in a manner that would require the registration under the Securities Act of the offering contemplated by each Memorandum or engaged in any form of general solicitation or general advertising in connection with the offering of the Purchased Notes. (xxi)         With respect to any Purchased Notes subject to the provisions of Regulation S of the Securities Act, the Trust has not offered or sold such Purchased Notes during the Distribution Compliance Period to a person (other than the Initial Purchaser) who is within the United States or its possessions or to a United States person. For this purpose, the term “Distribution Compliance Period” is defined as such term is defined in Regulation S and the terms “United States or its possessions” and “United States person” are defined as such terms are defined for purposes of Treas. Reg. § 1.163—5(c)(2)(i)(D). Section 5.              Sale of Purchased Notes to the Initial Purchaser. (a)           The sale of the Purchased Notes to the Initial Purchaser and the Trust Depositor will be made without registration of the Purchased Notes under the Securities Act, in reliance upon the exemption therefrom provided by Section 4(2) of the Securities Act. (b)           The Trust, the Initial Purchaser and the Trust Depositor hereby agree that the Purchased Notes will be offered and sold only in transactions exempt from registration under the Securities Act. Assuming the Notes are offered and sold in accordance with and in the manner set forth in the Offering Documents, the Trust, the Initial Purchaser and the Trust Depositor each reasonably believes that at the Time of Sale of the Purchased Notes by the Trust through the Initial Purchaser (i) either (A) each purchaser of the Purchased Notes is an institutional investor that is (1) a QIB in transactions meeting the requirements of Rule 144A, or (2) an Institutional 7 --------------------------------------------------------------------------------   Accredited Investor who purchases for its own account or for any discretionary account for which it is acquiring the Purchased Notes and provides the Initial Purchaser or the Trust Depositor with a written certification in substantially the form of Exhibit D-1 to the Indenture, or (B) each purchaser is acquiring the Purchased Notes in an offshore transaction meeting the requirements of Regulation S and (ii) the offering of the Purchased Notes will be made in a manner it reasonably believes will enable the offer and sale of the Purchased Notes to be exempt from registration under state securities or Blue Sky laws; and each such party understands that no action has been taken to permit a public offering in any jurisdiction where action would be required for such purpose. The Trust, the Initial Purchaser and the Trust Depositor each further agree not to (i) engage (and represents that it has not engaged) in any activity that would constitute a public offering of the Purchased Notes within the meaning of Section 4(2) of the Securities Act or (ii) offer or sell (and represents that it has not offered or sold) the Purchased Notes by any form of general solicitation or general advertising (as those terms are used in Regulation D), including the methods described in Rule 502(c) of Regulation D, in connection with any offer or sale of the Purchased Notes. Section 6.              Representations and Warranties of the Initial Purchaser (a)           Neither the Initial Purchaser nor any affiliate (as defined in Regulation D) of the Initial Purchaser nor anyone acting on their behalf has, directly or indirectly, sold or offered, or attempted to offer or sell, or solicited any offers to buy, or otherwise approached or negotiated in respect of, any of the Purchased Notes and neither the Initial Purchaser nor any of its affiliates will do any of the foregoing. (b)           The Initial Purchaser hereby represents and warrants to and agrees with the Trust, that (i) it is a QIB, (ii) it will offer the Purchased Notes only (A) to persons who it reasonably believes are QIBs in transactions meeting the requirements of Rule 144A, (B) to institutional investors who it reasonably believes are Institutional Accredited Investors or (C) in offshore transactions in accordance with Regulation S. The Initial Purchaser further agrees that it will (i) deliver to each purchaser of the Purchased Notes, at or prior to the Time of Sale, a copy of the Time of Sale Information, as then amended or supplemented, which Time of Sale Information will include a Notice to Investors in the form attached hereto as Exhibit A, and (ii) prior to any sale of the Purchased Notes to an Institutional Accredited Investor that it does not reasonably believe is a QIB, it will receive from such Institutional Accredited Investor a written certification in substantially the form attached as Exhibit D-1 to the Indenture. (c)           The Initial Purchaser hereby represents that it is duly authorized and possesses the requisite corporate power to enter into this Agreement. (d)           The Initial Purchaser hereby represents there is no action, suit or proceeding pending against or, to the knowledge of such Initial Purchaser, threatened against or affecting, such Initial Purchaser before any court or arbitrator or any government body, agency, or official which could materially adversely affect the ability of such Initial Purchaser to perform its obligations under this Agreement. (e)           The Initial Purchaser hereby represents and agrees that all offers and sales of the Purchased Notes to non—United States persons, prior to the expiration of the Distribution 8 --------------------------------------------------------------------------------   Compliance Period, will be made only in accordance with the provisions of Rule 903 or Rule 904 of Regulation S (except to the extent of any beneficial owners thereof who acquired an interest therein pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a Global Note, as contemplated in the Indenture) and only upon the receipt of the certification of beneficial ownership of the securities by a non—United States person in the form provided in the Indenture. For this purpose, the term “Distribution Compliance Period” is defined as such term is defined in Regulation S and the term “United States person” is defined as such term is defined for purposes of Treas. Reg. § 1.163 5(c)(2)(i)(D). (f)            Neither the Initial Purchaser nor anyone acting on its behalf has offered or sold any Purchased Note or interest therein by any form of general solicitation within the meaning of Rule 502(c) under the Securities Act or general advertising. (g)           The Initial Purchaser hereby represents that it (i) has not offered or sold and will not offer or sell any Purchased Notes to persons in the United Kingdom except to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (the “FSMA”) (Financial Promotion) Order 2005 (the “Order”) and high net worth entities, and other persons to whom they may lawfully be offered, falling within Article 49(2)(a) to (e) of the Order, or otherwise in circumstances which have not resulted and will not result in an offer of transferable securities to the public within the meaning of Section 102B of the FSMA, (ii) is an investment professional falling under Article 19(5) of the Order, (iii) has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with any issue of or sale of the Purchased Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Trust, or to the persons to whom such communication may otherwise be lawfully made and (iv) has complied and will comply with all applicable provisions of the FSMA and regulations made thereunder with respect to anything done by it in relation to the Purchased Notes in, from or otherwise involving the United Kingdom. (h)           The Initial Purchaser is a U.S. registered broker-dealer subject to regulation under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56 (2001) (the “USA PATRIOT Act”). The Initial Purchaser represents that it has adopted reasonable policies and procedures sufficient to meet the requirements of the USA PATRIOT Act. In connection with the transactions contemplated herein, the Initial Purchaser agrees that it will be responsible for compliance with the USA PATRIOT Act (including “know your customer” procedures) and the requirements fo the Office of Foreign Assets Control and any other applicable anti-money laundering laws, rules or regulations. (i)            The Initial Purchaser represents and agrees that in connection with each sale (A) to a QIB, it has taken or will take reasonable steps to ensure that the purchaser is aware that the Purchased Notes have not been and will not be registered under the Securities Act and that transfers of the Purchased Notes are restricted as set forth in the Final Memorandum; and (B) to a non-U.S. Person, it has taken or will take reasonable steps to ensure that the purchaser is aware 9 --------------------------------------------------------------------------------   that the Purchased Notes have not been and will not be registered under the Securities Act and that transfers of the Purchased Notes are restricted as set forth in the Final Memorandum. Section 7.              Certain Agreements of the Trust. The Trust covenants and agrees with the Initial Purchaser as follows: (a)           If, at any time prior to the 90th day following the Closing Date, any event involving the Trust shall occur as a result of which the Final Memorandum (as then amended or supplemented) would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Trust will immediately notify the Initial Purchaser and prepare and furnish to the Initial Purchaser an amendment or supplement to the Final Memorandum that will correct such statement or omission. The Trust will not at any time amend or supplement the Final Memorandum (i) prior to having furnished the Initial Purchaser with a copy of the proposed form of the amendment or supplement and giving the Initial Purchaser a reasonable opportunity to review the same or (ii) in a manner to which the Initial Purchaser or its counsel shall object. (b)           During the period referred to in Section 7(a), the Trust will furnish to the Initial Purchaser, without charge, copies of the Final Memorandum (including all exhibits and documents incorporated by reference therein), the Transaction Documents, and all amendments or supplements to such documents, in each case as soon as reasonably available and in such quantities as the Initial Purchaser may from time to time request. (c)           At all times during the course of the private placement contemplated hereby and prior to the Closing Date, (i) the Trust will make available to each offeree the Additional Offering Documents and information concerning any other relevant matters, as they or any of their affiliates possess or can acquire without unreasonable effort or expense, as determined in good faith by them, (ii) the Trust will provide each offeree the opportunity to ask questions of, and receive answers from, them concerning the terms and conditions of the offering and to obtain any additional information, to the extent they or any of their affiliates possess such information or can acquire it without unreasonable effort or expense (as determined in good faith by them), necessary to verify the accuracy of the information furnished to the offeree, (iii) the Trust will not publish or disseminate any material in connection with the offering of the Purchased Notes except as contemplated herein or as consented to by the Initial Purchaser, (iv) the Trust will advise the Initial Purchaser promptly of the receipt by the Trust of any communication from the SEC or any state securities authority concerning the offering or sale of the Purchased Notes, (v) the Trust will advise the Initial Purchaser promptly of the commencement of any lawsuit or proceeding to which the Trust is a party relating to the offering or sale of the Purchased Notes, and (vi) the Trust will advise the Initial Purchaser of the suspension of the qualification of the Purchased Notes for offering or sale in any jurisdiction, or the initiation or threat of any procedure for any such purpose. (d)           The Trust will furnish, upon the written request of any Noteholder or of any owner of a beneficial interest therein, such information as is specified in paragraph (d)(4) of Rule 144A under the Securities Act (i) to such Noteholder or beneficial owner, (ii) to a prospective 10 --------------------------------------------------------------------------------   purchaser of such Note or interest therein who is a QIB designated by such Noteholder or beneficial owner, or (iii) to the Trustee for delivery to such Noteholder, beneficial owner or prospective purchaser, in order to permit compliance by such Noteholder or beneficial owner with Rule 144A in connection with the resale of such Note or beneficial interest therein by such holder or beneficial owner in reliance on Rule 144A unless, at the time of such request, the Trust is subject to the reporting requirements of Section 13 or 15(d) of the Security Exchange Act of 1934 (the “Exchange Act”) or is exempt from such reporting requirements pursuant to and in compliance with Rule 12g3-2(b) under the Exchange Act. (e)           Except as otherwise provided in the Indenture, each Purchased Note will contain a legend to the effect set forth in the form of Notice to Investors attached as Exhibit A hereto. (f)            In connection with the application to list the Listed Notes on the Irish Stock Exchange, the Trust will furnish from time to time any and all documents, instruments, information and undertakings and publish all advertisements or other material that may be necessary in order to effect such listing and to maintain such listing until none of such Notes is outstanding or until such time as payment of principal, interest and any additional amounts (if any) in respect of all such Notes have been duly provided for, whichever is earlier; provided that if such listing can no longer be reasonably maintained, the Trust will use its best efforts to obtain and maintain the quotation for, or listing of, such Notes on such other stock exchange or exchanges in the European Union as the Initial Purchaser may reasonably request. Section 8.              Conditions of the Initial Purchaser’s Obligations. The obligations of the Initial Purchaser to purchase the Purchased Notes on the Closing Date will be subject to the accuracy, in all material respects, of the representations and warranties of the Trust herein, to the performance, in all material respects, by the Trust of its obligations hereunder and to the following additional conditions precedent: (a)           The Purchased Notes shall have been duly authorized, executed, authenticated and issued, the Transaction Documents shall have been duly authorized, executed and delivered by the respective parties thereto and shall be in full force and effect, and the Commercial Loans shall have been delivered to the Trustee pursuant to the Sale and Servicing Agreement. (b)           The Class A-1A Notes, the Class A-1A VFN Notes, the Class A-1B Notes, the Class A-2A Notes, and the Class A-2B Notes shall each have been rated no less than “Aaa” by Moody’s and “AAA” by S&P, the Class B Notes shall have been rated no less than “Aa2” by Moody’s and “AA” by S&P, the Class C Notes shall have been rated no less than “A2” by Moody’s and “A” by S&P, and the Class D Notes shall have been rated no less than “Baa2” by Moody’s and “BBB” by S&P, such ratings shall not have been rescinded, and no public announcement shall have been made by the respective rating agencies that the rating of the Purchased Notes have been placed under review. (c)           On the date of the Final Memorandum, KPMG LLC shall have furnished to the Initial Purchaser an “agreed upon procedures” letter, dated the date of delivery thereof, in form and substance satisfactory to the Initial Purchaser, with respect to certain financial and statistical information contained in the Final Memorandum. 11 -------------------------------------------------------------------------------- (d)           The Initial Purchaser shall have received an opinion, dated the Closing Date, of in-house counsel to the Trustee, in form and substance satisfactory to the Initial Purchaser. (e)           The Initial Purchaser shall have received legal opinions of Latham & Watkins LLP, counsel to the Company and the Trust Depositor, (i) with respect to certain corporate, securities law and investment company matters, in form and substance satisfactory to the Initial Purchaser and (ii) with respect to certain “true sale” and “non—consolidation” issues in form and substance satisfactory to the Initial Purchaser. (f)            The Initial Purchaser shall have received an opinion of Venable LLP, counsel to the Company, with respect to certain corporate matters and “perfection issues” in form and substance satisfactory to the Initial Purchaser. (g)           The Initial Purchaser shall have received an opinion of Dechert LLP, special tax counsel to the Trust with respect to certain federal tax matters. (h)           The Initial Purchaser shall have received an opinion of Latham & Watkins LLP, counsel to the Company and the Trust Depositor, with respect to certain “perfection issues” in form and substance satisfactory to the Initial Purchaser. (i)            The Initial Purchaser shall have received opinions of Pepper Hamilton LLP, counsel to the Owner Trustee and the Trust, with respect to certain trust matters and with respect to certain “perfection issues,” in each case in form and substance satisfactory to the Initial Purchaser. (j)            The Initial Purchaser shall have received an opinion of Nixon Peabody, counsel to the Trustee, with respect to certain “perfection issues” in form and substance satisfactory to the Initial Purchaser. (k)           The Initial Purchaser shall have received from the Trustee a certificate signed by one or more duly authorized officers of the Trustee, dated the Closing Date, in customary form. (l)            The Initial Purchaser shall have received from the Owner Trustee a certificate signed by one or more duly authorized officers of the Owner Trustee, dated the Closing Date, in customary form. (m)          The Initial Purchaser and its counsel shall have received from the Trust and the Company such further information, certificates and documents as the Initial Purchaser and its counsel may reasonably have requested, and all proceedings in connection with the transactions contemplated by this Agreement and all documents incident hereto shall be in all material respects reasonably satisfactory in form and substance to the Initial Purchaser and its counsel. (n)           All documents incident hereto and to the Transaction Documents shall be reasonably satisfactory in form and substance to the Initial Purchaser and its counsel, and the Initial Purchaser and its counsel shall have received such information, certificates and documents as they may reasonably request. 12 -------------------------------------------------------------------------------- If any of the conditions specified in this Section 8 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above shall not be in all material respects reasonably satisfactory in form and substance to the Initial Purchaser, this Agreement and all of the Initial Purchaser’s obligations hereunder may be canceled by the Initial Purchaser at or prior to delivery of and payment for the Purchased Notes. Notice of such cancellation shall be given to the Trust in writing, or by telephone or facsimile confirmed in writing. Section 9.              Indemnification and Contribution. (a)           The Trust shall indemnify and hold harmless the Initial Purchaser, its officers, directors, employees, agents and each person, if any, who controls the Initial Purchaser within the meaning of either the Securities Act or the Exchange Act and affiliates of the Initial Purchaser from and against any loss, claim, damage or liability, joint or several, and any action in respect thereof, to which the Initial Purchaser or such controlling person may become subject, under the Securities Act or Exchange Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement of a material fact contained in the Final Memorandum, any Additional Offering Document or the Time of Sale Information, or arises out of, or is based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and shall reimburse the Initial Purchaser and such controlling person for any legal and other expenses reasonably incurred by the Initial Purchaser or such controlling person in investigating or defending or preparing to defend against any such loss, claim, damage, liability or action; provided that the Trust shall not be liable to the Initial Purchaser in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in the Time of Sale Information or the Final Memorandum in reliance upon and in conformity with written information furnished to the Trust by the Initial Purchaser specifically for inclusion therein; provided further that the foregoing indemnity shall not inure to the benefit of the Initial Purchaser or any person that controls the Initial Purchaser from whom the person asserting any such loss, claim, damage or liability purchased the Purchased Notes which are the subject thereof if the Trust shall sustain the burden of proving that the Initial Purchaser sold Purchased Notes to the person alleging such loss, claim, damage or liability without sending or giving a copy of the Time of Sale Information at or prior to the confirmation of the sale of the Purchased Notes, if the Company shall have previously furnished copies thereof to the Initial Purchaser and the loss, claim, damage or liability of such person results from an untrue statement or omission of a material fact contained in the Preliminary Memorandum which was corrected in the Time of Sale Information. The foregoing indemnity is in addition to any liability that the Trust may otherwise have to the Initial Purchaser or any person or entity controlling the Initial Purchaser. The Trust acknowledges that the statements set forth in the Time of Sale Information and the Final Memorandum (x) under the caption: “Plan of Distribution” (but solely the second, third, fourth, sixth, seventh, ninth and thirteenth paragraphs under such caption), with respect to the Initial Purchaser; and (y) relating to: [                    ] in the second full paragraph on page iii of each Memorandum, in the second paragraph under the caption “Plan of Distribution” and in the fourth and sixth paragraphs under the caption “Purchaser Inquiries” (setting forth address information with respect to [                    ]), constitute the only written information 13 -------------------------------------------------------------------------------- furnished to the Trust by the Initial Purchaser or on behalf of the Initial Purchaser specifically for inclusion in the Time of Sale Information, the Final Memorandum or any Additional Offering Document. (b)           Promptly after receipt by an indemnified party under this Section 9 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party in writing of the claim or commencement of that action, provided that the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to an indemnified party under this Section 9, except to the extent that the indemnifying party has been materially prejudiced by such failure and, provided further that the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to an indemnified party otherwise than under this Section 9. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 9 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided that the Initial Purchaser shall have the right to employ counsel to represent the Initial Purchaser and the controlling persons who may be subject to liability arising out of any claim or action in respect of which indemnity may be sought by the Initial Purchaser against the Trust under this Section 9, if (i) in the reasonable judgment of an Initial Purchaser, there may be legal defenses available to such Initial Purchaser, and those controlling persons, different from or in addition to those available to the Trust, or there is a conflict of interest between the Initial Purchaser and the controlling persons, on one hand, and the Trust, on the other, or (ii) the Trust shall fail to select counsel reasonably satisfactory to the indemnified party or parties, and in such event the fees and expenses of such separate counsel shall be paid by the Trust. In no event shall the Trust be liable for the fees and expenses of more than one separate firm of attorneys for each of the Initial Purchaser and their controlling persons in connection with any other action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement (i) does not include a statement as to or admission of, fault, culpability or a failure to act by or on behalf of any such indemnified party, and (ii) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (c)           If the indemnification provided for in this Section 9 shall for any reason be unavailable to an indemnified party under Section 9(a) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Trust on the one hand and the Initial Purchaser on the other from the offering of 14 -------------------------------------------------------------------------------- the Purchased Notes or (ii) if the allocation provided by clause (i) above 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 Trust on the one hand and the Initial Purchaser on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Trust on the one hand and the Initial Purchaser on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Purchased Notes (before deducting expenses) received by the Trust bear to the total fees actually received by the Initial Purchaser with respect to such offering pursuant to Section 2 and with respect to the offering of the Class A-1A VFN Notes. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Trust, the Initial Purchaser, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Trust and the Initial Purchaser agree that it would not be just and equitable if contributions pursuant to this Section 9(c) were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 9(c) shall be deemed to include, for purposes of this Section 9(c), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9(c), the Initial Purchaser shall not be required to contribute any amount in excess of the aggregate fee actually paid to the Initial Purchaser pursuant to Section 2 of this Agreement and with respect to the offering of the Class A-1A VFN Notes. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (d)           The indemnity agreements contained in this Section 9 shall survive the delivery of the Purchased Notes, and the provisions of this Section 9 shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. Section 10.            Termination. This Agreement shall be subject to termination in the absolute discretion of the Initial Purchaser, by notice given to the Trust prior to delivery of and payment for the Purchased Notes, if prior to such time (i) trading in securities generally in the New York Stock Exchange or the Irish Stock Exchange shall have been suspended or materially limited or any setting of minimum prices for trading on such exchange has occurred, (ii) there has been, since the respective dates as of which information is given in the Time of Sale Information or the Final Memorandum, any material adverse change in the condition, financial or otherwise, or in the properties (including, without limitation, the Commercial Loans) or the earnings, business affairs or business prospects of the Trust considered as one enterprise, whether or not arising in the ordinary course of business; (iii) a general moratorium on commercial banking activities in New York or Ireland shall have been declared by either U.S. federal, New York State or Irish authorities, or (iv) there shall have occurred any material outbreak or escalation of hostilities or other calamity or crises 15 -------------------------------------------------------------------------------- the effect of which on the financial markets of the United States is such as to make it, in the reasonable judgment of the Initial Purchaser, impracticable or inadvisable to market the Purchased Notes on the terms and in the manner contemplated by each Memorandum as amended or supplemented. Section 11.            Severability Clause. Any part, provision, representation, or warranty of this Agreement which is prohibited or is held to be void 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. Section 12.            Notices. All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by overnight mail, certified mail or registered mail, postage prepaid and effective only upon receipt and if sent to the Initial Purchaser, [[                    ]; or if sent to the Company, the Trust Depositor or the Trust will be delivered to such party c/o Ares Capital Corporation, 280 Park Avenue, 22nd Floor, Building East, New York, New York 10017, attention: Michael Arougheti, facsimile (212) 750-1777. Section 13.            Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Trust, the Trust Depositor and its officers, and of the Initial Purchaser set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Initial Purchaser, the Trust or any of the controlling persons referred to in Section 9 and will survive delivery of and payment for the Purchased Notes. Section 14.            Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors by merger, consolidation or acquisition of their assets substantially as an entity and the officers, directors and controlling persons referred to in Section 9 and, except as specifically set forth herein, no other person will have any right or obligation hereunder. Section 15.            Applicable Law. (a)           THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). (b)           EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY REQUIREMENTS OF LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY 16 -------------------------------------------------------------------------------- HERETO (I) 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 (II) 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 15(b). (c)           ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON—EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH SUCH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. Section 16.            Counterparts, Etc. This Agreement supersedes all prior or contemporaneous agreements and understandings relating to the subject matter hereof. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated except by a writing signed by the party against whom enforcement of such change, waiver, discharge or termination is sought. This Agreement may be signed in any number of counterparts each of which shall be deemed an original, which taken together shall constitute one and the same instrument. Section 17.            Limitation of Liability. Notwithstanding any other provision herein or elsewhere, this Agreement has been executed and delivered on behalf of the Trust by Wilmington Trust Company, not in its individual capacity, but solely in its capacity as Owner Trustee of the Trust, in no event shall Wilmington Trust Company, or the Owner Trustee have any liability in respect of the representations, warranties, or obligations of the Trust hereunder or under any other document, as to all of which recourse shall be had solely to the assets of the Trust, and for all purposes of this Agreement and each other document, the Owner Trustee and Wilmington Trust Company, shall be entitled to the benefits of the Trust Agreement. Section 18.            No Petition. The Initial Purchaser covenants and agrees that, prior to the date that is one year and one day (or such longer preference period as shall then be in effect) after the payment in full of each Class of Notes rated by any Rating Agency, it will not institute against the Trust or join any other Person in instituting against the Trust any bankruptcy, reorganization, arrangement, insolvency 17 -------------------------------------------------------------------------------- or liquidation proceedings or other similar proceedings under the laws of the United States or any state of the United States. This Section 18 will survive the termination of this Agreement. [REST OF PAGE INTENTIONALLY LEFT BLANK] 18 -------------------------------------------------------------------------------- If the foregoing is in accordance with your understanding of our agreement, please sign and return to the undersigned a counterpart hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Trust Depositor, the Trust and the Initial Purchaser. Very truly yours,         ARCC CLO 2006 LLC               By: /s/ Michael Arougheti   Name: Micheal Arougheti   Title: President                     ARCC COMMERCIAL LOAN TRUST 2006         By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee on behalf of the Trust               By: /s/ Michele C. Harra   Name: Michele C. Harra   Title: Financial Services Officer   19 -------------------------------------------------------------------------------- The foregoing Agreement is hereby confirmed and accepted as of the date first above written. [                              ], as Initial Purchaser.   By: /s/ Kevin Sunday   Name: Kevin Sunday   Title: Vice President     20 -------------------------------------------------------------------------------- SCHEDULE I Class Of Notes   Principal Amount   Purchase Price (% of Par) A-1A   $75,000,000   100% A-1B   $14,000,000   100% A-2A   $75,000,000   100% A-2B   $33,000,000   100% B   $23,000,000   100% C   $44,000,000   100%   21 --------------------------------------------------------------------------------

Exhibit No. 10.5   -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated as of April 26, 2006 Among LENNAR CORPORATION AND THE GUARANTORS NAMED HEREIN as Issuers, and DEUTSCHE BANK SECURITIES INC. UBS SECURITIES LLC BNP PARIBAS SECURITIES CORP. CALYON SECURITIES (USA) INC. and SUNTRUST CAPITAL MARKETS, INC. as Initial Purchasers 6.50% Senior Notes due 2016   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this “Agreement”) is made and entered into as of April 26, 2006, among LENNAR CORPORATION, a Delaware corporation (the “Company”), and the other entities that are listed on the signature pages hereof (collectively with any entity that in the future executes a supplemental indenture pursuant to which such entity agrees to guarantee the Notes (as hereinafter defined), the “Guarantors” and, together with the Company, the “Issuers”), and DEUTSCHE BANK SECURITIES INC., UBS SECURITIES LLC, BNP PARIBAS SECURITIES CORP., CALYON SECURITIES (USA) INC. and SUNTRUST CAPITAL MARKETS, INC. (each, an “Initial Purchaser” and, collectively, the “Initial Purchasers”) for whom Deutsche Bank Securities Inc. and UBS Securities LLC are acting as representatives. This Agreement is entered into in connection with the Purchase Agreement, dated April 19, 2006, among the Company and the Initial Purchasers (the “Purchase Agreement”), which provides for, among other things, the sale by the Company to the Initial Purchasers of $250,000,000 aggregate principal amount of the Company’s 6.50% Senior Notes due 2016 (the “Notes”). The Notes are unconditionally guaranteed (the “Guarantees”) by each of the Guarantors. The Notes and the Guarantees are collectively referred to herein as the “Securities”. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and any subsequent holder or holders of the Securities. The execution and delivery of this Agreement is a condition to the Initial Purchasers’ obligation to purchase the Securities under the Purchase Agreement. The parties hereby agree as follows:     1. Definitions As used in this Agreement, the following terms shall have the following meanings: Additional Interest: See Section 4 hereof. Additional Notes: See Section 2(a) hereof. Advice: See the last paragraph of Section 5 hereof. Agreement: See the introductory paragraphs hereto. Applicable Period: See Section 2 hereof. Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday which is a day on which banking institutions are open in New York, New York. Company: See the introductory paragraphs hereto. -------------------------------------------------------------------------------- Effectiveness Date: September 23, 2006; provided, however, that with respect to any Shelf Registration Statement, the Effectiveness Date shall be the 75th day following the Filing Date with respect thereto. Effectiveness Period: See Section 3(a) hereof. Event Date: See Section 4(b) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Notes: See Section 2 hereof. Exchange Offer: See Section 2 hereof. Exchange Offer Registration Statement: See Section 2 hereof. Filing Date: (A) If no Exchange Offer Registration Statement has been filed by the Issuers pursuant to this Agreement, August 24, 2006; and (B) in each other case (which may be applicable notwithstanding the consummation of the Exchange Offer), the 30th day after the delivery of a Shelf Notice. Guarantees: See the introductory paragraphs hereto. Guarantors: See the introductory paragraphs hereto. Holder: Any holder of a Registrable Security or Registrable Securities. Indemnified Person: See Section 7(c) hereof. Indemnifying Person: See Section 7(c) hereof. Indenture: The Indenture, dated as of April 26, 2006, by and among the Issuers and J.P. Morgan Trust Company, N.A., as trustee, pursuant to which the Notes are being issued, as the same may be amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: See the introductory paragraphs hereto. Initial Shelf Registration Statement: See Section 3(a) hereof. Inspectors: See Section 5(m) hereof. Issue Date: April 26, 2006, the date of original issuance of the Securities. NASD: See Section 5(r) hereof. Notes: See the introductory paragraphs hereto.   - 2 - -------------------------------------------------------------------------------- Offering Memorandum: The offering memorandum of the Company dated April 19, 2006, in respect of the offering of the Securities. Participant: See Section 7(a) hereof. Participating Broker-Dealer: See Section 2(a) hereof. Person: An individual, trustee, corporation, limited liability company, partnership, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Private Exchange: See Section 2(b) hereof. Private Exchange Notes: See Section 2(b) hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act and any term sheet filed pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the introductory paragraphs hereto. Records: See Section 5(m) hereof. Registrable Notes: Each Note upon its original issuance and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until the earliest to occur of (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Note, Exchange Note or Private Exchange Note has been declared effective by the SEC and such Note, Exchange Note or such Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes that may be resold (or, but for the status of such Holder as an affiliate of the Issuers under Rule 405, could be resold) without restriction under state and federal securities laws, (iii) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, may be resold without restriction pursuant to Rule 144(k) (as amended or replaced) under the Securities Act. Registrable Securities: Each Registrable Note and related guarantees.   - 3 - -------------------------------------------------------------------------------- Registration Statement: Any registration statement of the Issuers that covers any of the Securities, the Exchange Notes (and related guarantees) or the Private Exchange Notes (and related guarantees) filed with the SEC under the Securities Act, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of the issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 405: Rule 405 under the Securities Act. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities: See the introductory paragraphs hereto. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(c) hereof. Shelf Registration Statement: See Section 3(b) hereof. Subsequent Shelf Registration Statement: See Section 3(b) hereof. TIA: The Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and the trustee (if any) under any indenture governing the Exchange Notes (and related guarantees) and Private Exchange Notes (and related guarantees). Underwritten registration or underwritten offering: A registration in which securities of one or more of the Issuers are sold to an underwriter for reoffering to the public.   - 4 - --------------------------------------------------------------------------------   2. Exchange Offer (a) The Issuers shall file with the SEC, no later than the Filing Date, a Registration Statement (the “Exchange Offer Registration Statement”) on an appropriate registration form with respect to a registered offer (the “Exchange Offer”) to exchange any and all of the Registrable Securities for a like aggregate principal amount of notes of the Company, guaranteed by the Guarantors, that are identical in all material respects to the Securities, except that the Exchange Notes shall contain no restrictive legend thereon and no provision for payment of additional interest in the event of a registration default (the “Exchange Notes”), and which are entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with the TIA) and which, in either case, has been qualified under the TIA. Interest on each Exchange Note will accrue (A) from the later of (1) the last interest payment date on which interest was paid on the Note surrendered, or (2) if the Note is surrendered for exchange on a date in a period which includes the record date for an interest payment date to occur on or after the date of the exchange and as to which interest will be paid, such interest payment date or (B) if no interest has been paid on that Note, from the Issue Date. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable laws. The Issuers shall use their reasonable best efforts to (x) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for acceptance for not less than 30 days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or before November 22, 2006. If, after the Exchange Offer Registration Statement is initially declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes (and related guarantees) thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, the Exchange Offer Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder that participates in the Exchange Offer will be required, as a condition to its participation in the Exchange Offer, to represent to the Company in writing (which may be contained in the applicable letter of transmittal) (1) that any Exchange Notes (and related guarantees) to be received by it will be acquired in the ordinary course of its business, (2) that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes (and related guarantees) in violation of the provisions of the Securities Act, (3) that such Holder is not an “affiliate” (as defined in Rule 405 promulgated under the Securities Act) of any Issuer, (4) if the holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of Exchange Notes (and related guarantees) and (5) if the holder is a broker-dealer (a “Participating Broker-Dealer”) that it will receive the Exchange Notes (and related guarantees) for its own account in exchange for Securities that were acquired as a result of market-making or other trading activities, and that it will deliver a prospectus in connection with any resale of the Exchange Notes (and related guarantees). Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to   - 5 - -------------------------------------------------------------------------------- Registrable Securities that are Private Exchange Notes (and related guarantees), Exchange Notes (and related guarantees) as to which Section 2(c)(iv) is applicable and Exchange Notes (and related guarantees) held by Participating Broker-Dealers, and the Issuers shall have no further obligation to register Registrable Securities (other than Private Exchange Notes (and related guarantees) and other than in respect of any Exchange Notes (and related guarantees) as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof. No securities other than the Exchange Notes (and related guarantees) shall be included in the Exchange Offer Registration Statement; provided, however that if the Company issues under the Indenture additional 6.50% Senior Notes due 2016 (and related guarantees) that are identical in all material respects to the Notes and have the same CUSIP number as the Notes (“Additional Notes”), the Company may include in the Exchange Offer Registration Statement a like aggregate principal amount of notes of the Company, guaranteed by the Guarantors, that are identical in all material respects to the Additional Notes, except that such notes shall contain no restrictive legend thereon, provided further, however, that the Exchange Notes (and related guarantees) as defined in that certain Registration Rights Agreement, dated as of April 26, 2006, by and among the Company, the guarantors named therein and the Initial Purchasers relating to the Company’s 5.95% Senior Notes due 2011 may be included in the Exchange Offer Registration Statement. The period of resale restrictions applicable to any Notes previously offered and sold in reliance on Rule 144A under the Securities Act shall automatically be extended to the last day of the period of any resale restrictions imposed on such Additional Notes. (b) The Issuers shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled “Plan of Distribution,” reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential “underwriter” status of any Participating Broker-Dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such Participating Broker-Dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the prevailing views of the staff of the SEC. Such “Plan of Distribution” section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act with respect to the Exchange Notes, including, to the extent permitted by applicable policies and regulations of the SEC, all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Notes in compliance with the Securities Act. The Issuers shall use their best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act with respect to the Exchange Notes for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Notes covered thereby; provided, however, that such period shall not exceed 180 days after such Exchange Offer Registration Statement is declared effective (or such longer period if extended pursuant to the last paragraph of Section 5 hereof) (the “Applicable Period”).   - 6 - -------------------------------------------------------------------------------- If, prior to consummation of the Exchange Offer, any Holder holds any Registrable Securities acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Holder is not entitled to participate in the Exchange Offer, the Issuers upon the request of any such Holder shall simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to any such Holder, in exchange (the “Private Exchange”) for such Registrable Securities held by any such Holder, a like principal amount of notes (the “Private Exchange Notes”) of the Company, guaranteed by the Guarantors, that are identical in all material respects to the Exchange Notes except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and bear the same CUSIP number as the Exchange Notes. In connection with the Exchange Offer, the Issuers shall: (i) mail, or cause to be mailed, to each Holder of record entitled to participate in the Exchange Offer a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) use their best efforts to keep the Exchange Offer open for acceptance for not less than 30 days after the date that notice of the Exchange Offer is mailed to Holders (or longer if required by applicable law); (iii) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (iv) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (v) otherwise comply in all material respects with all laws, rules and regulations applicable to the Exchange Offer. As soon as practicable after the close of the Exchange Offer and the Private Exchange, if any, the Issuers shall: (vi) accept for exchange all Registrable Securities that are validly tendered and not validly withdrawn pursuant to the Exchange Offer and the Private Exchange, if any; (vii) deliver to the Trustee for cancellation all Registrable Securities so accepted for exchange; and (viii) cause the Trustee to authenticate and deliver promptly to each Holder of Securities that are accepted for exchange, Exchange Notes or Private Exchange Notes (and related guarantees), as the case may be, equal in principal amount to the Securities of such Holder so accepted for exchange.   - 7 - -------------------------------------------------------------------------------- The Exchange Notes (and related guarantees) and the Private Exchange Notes (and related guarantees) shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that the Exchange Notes (and related guarantees) shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes (and related guarantees), the Private Exchange Notes (and related guarantees) and the Securities shall vote and consent together on all matters as one class and that none of the Exchange Notes (and related guarantees), the Private Exchange Notes (and related guarantees) or the Securities will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations by the SEC staff, the Issuers are not permitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated by November 22, 2006, (iii) in certain circumstances, certain holders of Private Exchange Notes (and related guarantees) so request in writing to the Company, or (iv) in the case of any Holder that tenders Securities in response to the Exchange Offer, such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of any of the Issuers within the meaning of the Securities Act), then in the case of each of clauses (i) to and including (iv) of this sentence, the Issuers shall (a) promptly deliver to the Holders and the Trustee written notice thereof (the “Shelf Notice”) and (b) at its sole expense and as promptly as practicable shall file a Shelf Registration Statement pursuant to Section 3 hereof. Notwithstanding anything in this Agreement to the contrary, if (i) a Filing Date or Effectiveness Date (or other date by which a filing is to be made or become effective) would fall on a day that is not a Business Day or (ii) the date by which the Exchange Offer is to be consummated would fall on a day that is not a Business Day, such Filing Date, Effectiveness Date (or other date by which a filing is to be made or become effective) or consummation date shall instead be the next succeeding Business Day.     3. Shelf Registration If at any time a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) Shelf Registration. The Issuers shall file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities not exchanged in the Exchange Offer, Private Exchange Notes (and related guarantees) and Exchange Notes (and related guarantees) as to which Section 2(c)(iv) is applicable (the “Initial Shelf Registration Statement”). The Company shall use its best efforts to file with the SEC the Initial Shelf Registration Statement on or before the applicable Filing Date. The Initial Shelf Registration Statement shall be on Form S-1 or another appropriate form permitting registration of such Registrable Securities for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Issuers shall not permit any securities other than the Registrable Securities to be included in the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement (as   - 8 - -------------------------------------------------------------------------------- defined below); provided, however that if the Company issues Additional Notes, the Company may include the Additional Notes in the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement. The Issuers shall use their best efforts to cause the Initial Shelf Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date and to keep the Initial Shelf Registration Statement continuously effective under the Securities Act until the date which is two years from the Issue Date (the “Effectiveness Period”), or such shorter period ending when (i) all Registrable Securities covered by the Initial Shelf Registration Statement have been sold in the manner set forth and as contemplated in the Initial Shelf Registration Statement or (ii) a Subsequent Shelf Registration Statement covering all of the Registrable Securities covered by and not sold under the Initial Shelf Registration Statement or an earlier Subsequent Shelf Registration Statement has been declared effective under the Securities Act; provided, however, that the Effectiveness Period in respect of the Initial Shelf Registration Statement shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend the Initial Shelf Registration Statement in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional “shelf” Registration Statement pursuant to Rule 415 covering all of the Registrable Securities covered by and not sold under the Initial Shelf Registration Statement or an earlier Subsequent Shelf Registration Statement (each, a “Subsequent Shelf Registration Statement”). If a Subsequent Shelf Registration Statement is filed, the Company shall use its best efforts to cause the Subsequent Shelf Registration Statement to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement was previously continuously effective. As used herein the term “Shelf Registration Statement” means the Initial Shelf Registration Statement and any Subsequent Shelf Registration Statement. (c) Supplements and Amendments. The Issuers shall promptly supplement and amend any Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration Statement, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Securities (or their counsel) covered by such Registration Statement or by any underwriter of such Registrable Securities.   - 9 - --------------------------------------------------------------------------------   4. Additional Interest (a) The Issuers and the Initial Purchasers agree that the Holders will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Issuers agree to pay, as liquidated damages, additional interest on the Notes (“Additional Interest”) under the circumstances and to the extent set forth below (each of which shall be given independent effect): (i) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration Statement has been filed with the SEC on or before the applicable Filing Date or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are required to file a Shelf Registration Statement and such Shelf Registration Statement has not been filed with the SEC on or before the Filing Date applicable thereto, then, commencing on the day after any such Filing Date, Additional Interest shall accrue on the principal amount of the Securities at a rate of 0.25% per annum for the first 90 days immediately following each such Filing Date, and such Additional Interest rate shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period; or (ii) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration Statement has been declared effective by the SEC on or before the applicable Effectiveness Date or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are required to file a Shelf Registration Statement and such Shelf Registration Statement has not been declared effective by the SEC on or before the applicable Effectiveness Date with respect to such Shelf Registration Statement, then, commencing on the day after such Effectiveness Date, Additional Interest shall accrue on the principal amount of the Securities at a rate of 0.25% per annum for the first 90 days immediately following the day after such Effectiveness Date, and such Additional Interest rate shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period; or (iii) if (A) the Issuers have not exchanged Exchange Notes (and related guarantees) for all Registrable Securities validly tendered in accordance with the terms of the Exchange Offer on or before November 22, 2006 or (B) if applicable, a Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time during the Effectiveness Period, then, Additional Interest shall accrue on the principal amount of the Securities at a rate of 0.25% per annum for the first 90 days commencing on (x) November 22, 2006, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective in the case of (B) above, and such Additional Interest rate shall increase by an additional 0.25% per annum at the beginning of each such subsequent 90-day period;   - 10 - -------------------------------------------------------------------------------- provided, however, that Additional Interest on the Notes may not under any circumstance accrue under more than one of the foregoing clauses (i), (ii) and (iii) of this Section 4 and the rate at which Additional Interest accrues on the Notes as a result of the provisions of clauses (i), (ii) and (iii) of this Section 4 may not exceed in the aggregate 1.0% per annum; provided further, that (1) upon the filing of the applicable Exchange Offer Registration Statement or the applicable Shelf Registration Statement as required hereunder (in the case of clause (i) of this Section 4), (2) upon the effectiveness of the Exchange Offer Registration Statement or the applicable Shelf Registration Statement as required hereunder (in the case of clause (ii) of this Section 4), or (3) upon the exchange of the Exchange Notes (and related guarantees) for all Securities tendered (in the case of clause (iii)(A) of this Section 4), or upon the effectiveness of a Subsequent Shelf Registration Statement in the case of Shelf Registration Statement which had ceased to remain effective (in the case of clause (iii)(B) of this Section 4), Additional Interest on the Registrable Notes as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Issuers shall notify the Trustee within three business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an “Event Date”), which notice shall also be at least three business days prior to the date of any payment to be made in accordance with the following sentence. Any amounts of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash simultaneously with, and to the same persons entitled to receive, stated interest on the Notes, commencing with the first such payment of interest occurring after any such Additional Interest commences to accrue. The amount of Additional Interest payable with respect to Registrable Notes will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Registrable Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360.     5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder each of the Issuers shall: (a) Prepare and file with the SEC before the applicable Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes (and related guarantees) during the Applicable Period relating thereto, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall furnish to and afford the Holders of the Registrable Securities included in such Registration Statement or each such Participating   - 11 - -------------------------------------------------------------------------------- Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five days prior to such filing, or such later date as is reasonable under the circumstances). The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Securities included in such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to each of them with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Issuers shall be deemed not to have used their best efforts to keep a Registration Statement effective during the Effectiveness Period or the Applicable Period, as the case may be, relating thereto, if any of the Issuers voluntarily takes any action that would result in selling Holders of the Registrable Securities covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes (and related guarantees) not being able to sell such Registrable Securities or such Exchange Notes (and related guarantees) during that period unless such action is required by applicable law or permitted by this Agreement. (c) If (1) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes (and related guarantees) during the Applicable Period relating thereto from whom any of the Issuers has received written notice that it will be a Participating Broker-Dealer in the Exchange Offer, notify the selling Holders of Registrable Securities, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within one day), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuers, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Securities or resales of Exchange Notes (and related guarantees) by Participating Broker-Dealers, the representations and warranties of the Issuers   - 12 - -------------------------------------------------------------------------------- contained in any agreement (including any underwriting agreement) contemplated by Section 5(l) hereof cease to be true and correct in all material respects, (iv) of the receipt by any of the Issuers of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities or the Exchange Notes (and related guarantees) to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Issuers’ determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes (and related guarantees) during the Applicable Period, use its best efforts to prevent the issuance of any order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of the Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities or the Exchange Notes (and related guarantees) to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) If a Shelf Registration Statement is filed pursuant to Section 3 and if requested by the managing underwriter or underwriters (if any), the Holders of a majority in aggregate principal amount of the Registrable Securities being sold in connection with an underwritten offering or any Participating Broker-Dealer, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, any Participating Broker-Dealer or counsel for any of them reasonably request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes (and related guarantees) during the Applicable Period, furnish to each selling Holder of Registrable Securities and to each such Participating Broker-Dealer who so requests and to their respective counsel and each managing underwriter, if any, at   - 13 - -------------------------------------------------------------------------------- the sole expense of the Issuers, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes (and related guarantees) during the Applicable Period, deliver to each selling Holder of Registrable Securities, or each such Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers, if any, in connection with the offering and sale of the Registrable Securities covered by, or the sale by Participating Broker-Dealers of the Exchange Notes (and related guarantees) pursuant to, such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities or Exchange Notes (and related guarantees) or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes (and related guarantees) during the Applicable Period, use its best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided, however, that where Exchange Notes (and related guarantees) held by Participating Broker-Dealers or Registrable Securities are offered other than through an underwritten offering, the Issuers agree to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes (and related guarantees) held by Participating Broker-Dealers or the Registrable Securities covered by the applicable Registration Statement; provided, however, that none of the Issuers shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration Statement is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Securities and the managing underwriter or   - 14 - -------------------------------------------------------------------------------- underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations permitted by the Indenture and registered in such names as the managing underwriter or underwriters, if any, or Holders may request, provided, however, that the Registrable Notes are also transferable by delivery through means other than on the records of the Depository Trust Company or another clearing agency, in which case such preparation and delivery of certificates representing the Registrable Notes shall not be required. (j) If (1) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes (and related guarantees) during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder or to the purchasers of the Exchange Notes (and related guarantees) to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will 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 light of the circumstances under which they were made, not misleading. (k) Prior to the effective date of the first Registration Statement relating to the Registrable Securities, (i) provide the Trustee with certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (l) In connection with any underwritten offering of Registrable Securities pursuant to a Shelf Registration Statement, enter into an underwriting agreement which is customary in underwritten offerings of debt securities similar to the Securities in form and substance reasonably satisfactory to the Issuers and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Securities and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Issuers (including any acquired business, properties or entity, if applicable) and the Registration Statement, the Prospectus and the documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Securities, and confirm the same in writing if and when requested in form and substance reasonably satisfactory to the Issuers; (ii) obtain the written opinions of counsel to the Issuers and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions reasonably requested in underwritten offerings and such other matters as may be reasonably requested by the managing underwriter or underwriters; (iii) obtain “cold comfort” letters and updates thereof in   - 15 - -------------------------------------------------------------------------------- form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of the Issuers, or of any business or entity acquired by the Issuers for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with underwritten offerings of debt securities similar to the Securities and such other matters as are reasonably requested by the managing underwriter or underwriters as permitted by the Statement on Auditing Standards No. 72, as amended by the Statement on Auditing Standards No. 76; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the sellers and underwriters, if any, than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration Statement and the managing underwriter or underwriters or agents, if any). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (m) If (1) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes (and related guarantees) during the Applicable Period, make available for inspection by any selling Holder of such Registrable Securities being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the “Inspectors”), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Issuers and subsidiaries of the Issuers (collectively, the “Records”) as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Issuers and any of their respective subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement and Prospectus. Each Inspector shall agree in writing that it will keep the Records confidential and that it will not disclose any of the Records that any of the Issuers determines, in good faith, to be confidential and notifies the Inspectors in writing are confidential unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (iii) the information in such Records has been made generally available to the public; provided, however, that prior notice shall be provided as soon as practicable to any of the Issuers of the potential disclosure of any information by such Inspector pursuant to clauses (i) or (ii) of this sentence to permit the Issuers to obtain a protective order (or waive the provisions of this paragraph (m)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector. If, in the course of performing due diligence, any Inspector becomes aware of material non public information about the Company and its subsidiaries, the Inspector will not, and will take all steps reasonably necessary to ensure that anyone to whom the   - 16 - -------------------------------------------------------------------------------- Inspector discloses the material non public information will not, trade in any securities of the Company until the information becomes public (whether through inclusion in the Shelf Registration Statement or Exchange Offer Registration Statement or otherwise) or the information ceases to be material. (n) Provide an indenture trustee for the Registrable Securities or the Exchange Notes (and related guarantees), as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Securities; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Securities, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use their best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (o) Comply in all material respects with all applicable rules and regulations of the SEC and make generally available to its securityholders with regard to any applicable Registration Statement, a consolidated earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any fiscal quarter (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (p) Upon consummation of the Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Company, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes (and related guarantees) or Private Exchange Notes (and related guarantees), as the case may be, and the related indenture constitute legal, valid and binding obligations of the Company, enforceable against it in accordance with their respective terms, subject to customary exceptions and qualifications. (q) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Securities by Holders to the Company (or to such other Person as directed by the Issuers) to be exchanged for Exchange Notes (and related guarantees) or Private Exchange Notes (and related guarantees), as the case may be, the Issuers shall mark, or cause to be marked, on such Registrable Notes that such Registrable Notes are being canceled in exchange for Exchange Notes (and related guarantees) or Private Exchange Notes (and related guarantees), as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (r) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such   - 17 - -------------------------------------------------------------------------------- Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the “NASD”). (s) Use its best efforts to take all other steps reasonably necessary to effect the registration of the Exchange Notes (and related guarantees) and/or Registrable Securities covered by a Registration Statement contemplated hereby. The Issuers may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the distribution of such Registrable Securities as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Registrable Securities of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading. If any Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Securities and each Participating Broker-Dealer agrees by its acquisition of such Registrable Securities or of Exchange Notes (and related guarantees) to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus or Exchange Notes (and related guarantees) to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holder’s or Participating Broker-Dealer’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof, or until it is advised in writing (an “Advice”) by the Issuers that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that the Issuers shall give any such notice, the Applicable Period shall be extended by the number of days from and including the date of the giving of each such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement or Exchange Notes (and related guarantees) to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof or (y) an Advice with respect to said notice.   - 18 - --------------------------------------------------------------------------------   6. Registration Expenses All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers (other than any underwriting discounts or commissions) shall be borne by the Company whether or not the Exchange Offer Registration Statement or any Shelf Registration Statement is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) reasonable fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities or Exchange Notes (and related guarantees) and determination of the eligibility of the Registrable Securities or Exchange Notes (and related guarantees) for investment under the laws of the jurisdictions (x) where the holders of Registrable Securities are located, in the case of the Exchange Notes (and related guarantees), or (y) as provided in Section 5(h) hereof, in the case of Registrable Securities or Exchange Notes (and related guarantees) to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Registrable Securities included in any Registration Statement or in respect of Registrable Securities or Exchange Notes (and related guarantees) to be sold by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Issuers and reasonable fees and disbursements of one firm of special counsel for the sellers of Registrable Securities and any Participating Broker Dealers, (v) fees and disbursements of all independent certified public accountants referred to in Section 5(l)(iii) hereof (including, without limitation, the expenses of any special audit and “cold comfort” letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Issuers desire such insurance, (vii) fees and expenses of all other Persons retained by the Issuers, (viii) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees of the Issuers performing legal or accounting duties), (ix) the expense of any annual audit, (x) any fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement.     7. Indemnification (a) Each of the Issuers agree, jointly and severally, to indemnify and hold harmless each Holder of Registrable Securities and each Participating Broker-Dealer selling Exchange Notes (and related guarantees) during the Applicable Period, the affiliates, officers, directors, representatives, employees and agents of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a “Participant”), from and against any and all losses, claims, damages, judgments, liabilities and expenses (including, without limitation, the reasonable legal fees and other expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement   - 19 - -------------------------------------------------------------------------------- or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if any of the Issuers shall have made any amendments or supplements thereto) or any preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein 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, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant, any underwriter, or the manner in which securities are to be distributed, furnished to the Issuers in writing by such Participant or an underwriter expressly for use therein. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Issuers, their respective affiliates, officers, directors, representatives, employees and agents and each Person who controls the Issuers within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent (but on a several, and not joint, basis) as the foregoing indemnity from the Issuers to each Participant, but only with reference to information relating to such Participant or the manner in which securities are to be distributed by such Participant or someone acting on such Participant’s behalf, furnished to the Issuers in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Securities or Exchange Notes (and related guarantees) giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the “Indemnified Person”) shall promptly notify the Persons against whom such indemnity may be sought (the “Indemnifying Persons”) in writing, and the Indemnifying Persons, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Persons may reasonably designate (which may include the Indemnifying Persons, unless representation of the Indemnifying Persons by the same counsel would be inappropriate due to actual or potential differing interests between them) in such proceeding and shall pay the fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Persons (i) will not relieve them from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by an Indemnifying Person of substantial rights and defenses and (ii) will not, in any event, relieve any Indemnifying Person from any obligations to any Indemnified Person other than the indemnification obligation provided in paragraphs (a) and (b) above. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Persons and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Persons shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both any Indemnifying Person and the Indemnified Person or any affiliate thereof and   - 20 - -------------------------------------------------------------------------------- representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, unless there exists a conflict among the Indemnified Persons, the Indemnifying Persons shall not, in connection with such proceeding or separate but substantially similar related proceeding in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants against whom a suit, action, proceeding, claim or demand is brought or asserted and control Persons of such Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Securities and Exchange Notes (and related guarantees) sold by all such Participants, and any such separate firm for the Issuers, their affiliates, officers, directors, representatives, employees and agents and such control Persons of the Issuers shall be designated in writing by the Issuers. The Indemnifying Persons shall not be liable for any settlement of any proceeding effected without their prior written consent, but if settled with such consent or if there be a final non-appealable judgment for the plaintiff for which any Indemnified Persons are entitled to indemnification pursuant to this Agreement, each of the Indemnifying Persons agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Persons, effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of such Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other from the applicable offering of Registrable or Exchanged Notes or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties’ relative intent,   - 21 - -------------------------------------------------------------------------------- knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages, judgments, liabilities and expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Securities or Exchange Notes (and related guarantees), as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be paid by the Indemnifying Person to the Indemnified Person as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Holder or any person who controls a Holder, or by the Company, its directors, officers, employees or agents or any person controlling any of the Issuers, and (ii) any termination of this Agreement. (g) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above.     8. Rules 144 and 144A Each of the Issuers covenants and agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time such Issuer is not required to file such reports, such Issuer will, upon the request of any Holder or beneficial owner of Registrable Securities, make available such information as is necessary to permit sales pursuant to Rule 144A under the Securities Act. The Company further covenants and agrees, for so long as any Registrable Securities remain outstanding, that it will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities   - 22 - -------------------------------------------------------------------------------- Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC.     9. Underwritten Registrations If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Securities included in such offering and shall be reasonably acceptable to the Issuers. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder’s Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes in a timely manner all questionnaires, powers of attorney, indemnities, underwriting agreements and other customary documents required by the Company or the underwriter in connection with such underwriting arrangements.     10. Miscellaneous (a) No Inconsistent Agreements. The Issuers have not, as of the date hereof, and the Issuers shall not, after the date of this Agreement, enter into any agreement with respect to any of their securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Issuers’ other issued and outstanding securities under any such agreements. The Issuers will not enter into any agreement with respect to any of its securities which will grant to any Person piggyback registration rights with respect to any Registration Statement; provided, however that the Company may enter into an agreement in connection with the issuance of Additional Notes which will grant the holders of the Additional Notes the right to have them included in a Registration Statement. (b) Adjustments Affecting Registrable Securities. The Issuers shall not, directly or indirectly, take any action with respect to the Registrable Securities as a class that would adversely affect the ability of the Holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Company and (II)(A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Securities and (B) if the amendment, modification, supplement, waiver or consent would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Exchange Notes (and related guarantees) held by all Participating Broker-Dealers; provided, however, that Section 7 and this Section 10(c) may not be amended, modified or supplemented without the   - 23 - -------------------------------------------------------------------------------- prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Securities or Exchange Notes (and related guarantees), as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority in aggregate principal amount of the Registrable Securities being sold pursuant to such Registration Statement. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: (i) if to a Holder of the Registrable Securities or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchasers as follows: UBS Securities LLC 677 Washington Blvd. Stamford, CT 06901 Attention:         Fixed Income Syndicate with a copy to: Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York, 10019 Attention:         John S. D’Alimonte, Esq.                         William N. Dye, Esq. (ii) if to the Company, at the address as follows: 700 N.W. 107th Avenue Miami, Florida 33172 Attention:         General Counsel, Mark Sustana with a copy to: Clifford Chance US LLP 31 West 52nd Street New York, New York 10019 Attention:         David W. Bernstein, Esq.   - 24 - -------------------------------------------------------------------------------- (iii) if to the Initial Purchasers, at the address specified in Section 10(d)(i). All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under an indenture at the address and in the manner specified in the indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, the Holders and the Participating Broker-Dealers. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original (including facsimile signatures) and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW THAT WOULD APPLY THE LAW OF ANY OTHER JURISDICTION. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Securities Held by the Issuers or their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Issuers or their respective affiliates (as such term is defined in   - 25 - -------------------------------------------------------------------------------- Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (k) Third-Party Beneficiaries. Holders of Registrable Securities and Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons. (l) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Issuers on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. [Signature page follows]   - 26 - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.   LENNAR CORPORATION By:   /s/ BRUCE E. GROSS   Name:   Bruce E. Gross   Title:   Chief Financial Officer   The foregoing Agreement is hereby confirmed and accepted as of the date first above written. DEUTSCHE BANK SECURITIES INC. UBS SECURITIES LLC BNP PARIBAS SECURITIES CORP. CALYON SECURITIES (USA) INC. SUNTRUST CAPITAL MARKETS, INC. By:   DEUTSCHE BANK SECURITIES INC. By:   /s/ SCOTT FLIESER   Name:   Scott Flieser   Title:   Managing Director By:   /s/ RITU KETKAR   Name:   Ritu Ketkar   Title:   Director By:   UBS SECURITIES LLC By:   /s/ CHRISTIAN STEWART   Name:   Christian Stewart   Title:   Managing Director By:   /s/ JORDAN MATUSOW   Name:   Jordan Matusow   Title:   Associate Director -------------------------------------------------------------------------------- Acme Water Supply & Management Company Aquaterra Utilities, Inc. Asbury Woods L.L.C. Avalon-Sienna III, L.L.C. Bayhome USH, Inc. Bella Oaks L.L.C. Bickford Holdings, LLC Boca Greens, Inc. Boca Isles South Club, Inc. Boggy Creek USH, Inc. Bramalea California Properties, Inc. Bramalea California Realty, Inc. Bramalea California, Inc. Brazoria County LP, Inc. Builders Acquisition Corp. Builders LP, Inc. Cambria L.L.C. Cantera Village L.L.C. Cary Woods L.L.C. Claremont Ridge L.L.C. Claridge Estates L.L.C. Clodine-Bellaire LP, Inc. Club Pembroke Isles, Inc. Club Tampa Palms, Inc. Colonial Heritage LLC Concord at Meadowbrook L.L.C. Concord at Pheasant Run Trails L.L.C. Concord at Ravenna L.L.C. Concord City Centre L.L.C. Concord Hills, Inc. Concord Homes, Inc. Concord Lake, Inc. Concord Mills Estates L.L.C. Concord Oaks, Inc. Concord Park, Inc. Concord Pointe, Inc. Coto de Caza, Ltd. Country Club Development at the Fort, LLC Coventry L.L.C. DCA Homes NJ Realty, Inc. DCA of Lake Worth, Inc. DCA of New Jersey, Inc. E.M.J.V. Corp. Enclave Land, L.L.C. ERMLOE, LLC F.P. Construction Corp. -------------------------------------------------------------------------------- Fidelity Guaranty and Acceptance Corporation Fortress Holding – Virginia, LLC Fortress Illinois, LLC Fortress Management, Inc. Fortress Missouri, LLC Fortress Mortgage, Inc. Fortress Pennsylvania Realty, Inc. Fortress Pennsylvania, LLC Fortress-Florida, Inc. Fox-Maple Associates, LLC Foxwood L.L.C. Gateway Commons, L.L.C. Genesee Communities I, Inc. Genesee Communities II, LLC Genesee Communities III, Inc. Genesee Communities IV, LLC Genesee Communities IX, LLC Genesee Communities V, LLC Genesee Communities VI, LLC Genesee Communities VII, LLC Genesee Communities VIII, LLC Genesee Venture, LLC Glenview Reserve, LLC Grand Isle Club, Inc. Greenfield/Waterbury L.L.C. Greystone Construction, Inc. Greystone Homes of Nevada, Inc. Greystone Homes, Inc. Greystone Nevada, LLC Hallston Burbank LLC Harris County LP, Inc. Haverton L.L.C. Heathcote Commons LLC Heritage Harbour Realty, Inc. Heritage Housing Group, Inc. Heritage USH, Inc. Home Buyer’s Advantage Realty, Inc. Homecraft Corporation Imperial Homes Corporation Impressions L.L.C. Inactive Corporations, Inc. Kings Lake TH, LLC Kings Ridge Golf Corporation Kings Ridge Recreation Corporation Kings Wood Development Corporation Landmark Homes, Inc. -------------------------------------------------------------------------------- Laureate Homes of Arizona, Inc. Legacy Homes, Inc. Legends Club, Inc. Legends Golf Club, Inc. LENH I, LLC Lennar Acquisition Corp. II Lennar Americanos Douglas, LLC Lennar Associates Management Holding Company Lennar Associates Management, LLC Lennar Aviation, Inc. Lennar Carolinas, LLC Lennar Central Region Sweep, Inc. Lennar Chicago, Inc. Lennar Communities Development, Inc. Lennar Communities Nevada, LLC Lennar Communities of Chicago, LLC Lennar Communities of Florida, Inc. Lennar Communities of South Florida, Inc. Lennar Communities, Inc. Lennar Construction, Inc. Lennar Coto Holdings, L.L.C. Lennar Developers, Inc. Lennar Developers, Inc. II Lennar Developers, Inc. III Lennar Family of Builders GP, Inc. Lennar Family of Builders Limited Partnership Lennar Financial Services, LLC Lennar Fresno, Inc. Lennar Funding, LLC Lennar Hingham Holdings, LLC Lennar Hingham JV, LLC Lennar Homes Holding Corp. Lennar Homes of Arizona, Inc. Lennar Homes of California, Inc. Lennar Homes of Texas Land and Construction, Ltd. Lennar Homes of Texas Sales and Marketing, Ltd. Lennar Homes, Inc. Lennar Houston Land, LLC Lennar Imperial Holdings Limited Partnership Lennar La Paz Limited, Inc. Lennar La Paz, Inc. Lennar Land Partners Sub II, Inc. Lennar Land Partners Sub, Inc. Lennar Long Beach Promenade Partners, LLC Lennar Massachusetts Properties, Inc. Lennar Meridian Hills Partners, LLC -------------------------------------------------------------------------------- Lennar Military Housing, Inc. Lennar Nevada, Inc. Lennar New Jersey Properties, Inc. Lennar Northeast Properties, Inc. Lennar Northland I, Inc. Lennar Northland II, Inc. Lennar Northland III, Inc. Lennar Northland IV, Inc. Lennar Northland V, Inc. Lennar Northland VI, Inc. Lennar Pacific Properties Management, Inc. Lennar Pacific Properties, Inc. Lennar Pacific, Inc. Lennar Pacific, L.P. Lennar PNW, Inc. Lennar Port Imperial South Building 10, LLC Lennar Port Imperial South Building 12, LLC Lennar Port Imperial South, LLC Lennar Realty, Inc. Lennar Renaissance, Inc. Lennar Reno, LLC Lennar Riverside West Holdings, LLC Lennar Riverside West Limited Partnership Lennar Riverside West Urban Renewal Company, L.L.C. Lennar Sacramento, Inc. Lennar Sales Corp. Lennar San Jose Holdings, Inc. Lennar Seaport Partners, LLC Lennar Southland I, Inc. Lennar Southland II, Inc. Lennar Southland III, Inc. Lennar Southwest Holding Corp. Lennar Texas Holding Company Lennar Trading Company, LP Lennar-Kings Lake, Inc. Lennar-Lantana Boatyard, Inc. Lennar.Com, Inc. Lennarstone Marketing Group, LLC LFS Holding Company, LLC LH Eastwind, LLC LHI Renaissance, LLC LLT, LLC LN, L.L.C. Long Point Development Corporation Lorton Station, LLC Lucerne Merged Condominiums, Inc. -------------------------------------------------------------------------------- M.A.P. Builders, Inc. Madrona Village L.L.C. Marlborough Development Corporation Mid-County Utilities, Inc. Midland Housing Industries Corp. Midland Investment Corporation Mission Viejo 12S Venture, LP Mission Viejo Holdings, Inc. New Home Brokerage, Inc. North County Land Company, LLC Northbridge L.L.C. Northeastern Properties LP, Inc. Northern Land Company, LLC NuHome Designs, L.L.C. Oceanpointe Development Corporation Orrin Thompson Construction Company Orrin Thompson Homes Corp. Paparone Construction Co. Parc Chestnut L.L.C. Parkside Estates L.L.C. Placer Vineyards, LLC Providence Glen L.L.C. Rancho Summit, LLC Rivenhome Corporation Riviera Land Corp. RRKTG Lumber, LLC Rutenberg Homes of Texas, Inc. Rutenberg Homes, Inc. S. Florida Construction II, LLC S. Florida Construction III, LLC S. Florida Construction, LLC SEA Joint Venture, LLC SFHR Management, L.L.C. Silver Lakes-Gateway Clubhouse, Inc. Sonoma L.L.C. South Park Development, LLC Spanish Springs Development, LLC Stoney Corporation Stoneybrook Golf Club, Inc. Strategic Cable Technologies, L.P. Strategic Holdings, Inc. Strategic Technologies Communications of California, Inc. Strategic Technologies, Inc. Summerway Investment Corp. Summerwood, L.L.C. Summit Acquisition Corp. -------------------------------------------------------------------------------- Summit Enclave, L.L.C. Summit Land, L.L.C. Summit Ridge 23, L.L.C. Summit Townes, L.L.C. Summit-Meadowbrook, L.L.C. Summit-Reserve, L.L.C. Sunstar Enterprises, LLC The Club at Stoneybrook, Inc. The Courts of Indian Creek L.L.C. The Fortress Group, Inc. The Grande By Lennar Builders, Inc. The Sexton L.L.C. U.S. Home Associates Management, Inc. U.S. Home Corporation U.S. Home of Arizona Construction Co. U.S. Home of West Virginia, Inc. U.S. Home Realty Corporation U.S. Home Realty, Inc. U.S. Home Southwest Holding Corp. U.S.H. Realty, Inc. U.S.H. Corporation of New York U.S.H. Los Prados, Inc. University Community Partners, LLC USH (West Lake), Inc. USH Acquisition Corp. USH Apartments Corporation USH Bickford, LLC USH Equity Corporation USH Heritage Pom, L.L.C. USH Millennium Ventures Corp. USH Woodbridge, Inc. USHHH, Inc. Villages of Rio Pinar Club, Inc. West Adams Street L.L.C. West Chocolate Bayou Development Corp. Westbrook Homes, LLC Westchase, Inc. Westchase, Ltd. Weststone Corporation   as Guarantors By:   /s/ BRUCE E. GROSS   Name:   Bruce E. Gross   Title:   Chief Financial Officer

Exhibit 10.93 INVITROGEN CORPORATION’S EXECUTIVE OFFICER SEVERANCE PLAN AND SUMMARY PLAN DESCRIPTION   EFFECTIVE FEBRUARY 28, 2006 -------------------------------------------------------------------------------- TABLE OF CONTENTS             Page I.    INTRODUCTION    1 II.    ELIGIBILITY    1 III.    SEVERANCE BENEFITS    2 IV.    CLAIMS PROCEDURE    4 V.    STATEMENT OF RIGHTS UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (“ERISA”)    4 VI.    AMENDMENT AND TERMINATION    5 VII.    EMPLOYMENT RIGHTS    5 VIII.    NONALIENATION OF BENEFITS    5 IX.    GOVERNING LAW    5 X.    GENERAL INFORMATION    5 -------------------------------------------------------------------------------- INVITROGEN CORPORATION’S EXECUTIVE OFFICER SEVERANCE PLAN AND SUMMARY PLAN DESCRIPTION   I. INTRODUCTION Invitrogen Corporation (“Invitrogen”) hereby adopts the Invitrogen Corporation Executive Officer Severance Plan and Summary Plan Description (the “Plan”), to provide severance benefits to eligible executives of Invitrogen whose employment is terminated involuntarily under certain circumstances. The Plan is effective as of February 28, 2006, and supersedes any and all other severance plans, policies or practices, including but not limited to the Invitrogen Corporation Executive Officer Severance Plan and Summary Plan Description, effective November 1, 2004. All benefit determinations under the Plan and interpretation of Plan provisions will be made by Invitrogen (or its designee) in its sole discretion as Plan Administrator. The Plan is described in further detail below.   II. ELIGIBILITY Any executive currently working for Invitrogen at the executive officer level (EL-2 and above) whose employment is terminated involuntarily is eligible for severance benefits described in Section III of this Plan, PROVIDED each of the following requirements is met: 1. The termination of employment is involuntary. The termination is involuntary if initiated by Invitrogen. 2. The termination is not due to retirement, death or disability of the executive. 3. The termination of employment is not for “cause” (as defined below). Employment is terminated involuntarily if the termination action is initiated by Invitrogen and is not for cause. For purposes of the Plan, “cause” shall mean the following: a. Acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of the executive with respect to his/her obligations or otherwise relating to the business of Invitrogen, its affiliates or customers; b. The executive’s material breach of the Information and Technology Agreement; c. The executive’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; or d. The executive’s willful neglect of duties as determined in the sole and exclusive discretion of Invitrogen. Invitrogen, as Plan Administrator, will, in its sole discretion, determine if a termination of employment is for “cause.” 4. The executive is not a temporary employee or a new hire who has not yet started to work on a regular, full-time or part-time basis.   - 1 - -------------------------------------------------------------------------------- 5. The executive is not covered under any other severance-type plan, policy, arrangement or agreement that provides severance payments and benefits more favorable in the aggregate to those provided herein. If any such plan, policy, arrangement or agreement exists, the executive will receive payments and benefits pursuant to that plan, policy, arrangement or agreement and shall not receive any of the severance payments and benefits described herein. If the severance payments and benefits provided under any other severance-type plan, policy, arrangement or agreement are less favorable in the aggregate than the severance payments and benefits described in this Plan, than the executive will be eligible for the severance payments and benefits described herein, provided that all of the remainder of the eligibility requirements are met. In no case, will the executive receive severance payments and benefits under any other such severance-type plan, policy, arrangement or agreement and this Plan. 6. The executive has not agreed in writing to waive severance benefits under this Plan or otherwise payable from Invitrogen. 7. The executive signs and does not revoke a Confidential Separation Agreement and General Release of All Claims (“Separation Agreement”) in a form acceptable to Invitrogen. Such Separation Agreement provides for a full, general release of all claims, known and unknown, suspected and unsuspected, by the eligible executive, as well as agreements pertaining to nondisparagement, confidentiality, return of Invitrogen property, among other provisions and may contain, at Invitrogen’s sole and absolute discretion, a 12-month covenant not to compete and a 12-month nonsolicitation of customers and/or employees provision, all of which shall be drafted to comply with applicable governing law. 8. The executive has returned all Invitrogen property and equipment. A terminated executive must satisfy all of the requirements set forth above in order to receive severance benefits under the Plan. Eligibility for severance benefits under the Plan will be determined by Invitrogen upon an eligible executive’s termination of employment. Invitrogen has full power and authority to interpret the provisions of the Plan and render decisions on eligibility for benefits. If Invitrogen determines that an eligible executive satisfies all of the eligibility conditions described above, the executive will receive severance benefits calculated in accordance with Section III below. The severance benefits will be paid following the eligible executive’s termination of employment in accordance with the terms set forth below and in the Separation Agreement.   III. SEVERANCE BENEFITS A. Severance Pay and Benefits. The following severance pay and benefits are payable under this Plan: 1. Severance Pay. The amount of severance pay provided to an eligible involuntarily terminated executive under this Plan is twelve (12) months of base salary. The amount of severance payable to an eligible executive shall be based upon the executive’s regular weekly base salary in effect immediately before his/her termination of employment. The weekly salary shall be determined without regard to any overtime, bonuses, fringe benefits, reimbursements or other irregular payments.   - 2 - -------------------------------------------------------------------------------- Severance will be paid in accordance with one of the following two payment schedules, to be determined by Invitrogen at its discretion at the time of the executive’s termination: (a) over time in accordance with Invitrogen’s regular payroll practices, provided that all such payments are made by March 15 of the year following the year in which the termination occurs; or (b) all severance payments will be delayed six (6) months from the date of termination, at which time a lump sum payment equal to six (6) months of the executive’s base salary, plus an interest payment calculated using the six-month Libor rate, will be made. The remaining severance payments (equal to six (6) months of the executive’s base salary) will be made thereafter in accordance with Invitrogen’s regular payroll practices. 2. Incentive Bonus. The executive will receive his/her target incentive bonus under Invitrogen’s Incentive Compensation Plan (“ICP”) for the year in which the termination occurred, prorated to the date of termination, payable in a lump sum within thirty (30) days of the date of termination if the executive is paid severance according to the schedule described in section III.A.1.a or in six months if the executive is paid severance according to the schedule described in section III.A.1.b. An incentive payment made after six months will include an interest payment calculated using the six-month Libor rate. 3. Outplacement Services. Invitrogen will provide nine (9) months of outplacement assistance through a designated service provider to eligible executives. In no event shall an eligible executive receive cash or other severance benefits in lieu of outplacement assistance. 4. Continuation of Group Health Insurance Coverage. Invitrogen will also pay for the monthly premiums required to continue an eligible executive’s group health insurance coverage for a period of twelve (12) months. Continuation of group health insurance coverage will be on the same terms as during the executive’s employment, provided the executive elects to continue such benefits and remains eligible to receive such benefits in accordance with the applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). If an eligible executive’s group health insurance coverage included his/her dependents immediately prior to the executive’s Separation Date, such dependents shall also be covered at Invitrogen’s expense. All severance payments and benefits will be made less applicable taxes and withholdings. B. No Separate Fund. All severance benefits payable under the Plan are payable from Invitrogen’s general assets. There is no separate trust or fund established for the payment of severance benefits under the Plan. All amounts shall be less all appropriate deductions, including federal, state and local withholding taxes. C. Additional Benefits. Invitrogen reserves the right to pay benefits in addition to those required by the Plan based on special circumstances. Each exception will be considered unique and not precedent-setting. Payment of additional amounts or provision of additional benefits will be subject to such terms and conditions as Invitrogen may determine. All such determinations shall be made by Invitrogen in its sole and absolute discretion.   - 3 - -------------------------------------------------------------------------------- IV. CLAIMS PROCEDURE Severance benefits under this Plan will automatically be paid to executives who qualify for such benefits. An executive who believes that he or she is entitled to severance benefits under this Plan that have not been provided should file a claim with Invitrogen’s Human Resources Department. The claim must be in writing. If the claim is denied, written notice of the denial will be provided within 90 days (180 days if additional processing time is required) of the initial receipt of the claim. Such notice will include an explanation of the factors on which the denial is based (including specific reasons for the denial and specific references to plan provisions) and what, if any, additional information is needed to support the claim or to request a review of the decision. Further review of the claim and access to relevant plan information may be obtained by filing a written request for review with the Human Resources Department within 60 days of receiving the denial. The decision on review will be made no later than 60 days (120 days if additional processing time is required) after the request for review is received and shall contain an explanation of the right to file suit under ERISA Section 502(a) with respect to a claim denied upon such review.   V. STATEMENT OF RIGHTS UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (“ERISA”) The Plan is an employee benefit plan subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The following statement is required by ERISA: ERISA provides that all employees who may become eligible for benefits under the Plan shall be entitled to:     1. Examine, without charge, at Invitrogen’s offices all documents relating to the Plan.     2. Obtain copies of all documents relating to the Plan upon written request. A reasonable charge may be imposed for the copies. In addition to creating rights for employees, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. These people, called “fiduciaries” of the plan, have a duty to act prudently and in the interest of all employees. No one, including Invitrogen, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA. If your claim for a benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have Invitrogen review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from Invitrogen and do not receive them within 30 days, you may file a suit in federal court and the court may require Invitrogen to provide the materials and pay you a penalty of up to $110 per day until you receive the materials, unless the materials were not sent because of reasons beyond the control of Invitrogen. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you   - 4 - -------------------------------------------------------------------------------- have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous. If you have any questions about the Plan, you should contact Invitrogen (Human Resources). If you have any questions about this statement or about your rights under ERISA, you should contact the nearest Area Office of the Employee Benefits Security Administration, U.S. Department of Labor listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.   VI. AMENDMENT AND TERMINATION Invitrogen, by action of its Board of Directors or by action of any committee appointed by the Board to administer the Plan, reserves the right to terminate or amend the Plan at any time and in any manner in its sole discretion. No executive shall have any vested interest in severance benefits payable under this Plan prior to satisfying all of the terms and conditions for payment of benefits under this Plan.   VII. EMPLOYMENT RIGHTS Nothing in this Plan shall have any effect on Invitrogen’s right to terminate an executive, with or without cause, at any time (subject to the terms of any written employment contract between the executive and Invitrogen). The payment of severance benefits under this Plan does not extend an executive’s term of employment.   VIII. NONALIENATION OF BENEFITS No benefit under the Plan may be assigned, transferred, pledged as security for indebtedness or otherwise encumbered by any eligible executive or subject to any legal process for the payment of any claim against an eligible executive.   IX. GOVERNING LAW This Plan shall be governed by and construed in accordance with the laws of the State of California to the extent such laws are not preempted by ERISA.   X. GENERAL INFORMATION   Employer and Plan Administrator Name:    Invitrogen Corporation 1600 Faraday Avenue Carlsbad, California 92008 Employer Identification Number:    33 037 3077 Plan Number:    10011 Type of Plan:    The Plan is an unfunded welfare benefit plan providing severance benefits Agent For Service of Process:    Corporate Creations International Inc. 11380 Prosperity Farms Road #221E Palm Beach Gardens, Florida 33410 Plan Year:    Calendar   - 5 -

EXHIBIT 10.1   Zions Bancorporation 2006 – 2008 Value Sharing Plan   Objective: The purpose of the 2006 – 2008 Zions Bancorporation Value Sharing Plan (the “Plan”) is to provide a three-year incentive plan for selected members of the senior management group and other key managers of Zions Bancorporation (the “Company”) and its subsidiaries. It is designed to create long-term shareholder value by focusing the Participant’s attention on improving the Company’s financial results over a three-year period.   Eligibility: Selected key members of the senior management group and other key managers in the Company its subsidiaries as determined by the Zions Bancorporation (the “Company”) Board of Directors (the “Board”) or its Executive Compensation Committee (the “Committee”).   Effective Date: January 1, 2006, through December 31, 2008 (the “Award Period”).   Frequency of Awards: Subject to the deferral provisions enumerated in the Plan, the incentives, if any, earned under this Plan will be paid within ninety days after the end of the Award Period.   Plan Administrator: The Plan is to be governed and interpreted by the Committee.   How the Plan Works:   1) Establishment of Award Fund   An Award Fund will be established, the size of which will be based upon two factors: a.) “Plan Marginal Qualifying Earnings” during the Award Period, and b.) “Plan Marginal Return on Equity”, both of which are more fully outlined in the Appendix, and in “Calculation Methodology,” below.   2) Participation Units   Each Participant designated by the Committee shall be awarded a specific number of Participation Units (“Units”), representing a pro-rata claim, in proportion to the total number of designated Units, on any Award Fund generated under this Plan during the Award Period.   3) Calculation Methodology     a) In order for any Award Fund to be established under this Plan, a minimum level of Plan Qualifying Earnings and Plan Marginal ROE must be achieved during the Award Period, as indicated in the Appendix.     b) Plan Qualifying Earnings is defined as the total of the following items during the Award Period, divided by average fully diluted shares during the Award Period:   Page 1 -------------------------------------------------------------------------------- 2006 – 2008 Value Sharing Plan Page 2     i) cumulative net income after taxes and minority interests;     ii) plus, the after-tax expense incurred during the Award Period resulting from grants of restricted shares and stock options;     iii) plus, an adjustment equal to (1– the Company’s then-prevailing marginal combined state and federal income tax rate) times the sum of:     1. the amount by which the Company’s Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (together, the “Loss Reserve”) “midpoint of range” value exceeds the actual value at the inception of the Award Period, and;     2. the amount by which the Loss Reserve actual value exceeds the “midpoint of range” value at the end of the Award Period.   Note: in the event of a change in methodology in determining Loss Reserves during the Award Period, the Committee reserves the right, in its sole discretion, to make such adjustments as may be deemed necessary and equitable to conform the Plan to the new methodology.     iv) plus:     1. (the Company’s average tangible assets over the course of the Award Period x .065) – (the Company’s average tangible common shareholders’ equity over the course of the Award Period) times:     2. (1 – the Company’s then-prevailing marginal combined state and federal income tax rate) times:     3. the average of the five-year U.S. Treasury Note rate at each quarter end during the Award Period.     c) “Base Qualifying Earnings” is defined as the total of the following items during the “Base Period” (e.g. January 1, 2005 –December 31, 2005), divided by average fully diluted shares during the Base Period:     i) net income after taxes and minority interests;     ii) plus, an adjustment to reflect the effect of the acquisition of Amegy Bancorporation, as though the transaction had been consummated at the beginning of 2005, using the $75.8 million in 2005 net income (as projected in the Lehman Bros. presentation to the Company’s board of directors on July 5, 2005) plus 1/3 of the projected after-tax cost of net additional amortization of core deposit and other intangibles arising from the transaction;     iii) plus, the after-tax expense incurred during the Base Period resulting from grants of restricted shares; -------------------------------------------------------------------------------- 2006 – 2008 Value Sharing Plan Page 3     iv) plus:     1. (the Company’s average tangible assets during the Base Period x .065) – (the Company’s average tangible common shareholders’ equity during the Base Period) times:     2. (1– the Company’s then-prevailing marginal combined state and federal income tax rate) times:     3. the average of the five-year U.S. Treasury Note rate at each quarter end during the Base Period.     d) “Plan Marginal Qualifying Earnings” is defined as:     (a) Plan Qualifying Earnings   Less,     (b) three times Base Qualifying Earnings.     e) Plan Marginal ROE is defined as:       i) Plan Marginal Qualifying Earnings;     Divided by,     ii) (the Company’s average tangible assets over the course of the Award Period x .065)—(the Company’s average tangible assets during the Base Period x .065).     f) Other Adjustments     i) In the event the Company engages in one or more acquisitions during the Award Period, the Committee may make such adjustments to Plan or Base Qualifying Earnings and/or Plan Marginal ROE as are required to neutralize, to the extent possible, the effects of any such acquisition on the Award Fund. Such adjustments shall be made at the Committee’s sole discretion, but shall generally be based upon the pro-forma financial projections presented to the Board in justification of the acquisition.     ii) Any Award Fund established under this Plan must be fully accrued and reflected in Plan Qualifying Earnings.     iii) Unusual or “one-time” gains or losses may be subtracted from or added to Plan Qualifying Earnings at the sole discretion of the Committee.   4) Other Administrative Provisions     (1) This is a discretionary Plan governed and interpreted by the Committee, whose decisions shall be final. The intent of the Plan is to fairly reward Participants for increasing shareholder value. If any adjustments need to be made to allow this Plan to accomplish its purpose, the Committee in its sole discretion can make those adjustments. -------------------------------------------------------------------------------- 2006 – 2008 Value Sharing Plan Page 4     (2) The Board may, at its sole discretion, alter the terms of the Plan at any time during an Award Period.     (3) Participants will not vest in any benefits available under the Plan until the conclusion of the Award Period.     (4) Participants must be employed by the Company or one of its subsidiaries at the time payment is made. Nevertheless, upon death, permanent disability, or normal or early retirement (unless upon early retirement the Participant becomes employed by an entity which competes with Zions Bancorporation or any of its subsidiaries), Participant (or his/her estate) shall be eligible to receive a pro-rata incentive payment at the conclusion of the Award Period. This award will be based upon the Participant’s calculated award as approved by the Board or Committee for the performance achieved for the number of full calendar quarters the Participant was engaged as an officer of the Company or its subsidiaries prior to death, disability or retirement. For purposes of this Plan, a Participant will generally not be considered eligible for early retirement before age 55, or for normal retirement before age 65, unless otherwise approved by the Committee.     (5) Each Participant will be required to defer for one year any incentive payment amount in excess of 100% of his/her base salary as in effect at December 31, 2008 or at such earlier date as of the Participant’s termination of employment with the Company (except that, in the event the deferred amount is less than $10,000, the entire amount shall be immediately payable within ninety days of the end of the Award Period). Payment of the deferred amount will be paid by March 15, 2010, if conditions established in paragraph D) 4 above are met.     (6) The Company shall retain the right to withhold payment of incentives to Participants in the event of a significant deterioration in the Company’s financial condition, or if so required by regulatory authorities, or for any other reason considered valid by the Board in its sole discretion.     (7) Designation as a Participant in the Plan does not create a contract of employment for any specified time, nor shall such act to alter or amend the Company’s “at-will” policy of employment.     (8) In the event a Participant transfers within Zions Bancorporation during the Award Period, he/she may be eligible to receive a pro-rata award from each participating Zions entity based on the number of months in each entity and each entity’s financial performance.     (9) In the event of a change in control of the Company (as defined in the Company’s Change in Control Plan), the Plan will be terminated and payments shall be made in accordance with the provisions of section 3 (b) of the Change in Control Plan.     (10) This document is intended to provide a guideline for the creation and distribution of incentive compensation. Nothing herein creates a -------------------------------------------------------------------------------- 2006 – 2008 Value Sharing Plan Page 5     contractual obligation binding on the Board, and no Participant shall have any legal rights with respect to an Award until such Award is distributed.   APPENDIX     •   The minimum Plan Qualifying Earnings of Zions Bancorporation which must be achieved for payment of awards is $17.11 per share, which represents 5% annual compounded growth in Base Qualifying Earnings over the course of the Award Period. (Base Qualifying Earnings is $5.28.)     •   The Award Fund is calculated by multiplying Plan Marginal Qualifying Earnings by 3.289%.   The minimum Plan Marginal ROE of Zions Bancorporation that must be achieved for payment of awards is 11.00%.     •   The Award Fund shall be increased by a multiplier, based upon the achievement of Plan Marginal ROE as follows:     If the Plan Marginal ROE is:   Then the multiplier is: 11.00% or less   -0- 14.00%   1.00 17.00%   1.50 20.00%   2.00 21.50% or greater   2.25 The multiplier will be interpolated for Plan Marginal ROE levels falling between these benchmarks.             •   The maximum Award Fund that may be created under this Plan is $54,973,750, which equates to $4.25 per unit.   The value of each Unit shall be equal to the total amount in the Award Fund, divided by 12,935,000. -------------------------------------------------------------------------------- 2006 – 2008 Value Sharing Plan Page 6   Example:   If a Participant in the Zions Bancorporation 2006 – 2008 Value Sharing Plan is awarded 150,000 units; the total Plan Qualifying Earnings amount to $20.33 per share; the Plan Marginal ROE is 17.5%; and the average fully diluted outstanding shares total 108,300,000, the amount of the incentive award would be:   Unadjusted Award Fund:   $ 20.33 - 15.84   $ 4.49 X 3.289%   $.1477 X 108,300,000   $15,993,322   Multiplier:   1.5 + (.175 -.17) X (2.0 – 1.5) = 1.5833 (.20 - .17)   Total Award Fund:   $15,993,322 X 1.5833 = $25,322,227   Individual Unit Value:   $25,322,227 /12,935,000 = $1.9577   Total Value of Units:   150,000 X $1.9577 = $293,655.00

EXHIBIT 10.23 SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT is made and entered into as of January 16, 1993, by and between LUFKIN INDUSTRIES, INC., a Texas corporation (the “Company”) and DOUGLAS V. SMITH of Lufkin, Texas (the “Executive”). WHEREAS, the Company currently employs the Executive as President and Chief Executive Officer, subject to the terms and conditions of an Employment Agreement of even date herewith (the “Employment Agreement”); and WHEREAS, the board of directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to provide certain terms and conditions of the Executive’s employment upon the occurrence of a “Change in Control”, as defined below, such terms and conditions being intended to apply independently of the Employment Agreement; NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other consideration mutually acknowledged, the Company and the Executive (the “Parties”) agree as follows:     1. Term. The term of this Severance Agreement (the “Term”) shall commence on the date first set forth above (the “Start Date”), and shall continue through December 31, 1995; provided, however, that on December 31, 1994 and on each succeeding -------------------------------------------------------------------------------- December 31, the Term shall automatically extend for one calendar year, unless either party gives written notice to the contrary at least sixty (60) days prior to the date the Agreement would otherwise be extended. Notwithstanding the above, if the Executive’s employment terminates for any reason prior to a Change in Control then, except as provided in Section 2(c), this Agreement shall terminate.     2. Employment. (a) If, during the Term, a Change in Control occurs while the Executive is employed by the Company, the Company shall continue to employ the Executive, and the Executive shall remain in employment, subject to this Agreement, for the period commencing on the Effective Date (as defined below) and ending on the earlier of (A) the third anniversary of such date, or (B) the first day of the month coinciding with or next following the Executive’s Normal Retirement Date (the “Protection Period”). (b) For purposes of this Severance Agreement, the Effective Date shall be the date on which occurs the earliest of the following events, each of which is hereinafter referred as a “Change in Control”: (i) any “person,” as such term is used in Section 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under an executive benefit plan of the Company, or any company owned, directly or indirectly, by the shareholders of the Company in   2 -------------------------------------------------------------------------------- substantially the same proportions as their ownership of stock of the Company) together with its “Affiliates” and “Associates”, as such term is defined in Rule 12b-2 of the Exchange Act, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the Company’s common stock or of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, 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 (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company’s shareholders 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 whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other company other than (A) 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   3 -------------------------------------------------------------------------------- securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger or consolidation, or (B) 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 25% of the combined voting power of the Company’s then outstanding securities; or (iv) the shareholders of the Company adopt a plan of complete liquidation of the Company or approve an agreement for the sale, exchange or disposition by the Company of “all or a significant portion of the Company’s assets,” which for this purpose shall mean a sale or other disposition transaction or series of related transactions involving assets of the Company or any Subsidiary (as defined below) (including the stock of any Subsidiary) in which the value of the assets or stock being sold or otherwise disposed of (as measured by the purchase price being paid therefor or by such other method as the Board determines is appropriate in a case where there is no readily ascertainable purchase price) constitutes more than 25% of the fair market value of the Company (as hereinafter defined). For purposes of the preceding sentence, the “fair market value of the Company” shall be the aggregate market value of the outstanding shares of common stock of the Company (on a fully diluted basis) plus the aggregate market value of the Company’s other outstanding equity securities. The aggregate market value of the shares of common   4 -------------------------------------------------------------------------------- stock of the Company shall be determined by multiplying the number of shares of the Company’s common stock (on a fully diluted basis) outstanding on the date of the execution and delivery of a definitive agreement with respect to the transaction or series of related transactions (the “Transaction Date”) by the Market Value Per Share immediately preceding the Transaction Date or by such other method as the Board shall reasonably determine is appropriate. The aggregate market value of any other equity securities of the Company shall be determined in a manner similar to that prescribed in the immediately preceding sentence for determining the aggregate market value of the shares of common stock of the Company or by such other method as the Board shall reasonably determine is appropriate. (c) If the Executive’s employment with the Company is terminated other than for Cause prior to a date on which a Change in Control occurs of if the Executive’s employment with the Company is affected prior to the date on which a Change in Control occurs in a way which if occurring after a Change in Control would constitute Good Reason (as defined in Section 4.4(b) of this Severance Agreement), and it is reasonably demonstrated that such termination or effect (1) was at the request of a third party who had taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or anticipation of a Change in Control, then both the Change in Control and the Effective Date shall be deemed to have occurred on the date immediately prior to such   5 -------------------------------------------------------------------------------- termination of employment or effect upon the Executive’s employment and the Executive’s rights shall be as determined under Section 4.4 below on such basis.     3. Terms of Employment.     (a) Position and Duties. (i) During the Protection Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was employed immediately preceding the Effective Date, or any office or location less than thirty-five (35) miles from such location. (ii) During the Protection Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Protection Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill   6 -------------------------------------------------------------------------------- speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an executive of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto), subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.     (b) Compensation. (i) Base Salary. During the Protection Period the Executive shall receive a base salary (“Base Salary”) at a monthly rate at least equal to the highest monthly base salary paid or payable to the Executive by the Company during the thirty-six month period immediately preceding the month in which the Effective Date occurs. During the Protection Period, the Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other key executives of the Company and its subsidiaries. Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Base Salary shall not be reduced after any such increase.   7 -------------------------------------------------------------------------------- (ii) Annual Bonus. In addition to Base Salary, the Executive shall be awarded, for each fiscal year during the Protection Period, an annual bonus (an “Annual Bonus”) in cash at least equal to the highest bonus payable to the Executive from the Company and its subsidiaries in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs. (iii) Incentive, Savings and Retirement Plans. In addition to Base Salary and Annual Bonus payable as hereinafter provided, the Executive shall be entitled to participate during the Protection Period in all incentive, savings and retirement plans, practices, policies and programs applicable to other key executives of the Company and its subsidiaries, in each case providing benefits which are the economic equivalent to those in effect or as subsequently amended. Such plans, practices, policies and programs, in the aggregate, shall provide the Executive with compensation, benefits and reward opportunities at least as favorable as the most favorable of such compensation, benefits and reward opportunities provided by the Company for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided at any time thereafter with respect to other key executives of the Company and its subsidiaries.   8 -------------------------------------------------------------------------------- (iv) Welfare Benefit Plans. During the Protection Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its subsidiaries, at least as favorable as the most favorable of such plans, practices, policies and programs in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries. (v) Expenses. During the Protection Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries. (vi) Fringe Benefits. During the Protection Period, the Executive shall be entitled to fringe benefits, including use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective   9 -------------------------------------------------------------------------------- Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries. (vii) Office and Support Staff. During the Protection Period, the Executive shall be entitled to an office or offices of a size and with furnishing and other appointments, and to secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its subsidiaries at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided at any time thereafter with respect to other key executives of the Company and its subsidiaries. (viii) Vacation. During the Protection Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its subsidiaries as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries.     4. Termination of Employment. The Executive’s employment is subject to termination during the Protection Period only as provided in this Section 4.   10 --------------------------------------------------------------------------------   4.1 Death or Disability. If the Executive’s employment is terminated due to his death or total disability, as determined under the Company’s applicable long-term disability plan, this Agreement shall terminate without further obligations to the Executive or in the case of the Executive’s death to the Executive’s legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Executive as of the date of termination of employment (the “Termination Date”), including, for this purpose (i) the Executive’s full Base Salary through the Termination Date at the rate in effect on the Termination Date or, if higher, at the highest rate in effect at any time from the 90-day period preceding the Effective Date through the Termination Date (the “Highest Base Salary”), (ii) the product of (A) the Annual Bonus, if any, paid to the Executive for the last full fiscal year and (B) a fraction, the numerator of which is the number of days in the current fiscal year through the Termination Date, and the denominator of which is 365, and (iii) any compensation previously deferred by the Executive (together with any accrued interest thereon) , and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (such amounts specified in clauses (i) , (ii) and (iii) are hereinafter referred to as “Accrued Obligations”). All such Accrued Obligations shall be paid to the Executive or in the event of the Executive’s death to the Executive’s estate or beneficiary, as applicable, in a   11 -------------------------------------------------------------------------------- lump sum in cash within thirty (30) days of the Termination Date. Anything in this Agreement to the contrary notwithstanding, the Executive, or the Executive’s family as appropriate, shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Company and any of its subsidiaries under all plans, programs, practices and policies relating to disability or family death benefits, as applicable, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect on the date of the Executive’s disability or death with respect to other key executives of the Company and its subsidiaries and their families.     4.2 Termination by the Company for Cause. If the Company terminates the Executive’s employment for Cause, as defined below, the Executive shall be entitled only to Highest Base Salary and benefits accrued as of the effective date of such termination plus the amount of any compensation previously deferred by the Executive (together with accrued interest thereon). Any other benefits shall be determined under applicable plans, programs or other coverages maintained by the Company. For purposes of this Severance Agreement, the term “Cause” shall mean: (i) an act or acts of personal dishonesty taken by the Executive and intended to result in   12 -------------------------------------------------------------------------------- substantial personal enrichment of the Executive at the expense of the Company; (ii) repeated violations by the Executive of the Executive’s obligations under Section 3 of this Agreement which are demonstrably willful and deliberate on the Executive’s part and which are not remedied in a reasonable period of time after receipt of written notice from the Company; or (iii) the conviction of the Executive of, or plea of nolo contendere by the Executive to, a felony. The Executive must be notified in writing of any termination of his employment for Cause, which writing shall set forth in reasonable detail the facts and circumstances relied upon therefor. The Executive will then have the right, within ten days of receipt of such notice, to file a written request for review. In such case, the Executive will be given the opportunity to be heard, personally or by counsel, by the members of the Board who are not then executives of the Company (the “Independent Directors”) and a majority of the Independent Directors must thereafter confirm that such termination is for Cause. If the Independent Directors do not provide such confirmation, the termination shall be treated as a termination by the Company without Cause.     4.3 Termination by the Executive. The Executive may terminate his employment at any time in which case, except as otherwise provided in Sections   13 -------------------------------------------------------------------------------- 4.4 and 4.5 below, the Executive shall be entitled only to his salary and benefits accrued or earned and vested (if applicable) as of the date of termination, including for this purpose, all Accrued Obligations.     4.4 Termination of the Executive for Good Reason; Termination by the Company without Cause. (a) In General. In the event the Executive’s employment is terminated during the Protection Period (i) by the Executive for Good Reason (as defined below), or (ii) by the Company without Cause, then: (i) the Company shall pay to the Executive in a lump sum in cash within 3 0 days after the Termination Date the aggregate of the following amounts: A. to the extent not theretofore paid, the Executive’s Highest Base Salary through the Termination Date; B. the product of (x) the Annual Bonus paid to the Executive for the last full fiscal year (if any) ending during the Protection Period or, if higher, the Annual Bonus paid to the Executive for the last full fiscal year prior to the Effective Date (as applicable, the “Recent Bonus”) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Termination Date and the denominator of which is 365; C. the product of (x) 3.00 and (y) the sum of (i) the Highest Base Salary and (ii) the Recent Bonus; and D. in the case of compensation previously deferred by the Executive, all amounts previously deferred   14 -------------------------------------------------------------------------------- (together with any accrued interest thereon) and not yet paid by the Company, and any accrued vacation pay not yet paid by the Company; (ii) the Executive shall be entitled to receive a lump sum retirement benefit equal to the difference between (a) the actuarial equivalent of the benefit the Executive would receive under all retirement plans if he remained employed by the Company at the compensation level provided for in Section 3 of this Agreement for the remainder of the Protection Period and (b) the actuarial equivalent of his benefit, if any, actually accrued under the Company’s plans; and (iii) for the remainder of the Protection Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies as described in Section 3 of this Agreement if the Executive’s employment had not been terminated, including health insurance and life insurance, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries during the 90-day period immediately preceding the Effective Date, or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries and their families and for purposes of eligibility for retiree benefits pursuant to such plans, practices, programs   15 -------------------------------------------------------------------------------- and policies, the Executive shall be considered to have remained employed until the end of the Protection Period, to have retired on the last day of such period and to have satisfied all conditions for eligibility for all such retiree benefits. (b) Good Reason. For purposes of this Severance Agreement, Good Reason means any one of the following shall have occurred and not been corrected within ten days following written notice to the Company: (i) the Executive reports to someone other than (A) an Independent Board, as defined below, (B) the board of directors of the “Parent”, as defined below or (C) the chief executive officer of the Parent; (ii) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 of this Agreement, or any other action by the Company or any affiliate which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any failure by the company to comply with any of the provisions of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure not   16 -------------------------------------------------------------------------------- occurring in bad faith which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iv) the Company’s requiring the Executive to be based at any office or location other than that described in Section 3 hereof, except for travel reasonably required in the performance of the Executive’s responsibilities; (v) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or (vi) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement. The term “Parent” means any corporation which has acquired, directly or indirectly, 25% or more of the combined voting power of the Company’s outstanding securities, and the term “Independent Board” means a board of directors of the Company a majority of which are individuals who are neither affiliates of the Parent nor employees of the Parent or its affiliates. For purposes of this Section 4.4(b), any good faith determination of “Good Reason” made by the Executive shall be final and binding upon the Parties.     4.5 Termination by the Executive Following the First Anniversary of the Protection Period. (a) General. In the event that the Executive remains in the employ of the Company on the first day of the month coinciding with or next following the first anniversary of the Effective Date (the “Anniversary Date”), then the Executive may   17 -------------------------------------------------------------------------------- elect the provisions of this Section 4.5 by delivering a notice of termination within the period commencing on the Anniversary Date and ending thirty days after the Anniversary Date (the “Window Period”), resigning as a director if applicable, and officer, and terminating his employment. If the Company receives such notice of termination from the Executive within the Window Period, then the Executive shall be entitled to the same compensation, benefits and other remuneration as described in Section 4.4 applicable to a termination by the Company without Cause.     5. Confidential Information. The Executive shall not, at any time, except in good faith in the performance of his duties for the Company, divulge any trade secrets or other proprietary or confidential information concerning the accounts, business or affairs of the Company, which shall have been obtained by the Executive during the Executive’s employment by the Company and which shall not be or become public knowledge other than by acts of the Executive in violation of this Agreement (except such information as is required by law or legal process to be divulged, in which case he shall give the Company prompt notice of such required disclosure and use his reasonable best efforts, in cooperation with the Company, to defend against any such required disclosure). However, in no event shall an asserted violation of the provisions of this Section 5 constitute a basis for deferring or   18 -------------------------------------------------------------------------------- withholding any amounts otherwise payable to the Executive under this Agreement.     6. Indemnification 6.1 If at any time the Executive is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, the Company shall indemnify the Executive and hold him harmless against reasonable expenses (including attorneys’ fees), judgments, fines, penalties, amounts paid in settlement and other liabilities actually and reasonably incurred by him in connection with such action, suit or proceeding to the full extent permitted by law. 6.2 Expenses (including attorneys’ fees) incurred by the Executive in appearing at, participating in, or defending any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, shall be paid by the Company at reasonable intervals in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by the Executive to repay such amounts if it shall ultimately be determined that he is not entitled to be indemnified.   19 -------------------------------------------------------------------------------- 6.3 All claims for indemnification under this Agreement shall be asserted and resolved as follows:     (i) The Executive (a) shall promptly notify the Company of any third-party claim or claims asserted against him (“Third Party Claim”) that could give rise to a right of indemnification under this Agreement and (ii) shall transmit to the Company a written notice (“Claim Notice”) describing in reasonable detail the nature of the Third Party Claim, a copy of all papers served with respect to such claim (if any), and the basis of his request for indemnification under this Agreement,     (ii) Within 30 days after receipt of any Claim Notice (“Election Period”), the Company shall notify the Executive (a) whether the Company disputes its potential liability to the Executive under this Section 6 with respect to such Third Party Claim and (b) whether the Company desires, at its sole cost and expense, to defend the Executive against such Third Party Claim by any appropriate proceedings, which   20 --------------------------------------------------------------------------------   proceedings shall be prosecuted diligently by the Company to a final conclusion or settled at the discretion of the Company in accordance with this Subsection 6.3(ii). The Company shall have full control of such defense and proceedings, including any compromise or settlement thereof. The Executive is hereby authorized, at the Company’s sole cost and expense (but only if he is actually entitled to indemnification hereunder or if the Company assumes the defense with respect to the Third Party Claim), to file, during the Election Period, any motion, answer or other pleadings which he shall deem necessary or appropriate to protect his interests or those of the Company and not prejudicial to the Company. If requested by the Company, the Executive agrees, at the Company’s sole cost and expense, to cooperate with the Company and its counsel in contesting any Third Party Claim that the Company elects to contest, including without limitation, through the making of any related   21 --------------------------------------------------------------------------------   counterclaim against the person asserting the Third Party Claim or any cross-complaint against any person. The Executive may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Company pursuant to this Section 6.3 and the Company shall bear his costs and expenses with respect to such participation.     (iii) If the Company fails to notify the Executive within the Election Period that the Company elects to defend the Executive pursuant to Subsection 6.3(ii), or if the Company elects to defend the Executive pursuant to Subsection 6.3(ii) but fails to diligently and promptly prosecute or settle the Third Party Claim, then the Executive shall have the right to defend, at the sole cost and expense of the Company, the Third Party Claim. The Executive shall have full control of such defense and proceedings; provided, however, that the Executive may not enter into, without the Company’s   22 --------------------------------------------------------------------------------   consent, which shall not be unreasonably withheld, any compromise or settlement of such Third Party Claim. Notwithstanding the foregoing, if the Company has delivered a written notice to the Executive to the effect that the Company disputes its potential liability to the Executive under this Section 6, and if such dispute is resolved in favor of the Company by final, nonappealable order of a court of competent jurisdiction, the Company shall not be required to bear the costs and expenses of the Executive’s defense pursuant to this Section 6 or of the Company’s participation therein at the Executive’s request, and the Executive shall reimburse the Company promptly in full for all costs and expenses of such litigation. The Company may participate in, but not control, any defense or settlement controlled by the Executive pursuant to this Section 6.3 (iii), and the Company shall bear its own costs and expenses with respect to such participation.   23 --------------------------------------------------------------------------------   (iv) The indemnification provided by this Section 6 shall apply whether or not the negligence of a party is alleged or proved.     7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Termination Date shall be payable in accordance with such plan, policy, practice or program.     8. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the   24 -------------------------------------------------------------------------------- amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.     9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the   25 -------------------------------------------------------------------------------- Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by Arthur Andersen & Co. (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Termination Date, if applicable, or such earlier time as is requested by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9(b), shall be paid to the Executive within five (5) days of the receipt of the Accounting Firm’s determination. If the Accounting Firm determines that no Excise Tax is payable to the Executive, it shall furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm   26 -------------------------------------------------------------------------------- shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which the Executive gives such notice to the Company (or shorter such period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim;   27 -------------------------------------------------------------------------------- (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including attorneys fees and any additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect   28 -------------------------------------------------------------------------------- to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claims and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid   29 -------------------------------------------------------------------------------- and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.     10. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.     11. Withholding. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive, his spouse, his estate or beneficiaries, shall be subject to withholding of such amounts relating to taxes as the   30 -------------------------------------------------------------------------------- Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold such taxes have been satisfied.     12. Effect of Severance Agreement. This Severance Agreement contains the entire agreement between the Parties concerning the rights and obligations of the Executive upon a Change in Control and supersedes all prior agreements, understandings, discussions, negotiations, and undertakings, whether written or oral, between the Parties with respect thereto. Except with respect to the rights and obligations of the Parties as described in Section 16 of the Employment Agreement, this Severance Agreement shall supersede the provisions of the Employment Agreement upon commencement of the Protection Period under Section 2 above.     13. Amendments and Waivers. This Severance Agreement may not be modified or amended except by a writing signed by both Parties. A Party may waive compliance by the other Party with any term or provision of this Severance Agreement, or any part thereof, provided that the term or provision, or part thereof, is for the benefit of the waiving Party. Any waiver shall be limited to the facts or circumstances giving rise to the noncompliance and shall not be   31 -------------------------------------------------------------------------------- deemed either a general waiver or modification with respect to the term or provision, or part thereof, being waived, or as to any other term or provision of this Severance Agreement, nor shall it be deemed a waiver of compliance with respect to any other facts or circumstances then or thereafter occurring.     14. Mediation and Legal Actions. If a dispute arises out of or related to this Agreement or its breach and if the dispute cannot be settled through direct discussions, then the Company and the Executive agree first to endeavor to settle the dispute in an amicable manner by mediation, under the applicable provisions of Sec. 154.001 et seq. Texas Civil Practices & Remedies Code, as supplemented by the mediation rules of the American Arbitration Association, before having recourse to any other proceeding or forum. If any party to this Agreement brings legal action to enforce the terms of this Agreement against another party to this Agreement and prevails in such legal action, the other party, in addition to the remedy or relief obtained in such legal action, shall be liable for the expenses incurred by the successful party in such legal action including costs of court and the fees and expenses of counsel.     15. Notices. Any notice given hereunder shall be in writing and shall be deemed given when delivered personally or by courier, or five days after being mailed, certified or registered mail, duly   32 -------------------------------------------------------------------------------- addressed to the Party concerned at the address indicated below or at. such other address as such Party may subsequently provide:   To the Company:    Lufkin Industries, Inc. 601 South Raguet Lufkin, Texas 75901 Attn: Secretary With a copy to:    Michael Rosenwasser, Esq. Andrews & Kurth L.L.P. 747 Third Avenue New York, NY 10017 To the Executive:    Douglas V. Smith 2210 Copeland Street Lufkin, Texas 75901     16. Severability. In the event that any provision or portion of this Severance Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Severance Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.     17. Survivorship. The respective rights and obligations of the Parties hereunder shall survive any termination of this Severance Agreement to the extent necessary to the intended preservation of such rights and obligations.     18. References. References in this Severance Agreement to the Executive shall be deemed to refer to his legal representative or, where appropriate, to his beneficiary or beneficiaries in the   33 -------------------------------------------------------------------------------- event of the Executive’s death or a judicial determination of his incompetence.     19. Governing Law. This Severance Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Texas without reference to the principles of conflicts of law.     20. Headings. The headings of paragraphs contained in this Severance Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.     21. Counterparts. This Severance Agreement may be executed in one or more counterparts. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first written above.   LUFKIN INDUSTRIES, INC. By:   LOGO [g79530img_02.jpg] LOGO [g79530img_01.jpg] Douglas V. Smith   34

Exhibit 10.3   GUARANTEE AGREEMENT   MAINSOURCE FINANCIAL GROUP, INC.   Dated as of October 13, 2006   --------------------------------------------------------------------------------   TABLE OF CONTENTS       Page       ARTICLE I   DEFINITIONS AND INTERPRETATION       SECTION 1.1. Definitions and Interpretation 1       ARTICLE II   POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE         SECTION 2.1. Powers and Duties of the Guarantee Trustee 4 SECTION 2.2. Certain Rights of the Guarantee Trustee 5 SECTION 2.3. Not Responsible for Recitals or Issuance of Guarantee 7 SECTION 2.4. Events of Default; Waiver 7 SECTION 2.5. Events of Default; Notice 8       ARTICLE III   THE GUARANTEE TRUSTEE         SECTION 3.1. The Guarantee Trustee; Eligibility 8 SECTION 3.2. Appointment, Removal and Resignation of the Guarantee Trustee 9       ARTICLE IV   GUARANTEE         SECTION 4.1. Guarantee 9 SECTION 4.2. Waiver of Notice and Demand 10 SECTION 4.3. Obligations Not Affected 10 SECTION 4.4. Rights of Holders 11 SECTION 4.5. Guarantee of Payment 11 SECTION 4.6. Subrogation 11 SECTION 4.7. Independent Obligations 12 SECTION 4.8. Enforcement 12   i --------------------------------------------------------------------------------   ARTICLE V   LIMITATION OF TRANSACTIONS; SUBORDINATION         SECTION 5.1. Limitation of Transactions 12 SECTION 5.2. Ranking 13       ARTICLE VI   TERMINATION         SECTION 6.1. Termination 13       ARTICLE VII   INDEMNIFICATION         SECTION 7.1. Exculpation 14 SECTION 7.2. Indemnification 14 SECTION 7.3. Compensation; Reimbursement of Expenses 15       ARTICLE VIII   MISCELLANEOUS         SECTION 8.1. Successors and Assigns 16 SECTION 8.2. Amendments 16 SECTION 8.3. Notices 16 SECTION 8.4. Benefit 17 SECTION 8.5. Governing Law 17 SECTION 8.6. Counterparts 17   ii --------------------------------------------------------------------------------   GUARANTEE AGREEMENT   This GUARANTEE AGREEMENT (the “Guarantee”), dated as of October 13, 2006, is executed and delivered by MainSource Financial Group, Inc., incorporated in Indiana (the “Guarantor”), and Wells Fargo Bank, National Association, a national banking association with its principal place of business in the State of Delaware, as trustee (the “Guarantee Trustee”), for the benefit of the Holders (as defined herein) from time to time of the Capital Securities (as defined herein) of MainSource Statutory Trust IV, a Delaware statutory trust (the “Issuer”).   WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the “Declaration”), dated as of October 13, 2006, among the administrators and trustees named therein of the Issuer, MainSource Financial Group, Inc., as sponsor, and the Holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof securities, having an aggregate liquidation amount of up to $11,000,000, designated the Capital Securities (the “Capital Securities”); and   WHEREAS, as incentive for the Holders to purchase the Capital Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee, to pay to the Holders of Capital Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein.   NOW, THEREFORE, in consideration of the purchase by each Holder of the Capital Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee for the benefit of the Holders.   ARTICLE I DEFINITIONS AND INTERPRETATION   SECTION 1.1.  Definitions and Interpretation.    In this Guarantee, unless the context otherwise requires:   (a)           capitalized terms used in this Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1;   (b)           a term defined anywhere in this Guarantee has the same meaning throughout;   (c)           all references to “the Guarantee” or “this Guarantee” are to this Guarantee as modified, supplemented or amended from time to time;   (d)           all references in this Guarantee to Articles and Sections are to Articles and Sections of this Guarantee, unless otherwise specified;   (e)           terms defined in the Declaration as of the date of execution of this Guarantee have the same meanings when used in this Guarantee, unless otherwise defined in this Guarantee or unless the context otherwise requires; and   --------------------------------------------------------------------------------   (f)            a reference to the singular includes the plural and vice versa.   “Beneficiaries” means any Person to whom the Issuer is or hereafter becomes indebted or liable.   “Corporate Trust Office” means the office of the Guarantee Trustee at which the corporate trust business of the Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Guarantee is located at 919 Market Street, Suite 700, Wilmington, DE 19801.   “Covered Person” means any Holder of Capital Securities.   “Debentures” means the junior subordinated debentures of MainSource Financial Group, Inc., designated the Junior Subordinated Debt Securities due 2036, held by the Institutional Trustee (as defined in the Declaration) of the Issuer.   “Event of Default” has the meaning set forth in Section 2.4.   “Guarantee Payments” means the following payments or distributions, without duplication, with respect to the Capital Securities, to the extent not paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined in the Declaration) which are required to be paid on such Capital Securities to the extent the Issuer has funds available in the Property Account (as defined in the Declaration) therefor at such time, (ii) the Redemption Price (as defined in the Indenture) to the extent the Issuer has funds available in the Property Account therefor at such time, with respect to any Capital Securities called for redemption by the Issuer, (iii) the Special Redemption Price (as defined in the Indenture) to the extent the Issuer has funds available in the Property Account therefor at such time, with respect to Capital Securities called for redemption upon the occurrence of a Special Event (as defined in the Indenture), and (iv) upon a voluntary or involuntary liquidation, dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to the Holders of the Capital Securities in exchange therefor as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Capital Securities to the date of payment, to the extent the Issuer has funds available in the Property Account therefor at such time, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer after satisfaction of liabilities to creditors of the Issuer as required by applicable law (in either case, the “Liquidation Distribution”).   “Guarantee Trustee” means Wells Fargo Bank, National Association, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee and thereafter means each such Successor Guarantee Trustee.   “Holder” means any holder, as registered on the books and records of the Issuer, of any Capital Securities; provided, however, that, in determining whether the holders of the requisite percentage of Capital Securities have given any request, notice, consent or waiver hereunder, “Holder” shall not include the Guarantor or any Affiliate of the Guarantor.   “Indemnified Person” means the Guarantee Trustee (including in its individual capacity), any Affiliate of the Guarantee Trustee, or any officers, directors, shareholders,   2 --------------------------------------------------------------------------------   members, partners, employees, representatives, nominees, custodians or agents of the Guarantee Trustee.   “Indenture” means the Indenture, dated as of October 13, 2006, between the Guarantor and Wells Fargo Bank, National Association, not in its individual capacity but solely as trustee, and any indenture supplemental thereto pursuant to which the Debentures are to be issued to the Institutional Trustee of the Issuer.   “Liquidation Distribution” has the meaning set forth in the definition of “Guarantee Payments” herein.   “Majority in liquidation amount of the Capital Securities” means Holder(s) of outstanding Capital Securities, voting together as a class, but separately from the holders of Common Securities, of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to, but excluding, the date upon which the voting percentages are determined) of all Capital Securities then outstanding.   “Obligations” means any costs, expenses or liabilities (but not including liabilities related to taxes) of the Issuer, other than obligations of the Issuer to pay to holders of any Trust Securities the amounts due such holders pursuant to the terms of the Trust Securities.   “Officer’s Certificate” means, with respect to any Person, a certificate signed by one Authorized Officer of such Person. Any Officer’s Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee shall include:   (a)           a statement that each officer signing the Officer’s Certificate has read the covenant or condition and the definitions relating thereto;   (b)           a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officer’s Certificate;   (c)           a statement that each such officer has made such examination or investigation as, in such officer’s opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and   (d)           a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with.   “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature.   “Responsible Officer” means, with respect to the Guarantee Trustee, any officer within the Corporate Trust Office of the Guarantee Trustee with direct responsibility for the administration of any matters relating to this Guarantee, including any vice president, any   3 --------------------------------------------------------------------------------   assistant vice president, any secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or other officer of the Corporate Trust Office of the Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer’s knowledge of and familiarity with the particular subject.   “Successor Guarantee Trustee” means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 3.1.   “Trust Securities” means the Common Securities and the Capital Securities.   ARTICLE II POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE   SECTION 2.1.  Powers and Duties of the Guarantee Trustee.   (a)           This Guarantee shall be held by the Guarantee Trustee for the benefit of the Holders of the Capital Securities, and the Guarantee Trustee shall not transfer this Guarantee to any Person except a Holder of Capital Securities exercising his or her rights pursuant to Section 4.4(b) or to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall automatically vest in any Successor Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee.   (b)           If an Event of Default actually known to a Responsible Officer of the Guarantee Trustee has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee for the benefit of the Holders of the Capital Securities.   (c)           The Guarantee Trustee, before the occurrence of any Event of Default and after the curing or waiving of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee, and no implied covenants shall be read into this Guarantee against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.4(b)) and is actually known to a Responsible Officer of the Guarantee Trustee, the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.   (d)           No provision of this Guarantee shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:   (i)            prior to the occurrence of any Event of Default and after the curing or waiving of all Events of Default that may have occurred:   4 --------------------------------------------------------------------------------   (A)          the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee, and no implied covenants or obligations shall be read into this Guarantee against the Guarantee Trustee; and   (B)           in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee; but in the case of any such certificates or opinions furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not on their face they conform to the requirements of this Guarantee;   (ii)           the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that such Responsible Officer of the Guarantee Trustee or the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;   (iii)          the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the written direction of the Holders of not less than a Majority in liquidation amount of the Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee; and   (iv)          no provision of this Guarantee shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds is not reasonably assured to it under the terms of this Guarantee, or security and indemnity, reasonably satisfactory to the Guarantee Trustee, against such risk or liability is not reasonably assured to it.   SECTION 2.2.  Certain Rights of the Guarantee Trustee.   (a)           Subject to the provisions of Section 2.1:   (i)            The Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties.   5 --------------------------------------------------------------------------------   (ii)           Any direction or act of the Guarantor contemplated by this Guarantee shall be sufficiently evidenced by an Officer’s Certificate.   (iii)          Whenever, in the administration of this Guarantee, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer’s Certificate of the Guarantor which, upon receipt of such request, shall be promptly delivered by the Guarantor.   (iv)          The Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument or other writing (or any rerecording, refiling or reregistration thereof).   (v)           The Guarantee Trustee may consult with counsel of its selection, and the advice or opinion of such counsel with respect to legal matters 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 such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee from any court of competent jurisdiction.   (vi)          The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Guarantee Trustee such security and indemnity, reasonably satisfactory to the Guarantee Trustee, against the costs, expenses (including attorneys’ fees and expenses and the expenses of the Guarantee Trustee’s agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided, however, that nothing contained in this Section 2.2(a)(vi) shall be taken to relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee.   (vii)         The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit.   (viii)        The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Guarantee Trustee shall not be   6 --------------------------------------------------------------------------------   responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.   (ix)           Any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders of the Capital Securities, and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Guarantee, both of which shall be conclusively evidenced by the Guarantee Trustee’s or its agent’s taking such action.   (x)            Whenever in the administration of this Guarantee the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (A) may request instructions from the Holders of a Majority in liquidation amount of the Capital Securities, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received and (C) shall be protected in conclusively relying on or acting in accordance with such instructions.   (xi)           The Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Guarantee.   (b)           No provision of this Guarantee shall be deemed to impose any duty or obligation on the Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal or in which the Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty.   SECTION 2.3.  Not Responsible for Recitals or Issuance of Guarantee.   The recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representation as to the validity or sufficiency of this Guarantee.   SECTION 2.4.  Events of Default; Waiver.   (a)           An Event of Default under this Guarantee will occur upon the failure of the Guarantor to perform any of its payment or other obligations hereunder.   (b)           The Holders of a Majority in liquidation amount of the Capital Securities may, voting or consenting as a class, on behalf of the Holders of all of the Capital Securities, waive any past Event of Default and its consequences. Upon such waiver, any   7 --------------------------------------------------------------------------------   such Event of Default shall cease to exist, and shall be deemed to have been cured, for every purpose of this Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.   SECTION 2.5.  Events of Default; Notice.   (a)           The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Capital Securities, notices of all Events of Default actually known to a Responsible Officer of the Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, however, that the Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Capital Securities.   (b)           The Guarantee Trustee shall not be charged with knowledge of any Event of Default unless the Guarantee Trustee shall have received written notice thereof from the Guarantor or a Holder of the Capital Securities, or a Responsible Officer of the Guarantee Trustee charged with the administration of this Guarantee shall have actual knowledge thereof.   ARTICLE III THE GUARANTEE TRUSTEE   SECTION 3.1.  The Guarantee Trustee; Eligibility.   (a)           There shall at all times be a Guarantee Trustee which shall:   (i)            not be an Affiliate of the Guarantor; and   (ii)           be a corporation or national association organized and doing business under the laws of the United States of America or any state or territory thereof or of the District of Columbia, or Person authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least Fifty Million U.S. Dollars ($50,000,000), and subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation or national association publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 3.1(a)(ii), the combined capital and surplus of such corporation or national association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.   (b)           If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 3.1(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set forth in Section 3.2(c).   8 --------------------------------------------------------------------------------   (c)           If the Guarantee Trustee has or shall acquire any “conflicting interest” within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee shall either eliminate such interest or resign to the extent and in the manner provided by, and subject to, this Guarantee.   SECTION 3.2.  Appointment, Removal and Resignation of the Guarantee Trustee.   (a)           Subject to Section 3.2(b), the Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor except during an Event of Default.   (b)           The Guarantee Trustee shall not be removed in accordance with Section 3.2(a) until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor.   (c)           The Guarantee Trustee appointed to office shall hold office until a Successor Guarantee Trustee shall have been appointed or until its removal or resignation. The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by an instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee.   (d)           If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 3.2 within 60 days after delivery of an instrument of removal or resignation, the Guarantee Trustee resigning or being removed may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.   (e)           No Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Guarantee Trustee.   (f)            Upon termination of this Guarantee or removal or resignation of the Guarantee Trustee pursuant to this Section 3.2, the Guarantor shall pay to the Guarantee Trustee all amounts owing to the Guarantee Trustee under Sections 7.2 and 7.3 accrued to the date of such termination, removal or resignation.   ARTICLE IV GUARANTEE   SECTION 4.1.  Guarantee.   (a)           The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense (except as defense of payment by the Issuer), right of set-off or counterclaim that the Issuer may have or assert. The   9 --------------------------------------------------------------------------------   Guarantor’s obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders.   (b)           The Guarantor hereby also agrees to assume any and all Obligations of the Issuer and in the event any such Obligation is not so assumed, subject to the terms and conditions hereof, the Guarantor hereby irrevocably and unconditionally guarantees to each Beneficiary the full payment, when and as due, of any and all Obligations to such Beneficiaries. This Guarantee is intended to be for the Beneficiaries who have received notice hereof.   SECTION 4.2.  Waiver of Notice and Demand.   The Guarantor hereby waives notice of acceptance of this Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.   SECTION 4.3.  Obligations Not Affected.   The obligations, covenants, agreements and duties of the Guarantor under this Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following:   (a)           the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Capital Securities to be performed or observed by the Issuer;   (b)           the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Special Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Capital Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Capital Securities (other than an extension of time for the payment of the Distributions, Redemption Price, Special Redemption Price, Liquidation Distribution or other sums payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture);   (c)           any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Capital Securities, or any action on the part of the Issuer granting indulgence or extension of any kind;   (d)           the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer;   10 --------------------------------------------------------------------------------   (e)           any invalidity of, or defect or deficiency in, the Capital Securities;   (f)            the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or   (g)           any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 4.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.   There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing.   SECTION 4.4.  Rights of Holders.   (a)           The Holders of a Majority in liquidation amount of the Capital Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under this Guarantee; provided, however, that (subject to Sections 2.1 and 2.2) the Guarantee Trustee shall have the right to decline to follow any such direction if the Guarantee Trustee shall determine that the actions so directed would be unjustly prejudicial to the Holders not taking part in such direction or if the Guarantee Trustee being advised by legal counsel determines that the action or proceeding so directed may not lawfully be taken or if the Guarantee Trustee in good faith by its board of directors or trustees, executive committee or a trust committee of directors or trustees and/or Responsible Officers shall determine that the action or proceeding so directed would involve the Guarantee Trustee in personal liability.   (b)           Any Holder of Capital Securities may institute a legal proceeding directly against the Guarantor to enforce the Guarantee Trustee’s rights under this Guarantee, without first instituting a legal proceeding against the Issuer, the Guarantee Trustee or any other Person. The Guarantor waives any right or remedy to require that any such action be brought first against the Issuer, the Guarantee Trustee or any other Person before so proceeding directly against the Guarantor.   SECTION 4.5.  Guarantee of Payment.   This Guarantee creates a guarantee of payment and not of collection.   SECTION 4.6.  Subrogation.   The Guarantor shall be subrogated to all (if any) rights of the Holders of Capital Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee; provided, however, that the Guarantor shall not (except to the extent required by applicable provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if, after giving effect to any such payment, any   11 --------------------------------------------------------------------------------   amounts are due and unpaid under this Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.   SECTION 4.7.  Independent Obligations.   The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Capital Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 4.3 hereof.   SECTION 4.8.  Enforcement.   A Beneficiary may enforce the Obligations of the Guarantor contained in Section 4.1 (b) directly against the Guarantor, and the Guarantor waives any right or remedy to require that any action be brought against the Issuer or any other person or entity before proceeding against the Guarantor.   The Guarantor shall be subrogated to all rights (if any) of any Beneficiary against the Issuer in respect of any amounts paid to the Beneficiaries by the Guarantor under this Guarantee; provided, however, that the Guarantor shall not (except to the extent required by applicable provisions of law) be entitled to enforce or exercise any rights that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if, after giving effect to such payment, any amounts are due and unpaid under this Guarantee.   ARTICLE V LIMITATION OF TRANSACTIONS; SUBORDINATION   SECTION 5.1.  Limitation of Transactions.   So long as any Capital Securities remain outstanding, if (a) there shall have occurred and be continuing an Event of Default or (b) the Guarantor shall have selected an Extension Period as provided in the Declaration and such period, or any extension thereof, shall have commenced and be continuing, then the Guarantor may not (x) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Guarantor’s capital stock or (y) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Guarantor that rank pari passu in all respects with or junior in interest to the Debentures (other than (i) payments under this Guarantee, (ii) repurchases, redemptions or other acquisitions of shares of capital stock of the Guarantor (A) in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors, or consultants, (B) in connection with a dividend reinvestment or stockholder stock purchase plan or (C) in connection with the issuance of capital stock of the Guarantor (or securities convertible into or exercisable for such capital stock), as consideration in an acquisition transaction entered into prior to the occurrence of the Event of Default or the applicable Extension Period, (iii) as a result of any exchange, reclassification, combination or   12 --------------------------------------------------------------------------------   conversion of any class or series of the Guarantor’s capital stock (or any capital stock of a subsidiary of the Guarantor) for any class or series of the Guarantor’s capital stock or of any class or series of the Guarantor’s indebtedness for any class or series of the Guarantor’s capital stock, (iv) the purchase of fractional interests in shares of the Guarantor’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (v) any declaration of a dividend in connection with any stockholder’s rights plan, or the issuance of rights, stock or other property under any stockholder’s rights plan, or the redemption or repurchase of rights pursuant thereto, or (vi) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock).   SECTION 5.2.  Ranking.   This Guarantee will constitute an unsecured obligation of the Guarantor and will rank subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined in the Indenture) of the Guarantor. By their acceptance thereof, each Holder of Capital Securities agrees to the foregoing provisions of this Guarantee and the other terms set forth herein.   The right of the Guarantor to participate in any distribution of assets of any of its subsidiaries upon any such subsidiary’s liquidation or reorganization or otherwise is subject to the prior claims of creditors of that subsidiary, except to the extent the Guarantor may itself be recognized as a creditor of that subsidiary. Accordingly, the Guarantor’s obligations under this Guarantee will be effectively subordinated to all existing and future liabilities of the Guarantor’s subsidiaries, and claimants should look only to the assets of the Guarantor for payments thereunder. This Guarantee does not limit the incurrence or issuance of other secured or unsecured debt of the Guarantor, including Senior Indebtedness of the Guarantor, under any indenture or agreement that the Guarantor may enter into in the future or otherwise.   ARTICLE VI TERMINATION   SECTION 6.1.  Termination.   This Guarantee shall terminate as to the Capital Securities (i) upon full payment of the Redemption Price or the Special Redemption Price, as the case may be, of all Capital Securities then outstanding, (ii) upon the distribution of all of the Debentures to the Holders of all of the Capital Securities or (iii) upon full payment of the amounts payable in accordance with the Declaration upon dissolution of the Issuer. This Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Capital Securities must restore payment of any sums paid under the Capital Securities or under this Guarantee.   13 --------------------------------------------------------------------------------   ARTICLE VII INDEMNIFICATION   SECTION 7.1.  Exculpation.   (a)           No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission of such Indemnified Person in good faith in accordance with this Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person’s negligence or willful misconduct with respect to such acts or omissions.   (b)           An Indemnified Person shall be fully protected in relying in good faith upon the records of the Issuer or the Guarantor and upon such information, opinions, reports or statements presented to the Issuer or the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person’s professional or expert competence and who, if selected by such Indemnified Person, has been selected with reasonable care by such Indemnified Person, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Capital Securities might properly be paid.   SECTION 7.2.  Indemnification.   (a)           The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any and all loss, liability, damage, claim or expense incurred without negligence or willful misconduct on the part of the Indemnified Person, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including but not limited to the costs and expenses (including reasonable legal fees and expenses) of the Indemnified Person defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of the Indemnified Person’s powers or duties hereunder. The obligation to indemnify as set forth in this Section 7.2 shall survive the resignation or removal of the Guarantee Trustee and the termination of this Guarantee.   (b)           Promptly after receipt by an Indemnified Person under this Section 7.2 of notice of the commencement of any action, such Indemnified Person will, if a claim in respect thereof is to be made against the Guarantor under this Section 7.2, notify the Guarantor in writing of the commencement thereof; but the failure so to notify the Guarantor (i) will not relieve the Guarantor from liability under paragraph (a) above unless and to the extent that the Guarantor did not otherwise learn of such action and such failure results in the forfeiture by the Guarantor of substantial rights and defenses and (ii) will not, in any event, relieve the Guarantor from any obligations to any Indemnified Person other than the indemnification obligation provided in paragraph (a) above. The Guarantor shall be entitled to appoint counsel of the Guarantor’s choice at the Guarantor’s   14 --------------------------------------------------------------------------------   expense to represent the Indemnified Person in any action for which indemnification is sought (in which case the Guarantor shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the Indemnified Person or Persons except as set forth below); provided, however, that such counsel shall be satisfactory to the Indemnified Person. Notwithstanding the Guarantor’s election to appoint counsel to represent the Indemnified Person in any action, the Indemnified Person shall have the right to employ separate counsel (including local counsel), and the Guarantor shall bear the reasonable fees, costs and expenses of such separate counsel (and local counsel), if (i) the use of counsel chosen by the Guarantor to represent the Indemnified Person would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the Indemnified Person and the Guarantor and the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it and/or other Indemnified Persons which are different from or additional to those available to the Guarantor, (iii) the Guarantor shall not have employed counsel satisfactory to the Indemnified Person to represent the Indemnified Person within a reasonable time after notice of the institution of such action or (iv) the Guarantor shall authorize the Indemnified Person to employ separate counsel at the expense of the Guarantor. The Guarantor will not, without the prior written consent of the Indemnified Persons, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Persons are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Person from all liability arising out of such claim, action, suit or proceeding.   SECTION 7.3.  Compensation; Reimbursement of Expenses.   The Guarantor agrees:   (a)           to pay to the Guarantee Trustee from time to time such compensation for all services rendered by it hereunder as the parties shall agree to from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and   (b)           except as otherwise expressly provided herein, to reimburse the Guarantee Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by it in accordance with any provision of this Guarantee (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or willful misconduct.   The provisions of this Section 7.3 shall survive the resignation or removal of the Guarantee Trustee and the termination of this Guarantee.   15 --------------------------------------------------------------------------------   ARTICLE VIII MISCELLANEOUS   SECTION 8.1.  Successors and Assigns.   All guarantees and agreements contained in this Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Capital Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity or any sale, transfer or lease of the Guarantor’s assets to another entity, in each case to the extent permitted under the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Guarantee without the prior approval of the Holders of not less than a Majority in liquidation amount of the Capital Securities.   SECTION 8.2.  Amendments.   Except with respect to any changes that do not adversely affect the rights of Holders of the Capital Securities in any material respect (in which case no consent of Holders will be required), this Guarantee may be amended only with the prior approval of the Holders of not less than a Majority in liquidation amount of the Capital Securities. The provisions of the Declaration with respect to amendments thereof shall apply equally with respect to amendments of the Guarantee.   SECTION 8.3.  Notices.   All notices provided for in this Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows:   (a)           If given to the Guarantee Trustee, at the Guarantee Trustee’s mailing address set forth below (or such other address as the Guarantee Trustee may give notice of to the Holders of the Capital Securities):   Wells Fargo Bank, National Association 919 Market Street Suite 700 Wilmington, DE 19801 Attention: Corporate Trust Division Telecopy: 302-575-2006 Telephone: 302-575-2005   16 --------------------------------------------------------------------------------   (b)           If given to the Guarantor, at the Guarantor’s mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Capital Securities and to the Guarantee Trustee):   MainSource Financial Group, Inc. 201 N. Broadway Greensburg, Indiana 47240 Attention: Jamie Anderson Telecopy: (812) 663-4812 Telephone: (812) 663-0179   (c)           If given to any Holder of the Capital Securities, at the address set forth on the books and records of the Issuer.   All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.   SECTION 8.4.  Benefit.   This Guarantee is solely for the benefit of the Holders of the Capital Securities and, subject to Section 2.1(a), is not separately transferable from the Capital Securities.   SECTION 8.5.  Governing Law.   THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.   SECTION 8.6.  Counterparts.   This Guarantee may contain more than one counterpart of the signature page and this Guarantee may be executed by the affixing of the signature of the Guarantor and the Guarantee Trustee to any of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page.   17 --------------------------------------------------------------------------------   THIS GUARANTEE is executed as of the day and year first above written.     MAINSOURCE FINANCIAL GROUP, INC., as Guarantor           By:       Name:       Title:               WELLS FARGO BANK, NATIONAL   ASSOCIATION, as Guarantee Trustee           By:       Name:       Title:       18 --------------------------------------------------------------------------------

EXHIBIT 10.9   (CHASE LOGO) [a001.jpg] Note Modification Agreement    This agreement is dated as of May 19, 2006 (the “Agreement Date”), by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by merger to Bank One, NA, with its main office in Chicago, Illinois (the “Bank”). The provisions of this agreement are effective on the date that this agreement has been executed by all of the signers and delivered to the Bank (the “Effective Date”). WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness in the original face amount of Twenty Million and 00/100 Dollars ($20,000,000.00), dated June 10, 2005 owing by the Borrower to the Bank, as same may have been amended or modified from time to time (the “Note”), which Note has at all times been, and is now, continuously and without interruption outstanding in favor of the Bank; and, WHEREAS, the Borrower has requested and the Bank has agreed that the Note be modified to the limited extent as hereinafter set forth; NOW THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows: 1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals stated above. 2. MODIFICATION OF NOTE.           2.1 From and after the Effective Date, the provisions in the Note captioned “Due”, “Promise to Pay” and “Principal Payments” are hereby amended by deleting the date of June 29, 2006 contained therein and replacing it with the date of June 29, 2007.           2.2 Each of the Related Documents is modified to provide that it shall be a default or an event of default thereunder if the Borrower shall fail to comply with any of the covenants of the Borrower herein or if any representation or warranty by the Borrower herein or by any guarantor in any Related Documents is materially incomplete, incorrect, or misleading as of the date hereof. As used in this agreement, the “Related Documents” shall include the Note and all loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with the Note or in connection with any other obligations of the Borrower to the Bank.           2.3 Each reference in the Related Documents to any of the Related Documents shall be a reference to such document as modified herein. 3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are ratified and reaffirmed by the Borrower and shall remain in full force and effect as they may be modified herein. All real or personal property described as security in the Related Documents shall remain as security for the Note and the obligations of the Borrower in the Related Documents. 4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Bank that each of the following representations and warranties made in the Note and Related Documents are true and will remain true until maturity of the Note, termination of the other Related Documents and payment and performance in full of all liabilities, obligations and debt evidenced by the Note and other Related Documents:           4.1 No default or event of default under any of the Related Documents as modified hereby, nor any event, that, with the giving of notice or the passage of time or both, would be a default or an event of default under the Related Documents as modified herein has occurred and is continuing.           4.2 There has been no material adverse change in the business, assets, affairs, prospects or financial condition of the Borrower or any Guarantor or any subsidiary of the Borrower.           4.3 Each and all representations and warranties of the Borrower in the Related Documents are accurate on the date hereof.           4.4 The Borrower has no claims, counterclaims, defenses, or setoffs with respect to the loan evidenced by the Note or with respect to the Related Documents as modified herein.           4.5 The Note and the Related Documents as modified herein are the legal, valid, and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms: --------------------------------------------------------------------------------           4.6 The Borrower, other than any Borrower who is a natural person, is validly existing under the laws of the State of its formation or organization. The Borrower has the requisite power and authority to execute and deliver this agreement and to perform the obligations described in the Related Documents as modified herein. The execution and delivery of this agreement and the performance of the obligations described in the Related Documents as modified herein have been duly authorized by all requisite action by or on behalf of the Borrower. This agreement has been duly executed and delivered by or on behalf of the Borrower. 5. BORROWER COVENANTS. The Borrower covenants with the Bank:           5.1 The Borrower shall execute, deliver, and provide to the Bank such additional agreements, documents, and instruments as reasonably required by the Bank to effectuate the intent of this agreement.           5.2 The Borrower fully, finally, and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all causes of action, claims, debts, demands, and liabilities, of whatever kind or nature, in law or equity, of the Borrower, whether now known or unknown to the Borrower, (i) in respect of the loan evidenced by the Note and the Related Documents, or of the actions or omissions of the Bank in any manner related to the loan evidenced by the Note or the Related Documents and (ii) arising from events occurring prior to the date of this agreement.           5.3 The Borrower shall pay to the Bank:                     5.3.1 All the internal and external costs and expenses incurred (or charged by internal allocation) by the Bank in connection with this agreement (including, without limitation, inside and outside attorneys, appraisal, appraisal review, processing, title, filing, and recording costs, expenses, and fees). 6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound by this agreement until (i) the Bank has executed this agreement and (ii) the Borrower performed all of the obligations of the Borrower under this agreement to be performed contemporaneously with the execution and delivery of this agreement. 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The Note and the Related Documents as modified herein contain the complete understanding and agreement of the Borrower and the Bank in respect of the loan and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. No provision of the Note or the Related Documents as modified herein may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the party against whom it is being enforced. 8. GOVERNING LAW AND VENUE. This agreement shall be governed by and construed in accordance with the laws of the State of Indiana (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under the Note or this agreement may be brought by the Bank in any state or federal court located in the State of Indiana, as the Bank in its sole discretion may elect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Indiana is not a convenient forum or the proper venue for any such suit, action or proceeding. This agreement binds the Borrower and its successors, and benefits the Bank, its successors and assigns. The Borrower shall not, however, have the right to assign the Borrower’s rights under this agreement or any interest therein, without the prior written consent of the Bank. 9. COUNTERPART EXECUTION. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK -------------------------------------------------------------------------------- 10. NOT A NOVATION. This agreement is a modification only and not a novation. In addition to all amounts hereafter due under the Note and the Related Documents as they may be modified herein, all accrued interest evidenced by the Note being modified by this agreement and all accrued amounts due and payable under the Related Documents shall continue to be due and payable until paid. Except for the above-quoted modification(s), the Note, any Related Documents, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Note and made a part thereof. This agreement shall not release or affect the liability of any guarantor, surety or endorser of the Note or release any owner of collateral securing the Note. The validity, priority and enforceability of the Note shall not be impaired hereby. References to the Related Documents and to other agreements shall not affect or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on the Note when due. The Bank reserves all rights against all parties to the Note.   Borrower:     Address:   3400 Jackson St.     Dubuque, IA 52001       Flexsteel Industries, Inc.         By: /s/   Timothy E. Hall     --------------------------------------------------------------------------------     Timothy E. Hall, VP & CFO -------------------------------------------------------------------------------- Printed Name Title   Date Signed: May 26, 2006 --------------------------------------------------------------------------------       BANK’S ACCEPTANCE           The foregoing agreement is hereby agreed to and acknowledged.             Bank:       JPMorgan Chase Bank, N.A.         By: /s/   John C. Otteson     --------------------------------------------------------------------------------           John C. Otteson, VP     --------------------------------------------------------------------------------     Printed Name Title     Date Signed: May 30, 2006 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (CHASE LOGO) [a001.jpg] Note Modification Agreement    This agreement is dated as of May 19, 2006 (the “Agreement Date”), by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by merger to Bank One, NA, with its main office in Chicago, Illinois (the “Bank”). The provisions of this agreement are effective on the date that this agreement has been executed by all of the signers and delivered to the Bank (the “Effective Date”). WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness in the original face amount of Twenty Million and 00/100 Dollars ($20,000,000.00), dated June 30, 2004 owing by the Borrower to the Bank, as same may have been amended or modified from time to time (the “Note”), which Note has at all times been, and is now, continuously and without interruption outstanding in favor of the Bank; and, WHEREAS, the Borrower has requested and the Bank has agreed that the Note be modified to the limited extent as hereinafter set forth; NOW THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows: 1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals stated above. 2. MODIFICATION OF NOTE.           2.1 From and after the Effective Date, the provisions in the Note captioned “Due”, “Promise to Pay” and “Principal Payments” are hereby amended by deleting the date of September 30, 2007 contained therein and replacing it with the date of October 31, 2010.           2.2 Each of the Related Documents is modified to provide that it shall be a default or an event of default thereunder if the Borrower shall fail to comply with any of the covenants of the Borrower herein or if any representation or warranty by the Borrower herein or by any guarantor in any Related Documents is materially incomplete, incorrect, or misleading as of the date hereof. As used in this agreement, the “Related Documents” shall include the Note and all loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with the Note or in connection with any other obligations of the Borrower to the Bank.           2.3 Each reference in the Related Documents to any of the Related Documents shall be a reference to such document as modified herein. 3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are ratified and reaffirmed by the Borrower and shall remain in full force and effect as they may be modified herein. All real or personal property described as security in the Related Documents shall remain as security for the Note and the obligations of the Borrower in the Related Documents. 4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Bank that each of the following representations and warranties made in the Note and Related Documents are true and will remain true until maturity of the Note, termination of the other Related Documents and payment and performance in full of all liabilities, obligations and debt evidenced by the Note and other Related Documents:           4.1 No default or event of default under any of the Related Documents as modified hereby, nor any event, that, with the giving of notice or the passage of time or both, would be a default or an event of default under the Related Documents as modified herein has occurred and is continuing.           4.2 There has been no material adverse change in the business, assets, affairs, prospects or financial condition of the Borrower or any Guarantor or any subsidiary of the Borrower.           4.3 Each and all representations and warranties of the Borrower in the Related Documents are accurate on the date hereof.           4.4 The Borrower has no claims, counterclaims, defenses, or setoffs with respect to the loan evidenced by the Note or with respect to the Related Documents as modified herein.           4.5 The Note and the Related Documents as modified herein are the legal, valid, and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms. --------------------------------------------------------------------------------           4.6 The Borrower, other than any Borrower who is a natural person, is validly existing under the laws of the State of its formation or organization. The Borrower has the requisite power and authority to execute and deliver this agreement and to perform the obligations described in the Related Documents as modified herein. The execution and delivery of this agreement and the performance of the obligations described in the Related Documents as modified herein have been duly authorized by all requisite action by or on behalf of the Borrower. This agreement has been duly executed and delivered by or on behalf of the Borrower. 5. BORROWER COVENANTS. The Borrower covenants with the Bank:           5.1 The Borrower shall execute, deliver, and provide to the Bank such additional agreements, documents, and instruments as reasonably required by the Bank to effectuate the intent of this agreement.           5.2 The Borrower fully, finally, and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all causes of action, claims, debts, demands, and liabilities, of whatever kind or nature, in law or equity, of the Borrower, whether now known or unknown to the Borrower, (i) in respect of the loan evidenced by the Note and the Related Documents, or of the actions or omissions of the Bank in any manner related to the loan evidenced by the Note or the Related Documents and (ii) arising from events occurring prior to the date of this agreement.           5.3 The Borrower shall pay to the Bank:                     5.3.1 All the internal and external costs and expenses incurred (or charged by internal allocation) by the Bank in connection with this agreement (including, without limitation, inside and outside attorneys, appraisal, appraisal review, processing, title, filing, and recording costs, expenses, and fees). 6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound by this agreement until (i) the Bank has executed this agreement and (ii) the Borrower performed all of the obligations of the Borrower under this agreement to be performed contemporaneously with the execution and delivery of this agreement. 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The Note and the Related Documents as modified herein contain the complete understanding and agreement of the Borrower and the Bank in respect of the loan and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. No provision of the Note or the Related Documents as modified herein may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the party against whom it is being enforced. 8. GOVERNING LAW AND VENUE. This agreement shall be governed by and construed in accordance with the laws of the State of Indiana (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under the Note or this agreement may be brought by the Bank in any state or federal court located in the State of Indiana, as the Bank in its sole discretion may elect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Indiana is not a convenient forum or the proper venue for any such suit, action or proceeding. This agreement binds the Borrower and its successors, and benefits the Bank, its successors and assigns. The Borrower shall not, however, have the right to assign the Borrower’s rights under this agreement or any interest therein, without the prior written consent of the Bank. 9. COUNTERPART EXECUTION. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK -------------------------------------------------------------------------------- 10. NOT A NOVATION. This agreement is a modification only and not a novation. In addition to all amounts hereafter due under the Note and the Related Documents as they may be modified herein, all accrued interest evidenced by the Note being modified by this agreement and all accrued amounts due and payable under the Related Documents shall continue to be due and payable until paid. Except for the above-quoted modification(s), the Note, any Related Documents, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Note and made a part thereof. This agreement shall not release or affect the liability of any guarantor, surety or endorser of the Note or release any owner of collateral securing the Note. The validity, priority and enforceability of the Note shall not be impaired hereby. References to the Related Documents and to other agreements shall not affect or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on the Note when due. The Bank reserves all rights against all parties to the Note.       Address:   3400 Jackson St. Borrower:   Dubuque, IA 52001       Flexsteel Industries, Inc.         By: /s/   Timothy E. Hall     --------------------------------------------------------------------------------     Timothy E. Hall, VP & CFO -------------------------------------------------------------------------------- Printed Name Title   Date Signed: May 26, 2006 --------------------------------------------------------------------------------       BANK’S ACCEPTANCE           The foregoing agreement is hereby agreed to and acknowledged.             Bank:       JPMorgan Chase Bank, N.A.         By: /s/   John C. Otteson     --------------------------------------------------------------------------------           John C. Otteson, VP     --------------------------------------------------------------------------------     Printed Name Title     Date Signed: May 30, 2006 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (CHASE LOGO) [a001.jpg] Amendment to Credit Agreement    This agreement is dated as of May 19, 2006, by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by merger to Bank One, NA, with its main office in Chicago, Illinois (the “Bank”), and its successors and assigns. The provisions of this agreement are effective on the date that this agreement has been executed by all of the signers and delivered to the Bank (the “Effective Date”). WHEREAS, the Borrower and the Bank entered into a credit agreement dated June 30, 2004, as amended (if applicable) (the “Credit Agreement”); and WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit Agreement as set forth below; NOW, THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows:       1. DEFINED TERMS. Capitalized terms not defined herein shall have the meaning ascribed in the Credit Agreement.     2. MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows:       2.1 From and after the Effective Date, Section 1.4 of the Credit Agreement captioned “Letters of Credit” is hereby amended by deleting the date of “September 30, 2007” contained therein and replacing it with the date of “October 31, 2010”.     3. RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the Credit Agreement shall remain in full force and effect as modified herein.     4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that (a) the representations and warranties contained in the Credit Agreement are true and correct in all material respects as of the date of this agreement, (b) no condition, act or event which could constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement exists, and (c) no condition, event, act or omission has occurred, which, with the giving of notice or passage of time, would constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement.     5. FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket disbursements incurred by the Bank in connection with this agreement, including legal fees incurred by the Bank in the preparation, consummation, administration and enforcement of this agreement.     6. EXECUTION AND DELIVERY. This agreement shall become effective only after it is fully executed by the Borrower and the Bank.     7. ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of this agreement it has no offsets with respect to all amounts owed by the Borrower to the Bank arising under or related to the Credit Agreement on or prior to the date of this agreement. The Borrower fully, finally and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents and representatives from any and all claims, causes of action, debts and liabilities, of whatever kind or nature, in law or in equity, of the Borrower, whether now known or unknown to the Borrower, which may have arisen in connection with the Credit Agreement or the actions or omissions of the Bank related to the Credit Agreement on or prior to the date hereof. The Borrower acknowledges and agrees that this agreement is limited to the terms outlined above, and shall not be construed as an agreement to change any other terms or provisions of the Credit Agreement. This agreement shall not establish a course of dealing or be construed as evidence of any willingness on the Bank’s part to grant other or future agreements, should any be requested.     8. NOT A NOVATION. This agreement is a modification only and not a novation. Except for the above-quoted modification(s), the Credit Agreement, any loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, instruments or documents executed in connection with the Credit Agreement, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Credit Agreement and made a part thereof. This agreement shall not release or affect the liability of any guarantor of any promissory note or credit facility executed --------------------------------------------------------------------------------       in reference to the Credit Agreement or release any owner of collateral granted as security for the Credit Agreement. The validity, priority and enforceability of the Credit Agreement shall not be impaired hereby. To the extent that any provision of this agreement conflicts with any term or condition set forth in the Credit Agreement, or any document executed in conjunction therewith, the provisions of this agreement shall supersede and control. The Bank expressly reserves all rights against all parties to the Credit Agreement.            Borrower:           Flexsteel Industries, Inc.         By: /s/   Timothy E. Hall     --------------------------------------------------------------------------------     Timothy E. Hall, VP & CFO -------------------------------------------------------------------------------- Printed Name Title   Date Signed: May 26, 2006 --------------------------------------------------------------------------------                 Bank:       JPMorgan Chase Bank, N.A.         By: /s/   John C. Otteson     --------------------------------------------------------------------------------           John C. Otteson, VP     --------------------------------------------------------------------------------     Printed Name Title     Date Signed: May 30, 2006 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   (CHASE LOGO) [a001.jpg] Note Modification Agreement    This agreement is dated as of January 3, 2006 (the “Agreement Date”), by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A. as successor by merger to Bank One, NA (the “Bank”). The provisions of this agreement are effective on the date that this agreement has been executed by all of the signers and delivered to the Bank (the “Effective Date”). WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness in the original face amount of Twenty Million and 00/100 Dollars ($20,000,000.00), dated June 30, 2004 owing by the Borrower to the Bank, as same may have been amended or modified from time to time (the “Note”), which Note has at all times been, and is now, continuously and without interruption outstanding in favor of the Bank; and, WHEREAS, the Borrower has requested and the Bank has agreed that the Note be modified to the limited extent as hereinafter set forth; NOW THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows: 1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals stated above. 2. MODIFICATION OF NOTE.           2.1 From and after the Effective Date, the amount of the Note, and the maximum principal amount that may at any time be outstanding thereunder, is hereby increased to Twenty Million and 00/100 Dollars ($20,000,000.00).           2.2 Each of the Related Documents is modified to provide that it shall be a default or an event of default thereunder if the Borrower shall fail to comply with any of the covenants of the Borrower herein or if any representation or warranty by the Borrower herein or by any guarantor in any Related Documents is materially incomplete, incorrect, or misleading as of the date hereof. As used in this agreement, the “Related Documents” shall include the Note and all loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with the Note or in connection with any other obligations of the Borrower to the Bank.           2.3 Each reference in the Related Documents to any of the Related Documents shall be a reference to such document as modified herein. 3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are ratified and reaffirmed by the Borrower and shall remain in full force and effect as they may be modified herein. All real or personal property described as security in the Related Documents shall remain as security for the Note and the obligations of the Borrower in the Related Documents. 4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Bank that each of the following representations and warranties made in the Note and Related Documents are true and will remain true until maturity of the Note, termination of the other Related Documents and payment and performance in full of all liabilities, obligations and debt evidenced by the Note and other Related Documents:           4.1 No default or event of default under any of the Related Documents as modified hereby, nor any event, that, with the giving of notice or the passage of time or both, would be a default or an event of default under the Related Documents as modified herein has occurred and is continuing.           4.2 There has been no material adverse change in the business, assets, affairs, prospects or financial condition of the Borrower or any Guarantor or any subsidiary of the Borrower.           4.3 Each and all representations and warranties of the Borrower in the Related Documents are accurate on the date hereof.           4.4 The Borrower has no claims, counterclaims, defenses, or setoffs with respect to the loan evidenced by the Note or with respect to the Related Documents as modified herein.           4.5 The Note and the Related Documents as modified herein are the legal, valid, and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms. --------------------------------------------------------------------------------           4.6 The Borrower, other than any Borrower who is a natural person, is validly existing under the laws of the State of its formation or organization. The Borrower has the requisite power and authority to execute and deliver this agreement and to perform the obligations described in the Related Documents as modified herein. The execution and delivery of this agreement and the performance of the obligations described in the Related Documents as modified herein have been duly authorized by all requisite action by or on behalf of the Borrower. This agreement has been duly executed and delivered by or on behalf of the Borrower. 5. BORROWER COVENANTS. The Borrower covenants with the Bank:           5.1 The Borrower shall execute, deliver, and provide to the Bank such additional agreements, documents, and instruments as reasonably required by the Bank to effectuate the intent of this agreement.           5.2 The Borrower fully, finally, and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all causes of action, claims, debts, demands, and liabilities, of whatever kind or nature, in law or equity, of the Borrower, whether now known or unknown to the Borrower, (i) in respect of the loan evidenced by the Note and the Related Documents, or of the actions or omissions of the Bank in any manner related to the loan evidenced by the Note or the Related Documents and (ii) arising from events occurring prior to the date of this agreement.           5.3 The Borrower shall pay to the Bank:                     5.3.1 All the internal and external costs and expenses incurred (or charged by internal allocation) by the Bank in connection with this agreement (including, without limitation, inside and outside attorneys, appraisal, appraisal review, processing, title, filing, and recording costs, expenses, and fees). 6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound by this agreement until (i) the Bank has executed this agreement and (ii) the Borrower performed all of the obligations of the Borrower under this agreement to be performed contemporaneously with the execution and delivery of this agreement. 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The Note and the Related Documents as modified herein contain the complete understanding and agreement of the Borrower and the Bank in respect of the loan and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. No provision of the Note or the Related Documents as modified herein may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the party against whom it is being enforced. 8. GOVERNING LAW AND VENUE. This agreement shall be governed by and construed in accordance with the laws of the State of Indiana (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under the Note or this agreement may be brought by the Bank in any state or federal court located in the State of Indiana, as the Bank in its sole discretion may elect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Indiana is not a convenient forum or the proper venue for any such suit, action or proceeding. This agreement binds the Borrower and its successors, and benefits the Bank, its successors and assigns. The Borrower shall not, however, have the right to assign the Borrower’s rights under this agreement or any interest therein, without the prior written consent of the Bank. 9. COUNTERPART EXECUTION. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement. THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -------------------------------------------------------------------------------- 10. NOT A NOVATION. This agreement is a modification only and not a novation. In addition to all amounts hereafter due under the Note and the Related Documents as they may be modified herein, all accrued interest evidenced by the Note being modified by this agreement and all accrued amounts due and payable under the Related Documents shall continue to be due and payable until paid. Except for the above-quoted modification(s), the Note, any Related Documents, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Note and made a part thereof. This agreement shall not release or affect the liability of any guarantor, surety or endorser of the Note or release any owner of collateral securing the Note. The validity, priority and enforceability of the Note shall not be impaired hereby. References to the Related Documents and to other agreements shall not affect or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on the Note when due. The Bank reserves all rights against all parties to the Note.       Address:   3400 Jackson St. Borrower:   Dubuque, IA 52001       Flexsteel Industries, Inc.         By: /s/   Timothy E. Hall     --------------------------------------------------------------------------------     Timothy E. Hall, VP & CFO -------------------------------------------------------------------------------- Printed Name Title   Date Signed: January 4, 2006 --------------------------------------------------------------------------------       BANK’S ACCEPTANCE           The foregoing agreement is hereby agreed to and acknowledged.             Bank:       JPMorgan Chase Bank, N.A.         By: /s/   John C. Otteson     --------------------------------------------------------------------------------           John C. Otteson, VP     --------------------------------------------------------------------------------     Printed Name Title     Date Signed: January 5, 2006 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (CHASE LOGO) [a001.jpg] Amendment to Credit Agreement     This agreement is dated as of January 3, 2006, by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A. as successor by merger to Bank One, NA (the “Bank”), and its successors and assigns. The provisions of this agreement are effective on the date that this agreement has been executed by all of the signers and delivered to the Bank (the “Effective Date”). WHEREAS, the Borrower and the Bank entered into a credit agreement dated June 30, 2004, as amended (if applicable) (the “Credit Agreement”); and WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit Agreement as set forth below; NOW, THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows:       1. DEFINED TERMS. Capitalized terms not defined herein shall have the meaning ascribed in the Credit Agreement.       2. MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows:         2.1 From and after the Effective Date, the following provision in the Credit Agreement under Section 1.2 captioned “Facility A. (Line of Credit)” is hereby amended as follows: The language now reading “The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $13,000,000.00 in the aggregate at any one time outstanding (Facility A)”, is replaced with the following:           The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $20,000,000.00 in the aggregate at any one time outstanding (‘Facility A”).       3. RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the Credit Agreement shall remain in full force and effect as modified herein.       4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that (a) the representations and warranties contained in the Credit Agreement are true and correct in all material respects as of the date of this agreement, (b) no condition, act or event which could constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement exists, and (c) no condition, event, act or omission has occurred, which, with the giving of notice or passage of time, would constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement.       5. FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket disbursements incurred by the Bank in connection with this agreement, including legal fees incurred by the Bank in the preparation, consummation, administration and enforcement of this agreement.       6. EXECUTION AND DELIVERY. This agreement shall become effective only after it is fully executed by the Borrower and the Bank, and the Bank shall have received from the Borrower the following documents: Note Modification Agreement.       7. ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of this agreement it has no offsets with respect to all amounts owed by the Borrower to the Bank arising under or related to the Credit Agreement on or prior to the date of this agreement. The Borrower fully, finally and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents and representatives from any and all claims, causes of action, debts and liabilities, of whatever kind or nature, in law or in equity, of the Borrower, whether now known or unknown to the Borrower, which may have arisen in connection with the Credit Agreement or the actions or omissions of the Bank related to the Credit Agreement on or prior to the date hereof. The Borrower acknowledges and agrees that this agreement is limited to the terms outlined above, and shall not be construed as an agreement to change any other terms or provisions of the Credit Agreement. This agreement shall not establish a course of dealing or be construed as evidence of any willingness on the Bank’s part to grant other or future agreements, should any be requested.       8. NOT A NOVATION. This agreement is a modification only and not a novation. Except for the above-quoted modification(s), the Credit Agreement, any loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, instruments or documents executed in connection with the Credit Agreement, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Credit --------------------------------------------------------------------------------       Agreement and made a part thereof. This agreement shall not release or affect the liability of any guarantor of any promissory note or credit facility executed in reference to the Credit Agreement or release any owner of collateral granted as security for the Credit Agreement. The validity, priority and enforceability of the Credit Agreement shall not be impaired hereby. To the extent that any provision of this agreement conflicts with any term or condition set forth in the Credit Agreement, or any document executed in conjunction therewith, the provisions of this agreement shall supersede and control. The Bank expressly reserves all rights against all parties to the Credit Agreement.       Borrower:         Flexsteel Industries, Inc.         By: /s/   Timothy E. Hall     --------------------------------------------------------------------------------     Timothy E. Hall, VP & CFO -------------------------------------------------------------------------------- Printed Name Title   Date Signed: January 4, 2006 --------------------------------------------------------------------------------               Bank:       JPMorgan Chase Bank, N.A.         By: /s/   John C. Otteson     --------------------------------------------------------------------------------           John C. Otteson, VP     --------------------------------------------------------------------------------     Printed Name Title     Date Signed: January 5, 2006 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (CHASE LOGO) [a001.jpg] Note Modification Agreement    This agreement is dated as of December 23, 2005 (the “Agreement Date”), by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by merger to Bank One, NA, (the “Bank”). The provisions of this agreement are effective on December 9, 2005 (the “Effective Date”). WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness in the original face amount of Twenty Million and 00/100 Dollars ($20,000,000.00), dated June 30, 2004 owing by the Borrower to the Bank, as same may have been amended or modified from time to time (the “Note”), which Note has at all times been, and is now, continuously and without interruption outstanding in favor of the Bank; and, WHEREAS, the Borrower has requested and the Bank has agreed that the Note be modified to the limited extent as hereinafter set forth; NOW THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows:     1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals stated above.     2. MODIFICATION OF NOTE.           2.1 From and after the Effective Date, the pricing grid in the provision in the Note captioned “Applicable Margin” is herby amended and restated to read as follows:                     Applicable Margin       --------------------------------------------------------------------------------   Leverage Ratio   Prime Rate Advance   Eurodollar Advance   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   Greater than or equal to 3.00 to 1.00   1.00 %   1.50 %   Less than 3.00 to 1.00 but greater than or equal to 2.50 to 1.00   1.00 %   1.25 %   Less than 2.50 to 1.00 but greater than or equal to 2.00 to L00   1.00 %   1.00 %   Less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00   1.00 %   0.75 %   Less than 1.50 to 1.00 but greater than or equal to 1.00 to 1.00   1.00 %   0.75 %   Less than or equal to 1.00 to 1.00   1.00 %   0.75 %             2.2 From and after the Effective Date, the provisions in the Note captioned “Interest Rates” and “Default Rate of Interest” is hereby amended and restated to read as follows:       Interest Rates. The Advance(s) evidenced by this Note may be drawn down and remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate Advance. The Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of each Prime Rate Advance at the greater of (a) the Prime Rate minus the Applicable Margin, or (b) 0.00% per annum, and each Eurodollar Advance at the Eurodollar Rate. Interest shall be calculated on the basis of the actual number of days elapsed in a year of 360 days. In no event shall the interest rate applicable to any Advance exceed the maximum rate allowed by law. Any interest payment which would for any reason be deemed unlawful under applicable law shall be applied to principal.       Default Rate of Interest. After a default has occurred under this Note, whether or not the Bank elects to accelerate the maturity of this Note because of such default, all Advances outstanding under this Note, including all Eurodollar Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus three percent (3.00%) from the date the Bank elects to impose such rate. Imposition of this rate shall not affect any limitations contained in this Note on the Borrower’s right to repay principal on any Eurodollar Advance before the expiration of the Interest Period for that Advance.           2.3 Each of the Related Documents is modified to provide that it shall be a default or an event of. default thereunder if the Borrower shall fail to comply with any of the covenants of the Borrower herein or if any representation or warranty by the Borrower herein or by any guarantor in any Related Documents is materially incomplete, incorrect, or misleading as of the date hereof. As used -------------------------------------------------------------------------------- in this agreement, the “Related Documents” shall include the Note and all loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with the Note or in connection with any other obligations of the Borrower to the Bank.           2.4 Each reference in the Related Documents to any of the Related Documents shall be a reference to such document as modified herein. 3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are ratified and reaffirmed by the Borrower and shall remain in full force and effect as they may be modified herein. All real or personal property described as security in the Related Documents shall remain as security for the Note and the obligations of the Borrower in the Related Documents. 4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Bank that each of the following representations and warranties made in the Note and Related Documents are true and will remain true until maturity of the Note, termination of the other Related Documents and payment and performance in full of all liabilities, obligations and debt evidenced by the Note and other Related Documents:           4.1 No default or event of default under any of the Related Documents as modified hereby, nor any event, that, with the giving of notice or the passage of time or both, would be a default or an event of default under the Related Documents as modified herein has occurred and is continuing.           4.2 There has been no material adverse change in the business, assets, affairs, prospects or financial condition of the Borrower or any Guarantor or any subsidiary of the Borrower.           4.3 Each and all representations and warranties of the Borrower in the Related Documents are accurate on the date hereof.           4.4 The Borrower has no claims, counterclaims, defenses, or setoffs with respect to the loan evidenced by the Note or with respect to the Related Documents as modified herein.           4.5 The Note and the Related Documents as modified herein are the legal, valid, and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms.           4.6 The Borrower, other than any Borrower who is a natural person, is validly existing under the laws of the State of its formation or organization. The Borrower has the requisite power and authority to execute and deliver this agreement and to perform the obligations described in the Related Documents as modified herein. The execution and delivery of this agreement and the performance of the obligations described in the Related Documents as modified herein have been duly authorized by all requisite action by or on behalf of the Borrower. This agreement has been duly executed and delivered by or on behalf of the Borrower. 5. BORROWER COVENANTS. The Borrower covenants with the Bank:           5.1 The Borrower shall execute, deliver, and provide to the Bank such additional agreements, documents, and instruments as reasonably required by the Bank to effectuate the intent of this agreement.           5.2 The Borrower fully, finally, and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all causes of action, claims, debts, demands, and liabilities, of whatever kind or nature, in law or equity, of the Borrower, whether now known or unknown to the Borrower, (i) in respect of the loan-evidenced by the Note and the Related Documents, or of the actions or omissions of the Bank in any manner related to the loan evidenced by the Note or the Related Documents and (ii) arising from events occurring prior to the date of this agreement.           5.3 The Borrower shall pay to the Bank:                5.3.1 All the internal and external costs and expenses incurred (or charged by internal allocation) by the Bank in connection with this agreement (including, without limitation, inside and outside attorneys, appraisal, appraisal review, processing, title, filing, and recording costs, expenses, and fees). 6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound by this agreement until (i) the Bank has executed this agreement and (ii) the Borrower performed all of the obligations of the Borrower under this agreement to be performed contemporaneously with the execution and delivery of this agreement. 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The Note and the Related Documents as modified herein contain the complete understanding and agreement of the Borrower and the Bank in respect of the loan and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. No provision -------------------------------------------------------------------------------- of the Note or the Related Documents as modified herein may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the party against whom it is being enforced. 8. GOVERNING. LAW AND VENUE. This agreement shall be governed by and construed in accordance with the laws of the State of Indiana (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under the Note or this agreement may be brought by the Bank in any state or federal court located in the State of Indiana, as the Bank in its sole discretion may elect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Indiana is not a convenient forum or the proper venue for any such suit, action or proceeding. This agreement binds the Borrower and its successors, and benefits the Bank, its successors and assigns. The Borrower shall not, however, have the right to assign the Borrower’s rights under this agreement or any interest therein, without the prior written consent of the Bank. 9. COUNTERPART EXECUTION. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement. 10. NOT A NOVATION. This agreement is a modification only and not a novation. In addition to all amounts hereafter due under the Note and the Related Documents as they may be modified herein, all accrued interest evidenced by the Note being modified by this agreement and all accrued amounts due and payable under the Related Documents shall continue to be due and payable until paid. Except for the above-quoted modification(s), the Note, any Related Documents, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Note and made a part thereof. This agreement shall not release or affect the liability of any guarantor, surety or endorser of the Note or release any owner of collateral securing the Note. The validity, priority and enforceability of the Note shall not be impaired hereby. References to the Related Documents and to other agreements shall not affect or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on the Note when due. The Bank reserves all rights against all parties to the Note.       Address:   3400 Jackson St. Borrower:   Dubuque, IA 52001       Flexsteel Industries, Inc.         By: /s/   Timothy E. Hall     --------------------------------------------------------------------------------     Timothy E. Hall, VP & CFO -------------------------------------------------------------------------------- Printed Name Title   Date Signed: December 29, 2005 --------------------------------------------------------------------------------       BANK’S ACCEPTANCE           The foregoing agreement is hereby agreed to and acknowledged.             Bank:       JPMorgan Chase Bank, N.A.         By: /s/   Robert E. McElwain     --------------------------------------------------------------------------------       Robert E. McElwain, SVP --------------------------------------------------------------------------------     Printed Name Title   Date Signed: December 31, 2005 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------       Note Modification Agreement    (CHASE LOGO) [a001.jpg]   This agreement is dated as of December 23, 2005 (the “Agreement Date”), by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by merger to Bank One, NA, (the “Bank”). The provisions of this agreement are effective on December 9, 2005 (the “Effective Date”). WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness in the original face amount of Twenty Million and 00/100 Dollars ($20,000,000.00), dated June 10, 2005 owing by the Borrower to the Bank, as same may have been amended or modified from time to time (the “Note”), which Note has at all times been, and is now, continuously and without interruption outstanding in favor of the Bank; and, WHEREAS, the Borrower has requested and the Bank has agreed that the Note be modified to the limited extent as hereinafter set forth; NOW THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows:     1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals stated above.     2. MODIFICATION OF NOTE.           2.1 From and after the Effective Date, the pricing grid in the provision in the Note captioned “Applicable Margin” is hereby amended and restated to read as follows:                     Applicable Margin       --------------------------------------------------------------------------------   Leverage Ratio   Prime Rate Advance   Eurodollar Advance   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   Greater than or equal to 3.00 to 1.00   1.00 %   1.25 %   Less than 3.00 to 1.00 but greater than or equal to 2.50 to 1.00   1.00 %   1.00 %   Less than 2.50 to 1.00 but greater than or equal to 2.00 to 1.00   1.00 %   0.875 %   Less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00   1.00 %   0.75 %   Less than 1.50 to 1.00 but greater than or equal to 1.00 to 1.00   1.00 %   0.625 %   Less than or equal to 1.00 to 1.00   1.00 %   0.50 %             2.2 From and after the Effective Date, the provisions in the Note captioned “Interest Rates” and “Default Rate of Interest” is hereby amended and restated to read as follows:       Interest Rates. The Advance(s) evidenced by this Note may be drawn down and remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate Advance. The Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of each Prime Rate Advance at the greater of (a) the Prime Rate minus the Applicable Margin, or (b) 0.00% per annum, and each Eurodollar Advance at the Eurodollar Rate. Interest shall be calculated on the basis of the actual number of days elapsed in a year of 360 days. In no event shall the interest rate applicable to any Advance exceed the maximum rate allowed by law. Any interest payment which would for any reason be deemed unlawful under applicable law shall be applied to principal.       Default Rate of Interest. After a default has occurred under this Note, whether or not the Bank elects to accelerate the maturity of this Note because of such default, all Advances outstanding under this Note, including all Eurodollar Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus three percent (3.00%) from the date the Bank elects to impose such rate. Imposition of this rate shall not affect any limitations contained in this Note on the Borrower’s right to repay principal on any Eurodollar Advance before the expiration of the Interest Period for that Advance.           2.3 Each of the Related Documents is modified to provide that it shall be a default or an event of default thereunder if the Borrower shall fail to comply with any of the covenants of the Borrower herein or if any representation or warranty by the Borrower herein or by any guarantor in any Related Documents is materially incomplete, incorrect, or misleading as of the date hereof. As used -------------------------------------------------------------------------------- in this agreement, the “Related Documents” shall include the Note and all loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with the Note or in connection with any other obligations of the Borrower to the Bank.           2.4 Each reference in the Related Documents to any of the Related Documents shall be a reference to such document as modified herein. 3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are ratified and reaffirmed by the Borrower and shall remain in full force and effect as they may be modified herein. All real or personal property described as security in the Related Documents shall remain as security for the Note and the obligations of the Borrower in the Related Documents. 4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Bank that each of the following representations and warranties made in the Note and Related Documents are true and will remain true until maturity of the Note, termination of the other Related Documents and payment and performance in full of all liabilities, obligations and debt evidenced by the Note and other Related Documents:           4.1 No default or event of default under any of the Related Documents as modified hereby, nor’ any event, that, with the giving of notice or the passage of time or both, would be a default or an event of default under the Related Documents as modified herein has occurred and is continuing.           4.2 There has been no material adverse change in the business, assets, affairs, prospects or financial condition of the Borrower or any Guarantor or any subsidiary of the Borrower.           4.3 Each and all representations and warranties of the Borrower in the Related Documents are accurate on the date hereof,           4.4 The Borrower has no claims, counterclaims, defenses, or setoffs with respect to the loan evidenced by the Note or with respect to the Related Documents as modified herein.           4.5 The Note and the Related Documents as modified herein are the legal, valid, and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms.           4.6 The Borrower, other than any Borrower who is a natural person, is validly existing under the laws of the State of its formation or organization. The Borrower has the requisite power and authority to execute and deliver this agreement and to perform the obligations described in the Related Documents as modified herein. The execution and delivery of this agreement and the performance of the obligations described in the Related Documents as modified herein have been duly authorized by all requisite action by or on behalf of the Borrower. This agreement has been duly executed and delivered by or on behalf of the Borrower. 5. BORROWER COVENANTS. The Borrower covenants with the Bank:           5.1 The Borrower shall execute, deliver, and provide to the Bank such additional agreements, documents, and instruments as reasonably required by the Bank to effectuate the intent of this agreement.           5.2 The Borrower fully, finally, and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all causes of action, claims, debts, demands, and liabilities, of whatever kind or nature, in law or equity, of the Borrower, whether now known or unknown to the Borrower, (i) in respect of the loan evidenced by the Note and the Related Documents, or of the actions or omissions of the Bank in any manner related to the loan evidenced by the Note or the Related Documents and (ii) arising from events occurring prior to the date of this agreement.           5.3 The Borrower shall pay to the Bank:                5.3.1 All the internal and external costs and expenses incurred (or charged by internal allocation) by the Bank in connection with this agreement (including, without limitation, inside and outside attorneys, appraisal, appraisal review, processing, title, filing, and recording costs, expenses, and fees). 6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound by this agreement until (i) the Bank has executed this agreement and (ii) the Borrower performed all of the obligations of the Borrower under this agreement to be performed contemporaneously with the execution and delivery of this agreement. 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The Note and the Related Documents as modified herein contain the complete understanding and agreement of the Borrower and the Bank in respect of the loan and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. No provision -------------------------------------------------------------------------------- of the Note or the Related Documents as modified herein may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the party against whom it is being enforced. 8. GOVERNING LAW AND VENUE. This agreement shall be governed by and construed in accordance with the laws of the State of Indiana (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under the Note or this agreement may be brought by the Bank in any state or federal court located in the State of Indiana, as the Bank in its sole discretion may elect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Indiana is not a convenient forum or the proper venue for any such suit, action or proceeding. This agreement binds the Borrower and its successors, and benefits the Bank, its successors and assigns. The Borrower shall not, however, have the right to assign the Borrower’s rights under this agreement or any interest therein, without the prior written consent of the Bank. 9. COUNTERPART EXECUTION. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement. 10. NOT A NOVATION. This agreement is a modification only and not a novation. In addition to all amounts hereafter due under the Note and the Related Documents as they may be modified herein, all accrued interest evidenced by the Note being modified by this agreement and all accrued amounts due and payable under the Related Documents shall continue to be due and payable until paid. Except for the above-quoted modification(s), the Note, any Related Documents, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Note and made a part thereof. This agreement shall not release or affect the liability of any guarantor, surety or endorser of the Note or release any owner of collateral securing the Note. The validity, priority and enforceability of the Note shall not be impaired hereby. References to the Related Documents and to other agreements shall not affect or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on the Note when due. The Bank reserves all rights against all parties to the Note.       Address:   3400 Jackson St. Borrower:   Dubuque, IA 52001       Flexsteel Industries, Inc.         By: /s/   Timothy E. Hall     --------------------------------------------------------------------------------     Timothy E. Hall, VP & CFO -------------------------------------------------------------------------------- Printed Name Title   Date Signed: December 29, 2005 --------------------------------------------------------------------------------       BANK’S ACCEPTANCE           The foregoing agreement is hereby agreed to and acknowledged.             Bank:       JPMorgan Chase Bank, N.A.         By: /s/   Robert E. McElwain     --------------------------------------------------------------------------------       Robert E. McElwain, SVP --------------------------------------------------------------------------------     Printed Name Title   Date Signed: December 31, 2005 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------       (CHASE LOGO) [a001.jpg] Amendment to Credit Agreement    This agreement is dated as of December 23, 2005, by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by merger to Bank One, NA, (the “Bank”), and its successors and assigns. . The provisions of this agreement are effective on December 9, 2005 (the “Effective Date”). WHEREAS, the Borrower and the Bank entered into a credit agreement dated June 30, 2004, as amended (if applicable) (the “Credit Agreement”); and WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit Agreement as set forth below; NOW, THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows:       1. DEFINED TERMS. Capitalized terms not defined herein shall have the meaning ascribed in the Credit Agreement.     2. MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows:       2.1 From and after the Effective Date, the pricing grid in Section 1.2 and Section 1.4 of the Credit Agreement under the Sections captioned “Non Usage Fee” are hereby amended and restated to read as follows:     Funded Debt to EBITDA Ratio Non-usage Fee -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Greater than or equal to 3.00 to 1.00 20 bp Less than 3.00 to 1.00 but greater than or equal to 2.50 to 1.00 20 bp Less than 2.50 to 1.00 but greater than or equal to 2.00 to 1.00 10 bp Less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00 l0 bp Less than 1.50 to 1.00 but greater than or equal to 1.00 to 1.00 10 bp Less than or equal to 1.00 to 1.00 l0 bp         2.2 From and after the Effective Date, the pricing grid in Section 1.4 of the Credit Agreement under the Section captioned “Letters of Credit” is hereby amended and restated to read as follows:     Funded Debt to EBITDA Ratio Letter of Credit Fee -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Greater than or equal to 3.00 to 1.00 l .50% Less than 3.00 to 1.00 but greater than or equal to 2.50 to 1.00 1.25% Less than 2.50 to 1.00 but greater than or equal to 2.00 to 1.00 1.00% Less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00 0.75% Less than 1.50 to 1.00 but greater than or equal to 1.00 to 1.00 0.75% Less than or equal to 1.00 to 1.00 0.75%           2.3 From and after the Effective Date, Section 4.2 of the Credit Agreement captioned “J. EBITDA/Interest Ratio” and “K. Funded Debt to EBITDA Ratio” are hereby amended and restated to read as follows:             J. EBITDA/Interest Ratio. Permit as of any fiscal quarter end, its ratio determined on a consolidated basis for Borrower and its Subsidiaries, of (i) net income, plus amortization, depreciation, interest expense, income taxes, and the aggregate amount of all expenses related to options, (employee stock option plans or employee stock purchase plans which reduce net income), all computed for the twelve month period then ending, to (ii) interest expense, computed for the same such period, to be less than 3.00 to 1.00. --------------------------------------------------------------------------------             K. Funded Debt to EBITDA Ratio. Permit as of any fiscal quarter end, its “Funded Debt to EBITDA Ratio” to be greater than 3.50 to 1.00. As used herein, “Funded Debt to EBITDA Ratio” means the ratio, determined on a consolidated basis for Borrower and its Subsidiaries, of (i) total liabilities excluding (a) accounts arising from the purchase of goods and services in the ordinary course of business, (b) accrued expenses or losses, and (c) deferred revenues or gains, all computed as of the end of the fiscal quarter for which this ratio is being determined, to (ii) net income, plus amortization, depreciation, interest expense, income taxes, and the aggregate amount of all expenses related to options, (employee stock option plans or employee stock purchase plans which reduce net income), all computed for the twelve month period then ending with such fiscal quarter end.     3. RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the Credit Agreement shall remain in full force and effect as modified herein.     4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that (a) the representations and warranties contained in the Credit Agreement are true and correct in all material respects as of the date of this agreement, (b) no condition, act or event which could constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement exists, and (c) no condition, event, act or omission has occurred, which, with the giving of notice or passage of time, would constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement.     5. FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket disbursements incurred by the Bank in connection with this agreement, including legal fees incurred by the Bank in the preparation, consummation, administration and enforcement of this agreement.     6. EXECUTION AND DELIVERY. This agreement shall become effective only after it is fully executed by the Borrower and the Bank.     7. ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of this agreement it has no offsets with respect to all amounts owed by the Borrower to the Bank arising under or related to the Credit Agreement on or prior to the date of this agreement. The Borrower fully, finally and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents and representatives from any and all claims, causes of action, debts and liabilities, of whatever kind or nature, in law or in equity, of the Borrower, whether now known or unknown to the Borrower, which may have arisen in connection with the Credit Agreement or the actions or omissions of the Bank related to the Credit Agreement on or prior to the date hereof. The Borrower acknowledges and agrees that this agreement is limited to the terms outlined above, and shall not be construed as an agreement to change any other terms or provisions of the Credit Agreement. This agreement shall not establish a course of dealing or be construed as evidence of any willingness on the Bank’s part to grant other or future agreements, should any be requested. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK --------------------------------------------------------------------------------     8. NOT A NOVATION. This agreement is a modification only and not a novation. Except for the above-quoted modification(s), the Credit Agreement, any loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, instruments or documents executed in connection with the Credit Agreement, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Credit Agreement and made a part thereof. This agreement shall not release or affect the liability of any guarantor of any promissory note or credit facility executed in reference to the Credit Agreement or release any owner of collateral granted as security for the Credit Agreement. The validity, priority and enforceability of the Credit Agreement shall not be impaired hereby. To the extent that any provision of this agreement conflicts with any term or condition set forth in the Credit Agreement, or any document executed in conjunction therewith, the provisions of this agreement shall supersede and control. The Bank expressly reserves all rights against all parties to the Credit Agreement.       Borrower:         Flexsteel Industries, Inc.         By: /s/   Timothy E. Hall     --------------------------------------------------------------------------------     Timothy E. Hall, CFO -------------------------------------------------------------------------------- Printed Name Title   Date Signed: December 29, 2005 --------------------------------------------------------------------------------               Bank:       JPMorgan Chase Bank, N.A.         By: /s/   Robert E. McElwain     --------------------------------------------------------------------------------       Robert E. McElwain, SVP --------------------------------------------------------------------------------     Printed Name Title   Date Signed: December 30, 2005 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (BANK ONE LOGO) [a011.jpg] Amendment to Credit Agreement This agreement is dated as of August 19, 2005, by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by merger to Bank One, NA, (the “Bank”), and its successors and assigns. The provisions of this agreement are effective on the date that this agreement has been executed by all of the signers and delivered to the Bank (the “Effective Date”). WHEREAS, the Borrower and the Bank entered into a credit agreement dated June 30, 2004, as amended (if applicable) (the “Credit Agreement”); and. WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit Agreement as set forth below; NOW, THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows:       1. DEFINED TERMS. Capitalized terms not defined herein shall have the meaning ascribed in the Credit Agreement.       2. MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows:         2.1 From and after the Effective Date, the provision in the Credit Agreement under Section 1.4 captioned “Facility C. (Letters of Credit)” is hereby amended as follows: The language now reading “The Bank has approved a credit facility for letters of credit to the Borrower and/or DMI in the principal sum not to exceed $5,000,000.00 in the aggregate at any one time outstanding (“Facility C”).” is replaced with the following:           The Bank has approved a credit facility for letters of credit to the Borrower and/or DMI in the principal sum not to exceed $8,000,000.00 in the aggregate at any one time outstanding (“Facility C”).         2.2 From and after the Effective Date, the following provision in the Credit Agreement under Section 1.4 captioned “Facility C (Letters of Credit)” Subsection (a) is hereby amended and restated to read as follows:           (a) the aggregate maximum available amount which is drawn and unreimbursed or may be drawn under all letters of credit which are outstanding at any time, including without limitation all letters of credit issued for the account of the Borrower and/or DMI which are outstanding on the date of this agreement, shall not exceed $8,000,000.00.       3. RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the Credit Agreement shall remain in full force and effect as modified herein.       4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that (a) the representations and warranties contained in the Credit Agreement are true and correct in all material respects as of the date of this agreement, (b) no condition, act or event which could constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement exists, and (c) no condition, event, act or omission has occurred, which, with the giving of notice or passage of time, would constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement.       5. FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket disbursements incurred by the Bank in connection with this agreement, including legal fees incurred by the Bank in the preparation, consummation, administration and enforcement of this agreement.       6. EXECUTION AND DELIVERY. This agreement shall become effective only after it is fully executed by the Borrower and the Bank.       7. ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of this agreement it has no offsets with respect to all amounts owed by the Borrower to the Bank arising under or related to the Credit Agreement on or prior to the date of this agreement. The Borrower fully, finally and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents and representatives from any and all claims, causes of action, debts and liabilities, of whatever kind or nature, in law or in equity, of the Borrower, whether now known or unknown to the Borrower, which may have arisen in connection with the Credit Agreement or the actions or omissions of the Bank related to the Credit Agreement on or prior to the date hereof. The Borrower acknowledges and agrees that this agreement is limited to the terms outlined above, and shall not be construed as an agreement to change any other terms or provisions of the Credit --------------------------------------------------------------------------------         Agreement. This agreement shall not establish a course of dealing or be construed as evidence of any willingness on the Bank’s part to grant other or future agreements, should any be requested.       8. NOT A NOVATION. This agreement is a modification only and not a novation. Except for the above-quoted modification(s), the Credit Agreement, any loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, instruments or documents executed in connection with the Credit Agreement, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Credit Agreement and made a part thereof. This agreement shall not release or affect the liability of any guarantor of any promissory note or credit facility executed in reference to the Credit Agreement or release any owner of collateral granted as security for the Credit Agreement. The validity, priority and enforceability of the Credit Agreement shall not be impaired hereby. To the extent that any provision of this agreement conflicts with any term or condition set forth in the Credit Agreement, or any document executed in conjunction therewith, the provisions of this agreement shall supersede and control. The Bank expressly reserves all rights against all parties to the Credit Agreement.          Borrower:         Flexsteel Industries, Inc.         By: /s/   Timothy E. Hall     --------------------------------------------------------------------------------     Timothy E. Hall, Chief Financial Officer -------------------------------------------------------------------------------- Printed Name Title   Date Signed: August 23, 2005 --------------------------------------------------------------------------------               Bank:       JPMorgan Chase Bank, N.A.         By: /s/   John C. Otteson     --------------------------------------------------------------------------------       John C. Otteson, First Vice President     --------------------------------------------------------------------------------     Printed Name Title     Date Signed: August 25, 2005 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (BANK ONE LOGO) [a011.jpg] Line of Credit Note       $20,000,000.00 Due: June 29, 2006 Date: June 10, 2005 Promise to Pay. On or before June 29, 2006, for value received, Flexsteel Industries, Inc. (the “Borrower”) promises to pay to JPMorgan Chase Bank, N.A. as successor by merger to Bank One, NA whose address is 1 East Ohio Street, Indianapolis, IN 46277 (the “Bank”) or order, in lawful money of the United States of America, the sum of Twenty Million and 00/100 Dollars ($20,000,000.00) or such lesser sum as is indicated on Bank records, plus interest as provided below. Definitions. As used in this Note, the following terms have the following respective meanings: “Advance” means a Eurodollar Advance or a Prime Rate Advance and “Advances” means all Eurodollar Advances and all Prime Rate Advances under this Note. “Applicable Margin” means with respect to any Prime Rate Advance or Eurodollar Advance, as the case may be, the rate per annum set forth below opposite the applicable Funded Debt to EBITDA Ratio. Funded Debt to EBITDA Ratio is defined in the Credit Agreement.         Applicable Margin   -------------------------------------------------------------------------------- Funded Debt to EBITDA Ratio Prime Rate Advance Eurodollar Advance -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Greater than or equal to 2.00 to 1.00 0.00% 1.00% Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00 0.00% 0.75% Less than 1.00 to 1.00 0.00% 0.50% The Applicable Margin shall, in each case, be determined and adjusted quarterly on the first day of the month after the date of delivery of the quarterly and annual financial statements required by the Credit Agreement, provided, however, that if such financial statements are not delivered within two Business Days after the required date (each, an “Interest Determination Date”), the Applicable Margin shall increase to the maximum percentage amount set forth in the table above from the date such financial statements were required to be delivered to the Bank until received by the Bank. The Applicable Margin shall be effective from an Interest Determination Date until the next Interest Determination Date. Such determinations by the Bank shall be conclusive absent manifest error. The initial Applicable Margin for Prime Rate Advances is 0.00% and for Eurodollar Advances is 0.50%. “Credit Agreement” means a certain Credit Agreement, dated June 30, 2004, between the Borrower and the Bank. “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 Indiana and/or New York 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, Sunday or any other day on which national banking associations are authorized to be closed. “Eurodollar Base Rate” means, with respect to the relevant Interest Period, the applicable British Bankers’ Association LIBOR rate for deposits in U.S. dollars as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, if no such British Bankers’ Association LIBOR rate is available to the Bank, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by the Bank to be the rate at which JPMorgan Chase & Co. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of the principal amount outstanding on such date and having a maturity equal to such Interest Period. “Eurodollar Advance” means any borrowing under this Note when and to the extent that its interest rate is determined by reference to the Eurodollar Rate. “Eurodollar Rate” means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the Applicable Margin plus (ii) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period. -------------------------------------------------------------------------------- “Interest Period” means, with respect to a Eurodollar Advance, a period of one (1), two (2), three (3) or six (6) month(s) commencing on a Business Day selected by the Borrower pursuant to this Note. Such Interest Period shall end on the day which corresponds numerically to such date one (1), two (2), three (3) or six (6) month(s) thereafter, as applicable, provided, however, that if there is no such numerically corresponding day in such first, second, third or sixth succeeding month(s), as applicable, such Interest Period shall end on the last Business Day of such first, second, third or sixth succeeding month(s), as applicable. 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, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. “Prime Rate” means a rate per annum equal to the prime rate of interest announced from time to time by the Bank or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes. “Prime Rate Advance” means any Advance under this Note when and to the extent that its interest rate is determined by reference to the Prime Rate. “Principal Payment Date” is defined in the paragraph entitled “Principal Payments” below. “Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. “Reserve Requirement” means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D. Interest Rates. The Advance(s) evidenced by this Note may be drawn down and remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate Advance. The Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of each Prime Rate Advance at the Prime Rate plus the Applicable Margin and each Eurodollar Advance at the Eurodollar Rate. Interest shall be calculated on the basis of the actual number of days elapsed in a year of 360 days. In no event shall the interest rate applicable to any Advance exceed the maximum rate allowed by law. Any interest payment which would for any reason be deemed unlawful under applicable law shall be applied to principal. Bank Records. The Bank shall, in the ordinary course of business, make notations in its records of the date, amount, interest rate and Interest Period of each Advance hereunder, the amount of each payment on the Advances, and other information. Such records shall, in the absence of manifest error, be conclusive as to the outstanding principal balance of and interest rate or rates applicable to this Note. Notice and Manner of Electing Interest Rates on Advances. The Borrower shall give the Bank written notice (effective upon receipt) of the Borrower’s intent to draw down an Advance under this Note no later than 11:00 a.m. Eastern time, one (1) Business Day before disbursement, if the full amount of the drawn Advance is to be disbursed as a Prime Rate Advance and three (3) Business Days before disbursement, if any part of such Advance is to be disbursed as a Eurodollar Advance. The Borrower’s notice must specify: (a) the disbursement date, (b) the amount of each Advance, (c) the type of each Advance (Prime Rate Advance or Eurodollar Advance), and (d) for each Eurodollar Advance, the duration of the applicable Interest Period; provided, however, that the Borrower may not elect an Interest Period ending after the maturity date of this Note. Each Eurodollar Advance shall be in a minimum amount of One Million and 00/100 Dollars ($1,000,000.00). All notices under this paragraph are irrevocable. By the Bank’s close of business on the disbursement date and upon fulfillment of the conditions set forth herein and in any other of the Related Documents, the Bank shall disburse the requested Advances in immediately available funds by crediting the amount of such Advances to the Borrower’s account with the Bank. Conversion and Renewals. The Borrower may elect from time to time to convert one type of Advance into another or to renew any Advance by giving the Bank written notice no later than 11:00 a.m. Eastern time, one (1) Business Day before conversion into a Prime Rate Advance and three (3) Business Days before conversion into or renewal of a Eurodollar Advance, specifying: (a) the renewal or conversion date, (b) the amount of the Advance to be converted or renewed, (c) in the case of conversion, the type of Advance to be converted into (Prime Rate Advance or Eurodollar Advance), and (d) in the case of renewals of or conversion into a Eurodollar Advance, the applicable Interest Period, provided that (i) the minimum principal amount of each Eurodollar Advance outstanding after a renewal or conversion shall be One Million and 00/100 Dollars ($1,000,000.00); (ii) a Eurodollar Advance can only be converted on the last day of the Interest Period for the Advance; and (iii) the Borrower may not elect an Interest Period ending after the maturity date of this Note. All notices given under this paragraph are irrevocable. If the Borrower fails to give the Bank the notice specified above for the renewal or conversion of a Eurodollar Advance by 11:00 a.m. Eastern time three (3) Business Days before the end of the Interest Period for that Advance, the Advance shall automatically be converted to a Prime Rate Advance on the last day of the Interest Period for the Advance. -------------------------------------------------------------------------------- Interest Payments. Interest on the Advances shall be paid as follows: A.      For each Prime Rate Advance, on the twenty-ninth day of each month beginning with the first month following disbursement of the Advance or following conversion of an Advance into a Prime Rate Advance, and at the maturity or conversion of the Advance into a Eurodollar Advance; B.      For each Eurodollar Advance, on the last day of the Interest Period for the Advance and, if the Interest Period is longer than three months, at three-month intervals beginning with the day three months from the date the Advance is disbursed. Principal Payments. All outstanding principal and interest is due and payable in full on June 29, 2006, which is defined herein as the “Principal Payment Date”. Default Rate of Interest. After a default has occurred under this Note, whether or not the Bank elects to accelerate the maturity of this Note because of such default, all Advances outstanding under this Note, including all Eurodollar Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus the Applicable Margin for a Prime Rate Advance, plus three percent (3.00%) from the date the Bank elects to impose such rate. Imposition of this rate shall not affect any limitations contained in this Note on the Borrower’s right to repay principal on any Eurodollar Advance before the expiration of the Interest Period for that Advance. Prepayment. The Borrower may prepay all or any part of any Prime Rate Advance at any time without premium or penalty. The Borrower may prepay any Eurodollar Advance only at the end of an Interest Period. Funding Loss Indemnification. Upon the Bank’s request, the Borrower shall pay the Bank amounts sufficient (in the Bank’s reasonable opinion) to compensate it for any loss, cost, or expense incurred as a result of: A.      Any payment of a Eurodollar Advance on a date other than the last day of the Interest Period for the Advance, including, without limitation, acceleration of the Advances by the Bank pursuant to this Note or the Related Documents; or B.      Any failure by the Borrower to borrow or renew a Eurodollar Advance on the date specified in the relevant notice from the Borrower to the Bank. Additional Costs. If any applicable domestic or foreign law; treaty, government rule or regulation now or later in effect (whether or not it now applies to the Bank) or the interpretation or administration thereof by a governmental authority charged with such interpretation or administration, or compliance by the Bank with any guideline, request or directive of such an authority (whether or not having the force of law), shall (a) affect the basis of taxation of payments to the Bank of any amounts payable by the Borrower under this Note or the Related Documents (other than taxes imposed on the overall net income of the Bank by the jurisdiction or by any political subdivision or taxing authority of the jurisdiction in which the Bank has its principal office), or (b) 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 the Bank, or (c) impose any other condition with respect to this Note or the Related Documents and the result of any of the foregoing is to increase the cost to the Bank of maintaining any Eurodollar Advance or to reduce the amount of any sum receivable by the Bank on such an Advance, or (d) affect the amount of capital required or expected to be maintained by the Bank (or any corporation controlling the Bank) and the Bank determines that the amount of such capital is increased by or based upon the existence of the Bank’s obligations under this Note or the Related Documents and the increase has the effect of reducing the rate of return on the Bank’s (or its controlling corporation’s) capital as a consequence of the obligations under this Note or the Related Documents to a level below that which the Bank (or its controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy) by an amount deemed by the Bank to be material, then the Borrower shall pay to the Bank, from time to time, upon request by the Bank, additional amounts sufficient to compensate the Bank for the increased cost or reduced sum receivable. Whenever the Bank shall learn of circumstances described in this section which are likely to result in additional costs to the Borrower, the Bank shall give prompt written notice to the Borrower of the basis for and the estimated amount of any such anticipated additional costs. A statement as to the amount of the increased cost or reduced sum receivable, prepared in good faith and in reasonable detail by the Bank and submitted by the Bank to the Borrower, shall be conclusive and binding for all purposes absent manifest error in computation. Illegality. If any applicable domestic or foreign law, treaty, rule or regulation now or later in effect (whether or not it now applies to the Bank) or the interpretation or administration thereof by a governmental authority charged with such interpretation or administration, or compliance by the Bank with any guideline, request or directive of such an authority (whether or not having the force of law), shall make it unlawful or impossible for the Bank to maintain or fund the Eurodollar Advances, then, upon notice to the Borrower by the Bank, the outstanding principal amount of the Eurodollar Advances, together with accrued interest and any other amounts payable to the Bank under this Note or the Related Documents on account of the Eurodollar Advances shall be repaid (a) immediately upon the Bank’s demand if such change or compliance with such requests, in the Bank’s judgment, requires immediate repayment, or (b) at the expiration of the last Interest Period to expire before the effective date of any such change or request provided, however, that subject to the terms and conditions of this Note and the Related Documents the Borrower shall be entitled to -------------------------------------------------------------------------------- simultaneously replace the entire outstanding balance of any Eurodollar Advance repaid in accordance with this section with a Prime Rate Advance in the same amount. Inability to Determine Interest Rate. If the Bank determines that (a) quotations of interest rates for the relevant deposits referred to in the definition of Eurodollar Rate are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the interest rate on a Eurodollar Advance as provided in this Note, or (b) the relevant interest rates referred to in the definition of Eurodollar Rate do not accurately cover the cost to the Bank of making or maintaining Eurodollar Advances, then the Bank shall forthwith give notice of such circumstances to the Borrower, whereupon (i) the obligation of the Bank to make Eurodollar Advances shall be suspended until the Bank notifies the Borrower that the circumstances giving rise to the suspension no longer exists, and (ii) the Borrower shall repay in full the then outstanding principal amount of each Eurodollar Advance, together with accrued interest, on the last day of the then current Interest Period applicable to the Advance, provided, however, that, subject to the terms and conditions of this Note and the Related Documents, the Borrower shall be entitled to simultaneously replace the entire outstanding balance of any Eurodollar Advance repaid in accordance with this section with a Prime Rate Advance in the same amount. Obligations Due on Non-Business Day. Whenever any payment under this Note becomes due and payable on a day that is not a Business Day, if no default then exists under this Note, the maturity of the payment shall be extended to the next succeeding Business Day, except, in the case of a Eurodollar Advance, if the result of the extension would be to extend the payment into another calendar month, the payment must be made on the immediately preceding Business Day. Matters Regarding Payment. The Borrower will pay the Bank at the Bank’s address shown above or at such other place as the Bank may designate. Payments shall be allocated among principal, interest and fees at the discretion of the Bank unless otherwise agreed or required by applicable law. Acceptance by the Bank of any payment which is less than the payment due at the time shall not constitute a waiver of the Bank’s right to receive payment in full at that time or any other time. Authorization for Direct Payments (ACH Debits). To effectuate any payment due under this Note, the Borrower hereby authorizes the Bank to initiate debit entries to Account Number __________________ at the Bank and to debit the same to such account. This authorization to initiate debit entries shall remain in full force and effect until the Bank has received written notification of its termination in such time and in such manner as to afford the Bank a reasonable opportunity to act on it. The Borrower represents that the Borrower is and will be the owner of all funds in such account. The Borrower acknowledges (1) that such debit entries may cause an overdraft of such account which may result in the Bank’s refusal to honor items drawn on such account until adequate deposits are made to such account; (2) that the Bank is under no duty or obligation to initiate any debit entry for any purpose; and (3) that if a debit is not made because the above-referenced account does not have a sufficient available balance, or otherwise, the payment may be late or past due. Credit Facility. The Bank has approved a credit facility to the Borrower in a principal amount not to exceed the face amount of this Note. The credit facility is in the form of advances made from time to time by the Bank to the Borrower. This Note evidences the Borrower’s obligation to repay those advances. The aggregate principal amount of debt evidenced by this Note is the amount reflected from time to time in the records of the Bank. Until the earliest of maturity, the occurrence of any default, or the occurrence of any event that would constitute a default but for the giving of notice or the lapse of time or both until the end of any grace or cure period, the Borrower may borrow, pay down and reborrow under this Note subject to the terms of the Related Documents. Renewal and Extension. This Note is given in replacement, renewal and/or extension of, but not extinguishing the indebtedness evidenced by, that Line of Credit Note dated June 30, 2004 executed by the Borrower in the original principal amount of Twenty Million and 00/100 Dollars ($20,000,000.00), including previous renewals or modifications thereof, if any (the “Prior Note”), and is not a novation thereof. All interest evidenced by the Prior Note shall continue to be due and payable until paid. If applicable, all Collateral continues to secure the payment of this Note and the Liabilities. The provisions of this Note are effective on the date that this Note has been executed by all of the signers and delivered to the Bank. THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -------------------------------------------------------------------------------- Miscellaneous. This Note binds the Borrower and its successors, and benefits the Bank, its successors and assigns. Any reference to the Bank includes any holder of this Note. This Note is issued pursuant and entitled to the benefits of that certain Credit Agreement by and between the Borrower and the Bank, dated June 30, 2004, and all replacements thereof (the “Credit Agreement”) to which reference is hereby made for a more complete statement of the terms and conditions under which the loan evidenced hereby is made and is to be repaid. The terms and provisions of the Credit Agreement are hereby incorporated and made a part hereof by this reference thereto with the same force and effect as if set forth at length herein. No reference to the Credit Agreement and no provisions of this Note or the Credit Agreement shall alter or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on this Note as herein prescribed. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.       Address:   3400 Jackson St. Borrower:   Dubuque, IA 52001       Flexsteel Industries, Inc.         By: /s/   R. J. Klosterman     --------------------------------------------------------------------------------     R. J. Klosterman, Exec. V.P., C.F.O., Secretary -------------------------------------------------------------------------------- Printed Name Title   Date Signed: June 15, 2005 --------------------------------------------------------------------------------       --------------------------------------------------------------------------------     (BANK ONE LOGO) [a011.jpg] Note Modification Agreement This agreement is dated as of June 10, 2005 (the “Agreement Date”), by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A. as successor by merger to Bank One, NA (the “Bank”). The provisions of this agreement are effective on the date that this agreement has been executed by all of the signers and delivered to the Bank (the “Effective Date”). WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness in the original face amount of Twenty Million and 00/100 Dollars ($20,000,000.00), dated June 30, 2004 owing by the Borrower to the Bank, as same may have been amended or modified from time to time (the “Note”), which Note has at all times been, and is now, continuously and without interruption outstanding in favor of the Bank; and, WHEREAS, the Borrower has requested and the Bank has agreed that the Note be modified to the limited extent as hereinafter set forth; NOW THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows: 1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals stated above. 2. MODIFICATION OF NOTE.           2.1 From and after the Effective Date, the amount of the Note, and the maximum principal amount that may at any time be outstanding thereunder, is hereby decreased to Thirteen Million and 00/100 Dollars ($13,000,000.00).           2.2 Each of the Related Documents is modified to provide that it shall be a default or an event of default thereunder if the Borrower shall fail to comply with any of the covenants of the Borrower herein or if any representation or warranty by the Borrower or by any guarantor herein is materially incomplete, incorrect, or misleading as of the date hereof. As used in this agreement, the “Related Documents” shall include the Note and all loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with the Note or in connection with any other obligations of the Borrower to the Bank.           2.3 Each reference in the Related Documents to any of the Related Documents shall be a reference to such document as modified herein. 3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are ratified and reaffirmed by the Borrower and shall remain in full force and effect as they may be modified herein. All real or personal property described as security in the Related Documents shall remain as security for the Note and the obligations of the Borrower in the Related Documents. 4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Bank:           4.1 No default or event of default under any of the Related Documents as modified hereby, nor any event, that, with the giving of notice or the passage of time or both, would be a default or an event of default under the Related Documents as modified herein has occurred and is continuing.           4.2 There has been no material adverse change in the financial conditions of the Borrower or any other person whose financial statement has been delivered to the Bank in connection with the Note from the most recent financial statement received by the Bank.           4.3 Each and all representations and warranties of the Borrower in the Related Documents are accurate on the date hereof.           4.4 The Borrower has no claims, counterclaims, defenses, or setoffs with respect to the loan evidenced by the Note or with respect to the Related Documents as modified herein.           4.5 The Note and the Related Documents as modified herein are the legal, valid, and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms.           4.6 The Borrower, other than any Borrower who is a natural person, is validly existing under the laws of the State of its formation or organization. The Borrower has the requisite power and authority to execute and deliver this agreement and to perform the obligations described in the Related Documents as modified herein. The execution and delivery of this agreement and the -------------------------------------------------------------------------------- performance of the obligations described in the Related Documents as modified herein have been duly authorized by all requisite action by or on behalf of the Borrower. This agreement has been duly executed and delivered by or on behalf of the Borrower. 5. BORROWER COVENANTS. The Borrower covenants with the Bank:           5.1 The Borrower shall execute, deliver, and provide to the Bank such additional agreements, documents, and instruments as. reasonably required by the Bank to effectuate the intent of this agreement.           5.2 The Borrower fully, finally, and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all causes of action, claims, debts, demands, and liabilities, of whatever kind or nature, in law or equity, of the Borrower, whether now known or unknown to the Borrower, (i) in respect of the loan evidenced by the Note and the Related Documents, or of the actions or omissions of the Bank in any manner related to the loan evidenced by the Note or the Related Documents and (ii) arising from events occurring prior to the date of this agreement.           5.3 The Borrower shall pay to the Bank:                     5.3.1 All the internal and external costs and expenses incurred by the Bank in connection with this agreement (including, without limitation, inside and outside attorneys, appraisal, appraisal review, processing, title, filing, and recording costs, expenses, and fees). 6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound by this agreement until (i) the Bank has executed this agreement and (ii) the Borrower performed all of the obligations of the Borrower under this agreement to be performed contemporaneously with the execution and delivery of this agreement. 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The Note and the Related Documents as modified herein contain the complete understanding and agreement of the Borrower and the Bank in respect of the loan and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. No provision of the Note or the Related Documents as modified herein may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the party against whom it is being enforced. 8. GOVERNING LAW AND VENUE. This agreement is delivered in the State of Indiana and governed by Indiana law (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under the Note or this agreement may be brought by the Bank in any state or federal court located in the State of Indiana, as the Bank in its sole discretion may elect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Indiana is not a convenient forum or the proper venue for any such suit, action or proceeding. This agreement binds the Borrower and its successors, and benefits the Bank, its successors and assigns. The Borrower shall not, however, have the right to assign the Borrower’s rights under this agreement or any interest therein, without the prior written consent of the Bank. 9. COUNTERPART EXECUTION. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement. THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -------------------------------------------------------------------------------- 10. NOT A NOVATION. This agreement is a modification only and not a novation. In addition to all amounts hereafter due under the Note and the Related Documents as they may be modified herein, all accrued interest evidenced by the Note being modified by this agreement and all accrued amounts due and payable under the Related Documents shall continue to be due and payable until paid. Except for the above-quoted modification(s), the Note, any Related Documents, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Note and made a part thereof. This agreement shall not release or affect the liability of any guarantor, surety or endorser of the Note or release any owner of collateral securing the Note. The validity, priority and enforceability of the Note shall not be impaired hereby. References to the Related Documents and to other agreements shall not affect or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on the Note when due. The Bank reserves all rights against all parties to the Note.       Address:   3400 Jackson St. Borrower:   Dubuque, IA 52001       Flexsteel Industries, Inc.         By: /s/   R.J. Klosterman     --------------------------------------------------------------------------------     R.J. Klosterman, Exec. V.P., C.F.O., Secretary -------------------------------------------------------------------------------- Printed Name Title   Date Signed: June 15, 2005 --------------------------------------------------------------------------------       BANK’S ACCEPTANCE           The foregoing agreement is hereby agreed to and acknowledged.             Bank:       JPMorgan Chase Bank, N.A.         By: /s/   John C. Otteson     --------------------------------------------------------------------------------           John C. Otteson, First Vice President     --------------------------------------------------------------------------------     Printed Name Title     Date Signed: June 20, 2005 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (BANK ONE LOGO) [a011.jpg] Amendment to Credit Agreement This agreement is dated as of June 10, 2005, by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A. as successor by merger to Bank One, NA (the “Bank”), and its successors and assigns. The provisions of this agreement are effective on the date that this agreement has been executed by all of the signers and delivered to the Bank (the “Effective Date”). WHEREAS, the Borrower and the Bank entered into a credit agreement dated June 30, 2004, as amended (if applicable) (the “Credit Agreement”); and WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit Agreement as set forth below; NOW, THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows:       1. DEFINED TERMS. Capitalized terms not defined herein shall have the meaning ascribed in the Credit Agreement.       2. MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows:         2.1 From and after the Effective Date, the following provision in the Credit Agreement under Section 1.2 captioned “Facility A. (Line Of Credit)” is hereby amended as follows: The language now reading “The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $20,000,000.00 in the aggregate at any one time outstanding (Facility A)”, is replaced with the following:           The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $13,000,000.00 in the aggregate at any one time outstanding (“Facility A”).         2.2 From and after the Effective Date, the following provision in the Credit Agreement under Section 1.4 subsection (a) captioned “Facility C. (Letter of Credit)” is hereby amended and restated as follows:           (a) the aggregate maximum available amount which is drawn and unreimbursed or may be drawn under all letters of credit which are outstanding at any time, including without limitation all letters of credit issued for the account of the Borrower and/or DMI which are outstanding on the date of this agreement, shall not exceed $5,000,000.00.       3. RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the Credit Agreement shall remain in full force and effect as modified herein.       4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that (a) the representations and warranties contained in the Credit Agreement are true and correct in all material respects as of the date of this agreement, (b) no condition, act or event which could constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement exists, and (c) no condition, event, act or omission has occurred, which, with the giving of notice or passage of time, would constitute an event of default under the Credit Agreement or any promissory note or credit facility executed in reference to the Credit Agreement.       5. FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket disbursements incurred by the Bank in connection with this agreement, including legal fees incurred by the Bank in the preparation, consummation, administration and enforcement of this agreement.       6. EXECUTION AND DELIVERY. This agreement shall become effective only after it is fully executed by the Borrower and the Bank, and the Bank shall have received from the Borrower the following documents: Line of Credit Notes for $20,000,000.00 and $13,000,000.00.       7. ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of this agreement it has no offsets with respect to all amounts owed by the Borrower to the Bank arising under or related to the Credit Agreement on or prior to the date of this agreement. The Borrower fully, finally and forever releases and discharges the Bank and its successors, assigns, directors, officers, employees, agents and representatives from any and all claims, causes of action, debts and liabilities, of whatever kind or nature, in law or in equity, of the Borrower, whether now known or unknown to the Borrower, which may have arisen in connection with the Credit Agreement or the actions or omissions of the Bank related to the Credit Agreement on or prior to the date hereof. The Borrower acknowledges and agrees that this agreement is limited to --------------------------------------------------------------------------------       the terms outlined above, and shall not be construed as an agreement to change any other terms or provisions of the Credit Agreement. This agreement shall not establish a course of dealing or be construed as evidence of any willingness on the Bank’s part to grant other or future agreements, should any be requested.     8. NOT A NOVATION. This agreement is a modification only and not a novation. Except for the above-quoted modification(s), the Credit Agreement, any loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, instruments or documents executed in connection with the Credit Agreement, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Credit Agreement and made a part thereof. This agreement shall not release or affect the liability of any guarantor of any promissory note or credit facility executed in reference to the Credit Agreement or release any owner of collateral granted as security for the Credit Agreement. The validity, priority and enforceability of the Credit Agreement shall not be impaired hereby. To the extent that any provision of this agreement conflicts with any term or condition set forth in the Credit Agreement, or any document executed in conjunction therewith, the provisions of this agreement shall supersede and control. The Bank expressly reserves all rights against all parties to the Credit Agreement.          Borrower:         Flexsteel Industries, Inc.         By: /s/   R.J. Klosterman     --------------------------------------------------------------------------------     R.J. Klosterman, Exec. V.P., C.F.O., Secretary -------------------------------------------------------------------------------- Printed Name Title   Date Signed: June 15, 2005 --------------------------------------------------------------------------------               Bank:       JPMorgan Chase Bank, N.A.         By: /s/   John C. Otteson     --------------------------------------------------------------------------------           John C. Otteson, First Vice President     --------------------------------------------------------------------------------     Printed Name Title     Date Signed: June 20, 2005 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (BANK ONE LOGO) [a011.jpg] Line of Credit Note       $20,000,000.00 Due: September 30, 2007 Date: June 30, 2004 Promise to Pay. On or before September 30, 2007, for value received, Flexsteel Industries, Inc. (the “Borrower”) promises to pay to Bank One, NA, with its main office in Chicago, IL, whose address is 111 Monument Circle, Indianapolis, IN 46277 (the “Bank”) or order, in lawful money of the United States of America, the sum of Twenty Million and 00/100 Dollars ($20,000,000.00) or such lesser sum as is indicated on Bank records, plus interest as provided below. Definitions. As used in this Note, the following terms have the following respective meanings: “Advance” means a Eurodollar Advance or a Prime Rate Advance and “Advances” means all Eurodollar Advances and all Prime Rate Advances under this Note. “Applicable Margin” means with respect to any Prime Rate Advance or Eurodollar Advance, as the case may be, the rate per annum set forth below opposite the applicable Funded Debt to EBITDA Ratio. Funded Debt to EBITDA Ratio is defined in the Credit Agreement.                       Applicable Margin       -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Funded Debt to EBITDA Ratio     Prime Rate Advance     Eurodollar Advance   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Greater than or equal to 2.00 to 1.00     0.00%     1.25%   Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00     0.00%     0.75%   Less than 1.00 to 1.00     0.00%     0.75%   The Applicable Margin shall, in each case, be determined and adjusted quarterly on the first day of the month after the date of delivery of the quarterly and annual financial statements required by the Credit Agreement, provided, however, that if such financial statements are not delivered within two Business Days after the required date (each, an “Interest Determination Date”), the Applicable Margin shall increase to the maximum percentage amount set forth in the table above from the date such financial statements were required to be delivered to the Bank until received by the Bank. The Applicable Margin shall be effective from an Interest Determination Date until the next Interest Determination Date. Such determinations by the Bank shall be conclusive absent manifest error. The initial Applicable Margin for Prime Rate Advances is 0.00% and for Eurodollar Advances is 0.75%. “Credit Agreement” means a certain Credit Agreement, dated June 30, 2004, between the Borrower and the Bank. “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 Indiana and/or New York 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, Sunday or any other day on which national banking associations are authorized to be closed. “Eurodollar Base Rate” means, with respect to the relevant Interest Period, the applicable British Bankers’ Association LIBOR rate for deposits in U.S. dollars as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, if no such British Bankers’ Association LIBOR rate is available to the Bank, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by the Bank to be the rate at which BANK ONE CORPORATION or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of the principal amount outstanding on such date and having a maturity equal to such Interest Period. “Eurodollar Advance” means any borrowing under this Note when and to the extent that its interest rate is determined by reference to the Eurodollar Rate. “Eurodollar Rate” means, with respect to a Eurodollar Advance for the relevant interest Period, the sum of (i) the Applicable Margin plus (ii) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such interest Period. -------------------------------------------------------------------------------- “Interest Period” means, with respect to a Eurodollar Advance, a period of one (1), two (2), three (3) or six (6) month(s) commencing on a Business Day selected by the Borrower pursuant to this Note. Such Interest Period shall end on the day which corresponds numerically to such date one (1), two (2), three (3) or six (6) month(s) thereafter, as applicable, provided, however, that if there is no such numerically corresponding day in such first, second, third or sixth succeeding month(s), as applicable, such Interest Period shall end on the last Business Day of such first, second, third or sixth succeeding month(s), as applicable. 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, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. “Prime Rate” means a rate per annum equal to the prime rate of interest announced from time to time by the Bank or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes. “Prime Rate Advance” means any Advance under this Note when and to the extent that its interest rate is determined by reference to the Prime Rate. “Principal Payment Date” is defined in the paragraph entitled “Principal Payments” below. “Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. “Reserve Requirement” means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D. Interest Rates. The Advance(s) evidenced by this Note may be drawn down and remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate Advance. The Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of each Prime Rate Advance at the Prime Rate plus the Applicable Margin and each Eurodollar Advance at the Eurodollar Rate. Interest shall be calculated on the basis of the actual number of days elapsed in a year of 360 days. In no event shall the interest rate applicable to any Advance exceed the maximum rate allowed by law. Any interest payment which would for any reason be deemed unlawful under applicable law shall be applied to principal. Bank Records. The Bank shall, in the ordinary course of business, make notations in its records of the date, amount, interest rate and Interest Period of each Advance hereunder, the amount of each payment on the Advances, and other information. Such records shall, in the absence of manifest error, be conclusive as to the outstanding principal balance of and interest rate or rates applicable to this Note. Notice and Manner of Electing Interest Rates on Advances. The Borrower shall give the Bank written notice (effective upon receipt) of the Borrower’s intent to draw down an Advance under this Note no later than 11:00 a.m. Eastern time, one (1) Business Day before disbursement, if the full amount of the drawn Advance is to be disbursed as a Prime Rate Advance and three (3) Business Days before disbursement, if any part of such Advance is to be disbursed as a Eurodollar Advance. The Borrower’s notice must specify: (a) the disbursement date, (b) the amount of each Advance, (c) the type of each Advance (Prime Rate Advance or Eurodollar Advance), and (d) for each Eurodollar Advance, the duration of the applicable Interest Period; provided, however, that the Borrower may not elect an Interest Period ending after the maturity date of this Note. Each Eurodollar Advance shall be in a minimum amount of One Million and 00/100 Dollars ($1,000,000.00). All notices under this paragraph are irrevocable. By the Bank’s close of business on the disbursement date and upon fulfillment of the conditions set forth herein and in any other of the Related Documents, the Bank shall disburse the requested Advances in immediately available funds by crediting the amount of such Advances to the Borrower’s account with the Bank. Conversion and Renewals. The Borrower may elect from time to time to convert one type of Advance into another or to renew any Advance by giving the Bank written notice no later than 11:00 a.m. Eastern time, one (1) Business Day before conversion into a Prime Rate Advance and three (3) Business Days before conversion into or renewal of a Eurodollar Advance, specifying: (a) the renewal or conversion date, (b) the amount of the Advance to be converted or renewed, (c) in the case of conversion, the type of Advance to be converted into (Prime Rate Advance or Eurodollar Advance), and (d) in the case of renewals of or conversion into a Eurodollar Advance, the applicable Interest Period, provided that (i) the minimum principal amount of each Eurodollar Advance outstanding after a renewal or conversion shall be One Million and 00/100 Dollars ($1,000,000.00); (ii) a Eurodollar Advance can only be converted on the last day of the Interest Period for the Advance; and (iii) the Borrower may not elect an Interest Period ending after the maturity date of this Note. All notices given under this paragraph are irrevocable. If the Borrower fails to give the Bank the notice specified above for the renewal or conversion of a Eurodollar Advance by 11:00 a.m. Eastern time three (3) Business Days before the end of the Interest Period for that Advance, the Advance shall automatically be converted to a Prime Rate Advance on the last day of the Interest Period for the Advance. -------------------------------------------------------------------------------- The Borrower may permanently reduce the Line of Credit commitment, in integral multiples of $1,000,000.00, by providing at least five Business Days’ written notice to the Bank and shall be irrevocable, which notice shall specify the amount of any such reduction, provided, however, that the amount of the aggregate commitment may not be reduced below the aggregate outstanding principal balance outstanding under this Note. Interest Payments. Interest on the Advances shall be paid as follows: A.       For each Prime Rate Advance, on the last day of each month beginning with the first month following disbursement of the Advance or following conversion of an Advance into a Prime Rate Advance, and at the maturity or conversion of the Advance into a Eurodollar Advance; B.       For each Eurodollar Advance, on the last day of the Interest Period for the Advance and, if the Interest Period is longer than three months, at three-month intervals beginning with the day three months from the date the Advance is disbursed. Principal Payments. All outstanding principal and interest is due and payable in full on September 30, 2007, which is defined herein as the “Principal Payment Date”. Default Rate of Interest. After a default has occurred under this Note, whether or not the Bank elects to accelerate the maturity of this Note because of such default, all Advances outstanding under this Note, including all Eurodollar Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus the Applicable Margin for a Prime Rate Advance, plus three percent (3.00%) from the date the Bank elects to impose such rate. Imposition of this rate shall not affect any limitations contained in this Note on the Borrower’s right to repay principal on any Eurodollar Advance before the expiration of the Interest Period for that Advance. Prepayment. The Borrower may prepay all or any part of any Prime Rate Advance at any time without premium or penalty. The Borrower may prepay any Eurodollar Advance only at the end of an Interest Period. Funding Loss Indemnification. Upon the Bank’s request, the Borrower shall pay the Bank amounts sufficient in the Bank’s reasonable opinion) to compensate it for any loss, cost, or expense incurred as a result of: A.       Any payment of a Eurodollar Advance on a date other than the last day of the Interest Period for the Advance, including, without limitation, acceleration of the Advances by the Bank pursuant to this Note or the Related Documents; or B.       Any failure by the Borrower to borrow or renew a Eurodollar Advance on the date specified in the relevant notice from the Borrower to the Bank. Additional Costs. If any applicable domestic or foreign law, treaty, government rule or regulation now or later in effect (whether or not it now applies to the Bank) or the interpretation or administration thereof by a governmental authority charged with such interpretation or administration, or compliance by the Bank with any guideline, request or directive of such an authority (whether or not having the force of law), shall (a) affect the basis of taxation of payments to the Bank of any amounts payable by the Borrower under this Note or the Related Documents (other than taxes imposed on the overall net income of the Bank by the jurisdiction or by any political subdivision or taxing authority of the jurisdiction in which the Bank has its principal office), or (b) 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 the Bank, or (c) impose any other condition with respect to this Note or the Related Documents and the result of any of the foregoing is to increase the cost to the Bank of maintaining any Eurodollar Advance or to reduce the amount of any sum receivable by the Bank on such an Advance, or (d) affect the amount of capital required or expected to be maintained by the Bank (or any corporation controlling the Bank) and the Bank determines that the amount of such capital is increased by or based upon the existence of the Bank’s obligations under this Note or the Related Documents and the increase has the effect of reducing the rate of return on the Bank’s (or its controlling corporation’s) capital as a consequence of the obligations under this Note or the Related Documents to a level below that which the Bank (or its controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy) by an amount deemed by the Bank to be material, then the Borrower shall pay to the Bank, from time to time, upon request by the Bank, additional amounts sufficient to compensate the Bank for the increased cost or reduced sum receivable. Whenever the Bank shall learn of circumstances described in this section which are likely to result in additional costs to the Borrower, the Bank shall give prompt written notice to the Borrower of the basis for and the estimated amount of any such anticipated additional costs. A statement as to the amount of the increased cost or reduced sum receivable, prepared in good faith and in reasonable detail by the Bank and submitted by the Bank to the Borrower, shall be conclusive and binding for all purposes absent manifest error in computation. Illegality. If any applicable domestic or foreign law, treaty, rule or regulation now or later in effect (whether or not it now applies to the Bank) or the interpretation or administration thereof by a governmental authority charged with such interpretation or administration, or compliance by the Bank with any guideline, request or directive of such an authority (whether or not having the -------------------------------------------------------------------------------- force of law), shall make it unlawful or impossible for the Bank to maintain or fund the Eurodollar Advances, then, upon notice to the Borrower by the Bank, the outstanding principal amount of the Eurodollar Advances, together with accrued interest and any other amounts payable to the Bank under this Note or the Related Documents on account of the Eurodollar Advances shall be repaid (a) immediately upon the Bank’s demand if such change or compliance with such requests, in the Bank’s judgment, requires immediate repayment, or (b) at the expiration of the last Interest Period to expire before the effective date of any such change or request provided, however, that subject to the terms and conditions of this Note and the Related Documents the Borrower shall be entitled to simultaneously replace the entire outstanding balance of any Eurodollar Advance repaid in accordance with this section with a Prime Rate Advance in the same amount. Inability to Determine Interest Rate. If the Bank determines that (a) quotations of interest rates for the relevant deposits referred to in the definition of Eurodollar Rate are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the interest rate on a Eurodollar Advance as provided in this Note, or (b) the relevant interest rates referred to in the definition of Eurodollar Rate do not accurately cover the cost to the Bank of making or maintaining Eurodollar Advances, then the Bank shall forthwith give notice of such circumstances to the Borrower, whereupon (i) the obligation of the Bank to make Eurodollar Advances shall be suspended until the Bank notifies the Borrower that the circumstances giving rise to the suspension no longer exists, and (ii) the Borrower shall repay in full the then outstanding principal amount of each Eurodollar Advance, together with accrued interest, on the last day of the then current Interest Period applicable to the Advance, provided, however, that, subject to the terms and conditions of this Note and the Related Documents, the Borrower shall be entitled to simultaneously replace the entire outstanding balance of any Eurodollar Advance repaid in accordance with this section with a Prime Rate Advance in the same amount. Obligations Due on Non-Business Day. Whenever any payment under this Note becomes due and payable on a day that is not a Business Day, if no default then exists under this Note, the maturity of the payment shall be extended to the next succeeding Business Day, except, in the case of a Eurodollar Advance, if the result of the extension would be to extend the payment into another calendar month, the payment must be made on the immediately preceding Business Day. Matters Regarding Payment. The Borrower will pay the Bank at the Bank’s address shown above or at such other place as the Bank may designate. Payments shall be allocated among principal, interest and fees at the discretion of the Bank unless otherwise agreed or required by applicable law. Acceptance by the Bank of any payment which is less than the payment due at the time shall not constitute a waiver of the Bank’s right to receive payment in full at that time or any other time. Authorization for Direct Payments (ACH Debits). To effectuate any payment due under this Note, the Borrower hereby authorizes the Bank to initiate debit entries to Account Number _____________________ at the Bank and to debit the same to such account. This authorization to initiate debit entries shall remain in full force and effect until the Bank has received written notification of its termination in such time and in such manner as to afford the Bank a reasonable opportunity to act on it. The Borrower represents that the Borrower is and will be the owner of all funds in such account. The Borrower acknowledges (1) that such debit entries may cause an overdraft of such account which may result in the Bank’s refusal to honor items drawn on such account until adequate deposits are made to such account; (2) that the Bank is under no duty or obligation to initiate any debit entry for any purpose; and (3) that if a debit is not made because the above-referenced account does not have a sufficient available balance, or otherwise, the payment may be late or past due. Credit Facility. The Bank has approved a credit facility to the Borrower in a principal amount not to exceed the face amount of this Note. The credit facility is in the form of advances made from time to time by the Bank to the Borrower. This Note evidences the Borrower’s obligation to repay those advances. The aggregate principal amount of debt evidenced by this Note is the amount reflected from time to time in the records of the Bank. Until the earliest of maturity, the occurrence of any default, or the occurrence of any event that would constitute a default but for the giving of notice or the lapse of time or both until the end of any grace or cure period, the Borrower may borrow, pay down and reborrow under this Note subject to the terms of the Related Documents. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK -------------------------------------------------------------------------------- Miscellaneous. This Note binds the Borrower and its successors, and benefits the Bank, its successors and assigns. Any reference to the Bank includes any holder of this Note. This Note is issued pursuant and entitled to the benefits of that certain Credit Agreement by and between the Borrower and the Bank, dated June 30, 2004, and all replacements thereof (the “Credit Agreement”) to which reference is hereby made for a more complete statement of the terms and conditions under which the loan evidenced hereby is made and is to be repaid. The terms and provisions of the Credit Agreement are hereby incorporated and made a part hereof by this reference thereto with the same force and effect as if set forth at length herein. No reference to the Credit Agreement and no provisions of this Note or the Credit Agreement shall alter or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on this Note as herein prescribed. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.       Address:   P. O. Box 877 Borrower:   Dubuque, IA 52004-0877       Flexsteel Industries, Inc.         By: /s/   R.J. Klosterman     --------------------------------------------------------------------------------     R.J. Klosterman, Exec. V.P., C.F.O., Secretary -------------------------------------------------------------------------------- Printed Name Title   Date Signed: June 29, 2004 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (BANK ONE LOGO) [a011.jpg] Credit Agreement This agreement dated as of June 30, 2004 between Bank One, NA, with its main office in Chicago, IL, and its successors and assigns, (the “Bank”), whose address is 111 Monument Circle, Indianapolis, IN 46277, and Flexsteel Industries, Inc. (the “Borrower”), whose address is P. O. Box 877, Dubuque, IA 52004-0877.     1. Credit Facilities.         1.1 Scope. This agreement governs Facility A, Facility B, and Facility C, and, unless otherwise agreed to in writing by the Bank and the Borrower or prohibited by applicable law, governs the Credit Facilities.         1.2 Facility A (Line of Credit). The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $20,000,000.00 in the aggregate at any one time outstanding (“Facility A”). Credit under Facility A shall be repayable as set forth in a Line of Credit Note executed concurrently with this agreement to evidence Facility A, and any renewals, modifications or extensions thereof. The proceeds of Facility A shall be used to refinance existing debt with the Bank in the name of DMI and to provide funds to finance additional working capital. The Borrower may elect from time to time to permanently reduce the amount of the Bank’s commitment with respect to facility A as provided in the Line of Credit Note evidencing Facility A.           Non Usage Fee. The Borrower shall pay to the Bank a non-usage fee on the average daily unused portion of Facility A at a rate per annum set forth below opposite the applicable Funded Debt to EBITDA Ratio, payable in arrears for each calendar quarter within ten (10) days of billing by the Bank. Funded Debt to EBITDA Ratio is defined in Section 4.2 K of the Credit Agreement.     Funded Debt to EBITDA Ratio Non-usage Fee -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Greater than or equal to 2.00 to 1.00 20 bp Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00 10 bp Less than 1.00 to 1.00 10 bp           The Bank’s determination of the non-usage fee on Facility A shall be conclusive, absent manifest error.         1.3 Facility B (Line of Credit). The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $20,000,000.00 in the aggregate at any one time outstanding (“Facility B”). Credit under Facility B shall be repayable as set forth in a Line of Credit Note executed concurrently with this agreement to evidence Facility B, and any renewals, modifications or extensions thereof. The proceeds of Facility B shall be to refinance existing debt with the Bank in the name of DMI. and to provide funds to finance additional working capital. The Borrower may elect from time to time to permanently reduce the amount of the Bank’s commitment with respect to facility B as provided in the Line of Credit Note evidencing Facility B.         1.4 Facility C (Letters of Credit). The Bank has approved a credit facility for letters of credit to the Borrower and/ or DMI in the principal sum not to exceed $7,000,000.00 in the aggregate at any one time outstanding (“Facility C”). The proceeds of Facility C shall be used to support letters of credit issued for the account of Borrower and / or DMI.           Non Usage Fee. The Borrower shall pay to the Bank a non-usage fee on the average daily unused portion of Facility C at a rate per annum set forth below opposite the applicable Funded Debt to EBITDA Ratio, payable in arrears for each calendar quarter within ten (10) days of billing by the Bank.     Funded Debt to EBITDA Ratio Non-usage Fee -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Greater than or equal to 2.00 to 1.00 20 bp Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00 10 bp Less than 1.00 to 1.00 10 bp           The Bank’s determination of the non-usage fee on Facility C shall be conclusive, absent manifest error. --------------------------------------------------------------------------------       Letters of Credit. At any time that no default has occurred and is continuing or would result, and no event has occurred and is continuing or would result which, with the giving of notice or the lapse of time or both would be a default, the Bank agrees to issue letters of credit for the account of the Borrower and/ or DMI until September 30, 2007, provided that (a) the aggregate maximum available amount which is drawn and unreimbursed or may be drawn under all letters of credit which are outstanding at any time, including without limitation all letters of credit issued for the account of the Borrower and/ or DMI which are outstanding on the date of this agreement, shall not exceed $7,000,000.00, (b) the issuance of any letter of credit with an expiration date beyond September 30, 2007, shall be entirely at the discretion of the Bank, (c) any letter of credit shall be a commercial letter of credit and the form of the requested letter of credit shall be satisfactory to the Bank, in the Bank’s sole discretion, and (d) the Borrower and DMI shall have executed an application and reimbursement agreement for any letter of credit in the Bank’s standard form. The Borrower shall pay the Bank a fee (the “L/C Fee”) for each commercial letter of credit that is issued, at a rate per annum set forth below opposite the applicable Funded Debt to EBITDA Ratio, payable in arrears for each calendar quarter within ten (10) days of billing by the Bank. Funded Debt to EBITDA Ratio is defined in Section 4.2L of the Credit Agreement. No credit shall be given for fees paid due to early termination of any letter of credit. The Borrower shall also pay the Bank’s standard transaction fees with respect to any transactions occurring on an account of any letter of credit. Each fee shall be payable when the related letter of credit is issued, and transaction fees shall be payable upon completion of the transaction as to which they are charged. All fees may be debited by the Bank to any deposit account of the Borrower carried with the Bank without further authority and, in any event, shall be paid by the Borrower within ten (10) days following billing.     Funded Debt to EBITDA Ratio L/C Fee -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Greater than or equal to 2.00 to 1.00 125 bp Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00 75 bp Less than 1.00 to 1.00 75 bp           The Bank’s determination of the L/C Fee shall be conclusive, absent manifest error.       2. Definitions. As used in this agreement, the following terms have the following respective meanings:       2.1 “Credit Facilities” means all extensions of credit from the Bank to the Borrower, whether now existing or hereafter arising, including but not limited to those described in Section 1.         2.2 “Capital Expenditures” means any expenditure or the incurrence of any obligation or liability by the Borrower for any asset which is classified as a capital asset.         2.3 “Distributions” means all dividends and other distributions made by the Borrower to its shareholders, partners, owners or members, as the case may be, other than salary, bonuses, and other compensation for services expended in the current accounting period.         2.4 “DMI” means DMI Furniture, Inc.         2.5 “Funded Debt to EBITDA Ratio” is used as that term is defined in Section 4.2 K.         2.6 “Liabilities” means all obligations, indebtedness and liabilities of the Borrower to any one or more of the Bank, BANK ONE CORPORATION, and any of their subsidiaries, affiliates or successors, now existing or later arising, including, without limitation, all loans, advances, interest, costs, overdraft indebtedness, credit card indebtedness, lease obligations, or obligations relating to any Rate Management Transaction, all monetary obligations incurred or accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceedings, regardless of whether allowed or allowable in such proceeding, and all renewals, extensions, modifications, consolidations or substitutions of any of the foregoing, whether the Borrower may be liable jointly with others or individually liable as a debtor, maker, co-maker, drawer, endorser, guarantor, surety or otherwise, and whether voluntarily or involuntarily incurred, due or not due, absolute or contingent, direct or indirect, liquidated or unliquidated. The term “Rate Management Transaction” in this agreement means any transaction (including an agreement with respect thereto) now existing or hereafter entered into among the Borrower, the Bank or BANK ONE CORPORATION, or any of its subsidiaries or affiliates or their successors, which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction --------------------------------------------------------------------------------           (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.         2.7 “Notes” means the Line of Credit Note(s) described in Section 1, and all promissory notes, instruments and/or contracts evidencing the terms and conditions of the Liabilities.         2.8 “Related Documents” means all loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with this agreement or in connection with any of the Liabilities.         2.9 “Subordinated Debt” means debt subordinated to the Bank in manner and by agreement satisfactory to the Bank.         2.10 “Subsidiary” of a person or entity 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 entity or by one or more of its Subsidiaries or by such person or entity and one or more of its Subsidiaries, or (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. Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of the Borrower, and include, without limitation, DMI.       3. Affirmative Covenants. The Borrower shall, and shall cause each Subsidiary to::         3.1 Insurance. Maintain insurance with financially sound and reputable insurers covering its properties and business against those casualties and contingencies and in the types and amounts as are in accordance with sound business and industry practices, and furnish to the Bank, upon request of the Bank, reports on each existing insurance policy showing such information as the Bank may reasonably request.         3.2 Existence. Maintain its existence and business operations as presently in effect in accordance with all applicable laws and regulations, pay its debts and obligations when due under normal terms, and pay on or before their due date, all taxes, assessments, fees and other governmental monetary obligations, except as they may be contested in good faith if they have been properly reflected on its books and, at the Bank’s request, adequate funds or security has been pledged to insure payment.         3.3 Financial Records. Maintain proper books and records of account, in accordance with generally accepted accounting principles, and consistent with financial statements previously submitted to the Bank.         3.4 Inspection. Permit the Bank, its assigns or agents, at such times and at such intervals as the Bank may reasonably require: (1) to inspect, examine, audit and copy its business records, and to discuss the its business, operations, and financial condition with its officers and accountants; and (2) to inspect the its business operations and sites.         3.5 Financial Reports. Furnish to the Bank whatever information, books and records the Bank may from time to time reasonably request, including at a minimum:           A.          Via either the EDGAR System or its Home Page, within ten (10) days after the filing of its Quarterly Report on Form 10-Q for the fiscal quarter then ended with the Securities and Exchange Commission, but no event later than forty-five (45) days after the end of such fiscal quarter, copies of the financial statements for such fiscal quarter as contained in such Quarterly Report on Form 10-Q, and, as soon as it shall become available, a quarterly report to shareholders of the Borrower for the fiscal quarter then ended.                         Via either the EDGAR System or its Home Page, promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any subsidiary with the Securities and Exchange Commission or any governmental authority succeeding to any or all of the functions of said Commission.           If for any reason the EDGAR System and/or its Home Page are not available to the Borrower as is required for making available the financial statements or reports referred to above, the Borrower shall then furnish a copy of such financial statements or reports to the Bank.           For the purposes of this section, “EDGAR System” means the Electronic Data Gathering Analysis and Retrieval System owned and operated by the United States Securities and Exchange Commission or any replacement system, --------------------------------------------------------------------------------           and “Home Page” means the Borrower’s corporate home page on the World Wide Web accessible through the Internet via the universal resource locator (URL) identified as “www.flexsteel.com” or such other universal resource locator that the Borrower shall designate in writing to the Bank as its corporate home page on the World Wide Web.           B.          Within one hundred (100) days after and as of the end of each of its fiscal years, a detailed financial statement including a balance sheet and statements of income, cash flow and retained earnings, such financial statement, to be audited by an independent certified public accountant of recognized standing acceptable to the Bank in the Bank’s sole discretion.       3.6 Notices of Claims, Litigation, Defaults, etc. Promptly inform the Bank in writing of (1) all existing and all threatened litigation, claims, investigations, administrative proceedings and similar actions affecting the Borrower or any Subsidiary, which could materially affect the financial condition of the Borrower or any Subsidiary; (2) the occurrence of any event which gives rise to the Bank’s option to terminate the Credit Facilities; (3) the institution of steps by the Borrower or any Subsidiary to withdraw from, or the institution of any steps to terminate, any employee benefit plan as to which the Borrower and any Subsidiary may have liability; (4) any additions to or changes in the locations of the Borrower’s or any Subsidiary’s businesses; and (5) any alleged breach of any provision of this agreement or of any other agreement related to the Credit Facilities by the Bank.       3.7 Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between the Borrower and any Subsidiary and any other party.         3.8 Title to Assets and Property. Maintain good and marketable title to all of the Borrower’s and each Subsidiary’s assets and properties, and defend such assets and properties against all claims and demands of all persons at any time claiming any interest in them.         3.9 Additional Assurances. Make, execute and deliver to the Bank such other agreements as the Bank may reasonably request to evidence the Credit Facilities and to perfect any security interests.         3.10 Employee Benefit Plans. Maintain each employee benefit plan as to which the Borrower may have any liability, in compliance with all applicable requirements of law and regulations.       3.11 Banking Relationship. Cause DMI to maintain its primary banking depository and disbursement relationship with the Bank and establish such accounts and maintain balances therein with the Bank sufficient to cover the cost of all the Bank’s services provided; provided, however, that nothing herein shall require DMI to keep and maintain a specific minimum balance in such accounts.           Compliance Certificates. Provide the Bank, within forty-five (45) days after the end of each fiscal quarter, (excluding the 4th fiscal quarter) and within one hundred (100) days after the end of each fiscal year, with a certificate executed by the Borrower's chief financial officer, or other officer or a person acceptable to the Bank, certifying that, as of the date of the certificate, no default exists under any provision of this agreement.       4. Negative Covenants.     4.1 Unless otherwise noted, the financial requirements set forth in this section will be computed in accordance with generally accepted accounting principles applied on a basis consistent with financial statements previously submitted by the Borrower to the Bank.         4.2 Without the written consent of the Bank, the Borrower will not, and will not allow or permit any Subsidiary to:         A.          Debt. Incur, contract for, assume, or permit to remain outstanding, indebtedness for borrowed money, installment obligations, or obligations under capital leases or operating leases, other than (1) unsecured trade debt incurred in the ordinary course of business, (2) indebtedness owing to the Bank, (3) indebtedness reflected in the latest financial statement of the Borrower and the Subsidiaries furnished to the Bank prior to execution of this agreement and that is not to be paid with proceeds of borrowings under the Credit Facilities, and (4) other unsecured indebtedness and purchase money indebtedness in an aggregate amount not to exceed $10,000,000.00 at any time outstanding for the Borrower and the Subsidiaries.           B.          Guaranties. Guarantee or otherwise become or remain secondarily liable on the undertaking of another, except for endorsement of drafts for deposit and collection in the ordinary course of business, and unsecured guaranties by the Borrower and the Subsidiaries in an aggregate amount not at any time exceeding $3,000,000.00 of guaranteed debt. --------------------------------------------------------------------------------           C.          Liens. Create or permit to exist any lien on any of its property, real or personal, except: existing liens known to the Bank; liens to the Bank; liens incurred in the ordinary course of business securing current non-delinquent liabilities for taxes, worker’s compensation, unemployment insurance, social security and pension liabilities, and purchase money security interests which secure any purchase money indebtedness permitted under this agreement.           D.          Use of Proceeds. Use, or permit any proceeds of the Credit Facilities to be used, directly or indirectly, for: (1) any personal, family or household purpose; or (2) the purpose of “purchasing or carrying any margin stock” within the meaning of Federal Reserve Board Regulation U. At the Bank’s request, the Borrower will furnish a completed Federal Reserve Board Form U-1.           E.          Continuity of Operations. (1) Engage in any business activities substantially different from those in which it is presently engaged; (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve, or sell any assets out of the ordinary course of business; (3) enter into any arrangement with any person providing for the leasing by the Borrower or any subsidiary of real or personal property which has been sold or transferred by the Borrower or subsidiary to such person; or (4) change its business organization, the jurisdiction. under which its business organization is formed or organized, or its chief executive office, or any places of its businesses.           F.          Limitation on Negative Pledge Clauses. Enter into any agreement with any person other than the Bank which prohibits or limits the ability of the Borrower or any of its Subsidiaries to create or permit to exist any lien on any of its property, assets or revenues, whether now owned or hereafter acquired.           G.          Conflicting Agreements. Enter into any agreement containing any provision which would be violated or breached by the performance of the Borrower’s obligations under this agreement.           H.          Investments, and Acquisitions. Permit to exist any investments (including without limitation, loans and advances to, and other investments in, Subsidiaries), or commitments therefor, or to create any subsidiary or to become or remain a partner in any partnership or joint venture, or make any acquisition of any person, except:                 (i) Cash equivalent investments;       (ii) Extensions of credit or credit accommodations to customers or vendors made by Borrower or a Subsidiary-in the ordinary course of business;       (iii) Reasonable salary advances to non-executive employees, and other advances to agents and employees for anticipated expenses to be incurred on behalf of Borrower or any Subsidiary in the course of discharging their assigned duties;       (iv) Existing investments in Subsidiaries and other investments in existence prior to the agreement date; or       (v) Acquisitions made after the Agreement date, provided that, (a) the aggregate purchase prices paid or payable in all such acquisitions consummated during any period of twelve consecutive calendar months is not in excess of $25,000,000.00 for the Borrower and the Subsidiaries, and no default has occurred and is continuing or would result and no event has occurred and is continuing or would result that, with the giving of notice or the lapse of time or both, would be a default.             I. Asset Sales. Lease, sell or otherwise dispose of its property to any other person, except:                 (i) sale of inventory in the ordinary course of business; or       (ii) leases, sales or other dispositions of property with persons and entities who are unaffiliated with the Borrower or any Subsidiary, provided that the fair market value of such property when aggregated with the fair market value of all other property of Borrower and its Subsidiaries previously leased, sold or disposed of (other than inventory in the ordinary course of business) as permitted by this Section during the twelve-month period ending with the month in which any such lease, sale or other disposition occurs, does not exceed $5,000,000.00.           J.          EBITDA/ Interest Ratio. Permit as of any fiscal quarter end, its ratio determined on a consolidated basis for Borrower and its Subsidiaries, of (i) net income, plus amortization, depreciation, interest expense and income taxes, all computed for the twelve month period then ending, to (ii) interest expense, computed for the same such period, to be less than 3.00 to 1.00.           K.          Funded Debt to EBITDA Ratio. Permit as of any fiscal quarter end, its “Funded Debt to EBITDA Ratio” to be greater than 3.50 to 1.00. As used herein, “Funded Debt to EBITDA Ratio” means the ratio, determined on a consolidated basis for Borrower and its Subsidiaries, of (i) total liabilities excluding (a) accounts arising from the purchase of goods and services in the ordinary course of business, (b) accrued expenses or losses, and (c) deferred --------------------------------------------------------------------------------       revenues or gains, all computed as of the end of the fiscal quarter for which this ratio is being determined, to (ii) net income, plus amortization, depreciation, interest expense and income taxes, all computed for the twelve month period ending with such fiscal quarter end.       L.          Government Regulation. (1) Be or become subject at any time to any law, regulation, or list of any government agency (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits Bank from making any advance or extension of credit to Borrower an any Subsidiary or from otherwise conducting business with Borrower or any Subsidiary, or (2) fail to provide documentary and other evidence of Borrower’s or any Subsidiary’s identity as may be requested by Bank at any time to enable Bank to verify Borrower’s or any Subsidiary’s identity or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.     5. Representations.         5.1 Representations by the Borrower. The Borrower represents and warrants to the Bank that: (a) its principal residence or chief executive office is at the address shown above, (b) its name as it appears in this agreement is its exact name as it appears in its organizational documents, as amended, including any trust documents, (c) the execution and delivery of this agreement and the Notes, and the performance of the obligations they impose, do not violate any law, conflict with any agreement by which it is bound, or require the consent or approval of any governmental authority or other third party, (d) this agreement and the Notes are valid and binding agreements, enforceable according to their terms, (e) all balance sheets, profit and loss statements, and other financial statements and other information furnished to the Bank in connection with the Liabilities are accurate and fairly reflect the financial condition of the organizations and persons to which they apply on their effective dates, including contingent liabilities of every type, which financial condition has not changed materially and adversely since those dates, (f) no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against the Borrower or any Subsidiary is pending or threatened, and no other event has occurred which may. in any one case or in the aggregate materially adversely affect the Borrower’s consolidated financial condition or any of the Borrower’s or any Subsidiary’s properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by the Bank in writing, (g) all of the Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being contested by the Borrower in good faith and for which adequate reserves have been provided, (h) the Borrower is not an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended, (i) the Borrower is not a “holding company”, or a “subsidiary company” of a “holding company” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935, as amended, 0) there are no defenses or counterclaims, offsets or adverse claims, demands or actions of any kind, personal or otherwise, that the Borrower could assert with respect to this agreement or the Credit Facilities, (k) the Borrower owns, or is licensed to use, all trademarks, trade names, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted, and (1) the execution and delivery of this agreement and the Notes and the performance of the obligations they impose, if the Borrower is other than a natural person (i) are within its powers, (ii) have been duly authorized by all necessary action of its governing body, and (iii) do not contravene the terms of its articles of incorporation or organization, its by-laws, or any partnership, operating or other agreement governing its affairs.         5.2 Continuing Representations. Each request for an advance or conversion or continuation of an advance under any of the Credit Facilities shall constitute a representation and warranty by the Borrower that all of the representations and warranties set forth in this agreement shall be true and correct on and as of such date with the same effect as though such representations and warranties had been made on such date, except to the extent that such representations and warranties are stated to expressly relate solely to an earlier date.     6. Default/Remedies.         6.1 Events of Default/Acceleration. If any of the following events occurs the Notes shall become due immediately, without notice, at the Bank’s option:           A.          The Borrower, any Subsidiary, or any guarantor of the Notes (the “Guarantor”) fails to pay when due any amount payable under the Notes, under any of the Liabilities, or under any agreement or instrument evidencing debt to any creditor.           B.          The Borrower, any Subsidiary, or any Guarantor (1) fails to observe or perform any other term of the Notes; (2) makes any materially incorrect or misleading representation, warranty, or certificate to the Bank; (3) --------------------------------------------------------------------------------           makes any materially incorrect or misleading representation in any financial statement or other information delivered to the Bank; or (4) defaults under the terms of any agreement or instrument relating to any debt for borrowed money (other than the debt evidenced by the Notes) and the effect of such default will allow the creditor to declare the debt due before its maturity.           C.          In the event (1) there is a default under the terms of any Related Document, (2) any guaranty of the loan evidenced by the Notes is terminated or becomes unenforceable in whole or in part, (3) any Guarantor fails to promptly perform under its guaranty, or (4) the Borrower, any Subsidiary, or any Guarantor fail to comply with, or pay, or perform under any agreement, now or hereafter in effect, with BANK ONE CORPORATION, or any of its subsidiaries or affiliates or their successors or assigns.           D.          There is any loss, theft, damage, or destruction of any collateral securing the Credit Facilities not covered by insurance.           E.           A “reportable event” (as defined in the Employee Retirement Income Security Act of 1974 as amended) occurs that would permit the Pension Benefit Guaranty Corporation to terminate any employee benefit plan of the Borrower, any Subsidiary, or any affiliate of the Borrower.           F.           The Borrower, any Subsidiary, or any Guarantor becomes insolvent or unable to pay its debts as they become due.           G.          The Borrower, any Subsidiary, or any Guarantor (1) makes an assignment for the benefit of creditors; (2) consents to the appointment of a custodian, receiver, or trustee for itself or for a substantial part of its assets; or (3) commences any proceeding under any bankruptcy, reorganization, liquidation, insolvency or similar laws of any jurisdiction.           H.          A custodian, receiver, or trustee is appointed for the Borrower; any Subsidiary, or.any Guarantor or for a substantial part of its assets without its consent.           I.           Proceedings are commenced against the Borrower, any Subsidiary, or any Guarantor under any bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction, and they remain undismissed. for thirty (30) days after commencement; or the Borrower, any Subsidiary, or the Guarantor consents to the commencement of those proceedings.           J.          Any judgment is entered against the Borrower, any Subsidiary, or any Guarantor, or any attachment, levy, or garnishment is issued against any property of the Borrower, any Subsidiary, or any Guarantor.           K.          The Borrower, any Subsidiary, or any Guarantor dies, or a guardian or conservator is appointed for the Borrower, any Subsidiary, or any Guarantor or all or any portion of the Borrower’s assets, any Subsidiary’s assets, any Guarantor’s assets, or the Collateral.           L.          The Borrower, any Subsidiary, or any Guarantor, without the Bank’s written consent (1) is dissolved, (2) merges or consolidates with any third party, (3) leases, sells or otherwise conveys a material part of its assets or business outside the ordinary course of its business, (4) leases, purchases, or otherwise acquires a material part of the assets of any other business entity, except in the ordinary course of its business, or (5) agrees to do any of the foregoing (notwithstanding the foregoing, any subsidiary may merge or consolidate with any other subsidiary, or with the Borrower, so long as the Borrower is the survivor).         6.2 Remedies.           A.          Generally. If any of the Liabilities are not paid at maturity, whether by acceleration or otherwise, or if a default by anyone occurs under the terms of any agreement related to any of the Liabilities, then the Bank shall have the rights and remedies provided by law or this agreement: The Borrower is liable to the Bank for all reasonable costs and expenses of every kind incurred in the collection of the Notes, or in connection with the enforcement or preservation of rights under this agreement, or any amendment, supplement, or modification thereto, including without limitation reasonable attorneys’ fees (including the fees of in-house counsel) and court costs. These costs and expenses include without limitation any costs or expenses incurred by the Bank in any bankruptcy, reorganization, insolvency or other similar proceeding. All amounts payable under the terms of the Notes shall be paid without relief from valuation and appraisement laws. --------------------------------------------------------------------------------           B.          Bank’s Right of Setoff. The Borrower, for itself and as agent on behalf of each of its Subsidiaries, grants to the Bank a security interest in, and the Bank is authorized, if a default or an “unmatured default” (hereinafter defined) has occurred and is continuing or would result, to setoff and apply, all Deposits, Securities and Other Property, and Bank Debt against any and all Liabilities of the Borrower to the Bank and against any and all indebtedness, liabilities, and obligations or any Subsidiary to the Bank. This right of setoff may be exercised, if a default or an unmatured default has occurred and is continuing or would result, at any time and from time to time, and without prior notice to the Borrower or any Subsidiary. This security interest and right of setoff may be enforced or exercised by the Bank regardless of whether or not the Bank has made any demand under this paragraph or whether the Liabilities are contingent, matured, or unmatured. Any delay, neglect or conduct by the Bank in exercising its rights under this paragraph will not be a waiver of the right to exercise this right of setoff or enforce this security interest. The rights of the Bank under this paragraph are in addition to other rights the Bank may have in the Related Documents or by law. In this paragraph: (a) the term “Deposits” means any and all accounts and deposits of the Borrower or any Subsidiary (whether general, special, time, demand, provisional or final) at any time held by the Bank (including all Deposits held jointly with another, but excluding any IRA or Keogh Deposits, or any trust Deposits in which a security interest would be prohibited by law); (b) the term “Securities and Other Property” means any and all securities and other property of the Borrower or any Subsidiary in the custody, possession or control of the Bank (other than property held by the Bank in a fiduciary capacity); (c) the term “Bank Debt” means all indebtedness at any time owing by the Bank, to or for the credit or account of the Borrower or any Subsidiary; and (d) the term “unmatured default” means an event which, with the giving of notice or the lapse of time or both, would be a default under this agreement or any of the Related Documents.       7. Miscellaneous.       7.1 Notice. Any notices and demands under or related to this document shall be in writing and delivered to the intended party at its address stated herein, and if to the Bank, at its main office if no other address of the Bank is specified herein, by one of the following means: (a) by hand, (b) by a nationally recognized overnight courier service, or (c) by certified mail, postage prepaid, with return receipt requested. Notice shall be deemed given: (a) upon receipt if delivered by hand, (b) on the Delivery Day after the day of deposit with a nationally recognized courier service, or (c) on the third Delivery Day after the notice is deposited in the mail. “Delivery Day” means a day other than a Saturday, a Sunday or any other day on which national banking associations are authorized to be closed. Any party may change its address for purposes of the receipt of notices and demands by giving notice of such change in the manner provided in this provision.         7.2 No Waiver. No delay on the part of the Bank in the exercise of any right or remedy waives that right or remedy. No single or partial exercise by the Bank of any right or remedy precludes any other future exercise of it or the exercise of any other right or remedy. No waiver or indulgence by the Bank of any default is effective unless it is in writing and signed by the Bank, nor shall a waiver on one occasion bar or waive that right on any future occasion.         7.3 Integration. This agreement, the Notes, and any agreement related to the Credit Facilities embody the entire agreement and understanding between the Borrower and the Bank and supersede all prior agreements and understandings relating to their subject matter. If any one or more of the obligations of the Borrower under this agreement or the Notes is invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of the Borrower shall not in any way be affected or impaired, and the invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality or enforceability of the obligations of the Borrower under this agreement or the Notes in any other jurisdiction.         7.4 Governing Law and Venue. This agreement is delivered in the State of Indiana and governed by Indiana law (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under this agreement may be brought by the Bank in any state or federal court located in the State of Indiana, as the Bank in its sole discretion may elect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non­exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Indiana is not a convenient forum or the proper venue for any such suit, action or proceeding.         7.5 Captions. Section headings are for convenience of reference only and do not affect the interpretation of this agreement.         7.6 Survival of Representations and Warranties. The Borrower understands and agrees that in extending the Credit Facilities, the Bank is relying on all representations, warranties, and covenants made by the Borrower in this agreement or in any certificate or other instrument delivered by the Borrower to the Bank under this agreement. The Borrower further agrees that regardless of any investigation made by the Bank, all such representations, warranties and covenants --------------------------------------------------------------------------------           will survive the making of the Credit Facilities and delivery to the Bank of this agreement, shall be continuing in nature, and shall remain in full force and effect until such time as the Borrower’s indebtedness to the Bank shall be paid in full.         7.7 Non-Liability of the Bank. The relationship between the Borrower on one hand and the Bank on the other hand shall be solely that of borrower and lender. The Bank shall have no fiduciary responsibilities to the Borrower. The Bank undertakes no 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.         7.8 Indemnification of the Bank. The Borrower agrees to indemnify, defend and hold the Bank and BANK ONE CORPORATION, or any of its subsidiaries or affiliates or their successors, and each of their respective shareholders, directors, officers, employees and agents (collectively, the “Indemnified Persons”) harmless from any and all obligations, claims, liabilities, losses, damages, penalties, fines, forfeitures, actions, judgments, suits, costs, expenses and disbursements of any kind or nature (including, without limitation, any Indemnified Person’s attorneys’ fees) (collectively, the “Claims”) which may be imposed upon, incurred by or assessed against any Indemnified Person (whether or not caused by any Indemnified Person’s sole, concurrent, or contributory negligence) arising out of or relating to this agreement; the exercise of the rights and remedies granted under this agreement (including, without limitation, the enforcement of this agreement and the defense of any Indemnified Person’s action or inaction in connection with this agreement); and in connection with the Borrower’s failure to perform all of the Borrower’s obligations under this agreement, except to the limited extent that the Claims against any such Indemnified Person are proximately caused by such Indemnified Person’s gross negligence or willful misconduct. The indemnification provided for in this section shall survive the termination of this agreement and shall extend to and continue to benefit each individual or entity who is or has at any time been an Indemnified Person.           The Borrower’s indemnity obligations under this section shall not in any way be affected by the presence or absence of covering insurance, or by the amount of such insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under any insurance policy or policies affecting the Borrower’s assets or the Borrower’s business activities. Should any Claim be made or brought against any Indemnified Person by reason of any event as to which the Borrower’s indemnification obligations apply, then, upon any Indemnified Person’s demand, the Borrower, at its sole cost and expense, shall defend such Claim in the Borrower’s name, if necessary, by the attorneys for the Borrower’s insurance carrier (if such Claim is covered by insurance), or otherwise by such attorneys as any Indemnified Person shall approve. Any Indemnified Person may also engage its own attorneys at its reasonable discretion to defend the Indemnified Person and to assist in its defense and the Borrower agrees to pay the fees and disbursements of such attorneys.         7.9 Counterparts. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement.         7.10 Advice of Counsel. The Borrower acknowledges that it has been advised by counsel, or had the opportunity to be advised by counsel, in the negotiation, execution and delivery of this agreement and any documents executed and delivered in connection with the Credit Facilities.         7.11 Conflicting Terms. If this agreement is inconsistent with any provision in any agreement related to the Credit Facilities, the Bank shall determine, in the Bank’s sole and absolute discretion, which of the provisions shall control any such inconsistency.         7.12 Expenses. The Borrower agrees to pay or reimburse the Bank for all its out-of-pocket costs and expenses and reasonable attorneys’ fees (including the fees of in-house counsel) incurred in connection with the preparation and execution of this agreement, any amendment, supplement, or modification thereto, and any other documents prepared in connection herewith or therewith.         7.13 Reinstatement. All parties liable on the Notes agree that to the extent any payment is received by the Bank in connection with the Liabilities, and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by the Bank or paid over to a trustee, receiver or any other entity, whether under any bankruptcy act or otherwise (any such payment is hereinafter referred to as a “Preferential Payment”), then the Notes shall continue to be effective or shall be reinstated, as the case may be, and whether or not the Bank is in possession of the Notes, and, to the extent of such payment or repayment by the Bank, the Liabilities or part thereof intended to be satisfied by such Preferential Payment shall be revived and continued in full force and effect as if said Preferential Payment had not been made.         7.14 Severability. If any provision of this agreement cannot be enforced, the remaining portions of this agreement shall continue in effect. --------------------------------------------------------------------------------         7.15 Assignments. The Borrower agrees that the Bank may provide any information or knowledge the Bank may have about the Borrower or about any matter relating to the Notes or the Related Documents to BANK ONE CORPORATION, or any of its subsidiaries or affiliates or their successors, or to any one or more purchasers or potential purchasers of the Notes or the Related Documents. The Borrower agrees that the Bank may at any time sell, assign or transfer one or more interests or participations in all or any part of its rights and obligations in the Notes to one or more purchasers whether or not related to the Bank.         7.16 Waivers. Any party liable on the Notes waives (a) any right to receive notice of the following matters before the Bank enforces any of its rights: (i) (i) any demand, diligence, presentment, dishonor and protest, or (ii) any action that the Bank takes regarding anyone else, any collateral, or any of the Liabilities, that it might be entitled to by law or under any other agreement; (b) any right to require the Bank to proceed against any other obligor or guarantor of the Liabilities, or any collateral, or pursue any remedy in the Bank’s power to pursue; (c) any defense based on any claim that any endorser or other parties’ obligations exceed or are more burdensome than those of the Borrower; (d) the benefit of any statute of limitations affecting liability of any endorser or other party liable hereunder or the enforcement hereof; (e) any defense arising by reason of any disability or other defense of the Borrower or by reason of the cessation from any cause whatsoever (other than payment in full) of the obligation of the Borrower for the Liabilities; and (f) any defense based on or arising out of any defense that the Borrower may have to the payment or performance of the Liabilities or any portion thereof. Any party liable on the Notes consents to any extension or postponement of time of its payment without limit as to the number or period, to any substitution, exchange or release of all or any part of any collateral, to the addition of any other party; and to the release or discharge of, or suspension of any rights and remedies against, any person who may be liable for the payment of the Notes. The Bank may waive or delay enforcing any of its rights without losing them. Any waiver affects only the specific terms and time period stated in the waiver. No modification or waiver of any provision of the Notes is effective unless it is in writing and signed by the party against whom it is being enforced.     8. USA PATRIOT ACT NOTIFICATION. The following notification is provided to 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 Borrower: When Borrower opens an account, if Borrower is an individual Bank will ask for Borrower’s name, taxpayer identification number, residential address, date of birth, and other information that will allow Bank to identify Borrower, and if Borrower is not an individual Bank will ask for Borrower’s name, taxpayer identification number, business address, and other information that will allow Bank to identify Borrower. Bank may also ask, if Borrower is an individual to see Borrower’s driver’s license or other identifying documents, and if Borrower is not an individual to see Borrower’s legal organizational documents or other identifying documents. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK --------------------------------------------------------------------------------     9. WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.     10. JURY WAIVER. THE BORROWER AND THE BANK HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN. Address(es) for Notices: Borrower:     P.O. Box 877 Flexsteel Industries, Inc.   Dubuque, IA 52004-0877         Attn:  Chief Financial Officer By: /s/   R. J. Klosterman -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     R. J. Klosterman, Exec. V.P., C.F.O., Secretary   --------------------------------------------------------------------------------   Printed Name Title         Date Signed: June 29, 2004   --------------------------------------------------------------------------------       Address for Notices: Bank:       111 Monument Circle Bank One, NA, with its main office in Chicago, IL Indianapolis, IN 46277               Attn: By: /s/ Brian Smith -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     Brian Smith, Vice President   --------------------------------------------------------------------------------   Printed Name Title         Date Signed: June 30, 2004     -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     (BANK ONE LOGO) [a011.jpg] Line of Credit Note       $20,000,000.00 Due: June 29, 2005 Date: June 30, 2004 Promise to Pay. On or before June 29, 2005, for value received, Flexsteel Industries, Inc. (the “Borrower”) promises to pay to Bank One, NA, with its main office in Chicago, IL, whose address is 111 Monument Circle, Indianapolis, IN 46277 (the “Bank”) or order, in lawful money of the United States of America, the sum of Twenty Million and 00/100 Dollars ($20,000,000.00) or such lesser sum as is indicated on Bank records, plus interest as provided below. Definitions. As used in this Note, the following terms have the following respective meanings: “Advance” means a Eurodollar Advance or a Prime Rate Advance and “Advances” means all Eurodollar Advances and all Prime Rate Advances under this Note. “Applicable Margin” means with respect to any Prime Rate Advance or Eurodollar Advance, as the case may be, the rate per annum set forth below opposite the applicable Funded Debt to EBITDA Ratio. Funded Debt to EBITDA Ratio is defined in the Credit Agreement.               Applicable Margin     -------------------------------------------------------------------------------- Funded Debt to EBITDA Ratio   Prime Rate Advance   Eurodollar Advance --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Greater than or equal to 2.00 to 1.00   0.00%   1.00% Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00   0.00%   0.75% Less 1.00 to 1.00   0.00%   0.50% The Applicable Margin shall, in each case, be determined and adjusted quarterly on the first day of the month after the date of delivery of the quarterly and annual financial statements required by the Credit Agreement, provided, however, that if such financial statements are not delivered within two Business Days after the required date (each, an “Interest Determination Date”), the Applicable Margin shall increase to the maximum percentage amount set forth in the table above from the date such financial statements were required to be delivered to the Bank until received by the Bank. The Applicable Margin shall be effective from an Interest Determination Date until the next Interest Determination Date. Such determinations by the Bank shall be conclusive absent manifest error. The initial Applicable Margin for Prime Rate Advances is 0.00% and for Eurodollar Advances is 0.50%. “Credit Agreement” means a certain Credit Agreement, dated June 30, 2004, between the Borrower and the Bank. “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 Indiana and/or New York 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, Sunday or any other day on which national banking associations are authorized to be closed. “Eurodollar Base Rate” means, with respect to the relevant Interest Period, the applicable British Bankers’ Association LIBOR rate for deposits in U.S. dollars as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, if no such British Bankers’ Association LIBOR rate is available to the Bank, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by the Bank to be the rate at which BANK ONE CORPORATION or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of the principal amount outstanding on such date and having a maturity equal to such Interest Period. “Eurodollar Advance” means any borrowing under this Note when and to the extent that its interest rate is determined by reference to the Eurodollar Rate. “Eurodollar Rate” means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the Applicable Margin plus (ii) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period. -------------------------------------------------------------------------------- “Interest Period” means, with respect to a Eurodollar Advance, a period of one (1), two (2), three (3) or six (6) month(s) commencing on a Business Day selected by the Borrower pursuant to this Note. Such Interest Period shall end on the day which corresponds numerically to such date one (I), two (2), three (3) or six (6) month(s) thereafter, as applicable, provided, however, that if there is no such numerically corresponding day in such first, second, third or sixth succeeding month(s), as applicable, such Interest Period shall end on the last Business Day of such first, second, third or sixth succeeding month(s), as applicable. 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, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. “Prime Rate” means a rate per annum equal to the prime rate of interest announced from time to time by the Bank or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes. “Prime Rate Advance” means any Advance under this Note when and to the extent that its interest rate is determined by reference to the Prime Rate. “Principal Payment Date” is defined in the paragraph entitled “Principal Payments” below. “Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. “Reserve Requirement” means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D. Interest Rates. The Advance(s) evidenced by this Note may be drawn down and remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate Advance. The Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of each Prime Rate Advance at the Prime Rate plus the Applicable Margin and each Eurodollar Advance at the Eurodollar Rate. Interest shall be calculated on the basis of the actual number of days elapsed in a year of 360 days. In no event shall the interest rate applicable to any Advance exceed the maximum rate allowed by law. Any interest payment which would for any reason be deemed unlawful under applicable law shall be applied to principal. Bank Records. The Bank shall, in the ordinary course of business, make notations in its records of the-date, amount, interest rate and Interest Period of each Advance hereunder, the amount of each payment on the Advances, and other information. Such records shall, in the absence of manifest error, be conclusive as to the outstanding principal balance of and interest rate or rates applicable to this Note. Notice and Manner of Electing Interest Rates on Advances. The Borrower shall give the Bank written notice (effective upon receipt) of the Borrower’s intent to draw down an Advance under this Note no later than 11:00 a.m. Eastern time, one (1) Business Day before disbursement, if the full amount of the drawn Advance is to be disbursed as a Prime Rate Advance and three (3) Business Days before disbursement, if any part of such Advance is to be disbursed as a Eurodollar Advance. The Borrower’s notice must specify: (a) the disbursement date, (b) the amount of each Advance, (c) the type of each Advance (Prime Rate Advance or Eurodollar Advance), and (d) for each Eurodollar Advance, the duration of the applicable Interest Period; provided, however, that the Borrower may not elect an Interest Period ending after the maturity date of this Note. Each Eurodollar Advance shall be-in a minimum amount of One Million and 00/100 Dollars ($1,000,000.00). All notices under this paragraph are irrevocable. By the Bank’s close of business on the disbursement date and upon fulfillment of the conditions set forth herein and in any other of the Related Documents, the Bank shall disburse the requested Advances in immediately available funds by crediting the amount of such Advances to the Borrower’s account with the Bank. Conversion and Renewals. The Borrower may elect from time to time to convert one type of Advance into another or to renew any Advance by giving the Bank written notice no later than 11:00 a.m. Eastern time, one (1) Business Day before conversion into a Prime Rate Advance and three (3) Business Days before conversion into or renewal of a Eurodollar Advance, specifying: (a) the renewal or conversion date, (b) the amount of the Advance to be converted or renewed, (c) in the case of conversion, the type of Advance to be converted into (Prime Rate Advance or Eurodollar Advance), and (d) in the case of renewals of or conversion into a Eurodollar Advance, the applicable Interest Period, provided that (i) the minimum principal amount of each Eurodollar Advance outstanding after a renewal or conversion shall be One Million and 00/100 Dollars ($1,000,000.00); (ii) a Eurodollar Advance can only be converted on the last day of the Interest Period for the Advance; and (iii) the Borrower may not elect an Interest Period ending after the maturity date of this Note. All notices given under this paragraph are irrevocable. If the Borrower fails to give the Bank the notice specified above for the renewal or conversion of a Eurodollar Advance by 11:00 a.m. Eastern time three (3) Business Days before the end of the Interest Period for that Advance, the Advance shall automatically be converted to a Prime Rate Advance on the last day of the Interest Period for the Advance. -------------------------------------------------------------------------------- The Borrower may permanently reduce the Line of Credit commitment, in integral multiples of $1,000,000.00, by providing at least five Business Days’ written notice to the Bank and shall be irrevocable, which notice shall specify the amount of any such reduction, provided, however, that the amount of the aggregate commitment may not be reduced below the aggregate outstanding principal balance outstanding under this Note. Interest Payments. Interest on the Advances shall be paid as follows: A.       For each Prime Rate Advance, on the last day of each month beginning with the first month following disbursement of the Advance or following conversion of an Advance into aPrime Rate Advance, and at the maturity or conversion of the Advance into a Eurodollar Advance; B.       For each Eurodollar Advance, on the last day of the Interest Period for the Advance and, if the Interest Period is longer than three months, at three-month intervals beginning with the day three months from the date the Advance is disbursed. Principal Payments. All outstanding principal and interest is due and payable in full on June 29, 2005, which is defined herein as the “Principal Payment Date”. Default Rate of Interest. After a default has occurred under this Note, whether or not the Bank elects to accelerate the maturity of this Note because of such default, all Advances outstanding under this Note, including all Eurodollar Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus the Applicable Margin for a Prime Rate Advance, plus three percent (3.00%) from the date the Bank elects to impose such rate. Imposition of this rate shall not affect any limitations contained in this Note on the Borrower’s right to repay principal on any Eurodollar Advance before the expiration of the Interest Period for that Advance. Prepayment. The Borrower may prepay all or any part of any Prime Rate Advance at any time without premium or penalty. The Borrower may prepay any Eurodollar Advance only at the end of an Interest Period. Funding Loss Indemnification. Upon the Bank’s request, the Borrower shall pay the Bank amounts sufficient (in the Bank’s reasonable opinion) to compensate it for any loss, cost, or expense incurred as a result of: A.       Any payment of a Eurodollar Advance on a date other than the last day of the Interest Period for the Advance, including, without limitation, acceleration of the Advances by the Bank pursuant to this Note or the Related Documents; or B.       Any failure by the Borrower to borrow or renew a Eurodollar Advance on the date specified in the relevant notice from the Borrower to the Bank. Additional Costs. If any applicable domestic or foreign law, treaty, government rule or regulation now or later in effect (whether or not it now applies to the Bank) or the interpretation or administration thereof by a governmental authority charged with such interpretation or administration, or compliance by the Bank with any guideline, request or directive of such an authority (whether or not having the force of law), shall (a) affect the basis of taxation of payments to the Bank of any amounts payable by the Borrower under this Note or the Related Documents (other than taxes imposed on the overall net income of the Bank by the jurisdiction or by any political subdivision or taxing authority of the jurisdiction in which the Bank has its principal office), or (b) 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 the Bank, or (c) impose any other condition with respect to this Note or the Related Documents and the result of any of the foregoing is to increase the cost to the Bank of maintaining any Eurodollar Advance or to reduce the amount of any sum receivable by the Bank on such an Advance, or (d) affect the amount of capital required or expected to be maintained by the Bank (or any corporation controlling the Bank) and the Bank determines that the amount of such capital is increased by or based upon the existence of the Bank’s obligations under this Note or the Related Documents and the increase has the effect of reducing the rate of return on the Bank’s (or its controlling corporation’s) capital as a consequence of the obligations under this Note or the Related Documents to a level below that which the Bank (or its controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy) by an amount deemed by the Bank to be material, then the Borrower shall pay to the Bank, from time to time, upon request by the Bank, additional amounts sufficient to compensate the Bank for the increased cost or reduced sum receivable. Whenever the Bank shall learn of circumstances described in this section which are likely to result in additional costs to the Borrower, the Bank shall give prompt written notice to the Borrower of the basis for and the estimated amount of any such anticipated additional costs. A statement as to the amount of the increased cost or reduced sum receivable, prepared in good faith and in reasonable detail by the Bank and submitted by the Bank to the Borrower, shall be conclusive and binding for all purposes absent manifest error in computation. Illegality. If any applicable domestic or foreign law, treaty, rule or regulation now or later in effect (whether or not it now applies to the Bank) or the interpretation or administration thereof by a governmental authority charged with such interpretation or administration, or compliance by the Bank with any guideline, request or directive of such an authority (whether or not having the -------------------------------------------------------------------------------- force of law), shall make it unlawful or impossible for the Bank to maintain or fund the Eurodollar Advances, then, upon notice to the Borrower by the Bank, the outstanding principal amount of the Eurodollar Advances, together with accrued interest and any other amounts payable to the Bank under this Note or the Related Documents on account of the Eurodollar Advances shall be repaid (a) immediately upon the Bank’s demand if such change or compliance with such requests, in the Bank’s judgment, requires immediate repayment, or (b) at the expiration of the last Interest Period to expire before the effective date of any such change or request provided, however, that subject to the terms and conditions of this Note and the Related Documents the Borrower shall be entitled to simultaneously replace the entire outstanding balance of any Eurodollar Advance repaid in accordance with this section with a Prime Rate Advance in the same amount. Inability to Determine Interest Rate. If the Bank determines that (a) quotations of interest rates for the relevant deposits referred to in the definition of Eurodollar Rate are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the interest rate on a Eurodollar Advance as provided in this Note, or (b) the relevant interest rates referred to in the definition of Eurodollar Rate do not accurately cover the cost to the Bank of making or maintaining Eurodollar Advances, then the Bank shall forthwith give notice of such circumstances to the Borrower, whereupon (i) the obligation of the Bank to make Eurodollar Advances shall be suspended until the Bank notifies the Borrower that the circumstances giving rise to the suspension no longer exists, and (ii) the Borrower shall repay in full the then outstanding principal amount of each Eurodollar Advance, together with accrued interest, on the last day of the then current Interest Period applicable to the Advance, provided, however, that, subject to the terms and conditions of this Note and the Related Documents, the Borrower shall be entitled to simultaneously replace the entire outstanding balance of any Eurodollar Advance repaid in accordance with this section with a Prime Rate Advance in the same amount. Obligations Due on Non-Business Day. Whenever any payment under this Note becomes due and payable on a day that is not a Business Day, if no default then exists under this Note, the maturity of the payment shall be extended to the next succeeding Business Day, except, in the case of a Eurodollar Advance, if the result of the extension would be to extend the payment into another calendar month, the payment must be made on the immediately preceding Business Day. Matters Regarding Payment. The Borrower will pay the Bank at the Bank’s address shown above or at such other place as the Bank may designate. Payments shall be allocated among principal, interest and fees at the discretion of the Bank unless otherwise agreed or required by applicable law. Acceptance by the Bank of any payment which is less than the payment due at the time shall not constitute a waiver of the Bank’s right to receive payment in full at that time or any other time. Authorization for Direct Payments (ACH Debits). To effectuate any payment due under this Note, the Borrower hereby authorizes the Bank to initiate debit entries to Account Number ____________________________ at the Bank and to debit the same to such account. This authorization to initiate debit entries shall remain in full force and effect until the Bank has received written notification of its termination in such time and in such manner as to afford the Bank a reasonable opportunity to act on it. The Borrower represents that the Borrower is and will be the owner of all funds in such account. The Borrower acknowledges (1) that such debit entries may cause an overdraft of such account which may result in the Bank’s refusal to honor items drawn on such account until adequate deposits are made to such account; (2) that the Bank is under no duty or obligation to initiate any debit entry for any purpose; and (3) that if a debit is not made because the above-referenced account does not have a sufficient available balance, or otherwise, the payment may be late or past due. Credit Facility. The Bank has approved a credit facility to the Borrower in a principal amount not to exceed the face amount of this Note. The credit facility is in the form of advances made from time to time by the Bank to the Borrower. This Note evidences the Borrower’s obligation to repay those advances. The aggregate principal amount of debt evidenced by this Note is the amount reflected from time to time in the records of the Bank. Until the earliest of maturity, the occurrence of any default, or the occurrence of any event that would constitute a default but for the giving of notice or the lapse of time or both until the end of any grace or cure period, the Borrower may borrow, pay down and reborrow under this Note subject to the terms of the Related Documents. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK -------------------------------------------------------------------------------- Miscellaneous. This Note binds the Borrower and its successors, and benefits the Bank, its successors and assigns. Any reference to the Bank includes any holder of this Note. This Note is issued pursuant and entitled to the benefits of that certain Credit Agreement by and between the Borrower and the Bank, dated June 30, 2004, and all replacements thereof (the “Credit Agreement”) to which reference is hereby made for a more complete statement of the terms and conditions under which the loan evidenced hereby is made and is to be repaid. The terms and provisions of the Credit Agreement are hereby incorporated and made a part hereof by this reference thereto with the same force and effect as if set forth at length herein. No reference to the Credit Agreement and no provisions of this Note or the Credit Agreement shall alter or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on this Note as herein prescribed. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.       Address:   P.O. Box 877 Borrower:   Dubuque, IA 52004-0877       Flexsteel Industries, Inc.         By: /s/   R.J. Klosterman     --------------------------------------------------------------------------------     R.J. Klosterman, Exec. V.P., C.F.O., Secretary -------------------------------------------------------------------------------- Printed Name Title   Date Signed: June 29, 2004 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (BANK ONE LOGO) [a011.jpg]           -------------------------------------------------------------------------------- Master Agreement For Irrevocable Letters of Credit This Agreement is between Flexsteel Industries, Inc. and Bank One, NA and its subsidiaries and affiliates -------------------------------------------------------------------------------- MASTER AGREEMENT FOR IRREVOCABLE LETTERS OF CREDIT The undersigned (“Applicant”) will, from time to time, request that one or more of Bank One, NA (Main Office Chicago) and/or any domestic or foreign Bank One Affiliate (as defined below) (each of such entities the “Issuer” with respect to each Credit and all of such entities collectively the “Issuers”) issue for its account or for the account of the account party named in the Application, irrevocable commercial and/or standby letters of credit or other independent undertakings within the scope of applicable law (each such letter of credit or undertaking a “Credit”). Such requests will be made by submitting to the Issuer a completed Application (the “Application”) substantially in the form(s) attached to this Master Agreement for Irrevocable Letters of Credit (the “Agreement”) or such other form(s) as approved by the Issuer. Applicant agrees with Issuer that each Credit which may be issued by Issuer in its sole discretion, at the request of Applicant, shall be governed by the following terms and conditions, unless they are expressly changed in any Credit or the Application for any Credit, as approved in writing by Issuer, and, with regard to the provisions of Section 6 and 7 herein, regardless of whether such Credit or the Application provide otherwise:         1. REIMBURSEMENTS.   Applicant agrees to pay on demand, in U.S. dollars, to Issuer at such place as Issuer may specify, the amount of each draft drawn under or purporting to be drawn under a Credit. Demand may be made in advance of payment at the request of Issuer. If a Credit provides for presentation of drafts in a currency other than U.S. dollars, Applicant shall, at Issuer’s sole option, make payments to Issuer with respect to such drafts either (a) in such other currency at such place as Issuer may direct, or (b) in U.S. dollars at the rate of exchange determined by the Issuer to be the rate in effect in Chicago, Illinois or in such other place where the Issuer is located, at the time of payment of the draft or, if the Issuer determines that there is no such rate of exchange, Applicant shall pay Issuer an amount which in the sole judgment of Issuer shall be sufficient to meet Issuer’s obligations hereunder.           2. FEES AND INTEREST.   Applicant agrees to pay Issuer:           (a) On demand, Issuer’s customary commissions and fees in effect from time to time and all costs and expenses, including reasonable attorneys’ fees, including fees of attorneys who may be Issuer’s employees, paid or incurred by Issuer in connection with the administration or enforcement of this Agreement or any Credit, and any adviser, confirming institution or entity or other nominated person’s fees and costs that are chargeable to or paid by Issuer;         (b) Interest on all sums advanced by Issuer without reimbursement by Applicant at the per annum rate equal to the lesser of:           (i) the rate customarily charged by Issuer; or             (ii) the Prime Rate on the date of advance by the Issuer, provided that such rate of interest shall not exceed the maximum rate of interest, which may be charged under applicable law. The “Prime Rate” shall mean the rate of interest announced by the Issuer or its parent from time to time as its prime rate for interest rate determinations (which may or may not be the lowest interest rate charged by such bank), to be computed for actual days unpaid on a 360-day year basis; and           (c) In the event any change in any law or regulation, or in any interpretation by a court or administrative or governmental authority charged with the administration thereof shall either:           (i) impose, modify or make applicable any reserve, special deposit, or similar requirement against letters of credit issued by the Issuer; or impose on Issuer any other condition regarding this Agreement or any Credit;             (ii) and the result of any event referred to above shall be to increase the cost to Issuer of issuing or maintaining a Credit, then upon demand by Issuer, Applicant shall immediately pay to Issuer, such additional amounts as shall, in the judgment of Issuer, be sufficient to compensate Issuer for such increased cost, together with interest on each such amount from the date demanded until payment in full at the rate provided in subsection (b) above.             Issuer may assess fees even if incurred after the Credit expires at such rate as may be reasonably determined by Issuer.       3. PAYMENTS.         (a) Payments due from Applicant hereunder shall be made without withholding, deduction or set-off and shall be made free and clear of any taxes other than taxes directly imposed on Issuer.         (b) To effect any payment due hereunder, Applicant authorizes Issuer to debit any account that Applicant may have with Issuer or any direct or indirect subsidiary and/or affiliate of Bank One Corporation, or any successor holding company (each such subsidiary and/or affiliate referred herein as a “Bank One Affiliate”).         4   REPRESENTATIONS AND WARRANTIES.   In order to induce Issuer to issue each Credit, Applicant:       (a) Represents and warrants to Issuer that each financial statement of Applicant furnished to Issuer was correct and complete and truly presented the financial condition of Applicant as of the date thereof and, since the date of the last such financial statement, there has been no material adverse change in the financial condition of Applicant, and         (b) Makes to Issuer the following representations and warranties:           (i) Applicant is a corporation organized under the laws of Minnesota.             (ii) Applicant has the power and is duly authorized to execute and deliver this Agreement and is and will be duly authorized to execute and deliver each Application for a Credit. This Agreement, and each Application for a Credit, when executed and delivered, will constitute the valid and binding obligations of Applicant, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or similar laws of general application affecting the enforcement of creditors’ rights generally and except to the extent that general principles of equity might affect the specific enforcement of this Agreement.             (iii) There is no litigation or administrative proceeding pending or threatened against Applicant, which might, if adversely determined, materially affect Applicant’s ability to perform its obligations under this Agreement.             (iv) No default exists, nor has any event, act or omission occurred which, with the giving of notice or the passage of time, would constitute a default under any instrument or agreement evidencing or securing any indebtedness or liability of Applicant to any person.             (v) Applicant has no indebtedness for borrowed money, nor any obligation contingent or otherwise, directly or indirectly guaranteeing or in any manner providing for the payment of the indebtedness of another, except those disclosed on the most recent financial statements of Applicant furnished to Issuer and except for endorsements for collection or deposit in the ordinary course of business.             (vi) This Agreement and the underlying transaction do not and shall not conflict with any law, regulation, order, or governmental consent requirement (including, without limitation, any that regulate exports or imports, foreign assets, foreign exchange investments, margin stock, investment companies, securities offering, infringement, boycotts, or money laundering) applicable to the Applicant or the Issuer.         5. COVENANTS.   Applicant agrees that so long as any drawing is available under any Credit, and until Issuer has been reimbursed for all drafts honored by it under any Credit, Applicant will comply in a timely manner with:   Its Obligations (as defined in Section 12); and   (a)      The following covenants:             (i) Applicant shall furnish to Issuer such financial information regarding Applicant as Issuer may from time to time reasonably request and shall permit representatives of Issuer to visit and inspect the properties and books and records of Applicant at any reasonable time and as often as may reasonably be desired.             (ii) Applicant shall pay all lawful taxes, assessments and governmental charges upon it or against its properties prior to the date on which penalties attach, unless and to the extent only that the same shall be contested in good faith and by appropriate proceedings.                     (iii) Applicant shall not sell, lease, transfer or otherwise dispose of all or substantially all of its assets (other than sales made in the ordinary course of business).             (iv) if Applicant is a corporation, Applicant shall maintain its corporate existence and not merge or consolidate with or into any other corporation. --------------------------------------------------------------------------------             (v) If Applicant is a limited liability company or partnership, Applicant shall maintain its existence as a limited liability company or partnership and not merge or consolidate with or into any other limited liability company, partnership or corporation.             (vi) If Applicant is a partnership, Applicant shall not liquidate, terminate or dissolve.         6. RESPONSIBILITY OF ISSUER.           (a) Delivery to Issuer or any of its Correspondents (“Correspondents”) shall mean a bank or other financial institution or entity with which the Issuer usually maintains an account relationship) of any documents purporting to comply with the requirements of a Credit shall be sufficient evidence of the validity, genuineness and sufficiency thereof and of the good faith and proper performance of drawers and users of a Credit; their agents and assignees, and Issuer and its Correspondents may rely thereon without liability or responsibility with respect thereto, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged.           (b) Issuer is expressly authorized and directed to honor any request for payment which is made under and in compliance with the terms and conditions of a Credit without regard to, and without any duty on Issuer’s part to inquire into, the existence of any disputes or controversies between Applicant, any beneficiary of a Credit or any other person, firm or corporation or the rights, duties or liabilities of any of them.           (c) Neither Issuer nor any Bank One Affiliate shall be liable to Applicant or any third party for:             (i) The use which may be made of any Credit or for any act or omission of any beneficiary thereof,             (ii) Any delay in giving or failing to give any notice,             (iii) Any error, neglect or default of any of its Correspondents,             (iv) The validity, sufficiency or genuineness of any document assigning or purporting to assign a Credit or any benefits thereunder or any act in reliance thereon,             (v) Errors in translation or in the interpretation of any of the terms and conditions of a Credit, or             (vi) Errors, delays, misdeliveries or losses in the transmission of notices and communications by means of SWIFT, electronic mail, telex, telecopy, telefax, courier, mail or computer generated telecommunications or documents or items forwarded in connection with a Credit or any relevant draft.           (d) Any action taken or omitted by Issuer or its Correspondents or any Bank One Affiliate in connection with a Credit, any instructions of Applicant or any drafts, documents or merchandise relative thereto shall, if in good faith, be conclusively deemed authorized by Applicant, whether expressly so or not.           (e) If Applicant shall have requested a Credit for the accommodation of a third party, any instruction, consent, approval and other action or inaction of such third party with respect to a Credit or transactions thereunder shall be deemed to be the act or omission of Applicant for all purposes hereof, and Issuer shall be entitled to rely thereon.         7. LIMITATION ON LIABILITY.   Specifically, but without limitation, Issuer shall not be responsible to Applicant for, and Issuer’s rights and remedies against Applicant shall not be impaired by:   (a)      Action or inaction required or permitted under:             (i) the Uniform Commercial Code, the Uniform Customs and Practices for Documentary Credits (UCP 500), the International Standby Practices (ISP98) or the United Nations Convention on Independent Guarantees and Standby Letters of Credit, as chosen in, as applicable and/or in effect where and when the Credit is issued, from time to time;             (ii) the law or published practice rules to which the Credit is subject;             (iii) an applicable standard practice of banks that regularly issue letters of credit;             (iv) an applicable order, ruling or regulation of any court, arbitrator or government agency;             (v) a published statement or interpretation on a matter of applicable standard bank practice;             (vi) the laws, customs or regulations in effect in countries other than the country of the Issuer; or             (vii) an opinion received from Issuer’s legal counsel on a matter of law or from an expert engaged by Issuer on a matter of practice;         (b) Honor of any presentation that substantially or reasonably complies with the terms and conditions of the Credit, even if the Credit requires strict or literal compliance by the beneficiary;         (c) Honor of a non-negotiable or informal or unmarked demand or of a demand by the beneficiary presented electronically, even if the Credit requires that the beneficiary’s demand be in the form of a draft and states that it is drawn under the Credit;         (d) Honor of documents signed or presented by or on behalf of, or requesting payment to, the beneficiary’s purported successor by operation of law;         (e) Honor of a presentation without regard to any non-documentary condition(s) in the Credit;         (f) Honor or other recognition of a presentation or other demand that later is determined to have included invalid, forged or fraudulent documents or that was otherwise affected by the fraudulent, bad faith or illegal conduct of the beneficiary or other person (excluding Issuer’s employees), including payment to a person who later is determined to have forged the signature of a beneficiary, nominated bank or assignee of letter of credit proceeds;         (g) Honor of a presentation up to the amount available under the Credit against a draft or other documents claiming amount(s) in excess of the amount available;         (h) Reimbursement of a nominated bank that does not give value or that misrepresents the basis on which it claims reimbursement;         (i) Dishonor of any presentation that does not strictly comply or that is fraudulent, forged or otherwise not entitled to honor;         (j) The use which may be made of the Credit or any acts or omissions of the users of the Credit;         (k) Honor of any presentation without regard to particular conditions stipulated in the documents or superimposed thereon;         (l) Any breach of contract between the beneficiary and Applicant or any of the parties to any underlying transaction;         (m) The failure of any instrument to bear any reference or adequate reference to the Credit, or the failure of any draft to be endorsed by the payee or accompanied by documents at negotiation, or the failure of any negotiating bank to endorse any draft or other instrument in connection with the Credit or the failure of any person to note the amount of any draft on the reverse of the Credit or to surrender or take up the Credit or to send forward documents apart from drafts as required by the terms and conditions of the Credit (each of which provisions, if contained in the Credit itself, it is agreed may be waived by Issuer);         (n) Any error, omission, interruption or delay in transmission or delivery of any message or advice in connection with the Credit whether transmitted by courier, mail, telex, SWIFT, electronic mail or any other telecommunication or otherwise and despite any cipher or code which may be employed.   The happening of any one or more of the contingencies referred to in the preceding paragraph shall not affect, impair or prevent the vesting of any of Issuer’s rights or powers hereunder or Applicant’s obligation to make reimbursement. In furtherance and extension thereof and not in limitation of the specific provisions herein above set forth, Applicant agrees that any action, inaction or omission by issuer or any of issuer’s branches, affiliates (which shall also include Bank One Affiliates for all purposes of this section) and/or Correspondents under or in connection with the Credit or the related drafts, documents or property, if taken in good faith, shall be binding on Applicant and shall not put issuer or any of Issuer’s branches, affiliates or Correspondents under any resulting liability to Applicant. Issuer shall not be responsible for any act, error, neglect, default, omission, insolvency or failure in the business of any of Issuer’s branches, affiliates or Correspondents or for any refusal by Issuer or any of issuer’s branches. affiliates or Correspondents to pay or honor drafts drawn under the Credit because of any United States or foreign laws or regulations now or hereafter in force or for any other matter beyond Issuer’s control.   Applicant shall indemnify issuer and hold Issuer harmless from any cost. loss or expense which may be incurred by issuer if. at Applicant’s request. the law of a foreign country governs the Credit. --------------------------------------------------------------------------------         8. SECURITY INTEREST.   This Section Intentionally Deleted.       9. CASH COLLATERAL.   Applicant agrees that upon and during the continuance of any (i) Event of Default, (ii) material adverse change in the business or financial condition of the Applicant, (iii) Applicant injunction action, beneficiary wrongful dishonor action, or other event that threatens to extend or increase the Issuer’s contingent liability beyond the time, amount, or other limit provided in the Credit or this Agreement, or (iv) other event or condition that causes the Issuer in good faith to deem itself insecure, the Applicant must deposit with the Issuer, on demand, cash amount(s) in the aggregate amount of the Obligations.       10. COMPLIANCE WITH LAWS.   Applicant agrees to comply with and represents that the underlying transaction complies with all applicable foreign and domestic laws and regulations with respect to the transaction covered by a Credit.         USA PATRIOT ACT NOTIFICATION.   The following notification is provided to Applicant 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 Applicant: When Applicant opens an account, Bank will ask for Applicant’s name, employer identification number, business address, and other information that will allow Bank to identify Applicant. Bank may also ask to see Applicant’s legal organizational documents or other identifying documents.       11. POWER OF ATTORNEY.   Applicant irrevocably appoints Issuer its attomey in fact to execute, file, register or record in the name of Applicant, any document or instrument of any kind or description including, without limitation thereto, assignments and endorsements which come into the possession of Issuer under a Credit or upon instructions of Applicant, and to perform such acts as Applicant may be required to perform hereunder, upon failure of Applicant to so act.       12. EVENTS OF DEFAULT.   If any one or more of the following Events of Default shall occur:         (a) Applicant fails to comply with any of the provisions of this Agreement; or         (b) Applicant or any Guarantor dies, ceases to exist, becomes insolvent or is the subject of bankruptcy or insolvency proceedings; or         (c) Any representation by Applicant or any Guarantor in this Agreement or otherwise, made to induce Issuer to issue a Credit, is incorrect in any material respect when made; or         (d) Applicant or any Guarantor defaults in any other agreement goveming indebtedness of such Applicant or Guarantor;   then, all of the obligations and liabilities of Applicant to Issuer and all Issuer’s claims against Applicant, whether arising or incurred under this Agreement or otherwise, whether now existing or hereafter incurred, and whether now or hereafter owing to or acquired in any manner by Issuer (“Obligations”) shall, at Issuer’s option and without notice or demand, mature and become immediately due and payable, with interest at the per annum rate which is three percentage points in excess of the Prime Rate as herein defined (provided such interest rate does not exceed the maximum rate of interest which may be charged under applicable law), and Issuer shall have all rights and remedies for default provided under applicable law. In addition to the foregoing, and not by way of limitation, upon the occurrence of an Event of Default, Issuer may require Applicant to deposit funds in an account held at any Bank One Affiliate in an amount equal to the undrawn amount of a Credit, such funds to be held as cash collateral by Issuer against future draws under any Credit.       13. INDEMNITY.   Applicant hereby agrees to indemnify Issuer and each Bank One Affiliate for any loss, cost, damage, expense (including any reasonable charges for legal services) and/or liability whatsoever which they, or any of them, may sustain or incur on account of issuance of a Credit, payment or acceptance of any draft relative thereto, refusal or failure to pay or accept any such draft, any action or inaction respecting a Credit, instructions of Applicant or an accommodated party, drafts, documents or merchandise relative to a Credit or any action or inaction in reliance on the provisions hereof, except that Applicant shall have a claim against Issuer, and Issuer shall be liable to Applicant, to the extent, but only to the extent of any direct, as opposed to consequential, damages suffered by Applicant which Applicant proves were caused by:       (a) Issuer’s willful misconduct or gross negligence in determining whether documents presented under a Credit comply with the terms of a Credit,           or         (b) Issuer’s willful and unlawful failure to pay under a Credit after the presentation to it by the beneficiary of a Credit of a draft and documentation strictly complying with the terms and conditions of a Credit.         Additionally, Applicant agrees to indemnify the Issuer against all claims, obligations, and responsibilities (including attomey’s fees) arising out of:             (i) The imposition of law or practice other than that chosen in the Credit or applicable at the place of issuance;             (ii) The fraud, forgery or illegal action of others; or             (iii) The Issuer’s performance of the obligations of a confirming institution or entity that wrongfully dishonors a confirmation.           Further, if any award, judgment or order is given or made for the payment of any amount due under this Agreement and such award, judgment or order is expressed in a currency other than the currency required under this Agreement, Applicant shall indemnify Issuer against and hold Issuer harmless from all loss and damage incurred by Issuer as a result of any variation in rates of exchange between the date of such award, judgment or order and the date of payment (or, in the case of partial payments, the date of each partial payment thereof) in the required currency.         14. WAIVER.   TO THE EXTENT THE PREVIOUS SECTION DOES NOT RESTRICT A PARTY’S ABILITY TO EMPLOY JUDICIAL REMEDIES, ISSUER, APPLICANT, CORRESPONDENT AND EACH GUARANTOR, IF ANY, VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO A CREDIT, THIS APPLICATION AND/OR ANY DOCUMENT EVIDENCING AND/OR SECURING A CREDIT OR THIS AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO ISSUER AGREEING TO ENTER INTO THIS AGREEMENT AND ISSUE CREDITS HEREUNDER.     15. LIMITATION OF INTEREST AND OTHER CHARGES.   Applicant and Issuer intend to conform strictly to the applicable usury laws now or hereafter in force with respect to this Agreement. To such end:       (a) the aggregate of all interest and other charges constituting interest under such applicable usury laws and contracted for, chargeable or receivable under this Agreement shall never exceed the maximum amount of interest, nor produce a rate in excess of the maximum contract rate of interest, that Issuer is authorized to charge Applicant under such applicable usury laws;         (b) if any excess interest is provided for, it shall be deemed a mistake, and the excess shall, at the option of Issuer, either be refunded to Applicant or credited on the unpaid principal balance of Issuer’s reimbursement obligation, and this Agreement shall be automatically reformed to permit only the collection of the maximum legal contract rate and the maximum amount of interest; and         (c) in determining the maximum amount of interest that Issuer may charge to Applicant. all interest shall be amortized, prorated, allocated and spread over the entire term of Applicant’s reimbursement obligation (as extended, if applicable) to the full extent permitted by applicable usury laws. Reference herein to usury laws shall also include any applicable federal or state usury statutes or laws from time to time in effect to the extent the same may govern and control transactions covered hereunder.       16. GUARANTORS.   This Section Intentionally Deleted. --------------------------------------------------------------------------------         17. CORRESPONDENTS.   This Section Intentionally Deleted.     18. NONWAIVER.   Issuer shall have no duty to exercise any rights hereunder or otherwise with respect to any documents or instruments relative to a Credit and shall not be liable for any failure or delay in doing so. Issuer shall not be deemed to have waived any of its rights hereunder unless issuer shall have signed such waiver in writing.     19. NOTICES AND COMMUNICATIONS.   Any notice or demand to either party given by the other party shall be deemed to have been delivered when deposited in the mail or transmitted by a telegraph, telex or facsimile to the last address of such party, which has previously been fumished to such other party. Applicant acknowledges and agrees that, at the discretion of Issuer, Issuer may accept and/or transmit notices and communications under the Application and this Agreement (including issuance of a Credit) by means of SWIFT, electronic mail, telex, telecopy, telefax, courier, mail or computer generated telecommunications.     20. MISCELLANEOUS.       (a) If this Agreement is signed by more than one party, “Applicant” shall be deemed to refer to all of the undersigned, all Obligations of Applicant hereunder shall be joint and several and the liabilities of each shall be absolute and unconditional, regardless of the liability of any other party hereto.         (b) Any direct or indirect subsidiary and/or affiliate of Bank One Corporation or any successor holding company shall be referred to herein as a “Bank One Affiliate”.         (c) Any reference in this Agreement to drafts shall also mean and include deferred payment undertakings.         (d) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS. Except as otherwise expressly provided herein or in a Credit, Issuer may rely for interpretation of a Credit or instructions or documents related thereto or issued under or in purported compliance with the above, on the Uniform Customs and Practice for Documentary Credits, ICC Publication No. 500 or the International Standby Practices 1998, whichever is stated as the governing rules in the Credit.         (e) The invalidity or unenforceability of any provision or portion of this Agreement or any instrument, document or agreement executed or made pursuant to or by virtue of this Agreement, shall not affect the validity or enforceability of any other provision or portion.         (f) This Agreement may only be amended upon the written consent of all the parties hereto, except that it may be amended by any Issuer in the event of a change of such Issuer’s name, credit number, place of notice, presentation or drawing or other similar change at such Issuer’s reasonable discretion.         (g) Except as otherwise specifically set forth herein, this Agreement confers no right or benefit upon any person other than the parties to this Agreement and their respective successors and assigns.         (h) Applicant agrees that in the event of any extension of the maturity or time for presentation of drafts, acceptances or documents, or any other modification of the terms of a Credit, (including without limitation, by mutual agreement between Applicant and Issuer; or in accordance with the Credit; or in accordance with rules, law, or practice goveming the Credit), or in the event of any increase in the amount of a Credit, this Agreement shall be binding upon Applicant with regard to a Credit so increased, extended or otherwise modified, to drafts, documents and property covered thereby, and to any action taken by Issuer or any of its Correspondents in accordance with such extension, increase or other modification.         (i) Any and all payments made to Issuer shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding income or franchise taxes imposed by the United States and any subdivisions thereof (such non excluded taxes herein called “Taxes”). If Applicant shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased so that after making all required deductions, Issuer shall receive an amount equal to the sum Issuer would have received had no such deductions been made, (ii) Applicant shall make such deductions, and (iii) Applicant shall pay the full amount deducted to the relevant authority in accordance with applicable law, (iv) Applicant shall furnish Issuer with an original or certified copy of receipt of payment and remittance from the appropriate tax authority within thirty days of such payment. Applicant will indemnify Issuer for the full amount of Taxes (including without limitation any Taxes imposed by any jurisdiction on any amounts payable under this Section 20 (i)) paid by Issuer and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date Issuer makes written demand therefore.       21. SURETYSHIP WAIVERS.   In the event this Agreement is signed by more than one party, each of the undersigned waives (a) to the extent permitted by law, all rights and benefits under any laws or statutes regarding sureties, as maybe amended; (b) any right to receive notice of the following matters before the Issuer enforces any of its rights: (i) the Issuer’s acceptance of this Agreement; (ii) any credit that the Issuer extends to the Applicant; (iii) Applicant’s default; (iv) any demand, diligence, presentment, dishonor and protest; (v) any action that the Issuer takes regarding the Applicant, beneficiary, anyone else, any Collateral, or any of the Obligations, that it might be entitled to by law or under any other agreement; (c) any right to require the Issuer to proceed against the Applicant, any other obligor or guarantor of the Obligations, or any Collateral, or pursue any remedy in the Issuer’s power to pursue; (d) any defense based on any claim that any endorser or other parties’ obligations exceed or are more burdensome than those of the Applicant; (e) the benefit of any statute of limitations affecting liability of any endorser or other party liable hereunder or the enforcement hereof; (f) any defense arising by reason of any disability or other. defense of the Applicant or by reason of the cessation from any cause whatsoever (other than payment in full) of the obligation of the Applicant for the Obligations; (g) any defense based on or arising out of any defense that the Applicant may have to the payment or performance of the Obligations or any portion thereof, (h) all rights, remedies, defenses and claims and/or rights of counterclaim, recoupment, offset or setoff, including, but not limited to, all offsets, setoffs, rights, remedies or defenses that may be afforded the endorser and any other party liable on this Agreement as any of such statutes may be amended from time to time; and (i) any defenses given to such endorser by any failure, neglect or omission by the Issuer to perfect in any manner the collection of the Obligations or the security given therefor, including the failure or omission to seek a deficiency judgment against the Applicant. Any party liable on this Agreement consents to any extension or postponement of time of its payment without limit as to the number or period, to any substitution, exchange or release of all or any part of the Collateral, to the addition of any other party, and to the release or discharge of, or suspension of any rights and remedies against, any person who may be liable for the payment of this Agreement. The Issuer may waive or delay enforcing any of its rights without losing them. Any waiver affects only the specific terms and time period stated in the waiver. No modification or waiver of any provision of this Agreement is effective unless it is in writing and signed by the party against whom it is being enforced.     22. DURATION AND EFFECT OF AGREEMENT.   This Agreement shall remain in full force and effect until such time as Applicant has discharged in full its Obligations hereunder. Notwithstanding the foregoing sentence, if a Credit is issued in favor of a sovereign or commercial entity, which is to issue a guarantee or undertaking on Applicant’s behalf in connection therewith, or is issued as support for such a guarantee, the Applicant shall remain liable on a Credit until Issuer is fully released in writing by such entity. This Agreement shall be binding upon Applicant. its personal representatives, successors and assigns and shall inure to the benefit of each Issuer, its successors and assigns. issuer may grant participations in this Agreement and a Credit issued hereunder to one or more financial institutions. Applicant and/or Guarantor information may be transmitted to the participant.     23. APPLICATIONS.   Applicant is authorized to present Applications for individual credits under this Agreement in writing or by means of SWIFT, electronic mail, telex, telecopy; telefax, courier, mail or computer generated telecommunications. If the Application is transmitted electronically, the terms and conditions of such Application shall be presented to the issuer in a format acceptable to the issuer, and Applicant shall follow such authentication procedures as reasonably established by Issuer, which may include the use of an encoded digital signature to be agreed upon in --------------------------------------------------------------------------------       advance with Issuer. Any Application presented to the Issuer by electronic means (which may or may not include a digital signature) will have the same legal effect as an Application in writing and will be binding upon and enforceable against the Applicant.     24. EFFECT OF OTHER AGREEMENT.   Applicant is a party to a Credit Agreement dated as of June 30, 2004 between Flexsteel Industries, Inc. and Bank One, NA in the amount of $47,000,000.00 (the “Credit Agreement”), and such credit agreement provides for the issuance of commercial and/or standby letters of credit on behalf of Applicant. The provisions of that credit agreement as they relate to letters of credit shall prevail over any inconsistent provisions of this Agreement.     25. ELECTRONIC TRANSMISSIONS.   In the absence of written instructions to the contrary, Issuer is authorized to accept and process the Application and any amendments, transfers, assignments of proceeds and all documents relating to the Credit or the Application which are sent to Issuer by electronic transmission. Issuer may, but shall not be obligated to, require authentication of such electronic transmission or that Issuer receives original documents prior to acting on such electronic transmission. If it is a condition of the Credit that payment may be made upon receipt by Issuer of an electronic transmission advising negotiation, Applicant hereby agrees to reimburse Issuer on demand for the amount indicated in such electronic transmission advice, and further agrees to hold. Issuer harmless if the documents fail to arrive, or if, upon the arrival of the documents, Issuer should determine that the documents do not comply with the terms and conditions of the Credit.     26. TRANSFERS.   If, at Applicant’s special request, the Credit is issued in transferable form, it is understood and agreed that issuer is under no duty to determine the proper identity of anyone appearing in the transfer request or in the draft or documents as transferee, nor shall Issuer be charged with responsibility of any nature or character for the validity or correctness of any transfer or successive transfers; and payment by Issuer to any purported transferee(s) as determined by Issuer is hereby authorized and approved. Applicant further agrees to hold Issuer harmless and indemnified against any liability or claim in connection with or arising out of the foregoing.     27. WAIVER OF DISCREPANCIES AND BINDING TERMS ON ISSUER’S DECISIONS.   Applicant agrees that Issuer’s decision, in accordance with standard banking practice, whether the documents presented appear on their face to comply with the terms and conditions of the Credit shall be conclusive and binding on Applicant. If Issuer determines that any draft or document does not appear to comply with the terms and conditions of the Credit, Issuer using its sole judgement may approach Applicant for a waiver of the discrepancy(ies), but shall not be obligated to do so. If Issuer determines that a presentation appears to comply with the terms and conditions of the Credit, Issuer is authorized to pay the amount thereof regardless of receipt of notice from Applicant or another person that any required document is forged or materially fraudulent.     28. AGREEMENT.   EXCEPT AS PROVIDED FOR HEREIN, THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.       THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.       IF THIS AGREEMENT IS SIGNED BY TWO OR MORE PARTIES, IT SHALL CONSTITUTE THE JOINT AND SEVERAL AGREEMENT OF SUCH PARTIES.     29. IN THE EVENT COMMERCIAL CREDIT(S) ARE ISSUED UNDER THIS AGREEMENT, THE FOLLOWING TERMS AND PROVISIONS SHALL APPLY:       REIMBURSEMENT.   In the event that any drafts are drawn by Applicant on Issuer in order to refinance any obligation set forth herein, and such drafts, at Issuer’s option, are accepted by Issuer, Applicant agrees to pay Issuer on demand, but in any event not later than the maturity date, the amount of each such acceptance.       ABSENCE OF WRITTEN INSTRUCTIONS.   In the absence of written instructions to the contrary, the Applicant agrees that (a) if the Credit authorizes drawings and/or shipments in installments and any installment is not drawn and/or shipped within the period allowed for that installment but the Applicant waives such discrepancy, the Issuer is authorized to honor any subsequent installments so long as documents for such installments are presented within the period allowed for such installments; and (b) each negotiation Credit shall expire at the counters of the nominated person even if notice of the presentation or any documents contained in the presentation is not received by the Issuer until after the expiry date of the Credit or any installment thereof.       RELEASE OF DOCUMENTS.   In the event that the Issuer delivers to the Applicant or to a customs broker or any other person designated by the Applicant at the Applicant’s request any of the documents of title pledged hereunder prior to having received payment in full of all the Applicant’s liabilities to the Issuer, the Applicant agrees to obtain possession of any goods represented by such documents within twenty-one days after the date of delivery of such documents, and if the Applicant should fail to do so, the Applicant agrees to retum such documents or to have them returned by the customs broker or such other person to the Issuer prior to the expiration of the twenty-one day period. The Applicant further agrees to execute and deliver to the Issuer receipts for such documents and the goods represented thereby identifying and describing such documents. and goods, which receipts shall constitute a part of this Agreement. The Applicant hereby authorizes the Issuer, in the event that the Issuer becomes aware that the Applicant has claimed from the carrier any goods identified in the shipping documents required under the Credit and that such goods have been released to the Applicant or to a customs broker or agent acting on the Applicant’s behalf, to immediately, and without further inquiry and consideration, charge the amount of the Credit represented by such goods to any available funds then held by the Issuer.       MISCELLANEOUS - OTHER.   The Applicant agrees to procure promptly any necessary import, export or other licenses for the import, export or shipping of the property, and to comply with all United States and foreign governmental regulations in regard to the shipment of the property or the financing thereof, and to furnish such certificates in that respect as the Issuer may at any time require. The Applicant also agrees to keep the property adequately covered by insurance acceptable to the Issuer, to assign the policies or certificates of insurance to the Issuer or, at the Issuer’s option, to make any loss or adjustment payable to the Issuer, and upon the Issuer’s request, to furnish the Issuer with evidence of acceptance of any such assignment by the insurers.     30. IN THE EVENT STANDBY CREDIT(S) ARE ISSUED UNDER THIS AGREEMENT, THE FOLLOWING TERMS AND PROVISIONS SHALL APPLY:       IF THE CREDIT IS ISSUED SUBJECT TO UCP 500, UNLESS OTHERWISE AGREED: (A) IN THE EVENT THAT ANY INSTALLMENT OF THE CREDIT IS NOT DRAWN WITHIN THE PERIOD ALLOWED FOR THAT INSTALLMENT, THE CREDIT WILL CONTINUE TO BE AVAILABLE FOR ANY SUBSEQUENT INSTALLMENTS NOTWITHSTANDING UCP ARTICLE 41; AND (B) ISSUER MAY PROCESS AND ACCEPT ANY TRANSPORT DOCUMENT NOTWITHSTANDING THE REQUIREMENTS OF UCP ARTICLE 43.       IF THE CREDIT PROVIDES FOR AUTOMATIC EXTENSION WITHOUT AMENDMENT, APPLICANT AGREES THAT IT WILL NOTIFY ISSUER IN WRITING AT LEAST SIXTY (60) DAYS PRIOR TO THE LAST DAY SPECIFIED IN THE CREDIT BY WHICH ISSUER MUST GIVE NOTICE OF NON EXTENSION AS TO WHETHER OR NOT 1T WISHES THE CREDIT TO BE EXTENDED. ANY DECISION TO EXTEND OR NOT EXTEND THE CREDIT SHALL BE IN ISSUER’S SOLE DISCRETION AND JUDGMENT. APPLICANT HEREBY ACKNOWLEDGES THAT IN THE EVENT ISSUER NOTIFIES THE BENEFICIARY OF THE CREDIT THAT IT HAS ELECTED NOT TO EXTEND THE CREDIT AND THE BENEFICIARY DRAWS ON THE CREDIT AFTER RECEIVING THE NOTICE OF NON-EXTENSION; THE APPLICANT ACKNOWLEDGES AND AGREES THAT APPLICANT SHALL HAVE NO CLAIM OR CAUSE OF ACTION AGAINST ISSUER OR DEFENSE AGAINST PAYMENT UNDER THE AGREEMENT FOR ISSUER’S DISCRETIONARY DECISION TO EXTEND OR NOT EXTEND THE CREDIT. --------------------------------------------------------------------------------           IF A CREDIT’S TERMS AND CONDITIONS PROVIDES THAT ISSUER GIVE BENEFICIARY A NOTICE OF PENDING EXPIRATION. APPLICANT AGREES THAT IT WILL NOTIFY ISSUER IN WRITING AT LEAST SIXTY (60) DAYS PRIOR TO THE LAST DAY SPECIFIED IN THE CREDIT BY WHICH ISSUER MUST GIVE SUCH NOTICE OF THE PENDING EXPIRATION DATE. IN THE EVENT APPLICANT FAILS TO SO NOTIFY ISSUER AND THE CREDIT IS EXTENDED, APPLICANTS OBLIGATIONS UNDER THIS AGREEMENT SHALL CONTINUE IN EFFECT AND BE BINDING ON APPLICANT WITH REGARD TO THE CREDIT AS SO EXTENDED. APPLICANT: FLEXSTEEL INDUSTRIES, INC. By:    /s/   R. J. Klosterman   Name:    R. J. Klosterman   Its:    Exec. V.P., C.F.O., Secretary   Dated:    June 29, 2004   DMI FURNITURE, INC. By:        Name:        Its:        Dated:        -------------------------------------------------------------------------------- Appendix A to the Master Agreement For Irrevocable Letters of Credit (To be completed by Account Party/Applicant/Correspondent Bank) A)   In the event you issue or amend a commercial or a standby letter of credit (“Credit”), any One of the following individual(s) shall be authorized to sign behalf of   Flexsteel Industries, Inc. -------------------------------------------------------------------------------- Applicant Name/Correspondent Bank               K. B. Lauritsen   President, C.E.O.   /s/   K. B. Lauritsen   June 29, 2004 --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Printed Name   Title   Signature   Date                 R. J. Klosterman   Exec. V.P., C.F.O.   /s/   R. J. Klosterman   June 29, 2004 --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Printed Name   Title   Signature   Date                 Timothy E. Hall   Treasurer   /s/   Timothy E. Hall   June 29, 2004 --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Printed Name   Title   Signature   Date   B)   In regards to commercial Letters of Credit (“Credit”), Bank One N.A. may accept and rely on instructions including without limitation, (a) waiving of discrepancies, (b) mailings/returning shipping documents, (c) changing Credit terms and conditions prior to issuance, and amendments to Credits which do not extend, increase or change the tenor of the draft(s) transmitted by the following authorized representatives of:   Flexsteel Industries, Inc. -------------------------------------------------------------------------------- Applicant Name/Correspondent Bank               K. B. Lauritsen   President, C.E.O.   /s/   K. B. Lauritsen   June 29, 2004 --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Printed Name   Title   Signature   Date                   R. J. Klosterman   Exec. V.P., C.F.O.   /s/   R. J. Klosterman   June 29, 2004 --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Printed Name   Title   Signature   Date                 Timothy E. Hall   Treasurer   /s/   Timothy E. Hall   June 29, 2004 --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Printed Name   Title   Signature   Date                 Phillip J. Keller   C.F.O. DMI Furniture, Inc.   /s/   Phillip J. Keller   June 29, 2004 --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Printed Name   Title   Signature   Date C)   Signature Verification (Banker to complete this portion): The above individual(s) is/are authorized to execute and sign applications, amendments and instructions on behalf of the Applicant.                 --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Printed Name   Title   Signature   Date --------------------------------------------------------------------------------

EXHIBIT 10.6 STATE OF ILLINOIS ILLINOIS COMMERCE COMMISSION Illinois Commerce Commission :   On Its Own Motion :     :   v. : 04-0682   :   North Shore Gas Company :     :   Reconciliation of revenues collected under :   gas adjustment charges with actual :   costs prudently incurred :   ORDER By the Commission: On November 10, 2004, the Illinois Commerce Commission ("Commission") entered an Order Commencing PGA Reconciliation Proceedings, in accordance with the requirements of Section 9-220 of the Public Utilities Act, which directed North Shore Gas Company ("North Shore" or "Company" or "Respondent") to present evidence in this docket at a public hearing to show the reconciliation of Respondent’s purchased gas adjustment clause ("PGA") revenues collected with the actual cost of such gas supplies prudently purchased for the twelve months ended September 30, 2004. The Citizens Utility Board ("CUB") filed a petition to intervene, which was granted. The People of the State of Illinois (the "People") filed a petition to intervene on January 23, 2006, which is granted in this Order. I. The Settlement Issues present in this docket are present as well in North Shore’s fiscal year 2001 reconciliation proceeding, I.C.C. Docket No. 01-0706 and in The Peoples Gas Light & Coke Co.’s fiscal year 2001 reconciliation proceeding, I.C.C. Docket No. 01-0707. What follows herein is a description of the proceedings in I.C.C. Docket No. 01-0707. Pursuant to proper notice, the evidentiary hearing in Docket No. 01-0707 was convened before a duly authorized Administrative Law Judge (an "ALJ") on April 18, 2005 and continued through April 21, 2005. Subsequently, the record was marked "Heard and Taken." After the parties and Commission Staff Witnesses filed post-trial briefs, the ALJ issued a Proposed Order (the "ALJPO") on September 20, 2005. -------------------------------------------------------------------------------- 04-0682 After Briefs on Exception and Reply Briefs on Exceptions were filed, and after oral argument was heard in Docket No. 01-0707, a Settlement Agreement and Release (the "Settlement") was entered into by North Shore and The Peoples Gas, Light & Coke Company (collectively the "Peoples Companies"), the People and the City of Chicago on January 17, 2006. CUB formally signed on to the Settlement on February 27, 2006. A copy of the Settlement is attached hereto as Exhibit 1. In the Settlement, the Peoples Companies, the People, the City of Chicago, and CUB (collectively the "Settling Parties") agreed to settle globally the outstanding reconciliation dockets pending for Fiscal Years 2001 through 2004 of both Peoples Gas (I.C.C. Docket Nos. 01-0707, 02-0727, 03-0705 and 04-0683) and North Shore (I.C.C. Docket Nos. 01-0706, 02-0726, 03-0704 and 04-0682) (collectively the "Peoples Reconciliation Dockets").1 Under the Settlement, the Settling Parties would settle the Peoples Reconciliation Dockets and the Peoples Companies would pay a $100 million refund, adopt certain forward-looking management and accounting proposals that were proposed in the ALJPO in Docket No. 01-0707, and meet other requirements defined in the agreement. On January 23, 2006, the Peoples Companies, the People and the City of Chicago filed a Joint Petition for Approval of the Settlement Agreement in each of the Peoples Reconciliation Dockets. At its February 8, 2006 Bench Session, after concerns were raised by certain Commissioners as to whether the consideration being paid in the Settlement was fair value in exchange for the settlement of all of the Peoples Reconciliation Dockets, the Commission asked that the Settling Parties meet with Commission Staff and the State’s Attorney to negotiate settlement terms that all parties could accept to settle the Peoples Reconciliation Dockets. During the next several weeks, Commission Staff, the State’s Attorney and the Settling Parties met on several occasions. In addition, Commission Staff Witnesses issued several data requests to the Peoples Companies, which the Peoples Companies responded to on an expedited basis. Based on those responses, Commission Staff developed for fiscal years other than 2001 an estimate of potential disallowances that Commission Staff asserted should be considered as part of the Settlement. Based on those discussions, the Settling Parties executed an Amendment and Addendum to the Settlement (the "Addendum"), which modified the terms of the Settlement to include these additional agreements and modifications, which the Settling Parties would support if the Commission were to approve the Settlement. A copy of the Addendum is attached hereto as Exhibit 2. The Commission Staff and the States Attorney did not agree with either the Settlement or the Addendum. _______________ 1  The Settlement also addressed other litigation. 2 -------------------------------------------------------------------------------- 04-0682 On February 28, 2006 and March 1, 2006, the Settling Parties filed statements advising the Commission of the revised settlement terms agreed to by the Settling Parties and requesting that the Commission approve the Settlement as revised by the Addendum. On March 2, 2006, the Commissioners issued data requests to the parties to obtain information about the Settlement and the Addendum. The parties filed verified responses to these Commission data requests on March 3, 2006. On March 6, 2006, the Commission held a special open meeting addressing the Settlement during which Commissioners asked questions to, and received answers from, representatives of the parties and the Commission Staff. II. Outstanding Procedural Matters The People filed a petition to intervene on January 23, 2006. The Commission grants the People’s petition to intervene. III. Legal Basis for Approval of the Settlement Even though Commission Staff and the States Attorney, in Docket Nos. 01-0706 and 01-0707, did not approve of the Settlement or the Addendum, the Commission has the legal authority to approve a settlement for the Peoples Reconciliation Dockets. Under Business and Professional Peoples for the Public Interest v. Illinois Commerce Commission ("BPI"), 136 Ill. 2d 192 (1989), if parties unanimously support a settlement, it can be approved. Under the Commission’s Rules of Practice, Commission Staff is not considered a party to Commission proceedings, but has all the specific rights and duties enumerated in Part 200. 83 Ill. Admin. Code §200.40. Here, with respect to the reconciliation dockets for Fiscal Year 2004, all of the parties unanimously have agreed to and executed the Settlement Agreement. IV. Terms of the Settlement The terms set forth in the Settlement (Exhibit 1) and Addendum (Exhibit 2) is described below. A. Distribution of the $100 Million Refund The Settlement Agreement and Addendum provide the Commission with flexibility in determining how to refund the $100 million to customers in PGL's and North Shore’s service territories. The Commission finds that the $100 million refund should be apportioned to North Shore and PGL customers based on the substantial evidence in the records of Docket No. 01-0706 and Docket No. 01-0707. That evidence demonstrates that North Shore customers suffered significantly less harm than PGL customers. 3 -------------------------------------------------------------------------------- 04-0682 The Commission finds that the $100 million refund shall be allocated between North Shore and PGL customer accounts based on each utility’s approximate share of the total disallowances recommended by Staff in Docket Nos. 01-0706 and the instant docket. Staff recommended approximately $92 million disallowances in the Docket 01-0707 and approximately $4 million disallowances in the instant Docket. Using those numbers as indicators of the level of harm caused to consumers in each service territory, the Commission finds that $4,000,000 of the $100,000,000 shall be refunded to customer accounts in North Shore’s service territory. The $4,000,000 refund to North Shore customer accounts shall be allocated to all Service Classifications based on each Service Classification's share of the total PGA gas consumed by all Service Classifications during the 2001, 2002, 2003, and 2004 reconciliation periods ("Reconciliation Periods"). Each Service Classification’s allocation, with the exception of the allocation to Service Classification No. 3 - Large Volume Demand Service ("SC No. 3"), shall be divided by the total number of customer accounts (both sales and transportation) receiving service under that Service Classification on the date this Order is entered. The result for each Service Classification shall be refunded on a per capita basis to each customer account receiving service under that Service Classification on the date this Order is entered. Refunds to all Service Classifications shall be provided to both sales and transportation customer accounts with the exception of SC No. 3 accounts as outlined below. Refunds to SC No. 3 customer accounts shall be allocated to individual SC No. 3 customer accounts based on PGA gas usage during the Reconciliation Periods. The amount allocated to SC No. 3 shall be refunded to each individual SC No. 3 customer account, which received service during the Reconciliation Periods and purchased PGA gas at any time during the Reconciliation Periods, based on each customer account’s share of the total PGA gas used at any time during the Reconciliation Periods. If any of these entities are still a going concern but no longer a customer of the Company, then the Company and the customer shall arrive at a mutually acceptable method of administering the refund. The Commission finds that the allocation methodologies for the different Service Classifications approved herein are equitable and take into consideration the administrative difficulties associated with providing refunds to nearly one million customers with vastly different usage characteristics and levels of service. Within seven (7) days of the date this Order is served to the parties, North Shore shall file an informational filing with the Commission's Chief Clerks Office describing the amount to be refunded to each customer in each Service Classification based on the methodology described herein and a plan for administering the refunds. 4 -------------------------------------------------------------------------------- 04-0682 The informational filing shall include the following information for all Service Classifications except for SC No. 3: §   The number of customers receiving service on each Service Classification as of the date this Order is entered, §   The usage of PGA gas by each Service Classification during the Reconciliation Periods, and     §   The amount of the refund to be credited to each customer during the next 30-day billing cycle. The following information is required for those customers that are on SC No. 3 Service Classification. §   The number of current and former customers that held customer accounts and consumed PGA gas during the Reconciliation Periods, §   The amount of PGA gas consumed during the Reconciliation Periods by each current and former customer account, §   An indication of whether former SC No. 3 customers are still a going concern, and §   The amount to be refunded to each current and former customer account that received service during the Reconciliation Periods. The refund shall be issued in one installment and shall be a credit to the customer account. The credit shall be plainly designated on customers’ bills as a refund credit provided as a result of a Settlement and Addendum agreed upon by the City of Chicago, the Illinois Attorney General, the Citizens Utility Board, Peoples Gas, and North Shore and approved by the Illinois Commerce Commission. Refunds shall be issued to all customer accounts within thirty (30) days of the date this Order is entered. Within forty-five (45) days of the date this Order is entered, the Company shall file an informational filing describing how the refund process was administered, the speed at which the refund process was completed, any problems that were incurred during the refund process, and any other issues associated with the refund process. This filing will also include the total number of customers receiving the refund for each Service Classification and the refund amount for each customer. 5 -------------------------------------------------------------------------------- 04-0682 B. Accounting Proposals Adopted from the ALJPO in Docket No. 01-0707 In the Settlement and the Addendum, the Settling Parties agreed that the Peoples Companies would adopt and incorporate into the Settlement several of the accounting provisions set forth in the ALJPO in Docket no. 01-0707. Section III.A.2 of the Settlement includes a statement paralleling Finding (13) of the ALJPO in Docket No. 01-0707. Section III.A.2. states: For a period of five years, Peoples Gas and North Shore Gas each shall perform an annual internal audit of gas purchasing and submit a copy of the audit report to the Manager of the ICC’s Accounting Department. (Settlement at 8.) Amendment Section A of the Addendum states that the Peoples Companies will account future HUB revenues in accordance with 83 Ill. Admin Code 525, stating: Upon approval of the settlement agreement, Peoples Gas and North Shore Gas and all Peoples Companies shall account for all of their HUB revenues and third party non-tariff revenues, and ay other revenues referred to as HUB revenues or non-tariff revenues (as those terms have been used in ICC Docket 01-0707) in accordance with 83 Ill. Admin code 525.40(d). All such revenues shall serve to offset "recoverable gas costs" to arrive at the "gas charge" as those terms are used in Illinois Commerce Commission rules part 525.40(d) and in accordance with the Public Utilities Act. 83 Ill. Admin. Code 525.40(d); 220 ILCS 5/101 et. seq. The Peoples Gas and North Shore Gas and all Peoples Companies agree that this accounting of these revenues shall apply to all future Purchased Gas Adjustment reconciliation case and rate case filed by Peoples Gas and North Shore Gas. (Addendum at 1-2.) The text of the findings from the ALJPO in Docket 01-0707 incorporated into the Settlement by the Addendum is:   (7) Peoples Gas Light and Coke Company shall update its operating agreement, which was approved by this Commission in Docket No. 55071, prior to filing its petition with the ICC for its next rate case or within sixty days after the date a final order is entered in this docket, whichever occurs first; 6 -------------------------------------------------------------------------------- 04-0682   (8) Peoples Gas Light and Coke Company shall account for all gas physically injected into Manlove Field by including the cost associated with maintenance gas in the amount transferred from purchased gas expense to the gas stored underground account, Account 164.1;   (9) Peoples Gas Light and Coke Company shall account for the portion of gas injected into the Manlove Storage Field to maintain pressure, as credits from Account 164.1, Gas Stored Underground, as charges to Account 117, Gas Stored Underground, in the case of recoverable cushion gas, or to Account 101, in the case of non-recoverable portions of cushion gas; *  *  *   (11) Peoples Gas Light and Coke Company shall revise its maintenance gas accounting procedures related to gas injected for the benefit of the North Shore Gas Company and third-parties to require those entities to bear the cost of maintenance gas, and it shall revise its maintenance gas accounting procedures to ensure that all customers/consumers bear equal responsibility for maintenance gas;   (12) Peoples Gas Light and Coke Company shall submit its revised maintenance gas accounting procedures to the Commission’s Chief Clerk with a copy to the Manager of the Accounting Department within 30 days after the date, upon which, a final Order is entered in this docket; *  *  *   (14) Peoples Gas Light and Coke Company shall submit quarterly reports reflecting its use of journal entries regarding maintenance gas to the Manager of this Commission’s Accounting Department within 45 days of the end of each quarter, after the date of a final order is entered in this docket, through the quarter ending September 30, 2009; 7 -------------------------------------------------------------------------------- 04-0682   (15) Peoples Gas Light and Coke Company shall engage outside consultants to perform a management audit of its gas purchasing practices, gas storage operations and storage activities. The firm selected to perform the management audit shall be independent of Peoples Gas Light and Coke Company, its affiliates, Staff, and all parties in this docket, and approved by this Commission. Monthly reporting of the progress of the conduct of the management audit shall be submitted to the Bureau Chief of the Commission’s Public Utilities Bureau, with a copy to the Manager of the Commission’s Accounting Department, until the management audit report has been submitted. Completion of this management audit shall occur no later than eighteen months after the date, upon which, a final order is entered in this docket. Upon completion, copies of the management audit reports shall be submitted to the Commission’s Public Utilities Bureau Chief and the Manager of the Commission’s Accounting Department; (ALJPO in Docket 01-0707, at 135-136.) C. Hardship Reconnection Program The Peoples Companies agreed to instate a Hardship Reconnection program to allow certain customers who have been disconnected for non-payment to be reconnected and their debt forgiven. The Commission applauds this program and the Companies’ pledge to permanently instate it. The Commission has high hopes for the program’s success. To keep ourselves informed of the success, the Commission finds that the Peoples Companies should file quarterly reports on the progress of the program. 8 -------------------------------------------------------------------------------- 04-0682 D. Gas Reconciliation A reconciliation of North Shore’s total gas revenues with total gas costs for the reconciliation period October 1, 2003, through September 30, 2004 is shown in Appendix A hereto. This Appendix A contains an independent reconciliation for each of the following; Commodity Gas Charge, Non-Commodity Gas Charge and Demand Gas Charge, and Transition Surcharge. Below is an aggregation of the above referenced reconciliations. 1.  Unamortized Balance at 9/30/03 per 2003 reconciliation (Refund)/Recovery    $ (3,319,371.22 ) 2.  Factor A Adjustments Amortized to Sch. I at 09/30/03 per 2003 reconciliation (Refund)/Recovery     (1,381,294.80 ) 3.  Factor O (Refunded)/Recovered during 2003     0   4.  Balance to be (Refunded)/Recovered during 2004 from prior periods     (4,700,666.02 ) 5.  2004 PGA Recoverable Costs     151,143,200.05   6.  2004 PGA Actual Recoveries     143,783,444.24   7.  Interest     6,872.78   8.  Other Adjustments     0   9.  Pipeline Refunds     (1,718.56 ) 10.  (Over)/Under Recovery for 2004     7,364,910.03   11.  PGA Reconciliation Balance at 9/30/04 (Over)/Under Collected     2,664,244.01   12.  Factor A Adjustments unreconciled at 9/30/04 (Refund)/Recovery     727,868.70   13.  Unamortized Balance at 9/30/04 (Refund)/Recovery   $ 1,936,375.31   14.  Requested Ordered Reconciliation Factor to be (Refunded)/Recovered [Factor O]     0   9 -------------------------------------------------------------------------------- 04-0682 E. Commission Analysis and Conclusions The Commission finds that the Settlement, as revised by the Addendum, is a legal and reasonable compromise of potential disallowances North Shore might have to pay based on allegedly imprudent gas costs in fiscal year 2004. This finding is supported by the unanimous agreement of the parties to this Docket. The refund described above in "IV.A - Distribution of the $100 Million Refund," shall be made in accordance with this Order . The adoption of the Settlement and Addendum concludes the 2004 PGA reconciliation of North Shore and, based upon the Settlement, the Commission concludes that the 2004 PGA reconciliation, as shown in Appendix A hereto, should be approved. The Settlement and Addendum are hereby incorporated into and made a part of this Order and the similar orders entered for the other Peoples Reconciliation Dockets. V. Findings and Ordering Paragraphs The Commission, being fully advised in the premises, is of the opinion and finds that: (1)    North Shore Gas Company is a corporation engaged in the distribution of natural gas service to the public in Illinois and, as such, is a public utility within the meaning of the Public Utilities Act; (2)    the Commission has jurisdiction over Respondent and of the subject matter of this proceeding; (3)    the Settlement (Exhibit 1) as revised by the Addendum (Exhibit 2) is adopted and their terms incorporated herein as a settlement of allegations that, during the reconciliation period, Respondent had not acted reasonably and prudently in its purchases of natural gas and other activities that affected the amounts collected through Gas Charges in its fiscal year 2004; (4)    the unamortized balances at the end of Respondent’s 2004 reconciliation year show a recoverable balance for the Commodity Gas Charge of $658,504.74; a recoverable balance of $1,268,171.57 for the Non-Commodity Gas Charge and the Demand Gas Charge; and a recoverable balance of $9,699.00 for the Transition Surcharge, for a total refundable balance of $1,936,375.31; the Factor O refund is zero;   (5)    the reconciliations submitted by North Shore Gas Company of the costs actually incurred for the purchase of natural gas with revenues received for such gas for the reconciliation period beginning October 1, 2003, through September 30, 2004, may properly be approved;   10 -------------------------------------------------------------------------------- 04-0682   (6)    pursuant to the Settlement, a refund of $100 million is to be distributed in the manner set forth above as part of the consideration paid in global settlement of this docket as well as I.C.C. Docket Nos. 01-0706, 01-0707, 02-0726, 02-0727, 03-0704, 03-0705, and 04-0683.   (7)    North Shore Gas Company should follow the accounting procedures recited above, the directives contained in the incorporated parts of the settlement agreement and the addendum thereto in all future gas adjustment charge reconciliation dockets;   (8)    North Shore Gas Company shall file quarterly reports with the Chief Clerk’s office detailing the progress of the Hardship Reconnection program.   IT IS THEREFORE ORDERED that the reconciliations submitted by North Shore Gas Company of the costs actually incurred for the purchase of natural gas with revenues received for such gas for the reconciliation period beginning October 1, 2003, through September 30, 2004, as shown in Appendix A hereto, be, and they are hereby, approved. IT IS FURTHER ORDERED that North Shore Gas Company shall comply with the directives contained in Finding (7). IT IS FURTHER ORDERED that the Settlement (Exhibit 1) and Addendum (Exhibit 2) are hereby incorporated into and made a part of this Order. IT IS FURTHER ORDERED that any motions, objections, or petitions in this proceeding that have not been specifically ruled on should be disposed of in a manner consistent with the findings and conclusions herein. IT IS FURTHER ORDERED that subject to the provisions of Section 10-113 of the Public Utilities Act and 83 Ill. Adm. Code 200.880, this Order is final; it is not subject to the Administrative Review Law. By Order of the Commission this 28th day of March, 2006. (SIGNED) CHARLES E. BOX Chairman 11 -------------------------------------------------------------------------------- Appendix A Docket 04-0682 North Shore Gas Company Gas Charge Reconciliation Summary Fiscal 2004   Commodity Gas Charges (CGC) Non-Commodity Gas Charge and Demand Gas Charge (NCGC and DGC) Transition Surcharge (TS) Total Gas Charge Line         Fiscal 2003         1  Unamortized Balance at September 30, 2003 (Refund) / Recovery ($3,608,377.31) $279,394.15 $9,611.94 ($3,319,371.22) 2  Factor A Adjustments unreconciled at September 30, 2003 (Refund) / Recovery ($1,406,771.20) $23,772.53 $1,703.87 ($1,381,294.80) 3  Factor O (Refunded) / Recovered $0.00 $0.00 $0.00 $0.00 4  Balance (Refundable) / Recoverable from Prior Periods (Line 1 + Line 2 + Line 3) ($5,015,148.51) $303,166.68 $11,315.81 ($4,700,666.02) Fiscal 2004         5   Costs Recoverable through the Gas Charge $131,876,890.13 $15,266,309.92 $0.00 $151,143,200.05 6   Revenues Arising though Application of the Gas Charge $129,689,139.76 $14,094,294.39 $10.09 $143,783,444.24 7   Separately Reported Pipeline Refunds or Surcharges $0.00 ($1,718.56) $0.00 ($1,718.56) 8   Separately Reported Other Adjustments $0.00 $0.00 $0.00 $0.00 9   Interest Calculated at 1.50% $5,061.53 $1,666.22 $145.03 $6,872.78 10  (Over) / Under Recovery for Reconciliation Year (Line 5 - Line 6 + Line 7 + Line 8 + Line 9) $6,192,811.90 $1,171,963.19 $134.94 $7,364,910.03 11  (Over) / Under Recovery Balance for Reconciliation Year (Line 4 + Line 10) $1,177,663.39 $1,475,129.87 $11,450.75 $2,664,244.01 12  Factor A Adjustments unreconciled at September 30, 2004 (Refund) / Recovery $519,158.65 $206,958.30 $1,751.75 $727,868.70 13  Unamortized Balance at September 30, 2004 (Refund) / Recovery (Line 11 - Line 12) $658,504.74 $1,268,171.57 $9,699.00 $1,936,375.31 14  Requested Factor O (Line 11 - Line 12 - Line 13) (Refund) / Recovery $0.00 $0.00 $0.00 $0.00 12 --------------------------------------------------------------------------------  

Exhibit 10.2 Schedule of Optionees and Material Terms of Option Agreements dated February 10, 2006 Optionees Shares Grant Date Expiration Date Exercise Price             Patrick M. Flynn    7,500     2/10/2006     2/1/2011     37.80        Eldon D. Dietterick    6,000     2/10/2006     2/1/2011     37.80        Richard T. Frey    4,500     2/10/2006     2/1/2011     37.80        Cynthia A. Barron    3,000     2/10/2006     2/1/2011     37.80        Christine A. Liebold    500     2/10/2006     2/1/2011     37.80              Note: The options vest in three equal annual installments, commencing on February 10, 2007.

  Exhibit 10.15 AMENDED AND RESTATED EMPLOYMENT AGREEMENT      THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into as of the 6th day of November, 2006, between Developers Diversified Realty Corporation, an Ohio corporation (the “Company”), and Timothy J. Bruce (the “Executive”). W I T N E S S E T H:      WHEREAS, the Company desires to employ the Executive, and the Executive desires to be employed by the Company, on the terms and subject to the conditions set forth herein; and      WHEREAS, the Company and the Executive desire for this Amended and Restated Employment Agreement to amend and supersede any prior Employment Agreements between the Company and the Executive.      NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows: 1. Employment.   (a)   The Company hereby employs the Executive as its Executive Vice President of Development, and the Executive hereby accepts such employment, on the terms and subject to the conditions hereinafter set forth.     (b)   During the term of this Employment Agreement, the Executive shall be and have the title of Executive Vice President of Development and shall devote all of his business time and all reasonable efforts to his employment and perform diligently such duties as are customarily performed by Executive Vice Presidents of Development of companies similar in size to, and in a similar business as, the Company, together with such other duties as may be reasonably requested from time to time by the Senior Executive Vice President, President or Chief Executive Officer of the Company or the Board of Directors of the Company (the “Board”), which duties shall be consistent with his positions previously set forth and as provided in Paragraph 2. 2. Term and Positions.   (a)   The period of employment of the Executive by the Company shall, subject to earlier termination as provided in this Employment Agreement, continue until December 31, 2006, with automatic one year renewals thereafter. Notwithstanding the foregoing, this Employment Agreement may be terminated by the Company with “cause” (as hereinafter defined) at any time and without cause upon not less than ninety (90) days prior written notice to the Executive.     (b)   During the term of this Employment Agreement, the Executive shall be entitled to serve as the Executive Vice President of Development of the Company. For service as an officer and employee of the Company, the Executive shall be entitled to the full protection of the applicable indemnification provisions of the articles of incorporation and code of regulations of the Company, as the same may be amended from time to time,   --------------------------------------------------------------------------------         and the Indemnification Agreement dated June 30, 2004 between the Company and the Executive (the “Indemnification Agreement”).     (c)   If:   (i)   the Company materially changes the Executive’s duties and responsibilities as set forth in Paragraphs 1(b) and 2(b) without his consent;     (ii)   the Executive’s place of employment or the principal executive offices of the Company are located more than fifty (50) miles from the geographical center of Cleveland, Ohio; or     (iii)   there occurs a material breach by the Company of any of its obligations under this Employment Agreement, which breach has not been cured in all material respects within thirty (30) days after the Executive gives notice thereof to the Company; then in any such event the Executive shall have the right to terminate his employment with the Company, but such termination shall not be considered a voluntary resignation or termination of such employment or of this Employment Agreement by the Executive but rather a discharge of the Executive by the Company without “cause” (as defined in Paragraph 5(a)(ii)).   (d)   The Executive shall be deemed not to have consented to any written proposal calling for a material change in his duties and responsibilities unless the Executive shall give written notice of his consent thereto to the Board within fifteen (15) days after receipt of such written proposal. If the Executive shall not have given such consent, the Company shall have the opportunity to withdraw such proposed material change by written notice to the Executive given within ten (10) days after the end of said fifteen (15) day period.     (e)   Notwithstanding anything in this Agreement to the contrary, if there shall occur a “Change in Control” and a “Triggering Event” (as those terms are defined in the Amended and Restated Change in Control Agreement, dated November 6, 2006, between the Company and the Executive (the “Change in Control Agreement”)), payments to the Executive will be governed by the Change in Control Agreement and the Executive shall not be entitled to any additional benefits under this Employment Agreement except as to that portion of any unpaid salary and other benefits accrued and earned by the Executive hereunder up to and including the effective date of such termination. 3. Compensation.           During the term of this Employment Agreement, the Company shall pay or provide, as the case may be, to the Executive the compensation and other benefits and rights set forth in this Paragraph 3.   (a)   The Company shall pay to the Executive a base salary payable in accordance with the Company’s usual pay practices (and in any event no less frequently than monthly) of not less than Two Hundred Ninety Thousand ($290,000) per annum, subject to such increases as the Board may approve.     (b)   In addition to an annual base salary, if the Executive achieves the factors and criteria for bonus payments hereinafter described for any fiscal year of the Company, then the Page 2 --------------------------------------------------------------------------------         Company shall pay to the Executive bonus compensation for such fiscal year, not later than 75 days following the end of each fiscal year or, if applicable, the date of termination of employment, as the case may be, prorated on a per diem basis for partial fiscal years, determined and calculated in accordance with the percentages set forth on Exhibit B attached hereto. The Company’s award of bonus compensation to the Executive shall be determined by the factors and criteria, including the financial performance of the Company and the performance by the Executive of his duties hereunder, that may be established from time to time for the calculation of bonus awards by the Executive Compensation Committee (the “Committee”) of the Board.     (c)   The Company shall provide to the Executive such life, disability, medical, hospitalization and dental insurance for the Executive, his spouse and eligible family members as may be determined by the Board to be consistent with industry standards.     (d)   The Executive shall participate in all retirement and other benefit plans of the Company generally available from time to time to employees of the Company and for which the Executive qualifies under the terms thereof (and nothing in this Agreement shall or shall be deemed to in any way affect the Executive’s rights and benefits thereunder except as expressly provided herein).     (e)   The Executive shall be entitled to such periods of vacation and sick leave allowance each year as are determined by the Chief Executive Officer or the President of the Company in his reasonable and good faith discretion, which in any event shall be not less than four weeks per year or as otherwise provided under the Company’s vacation and sick leave policy for executive officers.     (f)   The Executive shall be entitled to participate in any equity or other employee benefit plan that is generally available to senior executive officers, as distinguished from general management, of the Company. The Executive’s participation in and benefits under any such plan shall be on the terms and subject to the conditions specified in the governing documents of the particular plan.     (g)   The Company shall reimburse the Executive or provide the Executive with an expense allowance during the term of this Employment Agreement for travel, entertainment and other expenses reasonably and necessarily incurred by the Executive in connection with the Company’s business. The Executive shall furnish such documentation with respect to reimbursement to be paid hereunder as the Company shall reasonably request.     (h)   The Company shall pay to the Executive an automobile allowance of $500 per month as may be adjusted from time to time. All expenses related to all automobiles owned by the Executive shall be the sole responsibility of the Executive. . 4. Payment in the Event of Death or Disability.   (a)   In the event of the Executive’s death or if the Executive becomes “disabled” (as hereinafter defined) during the term of this Employment Agreement, the Company shall pay to the Executive (or the successors and assigns of the Executive in the event of his death) an amount equal to the sum of (i) the Executive’s then effective per annum rate of salary, as determined under Paragraph 3(a), plus (ii) a bonus amount prorated up to and including the effective date of termination and determined in accordance with Paragraph 3(b) based on the aggregate amount accrued for bonuses for the then current fiscal year as Page 3 --------------------------------------------------------------------------------         presented in the Company’s general ledger for the month in which the Executive’s termination occurs, and shall continue the benefits described in Paragraph 3(c) for the Executive (except in the case of death) and the Executive’s family for a period of one (1) year.     (b)   The benefit to be paid pursuant to Paragraph 4(a) shall be paid within ninety (90) days after the date of death or disability, as the case may be.     (c)   For purposes of this Employment Agreement, the Executive shall become “disabled” only in the event of a permanent disability. Executive’s “disability” shall be deemed to have occurred after one hundred twenty (120) days in the aggregate during any consecutive twelve (12) month period, or after ninety (90) consecutive days, during which one hundred twenty (120) or ninety (90) days, as the case may be, the Executive, by reason of his physical or mental disability or illness, shall have been unable to discharge his duties under this Employment Agreement. The date of disability shall be such one hundred twentieth (120th) or ninetieth (90th) day, as the case may be. In the event either the Company or the Executive, after receipt of notice of the Executive’s disability from the other, dispute that the Executive’s permanent disability shall have occurred, the Executive shall promptly submit to a physical examination by the chief of medicine of any major accredited hospital in the Cleveland, Ohio, area and, unless such physician shall issue his written statement to the effect that in his opinion, based on his diagnosis, the Executive is capable of resuming his employment and devoting full time and energy to discharging his duties within thirty (30) days after the date of such statement, such permanent disability shall be deemed to have occurred. 5. Termination.   (a)   The employment of the Executive under this Employment Agreement, and the terms hereof, may be terminated by the Company:   (i)   on the death of the Executive or if the Executive becomes disabled (as previously defined);     (ii)   for cause at any time by action of the Board. For purposes hereof, the term “cause” shall mean:   (A)   The Executive’s fraud, commission of a felony or of an act or series of acts which result in material injury to the business reputation of the Company, commission of an act or series of repeated acts of dishonesty which are materially inimical to the best interests of the Company, or the Executive’s willful and repeated failure to perform his duties under this Employment Agreement, which failure has not been cured within fifteen (15) days after the Company gives notice thereof to the Executive; or     (B)   The Executive’s material breach of any provision of this Employment Agreement, which breach has not been cured in all substantial respects within ten (10) days after the Company gives notice thereof to the Executive; or   (iii)   without cause pursuant to written notice provided to the Executive not less than ninety (90) days in advance of such termination date. Page 4 --------------------------------------------------------------------------------         The exercise by the Company of its rights of termination under this Paragraph 5 shall be the Company’s sole remedy if such right to terminate arises. Upon any termination of this Employment Agreement, the Executive shall be deemed to have resigned from all offices and directorships held by the Executive in the Company.     (b)   In the event of a termination claim by the Company to be for “cause” pursuant to Paragraph 5(a)(ii), the Executive shall have the right to have the justification for said termination determined by arbitration in Cleveland, Ohio. In order to exercise such right, the Executive shall serve on the Company within thirty (30) days after termination a written request for arbitration. The Company immediately shall request the appointment of an arbitrator by the American Arbitration Association and thereafter the question of “cause” shall be determined under the rules of the American Arbitration Association, and the decision of the arbitrator shall be final and binding upon both parties. The parties shall use all reasonable efforts to facilitate and expedite the arbitration and shall act to cause the arbitration to be completed as promptly as possible. During the pendency of the arbitration, the Executive shall continue to receive all compensation and benefits to which the Executive is entitled hereunder, and if at any time during the pendency of such arbitration the Company fails to pay and provide all compensation and benefits to the Executive in a timely manner the Company shall be deemed to have automatically waived whatever rights it then may have had to terminate the Executive’s employment for cause. Expenses of the arbitration shall be borne equally by the parties except as otherwise determined by the arbitrator.     (c)   In the event of termination for any of the reasons set forth in subparagraph (a) of this Paragraph 5, except as otherwise provided in Paragraphs 3(d), 4(a) and 5(d), the Executive shall be entitled to no further compensation or other benefits under this Employment Agreement, except as to that portion of any unpaid salary and other benefits accrued and earned by the Executive hereunder up to and including the effective date of such termination.     (d)   In the event of the termination by the Company of the Executive without “cause” (other than as described in Paragraph 2(e)), or in the event of a termination by the Executive for reasons set forth in Paragraph 2(c), the Company shall pay to the Executive an amount equal to the sum of (i) the Executive’s then effective per annum rate of salary, as determined under Paragraph 3(a), plus, (ii) a bonus amount prorated up to and including the effective date of termination and determined in accordance with Paragraph 3(b) based on the aggregate amount accrued for bonuses for the then current fiscal year as presented in the Company’s general ledger for the month in which the Executive’s termination occurs, and shall continue the benefits described in Paragraph 3(c) for a period of one (1) year.     (e)   Notwithstanding anything herein to the contrary, the Company shall not be obligated to make any payment or provide any benefit pursuant to Paragraph 4(a) or Paragraph 5(d) unless (i) the Executive executes a release of all current and future claims, known or unknown, arising on or before the date of the release against the Company and its subsidiaries and the directors, officers and affiliates of any of them, in a form approved by the Company (or, in the case of death, the Executive’s estate executes such release or such other documents as may be reasonably requested by the Company) and (ii) the Executive (or the Executive’s estate) does not revoke any required release during any applicable revocation period. Page 5 --------------------------------------------------------------------------------   6. Covenants and Confidential Information.   (a)   The Executive acknowledges the Company’s reliance and expectation of the Executive’s continued commitment to performance of the Executive’s duties and responsibilities during the term of this Employment Agreement. In light of such reliance and expectation on the part of the Company, during the term of this Employment Agreement and for a period of one (1) year thereafter (and, as to clause (ii) of this subparagraph (a), at any time during and after the term of this Employment Agreement), the Executive shall not, directly or indirectly do or suffer either of the following:   (i)   own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as a consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association or other business entity engaged in the business of, or otherwise engage in the business of, acquiring, owning, developing or managing commercial shopping centers; provided, however, that the ownership of not more than one percent (1%) of any class of publicly traded securities of any entity shall not be deemed a violation of this covenant; or     (ii)   disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with, or contrary to the interests of, the Company, any confidential information relating to the Company’s operations, properties or otherwise to its particular business or other trade secrets of the Company, it being acknowledged by the Executive that all such information regarding the business of the Company compiled or obtained by, or furnished to, the Executive while the Executive shall have been employed by or associated with the Company is confidential information and the Company’s exclusive property; provided, however, that the foregoing restrictions shall not apply to the extent that such information (A) is clearly obtainable in the public domain, (B) becomes obtainable in the public domain, except by reason of the breach by the Executive of the terms hereof, (C) was not acquired by the Executive in connection with the Executive’s employment or affiliation with the Company, (D) was not acquired by the Executive from the Company or its representatives or (E) is required to be disclosed by rule of law or by order of a court or governmental body or agency.   (b)   The Executive will not directly or indirectly during the term of this Employment Agreement and for a period of one (1) year after the expiration of this Employment Agreement or the termination of Executive’s employment for any reason, solicit or induce or attempt to solicit or induce any employee(s) of the Company and/or any subsidiary, affiliated or related companies to terminate their employment with the Company and/or any subsidiary, affiliated or related companies.     (c)   The Executive agrees and understands that the remedy at law for any breach by the Executive of this Paragraph 6 will be inadequate and that the damages following from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of the Executive’s violation of any legally enforceable provision of this Paragraph 6, the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Paragraph 6 shall be deemed to limit the Company’s remedies at law or in equity for any breach by the Executive of any of the provisions of this Paragraph 6 which may be pursued or availed of by the Company. Page 6 --------------------------------------------------------------------------------     (d)   The Executive has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon the Company under this Paragraph 6, and hereby acknowledges and agrees that the same are reasonable in time and territory, are designed to eliminate competition which otherwise would be unfair to the Company, do not stifle the inherent skill and experience of the Executive, would not operate as a bar to the Executive’s sole means of support, are fully required to protect the legitimate interests of the Company and do not confer a benefit upon the Company disproportionate to the detriment to the Executive. 7.   Tax Adjustment Payments. If all or any portion of the amounts payable to the Executive under this Employment Agreement or the Change in Control Agreement (including, without limitation, the issuance of common shares of the Company; the granting or vesting of restricted shares; and the granting, vesting, exercise or termination of options; but excluding any units or awards granted or vested pursuant to any Performance Unit Agreement between the Executive and the Company or any Outperformance Long-Term Incentive Plan Agreement between the Executive and the Company) constitutes “excess parachute payments” within the meaning of Section 280G of the Code that are subject to the excise tax imposed by Section 4999 of the Code (or any similar tax or assessment), the amounts payable to the Executive shall be increased to the extent necessary to place the Executive in the same after-tax position as the Executive would have been in had no such tax been imposed on any such amount paid or payable to the Executive under this Employment Agreement, the Change in Control Agreement or any other amount that the Executive may receive pursuant thereto (other than pursuant to a Performance Unit Agreement or an Outperformance Long-Term Incentive Plan Agreement). The determination of the amount of any such tax and the incremental payment required hereby in connection therewith shall be made by the accounting firm employed by the Executive within thirty (30) calendar days after such payment and said incremental payment shall be made within five (5) calendar days after determination has been made. If, after the date upon which the payment required by this Paragraph 7 has been made, it is determined (pursuant to final regulations or published rulings of the Internal Revenue Service, final judgment of a court of competent jurisdiction, Internal Revenue Service audit assessment or otherwise) that the amount of excise or other similar taxes payable by the Executive is greater than the amount initially so determined, then the Company shall pay the Executive an amount equal to the sum of: (i) such additional excise or other taxes, plus (ii) any interest, fines and penalties resulting from such underpayment, plus (iii) an amount necessary to reimburse the Executive for any income, excise or other tax assessment payable by the Executive with respect to the receipt of the amounts specified in (i) and (ii) above, and the reimbursement provided by this clause (iii), in the manner described above in this Paragraph 7. Payment thereof shall be made within five (5) calendar days after the date upon which such subsequent determination is made.   8.   Miscellaneous.   (a)   The Executive represents and warrants that the Executive is not a party to any agreement, contract or understanding, whether employment or otherwise, which would restrict or prohibit the Executive from undertaking or performing employment in accordance with the terms and conditions of this Employment Agreement.     (b)   During the term of this Employment Agreement and thereafter, the Executive will provide reasonable assistance to the Company in litigation and regulatory matters that relate to events that occurred during the Executive’s period of employment with the Company and its predecessors, and will provide reasonable assistance to the Company with matters relating to its corporate history from the period of the Executive’s Page 7 --------------------------------------------------------------------------------         employment with it or its predecessors. The Executive will be entitled to reimbursement of reasonable out-of-pocket travel or related costs and expenses relating to any such cooperation or assistance that occurs following the term of employment.     (c)   The provisions of this Employment Agreement are severable and if any one or more provision may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provision and any partially unenforceable provision to the extent enforceable in any jurisdiction nevertheless shall be binding and enforceable.     (d)   The rights and obligations of the Company under this Employment Agreement shall inure to the benefit of, and shall be binding on, the Company and its successors and assigns, and the rights and obligations (other than obligations to perform services) of the Executive under this Employment Agreement shall inure to the benefit of, and shall be binding upon, the Executive and his heirs, personal representatives and assigns.     (e)   Any controversy or claim arising out of or relating to this Employment Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association then pertaining in the City of Cleveland, Ohio, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof. The arbitrator or arbitrators shall be deemed to possess the powers to issue mandatory orders and restraining orders in connection with such arbitration; provided, however, that nothing in this Paragraph 8(e) shall be construed so as to deny the Company the right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach by the Executive of any of the covenants contained in Paragraph 6 hereof.     (f)   Any notice to be given under this Employment Agreement shall be personally delivered in writing or shall have been deemed duly given when received after it is posted in the United States mail, postage prepaid, registered or certified, return receipt requested, and if mailed to the Company, shall be addressed to its principal place of business, attention: President, and if mailed to the Executive, shall be addressed to the Executive at his home address last known on the records of the Company, or at such other address or addresses as either the Company or the Executive may hereafter designate in writing to the other.     (g)   The failure of either party to enforce any provision or provisions of this Employment Agreement shall not in any way be construed as a waiver of any such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this Employment Agreement. The rights granted the parties herein are cumulative and the waiver of any single remedy shall not constitute a waiver of such party’s right to assert all other legal remedies available to it under the circumstances.     (h)   This Employment Agreement supersedes all prior agreements and understandings between the parties and may not be modified or terminated orally. No modification, termination or attempted waiver shall be valid unless in writing and signed by the party against whom the same is sought to be enforced.     (i)   This Employment Agreement shall be governed by and construed according to the laws of the State of Ohio. Page 8 --------------------------------------------------------------------------------     (j)   Captions and paragraph headings used herein are for convenience and are not a part of this Employment Agreement and shall not be used in construing it.     (k)   Where necessary or appropriate to the meaning hereof, the singular and plural shall be deemed to include each other, and the masculine, feminine and neuter shall be deemed to include each other. [Signatures on the following page.] Page 9 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties have executed this Amended and Restated Employment Agreement on the day and year first set forth herein.             DEVELOPERS DIVERSIFIED REALTY CORPORATION       By:   /s/ Nan R. Zieleniec         Nan R. Zieleniec,        Senior Vice President of Human Resources          /s/ Timothy J. Bruce         Timothy J. Bruce            --------------------------------------------------------------------------------   EXHIBIT B INCENTIVE OPPORTUNITY Bonus As % of Salary                   Threshold   Target   Maximum   20%     40 %     60 %  

-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- EXHIBIT 10.2 EMPLOYMENT AGREEMENT         This Employment Agreement (this "Agreement") is by and between Umpqua Holdings Corporation ("Umpqua") and Brad Copeland ("Officer"), effective as of March 10, 2006.         1. PURPOSE AND DURATION OF AGREEMENT. The purpose of this Agreement is to set forth the terms of Officer's employment with Umpqua and to provide Officer benefits in certain circumstances where Officer's employment is terminated or a Change in Control (defined below) occurs. This Agreement, including the severance provisions governed by ERISA, shall expire on September 15, 2008. This Agreement supersedes the Terms of Employment and Severance Agreement between Umpqua and Officer dated September 15, 2003.1         2. EMPLOYMENT. Umpqua, either directly or through one of its wholly owned subsidiaries, employs the Officer and the Officer accepts that employment on the terms and conditions contained in this Agreement.         3. NO TERM OF EMPLOYMENT. Notwithstanding the term of this Agreement, Umpqua may terminate Officer's employment at any time for any lawful reason or for no reason at all, subject to the provisions of this Agreement.         4.  DUTIES; POSITION.                 4.1 Position. Officer shall be employed as Senior Executive Vice President/Chief Credit Officer, and will perform such duties as may be designated by Umpqua's Board of Directors (the "Board") or Umpqua's Chief Executive Officer to whom Officer will directly report (the "Supervisor").                 4.2 Obligations of Officer.                     (a) Officer agrees that to the best of Officer's ability and experience, Officer will at all times loyally and conscientiously perform all of the duties and obligations required of Officer pursuant to the express and implicit terms of this Agreement and as directed by the Board or the Supervisor.                     (b) Officer shall devote Officer's entire working time, attention and efforts to Umpqua's business and affairs, shall faithfully and diligently serve Umpqua's interests and shall not engage in any business or employment activity that is not on Umpqua's behalf (whether or not pursued for gain or profit) except for (a) activities approved in writing in advance by the Board and (b) passive investments that do not involve Officer providing any advice or services to the businesses in which the investments are made.         5. BASE COMPENSATION. For services performed under this Agreement, Officer shall be entitled to $25,933 per month ($311,200 on annualized basis) ("Base Salary"), which Umpqua may increase in its sole discretion, as well as perquisites provided to Umpqua's officers. Officer shall be entitled to participate, under the terms of the respective plans, in the bonus compensation plans, group health insurance, long-term disability insurance, as well as such other compensation or benefits as approved by the Board. Officer is entitled to four weeks vacation per year.         6. TERMINATION. Officer's employment may be terminated before the expiration of this Agreement as described in this Section, in which event Officer's compensation and benefits shall terminate except as otherwise provided in this Agreement.                 6.1 For Cause. Upon Umpqua's termination of Officer's employment for Cause (as defined in Section 7.1 below) ("Termination For Cause"). 1 --------------------------------------------------------------------------------                 6.2 Without Cause. Upon Umpqua's termination of Officer's employment without Cause, with or without notice, at any time in Umpqua's sole discretion, for any reason (other than for Cause, death, or Disability) or for no reason ("Termination Without Cause"). A Change in Control does not in itself constitute Termination Without Cause.                 6.3 For Good Reason. Upon Officer's termination of the employment for Good Reason (as defined in Section 7.2 below) ("Termination For Good Reason").                 6.4  Death or Disability. Upon Officer's death or Disability (as defined in Section 7.3 below).                 6.5  Resignation. Upon Officer's voluntary resignation in writing, which shall be given to Umpqua at least 60 days prior to the effective date of such resignation ("Resignation"); provided, Resignation shall not be permitted if an event has occurred that would give rise to Termination for Cause.         7. DEFINITIONS.                 7.1 Cause. For the purposes of this Agreement, "Cause" for Officer's termination will exist upon the occurrence of one or more of the following events:                              (a) Dishonest or fraudulent conduct by Officer with respect to the performance of Officer's duties with Umpqua;                              (b) Conduct by Officer that materially discredits Umpqua or any of its subsidiaries or is materially detrimental to the reputation of Umpqua or any of its subsidiaries, including but not limited to conviction or a plea of nolo contendere of Officer of a felony or crime involving moral turpitude;                              (c) Officer's willful misconduct or gross negligence in performance of Officer's duties under this Agreement, including but not limited to Officer's refusal to comply in any material respect with the legal directives of the Board or the Supervisor, if such misconduct or negligence has not been remedied or is not being remedied to the Board's reasonable satisfaction within thirty (30) days after written notice, including a detailed description of the misconduct or negligence, has been delivered by the Board to Officer;                              (d) An order or directive from a state or federal banking regulatory agency requesting or requiring removal of Officer or a finding by any such agency that Officer's performance threatens the safety or soundness of Umpqua or any of its subsidiaries; or                              (e) A material breach of Officer's fiduciary duties to Umpqua if such breach has not been remedied or is not being remedied to the Board's reasonable satisfaction within thirty (30) days after written notice, including a detailed description of the breach, has been delivered by the Board to Officer.                 7.2 Good Reason. For purposes of this Agreement, "Good Reason" for Officer's resignation of employment will exist upon the occurrence of one or more of the following events, without Officer's consent, if Officer has informed Umpqua in writing of the circumstances described below in this Section that could give rise to resignation for Good Reason and Umpqua has not removed the circumstances within thirty (30) days of the written notice:                         (a) A material reduction of Officer's Base Salary, unless the reduction is in connection with, and commensurate with, reductions in the salaries of all or substantially all senior officers of Umpqua; or 2 --------------------------------------------------------------------------------                         (b) A requirement for Officer to relocate to a facility or location more than 30 miles from the location where Officer is currently employed.                 7.3 Disability. For purposes of this Agreement, "Disability" shall mean that (i) Officer has been unable to perform Officer's duties under this Agreement as a result of Officer's incapacity due to physical or mental illness for at least 90 consecutive calendar days or 150 calendar days during any consecutive 12 month period and (ii) a physician selected by Umpqua and its insurers and acceptable to Officer or Officer's legal representative (with such agreement on acceptability of the physician not to be unreasonably withheld), determines the incapacity to be (a) total and permanent and (b) prohibiting of Officer's ability to perform the essential functions of Officer's position with or without reasonable accommodation.                 7.4 Change in Control. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred when any of the following events take place:                         (a) Any person (including any individual or entity), or persons acting in concert, become(s) the beneficial owner of voting shares representing fifty percent (50%) or more of Umpqua;                         (b) A majority of the Board is removed from office by a vote of the Umpqua's shareholders over the recommendation of the Board then serving; or                         (c) Umpqua is a party to a plan of merger or plan of exchange and upon consummation of such plan, the shareholders of Umpqua immediately prior to the transaction do not own or continue to own (i) at least forty percent (40%) of the shares of the surviving company (if the then current CEO of Umpqua continues as CEO of the surviving organization), or (ii) at least a majority of the shares of the surviving organization (if the then current CEO of Umpqua does not continue as CEO of the surviving organization).         8. PAYMENT UPON TERMINATION. Upon termination of Officer's employment for any of the reasons set forth in Section 6 above, Officer will receive payment for all Base Salary and benefits accrued as of the date of Officer's termination ("Earned Compensation"), which shall be paid by the end of the business day following termination or sooner if required by applicable law.         9. SEVERANCE BENEFIT. In the event of Termination Without Cause or Termination for Good Reason, in addition to receiving Earned Compensation, Officer will receive a severance benefit equal to the greater of (i) nine (9) months Base Salary, based on Officer's Base Salary just prior to termination or (ii) two weeks salary for every year of employment with Umpqua (the "Severance Benefit"). Subject to Section 12.3 below, the Severance Benefit shall be paid in equal installments over the number of months of continued Base Salary, starting on the next regular payday following termination. Receipt of the Severance Benefit is conditioned on Officer having executed the Separation Agreement in substantially the form attached hereto as Exhibit A and the revocation period having expired without Officer having revoked the Separation Agreement. Receipt and continued receipt of the Severance Benefit is further conditioned on Officer not being in violation of any material term of this Agreement or in violation of any material term of the Separation Agreement. Officer shall not be required to mitigate the amount of any payments under this Section (whether by seeking new employment or otherwise) and no such payment shall be reduced by earnings that Officer may receive from any other source.         10. CHANGE IN CONTROL BENEFIT. After announcement of a proposed Change in Control and for a period continuing for one year following a Change in Control, in the event of Termination Without Cause, Termination For Good Reason, or Resignation within 30 days after reassignment to a position that is not substantially equivalent, instead of receiving the Severance Benefit set forth in Section 9 above, Officer shall receive 36 months Base Salary, based on Officer's Base Salary just prior to the termination of employment, as well as 300% of the incentive compensation Officer received for services performed in the previous year (the aforementioned Base Salary and incentive are collectively referred to 3 -------------------------------------------------------------------------------- as the "Change in Control Benefit"). Subject to Section 12.3 below, the Change in Control Benefit shall be paid in equal installments over 36 months, starting on the next regular payday following termination. Receipt of the Change in Control Benefit is conditioned on Officer having executed the Separation Agreement in substantially the form attached hereto as Exhibit A and the revocation period having expired without Officer having revoked the Separation Agreement. Receipt and continued receipt of the Change in Control Benefit is further conditioned on Officer not being in violation of any material term of this Agreement or in violation of any material term of the Separation Agreement. Officer shall not be required to mitigate the amount of any payments under this Section (whether by seeking new employment or otherwise) and no such payment shall be reduced by earnings that Officer may receive from any other source.         11. CHANGE IN CONTROL RETENTION INCENTIVE. If Officer remains employed for 12 months following a Change in Control, Officer will receive twelve (12) months Base Salary and 100% of the incentive compensation Officer received for services performed in the previous year (the aforementioned Base Salary and incentive are collectively referred to as the "Retention Incentive"). The Retention Incentive shall be paid in equal installments over twelve (12) months, starting on the next regular payday following the first anniversary of the Change in Control. Receipt of the Retention Incentive is conditioned on Officer not being in violation of any material term of this Agreement. If Officer receives a benefit under this Section 11, such benefit shall cease when Officer begins to receive any benefit under Section 10.         12. LIMITATION ON BENEFITS.                         12.1 IRC 280G Adjustment. If the benefit payments under this Agreement, either alone or together with other payments to which the Officer is entitled to receive from Umpqua, would constitute an "excess parachute payment" as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), such benefit payments shall be reduced to the largest amount that will result in no portion of benefit payments under this Agreement being subject to the excise tax imposed by Section 4999 of the Code. The determination of any reduction in the benefit payments pursuant to the foregoing provisions, shall be made by mutual agreement of Umpqua and Officer or if no agreement is possible, by the Umpqua's accountants.                         12.2 Limitation on Severance or Change in Control Benefit. Notwithstanding any other provision in this Agreement, Umpqua shall make no payment of any benefit provided for herein to the extent that such payment would be prohibited by the provisions of Part 359 of the regulations of the Federal Deposit Insurance Corporation (the "FDIC") as the same may be amended from time to time, and if such payment is so prohibited, the Umpqua shall use its best efforts to secure the consent of the FDIC or other applicable banking agencies to make such payments in the highest amount permissible, up to the amount provided for in this Agreement.                         12.3 IRC 409A. To the extent the Severance Benefit or Change in Control Benefit is subject to Section 409A of the Code and Executive is deemed to be a "specified employee" within the meaning of Section 409A(a)(2)(B)(i) of the Code, commencement of payment of the Severance Benefit shall be delayed for six (6) months following Executive's termination of employment and the first installment payment made in the seventh month following termination of employment shall equal the aggregate installment payments Executive would have received during the first six months of the Installment Period (the "Aggregate Payments"), plus the payment Executive is otherwise entitled to receive for the seventh month of the Installment Period. If Umpqua or Officer believe, at any time, that this Agreement does not comply with Section 409A, it will promptly advise the other party and will negotiate reasonably and in good faith to amend the terms of the Agreement, with the most limited possible economic effect on Umpqua and Officer, such that it complies.         4 --------------------------------------------------------------------------------         13. EXECUTIVE SEVERANCE PLAN                 13.1 In General. Those provisions of this Agreement (including this Section) related to the Severance Benefit set forth in Section 9 and Change in Control Benefit set forth in Section 10 constitute part of the terms of the Umpqua Holdings Corporation Executive Severance Plan (the "Executive Severance Plan") with respect to the Officer, and such terms and the general terms of the Executive Severance Plan established by Umpqua shall comprise the entirety of the Executive Severance Plan as it applies to the Officer. Umpqua intends for the Plan to be considered a welfare benefit plan within the meaning of Section 3(1) of the Employee Retirement Income Security Act ("ERISA"), and a plan which is unfunded and maintained by the Umpqua solely for the purpose of providing benefits for a select group of management or highly compensated employees within the meaning of ERISA Regulation Section 2520.104 -24. A copy of the Executive Severance Plan will be furnished to the Officer upon request.                 13.2 Administration of Executive Severance Plan. Umpqua's Chief Executive Officer and Human Resources Director are each plan administrators (the "Plan Administrator") of the Executive Severance Plan and the Plan Administrator shall have the discretionary authority to administer and construe the terms of the Executive Severance Plan, including the authority to decide if Officer is entitled to the Severance Benefit, Change in Control Benefit, or Retention Incentive and the authority to determine if there is Termination For Cause or Termination For Good Reason.                 13.3 Claims Procedures. The Officer may file a claim for a payment under the Executive Severance Plan by filing a written request for such a payment with the Plan Administrator. If the Plan Administrator prescribes a form for such a claim, the claim must be filed on such form. The claim should be sent to the attention of the Plan Administrator of the Executive Severance Plan at the address set forth for Umpqua in Section 20.                 If the Plan Administrator denies the claim, in whole or in part, the Plan Administrator shall notify the Officer within 90 days of the Plan Administrator's receipt of the claim, unless the Plan Administrator determines that special circumstances require an extension of time for processing the claim. If the Plan Administrator determines that an extension of time is required, written notice of the extension shall be furnished to Officer prior to the termination of the initial 90-day period. Such extension notice shall indicate the special circumstances and the date by which the Plan Administrator expects to issue a determination with respect to the claim. The period of the extension will not exceed 90 days beyond the termination of the original 90-day period. If the Plan Administrator does not provide written notice, Officer may deem the claim denied and seek review according to the appeals procedures set forth below.                 The notice of denial of Officer's claim shall state:                         a.      the specific reasons for the denial;                         b.      specific references to pertinent provisions of the Executive Severance Plan on which the denial was based;                         c.      a description of any additional material or information needed for Officer to perfect his or her claim and an explanation of why the material or information is needed; and                         d.      a statement (1) that Officer may request a review upon written application to the Plan Administrator, review or receive (free of charge) pertinent Plan documents and records, and submit issues and comments in writing, (2) that any appeal that Officer wishes to make of the adverse determination must be in writing to the Plan Administrator within sixty (60) days after the Officer receives notice of denial of benefits, and (3) that Officer may bring a civil action under ERISA Section 502(a) following an adverse benefit determination upon review. 5 --------------------------------------------------------------------------------                 The notice of denial of benefits shall specify that Officer must forward any appeal to the Plan Administrator at the address provided in such notice. The notice may state that failure to appeal the action to the Plan Administrator in writing within the sixty (60) day period will render the determination final, binding and conclusive.                 If Officer appeals to the Plan Administrator, Officer may submit in writing whatever issues and comments he or she believes to be pertinent. The Plan Administrator shall reexamine all facts related to the appeal and make a final determination about whether the denial of benefits is justified under the circumstances. The Plan Administrator shall advise Officer in writing of:                         a.      its decision on appeal;                         b.      the specific reasons for the decision;                         c.      the specific provisions of the Plan on which the decision is based; and                         d.      Officer's right to receive, upon request and free of charge, reasonable access to and copies of, all relevant documents and records.                 Notice of the Plan Administrator's decision shall be given within sixty (60) days of Officer's written request for review, unless additional time is required due to special circumstances. In no event shall the Plan Administrator render a decision on an appeal later than one hundred twenty (120) days after receiving a request for a review. If the Plan Administrator fails to provide a decision with respect to Officer's appeal within the 60 (or, if applicable, 120) day period Officer may deem his or her appeal denied and may pursue the arbitration remedy set forth below.                 In the event that Officer fails to pursue his or her administrative remedies as set forth above within the specified periods, he shall have no further right to the benefits subject to his or her claim and agrees by executing this Agreement that he or she shall have no right to pursue such claim in arbitration or in a court of law.                 For purposes of this Claims Procedure under the Executive Severance Plan, Officer may act through a representative authorized in writing to act on his behalf, provided that such authorization is furnished to the Plan Administrator.                 In the event that Umpqua denies the Officer's appeal of the denial of his or her claim, in whole or in part, Umpqua and Officer's may agree to submit the Plan Administrator's decision to binding arbitration in lieu of Officer's right to pursue his claim in any court of law.         14.      NONCOMPETITION                 14.1 Competition Restriction. During Officer's employment and for the period of time in which Officer is entitled to payment of a Severance Benefit, Change in Control Benefit, or Retention Incentive, Officer shall not engage in any activity as an officer, director, owner (except for an ownership of less than three percent (3%) of any publicly traded security), employee, consultant, or otherwise of a financial services company with an office or doing business within 50 miles of any office or branch of Umpqua or of any of its subsidiaries in existence at the time of termination of Officer's employment.                 14.2 Consequence of Breach. If Officer breaches this covenant not to compete, Umpqua's sole remedy is that Officer shall forfeit any remaining payments under the Severance Benefit, Change in Control Benefit, or Retention Incentive, to which Officer is entitled under this Agreement.                 14.3 Subsequent Employer Notification. Officer agrees to give Umpqua, at the time of termination of employment, a declaration under penalty of perjury of the name of Officer's new employer, if known, or if not known, that subsequent employer is not known. Officer further agrees to disclose to 6 -------------------------------------------------------------------------------- Umpqua, during the period of payment of any benefit under this Agreement, the name of any subsequent employer, wherever located and regardless of whether such employer is a competitor of Umpqua.         15. NON-SOLICITATION. For a period of two (2) years following termination of employment (the "Restriction Period"), Officer shall not solicit any customer of Umpqua or of any of its subsidiaries for services or products then provided by Umpqua or any of its subsidiaries. For purposes of this Section, "customers" are defined as (a) all customers serviced by Umpqua or any of Umpqua's subsidiaries at any time within 12 months before termination of Officer's employment, (b) all customers and potential customers whom Umpqua or any of Umpqua's subsidiaries, with the knowledge or participation of Officer, actively solicited at any time within 12 months before termination of Officer's employment, and (c) all successors, owners, directors, partners and management personnel of the customers just described in (a) and (b).         16. NONRAIDING OF EMPLOYEES. Officer recognizes that Umpqua's workforce is a vital part of its business; therefore, Officer agrees that for the Restriction Period, Officer will not to directly or indirectly solicit any employee to leave his or her employment with Umpqua or any of Umpqua's subsidiaries. This includes that Officer will not (a) disclose to any third party the names, backgrounds or qualifications of any Umpqua or any of Umpqua subsidiary's employees or otherwise identify them as potential candidates for employment, or (b) personally or through any other person approach, recruit, interview or otherwise solicit employees of Umpqua or any of Umpqua's subsidiaries to work for any other employer. For purposes of this Section, employees include all employees working for Umpqua or any of Umpqua's subsidiaries at the time of termination of Officer's employment.         17. CONFIDENTIAL INFORMATION. The parties acknowledge that in the course of Officer's duties, Officer will have access to and become familiar with certain proprietary and confidential information of Umpqua and its subsidiaries not known by its actual or potential competitors. Officer acknowledges that such information constitutes valuable, special, and unique assets of Umpqua's business, even though such information may not be of a technical nature and may not be protected under trade secret or related laws. Officer agrees to hold in a fiduciary capacity and not use for Officer's benefit, nor reveal, communicate, or divulge during the period of Officer's employment with Umpqua or at any time thereafter, and in any manner whatsoever, any such data and confidential information of any kind, nature, or description concerning any matters affecting or relating to Umpqua's business, its customers, or its services, including information developed by Officer, alone or with others, or entrusted to Umpqua by its customers or others, to any person, firm, entity, or company other than Umpqua or persons, firms, entities, or companies designated by Umpqua. Officer agrees that all memoranda, notes, records, papers, customer files, and other documents, and all copies thereof relating to Umpqua's operations or business, or matters related to any of Umpqua's customers, some of which may be prepared by Officer, and all objects associated therewith in any way obtained by Officer, shall be Umpqua's property ("Umpqua Property"). Upon termination or at Umpqua's request, Officer shall promptly return all the Umpqua Property to Umpqua.         18. REASONABLENESS OF RESTRICTION PERIOD; EQUITABLE RELIEF. Officer acknowledges and agrees that the restrictive covenants in Sections 14, 15, 16, and 17 are fair and reasonable and are the result of negotiation between Umpqua and Officer (and Officer's counsel, if Officer has sought the benefit of counsel). Officer further acknowledges and agrees that the covenants and obligations in this Agreement relate to special, unique, and extraordinary matters and that a violation of any of the terms of the covenants and obligations will cause irreparable injury to Umpqua, for which adequate remedies are not available at law. Therefore, Officer agrees that Umpqua shall be entitled to an injunction, restraining order, or such other equitable relief as a court of competent jurisdiction may deem necessary or appropriate to restrain the Officer from committing any violation of the covenants and obligations set forth in Sections 14.3, 15, 16 and 17 of this Agreement. These injunctive remedies are cumulative and are in addition to any other rights and remedies Umpqua may have at law or in equity. If Umpqua institutes an action to enforce the provisions hereof, Officer hereby waives the claim or defense 7 -------------------------------------------------------------------------------- that an adequate remedy at law is available, and Officer agrees not to urge in any such action the claim or defense that an adequate remedy at law exists.         19.    DISPUTE RESOLUTION.                 19.1 Arbitration. Except where such matters are deemed governed by ERISA and are the subject to Section 13 above, the parties agree to submit any dispute arising under this Agreement to final, binding, private arbitration in Portland, Oregon. The disputes subject to arbitration include not only disputes involving the meaning or performance of the Agreement, but disputes about its negotiation, drafting, or execution. The dispute will be determined by a single arbitrator and governed by then-existing rules of arbitration procedure in Multnomah County Circuit Court except as set forth herein. Instead of filing of a civil complaint in Multnomah County Circuit Court, a party will commence the arbitration process by noticing the other party. The parties will choose an arbitrator who specializes in employment conflicts from the arbitration list for Multnomah County Circuit Court. If the parties are unable to agree on an arbitrator within ten (10) days of receipt of the list of arbitrators, each party will select one attorney from the list, and those two attorneys shall select the arbitrator from the list (with each of the two selecting attorneys then concluding their services and each being compensated by the party selecting each attorney, subject to recovery of such fees under Section 19.2) . The arbitrator may charge his or her standard arbitration fees rather than the fees prescribed in the Multnomah County Circuit Court arbitration procedures. The arbitrator will have full authority to determine all issues, including arbitrability, to award any remedy, including permanent injunctive relief, and to determine any request for attorneys' fees, costs and expenses in accordance with Section 19.2. There shall be no right of review in court. The arbitrator's award may be reduced to final judgment or decree in Multnomah County Circuit Court.                 19.2 Expenses/Attorneys' Fees. The prevailing party shall be awarded all costs and expenses of the proceeding, including, but not limited to, attorneys' fees, filing and service fees, witness fees, and arbitrators' fees. If arbitration is commenced, the arbitrator will have full authority and complete discretion to determine the "prevailing party" and the amount of costs and expenses to be awarded.                 19.3 Injunctive Relief. Notwithstanding any other provision of this Agreement, an aggrieved party may seek a temporary restraining order or preliminary injunction in Multnomah County Circuit Court to preserve the status quo during the arbitration proceeding, provided however, that the party seeking relief agrees that ultimate resolution of the dispute will still be determined through arbitration and not through court process. The filing of the court action for injunctive relief shall not hinder or delay the arbitration process.                 20. NOTICES. All notices, requests, demands, and other communications provided for by this Agreement will be in writing and shall be deemed sufficient upon receipt, when delivered personally or by a nationally-recognized delivery service (such as Federal Express), or three (3) business days after being deposited in the U.S. mail as certified mail, return receipt requested, with postage prepaid, if such notice is properly addressed. Unless otherwise changed in writing, notice shall be properly addressed to Officer if addressed to the address of Officer on Umpqua's books and records at the time of mailing of such notice, and properly addressed to Umpqua if addressed to Umpqua Holdings Corporation, One SW Columbia, Suite 1200, Portland, Oregon 97258, Attention: Chief Executive Officer.         21.    BENEFICIARIES.                 21.1 Beneficiary Designations. The Officer shall designate a beneficiary by filing a written designation with Umpqua. The Officer may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Officer and received by Umpqua during the Officer's lifetime. The Officer's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Officer or if the Officer names a spouse as beneficiary and the marriage is subsequently dissolved. If the Officer dies without a valid beneficiary designation, all payments shall be made to the Officer's estate. 8 --------------------------------------------------------------------------------                 21.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, Umpqua may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. Umpqua may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge Umpqua from all liability with respect to such benefit.         22    GENERAL PROVISIONS.                 22.1 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by federal ERISA, as it relates to the Severance Benefit and Change in Control Benefit as discussed in Section 13 above, and otherwise by the laws of the State of Oregon.                 22.2 Saving Provision. If any part of this Agreement is held to be unenforceable, it shall not affect any other part. If any part of this Agreement is held to be unenforceable as written, it shall be enforced to the maximum extent allowed by applicable law.                 22.3 Survival Provision. If any benefits provided in Sections 9, 10, or 11 of this Agreement are still owed, or claims pursuant to Section 13 are still pending, at the time of termination of this Agreement, this Agreement shall continue in force, with respect to those obligations or claims, until such benefits are paid in full or claims are resolved in full. The noncompetition, nonsolicitation, non-raiding, confidential information, and dispute resolution provisions of this Agreement shall survive after termination of this Agreement, and shall be enforceable regardless of any claim Officer may have against Umpqua.                 22.4 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.                 22.5 Entire Agreement. This Agreement constitutes the sole agreement of the parties regarding Officer's benefits in the event of termination or Change in Control and together with Umpqua's employee handbook governs the terms of Officer's employment. Where there is a conflict between the employee handbook and this Agreement, the terms of this Agreement shall govern.                 22.6 Previous Agreements. This Agreement supersedes all prior oral and written agreements between the Officer and Umpqua, or any affiliates or representatives of Umpqua regarding the subject matters set forth herein.                 22.7 Waiver/Amendment. No waiver of any provision of this Agreement shall be valid unless in writing, signed by the party against whom the waiver is sought to be enforced. The waiver of any breach of this Agreement or failure to enforce any provision of this Agreement shall not waive any later breach. This Agreement may only be amended by a writing signed by the parties.                 22.8 Assignment. Officer shall not assign or transfer any of Officer's rights pursuant to this Agreement, wholly or partially, to any other person or to delegate the performance of its duties under the terms of this Agreement. The rights and obligations of Umpqua 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 Umpqua, regardless of the manner in which the successors or assigns succeed to the interests or assets of Umpqua. This Agreement shall not be terminated by the voluntary or involuntary dissolution of Umpqua, by any merger, consolidation or acquisition where Umpqua is not the surviving corporation, by any transfer of all or substantially all of Umpqua's assets, or by any other change in Umpqua's structure or the manner in which Umpqua's business or assets are held. Officer's employment shall not be deemed terminated upon the occurrence of one of the foregoing events. In the event of any merger, consolidation or transfer of assets, this Agreement shall be binding upon and shall inure to the benefit of the surviving corporation or the corporation to which the assets are transferred.                 23. ADVICE OF COUNSEL. Officer acknowledges that, in executing this Agreement, Officer has had the opportunity to seek the advice of independent legal counsel, and has read and 9 -------------------------------------------------------------------------------- understood all of the terms and provisions of this Agreement. This Agreement shall not be construed against any party by reason of the drafting or preparation hereof.     UMPQUA HOLDINGS CORPORATION                                      By:  /s/ Raymond P. Davis                        Raymond P. Davis, Chief Executive Officer                    OFFICER               /s/ Brad F. Copeland                         Brad F. Copeland 10 -------------------------------------------------------------------------------- Exhibit A EMPLOYMENT SEPARATION AGREEMENT AND RELEASE OF CLAIMS         This is a confidential agreement (this "Separation Agreement") between you, _______________, and us, Umpqua Holdings Corporation. This Separation Agreement is dated for reference purposes _____________, 20___, which is the date we delivered this Separation Agreement to you for your consideration. For purposes of this Separation Agreement Umpqua Holdings Corporation together with each of its subsidiaries or affiliates is referred to as "Umpqua."         1. Termination of Employment. Your employment terminates [or was terminated] on _______________, 20___ (the "Separation Date").         2. Payments. In exchange for your agreeing to the release of claims and other terms in this Separation Agreement, we will pay you the Severance Benefit specified in Section 9 or the Change in Control Benefit specified in Section 10, as appropriate, of the Agreement between you and Umpqua dated __________________(the "Employment Agreement") on the dates provided therein (or on such other date or dates as may be mutually agreed upon by you and Umpqua or our successor). Such provisions of the Employment Agreement are incorporated herein by reference. You acknowledge that we are not obligated to make these payments to you unless you comply with the noncompetition provision in Section 14 of the Employment Agreement, which is incorporated herein by reference and otherwise comply with the material terms of the Employment Agreement and of this Separation Agreement.         3. COBRA Continuation Coverage. Your normal employee participation in Umpqua's group health coverage will terminate on the Separation Date. Continuation of group health coverage thereafter will be made available to you and your dependents pursuant to federal law (COBRA). Continuation of group health coverage after the Separation Date is entirely at your expense, as provided under COBRA.         4. Termination of Benefits. Except as provided in Section 3 above, your participation in all employee benefit plans and programs ended on the Separation Date. Your rights under any pension benefit or other plans in which you may have participated will be determined in accordance with the written plan documents governing those plans.         5. Full Payment. You acknowledge having received full payment of all compensation of any kind (including wages, salary, vacation, sick leave, commissions, bonuses and incentive compensation) that you earned as a result of your employment by us.         6. No Further Compensation. Any and all agreements to pay you bonuses or other incentive compensation are terminated. You understand and agree that you have no right to receive any further payments for bonuses or other incentive compensation. We owe no further compensation or benefits of any kind, except as described in Section 2 above.         7. Release of Claims.                 (a) You hereby release (i) Umpqua and its subsidiaries, affiliates, and benefit plans, (ii) each of Umpqua's past and present shareholders, officers, directors, agents, employees, representatives, administrators, fiduciaries and attorneys, and (iii) the predecessors, successors, transferees and assigns of each of the persons and entities described in this sentence, from any and all claims of any kind, known or unknown, that arose on or before the date you signed this Separation Agreement.                 (b) The claims you are releasing include, without limitation, claims of wrongful termination, claims of constructive discharge, claims arising out of employment agreements, representations or policies related to your employment, claims arising under federal, state or local laws or ordinances prohibiting discrimination or harassment or requiring accommodation on the basis of age, race, color, national origin, religion, sex, disability, marital status, sexual orientation or any other status, claims of failure to accommodate a disability or religious practice, claims for violation of public policy, claims of retaliation, claims of failure to assist you in applying for future position openings, claims of failure to hire you for future position openings, claims for wages or compensation of any kind (including overtime claims), claims of tortious interference with contract or expectancy, claims of fraud or negligent misrepresentation, claims of breach of privacy, defamation claims, claims of intentional or negligent infliction of emotional distress, claims of unfair labor practices, claims arising out of any claimed right to stock or stock options, claims for attorneys' fees or costs, 11 -------------------------------------------------------------------------------- and any other claims that are based on any legal obligations that arise out of or are related to your employment relationship with us.                 (c) You specifically waive any rights or claims that you may have under the Oregon Civil Rights and Unlawful Employment Practices Statutes (ORS Chapter 659), the Oregon Wage and Hour Laws (ORS Chapter 652), the Civil Rights Act of 1964 (including Title VII of that Act), the Equal Pay Act of 1963, the Age Discrimination in Employment Act of 1967 (ADEA), the Americans with Disabilities Act of 1990 (ADA), the Fair Labor Standards Act of 1938 (FLSA), the Family and Medical Leave Act of 1993 (FMLA), the Worker Adjustment and Retraining Notification Act (WARN), the Employee Retirement Income Security Act of 1974 (ERISA), the National Labor Relations Act (NLRA), and all similar federal, state and local laws.                 (d) You agree not to seek any personal recovery (of money damages, injunctive relief or otherwise) for the claims you are releasing in this Separation Agreement, either through any complaint to any governmental agency or otherwise. You agree never to start any lawsuit or arbitration asserting any of the claims you are releasing in this Separation Agreement. You represent and warrant that you have not initiated any complaint, charge, lawsuit or arbitration involving any of the claims you are releasing in this Separation Agreement. Should you apply for future employment with Umpqua, Umpqua has no obligation to consider you for future employment.                 (e) You represent and warrant that you have all necessary authority to enter into this Separation Agreement (including, if you are married, on behalf of your marital community) and that you have not transferred any interest in any claims to your spouse or to any third party.                 (f) This Separation Agreement does not affect your rights, if any, to receive pension plan benefits, medical plan benefits, unemployment compensation benefits or workers' compensation benefits. This Separation Agreement also does not affect your rights, if any, under agreements, bylaw provisions, insurance or otherwise, to be indemnified, defended or held harmless in connection with claims that may be asserted against you by third parties.                 (g) You understand that you are releasing potentially unknown claims, and that you have limited knowledge with respect to some of the claims being released. You acknowledge that there is a risk that, after signing this Separation Agreement, you may learn information that might have affected your decision to enter into this Separation Agreement. You assume this risk and all other risks of any mistake in entering into this Separation Agreement. You agree that this release is fairly and knowingly made.                 (h) You are giving up all rights and claims of any kind, known or unknown, except for the rights specifically given to you in this Separation Agreement.         8. No Admission of Liability. Neither this Separation Agreement nor the payments made under this Separation Agreement are an admission of liability or wrongdoing by Umpqua.         9. Umpqua Materials. You represent and warrant that you have, or no later than the Separation Date will have, returned all keys, credit cards, documents and other materials that belong to us, including but not limited to the Umpqua Property, as defined in Section 17 of the Employment Agreement, which definition is incorporated herein by reference.         10. Nondisclosure Agreement. You will comply with the covenant regarding confidential information in Section 17 of the Employment Agreement, which covenant is incorporated herein by reference.         11. No Disparagement. You may not disparage Umpqua or Umpqua's business or products, and may not encourage any third parties to sue Umpqua.         12. Cooperation Regarding Other Claims. If any claim is asserted by or against Umpqua as to which you have relevant knowledge, you will reasonably cooperate with us in the prosecution or defense of that claim, including by providing truthful information and testimony as reasonably requested by us.         13. Noncompetition; Nonsolicitation; No interference. During the Restriction Period, as defined in Section 15 of the Employment Agreement, you will comply with Sections 14, 15, and 16 of the Employment Agreement, incorporated herein by reference and Umpqua will have the right to enforce those provisions under the terms of Section 18 of the Employment Agreement, incorporated herein by 12 -------------------------------------------------------------------------------- reference. After the Restriction Period, you will not, apart from good faith competition, interfere with Umpqua's relationships with customers, employees, vendors, or others.         14. Independent Legal Counsel. You are advised and encouraged to consult with an attorney before signing this Separation Agreement. You acknowledge that you have had an adequate opportunity to do so.         15. Consideration Period. You have 21 days from the date this Separation Agreement is given to you to consider this Separation Agreement before signing it. You may use as much or as little of this 21-day period as you wish before signing. If you do not sign and return this Separation Agreement within this 21-day period, you will not be eligible to receive the benefits described in this Separation Agreement.         16. Revocation Period and Effective Date. You have 7 calendar days after signing this Separation Agreement to revoke it. To revoke this Separation Agreement after signing it, you must deliver a written notice of revocation to Umpqua's Chief Executive Officer before the 7-day period expires. This Separation Agreement shall not become effective until the 8th calendar day after you sign it. If you revoke this Separation Agreement it will not become effective or enforceable and you will not be entitled to the benefits described in this Separation Agreement.         17. Governing Law. This Separation Agreement is governed by the laws of the State of Oregon that apply to contracts executed and to be performed entirely within the State of Oregon.         18. Dispute Resolution.                 (a) Except where such matters are deemed governed by ERISA or are the subject to Section 7 above, the parties agree to submit any dispute arising under this Separation Agreement to final, binding, private arbitration in Portland, Oregon. The disputes subject to arbitration include not only disputes involving the meaning or performance of the Separation Agreement, but disputes about its negotiation, drafting, or execution. The dispute will be determined by a single arbitrator and governed by the then-existing rules of arbitration procedure in Multnomah County Circuit Court except as set forth herein. Instead of filing of a civil complaint in Multnomah County Circuit Court, a party will commence the arbitration process by noticing the other party. The parties will choose an arbitrator who specializes in employment conflicts from the arbitration list for Multnomah County Circuit Court. If the parties are unable to agree on an arbitrator within ten (10) days of receipt of the list of arbitrators, each party will select one attorney from the list, and those two attorneys shall select the arbitrator from the list (with each of the two selecting attorneys then concluding their services and each being compensated by the party selecting each attorney, subject to recovery of such fees under subsection (b) of this Section). The arbitrator may charge his or her standard arbitration fees rather than the fees prescribed in the Multnomah County Circuit Court arbitration procedures. The arbitrator will have full authority to determine all issues, including arbitrability, to award any remedy, including permanent injunctive relief, and to determine any request for attorneys' fees, costs and expenses in accordance with subsection (b) of this Section. There shall be no right of review in court. The arbitrator's award may be reduced to final judgment or decree in Multnomah County Circuit Court.                 (b) The prevailing party shall be awarded all costs and expenses of the proceeding, including, but not limited to, attorneys' fees, filing and service fees, witness fees, and arbitrators' fees. If arbitration is commenced, the arbitrator will have full authority and complete discretion to determine the "prevailing party" and the amount of costs and expenses to be awarded.                 (c) Notwithstanding any other provision of this Separation Agreement, an aggrieved party may seek a temporary restraining order or preliminary injunction in Multnomah County Circuit Court to preserve the status quo during the arbitration proceeding, provided however, that the party seeking relief agrees that ultimate resolution of the dispute will still be determined through arbitration and not through court process. The filing of the court action for injunctive relief shall not hinder or delay the arbitration process.         19. Saving Provision. If any part of this Separation Agreement is held to be unenforceable, it shall not affect any other part. If any part of this Separation Agreement is held to be unenforceable as written, it shall be enforced to the maximum extent allowed by applicable law. 13 --------------------------------------------------------------------------------         20. Final and Complete Agreement. Except for the Employment Agreement to the extent it is expressly incorporated herein by reference, this Separation Agreement is the final and complete expression of all agreements between us on all subjects and supersedes and replaces all prior discussions, representations, agreements, policies and practices. You acknowledge you are not signing this Separation Agreement relying on anything not set out herein. Umpqua Holdings Corporation By: ____________________________________ Title:___________________________________ I, the undersigned, having been advised to consult with an attorney, hereby agree to be bound by this Separation Agreement and confirm that I have read and understood each part of it. _________________________________________ _________________________________________ Date _____________________________________ 14 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

  EXHIBIT 10.2 CONSOLIDATED WATER CO. LTD. SUBSCRIPTION AGREEMENT US$15,771,997.16 COMPRISING Fixed Rate Bonds 2006 — 2016 DATE: TO: SCOTIATRUST AND MERCHANT BANK TRINIDAD AND TOBAGO LIMITED Dear Sirs, CONSOLIDATED WATER CO. LTD. (“the Company”) proposes to issue Bonds in the aggregate value of not more than US$15,771,997.16 (hereinafter referred to as the “Transaction”) comprising Fixed Rate Bonds 2006— 2016 (the “Bonds”). The Bonds except for one will be issued in registered transferable form in the denomination of US$10,000.00 or integral multiples thereof. The Bonds are to be constituted by a Trust Deed (the “Trust Deed”) between the Company of the one part and Dextra Bank & Trust Co. Ltd. (the “Trustee”) as trustee. The Company wishes to record the arrangements agreed between it and Scotiatrust and Merchant Bank Trinidad and Tobago Limited (“the Arranger”) for the subscription and issue of the Bonds. 1. SUBSCRIPTION OF BONDS   (A)   Subject as provided below, the Company agrees with the Arranger to issue the Bonds and the Arranger agrees to underwrite the issue of the Bonds to the full extent of US$15,771,997.16 at the Issue Price and to subscribe and pay for the Bonds at the Issue Price on the Closing Date provided however that the Arranger shall be at liberty to offer to investors its right to subscribe for the whole or any part of the Bonds and to be issued with Bonds therefor in manner described in paragraph 1(B) hereafter on the terms of this Subscription Agreement and the Trust Deed.     (B)   The Company hereby confirms that it has authorized and agreed for the Arranger:   (a)   on or after the Closing Date to transfer and assign the Bonds into a separate trust; and     (b)   to cause such separate trust to issue certificates of interest in the Bonds of varying terms to investors at market rates, which may   --------------------------------------------------------------------------------         result in a gain or a loss to the Arranger. Any loss resulting from the issue of such certificates will be borne, and any profit arising therefrom shall be retained by the Arranger. 2. ANNOUNCEMENTS AND AUTHORISATIONS The Company confirms that it has authorised the Arranger to arrange for announcements in connection with the issue of the Bonds to be circulated privately to investors (except to investors in jurisdictions where such circulation would violate any applicable law); and that it has authorised the issue by the Arranger on behalf of the Company of a document in a form approved by the Company containing an offer to subscribers in jurisdictions where such circulation would not violate any applicable law (the “Term Sheet”). 3. TRUST DEED The Company undertakes with the Arranger that the Bonds will be constituted by the Trust Deed to be made between the Company and the Trustee and to be substantially in the agreed form (subject to such amendments as may be agreed between the Company and the Trustee prior to execution thereof) and will be further secured in the manner described in Clause 7 of the Trust Deed. 4. REPRESENTATIONS AND WARRANTIES (A) As a condition of the agreement by the Arranger to subscribe and pay for or procure the subscription and payment for the Bonds and in consideration thereof, the Company hereby warrants to and agrees with the Arranger (for the benefit of themselves and the other subscribers of the Bonds and as agents for such subscribers) as follows:   (a)   that the information contained in the Term Sheet is true and accurate in all material respects and is not misleading that there are no other facts, the omission of which would make any of such information misleading and that the Company has made all reasonable enquiries to ascertain all facts material for the purposes aforesaid;     (b)   that the authorisation of the Bonds, the offering of the Bonds under the terms and conditions of this Subscription Agreement, the issue of the Bonds, the execution and delivery of this Subscription Agreement, the Trust Deed and the Paying Agency Agreement (the “Paying Agency Agreement”) all substantially in the agreed form and the compliance by the Company with the terms thereof and of the Bonds;   (i)   do not and will not contravene any law or statute; and     (ii)   do not, and on the Closing Date will not infringe the terms of, or constitute a default under any trust deed, agreement or other instrument or obligation to which the Company is a party or by which it or its property is bound.   (c)   that the execution and delivery by the Company of this Subscription Agreement, the Trust Deed and the Paying Agency Agreement, the execution, issue and delivery of the Bonds and the performance of the obligations to be assumed thereunder have been duly authorised so that upon due execution or in the case of the Trust Deed and Bonds, due execution and delivery, the same will constitute valid and legally binding obligations of the Company in accordance with their respective terms;     (d)   that the execution, delivery and performance by the Company of the Security Documents will not conflict, contravene or result in a breach or violation of (i) the Company’s constitutional documents (ii) any statute, order (including administrative or judicial orders), award, rule or regulation applicable to the Company (iii) any agreement trust deed, negative pledge or other arrangement to which the Company or its property is bound. 2 --------------------------------------------------------------------------------     (e)   that the Security Documents are in proper legal form and in accordance with the laws of the Cayman Islands.     (f)   that the selection by the Company to appoint the Arranger as subscriber of the Bonds and to pursue the Transaction is legal, valid and has been made by the Company in accordance with its applicable laws and regulations.     (g)   that the proceeds of the Transaction would be used by the Company for the purpose outlined in Recital C of the Trust Deed and such use of proceeds is legitimate and in accordance with applicable law and the Company’s Memorandum and Articles of Association.     (h)   that based on the information given to the Company by the Arranger, as an expert in the field in Trinidad and Tobago, as to the requirements of the law in that jurisdiction, all consents, approvals, authorisations or other orders of all governmental and regulatory authorities in Trinidad and Tobago and the Cayman Islands required for or in connection with the issue and offering of the Bonds and compliance with the terms of the Bonds, the Subscription Agreement, the Trust Deed and the Paying Agency Agreement have been obtained and are in force and effect and that the Company has complied with all legal and other requirements necessary to ensure that upon due execution issue and delivery in the manner aforesaid the Bonds will represent valid and legally binding obligations of the Company in accordance with their terms, that this Subscription Agreement, the Trust Deed and the Paying Agency Agreement will constitute valid and legally binding obligations of the Company in accordance with their respective terms and that due payment of the principal and interest in respect of the Bonds and compliance with their terms and with the terms of this Subscription Agreement, the Trust Deed and the Paying Agency Agreement will not infringe the terms of any such consent, approval, authorisation or order.     (i)   that the Company shall refrain from launching any loan or other capital raising exercise in the international syndicated loan or capital markets before the signing of the Security Documents without first having obtained the written consent of the Arranger.     (j)   that all information that has been or will hereafter be made available to the Arranger in relation to the Transaction will be to the best of the Company’s knowledge complete and correct in all material respects and does not and will not to the best of the Company’s knowledge contain any untrue statement of a material fact or omit to state a material fact or omit to state a material fact necessary in order to make a statement (or the information) contained therein not misleading in light of the circumstances under which such statement was made (or such information was given).     (k)   that the representations and warranties contained in the Trust Deed are true and correct in all material respects.     (l)   that it has sought and received all necessary independent advice including but not limited to legal, accounting and tax advice in relation to the issue of the Bonds and that the Company fully understands the transaction and that the Company will derive a corporate benefit as a result of the issuance of the Bonds. (B) The Company undertakes with the Arranger that it will notify it of any material change affecting any of the aforesaid representations, warranties and agreements at any time prior to payment being made to the Company on the Closing Date and will take such steps as may be reasonably requested by the Arranger to remedy and/or 3 --------------------------------------------------------------------------------   publicise the same. Upon any material breach of any of the said warranties or representations, material failure to perform any of the said agreements or any change rendering any of the said warranties representations or agreements inaccurate in a material respect coming to the notice of the Arranger prior to payment being made to the Company on the Closing Date, the Arranger shall be entitled (but not bound) by notice to the Company to treat such breach, failure or change as releasing and discharging the Arranger from its obligations hereunder except to the extent that the Arranger shall have caused damage to the Company through failure to comply with its obligations under paragraph 9(A) below, and provided that such release or discharge shall be without prejudice to the liability of the Company for the payment of the expenses referred to in paragraph 6 below which are incurred prior to, or in connection with such release and discharge. (C) The agreement of the Arranger with the Company to procure subscribers for the Bonds is entered into on the basis of the aforesaid representations, warranties and agreements with the intention that the same shall remain true and accurate in all material respects up to and including the Closing Date and the Company undertakes with the Arranger (for the benefit of itself and the other subscribers for the Bonds and as agents for such subscribers) that it will hold the Arranger fully and effectually indemnified from and against any and all losses, liabilities, costs, claims, charges, actions, proceedings, damages, expenses or demands which it may incur or which may be made against it as a result of or arising out of, or in relation to any misrepresentation or alleged misrepresentation by the Company in connection with the issue of the Bonds or any breach or alleged breach of any of the warranties or agreements contained in sub-paragraph (A) and/or (B) above. Such indemnity shall extend to include all costs, charges and expenses which the Arranger may reasonably pay or incur in disputing or defending any claim or action or other proceedings in respect of which indemnity may be sought against the Company under this sub-paragraph (C). If any action, proceeding claim or demand shall be brought or asserted against the Arranger in respect of which indemnity may be sought from the Company as herein provided, the Arranger shall promptly notify the Company in writing, and the Company shall have the option to assume the defence thereof, including the employment of legal advisers approved by the Arranger (such approval not to be unreasonably withheld), and shall pay all expenses relating thereto. The Arranger shall have the right to employ its own legal adviser in any such action and defend or participate in the defence thereof but the fees and expenses of such legal adviser shall be borne by the Arranger, unless the employment thereof has been specifically authorised by the Company and/or the Company has failed to assume such defence and employ legal advisers for such purpose. The Company shall not be liable to indemnify the Arranger for any settlement of any such action, proceedings, claim or demand effected without the consent of the Company. (D) The Company will pay and hold harmless the Arranger against any documentary, stamp, issue or other tax or duty, without limitation including any interest and penalties on the creation, offering, allocation, issue or allotment of the Bonds in accordance with the terms of this Subscription Agreement and on the execution and delivery of the Trust Deed, the Paying Agency Agreement and this Subscription Agreement which are or may be required to be paid under the laws of the Cayman Islands, as well as any other territory in which the Bonds are offered for sale. (E) The rights and remedies conferred upon The Arranger by the aforesaid representations, warranties, agreements and indemnities shall continue in full force and effect notwithstanding any investigation by or on behalf of The Arranger or completion of the arrangements herein set out for the subscription and issue of the Bonds. 5. COMMISSION (A)   In consideration of the agreement by the Arranger to subscribe for Bonds or to procure subscribers for the Bonds in manner described in paragraph 1 hereof and to act as the agent of the Company in relation to the issue of Bonds pursuant to the arrangements referred to in sub-paragraph (b) of this paragraph, the Company shall pay to the Arranger a commission of zero 4 --------------------------------------------------------------------------------       point six percent (0.60%) of the aggregate principal amount of the Bonds in the amount of US$15,771,997.16 subscribed on the Closing Date in US Currency (the “Arrangement Fee”) which shall cover the underwriting fees of the Arranger. (B)   In addition to 5(A) above, the Company hereby confirms that it has authorized and agreed for the Arranger:   (a)   to subscribe for the Bonds;     (b)   on or after the Closing Dates to transfer and assign the Bonds into a separate trust; and     (c)   for its own account to issue or cause the trustee for such separate trust to issue transferable certificates of interest or participation in the bonds and/or in monies to be paid under the Bonds of varying terms to the Arranger and/or investors at market rates. Any loss resulting from the issue or transfer of such certificates shall be borne, and any profits arising therefrom shall be retained by the Arranger. (C)   The Company hereby confirms that it has authorised the Arranger to offer Bonds on behalf of the Company privately to potential subscribers. (D)   The Arranger shall be entitled to deduct the Underwriting Commission from the subscription money as provided in paragraph 7 below. 6. COSTS AND EXPENSES (A)   The Company agrees to bear and pay all costs and expenses of the legal and other advisers to the Arranger including all costs related to the subscription incurred in connection with the preparation and/or review, execution and printing of the Bonds, the Trust Deed, the Paying Agency Agreement and this Subscription Agreement (in preliminary and in final form) (collectively called the “Bond Documents”), along with any amendment, supplement, registration or modification to, or waiver under the Bond Documents and all other documents relating to the issue and subscription and sale of the Bonds and in connection with the initial delivery and distribution of the Bonds and the fees and disbursements, excluding stamp duty in Trinidad and Tobago. (B)   In addition to the commission costs, expenses and fees referred to in paragraph 5(A) above and in sub-paragraph (A) of this paragraph the Company agrees to reimburse to the Arranger all its reasonable expenses in connection with the issue and subscription and sale of the Bonds (including reasonable legal, advertising, telecopier, telephone, travelling and other out-of-pocket expenses). (C)   All costs and expenses referred to in this paragraph shall be payable notwithstanding that the Arranger is released or discharged pursuant to the terms of this Subscription Agreement and the Arranger shall be entitled to deduct such costs and expenses from the subscription money as provided in paragraph 7 below. (D)   The Arranger shall be entitled to deduct the said costs, expenses, fees and disbursements referred to in sub-paragraph (A) of this paragraph from the subscription monies as provided in paragraph 7 below. 7. CLOSING Payment of the net subscription money for the Bonds (namely the sum of US$15,771,997.16 less the Arrangement Fee costs and expenses referred to in paragraph 5 --------------------------------------------------------------------------------   6 above) shall be made by the Arranger to the Company in immediately available funds on the Closing Date. The Company undertakes to deliver to the Arranger the Bonds duly executed on its behalf not later than 14 days after the Closing Date. 8. CONDITIONS This Subscription Agreement and the respective obligations of the parties hereto are conditional upon: (A)   there not having been as at the Closing Date, any adverse changes or developments reasonably likely to involve a prospective adverse change in the market conditions (financial or otherwise) of Trinidad and Tobago, the Cayman Islands, or any other jurisdiction in which the Bonds are sold which is material in the context of the issue of the Bonds and there not having occurred any event rendering untrue or incorrect to an extent which is material as aforesaid any of the representations and warranties contained in sub-paragraph 4 (A) above as though the said representations and warranties had been given on the Closing Date; (B)   there having been as at the Closing Date no material adverse change in the financial circumstances of the Company or the prospects of the Company that could in the reasonable opinion of the Trustee affect the Company’s ability to meet it’s obligations under the Trust Deed or the Bonds; (C)   the execution of the Trust Deed and the Paying Agency Agreement on or prior to the Closing Date by or on behalf of all parties thereto; (D)   the delivery of legal opinions from the Company’s counsel in a form satisfactory to the Arranger; (E)   the undertaking of the Company not to engage in activities leading to a new capital markets issue before 28th August 2006, being ninety (90) days immediately following the mandate letter from the Company to the Arranger dated 29th May 2006; and if any of the foregoing conditions is not satisfied, this Subscription Agreement shall, except as specifically provided herein, thereupon terminate and (except for the liability of the Company for the payment of the costs and expenses mentioned in paragraph 6 above which were incurred prior to or are incurred in connection with such termination) the parties hereto shall be released and discharged from their respective obligations hereunder and provided that the Arranger may at its discretion waive compliance with any of the provisions of this paragraph. 9. UNDERTAKINGS AND WARRANTIES OF THE ARRANGER (A)   The Arranger undertakes that Bonds offered by it on behalf of the Company pursuant to the terms of this Subscription Agreement will be offered by it as the case may be on the terms as set forth in the Trust Deed. (B)   The Arranger further agrees to use all reasonable endeavours to ensure that the date of completion of the distribution of the Bonds is in accordance with this Agreement. (C)   The Arranger warrants that the Company is exempt from registration as a reporting issuer under the Securities Act as the Bonds will not be offered to the public. (D)   The Arranger warrants that the Bonds are exempt from registration under the Securities Act as the Bonds will not be offered to the public. (E)   The Arranger warrants that the distribution of the Bonds shall not be accompanied by an advertisement other than an announcement of its 6 --------------------------------------------------------------------------------       completion as prescribed by the Commission and no selling or promotional expenses shall be paid or incurred in connection with the distribution except for professional services or services performed by the Company. (F)   The Arranger warrants that pursuant to section 75(2) of the Securities Act, the Company is exempt from filing a prospectus or a block distribution circular with the Commission. 10. REPRESENTATIONS TO THIRD PARTIES The Company has not authorised any person to make any representations or supply any information in connection with the formal offering of the Bonds other than as contained in the Term Sheet. No other document has been prepared in connection with the offering of the Bonds and delivered to the Arranger or any other person by the Company and no other document has been approved in such connection by the Company. 11. CANCELLATION (A)   Notwithstanding anything herein contained, the Arranger may by notice to the Company terminate this Subscription Agreement at any time before payment for the Bonds is made to the Company on the Closing Date if in the opinion of the Arranger there shall have been such a change in national or international monetary, financial, political or economic conditions or exchange controls or currency exchange rate as would in its view be likely to prejudice materially the success of the proposed issue, distribution or sale of the Bonds (whether in the primary market or in respect of dealings in the secondary market) or there is a breach of any representation, warranty or covenant by the Company and upon such notice being given the parties hereto shall (except for the liability of the Company for the payment of the costs and expenses mentioned in paragraph 6 above and the indemnity provision mentioned in paragraph 12 below which were incurred prior to or in connection with such termination) be released and discharged from their respective obligations under this Subscription Agreement. (B)   The Arranger may terminate this Subscription Agreement at any time before payment for the Bonds is made to the Company if there is any material breach of the representations and warranties given under this Subscription Agreement. 12. INDEMNITY Whether or not the Security Documents are executed or the transaction contemplated hereby is consummated the Company shall indemnify and hold harmless the Arranger and each of its affiliates and each of its respective officers, directors, employees, agents, advisors and representatives (each, an “Indemnified Party”) from and against any and all claims, damages, losses, liabilities and expenses (including without limitation fees and disbursements of counsel), that may be incurred by or asserted or awarded against any Indemnified Party (including without limitation those incurred in connection with any pending or threatened investigation, litigation or proceeding or the preparation of any defence in connection therewith), in each case arising out of or in connection with or by reason of this Subscription Agreement or the issue or sale of the Bonds Save and Except to the extent such claim, damage, loss, liability or expense is found in a final, non appealable judgment by a court of competent jurisdiction to have resulted primarily from an Indemnified Party’s fraud, gross negligence or wilful misconduct. Such indemnity shall extend to include all costs, charges and expenses which the Indemnified Party may reasonably pay or incur on an attorney and own client basis in disputing or defending any claim or action or other proceedings in respect of which indemnity may be sought against the Company under this sub-paragraph 12. If any action, proceeding claim or demand 7 --------------------------------------------------------------------------------   shall be brought or asserted against the Indemnified Party in respect of which indemnity may be sought from the Company as herein provided, the Indemnified Party shall promptly notify the Company in writing, and the Company shall have the option to assume the defence thereof, including the employment of legal advisers approved by the Indemnified Party (such approval not to be unreasonably withheld), and shall pay all expenses relating thereto. The Indemnified Party shall have the right to employ its own legal adviser in any such action and defend or participate in the defence thereof but the fees and expenses of such legal adviser shall be borne by the Indemnified Party, unless the employment thereof has been specifically authorized by the Company and/or the Company has failed to assume such defence and employ legal advisers for such purpose. The Company shall not be liable to indemnify the Indemnified Party for any settlement of any such action proceeding, claim or demand effected without the consent of the Company. 13. UNDERTAKINGS BY THE COMPANY (A)   The Company undertakes with the Arranger and each of them agrees as follows:   (a)   Withholding. All payments to be made by the Company to the Arranger under this Agreement shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the Cayman Islands or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law. In the event of any such withholdings, the Company shall pay such additional amounts as will result in receipt by the Arranger of such amounts as would have been received by it had no such withholding or deduction been required, except that no such additional amounts shall be payable by the Arranger if the Arranger is liable for such taxes, duties, assessments or governmental charges by reason of it having had some connection with the relevant jurisdiction other than the entering into, performing its obligations under, taking of any action contemplated by or enforcing this Agreement and except that the Company shall not be obligated to pay such additional amounts to the extent they exceed the amounts that would have been withheld or deducted but for a delay or failure by the Arranger in filing or producing any form or document required to be filed or produced to avoid or reduce such amount.     (b)   Notification. The Company shall promptly notify the Arranger of any material adverse change which occurs prior to payment being made to the Company on the Closing Date and which may affect any of its representations, warranties, agreements and indemnities herein, and will promptly take such steps as may be reasonably requested by the Arranger to remedy and/or publicise the same. 14. NOTICES ALL notices hereunder shall be either delivered to the party or parties to which they are addressed by hand or shall be sent by facsimile. Any notice sent by facsimile shall be deemed to have been given, made or served at the time of dispatch. All notices shall be sent to the parties at their respective addresses as follows, or any other addresses in Trinidad and Tobago and the Cayman Islands as the case may be of which any of the foregoing shall have notified the others in writing in accordance with this Subscription Agreement;       The Company:   Consolidated Water Co. Ltd. P.O. Box 1114 GT Regatta Office Park Windward Three, 4th Floor West Bay Road 8 --------------------------------------------------------------------------------             Grand Cayman, Cayman Islands Attention: Mr. Frederick McTaggart- President & C.E.O. Facsimile: 345-949-2957       And a copy to:   Myers & Alberga, Attorneys-at-Law P.O. Box 472 GT Harbour Place 103 South Church Street Grand Cayman, Cayman Islands Attention: Bryan L. Ashenheim Esq. Facsimile No. 345-949-8171       The Arranger:   Scotiatrust and Merchant Bank Trinidad and Tobago Limited 56-58 Richmond Street Port of Spain Trinidad, W.I. Attention: Ms. Alicia Taylor- Assistant General Manager Facsimile:868-625-4405 15. DESCRIPTIVE HEADINGS The Descriptive Headings in this Subscription Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 16. GOVERNING LAW This Subscription Agreement shall be governed by and construed in accordance with the laws of the Cayman Islands, and the Cayman Islands’ courts will have non-exclusive jurisdiction in connection with any legal action, suit or proceeding arising out of or relating to this Subscription Agreement. 17. SOVEREIGN IMMUNITY The Company represents and warrants that it has no right to immunity, on the grounds of sovereignty or otherwise, from the execution of any judgment in the Cayman Islands or from the execution of enforcement in the Cayman Islands of any arbitral award (except, in each case, for the limitation on alienation of public property) in respect of any proceeding or any other matter arising out of or relating to its obligations contained in this Subscription Agreement. 18. REMEDIES AND WAIVERS No failure or delay by the Arranger in exercising any power, remedy, discretion, authority or other right under this Agreement shall waive or impair that or any other right of the Arranger. No single or partial exercise of any right shall preclude its additional or future exercise. No such waiver shall waive any other right under this Agreement. All waivers or consents given under this Agreement shall be in writing. 19. AMENDMENT Any amendment of any provision of this Agreement shall be in writing and signed by the parties. 20. 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 agreement. 9 --------------------------------------------------------------------------------   21. ENTIRE AGREEMENT This Subscription Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all other prior agreements and undertakings, both written and oral, between the parties with respect to the subject matter hereof. 22. SUCCESSORS Except as otherwise provided herein, this Subscription Agreement and all of the terms and provisions hereof shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, successors, trustees and legal representatives. 23. CHANGE IN CIRCUMSTANCES   23.01   If by reason of:   (a)   any change in applicable law, regulation or regulatory requirements of the Cayman Islands or Trinidad and Tobago, or the interpretation or application or administration thereof by a competent court, (including the imposition of Taxes on payments hereunder, other than Taxes on the overall net income of the Arranger); and/or     (b)   compliance with any changes in applicable and binding law, regulation, treaty, official directive or requirement (providing it has the force of law) of any central bank or any governmental, monetary or other authority of the Cayman Islands or Trinidad and Tobago with respect to solvency requirements, provision requirements, mandatory deposits, mandatory conversion or measures having similar effect including any type of liquidity or capital adequacy controls or other banking or monetary controls or requirements which affects the manner in which the Arranger allocates capital to its obligations under this Agreement:-   (i)   The Arranger incurs a cost as a result of its having entered into and/or performing any of its respective obligations under this Agreement; or     (ii)   The Arranger becomes liable to make any payment on or calculated by reference to any sum received or receivable by it hereunder; or     (iii)   The Arranger’s Return on Solvency is decreased (Return on Solvency means the Arranger’s fee and income on the Transaction divided by statutory capital requirements applicable to the Arranger for the transaction);       The Company shall from time to time on demand by the Arranger promptly pay to the Arranger amounts sufficient to indemnify the Arranger against, as the case may be, such cost, increased cost or liability or reduction in the rate of Return on Solvency.         The Company will not bear any increased costs or liability by reason of the Arranger’s inefficiency or poor performance of its operations.   23.02   The Arranger shall promptly notify the Company of the circumstances giving rise to the Company’s obligation to make any such payment, giving reasonable details of how such cost, increased cost, reduction or liability has been calculated and attributed to the advance of the principal amount of the Bonds, such calculation and attribution by the Arranger being conclusive in the absence of manifest error. 10 --------------------------------------------------------------------------------   24. INTERPRETATION In this Subscription Agreement unless the context otherwise requires or unless otherwise defined in this Subscription Agreement, words and expressions defined in the Trust Deed shall have the same meanings when used in this Subscription Agreement. Please confirm that this letter correctly sets out the arrangements agreed between us. Yours faithfully, For and on behalf of Consolidated Water Co. Ltd. Frederick W. McTaggart Director We hereby confirm that the terms of the above written letter agreement correctly set out the arrangements agreed between us. Yours faithfully, For and on behalf of Scotiatrust and Merchant Bank Trinidad and Tobago Limited Richard P. Young Director 11

EXHIBIT 10(iii).13 BALDOR ELECTRIC COMPANY NON-QUALIFIED STOCK OPTION AGREEMENT For Non-Employee Directors This Agreement is entered into as of «DATE» (the “Agreement Date”), by and between BALDOR ELECTRIC COMPANY (the “Company”) and «OPTIONEE» (ID # «SS» ) (the “Director”). The Plan under which this Agreement is made is the Baldor Electric Company 2006 Equity Incentive Plan and the Administrator of the Plan is the Stock Option Committee of the Board of Directors of the Company. The Board of Directors of the Company, with the approval of the shareholders of the Company, has determined: (1) that the interests of the Company will be advanced by encouraging and enabling its non-employee Directors, whose services are considered essential to the Company’s continued progress, to increase their ownership interest; (2) that the acquisition of such an interest in the Company will better align the non-employee Directors’ compensation with creating and sustaining shareholder value; and (3) that providing this ownership opportunity will assist in attracting and retaining highly qualified individuals to serve as Directors of the Company. The Company and the Director hereby agree to all of the terms, conditions, and restrictions of the Plan and further agree as follows:   1. Shares Subject to Option. The Company hereby grants to the Director the option to purchase all or part of an aggregate of «UNITS » shares of common stock of the Company at the purchase price of $ «PRICE » per share.   2. Time, Manner of Exercise, and Form of Payment. The options shall be one hundred percent (100%) exercisable on and after «EXERVEST». Options granted pursuant to this Agreement shall cease to be exercisable on and after «EXPIRATION», and the Director shall have no rights to these options after this date. Subject to Paragraphs 3 and 6, the Director may purchase all or part of the shares subject to this Agreement, but in no case may the Director exercise an option for a fraction of a share. The option granted pursuant to this Agreement shall be exercisable by the giving of written notice of exercise to the Company on a form provided by the Company and shall be accompanied by payment in full of the purchase price for the shares to be purchased. The full purchase price shall be payable in cash or check at the time of exercise. In lieu of cash or check, the Director may make payment, in whole or in part, by tendering shares of common stock of the Company (“Shares”) valued at the fair market value on the day before the date the Company receives written notice of exercise from the Director; provided that, the shares used to purchase shares under this Agreement must be issued to the Director in certificate form. The purchase transaction shall be affected as soon as practical following receipt by the Company of such a written notice.   3. Shareholder Status. Neither the Director nor his legal representatives shall have any rights or privileges of a shareholder of the Company with respect to any of the Shares issuable on the exercise of this option unless and until certificates representing such shares shall have been issued and delivered to the Director or his representatives.   4. Adjustment of Shares. If prior to exercise there shall be any change in the outstanding common shares of the Company through merger, consolidation, reorganization, recapitalization, stock dividend, split-up, combination of shares, exchange of shares, change in corporate structure, or otherwise, proportionate adjustments to the kind and number of shares and price per share of shares subject to this option shall be made by the Administrator. No fractional shares of stock shall be issued under this option on account of any such adjustments, and rights to shares shall be limited after such an adjustment to the lower full share. The determination by the Administrator in each case shall be conclusive and binding on the Company and the Director and his legal representatives.   1 -------------------------------------------------------------------------------- 5. Termination of Service. If the event of termination of service on the Board by a holder of an option, each of the then outstanding options of such holder will continue to mature and become exercisable in accordance with paragraph 2 above and the holder may exercise the matured installments at any time within five years after such termination of service but in no event after the expiration date of the tern of the option. Death – In the event of death of the holder of any option, each of then outstanding options of such holder will immediately mature in full and become exercisable by the holder’s legal representative at any time within a period of five years after death, but in no event after the expiration date of the term of the option. However, if the holder dies within five years following termination of service on the Board, such option shall only be exercisable for two years after the holder’s death or five years after termination of service, whichever is longer, or until the expiration date of the term of the option. The option holder shall have no further rights under this Agreement after the expiration of such exercise period.   6. Options Non-Assignable and Non-Transferable - Each option and all rights thereunder shall be non-assignable and non-transferable other than by will or the laws of descent and distribution and shall be exercisable during the holder’s lifetime only by the holder or the holder’s guardian or legal representative (the “Optionee).   7. Tax Obligations – The Optionee may direct that the Company pay on his or her behalf and any all tax obligations, sufficient to satisfy the minimum required federal, state and local withholding taxes, if any, incurred by the Optionee due to the exercise of the Options (the “Tax Obligation”). To pay for the Tax Obligation, the Optionee may remit cash, surrender shares previously owned by the Optionee, or the Optionee may direct the Company to withhold shares of stock issuable from the exercise. If the Optionee so directs then the Optionee shall reimburse the Company with that number of shares of the Company’s common stock that are necessary to reimburse the Company for the amount of the Tax Obligations. The number of shares necessary will be based on the fair market value on the day immediately preceding the date of the exercise.   BALDOR ELECTRIC COMPANY      ATTEST:          John A. McFarland      Ronald E. Tucker Chairman and CEO      President, CFO and Secretary          Signature of Director      Printed Name of Director   2

  Exhibit 10.6   AMENDED AND RESTATED SUBORDINATION AGREEMENT   This Amended and Restated Subordination Agreement (this “Agreement”) is entered into as of the 31st day of May, 2006, by and among John Martell, Strasbourger Pearson Tulcin Wolff, Inc. (“Strasbourger”), as agent for the holders of the Subordinated Secured Convertible Debenture holders listed on Schedule A (the “Debenture Holder(s),” all of whom are collectively referred to herein as the “Subordinated Lenders” and each, a “Subordinated Lender”), and Laurus Master Fund, Ltd. (the “Senior Lender”). Unless otherwise defined herein, capitalized terms used herein shall have the meaning provided such terms in the Security and Purchase Agreement referred to below.   BACKGROUND   WHEREAS, the Senior Lender has made loans to MISCOR Group, Ltd. f/k/a Magnetech Integrated Services Corp., an Indiana corporation (“MISCOR”), and to Magnetech Industrial Services of Alabama, LLC, an Indiana limited liability company (“MIS”, and collectively with MISCOR, the “Company”) pursuant to, and in accordance with, (i) that certain Security and Purchase Agreement dated as of August 24, 2005 by and between MISCOR, certain subsidiaries of MISCOR, and the Senior Lender (as amended, modified or supplemented from time to time, the "Security Agreement"), (ii) the Ancillary Agreements referred to in the Security and Purchase Agreement, (iii) that certain Security and Purchase Agreement dated as of the date hereof by and between MIS and Laurus (as amended, modified or supplemented from time to time, the “MIS Security Agreement”) and (iv) the Ancillary Agreements referred to in the MIS Security Agreement (the “MIS Ancillary Agreements”).   WHEREAS, each Debenture Holder is the holder of a subordinated secured convertible debenture issued by the Company. Pursuant to Section 9.1 of each debenture, Strasbourger is authorized to make, take or give any consent, waiver or other action provided by the terms of the Debentures to be made, given or taken by the Debenture Holders.   WHEREAS, the Subordinated Lenders have made loans to the Company.   NOW, THEREFORE, each Subordinated Lender and the Senior Lender agree as follows:   TERMS   1. Up All loans made by the Senior Lender to the Company and/or any of its Subsidiaries pursuant to, and all associated interest, fees and penalties owing by the Company and/or any of its Subsidiaries to the Senior Lender under, the Security Agreement, any Ancillary Agreement, the MIS Security Agreement, any MIS Ancillary Agreement or otherwise are referred to as “Senior Liabilities”. Any and all loans made by the Subordinated Lenders to the Company and/or any of its Subsidiaries, together with all other obligations of the Company and/or any of its Subsidiaries to any Subordinated Lender (in each case, including any interest, fees or penalties related thereto), howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent or now or hereafter existing, or due or to become due are referred to as “Junior Liabilities”. It is expressly understood and agreed that the term “Senior   -------------------------------------------------------------------------------- Liabilities”, as used in this Agreement, shall include, without limitation, any and all interest, fees and penalties accruing on any of the Senior Liabilities after the commencement of any proceedings referred to in paragraph 4 of this Agreement, notwithstanding any provision or rule of law which might restrict the rights of the Senior Lender, as against the Company, its Subsidiaries or anyone else, to collect such interest, fees or penalties, as the case may be.   2. Except as expressly otherwise provided in this Agreement or as the Senior Lender may otherwise expressly consent in writing, the payment of the Junior Liabilities shall be postponed and subordinated to the payment in full of all Senior Liabilities. Furthermore, no payments or other distributions whatsoever in respect of any Junior Liabilities shall be made, nor shall any property or assets of the Company or any of its Subsidiaries be applied to the purchase or other acquisition or retirement of any Junior Liability. Notwithstanding anything to the contrary contained in this paragraph 2 or elsewhere in this Agreement, the Company and its Subsidiaries may make regularly scheduled principal and interest payments, as the case may be, to the Subordinated Lenders with respect to the Junior Liabilities, so long as (i) no Event of Default (as defined in any of the Security Agreement, the Ancillary Agreements, the MIS Security Agreement or the MIS Ancillary Agreements) has occurred and is continuing at the time of any such payment and (ii) the amount of such regularly scheduled principal payments and the rate of interest, in each case, with respect to the Junior Liabilities is not increased from that in effect on the date hereof.   3. Each Subordinated Lender hereby subordinates all security interests that have been, or may be, granted by the Company and/or any of its Subsidiaries to such Subordinated Lender in respect of the Junior Liabilities, to the security interests granted by the Company and/or any of its Subsidiaries to the Senior Lender in respect of the Senior Liabilities. 4. In the event of any dissolution, winding up, liquidation, readjustment, reorganization or other similar proceedings relating to the Company and/or any of its Subsidiaries or to its creditors, as such, or to its property (whether voluntary or involuntary, partial or complete, and whether in bankruptcy, insolvency or receivership, or upon an assignment for the benefit of creditors, or any other marshalling of the assets and liabilities of the Company and/or any of its Subsidiaries, or any sale of all or substantially all of the assets of the Company and/or any of its Subsidiaries, or otherwise), the Senior Liabilities shall first be paid in full before any Subordinated Lender shall be entitled to receive and to retain any payment or distribution in respect of any Junior Liability.   5. Each Subordinated Lender will mark his books and records so as to clearly indicate that their respective Junior Liabilities are subordinated in accordance with the terms of this Agreement. Each Subordinated Lender will execute such further documents or instruments and take such further action as the Senior Lender may reasonably request from time to time request to carry out the intent of this Agreement.   6. Each Subordinated Lender hereby waives all diligence in collection or protection of or realization upon the Senior Liabilities or any security for the Senior Liabilities.   7. No Subordinated Lender will without the prior written consent of the Senior Lender: (a) attempt to enforce or collect any Junior Liability or any rights in respect of any   - 2 - -------------------------------------------------------------------------------- Junior Liability; or (b) commence, or join with any other creditor in commencing, any bankruptcy, reorganization or insolvency proceedings with respect to the Company and/or any of its Subsidiaries.   8. The Senior Lender may, from time to time, at its sole discretion and without notice to any Subordinated Lender, take any or all of the following actions: (a) retain or obtain a security interest in any property to secure any of the Senior Liabilities; (b) retain or obtain the primary or secondary obligation of any other obligor or obligors with respect to any of the Senior Liabilities; (c) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of the Senior Liabilities, or release or compromise any obligation of any nature of any obligor with respect to any of the Senior Liabilities; and (d) release their security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Senior Liabilities, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property.   9. The Senior Lender may, from time to time, whether before or after any discontinuance of this Agreement, without notice to any Subordinated Lender, assign or transfer any or all of the Senior Liabilities or any interest in the Senior Liabilities; and, notwithstanding any such assignment or transfer or any subsequent assignment or transfer of the Senior Liabilities, such Senior Liabilities shall be and remain Senior Liabilities for the purposes of this Agreement, and every immediate and successive assignee or transferee of any of the Senior Liabilities or of any interest in the Senior Liabilities shall, to the extent of the interest of such assignee or transferee in the Senior Liabilities, be entitled to the benefits of this Agreement to the same extent as if such assignee or transferee were the Senior Lender, as applicable; provided, however, that, unless the Senior Lender shall otherwise consent in writing, the Senior Lender shall have an unimpaired right, prior and superior to that of any such assignee or transferee, to enforce this Agreement, for the benefit of the Senior Lender, as to those of the Senior Liabilities which the Senior Lender has not assigned or transferred.   10. The Senior Lender shall not be prejudiced in its rights under this Agreement by any act or failure to act of any Subordinated Lender, or any noncompliance of any Subordinated Lender with any agreement or obligation, regardless of any knowledge thereof which the Senior Lender may have or with which the Senior Lender may be charged; and no action of the Senior Lender permitted under this Agreement shall in any way affect or impair the rights of the Senior Lender and the obligations of any Subordinated Lender under this Agreement.   11. No delay on the part of the Senior Lender in the exercise of any right or remedy shall operate as a waiver of such right or remedy, and no single or partial exercise by the Senior Lender of any right or remedy shall preclude other or further exercise of such right or remedy or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Agreement be binding upon the Senior Lender except as expressly set forth in a writing duly signed and delivered on behalf of the Senior Lender. For the purposes of this Agreement, Senior Liabilities shall have the meaning set forth in Section 1 above, notwithstanding any right or power of any Subordinated Lender or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such obligation, and no such   - 3 - -------------------------------------------------------------------------------- claim or defense shall affect or impair the agreements and obligations of any Subordinated Lender under this Agreement.   12. This Agreement shall be binding upon each Subordinated Lender and upon the heirs, legal representatives, successors and assigns of each Subordinated Lender and the successors and assigns of any Subordinated Lender.   13. This Agreement shall be construed in accordance with and governed by the laws of New York without regard to conflict of laws provisions. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.   [signature page follows] - 4 - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, this Agreement has been made and delivered this __ day of ______________, 2006.       By: /s/ John A. Martell     Name: John A. Martell                             STRASBOURGER PEARSON TULCIN WOLFF, INC. as agent for the Debenture Holders                     By: /s/ Michael J. Schumacher     Name: Michael J. Schumacher     Title:               LAURUS MASTER FUND, LTD.             By: /s/ David Grin     Name: David Grin     Title: Partner Acknowledged and Agreed to by:       MISCOR GROUP, LTD.       By: /s/ John A. Martell     Name: John A. Martell     Title: President     - 5 - -------------------------------------------------------------------------------- SCHEDULE A Debenture Holders Magnetech Integrated Services Corp Outstanding Debentures As of 5/31/05 Warrant # Holder Debenture $ 1 David L. Cohen 100,000 2 Michael Poujol & Angela Poujol JTWROS 250,000 3 Gregg M. Gaylord & Linda S. Covillon Gaylord LV TR 1/18/99 50,000 4 Pershing as Custodian, IRA FBO Thomas D'Avanzo 50,000 5 Dr. Frank Lake III 30,000 6 Dr. Leo Mazzocchi & Nancy T. Mazzocchi 25,000 7 William Sybesma & Martina Jane Sybesma JTWROS 75,000 8 Gary M. Glasscock 100,000 9 Dr. Domenic Strazzulla 50,000 10 RS & VS Ltd., SJDE LLC Gen. Partner 25,000 11 Stephen T. Skoly, Jr. 50,000 12 Robert C. Ingram, III 50,000 13 Thomas J. Keeney 25,000 14 Joseph Quattrocchi 25,000 15 Paul Quattrocchi & Danielle Quattrocchi JTWROS 25,000 16 Dr. Barry G. Landry 50,000 17 Robert L Thompson MD TR ISERP Profit Sharing Plan 25,000 18 Dr. Michail O. Bernstein 50,000 19 Steven A. Lamb 50,000 20 Norman Dudey TR The Normn Dudey Trust UA dated 6/10/1991 50,000 21 Frank R. Cserpes J. & Sharon M Cserpes TRS Frank R Cserpes Trust 50,000 22 Edward Lagomarsino 250,000 23 Pershing as Custodian, SEP FBO Rodney Schorlemmer 50,000 24 Mollie Ann Peters 20,000 25 Paul V. Nugent, Jr. &eanne Mentus Nugent JTWROS 25,000 26 Dr. Albert Jim Barboni 30,000 27 StarInvest Group, Inc 400,000 28 SwissFinanz Partner AG 130,000 29 Marcel Riedel 20,000 30 Alfred Schneider 20,000 31 Maya Salzmann 50,000 32 Daniel Stahl 80,000 33 Elizabeth Kuhn 50,000 34 Paul Remensberger 20,000 35 Heinz Wattenhofer 25,000 36 Rolph R. Berg-Jaquet 10,000 37 Marie Luise Fuchs 10,000 38 Josephine Hausammann 10,000 39 Hans Hausammann 15,000 40 Roger Buerki 10,000 41 Hans Nef-Maag 60,000 42 James Ladner 50,000 43 Max Gertsch 15,000 44 Roland Bertschy 5,000 45 Christian Baumberger 10,000 46 Fred Kin 20,000 47 StarInvest Group, Inc 400,000 48 Kilmore Worldwide, Inc. 25,000 49 Highgate House Funds Limited 500,000 50 Nasrollah Jahdi 25,000 51 Pershing LLC as Custodian, IRA FBO Richard J. Mullin 100,000 52 SwissFinanz Partner AG 60,000 53 Daniel Stahl 50,000 54 Paul Remensberger 20,000 55 Hans Hausammann 20,000 56 Hans-Peter Knecht 20,000 57 Henry Fortier III 25,000 58 Frederick B. Epstein 50,000 59 William Sybesma 75,000 60 Gary M. Glasscock 40,000 61 Joseph Gazzola & Josephine Gazzola JTWROS 25,000     4,025,000

Exhibit 10.5   --------------------------------------------------------------------------------     THIRD AMENDED AND RESTATED   AGREEMENT OF LIMITED PARTNERSHIP   OF   GKK CAPITAL LP   --------------------------------------------------------------------------------     Dated as of April 19, 2006   --------------------------------------------------------------------------------   TABLE OF CONTENTS       Page       ARTICLE I DEFINED TERMS 1       ARTICLE II ORGANIZATIONAL MATTERS 11 Section 2.01. Organization 11 Section 2.02. Name 11 Section 2.03. Registered Office and Agent; Principal Office 12 Section 2.04. Term 12     ARTICLE III PURPOSE 12 Section 3.01. Purpose and Business 12 Section 3.02. Powers 12 Section 3.03. Partnership Only for Purposes Specified 13     ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP INTERESTS 13 Section 4.01. Capital Contributions of the Partners 13 Section 4.02. Issuances of Partnership Interests 13 Section 4.03. No Preemptive Rights 15 Section 4.04. Other Contribution Provisions 15 Section 4.05. No Interest on Capital 15     ARTICLE V DISTRIBUTIONS 15 Section 5.01. Requirement and Characterization of Distributions 15 Section 5.02. Amounts Withheld 17 Section 5.03. Distributions Upon Liquidation 17 Section 5.04. Revisions to Reflect Issuance of Additional Partnership Interests 17     ARTICLE VI ALLOCATIONS 17 Section 6.01. Allocations For Capital Account Purposes 17 Section 6.02. Revisions to Allocations to Reflect Issuance of Additional Partnership Interests 19     ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS 19 Section 7.01. Management 19 Section 7.02. Certificate of Limited Partnership 22 Section 7.03. Title to Partnership Assets 22 Section 7.04. Reimbursement of the General Partner 23 Section 7.05. Outside Activities of the General Partner 24   i --------------------------------------------------------------------------------       Page       Section 7.06. Transactions with Affiliates 25 Section 7.07. Indemnification 25 Section 7.08. Liability of the General Partner 27 Section 7.09. Other Matters Concerning the General Partner 28 Section 7.10. Reliance by Third Parties 29 Section 7.11. Restrictions on General Partner’s Authority 29 Section 7.12. Loans by Third Parties 30     ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS 30 Section 8.01. Limitation of Liability 30 Section 8.02. Management of Business 30 Section 8.03. Outside Activities of Limited Partners 30 Section 8.04. Return of Capital 30 Section 8.05. Rights of Limited Partners Relating to the Partnership 31 Section 8.06. Class A Redemption Right 32 Section 8.07. Redemption of Class B Units 34     ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS 34 Section 9.01. Records and Accounting 34 Section 9.02. Fiscal Year 34 Section 9.03. Reports 34     ARTICLE X TAX MATTERS 35 Section 10.01. Preparation of Tax Returns 35 Section 10.02. Tax Elections 35 Section 10.03. Tax Matters Partner 35 Section 10.04. Organizational Expenses 37 Section 10.05. Withholding 37     ARTICLE XI TRANSFERS AND WITHDRAWALS 37 Section 11.01. Transfer 37 Section 11.02. Transfers of Partnership Interests of General Partner 38 Section 11.03. Limited Partners’ Rights to Transfer 38 Section 11.04. Substituted Limited Partners 39 Section 11.05. Assignees 40   ii --------------------------------------------------------------------------------       Page       Section 11.06. General Provisions 40     ARTICLE XII ADMISSION OF PARTNERS 42 Section 12.01. Admission of Successor General Partner 42 Section 12.02. Admission of Additional Limited Partners 42 Section 12.03. Amendment of Agreement and Certificate of Limited Partnership 43     ARTICLE XIII DISSOLUTION AND LIQUIDATION 43 Section 13.01. Dissolution 43 Section 13.02. Winding Up 43 Section 13.03. Compliance with Timing Requirements of Regulations 44 Section 13.04. Deemed Distribution and Recontribution 45 Section 13.05. Rights of Limited Partners 45 Section 13.06. Notice of Dissolution 45 Section 13.07. Cancellation of Certificate of Limited Partnership 45 Section 13.08. Reasonable Time for Winding Up 45 Section 13.09. Waiver of Partition 46 Section 13.10. Liability of Liquidator 46     ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS 46 Section 14.01. Amendments 46 Section 14.02. Meetings of the Partners 47     ARTICLE XV GENERAL PROVISIONS 48 Section 15.01. Addresses and Notice 48 Section 15.02. Titles and Captions 48 Section 15.03. Pronouns and Plurals 48 Section 15.04. Further Action 48 Section 15.05. Binding Effect 49 Section 15.06. Creditors 49 Section 15.07. Waiver 49 Section 15.08. Counterparts 49 Section 15.09. Applicable Law 49 Section 15.10. Invalidity of Provisions 49 Section 15.11. Power of Attorney 49   iii --------------------------------------------------------------------------------       Page       Section 15.12. Entire Agreement 50 Section 15.13. No Rights as Stockholders 50 Section 15.14. Limitation to Preserve REIT Status 51   iv --------------------------------------------------------------------------------   THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF GKK CAPITAL LP   THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as of April 19, 2006 is made by Gramercy Capital Corp., a Maryland corporation, as the General Partner of and a Limited Partner in the Partnership and each of the other persons listed on the signature pages hereto, for the purpose of amending and restating the Second Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 14, 2005 by and among the General Partner, SL Green Operating Partnership, L.P., GKK Manager LLC, and certain other Persons (as defined below) (the “First Amended and Restated Partnership Agreement”).   WHEREAS, the Partnership desires to modify the distribution and redemption provisions of the Second Amended and Restated Partnership Agreement applicable to the Class B Units.   WHEREAS, pursuant to Section 14.01.B the General Partner is hereby amending and restating the Second Amended and Restated Partnership Agreement to reflect the modification in distribution and redemption provisions applicable to the Class B Units.   AGREEMENT   NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby amend and restate the Second Amended and Restated Partnership Agreement as follows:   ARTICLE I DEFINED TERMS   The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.   “Act” means the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. § 17-101, et seq., as it may be amended from time to time, and any successor to such statute.   “Additional Limited Partner” means a Person admitted to the Partnership as a Limited Partner pursuant to Section 12.02 hereof and who is shown as such on the books and records of the Partnership.   “Adjusted Capital Account” means the Capital Account maintained for each Partner as of the end of each Partnership Year (i) increased by any amounts which such Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections1.704-l(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-l(b)(2)(ii) (d)(6).The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Regulations Section 1.704-l(b)(2)(ii)(d) and shall be interpreted consistently therewith.   “Adjusted Capital Account Deficit” means, with respect to any Partner, the deficit balance, if any, in such Partner’s Adjusted Capital Account as of the end of the relevant Partnership Year.   --------------------------------------------------------------------------------   “Adjusted Property” means any property the Carrying Value of which has been adjusted pursuant to Exhibit B hereto.   “Adjustment Date” has the meaning set forth in Section 4.02.B hereof.   “Affiliate” means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting interests of such Person, (iii) any Person of which such Person owns or controls ten percent (10%) or more of the voting interests or (iv) any officer, director, general partner or trustee of such Person or any Person referred to in clauses (i), (ii), and (iii) above. For purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.   “Agreed Value” means (i) in the case of any Contributed Property, the 704(c) Value of such property as of the time of its contribution to the Partnership, reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed; and (ii) in the case of any property distributed to a Partner by the Partnership, the Partnership’s Carrying Value of such property at the time such property is distributed, reduced by any indebtedness either assumed by such Partner upon such distribution or to which such property is subject at the time of distribution as determined under Section 752 of the Code and the Regulations thereunder.   “Agreement” means this Third Amended and Restated Agreement of Limited Partnership, as it may be amended, supplemented or restated from time to time.   “Articles of Incorporation” means the Articles of Incorporation or other organizational document governing the General Partner, as amended or restated from time to time.   “Assignee” means a Person to whom one or more Partnership Units have been transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.05 hereof.   “Book-Tax Disparities” means, with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for federal income tax purposes as of such date. A Partner’s share of the Partnership’s Book-Tax Disparities in all of its Contributed Property and Adjusted Property will be reflected by the difference between such Partner’s Capital Account balance as maintained pursuant to Exhibit B hereto and the hypothetical balance of such Partner’s Capital Account computed as if it had been maintained, with respect to each such Contributed Property or Adjusted Property, strictly in accordance with federal income tax accounting principles.   “Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.   “Capital Account” means the Capital Account maintained for a Partner pursuant to Exhibit B hereto.   “Capital Contribution” means, with respect to any Partner, any cash, cash equivalents or the Agreed Value of Contributed Property which such Partner contributes or is deemed to contribute to the Partnership pursuant to Section 4.01 or 4.02 hereof.   2 --------------------------------------------------------------------------------   “Carrying Value” means (i) with respect to a Contributed Property or Adjusted Property, the 704(c) Value of such property reduced (but not below zero) by all Depreciation with respect to such Contributed Property or Adjusted Property, as the case may be, charged to the Partners’ Capital Accounts and (ii)with respect to any other Partnership property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with Exhibit B hereto, and to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisitions of Partnership properties, as deemed appropriate by the General Partner.   “Cash Amount” means an amount of cash equal to the Value on the Valuation Date of the Shares Amount.   “Certificate” means the Certificate of Limited Partnership relating to the Partnership filed in the office of the Delaware Secretary of State on April 21, 2004, as amended from time to time in accordance with the terms hereof and the Act.   “Class A Unit” means Class A Units of the Partnership.   “Class A Unit Economic Balance” has the meaning set forth in Section 6.01.D.   “Class B Distribution Percentage” means, as of a particular date, with respect to SL Green, the SLG Class B Distribution Percentage and, with respect to all other Persons, the Standard Class B Distribution Percentage.   “Class B Unit” means a profits interest issued pursuant to Section 4.02.D.   “Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.   “Consent” means the consent or approval of a proposed action by a Partner given in accordance with Section 14.02 hereof.   “Contributed Property” means each property or other asset contributed to the Partnership, in such form as may be permitted by the Act, but excluding cash contributed or deemed contributed to the Partnership. Once the Carrying Value of a Contributed Property is adjusted pursuant to Exhibit B hereto, such property shall no longer constitute a Contributed Property for purposes of Exhibit B hereto, but shall be deemed an Adjusted Property for such purposes.   “Conversion Factor” means 1.0; provided that in the event that the General Partner Entity (i) declares or pays a dividend on its outstanding Shares in Shares or makes a distribution to all holders of its outstanding Shares in Shares, (ii) subdivides its outstanding Shares or (iii) combines its outstanding Shares into a smaller number of Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time) and the denominator of which shall be the actual number of Shares(determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, subdivision or combination; and provided, further that in the event that an entity shall cease to be the General Partner Entity (the “Predecessor Entity”) and another entity shall become the General Partner Entity (the “Successor Entity”), the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a   3 --------------------------------------------------------------------------------   fraction, the numerator of which is the Value of one share of the Predecessor Entity, determined as of the time immediately prior to when the Successor Entity becomes the General Partner Entity, and the denominator of which is the Value of one Share of the Successor Entity determined as of that same date. For purposes of the second proviso in the preceding sentence, in the event that any stockholders of the Predecessor Entity will receive consideration in connection with the transaction in which the Successor Entity becomes the General Partner Entity, the numerator in the fraction described above for determining the adjustment to the Conversion Factor(that is, the Value of one Share of the Predecessor Entity) shall be the sum of the greatest amount of cash and the fair market value of any securities and other consideration that the holder of one Share in the Predecessor Entity could have received in such transaction (determined without regard to any provisions governing fractional shares). Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for the event giving rise thereto; it being intended that (x) adjustments to the Conversion Factor are to be made in order to avoid unintended dilution or anti-dilution as a result of transactions in which Shares are issued, redeemed or exchanged without a corresponding issuance, redemption or exchange of Partnership Units and (y) if a Specified Redemption Date shall fall between the record date and the effective date of any event of the type described above, that the Conversion Factor applicable to such redemption shall be adjusted to take into account such event.   “Debt” means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person, (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person’s interest in such property, even though such Person has not assumed or become liable for the payment thereof, and (iv) obligations of such Person incurred in connection with entering into a lease which, in accordance with generally accepted accounting principles, should be capitalized.   “Depreciation” means, for each fiscal year, an amount equal to the federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year, except that if the Carrying Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the General Partner.   “Economic Capital Account Balance” has the meaning set forth in Section 6.01.D.   “Effective Date” means the date of the closing of the General Partner’s initial public offering.   “Equity Award Agreement” means an equity award agreement entered into between SL Green and/or SL Green Realty Corp. and a director, officer or employee of the General Partner, the Manager, SL Green or SL Green Realty Corp. or other Person pursuant to the SL Green Realty Corp. 2005 Stock Option and Incentive Plan pursuant to which SL Green or SL Green Realty Corp. transfers Class B Units to such Person subject to forfeiture to, or repurchase at less than fair market value by, SL Green or any other Person upon the occurrence of certain events.   “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.   4 --------------------------------------------------------------------------------   “Exchange Act” means the Securities Exchange Act of 1934, as amended.   “Funding Debt” means the incurrence of any Debt by or on behalf of the General Partner for the purpose of providing funds to the Partnership.   “Funds From Operations” means net income available to holders of Partnership Units (other than Class B Units and preferred Partnership Units, if any, issued subsequent to the date hereof) computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures.   “General Partner” means Gramercy Capital Corp., a Maryland corporation, or its successors as general partner of the Partnership.   “General Partner Entity” means the General Partner; provided, however, that if (i) the shares of common stock (or other comparable equity interests) of the General Partner are at any time not Publicly Traded and (ii) the shares of common stock (or other comparable equity interests) of an entity that owns, directly or indirectly, fifty percent (50%) or more of the shares of common stock (or other comparable equity interests) of the General Partner are Publicly Traded, the term “General Partner Entity” shall refer to such entity whose shares of common stock (or other comparable equity securities) are Publicly Traded. If both requirements set forth in clauses (i) and (ii) above are not satisfied, then the term “General Partner Entity” shall mean the General Partner.   “General Partner Payment” has the meaning set forth in Section 15.14 hereof.   “General Partnership Interest” means a Partnership Interest held by the General Partner that is a general partnership interest. A General Partnership Interest may be expressed as a number of Partnership Units.   “IRS” means the Internal Revenue Service, which administers the internal revenue laws of the United States.   “Immediate Family” means, with respect to any natural Person, such natural Person’s spouse, parents, descendants, nephews, nieces, brothers, and sisters.   “Incapacity” or “Incapacitated” means, (i) as to any individual Partner, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Partner incompetent to manage his or her Person or estate,(ii) as to any corporation which is a Partner, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter, (iii) as to any partnership which is a Partner, the dissolution and commencement of winding up of the partnership, (iv) as to any estate which is a Partner, the distribution by the fiduciary of the estate’s entire interest in the Partnership, (v) as to any trustee of a trust which is a Partner, the termination of the trust (but not the substitution of a new trustee) or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partner’s creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a   5 --------------------------------------------------------------------------------   trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partner’s properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Partner’s consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment or (h) an appointment referred to in clause (g) is not vacated within ninety (90) days after the expiration of any such stay.   “Indemnitee” means (i) any Person made a party to a proceeding or threatened with being made a party to a proceeding by reason of its status as (A) the General Partner, (B) a Limited Partner or (C) a director or officer of the Partnership or the General Partner and (ii) such other Persons (including Affiliates of the General Partner, a Limited Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.   “Limited Partner” means any Person named as a Limited Partner in Exhibit A attached hereto, as such Exhibit may be amended and restated from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Person’s capacity as a Limited Partner in the Partnership.   “Limited Partner Interest” means a Partner Interest of a Limited Partner in the Partner representing a fractional part of the Partner Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partner Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of Partnership Units.   “Liquidating Event” has the meaning set forth in Section 13.01 hereof.   “Liquidator” has the meaning set forth in Section 13.02.A hereof.   “LTIP Units” means the Partnership Units designated as such having the rights, powers, privileges, restrictions, qualifications and limitations set forth in Exhibit E hereto.   “Manager” means GKK Manager LLC, a Delaware limited liability company.   “Management Agreement” means the agreement entered into by and between Gramercy Capital Corp., a Maryland corporation, GKK Capital LP, a Maryland limited partnership (the “Operating Partnership”), and GKK Manager LLC, a Delaware limited liability company.   “Net Income” means, for any taxable period, the excess, if any, of the Partnership’s items of income and gain for such taxable period over the Partnership’s items of loss and deduction for such taxable period. The items included in the calculation of Net Income shall be determined in accordance with Exhibit B hereto. If an item of income, gain, loss or deduction that has been included in the initial computation of Net Income is subjected to the special allocation rules in Exhibit C hereto, Net Income or the resulting Net Loss, whichever the case may be, shall be recomputed without regard to such item.   “Net Loss” means, for any taxable period, the excess, if any, of the Partnership’s items of loss and deduction for such taxable period over the Partnership’s items of income and gain for such taxable period. The items included in the calculation of Net Loss shall be determined in accordance with Exhibit B. If an item of income, gain, loss or deduction that has been included in the initial computation of Net Loss is subjected to the special allocation rules in Exhibit C hereto, Net Loss or the resulting Net Income, whichever the case may be, shall be recomputed without regard to such item.   6 --------------------------------------------------------------------------------   “New Securities” means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase shares of capital stock (or other comparable equity interest) of the General Partner, excluding grants under any Stock Option Plan, or (ii) any Debt issued by the General Partner that provides any of the rights described in clause (i).   “Nonrecourse Built-in Gain” means, with respect to any Contributed Properties or Adjusted Properties that are subject to a mortgage or negative pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Partners pursuant to Section 2.B of Exhibit C hereto if such properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration.   “Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).   “Nonrecourse Liability” has the meaning set forth in Regulations Section1.752-1(a)(2).   “Notice of Redemption” means a Notice of Redemption substantially in the form of Exhibit B attached hereto.   “Partner” means the General Partner or a Limited Partner, and “Partners” means the General Partner and the Limited Partners.   “Partner Minimum Gain” means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).   “Partner Nonrecourse Debt” has the meaning set forth in Regulations Section 1.704-2(b)(4).   “Partner Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined in accordance with the rules of Regulations Section1.704-2(i)(2).   “Partnership” means the limited partnership formed under the Act and continued upon the terms and conditions set forth in this Agreement, and any successor thereto.   “Partnership Interest” means a Limited Partner Interest or the General Partnership Interest and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Partnership Units.   “Partnership Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Partnership Year shall be determined in accordance with the rules of Regulations Section1.704-2(d).   “Partnership Record Date” means the record date established by the General Partner either (i) for distributions pursuant to Section 5.01 hereof, which record date shall be the same as the record date established by the General Partner Entity for a distribution to its stockholders of some or all of its portion of such distribution received by the General Partner if the shares of common stock (or comparable equity interests) of the General Partner Entity are Publicly Traded, or (ii) if applicable, for determining the   7 --------------------------------------------------------------------------------   Partners entitled to vote on or consent to any proposed action for which the consent or approval of the Partners is sought pursuant to Section14.02 hereof.   “Partnership Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to Sections 4.01 and 4.02 hereof, and includes Class A Units, Class B Units, LTIP Units and any other classes or series of Partnership Units established after the date hereof. The number of Partnership Units outstanding and the Percentage Interests represented by such Partnership Units are set forth in Exhibit A hereto, as such Exhibit may be amended and restated from time to time. The ownership of Partnership Units may be evidenced by a certificate in a form approved by the General Partner.   “Partnership Year” means the fiscal year of the Partnership, which shall be the calendar year.   “Percentage Interest” means, as to a Partner holding a class of Partnership Interests, its interest in such class, determined by dividing the Partnership Units of such class owned by such Partner by the total number of Partnership Units of such class then outstanding as specified in Exhibit A attached hereto, as such exhibit may be amended and restated from time to time, multiplied by the aggregate Percentage Interest allocable to such class of Partnership Interests.   “Person” means a natural person, partnership (whether general or limited), trust, estate, association, corporation, limited liability company, unincorporated organization, custodian, nominee or any other individual or entity in its own or any representative capacity.   “Publicly Traded” means listed or admitted to trading on the New York Stock Exchange, the American Stock Exchange or another national securities exchange or designated for quotation on the NASDAQ National Market, or any successor to any of the foregoing.   “Qualified REIT Subsidiary” means any Subsidiary of the General Partner that is a “qualified REIT subsidiary” within the meaning Section 856(i) of the Code.   “Recapture Income” means any gain recognized by the Partnership (computed without regard to any adjustment required by Section 743 of the Code) upon the disposition of any property or asset of the Partnership, which gain is characterized as ordinary income because it represents the recapture of deductions previously taken with respect to such property or asset.   “Redeeming Partner” has the meaning set forth in Section 8.06.A hereof.   “Redemption Amount” means either the Cash Amount or the Shares Amount, as determined by the General Partner in its sole and absolute discretion; provided that in the event that the Shares are not Publicly Traded at the time a Redeeming Partner exercises its Redemption Right the Redemption Amount shall be paid only in the form of the Cash Amount unless the Redeeming Partner, in its sole and absolute discretion, consents to payment of the Redemption Amount in the form of the Shares Amount. A Redeeming Partner shall have no right, without the General Partner’s consent, in its sole and absolute discretion, to receive the Redemption Amount in the form of the Shares Amount.   “Redemption Right” has the meaning set forth in Section 8.06.A hereof.   “Regulations” means the Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).   8 --------------------------------------------------------------------------------   “REIT” means a real estate investment trust under Section 856 of the Code.   “REIT Requirements” has the meaning set forth in Section 5.01.A hereof.   “Residual Gain” or “Residual Loss” means any item of gain or loss, as the case may be, of the Partnership recognized for federal income tax purposes resulting from a sale, exchange or other disposition of Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C hereto to eliminate Book-Tax Disparities.   “Safe Harbor” has the meaning set forth in Section 11.06.F hereof.   “Securities Act” means the Securities Act of 1933, as amended.   “704(c) Value” of any Contributed Property means the fair market value of such property at the time of contribution as determined by the General Partner using such reasonable method of valuation as it may adopt. Subject to Exhibit B hereto, the General Partner shall, in its sole and absolute discretion, use such method as it deems reasonable and appropriate to allocate the aggregate of the 704(c) Values of Contributed Properties in a single or integrated transaction among each separate property on a basis proportional to their fair market values.   “Share” means a share of capital stock (or other comparable equity interest) of the General Partner Entity. Shares may be issued in one or more classes or series in accordance with the terms of the Articles of Incorporation (or, if the General Partner is not the General Partner Entity, the organizational documents of the General Partner Entity). In the event that there is more than one class or series of Shares, the term “Shares” shall, as the context requires, be deemed to refer to the class or series of Shares that correspond to the class or series of Partnership Interests for which the reference to Shares is made. When used with reference to Class A Units, the term “Shares” refers to shares of common stock (or other comparable equity interest) of the General Partner Entity.   “Shares Amount” means a number of Shares equal to the product of the number of Partnership Units offered for redemption by a Redeeming Partner times the Conversion Factor; provided that, in the event the General Partner Entity issues to all holders of Shares rights, options, warrants or convertible or exchangeable securities entitling such holders to subscribe for or purchase Shares or any other securities or property (collectively, the “rights”), then the Shares Amount for any Partnership Units outstanding prior to the issuance of such rights shall also include such rights that a holder of that number of Shares would be entitled to receive.   “SL Green” means SL Green Operating Partnership, L.P., a Delaware limited partnership.   “SLG Class B Distribution Percentage” means, as of a particular date, the percentage obtained by dividing (i) 81.58 minus the number of Class B Units transferred by SL Green to other Persons after December 14, 2005 and on or before such date (other than Unvested Award Class B Units) and the number of Vested Award Class B Units plus the number of Class B Units acquired by SL Green from other Persons after December 14, 2005 and on or before such date (other than Unvested Award Class B Units forfeited to, or repurchased at less than fair market value by, SL Green pursuant to an Equity Award Agreement) by (ii) the aggregate number of Class B Units outstanding as of such date.   “Specially Distributed Assets” has the meaning set forth in Section 7.05.A hereof.   9 --------------------------------------------------------------------------------   “Specified Redemption Date” means the tenth Business Day after receipt by the General Partner of a Notice of Redemption; provided that, if the Shares are not Publicly Traded, the Specified Redemption Date means the thirtieth Business Day after receipt by the General Partner of a Notice of Redemption.   “Standard Class B Distribution Percentage” means, with respect to a Person as of a particular date, the percentage obtained by dividing the number of Class B Units held by such Person (other than Unvested Award Class B Units) by the aggregate number of Class B Units outstanding as of such date.   “Stock Option Plan” means any stock incentive plan of the General Partner, the Partnership or any Affiliate of the Partnership or the General Partner.   “Stockholders Equity” means the aggregate gross proceeds from all sales of Partnership Units (other than Class B Units and preferred Partnership Units, if any, issued subsequent to the date hereof).   “Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership or joint venture, or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.   “Substituted Limited Partner” means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.04 hereof.   “Successor Entity” has the meaning set forth in the definition of “Conversion Factor” herein.   “Terminating Capital Transaction” means any sale or other disposition of all or substantially all of the assets of the Partnership for cash or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership for cash.   “Termination Transaction” has the meaning set forth in Section 11.02.B hereof.   “Unrealized Gain” attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (i) the fair market value of such property (as determined under Exhibit B hereto) as of such date, over (ii) the Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit B hereto) as of such date.   “Unrealized Loss” attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (i) the Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit B hereto) as of such date, over (ii) the fair market value of such property (as determined under Exhibit B hereto) as of such date.   “Unvested Award Class B Unit” means any Class B Unit that has been transferred by SL Green or SL Green Realty Corp. to another Person pursuant to an Equity Award Agreement and remains subject to forfeiture to, or repurchase at less than fair market value by, SL Green or any other Person pursuant to such Equity Award Agreement.   “Valuation Date” means the date of receipt by the General Partner of a Notice of Redemption or, if such date is not a Business Day, the first Business Day thereafter.   “Value” means, with respect to any outstanding Shares of the General Partner Entity that are Publicly Traded, the average of the daily market price for the ten (10) consecutive trading days immediately preceding the date with respect to which value must be determined or, if such date is not a Business Day, the immediately preceding Business Day. The market price for each such trading day shall   10 --------------------------------------------------------------------------------   be the closing price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day. In the event that the outstanding Shares of the General Partner Entity are Publicly Traded and the Shares Amount includes rights that a holder of Shares would be entitled to receive, then the Value of such rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event that the Shares of the General Partner Entity are not Publicly Traded, the Value of the Shares Amount per Partnership Unit offered for redemption (which will be the Cash Amount per Partnership Unit offered for redemption payable pursuant to Sections 8.06 and 8.07 hereof) means the amount that a holder of one Partnership Unit would receive if each of the assets of the Partnership were to be sold for its fair market value on the Specified Redemption Date, the Partnership were to pay all of its outstanding liabilities, and the remaining proceeds were to be distributed to the Partners in accordance with the terms of this Agreement. Such Value shall be determined by the General Partner, acting in good faith and based upon a commercially reasonable estimate of the amount that would be realized by the Partnership if each asset of the Partnership (and each asset of each Partnership, limited liability company, joint venture or other entity in which the Partnership owns a direct or indirect interest) were sold to an unrelated purchaser in an arms’ length transaction where neither the purchaser nor the seller were under economic compulsion to enter into the transaction (without regard to any discount in value as a result of the Partnership’s minority interest in any property or any illiquidity of the Partnership’s interest in any property). In connection with determining the value of the Partnership Interest for purposes of determining the number of additional Partnership Units issuable upon a Capital Contribution funded by an underwritten public offering of shares of capital stock (or other comparable equity interest) of the General Partner, the Value of such shares shall be the public offering price per share of such class of the capital stock (or other comparable equity interest) sold.   “Vested Award Class B Unit” means any Class B Unit that has been transferred by SL Green or SL Green Realty Corp. to another Person pursuant to an Equity Award Agreement and is no longer subject to forfeiture to, or repurchase at less than fair market value by, SL Green or any other Person pursuant to such Equity Award Agreement (except for a Class B Unit that was forfeited to, or repurchased at less than fair market value by, SL Green or another Person pursuant to an Equity Award Agreement).   ARTICLE II ORGANIZATIONAL MATTERS   Section 2.01.          Organization   The Partnership is a limited partnership organized pursuant to the provisions of the Act and upon the terms and conditions set forth in the Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes.   Section 2.02.          Name   The name of the Partnership is GKK Capital LP. The Partnership’s business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words “Limited Partnership,” “L.P.,” “Ltd.” Or similar words or letters shall be included in the Partnership’s name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Limited Partners of such change in the next regular communication to the Limited Partners.   11 --------------------------------------------------------------------------------   Section 2.03.          Registered Office and Agent; Principal Office   The address of the registered office of the Partnership in the State of Delaware shall be located at 9 East Loockerman Street, Suite #1B in the City of Dover, County of Kent, Delaware 19901 and the registered agent for service of process on the Partnership in the State of Delaware at such registered office shall be National Registered Agents, Inc. The principal office of the Partnership shall be 420 Lexington Avenue, New York, New York, 10170 or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable.   Section 2.04.          Term   The term of the Partnership commenced on April 21, 2004, the date on which the Certificate was filed in the office of the Secretary of State of the State of Delaware in accordance with the Act, and shall continue until December 31, 2103, unless it is dissolved sooner pursuant to the provisions of Article XIII hereof or as otherwise provided by law.   ARTICLE III PURPOSE   Section 3.01.          Purpose and Business   The purpose and nature of the business to be conducted by the Partnership is (i) to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act; provided, however, that such business shall be limited to and conducted in such a manner as to permit the General Partner Entity at all times to be classified as a REIT, unless the General Partner ceases to qualify or is not qualified as a REIT for any reason or reasons not related to the business conducted by the Partnership; (ii) to enter into any partnership, joint venture, limited liability company or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged, directly or indirectly, in any of the foregoing; and (iii) to do anything necessary or incidental to the foregoing. In connection with the foregoing, the Partners acknowledge that the status of the General Partner Entity as a REIT inures to the benefit of all the Partners and not solely the General Partner or its Affiliates.   Section 3.02.          Powers   The Partnership is empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership, including, without limitation, full power and authority, directly or through its ownership interest in other entities, to enter into, perform and carry out contracts of any kind, borrow money and issue evidences of indebtedness whether or not secured by mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and develop real property, and lease, sell, transfer and dispose of real property; provided, however, that the Partnership shall not take, or refrain from taking, any action which, in the judgment of the General Partner, in its sole and absolute discretion, (i) could adversely affect the ability of the General Partner Entity to continue to qualify as a REIT, (ii) could subject the General Partner Entity to any additional taxes under Section 857 or Section 4981 of the Code or (iii) could violate any law or regulation of any governmental body or agency having jurisdiction over the General Partner Entity or its securities, unless such action (or inaction) shall have been specifically consented to by the General Partner in writing.   12 --------------------------------------------------------------------------------   Section 3.03.          Partnership Only for Purposes Specified   The Partnership shall be a partnership only for the purposes specified in Section 3.01 above, and this Agreement shall not be deemed to create a partnership among the Partners with respect to any activities whatsoever other than the activities within the purposes of the Partnership as specified in Section 3.01 above.   ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP INTERESTS   Section 4.01.          Capital Contributions of the Partners   A.    Capital Contributions. Prior to the date hereof, certain Partners made Capital Contributions to the Partnership. Exhibit A hereto reflects the Capital Contributions made by each Partner, the Partnership Units assigned to each Partner and the Percentage Interest in the Partnership represented by such Partnership Units. The Capital Accounts of the Partners and the Carrying Values of the Partnership’s Assets have been and will continue to be determined pursuant to Section I.D of Exhibit B hereto to reflect the Capital Contributions made.   B.     General Partnership Interest. A number of Partnership Units held by the General Partner equal to one percent (1%) of all outstanding Partnership Units shall be deemed to be the General Partnership Interest. All other Partnership Units held by the General Partner shall be deemed to be Limited Partner Interests and shall be held by the General Partner in its capacity as a Limited Partner in the Partnership.   C.     Capital Contributions By Merger. To the extent the Partnership acquires any property by the merger of any other Person into the Partnership, Persons who receive Partnership Interests in exchange for their interests in the Person merging into the Partnership shall become Partners and shall be deemed to have made Capital Contributions as provided in the applicable merger agreement and as set forth in Exhibit A hereto.   D.    No Obligation to Make Additional Capital Contributions. Except as provided in Sections 7.05 and 10.05 hereof, the Partners shall have no obligation to make any additional Capital Contributions or provide any additional funding to the Partnership (whether in the form of loans, repayments of loans or otherwise). No Partner shall have any obligation to restore any deficit that may exist in its Capital Account, either upon a liquidation of the Partnership or otherwise.   Section 4.02.          Issuances of Partnership Interests   A.    General. The General Partner is hereby authorized to cause the Partnership from time to time to issue to Partners (including the General Partner and its Affiliates) or other Persons (including, without limitation, in connection with the contribution of property to the Partnership) Partnership Units or other Partnership Interests in one or more classes, or in one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Limited Partner Interests, all as shall be determined, subject to applicable Delaware law, by the General Partner in its sole and absolute discretion, including, without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests, (ii) the right of each such class or series of Partnership Interests to share in Partnership distributions and (iii)the rights of each such class or series of Partnership Interests   13 --------------------------------------------------------------------------------   upon dissolution and liquidation of the Partnership; provided, that no such Partnership Units or other Partnership Interests shall be issued to the General Partner unless either (a) the Partnership Interests are issued in connection with the grant, award or issuance of Shares or other equity interests in the General Partner having designations, preferences and other rights such that the economic interests attributable to such Shares or other equity interests are substantially similar to the designations, preferences and other rights (except voting rights) of the additional Partnership Interests issued to the General Partner in accordance with this Section 4.02.A or (b) the Partnership Interests are issued to all Partners holding Partnership Interests in the same class in proportion to their respective Percentage Interests in such class. In the event that the Partnership issues Partnership Interests pursuant to this Section 4.02.A, the General Partner shall make such revisions to this Agreement (including but not limited to the revisions described in Section 5.04, Section 6.02 and Section 8.06 hereof) as it deems necessary to reflect the issuance of such additional Partnership Interests.   B.     Percentage Interest Adjustments in the Case of Capital Contributions for Class A Units. Upon the acceptance of additional Capital Contributions in exchange for Class A Units, the Percentage Interest related thereto shall be equal to a fraction, the numerator of which is equal to the amount of cash, if any, plus the Agreed Value of Contributed Property, if any, contributed with respect to such additional Partnership Units and the denominator of which is equal to the sum of (i) value of the Partnership Interests for all outstanding Class A Units (computed as of the Business Day immediately preceding the date on which the additional Capital Contributions are made (an “Adjustment Date”)) plus (ii) the aggregate amount of additional Capital Contributions contributed to the Partnership on such Adjustment Date in respect of such additional Class A Units. The Percentage Interest of each other Partner holding Class A Units not making a full pro rata Capital Contribution shall be adjusted to a fraction the numerator of which is equal to the sum of (i) the value of such Limited Partner (computed as of the Business Day immediately preceding the Adjustment Date) plus (ii) the amount of additional Capital Contributions (such amount being equal to the amount of cash, if any, plus the Agreed Value of Contributed Property, if any, so contributed), if any, made by such Partner to the Partnership in respect of such Class A Units as of such Adjustment Date and the denominator of which is equal to the sum of (i) the value of the outstanding Class A Units (computed as of the Business Day immediately preceding such Adjustment Date) plus (ii) the aggregate amount of the additional Capital Contributions contributed to the Partnership on such Adjustment Date in respect of such additional Class A Units. For purposes of calculating a Partner’s Percentage Interest of Class A Units pursuant to this Section 4.02.B, cash Capital Contributions by the General Partner will be deemed to equal the cash contributed by the General Partner plus (a) in the case of cash contributions funded by an offering of any equity interests in or other securities of the General Partner, the offering costs attributable to the cash contributed to the Partnership, and (b) in the case of Class A Units issued pursuant to Section 7.05.E hereof, an amount equal to the difference between the Value of the Shares sold pursuant to any Stock Option Plan and the net proceeds of such sale.   C.     Classes of Partnership Units. From and after the Effective Date, subject to Section 4.02.A above, the Partnership shall have two classes of Partnership Units, entitled “Class A Units” and “Class B Units.” From and after December 14, 2005, the Partnership shall have an additional class of Partnership Units, entitled “LTIP Units.” Class A Units may be issued to newly admitted Partners in exchange for the contribution by such Partners of cash, real estate partnership interests, stock, notes or other assets or consideration.   D.    Issuance of Class B Units. On the Effective Date, the General Partner issued 100 Class B Units to the Manager. The Manager immediately assigned 85 of such Units to SL Green, which assignment was reflected on Exhibit A. There was no obligation to contribute any capital in connection until issuance of the Class B Units. The initial Capital Accounts of the Holders of the Class B Units in respect of such Units was zero. All Class B Units issued under this Agreement are intended to qualify as “profits interests” under Revenue Procedure 93-27, 1993-2 C.B. 343 (June 9, 1993) and Revenue   14 --------------------------------------------------------------------------------   Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001), and this Section 4.02.D shall be interpreted and applied consistently therewith. The General Partner at its discretion may amend this Section 4.02.D to ensure that any Class B Units granted after the date of this Agreement will qualify as “profits interests” under Revenue Procedure 93-27, 1993-2 C.B. 343 (June 9, 1993) and Revenue Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001) (and any other similar rulings or regulations that may be in effect at such time).   E.     Issuance of LTIP Units. From time to time the General Partner may issue LTIP Units to Persons providing services to or for the benefit of the Partnership. LTIP Units shall have the rights, powers, privileges, restrictions, qualifications and limitations specified in Exhibit E hereto. LTIP Units are intended to qualify as profits interests in the Partnership and for the avoidance of doubt, the provisions of Section 4.04 shall not apply to the issuance of LTIP Units.   Section 4.03.          No Preemptive Rights   Except to the extent expressly granted by the Partnership pursuant to another agreement, no Person shall have any preemptive, preferential or other similar right with respect to (i) additional Capital Contributions or loans to the Partnership or (ii) issuance or sale of any Partnership Units or other Partnership Interests.   Section 4.04.          Other Contribution Provisions   In the event that any Partner is admitted to the Partnership and is given a Capital Account in exchange for services rendered to the Partnership, such transaction shall be treated by the Partnership and the affected Partner as if the Partnership had compensated such Partner in cash, and the Partner had contributed such cash to the capital of the Partnership.   Section 4.05.          No Interest on Capital   No Partner shall be entitled to interest on its Capital Contributions or its Capital Account.   ARTICLE V DISTRIBUTIONS   Section 5.01.          Requirement and Characterization of Distributions   A.    General. Except as otherwise provided herein, the General Partner shall make distributions at such times and in such amounts as it may determine. Such distributions shall be made to the Partners who are Partners on the Partnership Record Date for such distribution. Notwithstanding anything to the contrary contained herein, in no event may a Partner receive a distribution with respect to a Partnership Unit for a quarter or shorter period if such Partner is entitled to receive a distribution relating to such period with respect to a Share for which such Partnership Unit has been redeemed or exchanged. Unless otherwise expressly provided for herein or in an agreement at the time a new class of Partnership Interests is created in accordance with Article IV hereof, no Partnership Interest shall be entitled to a distribution in preference to any other Partnership Interest. The General Partner shall make such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the qualification of the General Partner Entity as a REIT, to make distributions (a) to Limited Partners so as to preclude any such distribution or portion thereof from being treated as part of a sale of property by a Limited Partner under Section 707 Code or the Regulations thereunder; provided that, the General Partner and the Partnership   15 --------------------------------------------------------------------------------   shall not have liability to a Limited Partner under any circumstances as a result of any distribution to a Limited Partner being so treated, and (b) to the General Partner in an amount sufficient to enable the General Partner Entity to pay stockholder dividends that will (1) satisfy the requirements for qualification as a REIT under the Code and the Regulations (the “REIT Requirements”) and (2) avoid any federal income or excise tax liability for the General Partner Entity.   B.     Method. Distributions shall be made (i) first, to the holders of Class B Units as provided in Section 5.01.C hereof, and to each other holder of a Partnership Interest that is entitled to any preference in distribution, in accordance with the rights of any such class of Partnership Interests, and (ii) thereafter, to the holders of Class A Units and each other class of Partnership Interests ranking in parity to the Class A Units (including, without limitation, the LTIP Units if and to the extent they are then entitled to participate in such distributions pursuant to Section 2 of Exhibit E hereto), in proportion to the relative Percentage Interests of each such class of Partnership Interests. All distributions within a class of Partnership Units shall be pro rata in proportion to the respective Percentage Interests on the applicable Partnership Record Date.   C.     Distributions When Class B Units Are Outstanding. Holders of Class B Units shall receive quarterly distributions for each calendar quarter (or portion thereof) in an aggregate amount equal to 25% of the amount, if any, by which (i) the sum of Funds From Operations plus any gains (or losses) from debt restructuring or property sales exceeds (ii) the product of the Partnership’s weighted average Stockholders Equity multiplied by 2.375% (such percentage to be prorated for any partial quarter). These distributions shall be paid to Holders of Class B Units within 45 days after the end of each quarter. These distributions shall be recalculated at the end of each calendar year beginning with 2004, as 25% of the amount by which (A) annual Funds From Operations plus any gains (or losses) from debt restructuring and gains (or losses) or property sales for such calendar year (or part thereof) exceeds (B) the Partnership’s weighted average Stockholders Equity for such year multiplied by 9.5% (such percentage to be prorated for any partial year). To the extent quarterly distributions exceed the annual recalculated amount, the Holders of Class B Units shall refund the excess to the Partnership, and to the extent the annual recalculated amount exceeds the quarterly distributions made for such year, such excess shall be paid by the Partnership to such Holders within 90 days after the end of such calendar year. Distributions (and any refunds of distributions) made pursuant to this Section 5.01.C shall be apportioned, subject to Section 5.01.D, among the holders of Class B Units pro rata in accordance with their Class B Distribution Percentages, determined as of the date of such distribution (or, in the case of any refund, as of the date of the distribution(s) with respect to which such refund is attributable).   D.    Class B Units Intended to Qualify as Profits Interests. Distributions made pursuant to this Section 5.01 shall be adjusted as necessary to ensure that the amount apportioned to each Class B Unit does not exceed the amount attributable to items of Partnership income or gain realized after the date such Class B Unit was issued by the Partnership. The intent of this Section 5.01.D is to ensure that any Class B Units issued after the date of this Agreement qualify as “profits interests” under Revenue Procedure 93-27, 1993-2 C.B. 343 (June 9, 1993) and Revenue Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001), and Section 5.01 shall be interpreted and applied consistently therewith. The General Partner at its discretion may amend this Section 5.01.D to ensure that any Class B Units granted after the date of this Agreement will qualify as “profits interests” under Revenue Procedure 93-27, 1993-2 C.B. 343 (June 9, 1993) and Revenue Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001) (and any other similar rulings or regulations that may be in effect at such time).   16 --------------------------------------------------------------------------------   Section 5.02.          Amounts Withheld   All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.05 hereof with respect to any allocation, payment or distribution to the General Partner, the Limited Partners or Assignees shall be treated as amounts distributed to the General Partner, Limited Partners or Assignees pursuant to Section 5.01 above for all purposes under this Agreement.   Section 5.03.          Distributions Upon Liquidation   Proceeds from a Terminating Capital Transaction shall be distributed to the Partners in accordance with Section 13.02 hereof.   Section 5.04.          Revisions to Reflect Issuance of Additional Partnership Interests   In the event that the Partnership issues additional Partnership Interests to the General Partner or any Additional Limited Partner pursuant to Article IV hereof, the General Partner shall make such revisions to this Article V as it deems necessary to reflect the issuance of such additional Partnership Interests. Such revisions shall not require the consent or approval of any other Partner.   ARTICLE VI ALLOCATIONS   Section 6.01.          Allocations For Capital Account Purposes   For purposes of maintaining the Capital Accounts and in determining the rights of the Partners among themselves, the Partnership’s items of income, gain, loss and deduction (computed in accordance with Exhibit B hereto) shall be allocated among the Partners in each taxable year (or portion thereof) as provided herein below.   A.    Net Income. After giving effect to the special allocations set forth in Section 1 of Exhibit C hereto, Net Income shall be allocated (i) first, to the General Partner to the extent that Net Losses previously allocated to the General Partner, on a cumulative basis, pursuant to the last sentence of Section 6.01.B below exceed Net Income previously allocated to the General Partner, on a cumulative basis, pursuant to this clause (i) of Section 6.01.A, (ii) second, to Holders of Class B Units and to the holders of any other Partnership Interests that are entitled to any preference in distribution in accordance with the rights of any such class of Partnership Interests until each such Partnership Interest has been allocated, on a cumulative basis pursuant to this clause (ii), Net Income equal to the sum of the amount of distributions theretofore received (or to be received with respect to the fiscal year of the Partnership in which such Net Income accrues) with respect to such Partnership Interests pursuant to clause (i) of Section 5.01.B hereof and the amount of any prior allocations of Net Losses to such class of Partnership Interests pursuant to Section 6.01.B.(i) below (and, within such class, pro rata in proportion to the respective interests in such class as of the last day of the period for which such allocation is being made) and (iii) third, with respect to Partnership Interests that are not entitled to any preference in the allocation of Net Income, pro rata to each such class in accordance with the terms of such class (and, within such class, pro rata in proportion to the respective interests in such class as of the last day of the period for which such allocation is being made).   B.     Net Losses. After giving effect to the special allocations set forth in Section 1 of Exhibit C hereto, Net Losses shall be allocated (i) first, to the Holders of Class B Units and to holders of any other Partnership Interests that are entitled to any preference in distribution in accordance with the rights of any   17 --------------------------------------------------------------------------------   such class of Partnership Interests to the extent that any prior allocations of Net Income to such class of Partnership Interests pursuant to Section 6.01.A (1)(ii) above exceed, on a cumulative basis, distributions theretofore received (or to be received with respect to the fiscal year of the Partnership in which such Net Income accrues) with respect to such Partnership Interests pursuant to clause (i) of Section 5.01.B hereof (and, within such class, pro rata in proportion to the respective interests in such class as of the last day of the period for which such allocation is being made) and (ii) second, with respect to classes of Partnership Interests that are not entitled to any preference in distribution, pro rata to each such class in accordance with the terms of such class (and, within such class, pro rata in proportion to the respective interests in such class as of the last day of the period for which such allocation is being made); provided that, Net Losses shall not be allocated to any Limited Partner pursuant to this Section 6.01.B to the extent that such allocation would cause such Limited Partner to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) at the end of such taxable year (or portion thereof). All Net Losses in excess of the limitations set forth in this Section 6.01.B shall be allocated to the General Partner.   C.     Recapture Income. Any gain allocated to the Partners upon the sale or other taxable disposition of any Partnership asset shall, to the extent possible after taking into account other required allocations of gain pursuant to Exhibit C hereto, be characterized as Recapture Income in the same proportions and to the same extent as such Partners have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income.   D.    Special Allocations. With Respect to LTIP Units. After giving effect to the special allocations set forth in Section 1 of Exhibit C hereto, and notwithstanding the provisions of Sections 6.01.A and 6.01.B above, but subject to the prior allocation of income and gain under clauses 6.01.A (i) and (ii) above, any Liquidating Gains shall first be allocated to the holders of LTIP Units until the Economic Capital Account Balances of such holders, to the extent attributable to their ownership of LTIP Units, are equal to (i) the Class A Unit Economic Balance, multiplied by (ii) the number of their LTIP Units; provided that no such Liquidating Gains will be allocated with respect to any particular LTIP Unit unless and to the extent that such Liquidating Gains, when aggregated with other Liquidating Gains realized since the issuance of such LTIP Unit, exceed Liquidating Losses realized since the issuance of such LTIP Unit. After giving effect to the special allocations set forth in Section 1 of Exhibit C hereto, and notwithstanding the provisions of Sections 6.01.A and 6.01.B above, in the event that, due to distributions with respect to Class A Units in which the LTIP Units do not participate or otherwise, the Economic Capital Account Balance of any present or former holder of LTIP Units, to the extent attributable to the holder’s ownership of LTIP Units, exceeds the target balance specified above, then Liquidating Losses shall be allocated to such holder to the extent necessary to reduce or eliminate the disparity. In the event that Liquidating Gains or Liquidating Losses are allocated under this Section 6.01.D, Net Income allocable under clause 6.01.A (iii) and any Net Losses shall be recomputed without regard to the Liquidating Gains or Liquidating Losses so allocated. For this purpose, “Liquidating Gains” means any net capital gain realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership, including but not limited to net capital gain realized in connection with an adjustment to the Carrying Value of Partnership assets under Section 1.D of Exhibit B to this Agreement. Similarly, “Liquidating Losses” means any net capital loss realized in connection with any such event. The “Economic Capital Account Balances” of the holders of LTIP Units will be equal to their Capital Account balances, plus the amount of their shares of any Partner Minimum Gain or Partnership Minimum Gain, in either case to the extent attributable to their ownership of LTIP Units. Similarly, the “Class A Unit Economic Balance” shall mean (i) the Capital Account balance of the General Partner, plus the amount of the General Partner’s share of any Partner Minimum Gain or Partnership Minimum Gain, in either case to the extent attributable to the General Partner’s ownership of Class A Units and computed on a hypothetical basis after taking into account all allocations through the date on which any allocation is made under this Section 6.01.D, divided by (ii) the number of the General   18 --------------------------------------------------------------------------------   Partner’s Class A Units. Any such allocations shall be made among the holders of LTIP Units in proportion to the amounts required to be allocated to each under this Section 6.01.D. The parties agree that the intent of this Section 6.01.D is to make the Capital Account balance associated with each LTIP Unit economically equivalent to the Capital Account balance associated with the General Partner’s Class A Units (on a per-unit basis), but only if the Partnership has recognized cumulative net gains with respect to its assets since the issuance of the relevant LTIP Unit.   Section 6.02.          Revisions to Allocations to Reflect Issuance of Additional Partnership Interests   In the event that the Partnership issues additional Partnership Interests to the General Partner or any Additional Limited Partner pursuant to Article IV hereof, the General Partner shall make such revisions to this Article VI and Exhibit A as it deems necessary to reflect the terms of the issuance of such additional Partnership Interests, including making preferential allocations to classes of Partnership Interests that are entitled thereto. Such revisions shall not require the consent or approval of any other Partner.   ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS   Section 7.01.          Management   A.    Powers of General Partner. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Limited Partners with or without cause; provided, however, that if the Shares (or comparable equity securities) of the General Partner Entity are not Publicly Traded, the General Partner maybe removed with cause with the Consent of the Limited Partners. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to Sections 7.06 and 7.11 below, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership, to exercise all powers set forth in Section 3.02 hereof and to effectuate the purposes set forth in Section 3.01 hereof, including, without limitation:   (1)  the making of any expenditures, the lending or borrowing of money or will permit the General Partner Entity (as long as the General Partner Entity qualifies as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Section 4981 of the Code) and to make distributions to its stockholders sufficient to permit the General Partner Entity to maintain REIT status, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by mortgage, deed of trust or other lien or encumbrance on the Partnership’s assets) and the incurring of any obligations the General Partner deems necessary for the conduct of the activities of the Partnership;   (2)  the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership;   19 --------------------------------------------------------------------------------   (3)  the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Partnership (including the exercise or grant of any conversion, option, privilege or subscription right or other right available in connection with any assets at any time held by the Partnership) or the merger or other combination of the Partnership with or into another entity, on such terms as the General Partner deems proper;   (4)  the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct of the operations of the Partnership or any of the Partnership’s Subsidiaries, the lending of funds to other Persons (including, without limitation, the Partnership’s Subsidiaries) and the repayment of obligations of the Partnership and its Subsidiaries and any other Person in which the Partnership has an equity investment and the making of capital contributions to its Subsidiaries;   (5)  the negotiation, execution, delivery and performance of any contracts, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnership’s operations or the implementation of the General Partner’s powers under this Agreement, including contracting with contractors, developers, consultants, accountants, legal counsel, other professional advisors, and other agents and the payment of their expenses and compensation out of the Partnership’s assets;   (6)  the mortgage, pledge, encumbrance or hypothecation of any assets of the Partnership, and the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct or the operations of the General Partners or the Partnership, the lending of funds to other Persons (including, without limitation, any Subsidiaries of the Partnership) and the repayment of obligations of the Partnership, any of its Subsidiaries and any other Person in which it has an equity investment;   (7)  the distribution of Partnership cash or other Partnership assets in accordance with this Agreement;   (8)  the holding, managing, investing and reinvesting of cash and other assets of the Partnership;   (9)  the collection and receipt of revenues and income of the Partnership;   (10)         the selection, designation of powers, authority and duties and dismissal of employees of the Partnership (including, without limitation, employees having titles such as “president,” “vice president,” “secretary” and “treasurer”) and agents, outside attorneys, accountants, consultants and contractors of the Partnership, and the determination of their compensation and other terms of employment or hiring;   (11)         the maintenance of such insurance for the benefit of the Partnership and the Partners as it deems necessary or appropriate;   (12)         the formation of, or acquisition of an interest (including non-voting interests in entities controlled by Affiliates of the Partnership or third parties) in, and the contribution of property to, any further limited or general partnerships, joint ventures, limited liability companies or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of funds or property, or the making of loans, to its Subsidiaries   20 --------------------------------------------------------------------------------   and any other Person in which it has an equity investment from time to time or the incurrence of indebtedness on behalf of such Persons or the guarantee of obligations of such Persons); provided that, as long as the General Partner has determined to qualify as a REIT, the Partnership may not engage in any such formation, acquisition or contribution that would cause the General Partner to fail to qualify as a REIT);   (13)         the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution or abandonment of any claim, cause of action, liability, debt or damages due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense and the indemnification of any Person against liabilities and contingencies to the extent permitted by law;   (14)         the determination of the fair market value of any Partnership property distributed in kind, using such reasonable method of valuation as the General Partner may adopt;   (15)         the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any assets or investment held by the Partnership;   (16)         the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, individually or jointly with any such Subsidiary or other Person;   (17)         the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have any interest pursuant to contractual or other arrangements with such Person;   (18)         the making, executing and delivering of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or other legal instruments or agreements in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner under this Agreement;   (19)         the distribution of cash to acquire Partnership Units held by a Limited Partner in connection with a Limited Partner’s exercise of its Redemption Right under Section 8.06 hereof; and   (20)         the amendment and restatement of Exhibit A hereto to reflect accurately at all times the Capital Contributions and Percentage Interests of the Partners as the same are adjusted from time to time to the extent necessary to reflect redemptions, Capital Contributions, the issuance of Partnership Units, the admission of any Additional Limited Partner or any Substituted Limited Partner or otherwise, which amendment and restatement, notwithstanding anything in this Agreement to the contrary, shall not be deemed an amendment of this Agreement, as long as the matter or event being reflected in Exhibit A hereto otherwise is authorized by this Agreement.   B.     No Approval by Limited Partners. Except as provided in Section 7.11 below, each of the Limited Partners agrees that the General Partner is authorized to execute, deliver and perform the above-mentioned   21 --------------------------------------------------------------------------------   agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provision of this Agreement, the Act or any applicable law, rule or regulation, to the full extent permitted under the Act or other applicable law. The execution, delivery or performance by the General Partner or the Partnership of any agreement authorized or permitted under this Agreement shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity.   C.     Insurance. At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the properties of the Partnership, (ii) liability insurance for the Indemnitees hereunder and (iii) such other insurance as the General Partner, in its sole and absolute discretion, determines to be necessary.   D.    Working Capital and Other Reserves. At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain working capital reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time, including upon liquidation of the Partnership pursuant to Section 13.02 hereof.   E.     No Obligations to Consider Tax Consequences of Limited Partners.   In exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner (including the General Partner) of any action taken (or not taken) by it. The General Partner and the Partnership shall not have liability to a Limited Partner for monetary damages or otherwise for losses sustained, liabilities incurred or benefits not derived by such Limited Partner in connection with such decisions, provided that the General Partner has acted in good faith and pursuant to its authority under this Agreement.   Section 7.02.          Certificate of Limited Partnership   The General Partner has previously filed the Certificate with the Secretary of State of Delaware. To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and each other state, the District of Columbia or other jurisdiction in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.05.A (4) hereof, the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware and any other state, the District of Columbia or other jurisdiction in which the Partnership may elect to do business or own property.   Section 7.03.          Title to Partnership Assets   Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partners, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name   22 --------------------------------------------------------------------------------   of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.   Section 7.04.          Reimbursement of the General Partner   A.    No Compensation. Except as provided in this Section 7.04 and elsewhere in this Agreement (including the provisions of Articles V and VI hereof regarding distributions, payments and allocations to which it may be entitled), the General Partner shall not be compensated for its services as general partner of the Partnership.   B.     Responsibility for Partnership Expenses. The Partnership shall be responsible for and shall pay all expenses relating to the Partnership’s organization, the ownership of its assets and its operations. The General Partner shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all expenses it incurs relating to the ownership and operation of, or for the benefit of, the Partnership (including, without limitation, expenses related to the management and administration of any Subsidiaries of the General Partner or the Partnership or Affiliates of the Partnership such as auditing expenses and filing fees); provided that, the amount of any such reimbursement shall be reduced by (i) any interest earned by the General Partner with respect to bank accounts or other instruments or accounts held by it as permitted in Section 7.05.A below and (ii) any amount derived by the General Partner from any investments permitted in Section 7.05.A below; and, provided further, that the General Partner shall not be reimbursed for (i) income tax liabilities or (ii) filing or similar fees in connection with maintaining the General Partner’s continued corporate existence that are incurred by the General Partner. The General Partner shall determine in good faith the amount of expenses incurred by it related to the ownership and operation of, or for the benefit of, the Partnership. In the event that certain expenses are incurred for the benefit of the Partnership and other entities (including the General Partner), such expenses will be allocated to the Partnership and such other entities in such a manner as the General Partner in its sole and absolute discretion deems fair and reasonable. Such reimbursements shall be in addition to any reimbursement to the General Partner pursuant to Section 10.03.C hereof and as a result of indemnification pursuant to Section 7.07 below. All payments and reimbursements hereunder shall be characterized for federal income tax purposes as expenses of the Partnership incurred on its behalf, and not as expenses of the General Partner.   C.     Partnership and Other Interests Issuance and Repurchase Expenses. The General Partner shall also be reimbursed for all expenses it incurs relating to any issuance or repurchase of additional Partnership Interests, Shares, Debt of the Partnership or the General Partner or rights, options, warrants or convertible or exchangeable securities pursuant to Article IV hereof (including, without limitation, all costs, expenses, damages and other payments resulting from or arising in connection with litigation related to any of the foregoing), all of which expenses are considered by the Partners to constitute expenses of, and for the benefit of, the Partnership.   D.    Reimbursement not a Distribution. If and to the extent any reimbursement made pursuant to this Section 7.04 is determined for federal income tax purposes not to constitute a payment of expenses of the Partnership, the amount so determined shall be treated as a distribution to the General Partner and there shall be a corresponding special allocation of gross income to the General Partner, for purposes of computing the Partners’ Capital Accounts.   23 --------------------------------------------------------------------------------   Section 7.05.          Outside Activities of the General Partner   A.            General. Notwithstanding anything in this Agreement to the contrary, it is expressly understood and agreed that the General Partner may, if it determines such action to be in the best interests of the REIT or the Partnership, elect to cause some or all of the assets of the Partnership (including cash expected to be utilized to purchase assets that will be so held) to be distributed to and held directly by the General Partner (the “Specially Distributed Assets”). Concurrently with any such distribution, the General Partner shall (i) amend Section 5.01 of this Agreement so as to provide that, from and after the date of such distribution, each Partner other than the General Partner will receive the same distributions that it would have received had the Specially Distributed Assets been held by the Partnership rather than directly by the General Partner (and a corresponding adjustment shall be made to the distributions to be made to the General Partner); and (ii) make such further amendments to this Agreement (including, without limitation, to the income and loss allocation provisions of Section 6.01 hereof) as may be necessary or appropriate to effect the intention of the parties that the Partners be placed, as nearly as possible, in the same position they would have been in had such Specially Distributed Assets been held by the Partnership rather than directly by the General Partner; provided, however, that the General Partner shall in no event be required to make contributions to the Partnership to fund distributions to the other Partners.   B.     Repurchase of Shares. In the event the General Partner exercises its rights under the Articles of Incorporation to purchase Shares or otherwise elects to purchase from its stockholders Shares in connection with a stock repurchase or similar program or for the purpose of delivering such shares to satisfy an obligation under any dividend reinvestment or stock purchase program adopted by the General Partner, any employee stock purchase plan adopted by the General Partner or any similar obligation or arrangement undertaken by the General Partner in the future, then the General Partner shall cause the Partnership to purchase from the General Partner that number of Partnership Units of the appropriate class equal to the product obtained by multiplying the number of Shares purchased by the General Partner times a fraction, the numerator of which is one and the denominator of which is the Conversion Factor, on the same terms and for the same aggregate price that the General Partner purchased such Shares.   C.     Forfeiture of Shares. In the event the Partnership or the General Partner acquires Shares as a result of the forfeiture of such Shares under a restricted or similar share plan, then the General Partner shall cause the Partnership to cancel that number of Partnership Units of the appropriate class equal to the number of Shares so acquired divided by the Conversion Factor, and, if the Partnership acquired such Shares, it shall transfer such Shares to the General Partner for cancellation.   D.    Issuances of Shares. After the Effective Date, the General Partner shall not grant, award, or issue any additional Shares (other than Shares issued pursuant to Section 8.06 hereof or pursuant to a dividend or distribution (including any stock split) of Shares to all of its stockholders), other equity securities of the General Partner or New Securities unless (i) the General Partner shall cause, pursuant to Section 4.02.A hereof, the Partnership to issue to the General Partner Partnership Interests or rights, options, warrants or securities of the Partnership having designations, preferences and other rights, all such that the economic interests are substantially the same as those of such additional Shares, other equity securities or New Securities, as the case may be, and (ii) the General Partner transfers to the Partnership, as an additional Capital Contribution, the proceeds from the grant, award, or issuance of such additional Shares, other equity securities or New Securities, as the case may be, or from the exercise of rights contained in such additional Shares, other equity securities or New Securities, as the case may be. Without limiting the foregoing, the General Partner is expressly authorized to issue additional Shares, other equity securities or New Securities, as the case maybe, for less than fair market value, and the General Partner is expressly authorized, pursuant to Section 4.02.A hereof, to cause the Partnership to issue to the General Partner corresponding Partnership Interests, as long as (a) the General Partner   24 --------------------------------------------------------------------------------   concludes in good faith that such issuance is in the interests of the General Partner and the Partnership (for example, and not by way of limitation, the issuance of Shares and corresponding Partnership Units pursuant to a stock purchase plan providing for purchases of Shares, either by employees or stockholders, at a discount from fair market value or pursuant to employee stock options that have an exercise price that is less than the fair market value of the Shares, either at the time of issuance or at the time of exercise) and (b) the General Partner transfers all proceeds from any such issuance or exercise to the Partnership as an additional Capital Contribution.   E.     Stock Option Plan. If at any time or from time to time, the General Partner sells Shares pursuant to any Stock Option Plan, the General Partner shall transfer the net proceeds of the sale of such Shares to the Partnership as an additional Capital Contribution in exchange for an amount of additional Partnership Units equal to the number of Shares so sold divided by the Conversion Factor.   F.     Funding Debt. The General Partner may incur a Funding Debt, including, without limitation, a Funding Debt that is convertible into Shares or otherwise constitutes a class of New Securities, subject to the condition that the General Partner lends to the Partnership the net proceeds of such Funding Debt; provided, that the General Partner shall not be obligated to lend the net proceeds of any Funding Debt to the Partnership in a manner that would be inconsistent with the General Partner’s ability to remain qualified as a REIT. If the General Partner enters into any Funding Debt, the loan to the Partnership shall be on comparable terms and conditions, including interest rate, repayment schedule and costs and expenses, as are applicable with respect to or incurred in connection with such Funding Debt.   Section 7.06.          Transactions with Affiliates   A.    Transactions with Certain Affiliates. Except (i) as expressly permitted by this Agreement (other than Section 7.01.A hereof which shall not be considered authority for a transaction that otherwise would be prohibited by this Section 7.06.A) and (ii) all transactions with SL Green or its Affiliates contemplated by the General Partner’s initial public offering, the Partnership shall not, directly or indirectly, sell, transfer or convey any property to, or purchase any property from, or borrow funds from, or lend funds to, any Partner or any Affiliate of the Partnership or the General Partner or the General Partner Entity that is not also a Subsidiary of the Partnership, except pursuant to transactions that are on terms that are fair and reasonable and no less favorable to the Partnership than would be obtained from an unaffiliated third party.   B.     Benefit Plans. The General Partner, in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt on behalf of the Partnership employee benefit plans funded by the Partnership for the benefit of employees of the General Partner, the Partnership, Subsidiaries of the Partnership, SL Green, the Manager or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership, the General Partner, or any of the Partnership’s Subsidiaries.   C.     Conflict Avoidance. The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various Affiliates of SL Green, the Manager, the Partnership and General Partner on such terms as the General Partner, in its sole and absolute discretion, believes are advisable.   Section 7.07.          Indemnification   A.    General. The Partnership shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorneys fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from or in   25 --------------------------------------------------------------------------------   connection with any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative incurred by the Indemnitee and relating to the Partnership or the General Partner or the formation or operations of, or the ownership of property by, either of them as set forth in this Agreement in which any such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established by a final determination of a court of competent jurisdiction that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty, (ii) the Indemnitee actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guarantee, contractual obligations for any indebtedness or other obligations or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.07 in favor of any Indemnitee having or potentially having liability for any such indebtedness. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.07.A. The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the Indemnitee acted in a manner contrary to that specified in this Section 7.07.A with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.07 shall be made only out of the assets of the Partnership, and any insurance proceeds from the liability policy covering the General Partner and any Indemnitees, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.07.   B.     Advancement of Expenses. Reasonable expenses expected to be incurred by an Indemnitee shall be paid or reimbursed by the Partnership in advance of the final disposition of any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative made or threatened against an Indemnitee upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 7.07.B has been met and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.   C.     No Limitation of Rights. The indemnification provided by this Section 7.07 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity unless otherwise provided in a written agreement pursuant to which such Indemnitee is indemnified.   D.    Insurance. The Partnership may purchase and maintain insurance on behalf of the Indemnitees and such other Persons as the General Partner shall determine against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.   E.     Benefit Plan Fiduciary. For purposes of this Section 7.07, (i) the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services   26 --------------------------------------------------------------------------------   by, it to the plan or participants or beneficiaries of the plan, (ii) excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of this Section 7.07 and (iii) actions taken or omitted by the Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be i n the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Partnership.   F.     No Personal Liability for Limited Partners. In no event may an Indemnitee subject any of the Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.   G.     Interested Transactions. An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.07 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.   H.    Benefit. The provisions of this Section 7.07 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.07, or any provision hereof, shall be prospective only and shall not in any way affect the limitation on the Partnership’s liability to any Indemnitee under this Section 7.07 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or related to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.   I.      Indemnification Payments Not Distributions. If and to the extent any payments to the General Partner pursuant to this Section 7.07 constitute gross income to the General Partner (as opposed to the repayment of advances made on behalf of the Partnership), such amounts shall constitute guaranteed payments within the meaning of Section 707(c) of the Code, shall be treated consistently therewith by the Partnership and all Partners, and shall not be treated as distributions for purposes of computing the Partners’ Capital Accounts.   Section 7.08.          Liability of the General Partner   A.    General. Notwithstanding anything to the contrary set forth in this Agreement, the General Partner and its directors and officers shall not be liable for monetary damages to the Partnership, any Partners or any Assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission if the General Partner or its directors and officers acted in good faith.   B.     No Obligation to Consider Separate Interests of Limited Partners or Stockholders. The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership and the General Partner’s stockholders collectively, that the General Partner is under no obligation to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or Assignees or to such stockholders) in deciding whether to cause the Partnership to take (or decline to take) any actions. In the event of a conflict between the interests of the stockholders of the General Partner Entity on one hand and the Limited Partners on the other, the General Partner shall endeavor in good faith to resolve the conflict in manner not adverse to either the stockholders of the General Partner Entity or the Limited Partners; provided, however, that for so long as the General Partner Entity, directly, or the General Partner, owns a controlling interest in the Partnership, any such conflict that cannot be resolved in a manner not adverse to either the stockholders of the General Partner Entity or the Limited Partners shall be resolved in favor of the stockholders. The General Partner shall not be liable for monetary damages or otherwise for losses sustained, liabilities incurred or benefits not derived   27 --------------------------------------------------------------------------------   by Limited Partners in connection with such decisions, provided that the General Partner has acted in good faith.   C.     Actions of Agents. Subject to its obligations and duties as General Partner set forth in Section 7.01.A above, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such employee or agent appointed by the General Partner in good faith.   D.    Effect of Amendment. Any amendment, modification or repeal of this Section 7.08 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner’s liability to the Partnership and the Limited Partners under this Section 7.08 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.   E.     Certain Definitions. Whenever in this Agreement the General Partner is permitted or required to make a decision (i) in its “sole discretion “or “discretion,” or under a similar grant of authority or latitude, the General Partner shall be entitled to consider such interests and factors as it desires and may consider its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Partnership or the Limited Partners, or (ii) in its “good faith” or under another express standard, the General Partner shall act under such express standard and shall not be subject to any other or different standards imposed by this Agreement or by law or any other agreement contemplated herein.   Section 7.09.          Other Matters Concerning the General Partner   A.    Reliance on Documents. The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties.   B.     Reliance on Advisors. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisors selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters which the General Partner reasonably believes to be within such Person’s professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.   C.     Action Through Agents. The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty which is permitted or required to be done by the General Partner hereunder.   D.    Actions to Maintain REIT Status or Avoid Taxation of the General Partner Entity. Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the General Partner Entity to continue to qualify as a REIT or (ii) to allow the General Partner Entity to avoid incurring any liability for taxes under Section 857 or 4981 of the   28 --------------------------------------------------------------------------------   Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.   Section 7.10.          Reliance by Third Parties   Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without consent or approval of any other Partner or Person, to encumber, sell or otherwise use in any manner any and all assets of the Partnership, to enter into any contracts on behalf of the Partnership and to take any and all actions on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if the General Partner were the Partnership’s sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies which may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership, and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.   Section 7.11.          Restrictions on General Partner’s Authority   A.    Consent Required. The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the written Consent of (i) all Partners adversely affected or (ii) such lower percentage of the Limited Partner Interests as may be specifically provided for under a provision of this Agreement or the Act.   B.     Sale of All Assets of the Partnership. Except as provided in Article XIII hereof, the General Partner may not, directly or indirectly, cause the Partnership to sell, exchange, transfer or otherwise dispose of all or substantially all of the Partnership’s assets in a single transaction or a series of related transactions (including by way of merger (including a triangular merger), consolidation or other combination with any other Persons) (i) if such merger, sale or other transaction is in connection with a Termination Transaction permitted under Section 11.02.B hereof, without the Consent of the Partners holding a majority of Percentage Interests (including the effect of any Partnership Units held by the General Partner) or (ii) otherwise, without the Consent of the Limited Partners.   29 --------------------------------------------------------------------------------   Section 7.12.          Loans by Third Parties   The Partnership may incur Debt, or enter into similar credit, guarantee, financing or refinancing arrangements for any purpose (including, without limitation, in connection with any acquisition of property or other assets) with any Person that is not the General Partner upon such terms as the General Partner determines appropriate; provided that, the Partnership shall not incur any Debt that is recourse to the General Partner, except to the extent otherwise agreed to by the General Partner in its sole discretion.   ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS   Section 8.01.          Limitation of Liability   The Limited Partners shall have no liability under this Agreement except as expressly provided in this Agreement, including Section 10.05 hereof, or under the Act.   Section 8.02.          Management of Business   No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operation, management or control (within the meaning of the Act) of the Partnership’s business, transact any business in the Partnership’s name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.   Section 8.03.          Outside Activities of Limited Partners   Subject to Section 7.05 hereof, and subject to any agreements entered into pursuant to Section 7.06.C hereof and to any other agreements entered into by a Limited Partner or its Affiliates with the Partnership or a Subsidiary, any Limited Partner (other than the General Partner) and any officer, director, employee, agent, trustee, Affiliate or stockholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct or indirect competition with the Partnership. Neither the Partnership nor any Partners shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. None of the Limited Partners (other than the General Partner) nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person (other than the General Partner to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character which, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person.   Section 8.04.          Return of Capital   Except pursuant to the right of redemption set forth in Section 8.06 below, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein.   30 --------------------------------------------------------------------------------   No Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions (except as permitted by Section 4.02.A hereof) or, except to the extent provided by Exhibit C hereto or as permitted by Sections 4.02.A, 5.01.B, 6.01.A (ii) and 6.01.B (i) hereof or otherwise expressly provided in this Agreement, as to profits, losses, distributions or credits.   Section 8.05.          Rights of Limited Partners Relating to the Partnership   A.    General. In addition to other rights provided by this Agreement or by the Act, and except as limited by 8.05.D below, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner’s interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partner’s own expense:   (1)  to obtain a copy of the most recent annual and quarterly reports filed with the Securities and Exchange Commission by the General Partner Entity pursuant to the Exchange Act;   (2)  to obtain a copy of the Partnership’s federal, state and local income tax returns for each Partnership Year;   (3)  to obtain a current list of the name and last known business, residence or mailing address of each Partner;   (4)  to obtain a copy of this Agreement and the Certificate and all amendments thereto, together with executed copies of all powers of attorney pursuant to which this Agreement, the Certificate and all amendments thereto have been executed; and   (5)  to obtain true and full information regarding the amount of cash and a description and statement of any other property or services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner.   B.     Notice of Conversion Factor. The Partnership shall notify each Limited Partner upon request of the then current Conversion Factor and any changes that have been made thereto.   C.     Notice of Extraordinary Transaction of the General Partner Entity. The General Partner Entity shall not make any extraordinary distributions of cash or property to its stockholders or effect a merger (including without limitation, a triangular merger), a sale of all or substantially all of its assets or any other similar extraordinary transaction without notifying the Limited Partners of its intention to make such distribution or effect such merger, sale or other extraordinary transaction at least twenty (20) Business Days prior to the record date to determine stockholders eligible to receive such distribution or to vote upon the approval of such merger, sale or other extraordinary transaction (or, if no such record date is applicable, at least twenty (20) Business Days before consummation of such merger, sale or other extraordinary transaction). This provision for such notice shall not be deemed (i) to permit any transaction that otherwise is prohibited by this Agreement or requires a Consent of the Partners or (ii) to require a Consent of the Limited Partners to a transaction that does not otherwise require Consent under this Agreement. Each Limited Partner agrees, as a condition to the receipt of the notice pursuant hereto, to keep confidential the information set forth therein until such time as the General Partner Entity has made public disclosure thereof and to use such information during such period of confidentiality solely for purposes of determining whether or not to exercise the Redemption Right; provided, however, that a Limited Partner may disclose such information to its attorney, accountant and/or financial advisor for purposes of obtaining advice with respect to such exercise so long as such attorney, accountant and/or financial advisor agrees to receive and hold such information subject to this confidentiality requirement.   31 --------------------------------------------------------------------------------   D.    Confidentiality. Notwithstanding any other provision of this Section 8.05, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or could damage the Partnership or its business or (ii) the Partnership is required by law or by agreements with unaffiliated third parties to keep confidential.   Section 8.06.          Class A Redemption Right   A.    General. (i)  Subject to Section 8.06.C below, on or after the date two (2) years after the issuance of a Class A Unit to a Limited Partner pursuant to Article IV hereof, the holder of a Class A Unit (if other than the General Partner or the General Partner Entity) shall have the right (the “Redemption Right”) to require the Partnership to redeem such Class A Unit on a Specified Redemption Date and at a redemption price equal to and in the form of the Cash Amount to be paid by the Partnership. Any such Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Partnership (with a copy to the General Partner) by the Limited Partner who is exercising the Redemption Right (the “Redeeming Partner”). A Limited Partner may not exercise the Redemption Right for less than one thousand (1,000) Class A Units or, if such Redeeming Partner holds less than one thousand (1,000) Class A Units, for less than all of the Class A Units held by such Redeeming Partner.   (ii)           The Redeeming Partner shall have no right with respect to any Class A Units so redeemed to receive any distributions paid after the Specified Redemption Date.   (iii)          The Assignee of any Limited Partner may exercise the rights of such Limited Partner pursuant to this Section 8.06 and such Limited Partner shall be deemed to have assigned such rights to such Assignee and shall be bound by the exercise of such rights by such Limited Partner’s Assignee. In connection with any exercise of the such rights by such Assignee on behalf of such Limited Partner, the Cash Amount shall be paid by the Partnership directly to such Assignee and not to such Limited Partner.   (iv)          Notwithstanding the foregoing, the Redemption Right shall not be exercisable with respect to any Class A Unit issued upon conversion of an LTIP Unit until on or after the date that is two years after the date on which the LTIP Unit was issued, provided however, that the foregoing restriction shall not apply if the Redemption Right is exercised by a LTIP Unit holder in connection with a transaction that falls within the definition of a “change of control” under the agreement or agreements pursuant to which the LTIP Units were issued to him or her and provided further that the two (2) year requirement set forth in the first sentence of Section 8.06.A(i) shall not apply with respect to Class A Units issued upon conversion of LTIP Units.   B.     General Partner Assumption of Right. (i) If a Limited Partner has delivered a Notice of Redemption, the General Partner may, in its sole and absolute discretion (subject to any limitations on ownership and transfer of Shares set forth in the Articles of Incorporation), elect to assume directly and satisfy a Redemption Right by paying to the Redeeming Partner either the Cash Amount or the Shares Amount, as the General Partner determines in its sole and absolute discretion (provided that payment of the Redemption Amount in the form of Shares shall be in Shares registered under Section 12 of the Exchange Act and listed for trading on the exchange or national market on which the Shares are Publicly Traded, and provided, further that, in the event that the Shares are not Publicly Traded at the time a Redeeming Partner exercises its Redemption Right, the Redemption Amount shall be paid only in the form of the Cash Amount unless the Redeeming Partner, in its sole and absolute discretion, consents to payment of the Redemption Amount in the form of the Shares Amount), on the Specified Redemption Date, whereupon the General Partner shall acquire the Class A Units offered for redemption by the   32 --------------------------------------------------------------------------------   Redeeming Partner and shall be treated for all purposes of this Agreement as the owner of such Partnership Units. Unless the General Partner, in its sole and absolute discretion, shall exercise its right to assume directly and satisfy the Redemption Right, the General Partner shall not have any obligation to the Redeeming Partner or to the Partnership with respect to the Redeeming Partner’s exercise of the Redemption Right. In the event the General Partner shall exercise its right to satisfy the Redemption Right in the manner described in the first sentence of this Section 8.06.B and shall fully perform its obligations in connection therewith, the Partnership shall have no right or obligation to pay any amount to the Redeeming Partner with respect to such Redeeming Partner’s exercise of the Redemption Right, and each of the Redeeming Partner, the Partnership and the General Partner shall, for federal income tax purposes, treat the transaction between the General Partner and the Redeeming Partner as a sale of the Redeeming Partner’s Partnership Units to the General Partner. Nothing contained in this Section 8.06.B shall imply any right of the General Partner to require any Limited Partner to exercise the Redemption Right afforded to such Limited Partner pursuant to Section 8.06.A above.   (ii)           In the event that the General Partner determines to pay the Redeeming Partner the Redemption Amount in the form of Shares, the total number of Shares to be paid to the Redeeming Partner in exchange for the Redeeming Partner’s Partnership Units shall be the applicable Shares Amount. In the event this amount is not a whole number of Shares, the Redeeming Partner shall be paid (i) that number of Shares which equals the nearest whole number less than such amount plus (ii) an amount of cash which the General Partner determines, in its reasonable discretion, to represent the fair value of the remaining fractional Share which would otherwise be payable to the Redeeming Partner.   (iii)          Each Redeeming Partner agrees to execute such documents as the General Partner may reasonably require in connection with the issuance of Shares upon exercise of the Redemption Right.   C.     Exceptions to Exercise of Redemption Right. Notwithstanding the provisions of Sections 8.06.A and 8.06.B above, a Partner shall not be entitled to exercise the Redemption Right pursuant to Section 8.06.A above if (but only as long as) the delivery of Shares to such Partner on the Specified Redemption Date (i) would be prohibited under the Articles of Incorporation or (ii) as long as the Shares are Publicly Traded, would be prohibited under applicable federal or state securities laws or regulations (in each case regardless of whether the General Partner would in fact assume and satisfy the Redemption Right).   D.    No Liens on Partnership Units Delivered for Redemption. Each Limited Partner covenants and agrees with the General Partner that all Partnership Units delivered for redemption (including Partnership Units redeemed under Section 8.07) shall be delivered to the Partnership or the General Partner, as the case may be, free and clear of all liens, and, notwithstanding anything contained herein to the contrary, neither the General Partner nor the Partnership shall be under any obligation to acquire Partnership Units which are or may be subject to any liens. Each Limited Partner further agrees that, in the event any state or local property transfer tax is payable as a result of the transfer of its Partnership Units to the Partnership or the General Partner, such Limited Partner shall assume and pay such transfer tax.   E.     Additional Partnership Interests. In the event that the Partnership issues Partnership Interests to any Additional Limited Partner pursuant to Article IV hereof, the General Partner shall make such amendments to this Section 8.06 as it determines are necessary to reflect the issuance of such Partnership Interests (including setting forth any restrictions on the exercise of the Redemption Right with respect to such Partnership Interests).   33 --------------------------------------------------------------------------------   Section 8.07.          Redemption of Class B Units   The Class B Units shall be subject to mandatory redemption if the Management Agreement is terminated or not renewed. The General Partner shall send notice of Class B Unit redemption or non-renewal within ten days after the General Partner sends or receives notice of termination or non-renewal of the Management Agreement. The redemption date shall be the date on which termination or non-renewal of the Management Agreement is effective. If the Management Agreement is terminated pursuant to Section 13(d) of the Management Agreement or not renewed by the General Partner pursuant to Section 13(b) of the Management Agreement, the redemption amount, to be paid in cash or by wire transfer on the redemption date, shall be equal to two times of the higher of the annual distributions on a Class B Unit relating to either of the two most recently completed calendar years; provided that if immediately following such termination or non-renewal the General Partner becomes self-managed in connection with an internalization of the Manager pursuant to a separate agreement 13(the “Internalization Agreement”) between the Manager and the General Partner and/or a subsidiary of the General Partner, the redemption amount shall be $100.14 In such event, the consideration to be paid for such internalization shall be as set forth in the Internalization Agreement. If the Management Agreement is terminated by the General Partner pursuant to Section 13(c) of the Management Agreement or not renewed by the Manager pursuant to Section 13(b) of the Management Agreement, the aggregate redemption amount shall be $100. Upon any such redemption, the Class B Units will also be entitled to receive any distributions payable with respect to periods through the redemption date. If such distribution amounts cannot be calculated on or by the redemption date, they shall be calculated and paid as promptly as possible thereafter, but in no event later than 30 days after the redemption date.   ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS   Section 9.01.          Records and Accounting   The General Partner shall keep or cause to be kept at the principal office of the Partnership appropriate books and records with respect to the Partnership’s business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 9.03 below. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles.   Section 9.02.          Fiscal Year   The fiscal year of the Partnership shall be the calendar year.   Section 9.03.          Reports   A.    Annual Reports. As soon as practicable, but in no event later than the date on which the General Partner Entity mails its annual report to its stockholders, the General Partner shall cause to be mailed to each Limited Partner an annual report, as of the close of the most recently ended Partnership Year, containing financial statements of the Partnership, or of the General Partner Entity if such statements are prepared solely on a consolidated basis with the Partnership, for such Partnership Year,   34 --------------------------------------------------------------------------------   presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner Entity.   B.     Quarterly Reports. If and to the extent that the General Partner Entity mails quarterly reports to its stockholders, as soon as practicable, but in no event later than the date on which such reports are mailed, the General Partner shall cause to be mailed to each Limited Partner a report containing unaudited financial statements, as of the last day of such calendar quarter, of the Partnership, or of the General Partner Entity if such statements are prepared solely on a consolidated basis with the Partnership, and such other information as may be required by applicable law or regulation, or as the General Partner determines to be appropriate.   ARTICLE X TAX MATTERS   Section 10.01.        Preparation of Tax Returns   The General Partner shall arrange for the preparation and timely filing of all returns of Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state income tax purposes and shall use all reasonable efforts to furnish, within ninety (90) days of the close of each taxable year, the tax information reasonably required by Limited Partners for federal and state income tax reporting purposes.   Section 10.02.        Tax Elections   A.    Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code. The General Partner shall have the right to seek to revoke any such election (including, without limitation, an election under Section 754 of the Code) upon the General Partner’s determination in its sole and absolute discretion that such revocation is in the best interests of the Partners.   B.     To the extent provided for in Treasury Regulations, revenue rulings, revenue procedures and/or other IRS guidance issued after the date hereof, the Partnership is hereby authorized to, and at the direction of the General Partner shall, elect a safe harbor under which the fair market value of any Partnership Interests issued after the effective date of such Treasury Regulations (or other guidance) will be treated as equal to the liquidation value of such Partnership Interests (i.e., a value equal to the total amount that would be distributed with respect to such interests if the Partnership sold all of its assets for their fair market value immediately after the issuance of such Partnership Interests, satisfied its liabilities (excluding any non-recourse liabilities to the extent the balance of such liabilities exceeds the fair market value of the assets that secure them) and distributed the net proceeds to the Partners under the terms of this Agreement). In the event that the Partnership makes a safe harbor election as described in the preceding sentence, each Partner hereby agrees to comply with all safe harbor requirements with respect to transfers of such Partnership Interests while the safe harbor election remains effective.   Section 10.03.        Tax Matters Partner   A.    General. The General Partner shall be the “tax matters partner” of the Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3) of the Code, upon receipt of notice from the IRS of the beginning of an administrative proceeding with respect to the Partnership, the tax matters partner shall furnish the IRS with the name, address, taxpayer identification number and profit interest of each of the   35 --------------------------------------------------------------------------------   Limited Partners and any Assignees; provided, however, that such information is provided to the Partnership by the Limited Partners.   B.     Powers. The tax matters partner is authorized, but not required:   (1)  to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a “tax audit” and such judicial proceedings being referred to as “judicial review”), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except that such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner or (ii) who is a “notice partner” (as defined in Section 6231(a)(8) of the Code) or a member of a “notice group” (as defined in Section 6223(b)(2) of the Code);   (2)  in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a “final adjustment”) is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the Tax Court or the filing of a complaint for refund with the United States Claims Court or the District Court of the United States for the district in which the Partnership’s principal place of business is located;   (3)  to intervene in any action brought by any other Partner for judicial review of a final adjustment;   (4)  to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request;   (5)  to enter into an agreement with the IRS to extend the period for assessing any tax which is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and   (6)  to take any other action on behalf of the Partners of the Partnership in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations.   The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.07 hereof shall be fully applicable to the tax matters partner in its capacity as such.   C.     Reimbursement. The tax matters partner shall receive no compensation for its services. All third party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm or a law firm to assist the tax matters partner in discharging its duties hereunder.   36 --------------------------------------------------------------------------------   Section 10.04.        Organizational Expenses   The Partnership shall elect to deduct expenses, if any, incurred by it in organizing the Partnership ratably over a sixty (60) month period as provided in Section 709 of the Code.   Section 10.05.        Withholding   Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of federal, state, local, or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the Code. Any amount paid on behalf of or with respect to a Limited Partner shall constitute a recourse loan by the Partnership to such Limited Partner, which loan shall be repaid by such Limited Partner within fifteen (15) days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution which would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the available funds of the Partnership which would, but for such payment, be distributed to the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as having been distributed to such Limited Partner. Each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Limited Partner’s Partnership Interest to secure such Limited Partner’s obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.05. In the event that a Limited Partner fails to pay any amounts owed to the Partnership pursuant to this Section 10.05 when due, the General Partner may, in its sole and absolute discretion, elect to make the payment to the Partnership on behalf of such defaulting Limited Partner, and in such event shall be deemed to have loaned such amount to such defaulting Limited Partner and shall succeed to all rights and remedies of the Partnership as against such defaulting Limited Partner (including, without limitation, the right to receive distributions). Any amounts payable by a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus four (4) percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Limited Partner shall take such actions as the Partnership or the General Partner shall request in order to perfect or enforce the security interest created hereunder.   ARTICLE XI TRANSFERS AND WITHDRAWALS   Section 11.01.        Transfer   A.    Definition. The term “transfer,” when used in this Article XI with respect to a Partnership Interest or a Partnership Unit, shall be deemed to refer to a transaction by which the General Partner purports to assign all or any part of its General Partnership Interest to another Person or by which a Limited Partner purports to assign all or any part of its Limited Partner Interest to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. The term “transfer” when used in this Article XI does not include any redemption or repurchase of Partnership Units by the Partnership from a Partner (including the General Partner), acquisition of Partnership Units from a Limited Partner by the General Partner pursuant to Section 8.06 hereof or otherwise or any conversion of LTIP Units into Class A Units. No part of the interest of a Limited Partner shall be subject to the claims of any creditor, any spouse for alimony or   37 --------------------------------------------------------------------------------   support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement.   B.     General. No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article XI. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article XI shall be null and void.   Section 11.02.        Transfers of Partnership Interests of General Partner   A.    Except for transfers of Partnership Units to the Partnership as provided in Section 7.05 or Section 8.06 hereof, the General Partner may not transfer any of its Partnership Interest except (i) in connection with a transaction described in Section 11.02.B below (ii) to a wholly-owned Subsidiary or (iii) as otherwise expressly permitted under this Agreement, nor shall the General Partner withdraw as General Partner except in connection with a transaction described in Section11.02.B below.   B.     The General Partner shall not engage in any merger (including a triangular merger), consolidation or other combination with or into another person, sale of all or substantially all of its assets or any reclassification, recapitalization or change of outstanding Shares (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination as described in the definition of “Conversion Factor”) (“Termination Transaction”), unless the Termination Transaction has been approved by the Consent of the Partners holding a majority or more of the then outstanding Percentage Interests (including the effect of any Partnership Units held by the General Partner) and in connection with which all Limited Partners either will receive, or will have the right to elect to receive, for each Partnership Unit an amount of cash, securities, or other property equal to the product of the Conversion Factor and the greatest amount of cash, securities or other property paid to a holder of Shares, if any, corresponding to such Partnership Unit that was issued pursuant to Section 4.02.A hereof in consideration of one such Share at any time during the period from and after the date on which the Termination Transaction is consummated; provided that, if, in connection with the Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than fifty percent (50%) of the outstanding Shares, each holder of Partnership Units shall receive, or shall have the right to elect to receive, the greatest amount of cash, securities, or other property which such holder would have received had it exercised the Redemption Right and received Shares in exchange for its Partnership Units immediately prior to the expiration of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer.   Section 11.03.        Limited Partners’ Rights to Transfer   A.    General. A Limited Partner may not transfer any of such Limited Partner’s rights as a Limited Partner without the consent of the General Partner, which consent the General Partner may withhold in its sole discretion; provided, however, that no consent shall be required for a transfer or assignment by the Manager or SL Green or its Affiliate of its Class B Units or the rights to receive distributions pursuant to Class B Units to an officer, director or employee of the General Partner, the Manager or SL Green.   B.     Incapacitated Limited Partners. If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partner’s estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners for the purpose of settling or managing the estate and such power as the Incapacitated Limited Partner possessed to transfer all or any part of its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership.   38 --------------------------------------------------------------------------------   C.     No Transfers Violating Securities Laws. The General Partner may prohibit any transfer of Partnership Units by a Limited Partner if, in the opinion of legal counsel to the Partnership, such transfer would require filing of a registration statement under the Securities Act or would otherwise violate any federal, or state securities laws or regulations applicable to the Partnership or the Partnership Unit.   D.    No Transfers Affecting Tax Status of Partnership. No transfer of Partnership Units by a Limited Partner (including a redemption or exchange pursuant to Section 8.06 hereof) may be made to any Person if (i) in the opinion of legal counsel for the Partnership, it would result in the Partnership being treated as an association taxable as a corporation for federal income tax purposes or would result in a termination of the Partnership for federal income tax purposes (except as a result of the redemption or exchange for Shares of all Partnership Units held by all Limited Partners other than the General Partner or the General Partner Entity or any Subsidiary of either the General Partner or the General Partner Entity or pursuant to a transaction expressly permitted under Section 7.11.B or Section 11.02 hereof), (ii) in the opinion of legal counsel for the Partnership, it would adversely affect the ability of the General Partner Entity to continue to qualify as a REIT or would subject the General Partner Entity to any additional taxes under Section 857 or Section 4981 of the Code or (iii) such transfer is effectuated through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code.   E.     No Transfers to Holders of Nonrecourse Liabilities. No pledge or transfer of any Partnership Units may be made to a lender to the Partnership, or to any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Partnership, whose loan constitutes a Nonrecourse Liability without the consent of the General Partner, in its sole and absolute discretion; provided that, as a condition to such consent the lender will be required to enter into an arrangement with the Partnership and the General Partner to exchange or redeem for the Redemption Amount any Partnership Units transferred or in which a security interest is held simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code.   F.     Transfer Register. The General Partner shall keep a register for the Partnership on which the transfer, pledge or release of Partnership Units shall be shown and pursuant to which entries shall be made to effect all transfers, pledges or releases as required by Sections 8-207,8-313(1) and 8-321 of the Uniform Commercial Code, as amended, in effect in the States of New York and Delaware; provided, however, that if there is any conflict between such requirements, the provisions of the Delaware Uniform Commercial Code shall govern. The General Partner shall (i) place proper entries in such register clearly showing each transfer and each pledge and grant of security interest and the transfer and assignment pursuant thereto, such entries to be endorsed by the General Partner and (ii) maintain the register and make the register available for inspection by all of the Partners and their pledgees at all times during the term of this Agreement. Nothing herein shall be deemed a consent to any pledge or transfer otherwise prohibited under this Agreement.   Section 11.04.    Substituted Limited Partners   A.    Consent of General Partner. No Limited Partner shall have the right to substitute a transferee as a Limited Partner in its place without the consent of the General Partner to the admission of a transferee of the interest of a Limited Partner pursuant to this Section 11.04 as a Substituted Limited Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion. The General Partner’s failure or refusal to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or any Partner; provided that a transfer which does not require consent of the General Partner under Section 11.03A shall not require the General Partner’s consent under this section.   39 --------------------------------------------------------------------------------   B.     Rights of Substituted Limited Partner. A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article XI shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement. The admission of any transferee as a Substituted Limited Partner shall be conditioned upon the transferee executing and delivering to the Partnership an acceptance of all the terms and conditions of this Agreement (including, without limitation, the provisions of Section 15.11 hereof and such other documents or instruments as may be required to effect the admission).   C.     Amendment and Restatement of Exhibit A. Upon the admission of a Substituted Limited Partner, the General Partner shall amend and restate Exhibit A hereto to reflect the name, address, Capital Account, number of Partnership Units, and Percentage Interest of such Substituted Limited Partner and to eliminate or adjust, if necessary, the name, address, Capital Account and Percentage Interest of the predecessor of such Substituted Limited Partner.   Section 11.05.    Assignees   If the General Partner, in its sole and absolute discretion, does not consent to the admission of any permitted transferee under Section 11.03 above as a Substituted Limited Partner, as described in Section 11.04 above, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partner interest under the Act, including the right to receive distributions from the Partnership and the share of Net Income, Net Losses, gain, loss and Recapture Income attributable to the Partnership Units assigned to such transferee, and shall have the rights granted to the Limited Partners under Section 8.06 hereof but shall not be deemed to be a holder of Partnership Units for any other purpose under this Agreement, and shall not be entitled to vote such Partnership Units in any matter presented to the Limited Partners for a vote (such Partnership Units being deemed to have been voted on such matter in the same proportion as all other Partnership Units held by Limited Partners are voted). In the event any such transferee desires to make a further assignment of any such Partnership Units, such transferee shall be subject to all the provisions of this Article XI to the same extent and in the same manner as any Limited Partner desiring to make an assignment of Partnership Units.   Section 11.06.    General Provisions   A.    Withdrawal of Limited Partner. No Limited Partner may withdraw from the Partnership other than as a result of a permitted transfer of all of such Limited Partner’s Partnership Units in accordance with this Article XI or pursuant to redemption of all of its Partnership Units under Section 8.06 hereof.   B.     Termination of Status as Limited Partner. Any Limited Partner who shall transfer all of its Partnership Units in a transfer permitted pursuant to this Article XI or pursuant to redemption of all of its Partnership Units under Section 8.06 hereof shall cease to be a Limited Partner.   C.     Timing of Transfers. Transfers pursuant to this Article XI may only be made on the first day of a fiscal quarter of the Partnership, unless the General Partner otherwise agrees.   D.    Allocations. If any Partnership Interest is transferred during any quarterly segment of the Partnership’s fiscal year in compliance with the provisions of this Article XI or redeemed or transferred pursuant to Section 8.06 hereof, Net Income, Net Losses, each item thereof and all other items attributable to such interest for such fiscal year shall be divided and allocated between the transferor Partner and the transferee Partner by taking into account their varying interests during the fiscal year in accordance with Section 706(d) of the Code, using the interim closing of the books method (unless the General Partner, in   40 --------------------------------------------------------------------------------   its sole and absolute discretion, elects to adopt a daily, weekly, or a monthly proration period, in which event Net Income, Net Losses, each item thereof and all other items attributable to such interest for such fiscal year shall be prorated based upon the applicable method selected by the General Partner). Solely for purposes of making such allocations, each of such items for the calendar month in which the transfer or redemption occurs shall be allocated to the Person who is a Partner as of midnight on the last day of said month. All distributions attributable to any Partnership Unit with respect to which the Partnership Record Date is before the date of such transfer, assignment or redemption shall be made to the transferor Partner or the Redeeming Partner, as the case may be, and, in the case of a transfer or assignment other than a redemption, all distributions thereafter attributable to such Partnership Unit shall be made to the transferee Partner.   E.     Additional Restrictions. In addition to any other restrictions on transfer herein contained, including without limitation the provisions of this Article XI, in no event may any transfer or assignment of a Partnership Interest by any Partner (including pursuant to Section 8.06 hereof) be made without the express consent of the General Partner, in its sole and absolute discretion, (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) of any component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest except as permitted by Section 11.03A; (iv) if in the opinion of legal counsel to the Partnership such transfer would cause a termination of the Partnership for federal or state income tax purposes (except as a result of the redemption or exchange for Shares of all Partnership Units held by all Limited Partners or pursuant to a transaction expressly permitted under Section 7.11.B or Section 11.02 hereof); (v) if in the opinion of counsel to the Partnership, such transfer would cause the Partnership to cease to be classified as a partnership for federal income tax purposes (except as a result of the redemption or exchange for Shares of all Partnership Units held by all Limited Partners or pursuant to a transaction expressly permitted under Section 7.11.B or Section 11.02 hereof); (vi) if such transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in Section 3(14) of ERISA) or a “disqualified person” (as defined in Section 4975(c) of the Code); (vii) without the consent of the General Partner, to any “benefit plan investor” within the meaning of Department of Labor Regulations Section 2510.3-101(f); (viii) if such transfer would, in the opinion of counsel to the Partnership, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2570.3-101; (ix) if such transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (x) if such transfer is effectuated through an “established securities market” or a “secondary market” (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code or such transfer causes the Partnership to become a “publicly traded partnership,” as such term is defined in Section 469(k)(2) or Section 7704(b) of the Code; (xi) if such transfer subjects the Partnership to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or the Employee Retirement Income Security Act of 1974, each as amended; (xii) if such transfer could adversely affect the ability of the General Partner Entity to remain qualified as a REIT; or (xiii) if in the opinion of legal counsel for the Partnership, such transfer would adversely affect the ability of the General Partner Entity to continue to qualify as a REIT or subject the General Partner Entity to any additional taxes under Section 857 or Section 4981 of the Code.   F.     Avoidance of “Publicly Traded Partnership” Status. The General Partner shall monitor the transfers of interests in the Partnership to determine (i) if such interests are being traded on an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code and (ii) whether additional transfers of interests would result in the Partnership being unable to qualify for at least one of the “safe harbors” set forth in Regulations Section 1.7704-1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as “readily tradable” on a secondary market (or the substantial   41 --------------------------------------------------------------------------------   equivalent thereof) within the meaning of Section 7704 of the Code (the “Safe Harbors”). The General Partner shall take all steps reasonably necessary or appropriate to prevent any trading of interests or any recognition by the Partnership of transfers made on such markets and, except as otherwise provided herein, to insure that at least one of the Safe Harbors is met.   ARTICLE XII ADMISSION OF PARTNERS   Section 12.01.    Admission of Successor General Partner   A successor to all of the General Partner’s General Partnership Interest pursuant to Section 11.02 hereof who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective upon such transfer. Any such transferee shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner’s executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission.   Section 12.02.    Admission of Additional Limited Partners   A.    General. No Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent shall be given or withheld in the General Partner’s sole and absolute discretion. A Person who makes a Capital Contribution to the Partnership in accordance with this Agreement, including, without limitation, pursuant to Section 4.01.C hereof, or who exercises an option to receive Partnership Units shall be admitted to the Partnership as an Additional Limited Partner only with the consent of the General Partner and only upon furnishing to the General Partner (i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 15.11 hereof and (ii) such other documents or instruments as may be required in the discretion of the General Partner in order to effect such Person’s admission as an Additional Limited Partner. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission.   B.     Allocations to Additional Limited Partners. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items allocable among Partners and Assignees for such Partnership Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Partnership Year in accordance with Section 706(d) of the Code, using the interim closing of the books method (unless the General Partner, in its sole and absolute discretion, elects to adopt a daily, weekly or monthly proration method, in which event Net Income, Net Losses, and each item thereof would be prorated based upon the applicable period selected by the General Partner).Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Partners and Assignees including such Additional Limited Partner. All distributions with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions thereafter shall be made to all the Partners and Assignees including such Additional Limited Partner.   42 --------------------------------------------------------------------------------   Section 12.03.    Amendment of Agreement and Certificate of Limited Partnership   For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership (including an amendment and restatement of Exhibit A hereto) and, if necessary, to prepare as soon as practical an amendment of this Agreement and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 15.11 hereof.   ARTICLE XIII DISSOLUTION AND LIQUIDATION   Section 13.01.    Dissolution   The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business of the Partnership. The Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (“Liquidating Events”):   (i)        the expiration of its term as provided in Section 2.04 hereof;   (ii)        an event of withdrawal of the General Partner, as defined in the Act (other than an event of bankruptcy), unless, within ninety (90) days after the withdrawal a “majority in interest” (as defined below) of the remaining Partners Consent in writing to continue the business of the Partnership and to the appointment, effective as of the date of withdrawal, of a substitute General Partner;   (iii)        an election to dissolve the Partnership made by the General Partner, in its sole and absolute discretion, on or after January 1, 2054;   (iv)        entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act; or   (v)        a final and nonappealable judgment is entered by a court of competent jurisdiction ruling that the General Partner is bankrupt or insolvent, or a final and nonappealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless prior to or within ninety days after of the entry of such order or judgment a “majority in interest” (as defined below) of the remaining Partners Consent in writing to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such order or judgment, of a substitute General Partner.   As used herein, a “majority in interest” shall refer to Partners (excluding the General Partner) who hold more than fifty percent (50%) of the outstanding Percentage Interests not held by the General Partner.   Section 13.02.    Winding Up   A.    General. Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Partners. No Partner shall take any action that is in consistent with, or not necessary to or appropriate for, the winding up of the Partnership’s business and affairs. The General   43 --------------------------------------------------------------------------------   Partner (or, in the event there is no remaining General Partner, any Person elected by a majority in interest of the Limited Partners (the “Liquidator”)) shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership’s liabilities and property and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include equity or other securities of the General Partner or any other entity) shall be applied and distributed in the following order:   (1)           First, to the payment and discharge of all of the Partnership’s debts and liabilities to creditors other than the Partners;   (2)           Second, to the payment and discharge of all of the Partnership’s debts and liabilities to the Partners; and   (3)           The balance, if any, to the Partners in accordance with their Capital Accounts, after giving effect to all contributions, distributions, and allocations for all periods.   The General Partner shall not receive any additional compensation for any services performed pursuant to this Article XIII.   B.     Deferred Liquidation. Notwithstanding the provisions of Section 13.02.A above which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership’s assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) or distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.02.A above, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.   Section 13.03.    Compliance with Timing Requirements of Regulations   Subject to Section 13.04 below, in the event the Partnership is “liquidated” within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article XIII to the General Partner and Limited Partners who have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever. In the discretion of the General Partner, a pro rata portion of the distributions that would otherwise be made to the General Partner and Limited Partners pursuant to this Article XIII may be:  (A) distributed to a trust established for the benefit of the General Partner and Limited Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the General Partner arising out of or in connection with the Partnership (in which case the assets of any such trust shall be distributed to the General Partner and   44 --------------------------------------------------------------------------------   Limited Partners from time to time, in the reasonable discretion of the General Partner, in the same proportions as the amount distributed to such trust by the Partnership would otherwise have been distributed to the General Partner and Limited Partners pursuant to this Agreement); or (B) withheld to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld amounts shall be distributed to the General Partner and Limited Partners as soon as practicable.   Section 13.04.    Deemed Distribution and Recontribution   Notwithstanding any other provision of this Article XIII, in the event the Partnership is deemed liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership’s property shall not be liquidated, the Partnership’s liabilities shall not be paid or discharged and the Partnership’s affairs shall not be wound up. Instead, for federal income tax purposes and for purposes of maintaining Capital Accounts pursuant to Exhibit B hereto, the Partnership shall be deemed to have distributed its assets in kind to the General Partner and Limited Partners, who shall be deemed to have assumed and taken such assets subject to all Partnership liabilities, all in accordance with their respective Capital Accounts. Immediately thereafter, the General Partner and Limited Partners shall be deemed to have recontributed the Partnership assets in kind to the Partnership, which shall be deemed to have assumed and taken such assets subject to all such liabilities.   Section 13.05.    Rights of Limited Partners   Except as otherwise provided in this Agreement, each Limited Partner shall look solely to the assets of the Partnership for the return of its Capital Contributions and shall have no right or power to demand or receive property other than cash from the Partnership. Except as otherwise expressly provided in this Agreement, no Limited Partner shall have priority over any other Limited Partner as to the return of its Capital Contributions, distributions, or allocations.   Section 13.06.    Notice of Dissolution   In the event a Liquidating Event occurs or an event occurs that would, but for provisions of an election or objection by one or more Partners pursuant to Section 13.01 above, result in a dissolution of the Partnership, the General Partner shall, within thirty (30) days thereafter, provide written notice thereof to each of the Partners and to all other parties with whom the Partnership regularly conducts business (as determined in the discretion of the General Partner) and shall publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business(as determined in the discretion of the General Partner).   Section 13.07.    Cancellation of Certificate of Limited Partnership   Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.02 above, the Partnership shall be terminated and the Certificate and all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of Delaware shall be canceled and such other actions as may be necessary to terminate the Partnership shall be taken.   Section 13.08.    Reasonable Time for Winding Up   A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.02 above, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect among the Partners during the period of liquidation.   45 --------------------------------------------------------------------------------   Section 13.09.    Waiver of Partition   Each Partner hereby waives any right to partition of the Partnership property.   Section 13.10.    Liability of Liquidator   The Liquidator shall be indemnified and held harmless by the Partnership in the same manner and to the same degree as an Indemnitee may be indemnified pursuant to Section 7.11 hereof.   ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS   Section 14.01.    Amendments   A.    General. Amendments to this Agreement may be proposed by the General Partner or by any Limited Partners holding twenty-five percent (25%) or more of the Partnership Interests. Following such proposal (except an amendment pursuant to Section 14.01.B below), the General Partner shall submit any proposed amendment to the Limited Partners. The General Partner shall seek the written vote of the Partners on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that it may deem appropriate. For purposes of obtaining a written vote, the General Partner may require a response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a vote which is consistent with the General Partner’s recommendation with respect to the proposal. Except as provided in Section 14.01.B, 14.01.C or 14.01.D below, a proposed amendment shall be adopted and be effective as an amendment hereto if it is approved by the General Partner and it receives the Consent of Partners holding a majority of the Percentage Interests of the Limited Partners (including Limited Partner Interests held by the General Partner).   B.     Amendments Not Requiring Limited Partner Approval. Notwithstanding Section 14.01.A or Section 14.01.C hereof, the General Partner shall have the power, without the Consent of the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes:   (1)  to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners;   (2)  to reflect the admission, substitution, termination or withdrawal of any Partner in accordance with this Agreement;   (3)  to set forth the designations, rights, powers, duties, and preferences of the holders of any additional Partnership Interests issued pursuant to Article IV hereof;   (4)  to reflect a change that does not adversely affect any of the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement or as may be expressly provided by any other provisions of this Agreement;   (5)  to adjust the terms hereof to reflect any Specially Distributed Property, as contemplated in Section 7.05.A hereof; and   46 --------------------------------------------------------------------------------   (6)  to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal, state or local agency or contained in federal, state or local law.   The General Partner shall notify the Limited Partners when any action under this Section 14.01.B is taken in the next regular communication to the Limited Partners.   C.     Amendments Requiring Limited Partner Approval (Excluding General Partner). Notwithstanding Section 14.01.A above, without the Consent of the Limited Partners (not including Limited Partner Interests held by the General Partner), the General Partner shall not amend Section 4.02.A, Section 7.01.A (second sentence only), Section 7.05, Section 7.06, Section 7.08, Section 11.02, Section 13.01, this Section 14.01.C or Section 14.02.   D.    Other Amendments Requiring Certain Limited Partner Approval. Notwithstanding anything in this Section 14.01 to the contrary, this Agreement shall not be amended with respect to any Partner adversely affected without the Consent of such Partner adversely affected if such amendment would (i) convert a Limited Partner’s interest in the Partnership into a general partner’s interest, (ii) modify the limited liability of a Limited Partner, (iii) amend Section 7.11.A, (iv) amend Article V, Article VI, or Section13.02.A(3) (except as permitted pursuant to Sections 4.02, 5.01.D, 5.04, 6.02 and 14.01(B)(3)), (v) amend Section 8.06 or any defined terms set forth in Article I that relate to the Redemption Right (except as permitted in Section 8.06.E), or (vi) amend this Section 14.01.D. Moreover, this Agreement may be amended by the General Partner to provide that certain Limited Partners have the obligation, upon liquidation of their interests in the Partnership (within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g)), to restore to the Partnership the amounts of their negative Capital Account balances, if any, for the benefit of creditors of the Partnership or Partners with positive Capital Account balances or both, together with any necessary corresponding amendments (including corresponding amendments to Sections 6.01.A, 6.01.B and Exhibit C), with the consent of only such Limited Partners and of any other Limited Partners already subject to such a restoration obligation whose restoration obligation may be affected by such amendment.   E.     Amendment and Restatement of Exhibit A Not An Amendment. Notwithstanding anything in this Article XIV or elsewhere in this Agreement to the contrary, any amendment and restatement of Exhibit A hereto by the General Partner to reflect events or changes otherwise authorized or permitted by this Agreement, whether pursuant to Section 7.01.A (20) hereof or otherwise, shall not be deemed an amendment of this Agreement and may be done at any time and from time to time, as necessary by the General Partner without the Consent of the Limited Partners.   Section 14.02.    Meetings of the Partners   A.    General. Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by Limited Partners holding twenty-five percent (25%) or more of the Partnership Interests. The notice of meeting shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven (7) days nor more than thirty (30) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Whenever the vote or Consent of Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 14.01.A above. Except as otherwise expressly provided in this Agreement, the Consent of holders of a majority of the Percentage Interests held by Limited Partners (including Limited Partner Interests held by the General Partner) shall control.   47 --------------------------------------------------------------------------------   B.     Actions Without a Meeting. Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by a majority of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement). Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of a majority of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified.   C.     Proxy. Each Limited Partner may authorize any Person or Persons to act for him by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it. Such revocation to be effective upon the Partnership’s receipt of notice thereof in writing.   D.    Conduct of Meeting. Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate.   ARTICLE XV   GENERAL PROVISIONS   Section 15.01.    Addresses and Notice   Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Partner or Assignee at the address set forth in Exhibit A hereto or such other address as the Partners shall notify the General Partner in writing.   Section 15.02.    Titles and Captions   All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to “Articles” and “Sections” are to Articles and Sections of this Agreement.   Section 15.03.    Pronouns and Plurals   Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.   Section 15.04.    Further Action   The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.   48 --------------------------------------------------------------------------------   Section 15.05.    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.   Section 15.06.    Creditors   Other than as expressly set forth herein with regard to any Indemnitee, none of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Partnership.   Section 15.07.    Waiver   No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.   Section 15.08.    Counterparts   This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto (other than the existing Partners who will become bound by this Agreement upon its execution by the General Partner).   Section 15.09.    Applicable Law   This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law.   Section 15.10.    Invalidity of Provisions   If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.   Section 15.11.    Power of Attorney   A.    General. Each Limited Partner and each Assignee who accepts Partnership Units (or any rights, benefits or privileges associated therewith) is deemed to irrevocably constitute and appoint the General Partner, any Liquidator and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:   (1)           execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments or restatements thereof) that the General Partner or any Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property, (b) all instruments that the General Partner or any Liquidator deems appropriate or necessary to reflect any amendment, change,   49 --------------------------------------------------------------------------------   modification or restatement of this Agreement in accordance with its terms, (c) all conveyances and other instruments or documents that the General Partner or any Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation, (d) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Article XI, XII or XIII hereof or the Capital Contribution of any Partner and (e) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of Partnership Interests; and   (2)           execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole discretion of the General Partner or any Liquidator, to effectuate the terms or intent of this Agreement.   Nothing contained in this Section 15.11 shall be construed as authorizing the General Partner or any Liquidator to amend this Agreement except in accordance with Article XIV hereof or as may be otherwise expressly provided for in this Agreement.   B.     Irrevocable Nature. The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, in recognition of the fact that each of the Partners will be relying upon the power of the General Partner or any Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partner’s or Assignee’s Partnership Units and shall extend to such Limited Partner’s or Assignee’s heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or any Liquidator, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner or any Liquidator, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within fifteen (15) days after receipt of the General Partner’s or Liquidator’s request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership.   Section 15.12.    Entire Agreement   This Agreement contains the entire understanding and agreement among the Partners with respect to the subject matter hereof and supersedes any prior written oral understandings or agreements among them with respect thereto.   Section 15.13.    No Rights as Stockholders   Nothing contained in this Agreement shall be construed as conferring upon the holders of the Partnership Units any rights whatsoever as stockholders of the General Partner Entity, including, without limitation, any right to receive dividends or other distributions made to stockholders of the General Partner Entity or to vote or to consent or receive notice as stockholders in respect to any meeting of stockholders for the election of directors of the General Partner Entity or any other matter.   50 --------------------------------------------------------------------------------   Section 15.14.    Limitation to Preserve REIT Status   To the extent that any amount paid or credited to the General Partner or its officers, directors, employees or agents pursuant to Section 7.04 or Section 7.07 hereof would constitute gross income to the General Partner Entity for purposes of Section 856(c)(2) or 856(c)(3) of the Code (a “General Partner Payment”) then, notwithstanding any other provision of this Agreement, the amount of such General Partner Payments for any fiscal year shall not exceed the lesser of:   (i)            an amount equal to the excess, if any, of (a) 4.20% of the General Partner Entity’s total gross income (but not including the amount of any General Partner Payments) for the fiscal year which is described in subsections (A) though (H) of Section 856(c)(2) of the Code over (b) the amount of gross income (within the meaning of Section 856(c)(2) of the Code) derived by the General Partner Entity from sources other than those described in subsections (A) through (H) of Section 856(c)(2) of the Code (but not including the amount of any General Partner Payments); or   (ii)           an amount equal to the excess, if any of (a) 25% of the General Partner Entity’s total gross income (but not including the amount of any General Partner Payments) for the fiscal year which is described in subsections (A) through (I) of Section 856(c)(3) of the Code over (b) the amount of gross income (within the meaning of Section 856(c)(3) of the Code) derived by the General Partner Entity from sources other than those described in subsections (A) through (I) of Section 856(c)(3) of the Code (but not including the amount of any General Partner Payments);   provided, however, that General Partner Payments in excess of the amounts set forth in subparagraphs (i) and (ii) above may be made if the General Partner Entity, as a condition precedent, obtains an opinion of tax counsel that the receipt of such excess amounts would not adversely affect the General Partner Entity’s ability to qualify as a REIT. To the extent General Partner Payments may not be made in a year due to the foregoing limitations, such General Partner Payments shall carry over and be treated as arising in the following year, provided, however, that such amounts shall not carry over for more than five years, and if not paid within such five year period, shall expire; provided, further, that (i) as General Partner Payments are made, such payments shall be applied first to carryover amounts outstanding, if any, and (ii) with respect to carryover amounts for more than one Partnership Year, such payments shall be applied to the earliest Partnership Year first.   51 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.     GENERAL PARTNER:       GRAMERCY CAPITAL CORP.           By:         Name: Marc Holliday     Title: President and Chief Executive Officer         LIMITED PARTNERS:       SL GREEN OPERATING PARTNERSHIP, L.P.       By: SL Green Realty Corp., its general partner           By:         Name: Andrew S. Levine     Title: Executive Vice President               GKK MANAGER LLC           By:         Name: Andrew S. Levine     Title: Executive Vice President   --------------------------------------------------------------------------------   CLASS B UNITHOLDER SIGNATURE PAGE   The undersigned holder of Class B Units in GKK Capital LP hereby consents to and enters into this Third Amended and Restated Agreement of Limited Partnership of GKK Capital LP.   Signature Line for Class B Unitholder:           Name:   Date: March [  ], 2006   --------------------------------------------------------------------------------

Exhibit 10.2 KANBAY INTERNATIONAL, INC. SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (this “Agreement”) is made and entered into by and among Kanbay International, Inc., a Delaware corporation (the “Company”), Kanbay Incorporated, an Illinois corporation (“Kanbay”) and Roy K. Stansbury (“Executive”) as of August 7, 2006 (the “Effective Date”). WHEREAS, it is in the best interests of Kanbay, the Company, and the Company’s stockholders to assure Executive’s continued dedication to Kanbay and the Company; and WHEREAS, any consideration by Kanbay and the Company of strategic transactions such as mergers and acquisitions would inevitably create personal uncertainties for Executive, and therefore distract Executive from the business of Kanbay and the Company; and WHEREAS, it is in the best interests of Kanbay, the Company and the Company’s stockholders to retain Executive’s dedication and reduce distractions by providing Executive with compensation arrangements in the event of certain terminations of Executive’s employment, including terminations in connection with a strategic transaction, as more fully provided herein. NOW, THEREFORE, in consideration of and reliance upon the foregoing background statement and the covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Kanbay, the Company and Executive agree as follows: 1.                                      DEFINITIONS 1.1           “AFFILIATE” SHALL MEAN ANY CORPORATION OR OTHER BUSINESS ENTITY THAT IS A PARENT OR SUBSIDIARY OF THE COMPANY, INCLUDING OWNERSHIP OF 50% OR MORE OF THE VOTING OR PROFITS INTERESTS OF THE CORPORATION OR OTHER BUSINESS ENTITY. 1.2           “BASE SALARY” SHALL MEAN THE ANNUAL BASE SALARY PAYABLE TO EXECUTIVE SO LONG AS THE COMPANY OR AN AFFILIATE EMPLOYS EXECUTIVE. 1.3           “BOARD” SHALL MEAN THE BOARD OF DIRECTORS OF THE COMPANY. 1.4           “CAUSE” SHALL MEAN ANY OF THE FOLLOWING: (I) EXECUTIVE’S COMMISSION OF A WILLFUL ACT (INCLUDING, WITHOUT LIMITATION, A DISHONEST OR FRAUDULENT ACT) OR A GROSSLY NEGLIGENT ACT, OR THE WILLFUL OR GROSSLY NEGLIGENT OMISSION TO ACT BY EXECUTIVE, WHICH IS INTENDED TO CAUSE, CAUSES OR IS REASONABLY LIKELY TO CAUSE MATERIAL HARM TO THE COMPANY OR AN AFFILIATE, MONETARILY, REPUTATIONALLY OR OTHERWISE; (II) EXECUTIVE’S COMMISSION OR CONVICTION OF, OR PLEA OF NOLO CONTENDERE TO, ANY FELONY OR ANY CRIME OR OFFENSE INVOLVING DISHONESTY OR FRAUD OR THAT IS SIGNIFICANTLY INJURIOUS TO THE COMPANY OR AN AFFILIATE, MONETARILY, REPUTATIONALLY OR OTHERWISE; (III) EXECUTIVE’S WILLFUL NEGLECT OF OR CONTINUED FAILURE TO SUBSTANTIALLY PERFORM, IN ANY MATERIAL RESPECT, HIS DUTIES (AS ASSIGNED TO EXECUTIVE FROM TIME TO TIME) OR OBLIGATIONS (INCLUDING A VIOLATION OF POLICY) TO THE COMPANY OR AN AFFILIATE OTHER THAN ANY SUCH FAILURE RESULTING FROM HIS INCAPACITY DUE TO PHYSICAL OR MENTAL ILLNESS; OR (IV) EXECUTIVE’S ABUSE OF ILLEGAL DRUGS OR OTHER CONTROLLED SUBSTANCES OR HABITUAL INTOXICATION.  FOR PURPOSES OF THIS SECTION, AN ACT OR OMISSION IS “WILLFUL” IF IT WAS KNOWINGLY DONE, OR KNOWINGLY -------------------------------------------------------------------------------- OMITTED TO BE DONE, BY EXECUTIVE NOT IN GOOD FAITH AND WITHOUT REASONABLE BELIEF THAT THE ACT OR OMISSION WAS IN THE BEST INTEREST OF THE COMPANY.  ANY ACT, OR FAILURE TO ACT, BASED UPON AUTHORITY GIVEN PURSUANT TO A RESOLUTION DULY ADOPTED BY THE BOARD OR BASED UPON THE ADVICE OF COUNSEL FOR THE COMPANY SHALL BE CONCLUSIVELY PRESUMED TO BE DONE, OR OMITTED TO BE DONE, IN GOOD FAITH AND IN THE BEST INTERESTS OF THE COMPANY.  THE COMPANY HAS THE DISCRETION, IN OTHER CIRCUMSTANCES, TO DETERMINE IN GOOD FAITH, FROM ALL THE FACTS AND CIRCUMSTANCES REASONABLY AVAILABLE TO IT, WHETHER EXECUTIVE WHO IS UNDER INVESTIGATION FOR, OR HAS BEEN CHARGED WITH, A CRIME WILL BE DEEMED TO HAVE COMMITTED IT FOR PURPOSES OF THIS AGREEMENT. 1.5           “Change in Control” shall mean the occurrence of any one or more of the following: (a)           Any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), including a “group” (as defined in Section 13(d)(3) of the Exchange Act), other than (i) the Company, (ii) any wholly-owned subsidiary of the Company, or (iii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate, becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company having fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business) (the “Company Voting Securities”); provided, however, that the event described in this Section 1.5(a) shall not be deemed to be a Change in Control by virtue of any underwriter temporarily holding securities pursuant to an offering of such securities; (b)           During any period of two consecutive years, individuals who at the beginning of any such period constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, unless the election, or the nomination for election by the stockholders of the Company, of each new director of the Company during such period was approved by a vote of at least two-thirds of the Incumbent Directors then still in office; (c)           As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of all or substantially all of the assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then-outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of the directors of the Company or such other corporation or entity after such transaction is held in the aggregate by the holders of the securities of the Company entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or (d)           The stockholders of the Company approve a plan of complete liquidation of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than fifty percent (50%) of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company that reduces the number of Company Voting Securities outstanding; provided, however, that if after 2 -------------------------------------------------------------------------------- such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control transaction shall then occur. Further notwithstanding the foregoing, unless a majority of the Incumbent Directors determines otherwise, no Change in Control shall be deemed to have occurred with respect to a particular Executive if the Change in Control results from actions or events in which such Executive is a participant in a capacity other than solely as an officer, employee or director of the Company or an Affiliate. 1.6           “Good Reason” shall mean any one of the following events, without Executive’s written consent: (i) the assignment to Executive of duties materially inconsistent with Executive’s then-current level of authority or responsibilities, or any other action by the Company or an Affiliate that results in a material diminution in Executive’s position, compensation, authority, duties or responsibilities; (ii) a breach by the Company or an Affiliate of any material term or covenant of any agreement with Executive; (iii) a requirement that Executive be based at any office or location that is more than thirty-five (35) miles from the Executive’s principal office location immediately preceding a Change in Control; or (iv) a failure by any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company or the Affiliate employing Executive to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company or an Affiliate would be required to perform it if no such succession had taken place.  Executive must provide the Company written notice of any claim of Good Reason within ninety (90) days after the occurrence of any action/inaction giving rise to such claim, and the Company or its Affiliate will have thirty (30) days to cure such claim. 2.                                      TERMINATIONS OF EMPLOYMENT TRIGGERING SEVERANCE BENEFITS 2.1           Subject to Section 2.2, and provided that Executive has executed a full and complete release of the Company and its Affiliates (and their related parties) from any and all claims, in a form prepared by the Company, the Company or an Affiliate will provide Executive with the benefits set forth in Section 3 if Executive’s employment is terminated for the following reasons (“Qualifying Terminations”): (i) by the Company or an Affiliate without Cause at any time; or (ii) by Executive for Good Reason within eighteen (18) months after the effective date of a Change in Control. 2.2           In no event will benefits be payable to Executive under this Agreement in the event of termination due to Executive’s death, disability, retirement, termination by the Company or an Affiliate for Cause, or voluntary termination by Executive without Good Reason. 2.3           Notwithstanding the foregoing, the following payments will be made upon Executive’s termination of employment for any reason or no reason:  (i) earned but unpaid Base Salary through the date of termination; (ii) any accrued but unpaid vacation; (iii) any amounts payable under any employee pension or welfare benefit plans of the Company or an Affiliate in accordance with the terms of those plans; and (iv) unreimbursed business expenses incurred by Executive on behalf of the Company or an Affiliate (in accordance with existing expense reimbursement policies of the Company or an Affiliate). 3 -------------------------------------------------------------------------------- 3.                                      TERMINATION BENEFITS 3.1           Subject to the conditions set forth in Section 2, and so long as Executive has not violated and does not violate any of the terms of this Agreement, the following benefits shall be paid or provided to Executive in the event Executive’s employment is terminated in a Qualifying Termination: (A)           SALARY CONTINUATION.  THE COMPANY OR AN AFFILIATE WILL PAY EXECUTIVE SEVERANCE PAY CONSISTING OF BI-WEEKLY PAY CHECKS IN AN AMOUNT BASED ON EXECUTIVE’S BASE SALARY ON THE DATE OF TERMINATION (LESS APPLICABLE DEDUCTIONS FOR FEDERAL AND STATE TAXES AND FICA) FOR A PERIOD OF SIX (6) MONTHS FOLLOWING THE DATE OF TERMINATION.  THE SEVERANCE PAY WILL BE PAID ON REGULARLY SCHEDULED PAY DATES.  NOTWITHSTANDING THE FOREGOING, NO PAYMENTS UNDER THIS SECTION 3.1(A) SHALL COMMENCE PRIOR TO THE EFFECTIVE DATE OF THE RELEASE OF CLAIMS BEING PROVIDED TO THE COMPANY AND ITS AFFILIATES BY EXECUTIVE UNDER SECTION 2.1 (INCLUDING THE EXPIRATION OF ANY REVOCATION PERIOD REQUIRED BY LAW IN CONNECTION WITH SUCH RELEASE). (B)           INCENTIVE PLAN VESTING.  ALL AWARDS UNDER THE KANBAY INTERNATIONAL, INC. STOCK INCENTIVE PLAN, OR ANY SIMILAR OR SUCCESSOR PLAN, HELD BY EXECUTIVE SHALL IMMEDIATELY BECOME EXERCISABLE IN FULL, ALL RESTRICTIONS APPLICABLE TO SUCH AWARDS SHALL LAPSE, AND ALL PERFORMANCE MEASURES WITH RESPECT TO SUCH AWARDS SHALL BE DEEMED SATISFIED IN FULL.  EXECUTIVE WILL HAVE A PERIOD OF TIME FOLLOWING THE DATE OF TERMINATION, AS STATED IN KANBAY INTERNATIONAL, INC. STOCK INCENTIVE PLAN OR THE APPLICABLE AWARD AGREEMENT ISSUED THEREUNDER, DURING WHICH EXECUTIVE MAY EXERCISE HIS AWARDS, IF ANY.  EXCEPT AS SPECIFICALLY STATED IN THIS SECTION 3.1(B), THIS AGREEMENT SHALL NOT BE CONSTRUED TO AMEND, MODIFY OR SUPERSEDE ANY OF THE PROVISIONS OF THE KANBAY INTERNATIONAL, INC. STOCK INCENTIVE PLAN, OR ANY SIMILAR OR SUCCESSOR PLAN, OR ANY APPLICABLE AWARD AGREEMENT ISSUED THEREUNDER. (C)           HEALTH BENEFITS.  TO THE EXTENT PERMISSIBLE UNDER APPLICABLE LAW, THE COMPANY OR AN AFFILIATE SHALL CONTINUE TO PROVIDE COVERAGE TO EXECUTIVE (AND TO EXECUTIVE’S SPOUSE AND DEPENDENTS WHO ARE COVERED AS OF DATE OF THE QUALIFYING TERMINATION) UNDER THE HEALTH AND WELFARE BENEFIT PLANS THE COMPANY OR AN AFFILIATE MAINTAINS FOR ACTIVE EMPLOYEES FOLLOWING EXECUTIVE’S QUALIFYING TERMINATION, AT THE SAME COST TO EXECUTIVE AND UNDER THE SAME TERMS APPLICABLE TO ACTIVE EMPLOYEES (AND THEIR DEPENDENTS), FOR A PERIOD OF EIGHTEEN (18) MONTHS AFTER EXECUTIVE’S QUALIFYING TERMINATION.  NOTWITHSTANDING THE FOREGOING, IF EXECUTIVE BECOMES EMPLOYED WITH ANOTHER EMPLOYER DURING SUCH EIGHTEEN (18) MONTH PERIOD AND IS ELIGIBLE TO RECEIVE SUBSTANTIALLY COMPARABLE HEALTH AND WELFARE BENEFITS FROM SUCH EMPLOYER, THE OBLIGATION OF THE COMPANY AND ITS AFFILIATES TO PROVIDE THE BENEFITS DESCRIBED IN THIS SECTION 3.1(C) SHALL CEASE. 3.2           TAXATION AND WITHHOLDING.  NEITHER THE COMPANY NOR ANY AFFILIATE MAKES ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO, AND HAS NO RESPONSIBILITY OR LIABILITY FOR, THE PERSONAL TAX CONSEQUENCES OF THIS AGREEMENT TO EXECUTIVE.  THE COMPANY AND ITS AFFILIATES MAY MAKE SUCH PROVISIONS AND TAKE SUCH STEPS AS THEY MAY DEEM NECESSARY OR APPROPRIATE FOR THE WITHHOLDING OF ANY TAXES THAT THE COMPANY OR ANY AFFILIATE IS REQUIRED BY ANY LAW OR REGULATION OF ANY GOVERNMENTAL AUTHORITY, WHETHER FEDERAL, STATE OR LOCAL, DOMESTIC OR FOREIGN, TO WITHHOLD IN CONNECTION WITH THIS AGREEMENT. 4 -------------------------------------------------------------------------------- 3.3           EXECUTIVE’S DEATH.  IF EXECUTIVE DIES BEFORE THE COMPLETION OF ANY PAYMENTS OR BENEFITS REQUIRED UNDER THIS SECTION 3, THE COMPANY OR AN AFFILIATE WILL MAKE OR CONTINUE PAYMENTS AND BENEFITS TO EXECUTIVE’S SURVIVING SPOUSE, IF ANY, OR EXECUTIVE’S ESTATE IN ACCORDANCE WITH THIS SECTION. 4.                                      RESTRICTIVE COVENANTS 4.1           Trade Secrets.  Executive acknowledges that he has had and/or will have access to confidential information of the Company and its Affiliates (including, but not limited to, current and prospective confidential know-how, specialized training, customer lists, marketing plans, business plans, financial and pricing information, and information regarding acquisitions, mergers and/or joint ventures) concerning the business, customers, clients, contacts, prospects, and assets of the Company and its Affiliates that is unique, valuable and not generally known outside the Company and its Affiliates, and that was obtained from the Company or an Affiliate or which was learned as a result of the performance of services by Executive on behalf of the Company or an Affiliate (“Trade Secrets”).  Trade Secrets shall not include any information that: (i) is now, or hereafter becomes, through no act or failure to act on the part of Executive that constitutes a breach of this Section 4, generally known or available to the public; (ii) is known to Executive at the time such information was obtained from the Company or an Affiliate; (iii) is hereafter furnished without restriction on disclosure to Executive by a third party, other than an employee or agent of the Company or an Affiliate, who is not under any obligation of confidentiality to the Company or an Affiliate; (iv) is disclosed with the written approval of the Company or an Affiliate; or (v) is required to be disclosed or provided by law, court order, or similar compulsion, including pursuant to or in connection with any legal proceeding involving the parties hereto; provided however, that such disclosure shall be limited to the extent so required or compelled; and provided further, however, that if Executive is required to disclose such confidential information, he shall give the Company notice of such disclosure and cooperate in seeking suitable protections.  Other than in the course of performing services for the Company and its Affiliates, Executive will not, at any time, directly or indirectly use, divulge, furnish or make accessible to any person any Trade Secrets, but instead will keep all Trade Secrets strictly and absolutely confidential.  Executive will deliver promptly to the Company or the Affiliate that employed Executive, at the termination of his employment or at any other time at the request of the Company or an Affiliate, without retaining any copies, all documents and other materials in his possession relating, directly or indirectly, to any Trade Secrets. 4.2           Non-competition.  Beginning on the Effective Date and for a period continuing through the later of (i) six (6) months following termination of Executive’s employment with the Company and all Affiliates and (ii) the period the Company or an Affiliate is making severance payments to Executive under Section 3.1(a) (the “Restricted Period”), Executive shall not directly or indirectly own any interest in, operate, control or participate as a partner, director, principal, officer, or agent of, enter into the employment of, act as a consultant to, or perform any services for, any company, person, or entity engaged in a “Competitive Business” (as defined herein).  A Competitive Business shall include any company, person or entity that is involved in or seeks to become involved in providing information technology services and solutions to the financial services industry, including business process and technology advice, software package selection and integration, application development, maintenance and support, network and system security and specialized services, in any country in which the Company or an Affiliate is doing business at the time of termination of Executive’s employment. 5 -------------------------------------------------------------------------------- 4.3.          Employee Agreements.  As a condition of this Agreement and as a condition of Executive’s employment with the Company or an Affiliate, Executive is required to sign a separate Employee Non-Disclosure, Development and Non-Solicitation Agreement and/or other similar agreement(s) (collectively, “Employee Agreements”).  Executive hereby reaffirms his commitment to abide by all obligations set forth in all such Employee Agreements.  Executive further agrees that any breach by Executive of any Employee Agreement shall be considered a breach by Executive of this Agreement.  This Agreement shall not be construed to amend, modify or terminate any of Executive’s obligations under any Employee Agreement to the extent this Agreement and the Employee Agreement are not inconsistent.  However, in the event of any direct conflict between the terms of any Employee Agreement and the terms of this Agreement, the terms of this Agreement shall govern and supersede any Employee Agreement. 4.4           Irreparable Harm.  Executive acknowledges that: (i) Executive’s compliance with this Agreement is necessary to preserve and protect the proprietary rights, Trade Secrets, and the goodwill of the Company or an Affiliate as going concerns, and (ii) any failure by Executive to comply with the provisions of this Agreement will result in irreparable and continuing injury for which there will be no adequate remedy at law.  In the event that Executive fails to comply with the terms and conditions of this Agreement, the obligations of the Company and its Affiliates to pay the severance benefits set forth in Section 3 shall cease, and the Company or an Affiliate will be entitled, in addition to other relief that may be proper, to all types of equitable relief (including, but not limited to, the issuance of an injunction and/or temporary restraining order) that may be necessary to cause Executive to comply with this Agreement, to restore to the Company and its Affiliates their property, and to make the Company and its Affiliates whole. 4.5           Survival.  The provisions set forth in this Section 4 shall survive termination of this Agreement. 4.6           Scope Limitations.  If the scope, period of time or area of restriction specified in this Section 4 are or would be judged to be unreasonable in any court proceeding, then the period of time, scope or area of restriction will be reduced or limited in the manner and to the extent necessary to make the restriction reasonable, so that the restriction may be enforced in those areas, during the period of time and in the scope that are or would be judged to be reasonable. 5.             MISCELLANEOUS 5.1           EMPLOYMENT STATUS.  NOTHING HEREIN SHALL BE DEEMED TO CREATE ANY TERM OF EMPLOYMENT, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BETWEEN THE PARTIES THAT EXECUTIVE’S EMPLOYMENT IS AT WILL AND THAT EITHER PARTY MAY TERMINATE SUCH EMPLOYMENT AT ANY TIME. 5.2           GOVERNING LAW.  ALL PROVISIONS OF THIS AGREEMENT WILL BE CONSTRUED AND GOVERNED BY ILLINOIS LAW WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES OR THE LAWS OF ANY OTHER JURISDICTION.  ANY SUIT, CLAIM OR OTHER LEGAL PROCEEDING ARISING OUT OF OR RELATING TO EXECUTIVE’S EMPLOYMENT, HIS TERMINATION FROM EMPLOYMENT, OR THIS AGREEMENT SHALL BE BROUGHT EXCLUSIVELY IN THE FEDERAL OR STATE COURTS LOCATED IN COOK COUNTY, ILLINOIS, AND EXECUTIVE AND THE COMPANY AND ITS AFFILIATES HEREBY SUBMIT TO PERSONAL JURISDICTION IN THE STATE OF ILLINOIS AND TO VENUE IN SUCH COURTS.  NOTWITHSTANDING THE FOREGOING, THE COMPANY OR AN AFFILIATE MAY SEEK AND OBTAIN INJUNCTIVE RELIEF AGAINST EXECUTIVE IN ANY COURT HAVING JURISDICTION OVER EXECUTIVE. 6 -------------------------------------------------------------------------------- 5.3           SEVERABILITY.  EVERY PROVISION OF THIS AGREEMENT IS INTENDED TO BE SEVERABLE. IF ANY PROVISION OR PORTION OF A PROVISION IS ILLEGAL OR INVALID, THEN THE REMAINDER OF THIS AGREEMENT SHALL NOT BE AFFECTED. MOREOVER, ANY PROVISION OF THIS AGREEMENT WHICH IS DETERMINED TO BE UNREASONABLE, ARBITRARY OR AGAINST PUBLIC POLICY SHALL BE MODIFIED AS NECESSARY SO THAT IT IS NOT UNREASONABLE, ARBITRARY OR AGAINST PUBLIC POLICY WHILE MAXIMIZING THE INTENT OF THE PARTIES. 5.4           ENTIRE AGREEMENT.  EXCEPT AS PROVIDED IN ANY NON-DISCLOSURE, NON-SOLICITATION, INTELLECTUAL PROPERTY OR SIMILAR AGREEMENT SIGNED BY EXECUTIVE, WITH RESPECT TO ITS SUBJECT MATTER, THIS AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING OF THE PARTIES SUPERSEDING ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS AND DISCUSSIONS BETWEEN THEM, WHETHER WRITTEN OR ORAL, AND THERE ARE NO OTHER UNDERSTANDINGS, REPRESENTATIONS, WARRANTIES OR COMMITMENTS WITH RESPECT THERETO.  NOTWITHSTANDING ANY TERMS CONTAINED HEREIN TO THE CONTRARY, THE COMPANY OR ITS AFFILIATES, IN ADDITION TO ANY RIGHTS SET FORTH HEREIN, SHALL HAVE THE RIGHT TO SEEK ENFORCEMENT OF ANY OTHER PENALTIES OR RESTRICTIONS THAT MAY APPLY UNDER ANY OTHER NON-DISCLOSURE, NON-SOLICITATION, INTELLECTUAL PROPERTY OR SIMILAR AGREEMENT BETWEEN EXECUTIVE AND THE COMPANY OR ITS AFFILIATES. 5.5           SUCCESSORS AND ASSIGNS.  THIS AGREEMENT MAY NOT BE ASSIGNED BY EXECUTIVE.  THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ALL SUCCESSORS AND ASSIGNS (WHETHER BY OPERATION OF LAW OR OTHERWISE) OF THE COMPANY AND ITS AFFILIATES. 5.6           AMENDMENT. THIS AGREEMENT MAY ONLY BE AMENDED OR TERMINATED BY MUTUAL WRITTEN AGREEMENT BETWEEN THE COMPANY AND EXECUTIVE. 5.7.          No Waiver.  No failure or delay by the Company or an Affiliate or Executive in enforcing or exercising any right or remedy hereunder shall operate as a waiver thereof.  No modification, amendment or waiver of this Agreement nor consent to any departure by Executive from any of the terms or conditions thereof, shall be effective unless in writing and signed by the Chairman of the Board.  Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 5.8.          Counterparts.  The parties may execute this Agreement in one or more counterparts, all of which together shall constitute but one Agreement. IN WITNESS WHEREOF, each party has executed this Severance Agreement or caused this Severance Agreement to be duly executed as of the Effective Date. IN WITNESS WHEREOF, each party has executed this Severance Agreement or caused this Severance Agreement to be duly executed as of the Effective Date. KANBAY INTERNATIONAL, INC. ROY K. STANSBURY             By:               Its:     By:   KANBAY INCORPORATED               By:                   Its:           7 --------------------------------------------------------------------------------

Exhibit 10.6   PENNICHUCK CORPORATION EMPLOYEE RETENTION AGREEMENT         THIS EMPLOYEE RETENTION AGREEMENT is entered into on this 18th day of August, 2006, by and between Pennichuck Corporation (the "Company"), a New Hampshire corporation with a principal place of business at 25 Manchester St., Merrimack, New Hampshire and William D. Patterson, of Ho-Ho-Kus, New Jersey ("Employee"), an Employee of the Company.         WHEREAS, Employee is employed as the Senior Vice President, Treasurer, and Chief Financial Officer of the Company;         WHEREAS, the Company has determined that it is in its best interest to provide incentives to retain Employee during the litigation of the Nashua Eminent Domain Case (as defined below) by providing Employee a retention bonus, under the conditions described herein.         NOW, THEREFORE, in consideration of the mutual promises herein contained and the consideration herein expressed the parties agree as follows:     1. Definitions . For the purposes of this Agreement, the following definitions shall apply:           1.1 "Company" shall mean Pennichuck Corporation.             1.2 "Employment Agreement" shall mean the Employment Agreement, entered into as of January 31, 2005, by and between Employee and the Company, as amended from time to time.             1.3 "Final Disposition of the Nashua Eminent Domain Case" shall mean the date on which there is a final determination or resolution of the Nashua Eminent Domain Case (as defined below), whether by: (a) a decision of the New Hampshire Supreme Court on appeal; (b) the acceptance by all parties to the Nashua Eminent Domain Case of a final decision by the Public Utilities Commission or any court of competent jurisdiction or such decision becoming non-appealable; (c) the acceptance by all such parties of a final and binding settlement or purchase agreement; or (d) any other circumstances determined by the Company's Board of Directors, in its sole judgment, to constitute a final determination or resolution.             1.4 "Nashua Eminent Domain Case" shall mean the current ongoing proceedings, docket number DW 04-048, brought by the City of Nashua to acquire, whether by sale or pursuant to the exercise of the power of eminent domain, the assets of one or more of the Company's water utility subsidiaries. <PAGE>     1.5 "Retention Bonus" shall mean a bonus calculated as set forth in Section 2.2, payable to Employee if Employee remains eligible as set forth in Section 2.1.           2. Eligibility and Amount of Retention Bonus .             2.1 Eligibility . Employee will be entitled to the Retention Bonus under this Agreement if he remains a full-time employee of the Company and has been continuously employed with the Company from his last date of hire through either March 1, 2007 or the Final Disposition of the Nashua Eminent Domain Case, whichever is sooner. The determination of whether Employee meets this criteria and is eligible shall be made by the Company, in its sole discretion, and such determination shall be binding and conclusive on all persons. Notwithstanding the foregoing, if Employee's employment is terminated by the Company other than for "Cause" (as that term is defined in the Employment Agreement) prior to becoming entitled to the Retention Bonus hereunder, then Employee will be entitled to the Retention Bonus as of such termination without Cause.             2.2 Calculation of and Form of Payment of Retention Bonus . The Retention Bonus will equal one-half Employee's "Base Salary" (as that term is defined in Section 4.1 of the Employment Agreement) in effect at the time that the Retention Bonus is payable, but such amount shall be no less than $75,000.00, minus required state and federal tax withholdings. The Retention Bonus will be paid in the form of cash or shares of common stock of the Company, at the option of Employee. If Employee chooses payment in stock, then such stock shall be valued at the closing market price on the trading day prior to payment, and such shares shall be registered shares only if the Company has in place an employee stock grant program subject to an effective registration statement at the time of payment of the Retention Bonus. If there is no such program, then such shares shall be unregistered, restricted shares.             2.3 Payment of Retention Bonus . If Employee is entitled to the Retention Bonus pursuant to Section 2.1 above, the Retention Bonus shall be due and payable to Employee on the earlier of March 1, 2007 or on the Final Disposition of the Nashua Eminent Domain Case, in a lump sum, less applicable tax (e.g., FICA, FUTA) withholding amounts, if paid in cash.           3. Effect on Employment . This Agreement does not constitute an employment agreement or a guarantee of continued employment, and nothing in this Agreement affects the terms of the Employment Agreement.       4. Governing Law . The validity, interpretation, enforceability and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of New Hampshire. <PAGE>   5. Assignment . This Agreement is not assignable, in whole or in part, by either the Employee or by the Company.         6. Severability . If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.         7. Entire Agreement . This Agreement embodies the entire understanding between the parties with respect to its subject matter and supersedes all previous agreements communications, representations or understandings, either oral or written between the parties, except that the terms of the Employment Agreement remain in effect.         8. Amendment . This Agreement may not be modified, amended or terminated except by an instrument in writing, signed by the Employee and by the Company.             IN WITNESS WHEREOF, the parties have executed this Agreement on the date set forth above.       EMPLOYEE       Date: August 18, 2006   /s/ William D. Patterson --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Name: William D. Patterson                 PENNICHUCK CORPORATION       Date: August 18, 2006   /s/ Hannah M. McCarthy --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Hannah M. McCarthy, President & CEO <PAGE>

  Exhibit 10.4 EMPLOYMENT AGREEMENT ADDENDUM #2   This Addendum pertains to the Employment Agreement between Troy A. Lyndon ("Employee") and Left Behind Games Inc. ("LBG" or the "Company") as Chief Executive Officer. Employee and the Company are sometimes individually referred to herein as a "party" and collectively as the "parties."   The “Base Salary” as stated in the original agreement, shall be amended to include the following provisions:   a)   After Company achieves Initial Revenues: Salary of One Hundred Fifty Thousand US Dollars ($150,000.00 USD). b)   After Company achieves $4 million in Annual Revenues: Salary of One Hundred Eighty Thousand US Dollars ($180,000.00 USD), a Twenty-Five Thousand Dollar ($25,000.00) Bonus, and a One Thousand Dollar ($1,000.00) per month Expense Account to be spent at your discretion. c)   After Company achieves $8 million in Annual Revenues: Salary of Two Hundred Twenty Thousand US Dollars ($220,000.00 USD), a Fifty Thousand Dollar ($50,000.00) Bonus, and a Two Thousand Dollar ($2,000.00) per month Expense Account to be spent at your discretion. d)   After Company achieves $12 million in Annual Revenues: Salary of Two Hundred Sixty Thousand US Dollars ($260,000.00 USD), a Seventy-Five Thousand Dollar ($75,000.00) Bonus, and a Three Thousand Dollar ($3,000.00) per month Expense Account to be spent at your discretion. e)   After Company achieves $16 million in Annual Revenues: Salary of Three Hundred Thousand US Dollars ($300,000.00 USD), a One Hundred and Fifty Thousand Dollar ($150,000.00) Bonus, and a Five Thousand Dollar ($5,000.00) per month Expense Account to be spent at your discretion. By signing below, the parties acknowledge they have read, understand and agree to this terms and conditions of this Addendum.    EMPLOYEE       /s/ Troy A. Lyndon   Feb 1, 2005     _____________________ ___________ Troy A. Lyndon    Date                  ACCEPTED: LEFT BEHIND GAMES INC. a Delaware corporation /s/ Jeffrey S. Frichner   Feb 1, 2005 By:______________________        ___________ Jeffrey S. Frichner, President  Date        

Exhibit 10.1   December 7, 2005     Stephen L. Pearson Executive Vice President/Merchandising and Product Development 14 Holly Circle Weston, Massachusetts 02493   Dear Steve:   This letter agreement confirms the understanding between you and The J. Jill Group, Inc. (the “Company” or “J. Jill”) relating to the termination of your employment with the Company.   1.  Resignation and Cooperation in Transition.   You hereby resign your position as Executive Vice President/ Merchandising and Product Development and from all other offices you hold with the Company or any of its subsidiaries or affiliates, effective as of December 7, 2005 (the “Resignation Date”).  Your resignation shall be effective regardless of the continued effectiveness of this letter agreement.  Thereafter through January 20, 2006 (the “Termination Date”), you shall remain an employee of the Company and shall make yourself available upon reasonable request by the Company and at mutually agreeable times to assist in transitioning your former responsibilities to the person or persons designated by the Company to receive them on an as needed basis.  Your employment shall terminate on the Termination Date.  From and after the Resignation Date, your obligations to the Company and the Company’s obligations to you shall be solely those provided for in this letter agreement, inclusive of the exhibits attached hereto.   2.  Severance Pay and Associated Benefits.   (a)  Severance Pay.  Subject to your continuing compliance with the provisions of Sections 5,  6 and 10(c) of this letter agreement and the provisions of the Agreement to Protect Corporate Property, effective as of December 10, 2004, between the Company and you (the “Agreement to Protect Corporate Property”), on the date seven days after execution of this letter agreement by you as set forth in Section 9(c) hereof, provided that the seven-day revocation period has run without revocation by you, the Company will make a lump sum payment to you in the gross amount of your annual base salary, i.e. $400,000 (the “Severance Payment”), subject to the provisions of Section 2(m) below.   (b)  Salary Continuation.  After the Resignation Date, your compensation shall continue at the current rate of $400,000 per year through the Termination Date and you shall also be entitled to continue all benefits provided to employees on the same basis on which you have been receiving them through the Termination Date, subject to the provisions of Section 2(m) below and further subject to your continuing (i) compliance with the provisions of Sections 5, 6 and 10(c) of this letter agreement and the Agreement to Protect Corporate Property, and (ii)    --------------------------------------------------------------------------------   fulfillment of your responsibilities to transition your former responsibilities in accordance with the provisions of Section 1 above.   (c)  Supplemental Compensation Other Than Severance Pay.  In the event a Change in Control (as defined below) shall occur at any time during the period from the Resignation Date through and including December 31, 2006 (the “Supplemental Compensation Period”), you will be paid supplemental compensation, in the lump-sum amount of $729,552.00, not later than the fifth business day following the occurrence of such Change in Control, subject to (i) the provisions of Section 2(m) below; (ii) your continuing compliance with the provisions of Sections 4, 5, 6, 8 and 10(c) of this letter agreement and of the Agreement to Protect Corporate Property; and (iii) your executing the Release and Waiver of Claims that is attached hereto as Exhibit C.   For purposes of this Section 2(c), a “Change in Control” shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied:   (I)            any Person (as defined below) becomes the beneficial owner as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, directly or indirectly, of securities of J. Jill (not including in the securities beneficially owned by such Person any securities acquired directly from J. Jill or its affiliates) representing 50% or more of the combined voting power of J. Jill’s then outstanding securities; or   (II)           during the Supplemental Compensation Period individuals who at the beginning of such period constitute the Board of Directors of J. Jill (the “Board”) and any new director (other than a director designated by a Person who has entered into an agreement with J. Jill to effect a transaction described in clause (I), (III) or (IV) of this paragraph) whose election by the Board or nomination for election by J. Jill’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 (a “Continuing Director”), cease for any reason to constitute a majority thereof; or   (III)         the stockholders of J. Jill approve a merger or consolidation of J. Jill with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of J. Jill outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of J. Jill or such surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of J. Jill (or similar transaction) in which no Person acquires more than 50% of the combined voting power of the Company’s then outstanding securities; or   (IV)         the stockholders of J. Jill approve a plan of complete liquidation of J. Jill or an agreement for the sale or disposition by J. Jill of all or substantially all J. Jill’s assets.   The foregoing to the contrary notwithstanding, a Change in Control shall not be deemed to have occurred with respect to the you if you are “part of a purchasing group” which   2 --------------------------------------------------------------------------------   consummates the Change in Control transaction. You shall be deemed “part of a purchasing group” for purposes of the preceding sentence if you are an equity participant or have agreed to become an equity participant in the purchasing company or group (except for (i) passive ownership of less than 5% of the stock of the purchasing company or (ii) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the nonemployee Continuing Directors).   For purposes of this Section 2(c), the term “Person” shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended; provided, however, that a Person shall not include (i) J. Jill or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (iiii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of J. Jill in substantially the same proportions as their ownership of stock of J. Jill.   In addition, in the event a Change in Control shall not have occurred during the Supplemental Compensation Period — but during the Supplemental Compensation Period the Company shall have entered into an agreement or series of related agreements that will result in a Change in Control, as defined in subparagraph (I) above, when the transactions contemplated by such agreement or agreements are consummated, and such transactions are consummated and result in a Change in Control, as defined in subparagraph (I) above, on or before March 31, 2007 — you will be paid supplemental compensation in the lump-sum amount of $729,552.00 not later than the fifth (5th) day following such Change in Control, subject to the provisions of Section 2(m) below and further subject to your continuing compliance with the provisions of Sections 5, 6 and 10(c) of this letter agreement and the Agreement to Protect Corporate Property.  Notwithstanding the foregoing, you understand and agree that, if any such Change in Control is not consummated, no supplemental compensation will be paid to you pursuant to this Section 2(c).   (d)  Stock Options.  The Company has previously issued to you certain stock options under the Company’s 2001 Incentive and Non-Statutory Stock Option Plan, which are summarized in Exhibit A.  You have thirty days from the Termination Date to exercise any such options that vested during your employment.  You shall forfeit any options unvested as of the Termination Date.   (e)  Medical Insurance.  Your rights under the so-called COBRA statute (which gives you the right to continue to participate in the Company’s group medical and dental plans for a period of time at your own expense) shall become effective as of the Termination Date.  For the period of eighteen (18) months from the Termination Date, or until you become eligible for group medical and/or dental plans from a new employer offering substantially equal insurance, whichever is sooner, and subject to your continuing compliance with the provisions of Sections 5, 6 and 10(c) of this letter agreement and the Agreement to Protect Corporate Property, the Company will pay the same portion of the premium for your existing medical and/or dental insurance as it would have paid (and you will pay the same portion of the premium for such insurance as you would have paid) if you had continued to be employed at the Company.  You will notify the Company’s Human Resources Department in writing within 72 hours of accepting   3 --------------------------------------------------------------------------------   any such reemployment with such insurance eligibility.  Nothing herein shall prevent the Company from making changes in its medical and dental insurance plans, to the extent that such changes are generally applicable to employees of the Company.   (f)  401(k) Plan.  Your eligibility to participate in the Company’s 401(k) Plan terminates on the Termination Date.   (g)  Deferred Compensation Plans.  Your right to participate in the Company’s Deferred Compensation Plans terminates on the Termination Date.  You will be paid your vested account balance as of the Termination Date in accordance with the terms of the Plans.   (h)  Executive Term Life Insurance.  Premiums on the executive term life insurance policy maintained by the Company for your benefit are paid quarterly and have been paid through the coverage period ending February 17, 2006.  If you wish to continue coverage under this policy after February 17, 2006, you will need to pay the premiums for subsequent periods in accordance with the terms of the policy.   (i)  Group Life and Disability Insurance.  Your coverage under the group term life insurance and disability insurance policies maintained by the Company for employees terminates on the Termination Date.  You will be provided with information regarding your rights, if any, with regard to continuing your basic life insurance coverage on an individual basis.   (j)  Supplemental Long-Term Disability Insurance.  Premiums on the executive supplemental long-term disability insurance policy maintained by the Company for your benefit are paid monthly and will be paid through the coverage period ending January 31, 2006.  If you wish to continue coverage under this policy after January 31, 2006, you will need to pay the premiums for subsequent periods in accordance with the terms of the policy.   (k)  Vacation Pay.  You will continue to accrue vacation benefits through the Termination Date, at which time you will have accrued 89.23 hours of unused vacation for which you will be paid the gross amount of $17,160.71, subject to the provisions of Section 2(m) below.  Thereafter, you shall not accrue or be entitled to any additional vacation benefits.   (l)  No Other Pay or Benefits.  You acknowledge that the Company has previously paid all amounts payable to you under all other compensation or reimbursement arrangements, if any.  From and after the Termination Date you shall have no right to compensation or benefits, including benefits accrual, beyond those specifically provided for in this letter agreement.   (m)  Withholdings.  The Company may deduct from the payments described in Section 2 and any other payments otherwise due to you under this letter agreement, such legally required withholdings, payments and/or deductions as may be required.   4 --------------------------------------------------------------------------------   3.  Releases.   (a)  General Release and Waiver.  In return for the payments and benefits provided to you as set forth in Sections 2(a), (b), (c) and (e) above, you agree to execute (in accordance with the provisions of Section 9 below) the final and binding general General Release and Waiver of all claims (the “General Release and Waiver”) in the form attached hereto as Exhibit B to this letter agreement, said General Release and Waiver to include claims against age discrimination and all other claims arising out of or relating to your hiring, employment, or termination of employment.  Notwithstanding the foregoing, the Company and you agree that the terms of this letter agreement shall survive the General Release and Waiver and that claims to enforce the terms of this letter agreement are not discharged by said General Release and Waiver.   (b)  Release and Waiver.  In addition to the foregoing General Release and Waiver, and in return for the payments and benefits provided to you as set forth in Section 2(c) above, you agree to execute (in accordance with the provisions of Sections 9(a) and 9(e) below) the final and binding Release and Waiver of Claims (the “Release and Waiver”) in the form attached hereto as Exhibit C to this letter agreement, said Release and Waiver to encompass claims of defamation.   4.  Return of Company Property and Retrieval of Personal Effects.   On or before the close of business on the Termination Date, or such later date as the Company may agree:  (i) you will return to the Company all property of the Company, including without limitation all tangible work product and including any keys, passwords, reference materials, books, audit or other specialized software, Company documents and files, computers, laptops and computer disks or files, if any, in your possession, custody or control; and (ii) you will retrieve from the Company all of your personal effects.   5.  Nondisparagement.   You agree not to take any action or make any statement, written or oral, which disparages the Company, its directors or officers, or its management, business or personnel practices, or which disrupts or impairs the Company’s normal operations.  The Company and its executive officers agree not to take any action or make any statement, written or oral, which disparages you.  The provisions of this Section 5 shall not apply to any truthful statement required to be made by you, or by the Company or its executive officers, in any legal proceeding, required filing pursuant to the securities laws, or pursuant to any governmental or regulatory investigation.   6.  Covenant Not to Sue/Encourage Third Party Action.  Except as otherwise provided in this Section 6, you represent and warrant that you have never commenced or filed, and covenant and agree never to commence, file, aid, solicit or in any way prosecute or cause to be commenced or prosecuted against the Releasees (as defined in the General Release and Waiver) the bringing of any legal proceeding or the making of any legal claim against the Company by any state or federal agency or by any applicant for employment, employee or former employee of the Company (“third party action”), and further you shall not reveal any information about the Company to be used for, and shall not testify in, any third party action except as required to do so by properly issued subpoena and then only after giving the Company a reasonable opportunity to review any such subpoena and oppose the giving of any such testimony.  Notwithstanding the   5 --------------------------------------------------------------------------------   foregoing, the Company and you agree that this letter agreement will not affect the rights and responsibilities of the U.S. Equal Employment Opportunity Commission, the Securities and Exchange Commission, or any other federal or state agency to enforce laws subject to such agencies enforcement authority, and further agree that this letter agreement will not be used to justify interfering with your right to participate in an investigation or proceeding conducted by such agencies.  You represent and warrant that you knowingly and voluntarily waive all rights or claims arising prior to your execution of this letter agreement that you may have against the Releasees, or any of them, to receive any payment, benefit or remedial relief as a consequence of an action brought on your behalf in any such agency and/or as a consequence of any litigation concerning any facts alleged in any such action.   7.  Remedies.  You acknowledge and agree that your obligations arising under Sections 4, 5 and 6 above are of the essence to this letter agreement and that your breach of any of these obligations, or of your obligations under the Agreement to Protect Corporate Property, which is incorporated herein by reference, will terminate the Company’s obligations to you under Section 2 of this letter agreement.  Should you commit a breach of any such obligations, you shall further be required to pay back to the Company the full value of any benefit that you have derived under Sections 2 above.  You further acknowledge and affirm that money damages cannot adequately compensate the Company for any breach by you of Sections 4, 5 and 6 of this letter agreement or of the Agreement to Protect Corporate Property, and that the Company is entitled to equitable relief in any Massachusetts or other court of competent jurisdiction to prevent or otherwise restrain any actual or threatened breach of the provisions of such Sections or of the Agreement to Protect Corporate Property, and/or to compel specific performance of, or other compliance with, the terms of this letter agreement or the Agreement to Protect Corporate Property.   8.  Non-Assignment.  You warrant and represent to the Company that you have not heretofore assigned or transferred or attempted to assign or transfer to any person any claim or matter recited in the General Release and Waiver or any part or portion thereof, and agree to indemnify and hold harmless the Releasees from and against any claim, demand, damage, debt, liability, account, reckoning, obligation, cost, expense (including the payment of attorney’s fees and costs actually incurred whether or not litigation be commenced), lien, action and cause of action, based on, in connection with, or arising out of any such assignment or transfer or attempted assignment or transfer.   9.  Representations and Recitals.  You represent that:   (a)  The Company has advised you to consult with an attorney of your choosing concerning the rights waived in this letter agreement.  You have carefully read and fully understand this letter agreement, and are voluntarily entering into this letter agreement and providing the General Release and Waiver attached hereto as Exhibit B and the Release and Waiver attached hereto as Exhibit C.   (b)  You understand that you have 21 days to review this letter agreement and the General Release and Waiver prior to their execution.  If at any time prior to the end of the 21 day period, you execute this letter agreement and the General Release and Waiver, you acknowledge that such early execution is a knowing and voluntary waiver of your right to consider this letter agreement and the General Release and Waiver for at   6 --------------------------------------------------------------------------------   least 21 days and is due to your belief that you have had ample time in which to consider and understand this letter agreement and the General Release and Waiver and in which to review this letter agreement and the General Release and Waiver with an attorney.   (c)  You understand that, for a period of seven (7) days after you have executed this letter agreement and the General Release and Waiver, you may revoke the letter agreement and the General Release and Waiver by giving notice in writing of such revocation to the Company, c/o Chairman of the Board of Directors at the Company’s headquarters, with a copy to David R. Pierson, Foley Hoag LLP, Seaport World Trade Center West, 155 Seaport Blvd., Boston, Massachusetts 02210.  If at any time after the end of the seven-day period you accept any of the payments or benefits provided by the Company as described in Section 2 of this letter agreement, such acceptance will constitute an admission by you that you did not revoke this letter agreement or the General Release and Waiver during the revocation period and will further constitute an admission by you that this letter agreement and the General Release and Waiver have become effective and enforceable.   (d)  You understand the effect of the General Release and Waiver and that you give up any rights you may have, in particular but without limitation, under the Federal Age Discrimination in Employment Act and the Massachusetts Law Against Discrimination (Mass. Gen. Laws ch. 151B, § 1 et seq.).   (e)  You understand that you are receiving benefits pursuant to this letter agreement that you would not otherwise be entitled to if you did not enter into this letter agreement and execute the General Release and Waiver that is Exhibit B hereto.  You further understand and agree that you will not be entitled to receive, and shall not receive, the supplemental compensation described in Section 2(c) of this letter agreement if you do not enter into this letter agreement and execute the General Release and Waiver that is Exhibit B hereto and the Release and Waiver that is Exhibit C hereto.   10.  Miscellaneous.   (a)  Successors and Assigns.   This letter agreement shall be binding upon and inure to the benefit of the respective legal representatives, heirs, successors, assigns, and present and former employees and agents of the parties hereto to the extent permitted by law.   (b)  Attorneys Fees.  Each party shall bear his or its own attorney’s fees and expenses.   (c)  Challenge to Validity of Agreement.  After the revocation period of seven (7) days described in Section 9(c) of this letter agreement has expired, this letter agreement and the General Release and Waiver shall be forever binding.  You acknowledge that you may hereafter discover facts not now known to you relating to your hire, employment or cessation of employment, and agree that this letter agreement, the General Release and Waiver, and the Release and Waiver shall remain in effect notwithstanding any such discovery of any such facts.  You shall not bring a proceeding to challenge the validity of this letter agreement, the General Release and Waiver, and the Release and Waiver.  Should you do so notwithstanding this   7 --------------------------------------------------------------------------------   Section 10(c), you will first be required to pay back to the Company all remuneration received pursuant to Section 2 hereof.   (d)  Governing Law.  This letter agreement shall be interpreted in accordance with and governed for all purposes by the substantive laws and public policy of the Commonwealth of Massachusetts, without giving effect to its choice or conflict of law provisions.   (e)  Complete Agreement; Modification.  This letter agreement recites the full terms of the understanding between us, and supersedes any prior oral or written understanding between us, relating to your employment with the Company or severance payments and benefits to be made or provided to you following the termination of your employment with the Company (including the employment letter agreement between you and the Company dated May 23, 2003 and the Severance Agreement between you and the Company dated November 13, 2003), except the Agreement to Protect Corporate Property, which shall remain in effect in accordance with its terms and is incorporated into this letter agreement by reference and attached hereto as Exhibit D.  This letter agreement may be modified only in a writing signed by both parties.   (f)  Execution.  This letter agreement may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, and all such counterparts together shall constitute but one and the same instrument.   8 --------------------------------------------------------------------------------   Please note that you have 21 days to accept the offer set forth herein, and may revoke your acceptance within 7 days of signing as set forth in Section 9(c) above, in which case this letter agreement (other than provisions 1 and 4, and the Agreement to Protect Corporate Property) shall be void.     Very truly yours,             By: /s/ Olga L. Conley       Olga L. Conley     EVP/CAO & CFO     Agreed, accepted and signed this 19th day of January, 2006 under seal:     /s/ Stephen L. Pearson   Stephen L. Pearson   9 --------------------------------------------------------------------------------   EXHIBIT A   OPTION TYPE   GRANT DATE   SHARES GRANTED   STRIKE PRICE   VESTED @ 12/31/05   EXERCISED   VESTED BALANCE   FULLY VESTED   TERM DATE   ISO   6/4/2003   18,000   $ 15.940   12,000   0   12,000   6/4/2006   6/4/2013   NQO   6/4/2003   7,000   $ 15.940   4,666   0   4,666   6/4/2006   6/4/2013   NQO   10/20/2003   25,000   $ 12.780   16,666   0   16,666   10/20/2006   10/20/2013   NQO   2/25/2004   25,000   $ 15.510   8,333   0   8,333   2/25/2007   2/25/2014   NQO   12/10/2004   25,000   $ 16.990   25,000   0   25,000   12/10/2004   12/10/2014   NQO   6/20/2005   15,000   $ 14.730   15,000   0   15,000   6/20/2005   6/20/2015           115,000       81,665   0   81,665             --------------------------------------------------------------------------------   EXHIBIT B   GENERAL RELEASE AND WAIVER OF ALL CLAIMS (INCLUDING AGE DISCRIMINATION IN EMPLOYMENT ACT CLAIMS)   In consideration of the payment, benefits and other agreements set forth in the letter agreement dated December 7, 2005 between The J. Jill Group, Inc. (“the Company”) and Stephen L. Pearson (“Pearson”) (to which this General Release and Waiver Of All Claims is attached), Pearson, for himself and for his heirs, executors, estates, agents, representatives, attorneys, insurers, successors and assigns (collectively, the “Releasors”), hereby voluntarily releases and forever discharges (i) the Company and its subsidiaries (direct and indirect), affiliates, related companies, divisions, and predecessor and successor companies, (ii) in their capacities as such, each of its and their present, former and future officers, directors and employees, and (iii) in their capacities as such, each of the Company’s and its subsidiaries’ (direct and indirect), affiliates’, related companies’, divisions’, and predecessor and successor companies’ present, former and future shareholders, agents, representatives, attorneys, insurers, heirs, successors and assigns (collectively, the “Releasees”) from all actions, causes of action, suits, debts, sums of money, accounts, covenants, contracts, agreements, promises, damages, judgments, demands and claims which the Releasors ever had, or now have, or hereafter can, shall or may have, for, upon or by reason of any matter or cause whatsoever arising from the beginning of the world to the date of the execution of this General Release and Waiver, whether known or unknown, in law or equity, whether statutory or common law, whether federal, state, local or otherwise, including but not limited to claims arising out of or in any way related to Pearson’s employment by the Company (including his hiring), or the termination of that employment, whether as a contractor or employee, or any related matters (including but not limited to claims, if any, arising under the Age Discrimination in Employment Act of 1967, as amended, the Civil Rights Act of 1866, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, as amended, the Americans With Disabilities Act of 1990, as amended, the Family and Medical Leave Act of 1993, the Immigration Reform and Control Act of 1986, the Massachusetts Law Against Discrimination (Mass. Gen. Laws ch. 151B§1 et seq.), the Massachusetts Payment of Wages Act, the Massachusetts Civil and Equal Rights Acts, and federal, Massachusetts or local laws, statutes and regulations, including common or constitutional law).  Notwithstanding the foregoing, nothing in this General Release and Waiver is intended to or does waive any rights Pearson may have to enforce the terms of the above-referenced letter agreement dated December 7, 2005.   Signed and sealed this 19th day of January, 2006.         /s/ Stephen L. Pearson       Stephen L. Pearson   --------------------------------------------------------------------------------   EXHIBIT C   RELEASE AND WAIVER OF CLAIMS   In consideration of the payment, benefits and other agreements set forth in Section 2(c) of the letter agreement dated December 7, 2005 between The J. Jill Group, Inc. (“the Company”) and Stephen L. Pearson (“Pearson”) (to which this Release and Waiver Of Claims is attached), Pearson, for himself and for his heirs, executors, estates, agents, representatives, attorneys, insurers, successors and assigns (collectively, the “Releasors”), hereby voluntarily releases and forever discharges (i) the Company and its subsidiaries (direct and indirect), affiliates, related companies, divisions, and predecessor and successor companies, (ii) in their capacities as such, each of its and their present, former and future officers, directors and employees, and (iii) in their capacities as such, each of the Company’s and its subsidiaries’ (direct and indirect), affiliates’, related companies’, divisions’, and predecessor and successor companies’ present, former and future shareholders, agents, representatives, attorneys, insurers, heirs, successors and assigns (collectively, the “Releasees”) from all actions, causes of action, suits, debts, sums of money, accounts, covenants, contracts, agreements, promises, damages, judgments, demands and claims for breaches by the Releasees of Section 5 of that certain letter agreement referenced above (whether in the nature of disparagement, defamation, libel, slander or otherwise) which the Releasors ever had, or now have, or hereafter can, shall or may have against the Releasees, from the beginning of the world to the date of the execution of this Release and Waiver, whether known or unknown, in law or equity, whether statutory or common law, whether federal, state, local or otherwise.   Signed and sealed this              day of                       , 200   .                 Stephen L. Pearson   12 --------------------------------------------------------------------------------   EXHIBIT D   AGREEMENT TO PROTECT CORPORATE PROPERTY   13 --------------------------------------------------------------------------------   Agreement to Protect Corporate Property   In consideration of my receipt of a stock option on or about the date hereof from The J. Jill Group, Inc. (“J. Jill”), I agree to the following:   1.               Confidential Information.  While employed by J. Jill and /or one or more of its subsidiaries (J. Jill and such subsidiaries referred to collectively as the “Company”) and thereafter, I will not, directly or indirectly, use any Confidential Information other than pursuant to my employment by and for the benefit of the Company, or disclose any Confidential Information to anyone outside of the Company other than to the Company’s professional advisors on a need to know basis or as required by law.  For purposes of this Agreement “Confidential Information” includes but is not limited to all information that relates to the Company’s past, present and future businesses, products, technologies, customers, vendors, distribution methods, databases, computer systems, employees, hiring and training practices, operations and marketing strategies and all trade secrets, proprietary information, know-how, data, designs, patterns, specifications, processes, financial or business records, business or financial plans, marketing materials, customer lists or other customer or prospective customer information and other technical or business information (and any tangible evidence, record or representation thereof), whether conceived, developed or otherwise made by me or any employee of the Company or received by the Company from an outside source, which is in the possession of the Company, which in any way relates to the past, present or future business of the Company, which is maintained in confidence by the Company, or which might be of use to competitors or harmful to the Company or its customers, if disclosed.   “Confidential Information” does not include information which the Company has voluntarily disclosed to the public without restriction, which has otherwise lawfully entered the public domain without my participation or fault, or which is otherwise generally known by persons of comparable experience in the women’s retail apparel industry.   2.               Ownership of Corporate Property.  All equipment, documents, information and other property that I receive or develop in the course of my employment by the Company, and all Confidential Information (as defined in Section 1) and Intellectual Property (as defined in Section 3), will be and remain the sole property of the Company.  The products of all of my efforts in the course of my employment belong exclusively to the Company and I will not retain any rights in any such work product.  I agree to return all property and information immediately and without keeping any copies when my employment terminates for any reason.  This section does not restrict my use of the general knowledge that I have acquired through the course of my employment by the Company so long as such knowledge does not constitute Confidential Information or Intellectual Property.   3.               Assignment of Intellectual Property.  I assign, and agree to assign, to the Company all my right, title and interest throughout the world in and to all Intellectual Property and to anything tangible that evidences, incorporates, constitutes, represents or records any Intellectual Property.  I agree that all Intellectual Property will constitute works made for hire under copyright laws of the United States.  I assign, and agree to assign, to the Company all copyrights, patents and other proprietary rights I may have in any Intellectual Property, together with the right to file for and/or own wholly without restriction United States and foreign patents, trademarks, and copyrights.  I waive, and agree to waive, all moral rights or proprietary rights in or to any Intellectual Property and, to the extent that such rights may not be waived, agree not to assert such rights against the Company or its licensees, successors or assigns.  For purposes of this Agreement “Intellectual Property” includes but is not limited to: (i) all Confidential Information and (ii) all other business ideas and methods, store concepts,  inventions, innovations, developments, graphic designs (including, for example, catalog designs, in-store signage and posters), web site designs, patterns, specifications, procedures or processes, market research, databases, works of authorship, products, and other works of creative authorship, or parts thereof conceived, developed or otherwise made by me, alone or jointly with   14 --------------------------------------------------------------------------------   others and in any way relating to the Company’s past, present or proposed products, programs or services or to tasks assigned to me during the course of my employment, whether or not patentable or subject to copyright protection and whether or not reduced to tangible form or reduced to practice during the period of my employment with the Company, whether or not made during my regular working hours, whether or not made on the Company’s premises, and whether or not disclosed by me to the Company.   4.               Certification of Information and Property.  I hereby certify Exhibit A sets forth any and all confidential information and intellectual property that I claim as my own or otherwise intend to exclude from this Agreement because it was developed by me prior to the date of this Agreement.  I understand that after execution of this Agreement I will have no right to exclude confidential information or intellectual property from this Agreement.   5.               Non-Competition.  During my employment with the Company and (A) for a period of one year after termination of my employment with the Company if my employment is terminated by me for any reason or by the Company for Cause (as defined below), or (B) for the Severance Pay Period (as defined below), if any, if my employment is terminated by the Company for any reason other than for Cause, I will not, on my own behalf, or as owner, manager, stockholder (except as a holder of not more than five percent of the stock of a publicly held company), consultant, independent contractor, director, officer, or employee of any specialty retailer or specialty catalog company (regardless of its form of organization and including a division of an organization if the division is operating a specialty retail or catalog business) participate, directly or indirectly, in any capacity, in any business activity that targets the same or similar customer demographics as and is in competition with the Company.  (For example, the restrictions set forth in the previous sentence would restrict you from working for (i) a specialty retailer or specialty catalog company that targets the same or similar customer demographics as and is in competition with the Company, (ii) a division of a specialty retailer or specialty catalog company if that division targets the same or similar customer demographics as and is in competition with the Company, even though other divisions of the specialty retailer or specialty catalog company do not target the same or similar customer demographics as and are not in competition with the Company, or (iii) a division of a general retailer, such as a department store, if the division is engaged in a specialty retail or specialty catalog business that targets the same or similar customer demographics as and is in competition with the Company.  They would not restrict you from working for (i) a specialty retailer or specialty catalog company that does not target the same or similar customer demographics as and is not in competition with the Company, (ii) a division of a specialty retailer or specialty catalog company if that division does not target the same or similar customer demographics as and is not in competition with the Company, even though other divisions of the specialty retailer or specialty catalog company do target the same or similar customer demographics as and are in competition with the Company, or (iii) a general retailer, such as a department store, as long as you are not working for a division of that general retailer that is engaged in a specialty retail or specialty catalog business that targets the same or similar customer demographics as and is in competition with the Company.)  The restrictions in this Section 5 extend to all geographic areas in which the Company conducts business.  The restrictions set forth in subsections (A) and (B) of this Section 5 will not apply to any termination of my employment with the Company that occurs after three years from the date of this Agreement.  For purposes of this Agreement, “Cause” means (i) any act or omission to act by me which has a material and adverse effect on the Company’s business or on my ability to perform services for the Company, or (ii) any material misconduct or material neglect of my duties in connection with the business or affairs of the Company; and the “Severance Pay Period” means any period during or with respect to which I am receiving severance payments from the Company at a rate per month at least equal to my base salary rate per month immediately prior to my termination.  If I receive a lump sum severance payment or severance payments that are not specifically tied to my base salary, the Severance Pay   15 --------------------------------------------------------------------------------   Period will be a number of months calculated by dividing the aggregate severance payments to be made to me by my monthly base salary immediately before the termination of my employment, rounded up or down to the nearest whole number.  The Company’s rights under this Section 5 may not be assigned by the Company without my consent, except to any direct or indirect subsidiary of any entity affiliated with J. Jill.   6.               Non-Solicitation.  During my employment with the Company and for a period of one year after the termination of my employment with the Company for any reason, I will not directly or indirectly (i) solicit, attempt to hire, or hire any present or future employee of the Company (or any person who may have been employed by the Company during the last year of the term of my employment with the Company), or assist in such hiring by any other person or business entity or encourage, induce or attempt to induce any such employee to terminate his or her employment with the Company or (ii) affect to the Company’s detriment any relationship of the Company with any customer, supplier or employee of the Company, or cause any customer or supplier to refrain from entrusting additional business to the Company or any affiliate.  For example, with respect to (i) above, I will not inform any such employee of a job opportunity with me or any other company, or suggest that any person or entity contact any such employee to discuss or mention such a job opportunity.   7.  Miscellaneous.   •                  This Agreement contains the entire and only agreement between the Company and me with respect to its subject matter, superseding any previous oral or written communications, representations, understandings, or agreements with the Company concerning such subject matter.  The foregoing notwithstanding, this Agreement will neither supersede, nor affect any of my obligations under, the Agreements (if any) listed on Exhibit B.  Nothing in this Agreement in any way affects my obligations under The J. Jill Group, Inc. Code of Business Conduct and Ethics.  This Agreement may not be amended, in whole or in part, except by an instrument in writing signed by the Company and me.   •                  My obligations under this Agreement will survive the termination of my employment with the Company regardless of the manner of or reasons for such termination, and regardless of whether such termination constitutes a breach of any other agreement I may have with the Company.   •                  If any provision of this Agreement will be determined to be unenforceable by any court of competent jurisdiction by reason of its extending for too great a period of time or over too large a geographic area or over too great a range of activities, it will be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable.  Any invalid, illegal or unenforceable provision of this Agreement will be severable, and after any such severance, all other provisions hereof will remain in full force and effect.   16 --------------------------------------------------------------------------------   •                  In the event the Company has reason to believe this Agreement has or may be breached, I acknowledge and consent that this Agreement may be disclosed to my then current or prospective employer without risk or liability to the Company.  I acknowledge and agree that violation of this Agreement by me would cause irreparable harm to the Company not adequately compensable by money damages alone, and I therefore agree that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company will be entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to enforce the provisions hereof, without showing or proving any actual damage to the Company or posting any bond in connection therewith.   •                  Except with respect to Section 5 above, this Agreement may be assigned by the Company without my consent.   I have carefully read this Agreement, I understand it and agree to all of its terms.  I acknowledge that I have been given a copy of this Agreement.     Signature: /s/ Stephen L. Pearson       Name: Stephen L. Pearson       Date: 12-8-04     17 --------------------------------------------------------------------------------   EXHIBIT A   EXCLUDED CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY   18 --------------------------------------------------------------------------------   EXHIBIT B   EXCLUDED AGREEMENTS   1.               Employment Letter Agreement, dated May 3, 2003, between the Company and Stephen Pearson   2.               Severance Agreement, dated November 13, 2003, between the Company and Stephen L. Pearson   19 --------------------------------------------------------------------------------

  Exhibit 10.1 FIRST AMENDMENT TO AGCO CORPORATION 2006 LONG TERM INCENTIVE PLAN (As adopted July 27, 2006)      Pursuant to Article IX of the 2006 AGCO Long Term Incentive Plan (the “Plan”), the Plan is amended as follows effectively immediately:      1. Section 2.18 of the Plan is amended by deleting the first sentence thereof and replacing it with the following: The term “Performance Period” means with respect to an Award, a period of not less than one year within which the Performance Measures relating to such Award are to be measured. Notwithstanding the foregoing, up to 250,000 Performance Shares may have Performance Periods that are less than one year.”      2. Article IX of the Plan shall be amended by adding at the end thereof the following: Notwithstanding the foregoing, no amendment that (i) materially increases the benefits accruing to participants under the Plan, or (ii) materially expands the definition of Eligible Employee shall be effective until such amendment has been approved by stockholders of the Company.      IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer this 27th day of July, 2006.                   AGCO CORPORATION                       By:   /s/ Stephen Lupton                       Title:   Senior Vice President and               General Counsel      

  Exhibit 10.1 TRANSITION SERVICES AGREEMENT      This Transition Services Agreement (this “Agreement”), dated as of July 17, 2006 (the “Signing Date”), is entered between ALLTEL Corporation., a Delaware corporation, on behalf of itself and its affiliates (“AT Co.”), and Alltel Holding Corp., a Delaware corporation and wholly-owned subsidiary of AT Co., on behalf of itself and its affiliates (“Spinco”). R E C I T A L S      WHEREAS, AT Co. and Spinco are parties to that certain Distribution Agreement dated as of December 8, 2005, as amended (the “Distribution Agreement”; capitalized terms used herein but not defined herein shall have the meanings set forth in the Distribution Agreement), pursuant to which, among other things, AT Co. will distribute to its stockholders all of the outstanding shares of common stock of Spinco (the “Distribution”); and      WHEREAS, in connection with the Distribution, the parties desire that AT Co. and its Affiliates provide certain services to Spinco and its Affiliates on the terms and conditions set forth herein.      NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements contained in this Agreement, the parties agree as follows: ARTICLE 1 TRANSITION SERVICES      1.1 Transition Services. This Agreement sets forth the terms and conditions for the provision by AT Co. to Spinco of various transition services described herein and in the service attachment (the “Service Attachment”) attached hereto as Exhibit A and any statement of work (an “SOW”) to be added hereto and numbered appropriately (collectively, the “Transition Services”), pursuant to the terms hereof.      1.2 Provision of Transition Services. Commencing on the date hereof and continuing through the Term (as defined in Article 2 of this Agreement), AT Co. will provide the Transition Services to Spinco, unless (a) otherwise indicated on the Service Attachment, (b) automatically modified by termination of a Transition Service by Spinco in accordance with the terms and conditions hereof, (c) otherwise mutually agreed to by the parties in writing, or (d) this Agreement is terminated in accordance with the terms and conditions hereof.      1.3 Purchase of Additional or Modified Transition Services. From time to time, Spinco may request that AT Co. provide additional or modified services that relate to the transition of ownership and operation of the Spinco Business but are not described in the Service Attachment. AT Co. will use, and will cause each of its Affiliates to use, its reasonable best efforts to accommodate any reasonable requests by Spinco to provide additional or modified services relating to the transition of ownership and operations of the Spinco Business. In order to initiate a request for such additional or modified services, Spinco shall submit a written request to AT Co. specifying the nature of the requested additional or modified services and 1 --------------------------------------------------------------------------------   requesting an estimate of the Transition Services Costs (as defined in Section 3.1) applicable to such additional or modified services. AT Co. shall respond to such request within 10 Business Days following AT Co.’s receipt of such request; provided that, subject to the second sentence of Section 1.3, such 10 Business Day period shall be subject to a reasonable extension if, due to the volume, frequency or type of requests submitted by Spinco, AT Co.’s preparation of responses to such requests is materially interfering with, or is likely to materially interfere with, AT Co.’s normal business activities. If AT Co. can, subject to the second sentence of this Section 1.3, accommodate Spinco’s request to provide such additional or modified services, and if Spinco accepts the terms and conditions set forth in AT Co.’s response to such request, then such additional or modified services shall be provided hereunder subject to the terms and conditions of AT Co.’s response and such other terms and conditions as may be agreed to by the parties in a written amendment to this Agreement. If AT Co. agrees to any modification to the physical facilities that is requested by Spinco in accordance with the terms and conditions of this Section, such modification shall be done solely at Spinco’s cost and expense and shall be coordinated by the parties to minimize interference with AT Co.’s normal business activities. No representative of Spinco shall have authority to make decisions with respect to AT Co. and its responsibilities under this Agreement; and no representative of AT Co. shall have authority to make decisions with respect to Spinco and its responsibilities under this Agreement.      1.4 Appointment of Transition Teams. Each party shall designate one or more persons who have practical knowledge and experience in each area of AT Co.’s operations that relate to the Transition Services and are authorized to make decisions with respect to the Transition Services (each a “Transition Team”). Without limiting the generality of the foregoing, and subject to the foregoing proviso each Transition Team will include persons from such party and its Affiliates whose experience includes the following areas: (a) information technology systems, (b) billing, (c) human resources, (d) customer service, (e) accounting and finance, (f) engineering and network, (g) sales and marketing, (h) operations, (i) real estate, (j) branding, and (k) capital asset management. Each party shall designate a member of its Transition Team as the leader of its Transition Team (each a “Team Leader”). Each Team Leader shall coordinate the assignment of persons to its Transition Team and shall assess and monitor the performance of the Transition Services. Prior to the initial joint meeting described in Section 1.5 of this Agreement, each party shall submit to the other party a written list identifying its initial Team Leader and the initial members of its Transition Team including each person’s title, areas of expertise and relevant telephone, fax and email information. If a Transition Team member or Team Leader shall be unavailable to work on the Transition Services for more than five (5) Business Days, then he or she shall appoint a temporary or permanent replacement.      1.5 Transition Team Meetings. Within 30 Business Days after the Signing Date, the appropriate representatives of the Transition Teams shall conduct an initial joint meeting for the purpose of defining roles, responsibilities, scope and timelines related to the Transition Services. Thereafter, the Transition Teams shall convene meetings on a mutually agreed upon periodic basis as required. It is the expectation of the parties that the Transition Team members shall communicate directly with one another and work directly with one another to ensure that all Transition Services are completed on a timely and complete basis; provided that, except for AT Co.’s Team Leader, the members of AT Co.’s Transition Team shall not have the legal authority to make or to modify any obligation or to waive any right on behalf of AT Co. The Team 2 --------------------------------------------------------------------------------   Leaders shall meet, at least weekly, or on such other mutually agreed upon periodic basis as required, to discuss the status of the Transition Services, as well as to answer questions, gather information and resolve disputes that may occur from time-to-time. All meetings pursuant to this Section 1.5 may be face-to-face, video or telephonic meetings as may be agreed upon by the parties. Each party shall bear its own costs of attending or participating in Transition Team meetings.      1.6 Oversee Completion of Transition Services. The Transition Teams will be accountable for overseeing the completion of the Transition Services in accordance with the terms and conditions hereof. Unless otherwise provided in the Service Attachment, the parties will use their reasonable best efforts to respond to requests for information within 5 Business Days after receipt of each such request.      1.7 Availability of Subject Matter Experts. From time to time, Spinco may request that AT Co. make available to Spinco a resource of AT Co. that has expertise in the subject matter (which must be directly related to the systems and procedures utilized by AT Co. and its Affiliates in connection with the Spinco Business) specified by Spinco in such request. Within 5 Business Days after receipt by AT Co. of a reasonable request by Spinco that a specified subject matter expert be made available, AT Co. shall make, and shall cause its Affiliates to make, such subject matter experts (including, without limitation, technical and operational personnel) available to Spinco’s Transition Team or other subject matter experts during AT Co.’s normal business hours. For purposes of determining the reasonableness of any such request by Spinco, AT Co. shall consider the specified subject matter expert’s other duties and then-current schedule as well as the availability of other individuals with the same skills as the specified subject matter expert.      1.8 Equipment and Software. AT Co. shall keep the equipment and software used to provide the Transition Services in working order with sufficient capacity to perform the Transition Services concurrent with the equipment’s and software’s other use for AT Co., if any; provided, however, if AT Co. is required to increase the capacity of its equipment or software (for example, because previously shared hardware capacity must be duplicated) to perform the Transition Services, then AT Co. shall obtain Spinco’s prior written approval of any additional cost or expense that AT Co. expects to incur in connection with such increase in capacity, and Spinco shall pay any such additional cost or expense incurred by AT Co. to provide such increased capacity to the extent so approved by Spinco.      1.9 General Cooperation. Subject to the terms and conditions set forth in this Agreement, AT Co. and Spinco shall each use reasonable best efforts to provide information and documentation sufficient for each party to perform the Transition Services as they were performed before the date of this Agreement, and make available, as reasonably requested by the other party, sufficient resources and timely decisions, approvals and acceptances in order that each party may accomplish its obligations under this Agreement in a timely and efficient manner.      1.10 Modifications. Unless otherwise provided for in this Agreement, if Spinco makes any change in the processes, procedures, practices, networks, equipment, configurations, or 3 --------------------------------------------------------------------------------   systems pertaining to the Spinco Business, and such change has an adverse impact on AT Co.’s ability to provide any of the Transition Services, then AT Co. shall be excused from performance of any such affected Transition Services until Spinco mitigates the adverse impact of such change, and Spinco shall be responsible for all direct expenses incurred by AT Co. in connection with the cessation and, if applicable, the resumption of the affected Transition Services. ARTICLE 2 TERM      Unless terminated earlier in accordance with Article 8 of this Agreement, the term of this Agreement shall expire on the one-year anniversary of the Signing Date (the “Term”), except Spinco shall have the right to extend the Term for an additional 30 days by providing written notice to AT Co. at least 60 days prior to the expiration of the Term indicating Spinco’s election to extend the Term. The parties may agree in any SOW to a longer period of time for performance of Services, and in that event the Term shall be extended for such time but only with respect to such SOW. Spinco may extend the period of time for which a particular Service will be required by an additional 30 days if Spinco delivers written notice of such election to AT Co. no later than 30 days prior to the scheduled expiration date of such Service, provided that no such election shall extend the period of performance of such Service beyond the expiration of the Term and Spinco may exercise this extension right only once as to any particular Service. ARTICLE 3 COMPENSATION AND PAYMENT ARRANGEMENTS FOR TRANSITION SERVICES      3.1 Compensation for Transition Services. Subject to the terms and conditions of this Agreement, the total compensation payable by Spinco to AT Co. for each and every Transition Service provided pursuant to the Service Attachment shall be set forth in the Services Attachment (the “Transition Services Costs”).      3.2 Payment Terms. Within 30 days after the end of each calendar month during the Term, or extension thereof, AT Co. shall bill Spinco in arrears for the Transition Services Costs that apply to the Transition Services performed by AT Co. Each of AT Co.’s invoices shall describe in reasonable detail the Transition Services upon which the applicable Transition Services Costs are based. Within 30 days after Spinco’s receipt of each of AT Co.’s invoices, Spinco shall pay AT Co. the amount of such invoice. If such payment is not received by AT Co. within such 30-day period, Spinco shall also pay AT Co. interest from and after the last date of the calendar month in respect of such invoice, but excluding the date of payment by Spinco, at a rate per annum equal to the Prime Rate on the last day of the calendar month in respect of such invoice. If Spinco disputes in good faith any portion of the amount due on any invoice, Spinco shall notify AT Co. in writing of the nature and basis of the dispute within 10 Business Days after Spinco’s receipt of such invoice. Otherwise the invoiced amount shall be deemed to be accurate and correct and shall not be subject to dispute or contest by Spinco or any Affiliate thereof. The parties shall use their reasonable best efforts to resolve the dispute prior to the payment due date. AT Co. shall reimburse Spinco within 30 days following, as applicable (a) 4 --------------------------------------------------------------------------------   agreement by the parties of any excess payment made by Spinco in respect of Transition Services, or (b) resolution of any disputed amounts paid in excess of the amount of Transition Services Costs, in either case, with interest from and after the date payment was made by Spinco through, but excluding, the date of reimbursement by AT Co., at the rate per annum equal to the Prime Rate on the date payment was made by Spinco.      3.3 Taxes. All charges and fees to be paid by Spinco under this Agreement are exclusive of any applicable withholding, sales, use, value added, excise, services or other United States or foreign tax which may be assessed on the provision of the Transition Services. In the event that a withholding, sales, use, value added, excise, value added services or other United States or foreign tax is assessed on the provision of any of the Transition Services provided to Spinco under this Agreement, Spinco will pay directly, reimburse or indemnify AT Co. for such taxes, as well as any applicable interest and penalties. The parties will cooperate with each other in determining the extent to which any tax is due and owing under the circumstances, and shall provide and make available to each other any resale certificates, information regarding out-of-state or country use of materials, services or sale, and other exemption certificates or information reasonably requested by either party. This section shall have no application to any tax based upon the income of AT Co. ARTICLE 4 RELATIONSHIP TO OTHER DOCUMENTS      4.1 Controlling Provisions. If there is any conflict or inconsistency between the terms and conditions set forth in the main body of this Agreement and any of the Exhibits to this Agreement, the provisions of the Exhibits shall control with respect to the rights and obligations of the parties regarding the Transition Services. If there is any conflict or inconsistency between the terms and conditions of this Agreement and the Distribution Agreement, the provisions of this Agreement shall control solely with respect to the rights and obligations of the parties regarding the Transition Services. ARTICLE 5 DISPUTE RESOLUTION      5.1 Dispute Resolution Procedures. If a dispute arises between the parties with respect to the terms and conditions of this Agreement, or any subject matter governed by this Agreement (excluding disputes regarding a party’s compliance with the applicable confidentiality provisions or in the case of suit to compel compliance with this dispute resolution process or with the provisions of this Article) (a “Dispute”) the parties agree to use and follow this dispute resolution procedure before initiating any judicial action. At such time as the Dispute is resolved under this Article, interest (at the Prime Rate) shall be paid to the party receiving any disputed monies to compensate for the lapsed time between the date such disputed amount originally was paid or should have been paid through the date monies are paid in settlement of the Dispute.      5.2 Claims Procedures. The Transition Teams shall escalate any Dispute to the Team Leaders for resolution. Upon receipt of any such escalated matter, the Team Leaders shall 5 --------------------------------------------------------------------------------   discuss and attempt to resolve the matter within 15 Business Days immediately following the escalation. If by the end of the fifteenth Business Day, the matter has not been resolved to the satisfaction of both Team Leaders, then the party that initiated the claim shall provide written notification to the other party in accordance with Section 10.3 of this Agreement, in the form of a claim identifying the issue or amount disputed and including a detailed reason for the claim. The party against whom the claim is made shall respond in writing to the claim within 15 Business Days from the date of receipt of the claim document. The party filing the claim shall have an additional 15 Business Days after the receipt of the response to either accept any resolution offered by the other party or request implementation of the procedures set forth in Section 5.3 (the “Escalation Procedures”). Failure to meet the time limitations set forth in this Section may result in the implementation of the Escalation Procedures.      5.3 Escalation Procedure. Upon receipt of the written notice of a party involved in the Dispute and in compliance with Section 5.2, each party shall appoint a knowledgeable, responsible representative to negotiate in good faith to resolve any unresolved disputes or claims arising under this Agreement. The parties intend that these negotiations be conducted by experienced business representatives empowered to decide the issues. The business representatives shall meet and attempt to resolve the Dispute within 15 Business Days of receiving the written request. If they can resolve the Dispute within that time period, it will be memorialized in a written settlement and release agreement, executed within five Business Days thereafter. If they can not resolve the Dispute within that time period, then the parties may resort to judicial action or other remedies. The parties may vary the duration and form of these Escalation Procedures by mutual written agreement. ARTICLE 6 INDEMNIFICATION      6.1 Indemnification by AT Co.           (a) AT Co. shall indemnify, defend and hold harmless each Spinco Indemnitee (as defined in the Distribution Agreement), against and in respect of any and all Indemnifiable Losses incurred or suffered by any Spinco Indemnitee that result from, relate to or arise out of any default by AT Co. in the performance of its obligations under this Agreement or any third party claim against any Spinco Indemnitee based upon the negligence, gross negligence or willful misconduct of any of the AT Co. Indemnitees that arise out of or result from any default by AT Co. in the performance of its obligations under this Agreement, except to the extent that any such Indemnifiable Losses arise out of or result from the negligence, gross negligence or willful misconduct of any Spinco Indemnitee.           (b) In the case of Indemnifiable Losses incurred by Spinco Indemnitees that arise out of or result from any default by AT Co. in the performance of its obligations under this Agreement based upon the negligence of any of the AT Co. Indemnitees, indemnification shall be limited to actual damages which in no event shall exceed the total amount of compensation payable to AT Co. hereunder. For the avoidance of doubt, in the case of Indemnifiable Losses incurred by the Spinco Indemnitees that arise out of or result from any default by AT Co. in the performance of its obligations under this Agreement based upon the gross negligence or willful 6 --------------------------------------------------------------------------------   misconduct of any of the AT Co. Indemnitees, indemnification shall be limited to actual damages without regard to the total amount of compensation payable to AT Co. hereunder.      6.2 Indemnification by Spinco.           (a) Spinco shall indemnify, defend and hold harmless each AT Co. Indemnitee (as defined in the Distribution Agreement), against and in respect of any and all Indemnifiable Losses incurred or suffered by any AT Co. Indemnitee that result from, relate to or arise out of any default by Spinco in the performance of its obligations under this Agreement or any third party claim against any AT Co. Indemnitee based upon the negligence, gross negligence or willful misconduct of any of the Spinco Indemnitees that arise out of or result from any default by Spinco in the performance of its obligations under this Agreement, except to the extent that any such Indemnifiable Losses arise out of or result from the negligence, gross negligence or willful misconduct of any AT Co. Indemnitee.           (b) In the case of Indemnifiable Losses incurred by AT Co. Indemnitees that arise out of or result from any default by Spinco in the performance of its obligations under this Agreement based upon the negligence of any of the Spinco Indemnitees, indemnification shall be limited to actual damages which in no event shall exceed the total amount of compensation payable to AT Co. hereunder. For the avoidance of doubt, in the case of Indemnifiable Losses incurred by the AT Co. Indemnitees that arise out of or result from any default by Spinco in the performance of its obligations under this Agreement based upon the gross negligence or willful misconduct of any of the Spinco Indemnitees, indemnification shall be limited to actual damages without regard to the total amount of compensation payable to AT Co. hereunder.      6.3 Limitations.           (a) In no event shall either party hereto be liable for indirect, special, consequential or punitive damages arising out of this Agreement, regardless of the form of action, whether in contract, warranty, strict liability or tort, including negligence of any kind, whether active or passive, and regardless of whether the other party knew of or was advised at the time of breach of the possibility of such damages.           (b) Except as otherwise provided in this Article 6, AT Co.’s sole responsibility to Spinco for errors or omissions in providing the Transition Services shall be to re-perform such Transition Services properly in a diligent manner, at no additional cost or expense; provided, however, that each party shall use reasonable best efforts to detect any such errors or omissions and promptly advise the other party or parties of any such error or omission of which it becomes aware.      6.4 A party that is seeking indemnification pursuant to Section 6.1 or 6.2 shall notify the other party thereof and shall specify in reasonable detail the event(s) giving rise to such claim for indemnification within 15 Business Days after the indemnified party has actual knowledge of such event(s), except that any failure to give such notice will not waive any rights of the indemnified party unless the rights of the indemnifying party are actually and materially prejudiced thereby. The indemnifying party shall have the right to undertake the defense of any 7 --------------------------------------------------------------------------------   claim upon delivery of notice to the indemnified party with respect to such claim. Such defense shall be made with counsel reasonably acceptable to the indemnified party. If the indemnifying party fails to undertake the defense of the indemnified party within such time period, the indemnified party may retain its own counsel for such defense (which shall be reasonably acceptable to the indemnifying party), and the indemnified party’s reasonable attorney’s fees and expenses related to such claim shall be paid by the indemnifying party. Neither party shall, without the consent of the other party, agree to any non-monetary settlement of the indemnified claim.           (a) Upon a determination of liability by final and non-appealable court judgment or order in respect of Section 6.1 or 6.2, the appropriate party shall pay the other party the amount so determined (subject to the limitations of Section 6.3) within 15 Business Days after the date of determination of liability by Final Judgment (such fifteenth Business Day, the “Due Date”). If there should be a dispute as to the amount or manner of determination of any indemnity obligation owed under Section 6.1 or 6.2, the indemnifying party shall nevertheless pay when due such portion, if any, of the obligation as shall not be subject to dispute. The difference, if any, between the amount of the obligation ultimately determined as properly payable under this Agreement and the portion, if any, theretofore paid shall bear interest as provided below in Section 6.4(b). Upon the payment in full of any claim, the indemnifying party or other Person making payment shall be subrogated to the rights of the indemnified party against any Person with respect to the subject matter of such claim. For purposes of this Section 6.4, “Final Judgment” means a judicial or other determination as to which no appeal or other review is pending or in effect and any deadline for filing any such appeal or review that may be designated by statute, rule, stipulation or other agreement has passed.           (b) If all or part of any indemnification obligation under Section 6.1 or 6.2 of this Agreement is not paid on the Due Date, then the indemnifying party shall pay the indemnified party interest on the unpaid amount of the obligation for each calendar day from the Due Date until payment in full, payable on demand, at a rate per annum equal to the Prime Rate on the Due Date. ARTICLE 7 FORCE MAJEURE      Except for payment of amounts due, neither party shall be held liable for any delay or failure in performance of any part of this Agreement, including the Service Attachment, from any cause beyond its reasonable control and not primarily attributable to its fault or negligence, including, but not limited to, acts of God, acts of civil or military authority, embargoes, epidemics, war, terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear accidents, floods, strikes, or disruptions in Internet and other telecommunication networks and backbones, power and other utilities. Upon the occurrence of a condition described in this Article, the party whose performance is prevented shall provide written notice to the other party, and the parties shall promptly confer, in good faith, on what action may be taken to minimize the impact, on both parties, of such condition. 8 --------------------------------------------------------------------------------   ARTICLE 8 TERMINATION      8.1 Termination of Transition Services and Agreement for Convenience. Subject to the limitations set forth in the Services Attachment, Spinco shall have the right to terminate any Transition Service, in whole or in part, upon 30 days prior written notice to AT Co. If all Transition Services shall have been migrated or terminated under this provision prior to the expiration of this Agreement, then Spinco shall have the right to terminate this Agreement upon written notice to AT Co.      8.2 Termination for Default. In the event: (i) Spinco shall fail to pay for Transition Services in accordance with the terms of this Agreement (and such payment is not disputed by Spinco in good faith in accordance with Section 3.2); (ii) either party shall default, in any material respect, in the due performance or observance by it of any of the other terms, covenants or agreements contained in this Agreement; or (iii) either party shall become or be adjudicated insolvent and/or bankrupt, or a receiver or trustee shall be appointed for either party or its property or a petition for reorganization or arrangement under any bankruptcy or insolvency law shall be approved, or either party shall file a voluntary petition in bankruptcy or shall consent to the appointment of a receiver or trustee, any non-defaulting party shall have the right, at its sole discretion, (A) in the case of a default under clause (iii), to immediately terminate its participation with the defaulting party under this Agreement, and (B) in the case of a default under clause (i) or (ii), to terminate its participation with the defaulting party under this Agreement if the defaulting Party has failed to (x) cure the default within 30 days of written notice of default or if the default (except for defaults as a result of failure to make payment) is such that it will take more than 30 days to cure, within an extended time period which shall be not longer than what is reasonably necessary to effect performance or compliance or (y) diligently pursue the curing of the default.      8.2 Termination of Distribution Agreement. This Agreement shall automatically terminate upon termination of the Distribution Agreement.      8.3 Transitional Cooperation. Each of AT Co. and Spinco will, and will cause their respective Affiliates to cooperate with the other party and its Affiliates to assure an orderly transition from the systems and procedures utilized by AT Co. and its Affiliates in connection with the Spinco Business to those systems and procedures to be utilized by Spinco and its Affiliates in connection with the Spinco Business after Closing.      8.4 Return of Material. As a Transition Service is migrated or terminated, whichever is earlier, each of AT Co. and Spinco will, and will cause their respective Affiliates to, return all material and property owned by the other party and its Affiliates, including, without limitation, any and all material and property of a proprietary nature involving the other party and its Affiliates relevant to the provision of that Transition Service and no longer needed regarding the performance of other Transition Services under this Agreement within 30 days after the applicable migration or termination. Upon termination of this Agreement, each of AT Co. and Spinco will, and will cause their respective Affiliates to, return any and all material and property of a proprietary nature involving the other party and its Affiliates, in its possession or control 9 --------------------------------------------------------------------------------   within 30 days after the termination of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, upon the termination or expiration of this Agreement, Spinco shall cease all access to AT Co.’s information, data, systems and other assets that are not Spinco Assets.      8.5 Effect of Termination. The provisions of Articles 3, 4, 5, 6, 7, 8 and 10 shall survive the termination or expiration of this Agreement. ARTICLE 9 OTHER REPRESENTATIONS, WARRANTIES AND COVENANTS      9.1 Compliance with Laws. Each party shall comply, at its own expense, with the provisions of all Laws applicable to the performance of its obligations under this Agreement. Notwithstanding the description of the Transition Services in this Agreement, neither AT Co. nor any of its Affiliates shall provide any services that would involve the rendering of legal, regulatory or tax advice or counsel.      9.2 Performance. AT Co. represents and warrants that AT Co. and its Affiliates, as the case may be, will provide the Transition Services in a timely and professional manner generally consistent with the past practices of AT Co. and its Affiliates in providing the same or similar services to the Spinco Business prior to the execution of the Distribution Agreement.      9.3 Books and Records. AT Co. or its Affiliates will maintain complete and accurate books and records pertaining to its provision of the Transition Services. AT Co. or its Affiliates will provide Spinco, upon reasonable notice and during normal business hours, with access to such books and records. All such information shall be subject to the terms of the confidentiality provisions set forth in Section 10.16 hereof.      9.4 No Other Representations or Warranties. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY NOR ANY OTHER PERSON MAKES ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY ON BEHALF OF EITHER PARTY WITH RESPECT TO THE TRANSITION SERVICES, AT LAW OR IN EQUITY, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. ARTICLE 10 MISCELLANEOUS      10.1 Relationship of the Parties. The parties declare and agree that each party is engaged in a business that is independent from that of the other party and each party shall perform its obligations as an independent contractor. It is expressly understood and agreed that Spinco and AT Co. are not partners or joint ventures, and nothing contained herein is intended to create an agency relationship or a partnership or joint venture. Neither AT Co. nor any of its Affiliates is an agent of Spinco or any of its Affiliates and has no authority to represent Spinco or 10 --------------------------------------------------------------------------------   any of its Affiliates as to any matters, except as authorized in this Agreement or in writing by Spinco from time to time. Neither Spinco nor any of its Affiliates is an agent of AT Co. or any of its Affiliates and has no authority to represent AT Co. or any of its Affiliates as to any matters, except as authorized in this Agreement or in writing by AT Co. from time to time.      10.2 Employees of the Parties. AT Co. shall be solely responsible for payment of compensation to its employees and for any injury to them in the course of their employment. AT Co. shall assume full responsibility for payment of all federal, state and local taxes or contributions imposed or required under unemployment insurance, social security and income tax laws with respect to such persons. Spinco shall be solely responsible for payment of compensation to its employees and for any injury to them in the course of their employment. Spinco shall assume full responsibility for payment of all federal, state and local taxes or contributions imposed or required under unemployment insurance, social security and income tax laws with respect to such persons.      10.3 Notices. All notices and other communications required or permitted hereunder may be telephonic, by electronic mail or in writing and will be deemed to have been given when provided to the appropriate party in accordance with the contact information specified below:      If to AT Co., to: ALLTEL Corporation One Allied Drive Little Rock, AR 72202 Attention: Chief Legal Officer      If to Spinco, to: Prior to Merger: Alltel Holding Corp. 4001 Rodney Parham Road Little Rock, AR 72212 Attention: General Counsel Following Merger: Windstream Corporation 4001 Rodney Parham Road Little Rock, AR 72212 Attention: General Counsel or to such other Person or contact information as either party may from time to time designate for itself by like notice. 11 --------------------------------------------------------------------------------        10.4 Governing Law.           (a) This Agreement shall be construed in accordance with, and governed by, the internal Laws of the State of Delaware without giving effect to principles of conflicts of law.           (b) The parties hereby irrevocably waive any and all right to trial by jury in any legal proceeding arising out of or related to this Agreement.      10.5 Assignment.           (a) Neither this Agreement nor any of the rights, benefits or obligations hereunder may be assigned or delegated by Spinco or AT Co. (whether by operation of law or otherwise) without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however, (i) this Agreement shall be binding upon and inure to the benefit of Windstream Corporation, as the successor corporation in the merger of Spinco with and into the Company as part of the Merger without the consent or other action by any party hereto and (ii) in all other cases no such consent shall be required for an assignment or delegation by any party hereto to a successor to all or a substantial portion of the assets or the business of such party so long as such assignee or delegee executes a written assumption of such party’s obligations hereunder with respect to the rights or obligations assigned or delegated, and delivers such written assumption to the other party within a reasonable period of time after the effective date of such assignment or delegation. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of and be enforceable by Spinco and AT Co. and their respective successors and permitted assigns      10.6 Entire Agreement. This Agreement (including the Schedules and Exhibits attached hereto) constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, arrangements and understandings of the parties with respect to such subject matter.      10.7 Amendments and Waivers. Any provision of this Agreement may be amended if, and only if, such amendment is in writing and signed by both parties. Any provision of this Agreement may be waived to the extent permitted by applicable Law if, and only if, such waiver is in writing and signed by the party granting the waiver. No failure or delay by any party in exercising any right, remedy, 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, remedy, power or privilege.      10.8 Headings. The headings of the Articles and Sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.      10.9 Severability. Each term or provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent but only to the extent of such invalidity, illegality or unenforceability, without rendering invalid or unenforceable the remainder of such provision or provisions of this Agreement; provided, 12 --------------------------------------------------------------------------------   however, that if the removal of such offending provision materially alters the burdens or benefits of either of the parties under this Agreement, the parties agree to negotiate in good faith such modifications to this Agreement, if any, as are appropriate to ensure that the burdens and benefits of each party under such modified Agreement are reasonably comparable to the burdens and benefits originally contemplated herein.      10.10 No Third-Party Beneficiaries. With the exception of the parties to this Agreement and their respective successors and permitted assigns, and there shall exist no right of any person to claim a beneficial interest in this Agreement or any rights arising out of this Agreement; provided, however, that with respect to Section 1.4 and Section 5.2 only, the Company is and shall be a stated and intended third party beneficiary; provided, however, that with respect to Section 1.4 and Section 5.2 only, the Company is and shall be a stated and intended third party beneficiary.      10.11 Remedies Cumulative. Except as otherwise provided herein, all rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any right, power or remedy by a party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party.      10.12 Expenses. Except as otherwise provided in this Agreement, the parties shall bear their own expenses (including all time and expenses of counsel, financial advisors, consultants, actuaries and independent accountants) incurred in connection with this Agreement.      10.13 Counterparts. This Agreement may be executed in one or more counterparts, which may be delivered by facsimile, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.      10.14 Specific Performance. The parties hereto 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 any covenant set forth in this Agreement is otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to enforce specifically the performance of this Agreement in accordance with its terms and provisions and to prevent breaches of covenants set forth in this Agreement. The foregoing right is in addition to, and not in lieu of, any other rights a party hereto may have in respect of a breach of this Agreement, whether at law or in equity.      10.15 No Set-Off. The obligations under this Agreement shall not be subject to set-off for non-performance or any monetary or non-monetary claim by any party or any of their respective Affiliates under any other agreement between the parties or any of their respective Affiliates.      10.16 Confidentiality.           (a) AT Co. and its Affiliates and their respective officers, directors, partners, managers, shareholders, employees, agents and representatives will not disclose any confidential information about Spinco or any of its Affiliates obtained as a result of the exercise of its rights or performance of its obligations under this Agreement unless disclosure is compelled by judicial 13 --------------------------------------------------------------------------------   or administrative process or, based on advice of such Person’s counsel, by other requirements of law. The obligations of AT Co. under this Section 10.16(a) will survive the termination or expiration of this Agreement.           (b) Spinco and its Affiliates and their respective officers, directors, partners, managers, shareholders, employees, agents and representatives will not disclose any confidential information about AT Co. or any of its Affiliates obtained as a result of the exercise of its rights or performance of its obligations under this Agreement unless disclosure is compelled by judicial or administrative process or, based on advice of such Person’s counsel, by other requirements of law. The obligations of Spinco under this Section 10.16(b) will survive the termination or expiration of this Agreement.      10.17 Facilities and Systems Security. If either party or its personnel will be given access to the other party’s facilities, premises, equipment or systems, such party will comply with all such other party’s written security policies, procedures and requirements made available by each party to the other, and will not tamper with, compromise, or circumvent any security or audit measures employed by such other party. Each party shall use its reasonable best efforts to ensure that only those of its personnel who are specifically authorized to have access to the facilities, premises, equipment or systems of the other party gain such access, and to prevent unauthorized access, use, destruction, alteration or loss in connection with such access. [SIGNATURE PAGE FOLLOWS] 14 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.             ALLTEL CORPORATION       By:   /s/ Richard N. Massey       Name:   Richard N. Massey        Title:   Executive Vice President and General Counsel       ALLTEL HOLDING CORP.       By:   /s/ John P. Fletcher       Name:   John P. Fletcher        Title:   Executive Vice President and General Counsel      

Exhibit 10.14 FORM OF OPTICAL CABLE CORPORATION 2005 STOCK INCENTIVE PLAN FY              RESTRICTED STOCK AWARD (Operational Performance Vesting) [Note: This Form of Restricted Stock Award may change from time to time at the direction of the Compensation Committee of the Board of Directors or the Board of Directors.]   GRANTED TO   GRANT DATE   NUMBER OF SHARES GRANTED   PRICE PER SHARE   SOCIAL SECURITY NUMBER _______________   _______________   _______________   N/A   _______________     GRANT NUMBER   VESTING AND RESTRICTION LAPSE SCHEDULE*   _______________   Shares granted hereunder will vest, in accordance with and subject in all respects to the provisions of Sections 3 and 4 below, on _______ of each year (each such date, a “Vesting Date”), with the first Vesting Date being ___________, 20__ and the last Vesting Date being ___________, 20__ . -------------------------------------------------------------------------------- * Fractional shares shall be carried over to the last vesting period OPTICAL CABLE CORPORATION and its successors and assigns (the “Company”) hereby grants to                      (the “Participant”) effective                      (the “Grant Date”), a Restricted Stock Award (the “Award”), pursuant to its 2005 Stock Incentive Plan that is provided along herewith (the “Plan”), covering the above stated number of shares (the “Restricted Shares”) of common stock of the Company (“Common Stock”). The Chief Executive Officer proposed this Award and recommended its approval to the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”), and the Compensation Committee, pursuant to the terms of the Plan, granted the Award to the Participant. The Plan is administered by the Compensation Committee, or alternatively and as appropriate, the Board of Directors (in either case, the “Committee”). Any controversy that arises concerning this Award or the Plan shall be resolved by the Committee as it deems proper, and any decision of the Committee shall be final and conclusive. The terms of the Plan are hereby incorporated into this Award by this reference. In the case of any conflict between the Plan and this Award, the terms of the Plan shall control. Capitalized terms not defined in this Award shall have the meaning assigned to such terms in the Plan. Now, therefore, in consideration of the foregoing and the mutual covenants hereinafter set forth: 1. The Company hereby grants to the Participant an Award covering the Restricted Shares, subject to the terms and conditions of this Award and the Plan.   1 -------------------------------------------------------------------------------- 2. Unless otherwise determined by the Committee [or unless as otherwise provided in Section 4(b) below], the Award will vest, and the restrictions applicable to Restricted Shares shall lapse (with the shares no longer subject to the restrictions set forth herein being referred to as “Unrestricted Shares”), in accordance with Section 3 below. Except as otherwise provided in the Plan or in Section 4 below or otherwise determined by the Committee, the Participant must be employed at all times from the Grant Date through a Vesting Date in order for part of this Award to vest on such Vesting Date, and the restrictions on that portion of the Restricted Shares to lapse. 3. On each Vesting Date, a portion of the Award shall vest in accordance with the performance criteria set forth on Exhibit A attached hereto. In any event, Participant shall not be entitled to receive more than the total number of Restricted Shares shown as the “Number of Shares Granted” set forth at the top of this document. Any Restricted Shares covered by the Award that have not vested in accordance herewith or pursuant to Section 4 below on or before             , 20    , shall be irrevocably forfeited. 4. a. Unless otherwise determined by the Committee [or unless as otherwise provided in Section 4(b) below], in the event that Participant’s employment with the Company and/or any subsidiaries terminates before the Award is fully vested and the restrictions on all of the Restricted Shares have lapsed, Participant will, upon the date of Participant’s termination of employment (as reasonably fixed and determined by the Company), forfeit the remainder of the Restricted Shares and the Company will be the owner of such remaining Restricted Shares and will have the right, without further action by Participant, to transfer such remaining Restricted Shares into its name. [b. If a Triggering Event (as defined in Section 4 (c) below) occurs while Participant is employed by the Company (or if Participant’s employment is terminated during the pendency of an event that, if consummated, would lead to a Triggering Event), but before the Award is fully vested and the restrictions applicable to all of the Restricted Shares have lapsed, then the date upon which the Triggering Event (or the date of the termination of Participant’s employment if Participant’s employment is terminated during the pendency of an event that, if consummated, would lead to a Triggering Event) occurs will be the Vesting Date with respect to the unvested portion of the Award, and such unvested portion of the Award shall thereupon immediately vest and all restrictions on the remaining Restricted Shares shall lapse.] [Note: This paragraph is applicable to grants for executive officers only] [c. For purposes of this Award, a “Triggering Event” occurs if, after the date of this Award, (i) any person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the owner or beneficial owner of Company securities having 50% or more of the combined voting power of the then outstanding Company securities that may be cast for the election of the Company’s directors; or (ii) as the direct or indirect result of, or in connection with, a tender or exchange offer, a merger or other business combination, a sale of assets, a contested election of directors, or any combination of these events, the persons who were directors of the Company before such events cease to constitute a majority of the Corporation’s Board, or any successor’s board, within three years of the last of such transactions. For purposes of this Award, a Triggering Event occurs on the date on which an event described in (i) or (ii) occurs. If a Triggering Event occurs on account of a series of transactions or events, the Triggering Event occurs on the date of the last of such transactions or events. ] [Note: This paragraph is applicable to grants for executive officers only] 5. Participant will not sell, transfer, pledge, hypothecate or otherwise dispose of any Restricted Shares (or any interest in such shares) prior to the Vesting Date as to which the restrictions applicable to such shares lapse. 6. Prior to a Vesting Date, the Company will, at its option, reflect Participant’s ownership of the Restricted Shares in book-entry form with the Company’s transfer agent or through the issuance of one or more stock certificates. If the Company elects to reflect ownership through the issuance of stock certificates, such certificates will be held in escrow with the Corporate Secretary of the Company in accordance with the provisions of this Award and the Plan. Subject to terms of this Award and the Plan, Participant will have all rights of a shareholder with respect to the Restricted Shares while they are held in escrow or in book-entry form, including, without limitation, the right to vote the Restricted Shares and receive any cash dividends declared on such shares. If, from time to time prior to the date that the Award is fully vested and the restrictions on all of the Restricted Shares have lapsed, there is (i) any stock dividend, stock split or other change in the Restricted Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional   2 -------------------------------------------------------------------------------- securities to which Participant is entitled by reason of his ownership of the Restricted Shares shall be held on his behalf by the Company in book-entry form or through the issuance of one or more stock certificates and held in escrow pursuant to this section until vesting pursuant to the schedule applicable to the underlying Restricted Shares, at which time all restrictions shall lapse. 7. As described in the Plan, in the event of certain corporate transactions or other actions or events, the Committee may take such actions with respect to this Award as it deems appropriate and consistent with the Plan. 8. Participant understands that Participant (and not the Company) is responsible for any tax liability that may arise as a result of the transaction contemplated by this Award. Participant understands that Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”) taxes as ordinary income the difference between the amount paid for the Restricted Shares and the fair market value of the Restricted Shares as of the date the restrictions on such shares lapse. Participant understands that Participant may elect to be taxed at the time of the Award, rather than when the restrictions lapse, by filing an election under Section 83(b) of the Code with the Internal Revenue Service within 30 days from the Grant Date. 9. As a condition of accepting this Award, Participant agrees to make arrangements for the payment of withholding of income taxes and employment taxes upon the vesting of the Award and the lapse of restrictions on the Restricted Shares. Until adequate arrangements have been made, certificates representing Unrestricted Shares will not be issued to Participant. Participant may satisfy applicable withholding taxes by any manner permitted by the Plan, subject to the consent of the Committee, including, (i) delivering a sufficient number of shares of already owned Common Stock (which have been owned by Participant for more than six (6) months), and/or (ii) having the Company retain a sufficient number of shares from the distribution to be made to Participant. 10. The fact that the Participant has been granted this Award will not affect or qualify the right of the Company or a subsidiary to terminate the Participant’s employment at any time. 11. If any provision of this Award should be deemed void or unenforceable for any reason, it shall be severed from the remainder of the agreement, which shall otherwise remain in full force and effect. 12. The Company may, in its discretion, delay delivery of a certificate required upon vesting of the Award until (i) the admission of such shares to list on any stock exchange (including NASDAQ) on which the Common Stock may then be listed, (ii) the completion of any registration or other qualification of such shares under any state or federal law, ruling, or regulation of any governmental regulatory body that the Company shall, in its sole discretion, determine if necessary or advisable, and (iii) the Company shall have been advised by counsel that it has complied with all applicable legal requirements. 13. Any notice to be given under the terms of this Award shall be addressed to Optical Cable Corporation, to the attention of the Chief Financial Officer, 5290 Concourse Drive, Roanoke, VA 24019, and any notice to be given to Participant or to his or her personal representative shall be addressed to him or her at the address set forth below or to such other address as either party may, hereafter, designate in writing to the other. Notices shall be deemed to have been duly given if mailed, postage prepaid, addressed as aforesaid. 14. You may accept this Award, subject to the registration and listing of the shares issueable under the Plan, by signing and returning the enclosed copy of this Award. Your signature will also evidence your agreement to the terms and conditions set forth herein and to which this Award is subject. 15. Along with this Award, you hereby acknowledge receipt of a copy of the Plan and the Prospectus for the Plan. Also, if you have previously been granted an award under the Plan, you hereby acknowledge that you have received all of the reports, proxy statements and other communications generally distributed to the holders of the Company’s securities since the date(s) of such grant(s) and no later than the times of such distributions. [16. Note: With respect to any individual Award, Committee may insert required retention periods for shares received pursuant to an Award, applicable even after such shares are Unrestricted Shares.] [Note: With respect to any individual Award, Committee may condition receipt of shares under this Award on other events or conditions.]   3 -------------------------------------------------------------------------------- (Signature Page Follows) IN WITNESS WHEREOF, the Company has caused this Award to be signed, as of the Grant Date shown above.   OPTICAL CABLE CORPORATION By:        I hereby acknowledge receipt of this Award, the Plan, and the Prospectus for the Plan, and I agree to conform to all terms and conditions of this Award and the Plan.               Name     Date             Signature     Address   4

Exhibit 10.1   [b411364ex10-1x1x1.jpg] Dear Robert, As you know, the Celera Genomics Group of Applera Corporation (the “Company”) has announced that it is seeking partners to maximize the value of its small molecule activities in South San Francisco, California (the “Business”) in the most cost effective manner. These activities could result in a sale or other transaction involving the Business. In order to ensure your continued attention and dedication to your duties to the Business during this period of uncertainty, the Company wishes to advise you with respect to certain bonuses and severance payments that may be made by the Company in the event that the Company’s activities result in a sale or other transfer of all or substantially all of the assets of the Business to a separate entity not controlled by the Company (a “Sale”) and your employment is impacted. 1.      BONUS/SEVERANCE     A.      Sale Bonus. The Company will pay you a bonus of up to 20% of your annual base salary upon the closing of a Sale based upon your effort to help bring about the Sale, provided you are employed by the Company upon the closing of the Sale. (The Company will consider paying a bonus if you exercise good faith efforts to effect a Sale and the Sale in fact occurs but your employment terminates before the sale.) The Company’s expectation is that you would receive 100% of such bonus if the closing of the Sale occurs and you satisfy the conditions set forth below. The Company will make any such bonus payment, less applicable withholdings, within fifteen (15) days of the closing date of a Sale.      B.      Post Sale Bonus. The Company will pay you an additional bonus of up to 200% of your annual base salary, less applicable withholdings, if you remain an active employee through the completion of a Sale and, under the buyer, for at least 6 months thereafter. The Company’s expectation is that you would receive 100% of such bonus, provided you satisfy the conditions set forth below. The Post Sale Bonus would be paid within 15 days after such 6 month period.       The conditions for receipt of the bonuses are as follows: (i) you must abide by Company policies prior to the closing of the Sale; (ii) you must act throughout the period from this letter agreement to the closing in a manner reasonably intended to help the buyer and the Company achieve the Sale, and consistent with the Company’s best interests, (iii) in the case of the Post Sale Bonus, you may not terminate employment prior to 6 months after the closing of the Sale, except as a result of your death or long term disability.     C.      Severance. This subsection C) regarding severance shall have no operation if both bonuses under subsections A) and B) become owing to you. You will be eligible for a severance payment of 200% of your annual base salary, less applicable withholdings if any of the following events occur, provided that you have made best efforts to help bring about a Sale and have complied with Company policies:    --------------------------------------------------------------------------------     1)   The Company terminates your employment without cause prior to a Sale;           2)   You accept employment with the buyer of the Business and your employment is terminated without cause by the buyer within six (6) months of the closing of the Sale or your total compensation is decreased during such six (6) month period;           3)   You are not offered employment by the buyer of the Business;           4)   You are offered employment by the buyer of the Business at less than your current target total cash compensation level (annual base salary plus target bonus) at the Company or with benefits that are not reasonably comparable in the aggregate to your current benefits from the Company, and you do not accept such an offer; or           5)    Buyer requests you to relocate to a work location more than 30 miles from the current work location.         Any severance provided hereunder will be in lieu of any other severance entitlement you may have from the Company. Such severance would be paid within fifteen (15) days of when it becomes due and owing to you. The Company will also pay you for the cost of COBRA medical continuation benefits for six (6) months at your current level of coverage at the time of the severance payment.         Any vested Company stock options will be exercisable in accordance with the Company Stock Option Plan (30 days from your termination date).     2. RELEASE  You will be asked to provide the Company a release, as a condition to any payment hereunder, in substantially the following form: Employee hereby releases the Company, any related companies, and the employees and directors of all of them from all claims or demands Employee may have based on Employee’s employment with the Company or the termination of that employment. This includes, for example, a release of any rights or claims Employee may have under the Age Discrimination in Employment Act, which prohibits age discrimination in employment; Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment based on race, color, national origin, religion or sex; the Equal Pay Act, which prohibits payment to men and women of unequal pay for equal work; any other federal, state or local laws or regulations prohibiting employment discrimination, whether on the basis of age, color, sex, race, sexual preference or orientation, marital status, national origin, mental or physical disability, religion, ancestry, or veteran status, or on any other basis prohibited by law; or any law, regulation or rule concerning wages or salary for hours worked. This also includes a release by Employee of any claims for wrongful discharge, breach of contract or tort. This release covers both claims that Employee knows about and those Employee may not know about. Employee acknowledges full understanding of, and waiver of all rights under, Section 1542 of the California Civil Code, which provides as follows: a general release does not extend to claims, which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known must have materially affected his settlement with the debtor. 2 -------------------------------------------------------------------------------- 3. TERM This letter supersedes any other agreements concerning severance, change in control, or similar agreements regarding termination of employment as long as this letter remains in effect. This letter shall have a term of one (1) year from the date hereof and the terms hereof will apply to any Sale within such one (1) year. In the event any payment provided for hereunder becomes due and owing to you, then no other agreement for compensation and benefits you have with the Company concerning severance, change in control, or similar agreement shall have any effect. If upon termination of this letter after one year no payment has become due to you hereunder and you remain employed by the Company, then any preexisting severance, change in control, or similar agreement you have with the Company shall be restored and this letter agreement shall have no force or effect; provided, however the parties will negotiate in good faith an extension of the term of this letter agreement if a Sale is being discussed with a third party at the time this letter agreement would otherwise terminate. 4. MISCELLANEOUS This letter agreement shall be governed by and construed in accordance with the laws of the State of California. If any provision herein is found to be unenforceable or invalid, such unenforceability and invalidity shall not affect the remainder of this letter agreement. This is the entire agreement between you and the Company concerning the subject matter hereof. You agree to keep the terms of this letter agreement strictly confidential. Please acknowledge your agreement by signing the enclosed copy of this letter where indicated below and returning it to me.   APPLERA CORPORATION                     By: /s/ Dennis L. Winger                          10/13/05                  Dennis L. Winger   Date                   AGREED TO:                       /s/ Robert Booth                                      10/25/05                  Robert Booth   Date 3 --------------------------------------------------------------------------------

  Exhibit 10(k)(9) AMENDMENT NO. 8 TO ALLTEL CORPORATION PROFIT-SHARING PLAN (January 1, 2002 Restatement)   WHEREAS, Alltel Corporation (the "Company") maintains the Alltel Corporation Profit-Sharing Plan, as amended and restated effective January 1, 2002, and as subsequently amended, (the "Plan"); and   WHEREAS, the Company desires further to amend the Plan;   NOW, THEREFORE, BE IT RESOLVED, that the Company hereby amends the Plan in the respects hereinafter set forth:   1.  Effective as of the date of spin-off of Alltel Holding Corp. ("Spinco") from the Company and merger of Spinco into Valor Communications Group, Inc. (with the merged corporation to be known as Windstream Corporation), the first sentence of Section 11.01(a)(2) of the Plan is amended to provide as follows:        Assets of Investment Fund A shall be invested in the Alltel Corporation Common Stock Fund (as described in Section 11.01(c) and in the Trust Agreement and the Trust      Agreement for Alltel Corporation Master Trust) (the "Alltel Stock Fund") as provided herein and in the Trust Agreement and the Trust Agreement for Alltel Corporation Master       Trust.   2.  Effective as of the date of spin-off of Spinco from the Company and merger of Spinco into Valor Communications Group, Inc. (with the merged corporation to be known as Windstream Corporation), a new Section 11.01(c) is added to the Plan to provide as follows:     (c) Substantially all of the assets of the Alltel Stock Fund shall be invested by the Trustee in "Common Stock of the Company" (as hereinafter defined) and to the extent not invested in Common Stock of the Company shall be invested in any property that is a permissible investment as provided in the Trust and Alltel Corporation Master Trust. "Common Stock of the Company" shall mean the common stock, par value $1.00 per share, of Alltel Corporation, a Delaware corporation, as the common stock is from time to time constituted. For purposes of determining whether substantially all of the assets of the Alltel Stock Fund are invested in Common Stock of the Company, shares of Windstream Corporation stock received by the Alltel Stock Fund in connection with the spin-off of Alltel Holding Corp. ("Spinco") from the Company and merger of Spinco into Valor Communications Group, Inc. (with the merged corporation to be known as Windstream Corporation) shall be treated as Common Stock of the Company.   An independent fiduciary appointed by the Board of Directors of the Company or its delegate shall, in an orderly manner as the independent fiduciary determines is appropriate (but in no event later than six months from the merger of Spinco into Valor Communications Group, Inc. (with the merged corporation to be known as Windstream Corporation)), subject to applicable laws, liquidate the shares of Windstream Corporation stock held in the Alltel Stock Fund. The proceeds from the liquidation of the shares of Windstream Corporation stock shall be reinvested in the Alltel Stock Fund. The independent fiduciary shall not execute on any single day any sales of Windstream Corporation stock that exceed, in the aggregate, five percent (5%) of the average daily market volume (in terms of the number of shares) in the Windstream Corporation stock over the preceding 10 business days. The amount of the securities to be sold by the independent fiduciary shall be subject to restrictions under applicable laws, including, without limitation, Federal and state securities laws that may prohibit or limit the independent fiduciary's ability to affect the sales.   -------------------------------------------------------------------------------- Nothing in the foregoing provisions of this Section 11.01(c) shall be construed as a prohibition or limitation on the amount of Windstream Corporation stock that may be transferred as part of a transfer of benefits and liabilities to a plan of Spinco or its successors. Any assets to be transferred from the Alltel Stock Fund to a plan of Spinco or its successors shall be transferred pro rata with the pro rata amount coming first from shares of Windstream Corporation stock (if any), then, to the extent necessary, from cash (if any), then, to the extent necessary from Common Stock of the Company.   Notwithstanding the foregoing, the investment of assets in the Alltel Stock Fund shall be subject to any applicable limitations under ERISA and regulations issued thereunder.   3.  Effective as of June 21, 2006, a new Article XXIV is added to the end of the Plan to provide as follows: ARTICLE XXIV TRANSFER OF BENEFITS WITH RESPECT TO ALLTEL HOLDING CORP. (WIRELINE) SPINOFF 24.01   Definitions For purposes of this Article XXIV, the following definitions shall apply:   (a) The "Transfer Agreement" shall mean the Employee Benefits Agreement between Alltel Corporation and Alltel Holding Corp. dated as of December 8, 2005.   (b) The "Transfer Assets" shall mean the accounts of Transfer Individuals to be transferred to the Transfer Plan in accordance with the provisions of the Transfer Agreement.   (c) A "Transfer Individual" shall mean the Spinco Employees and Spinco Individuals as defined in and designated as such in accordance with the Transfer Agreement as of June 20, 2006. (d) The "Transfer Plan" shall mean the Windstream Profit-Sharing Plan.   24.02   Transfer of Assets The Company shall direct the Trustee to transfer the Transfer Assets to the trustee(s) for the Transfer Plan, in accordance with the provisions of the Transfer Agreement; provided, however, that assets of the Alltel Stock Fund attributable to the Transfer Individuals shall be transferred pro rata with the pro rata amount coming first from shares of Windstream common stock (if any), then, to the extent necessary, from cash (if any), then, to the extent necessary from shares of Common Stock of the Company. The Transfer Assets are to be held, administered, and disposed of by the trustee(s) of the Transfer Plan under the terms, conditions, and provisions of the Transfer Plan; provided, however, that the Transfer Plan shall provide that the Transfer Assets shall be subject to any provision of the Plan that may not be eliminated under the Code (and regulations thereunder). -------------------------------------------------------------------------------- 24.03   Cessation of Participation Effective upon the transfer of Transfer Assets for a Transfer Individual as provided in Section 24.02, the Transfer Individual shall cease to be a Participant in the Plan, and thereafter neither the Transfer Individual nor any person claiming under or through the Transfer Individual shall have any benefits or rights under the Plan. 24.04   Plan Continuing The Transfer Plan shall be deemed to be a continuation of the Plan with respect to the Transfer Individual, and the transfer of assets to the Transfer Plan shall not be deemed a termination or partial termination of the Plan with respect to the Transfer Individuals or otherwise. 24.05   Overriding Provisions The provisions of this Article XXIV shall apply notwithstanding any other provisions of the Plan, except Section 3.07, and shall override any conflicting Plan provisions. 4.  Effective as of the date of spin-off of Spinco from the Company and merger of Spinco into Valor Communications Group, Inc. (with the merged corporation to be known as Windstream Corporation), a new Article XXV is added to the Plan to provide as follows: ARTICLE XXV BENEFITS WITH RESPECT TO CERTAIN EMPLOYEES WHOSE EMPLOYMENT TRANSFERS TO OR FROM WINDSTREAM 25.01   Definitions For purposes of this Article XXV, the following definitions shall apply:   (a) A "Second Transfer Individual" shall mean a person who is designated as a Spinco Employee or Spinco Individual (as defined in and designated as such in accordance with the provisions of the Transfer Agreement as defined in Section 24.01(a)) on or after June 21, 2006 and prior to the spin-off of Alltel Holding Corp. and merger of Alltel Holding Corp. into Valor Communications Group, Inc. (with the merged company to be known as Windstream Corporation).   (b) A "Transfer Individual" shall mean a person who (i) is an Employee and Participant immediately prior to the spin-off of Alltel Holding Corp. and merger of Alltel Holding Corp. into Valor Communications Group, Inc. (with the merged company to be known as Windstream Corporation) ("Windstream"), (ii) is not a Transfer Individual as defined in Section 24.01(c) or a Second Transfer Individual as defined in Section 25.01(a), (iii) becomes employed with Windstream or a related employer at or after the merger and prior to January 1, 2007, and (iv) was not fully vested in his Separate Account upon Termination of Employment. --------------------------------------------------------------------------------   (c) A "Retransfer Individual" shall mean a person who (i) is an Employee immediately prior to the spin-off of Alltel Holding Corp. and merger of Alltel Holding Corp. into Valor Communications Group, Inc. (with the merged company to be known as Windstream), (ii) becomes employed with Windstream or a related employer at or after the merger and prior to December 31, 2006, and (iii) again is an Employee after the merger (to form Windstream) and prior to January 1, 2007. 25.02   Transfer of Benefits Article XXIV shall apply to a Second Transfer Individual except that the Company shall direct the Trustee to transfer the Transfer Assets with respect to the Second Transfer Individual to the trustee(s) for the Transfer Plan as soon as reasonably practicable after the spin-off of Alltel Holding Corp. and merger of Alltel Holding Corp. into Valor Communications Group, Inc. (with the merged company to be known as Windstream). 25.03   Continued Vesting Service In determining Years of Vesting Service for a Transfer Individual, the Transfer Individual's period or periods of employment with Windstream or a related employer shall be counted as Years of Vesting Service if such period or periods of employment would have been taken into account under the Plan had such period or periods of employment been service with a member of the Controlled Group. 25.04   Retransfer Individual Service and Compensation   (a) In determining the Hours of Service of a Retransfer Individual during calendar year 2006, the Transfer Individual's hours of service with Windstream or a related employer during calendar year 2006 shall be counted as Hours of Service if such hours of service would have been taken into account under the Plan had such hours of service been service with a member of the Controlled Group.   (b) In determining the Compensation of a Retransfer Individual during calendar year 2006, the Transfer Individual's compensation with Windstream or a related employer during calendar year 2006 shall be counted as Hours of Service if such compensation would have been taken into account under the Plan had such compensation been compensation with an Employer.   (c) Notwithstanding anything to the contrary, (i) nothing in this Section 25.04 shall be construed as extending the definition of Eligible Employee or Participant under the Plan and (ii) there shall be no duplication of service, hours of service or compensation in respect of any single period or otherwise. -------------------------------------------------------------------------------- 5.  Effective as of January 1, 2006, Section 1.38 is revised to provide as follows:   1.38 Total and Permanent Disability   Permanent incapacity resulting in the Participant qualifying for benefits under the Employer's long-term disability plan.   6.  Effective as of January 1, 2006, a new Section 3.11 is added to the Plan to provide as follows:     3.11 Electronic Disclosure and Signatures   Any communication or disclosure to or from Participants and/or Beneficiaries that is required under the terms of the Plan to be made in writing may be provided in any other medium (electronic, telephonic, or otherwise) that is acceptable to the Plan Administrator and permitted under applicable law.   7.  Effective as of January 1, 2006, Section 7.02(a) of the Plan is amended to provide as follows:     (a) The excess amount shall be reallocated among the remaining Participants' Separate Accounts in the same way Employer Contributions are allocated as specified in Section 13.04; provided, however, that such reallocation shall not cause the annual additions to any other Participant's Separate Account to exceed the maximum permissible amount.   8.  Effective as of January 20, 2006, a new Section 22.06 is added to the Plan to provide as follows:     22.06 Extension of Coverage to Certain Georgia Employees   Effective beginning January 20, 2006, and as more specifically hereinafter provided, the proviso to paragraph (a)(1) of Section 1.12 shall not apply to and coverage under the Plan shall be extended to a person who on or after January 20, 2006 is an Employee and who on or before January 20, 2006 was in the bargaining unit described in National Labor Relations Board Case 10-RD-01448 (a "Decertified Employee"): For purposes of Sections 13.01, 13.02, 13.03, and 13.04,, for the Plan Year ending December 31, 2006, a Decertified Employee who would have been an Eligible Employee at relevant times during the Plan Year ending December 31, 2006 but for paragraph (a)(1) of Section 1.12 shall be treated as an Eligible Employee at such relevant times during the Plan Year ending December 31, 2006.   IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this Amendment No. 8 to the Alltel Corporation Profit-Sharing Plan (January 1, 2002 Restatement) to be executed on this 13th day of June, 2006.   ALLTEL CORPORATION By: /s/ Scott T. Ford                                               Title: President and Chief Executive Officer

Exhibit 10.ii.p Buenos Aires, May 16, 2006. Messrs CARGILL S.A.C.I. Leandro N. Alem 928 Piso 9 Ciudad Autónoma de Buenos Aires Dear Sirs, In our capacity as Agents of MOSAIC DE ARGENTINA S.A., hereinafter referred to as “MOSAIC”, domiciled at Avda. Leandro N. Alem 928, piso 9°, City of Buenos Aires, we hereby make this business proposal, hereinafter referred to as the “Proposal”. In the event you accept the present Proposal, the following provisions shall apply: DEFINITIONS AND CLARIFICATIONS For all purposes, the following words shall have the meaning and clarifications herein expressed according to their context:     1) PORT TERMINAL (hereinafter referred to as “TERMINAL”): Docks and plants intended for the reception, storage, dispatch and mixing of fertilizers, be these property of MOSAIC or deposits belonging to third parties that are rented by MOSAIC at its sole discretion to be used for the storage of fertilizers, located in the port area of the cities of Bahía Blanca, Necochea, Zárate, San Nicolás, Rosario and San Lorenzo.     2) SERVICES (hereinafter collectively referred to as the “SERVICES”): the SERVICES that MOSAIC shall provide to CARGILL will include the following: 2.1. Reception service (entrance) for the PRODUCT: from the vessel to: 1) bulk deposit, or 2) bulk directly to truck. 2.2. Reception service (entrance) for the PRODUCT from trucks or trains to bulk deposit. -------------------------------------------------------------------------------- 2.3. Storage: bulk PRODUCT and packaging materials (bags); 2.4. Bagging; 2.5. Blending; 2.6. Truck load service (exit), either in bags or in bulk. 3) PRODUCT (hereinafter referred to as the “PRODUCT”): The PRODUCTS for which the SERVICES are offered shall be only fertilizers according to the provisions of Exhibit I hereinbelow and packaging materials used for bagging the PRODUCTS. 4) UPDATED LOG BOOK: This shall be the name given to the Log Book with numbered pages that will be maintained by MOSAIC and where both you and us will enter and put on record all relevant events, as well as non-compliance with the provisions of these Proposal, if any. 5) V.A.T: Value-Added Tax. The meanings attributed to the words mentioned above shall be understood as such, provided the text of this proposal does not expressly indicate otherwise. SECTION ONE MOSAIC undertakes to provide CARGILL – in the event this proposal is accepted – its SERVICES at the TERMINAL, under the conditions herein established and in a non-exclusive manner. SECTION TWO This proposal, if accepted by CARGILL, shall be valid for a period of three (3) years as from             , provided that it is implicitly accepted by requesting the first SERVICE according to the terms and conditions herein described. The proposal hereof shall be automatically renewed for a period of two (2) years unless one of the parties gives notice to the contrary with a termination notice of not less than ninety (90) days anticipation, in which case the proposal shall be considered completely terminated upon the expiration of the notice period. -------------------------------------------------------------------------------- SECTION THREE The TERMINAL shall operate on working days from Monday to Friday, from 6:30 AM to 11:30 PM. From Monday to Friday between 11:30 PM and 6:30 AM, Saturdays, Sundays and national and local holidays up to 8:00 on Monday shall be excluded from service times, provided always that MOSAIC may decide to continue unloading the PRODUCTS, in agreement with CARGILL. In any case, CARGILL may, at its own expense, request MOSAIC, which may either accept or refuse, to carry out overtime tasks outside the days and times established at the beginning of the previous paragraph, in which case the additional expense for such overtime shall be previously agreed upon by both parties. To this effect, CARGILL shall give MOSAIC prior notice of twelve (12) hours. Expenses for all delays and/or dispatch originated by the operation of vessels at the TERMINAL which are attributable to MOSAIC shall be borne by the latter. SECTION FOUR The weighing system for the reception of vessels shall be the fiscal weigh scale usually used at each port. When the products arrive to the deposit by means of railway and/or trucks, or when they exit by those means, the corresponding truck or wagon weigh scale shall be used; and to the effect of controlling the bagging process, the electronic control weigh scale shall be used. SECTION FIVE MOSAIC guarantees CARGILL a deposit storage space at the TERMINAL (hereinafter referred to as GUARANTEED STORAGE SPACE) of forty thousand (40,000) metric tons. In the event that the maximum capacity of the GUARANTEED STORAGE SPACE is reached, MOSAIC may, at its sole discretion, accept additional storage volume of the PRODUCT under conditions agreed upon with CARGILL from time to time, and on a case by case basis. -------------------------------------------------------------------------------- Upon completion of the reception of the PRODUCT, MOSAIC shall produce a final unload report (hereinafter referred to as the “REPORT”), in full compliance with the model herein attached as Exhibit II hereof. Once the reception of the PRODUCT by MOSAIC has been completed, MOSAIC shall proceed to store the product at the facilities mentioned hereinabove. The PRODUCT shall be stored by MOSAIC without preservation of identity, inside the GUARANTEED STORAGE SPACE, as an irregular deposit; and MOSAIC shall assume any and all responsibilities corresponding to it as the legal custodian, including keeping and preserving the PRODUCT. This guarantee does not include the deterioration that may suffer the products due to their intrinsic characteristics and the mere passing of time. Notwithstanding the provisions above, and in order to take such measures as it may be necessary in a timely manner so as to prevent the deterioration of the PRODUCTS, MOSAIC undertakes to carry out a physical and chemical analysis of the PRODUCT upon each reception, be it at MOSAIC’s laboratory or at a third party laboratory under MOSAIC’s supervision. Once the results of these analyses are obtained, they shall be sent to CARGILL accompanied by any relevant comments. From time to time, MOSAIC shall inform CARGILL regarding the situation of the PRODUCTS, and it undertakes to notify CARGILL via e-mail if any PRODUCT is deteriorating, and to provide advice as to how to avoid such situation to become worse. In the event that some PRODUCT shows serious deterioration, MOSAIC shall request it to be removed from the TERMINAL, in which case all extra expenses that might arise from such removal shall be borne by CARGILL. SECTION SIX CARGILL shall bear all costs related to PRODUCT shrinkage occurred as a consequence of the SERVICES described in this Proposal; a normal tolerable shrinkage of zero point three percent (0.3%) of the total volume of PRODUCTS that enter the TERMINAL is hereby established for phosphate products, and of zero point four percent (0.4%) for the rest of the products. Shrinkage percentages thus agreed upon shall automatically apply upon the -------------------------------------------------------------------------------- entrance of the PRODUCTS. In order to calculate possible excess shortage in relation to the agreed automatic shrinkage, the following method shall be applied: volume entered less automatic shrinkage compared to the net weight according to the exit weighing scale for trucks. All excess shrinkage in relation to the percentages herein established shall be borne by MOSAIC, which shall replenish CARGILL with the missing amount of the same PRODUCTS of equal quality and amount within thirty (30) days of receiving notice. Should there be an excess remnant of the PRODUCTS as a result of their entrance and exit, such excess shall be the property of MOSAIC. SECTION SEVEN MOSAIC shall bag the PRODUCT in fifty-net-kilograms (50 kg) bags. MOSAIC shall provide all bags and strings necessary for the bagging process, and this cost shall be borne by CARGILL, with your own trademark(s) and/or licensed trademark(s) in accordance with the Commercial Loyalty Act. MOSAIC guarantees CARGILL that the PRODUCT will be correctly bagged with the quality and net weight herein indicated, and MOSAIC shall assume any deficiencies or differences in weight per bag caused by its sole fault and/or responsibility, as well as all damages directly caused to CARGILL, if any, which shall be duly proven by CARGILL. The tolerance allowed for differences in weight for fifty-kilogram bags (50 kg) shall be that established by the Commercial Loyalty Act. SECTION EIGHT MOSAIC shall guarantee CARGILL, once this offer is accepted, a daily dispatch capacity by truck for the PRODUCT, either bagged and/or in bulk, only from Monday to Friday, according to the following detail: A total of Thirty (30) trucks, from which a maximum of ten (10) trucks shall transport the bagged PRODUCT and a maximum of eight (8) trucks shall transport blended products, either bagged or in bulk. Upon request by CARGILL, MOSAIC may assess the possibility of increasing the daily quota in specific cases. -------------------------------------------------------------------------------- It is expressly stated that the amount of PRODUCT to be dispatched shall be such that it fits in the trucks and complies with the regulations currently in force in this regard. Each day CARGILL shall send its load orders for the following day, and MOSAIC shall proceed to the dispatch of the requested PRODUCT according to the provisions of Exhibit III hereof. All bag or bulk trucks which are not loaded or which are not fulfilled on any given day shall be added in excess of the daily bag or bulk load guarantee for the following day. SECTION NINE In consideration for the SERVICES, CARGILL undertakes to pay MOSAIC the fees arising from the attached chart as Exhibit IV (hereinafter referred to as “FEES”), taking into account that the currency for such fees is the US Dollar, according to the entrance or exit weight of the PRODUCTS, as the case may be. The service of throughput shall be billed when the PRODUCTS enter the TERMINAL. The service of storage shall be paid on a monthly basis, in advance. All additional services of bagging, provision of bags and blending shall be billed monthly. Invoices shall be issued in US Dollars, and they shall be paid by CARGILL within seven (7) calendar days from receipt thereof by CARGILL. All Customs and Maritime Agencies clearances shall be borne by CARGILL as recipient of the products. In the event there are more than one recipient, all authorization expenses shall be proportionally distributed among them. It is expressly stated that, for practical reasons, MOSAIC shall have the power to pay such expenses as mentioned at the beginning of this paragraph, on account and behalf of CARGILL, and then debit the relevant moneys from CARGILL - in the aggregate or in a pro rata basis, as the case may be. SECTION TEN The PARTIES agree that the currency exchange to be used to the effect of all payments related to this Proposal agreement shall be the selling rate published by Banco de la Nación Argentina on the working day prior to the day on which payment is made effective. -------------------------------------------------------------------------------- SECTION ELEVEN All personnel employed by MOSAIC, either directly or indirectly, as part of its staff or outsourced, for the provision of the SERVICES offered herein, shall be its sole responsibility, as well as all labor and pension obligations as well as the payment of social security contributions, including all payments corresponding to Work Risk Insurance (A.R.T., Aseguradoras de Riesgo de Trabajo); CARGILL shall be therefore free of any responsibility in this regard, and MOSAIC shall hold CARGILL harmless against claims related to labor and/or social security and/or tax obligations, including civil and labor regulations related to work injuries, as well as against commercial or civil claims asserted by MOSAIC contractors or suppliers. SECTION TWELVE We shall not be bound to the fulfillment of the obligations arising from this accepted proposal when non-fulfillment of such obligations is due to force majeure or to a duly verified Act of God. The following events shall be included in the provisions hereof: strikes taking place at the TERMINAL and/or at any other location that affects access or normal circulation, inside or outside the TERMINAL, among others. If such a situation should occur, both CARGILL and MOSAIC shall communicate this event to the other party as soon as they gain knowledge of such event, and undertake to provide maximum collaboration in order to achieve continuity and the best possible fulfillment of the obligations hereby undertaken. In the event that, due to a duly verified force majeure situation, it is impossible to provide the SERVICES herein described at the TERMINAL, MOSAIC may, at its sole discretion, offer CARGILL to provide such SERVICES, temporarily and until the situation is solved, from other facilities, and CARGILL may, at its sole discretion, either accept or refuse the facilities offered. SECTION THIRTEEN In the event any of the Parties fails to comply with the obligations hereof, the non-defaulting Party may serve notice upon the defaulting party to request specific performance of the relevant obligation within ten (10) days from the effective notice of default, under penalty to terminate this Proposal and to demand indemnification for the damages incurred as a result of this situation. -------------------------------------------------------------------------------- Notwithstanding the foregoing, CARGILL may render this proposal null and void for no reason, and undertakes to serve effective notice thereof with at least ninety (90) days in there event there are PRODUCTS held in deposit, and this shall not generate any right to claim indemnity for early termination. If the event there are no PRODUCTS held in deposit, effective notice can be made ten (10) days prior to termination, in which case CARGILL shall indemnify MOSAIC for all concepts equivalent to the amount of the PRODUCT deposit in the GUARANTEED STORAGE SPACE for a period of ninety (90) days. SECTION FOURTEEN If either CARGILL or MOSAIC files for bankruptcy, this will grant the other party the right to terminate the commercial relationship resulting form the accepted proposal hereof, at its sole discretion, and this termination shall not give right to any indemnification whatsoever in favor of the bankrupt. SECTION FIFTEEN In view of the nature assigned to this Proposal, neither we nor you may assign, transfer under any title, and/or grant license under the rights and/or obligations hereof, once accepted by you, to any individual or entity, without the prior consent of the other party. SECTION SIXTEEN Both CARGILL and MOSAIC undertake to treat all the information received from the other party as a result of the commercial relationship created by acceptance hereof as confidential information. -------------------------------------------------------------------------------- SECTION SEVENTEEN Once this Proposal has been accepted by you, both our companies shall comply with all procedures and documentation as established by all Exhibits hereto. SECTION EIGHTEEN CARGILL address shall be: Avda. L.N. Alem 928, piso 9, City of Buenos Aires; MOSAIC address shall be: Avda. L.N. Alem 928, piso 9, City of Buenos Aires; where all judicial and/or non-judicial notices shall be valid. SECTION NINETEEN Any controversy that may arise from the commercial relationship created by your acceptance of this Proposal, its existence, validity, qualification, construction, scope and fulfillment, shall be finally resolved before the Arbitration Court of the Buenos Aires Stock Exchange, in accordance with the arbitration regulations in force, and to which CARGILL and MOSAIC shall submit, if this Proposal is accepted, provided always Argentine law shall apply. Yours sincerely,   Alejandro Langone    Sergio García Agent. Mosaic SA    Agent Mosaic SA -------------------------------------------------------------------------------- EXHIBIT I – LIST OF PRODUCTS -------------------------------------------------------------------------------- EXHIBIT II - REPORT Information that must be included - product - vessel - gross amount that entered the storage facility - calculated storage shrinkage - net amount entered to storage - detail of weighing scale tickets of the total amount unloaded from the vessel to the truck - amount dispatched by truck This report shall be sent by e-mail to the persons appointed by Cargill, and may be sent both by Mosaic and by the surveyor company appointed by Mosaic. EXHIBIT III - DISPATCH Finished products can be simple bags, bulk product, or a mixture of bags and bulk. In the case of bagged products, the only type of bag to use shall be open-end bag. The quality of fertilizers physical mixtures dispatched at the Terminal shall be controlled in order to analyze grading and determine the degree of nutrients in them, and to comply with SENASA regulations. Random samples shall be taken during the mixing process. All trucks containing mixture shall be sampled. In the case of bagged mixtures, samples shall be directly extracted from the bags before they are sewn, in order to directly assess their quality as they would be received by the customer. Mixture bags shall be identified according to SENASA regulations. -------------------------------------------------------------------------------- EXHIBIT 4-FEES-   Throughput   US$ 10.00 p/metric ton Storage per guaranted metric ton (Guaranted Storage Space)   US$ 480.000,- per year to be paid in each installment of US$ 70.000,-from May to September in each year; of US$ 30.000,-from October to November in each year; of US$ 10.000,-from December to March of the next year; of US$ 30.000,-in April of each year. Storage in excess per metric ton   US$ 1.00 per month per metric ton Additional bagging service   US$ 4.50 p/metric ton Provision of empty bags   US$ 6.00 p/metric ton Blending   US$ 5.00 p/metric ton (Fees are expressed in US Dollars and do not include VAT) -------------------------------------------------------------------------------- Buenos Aires, Messrs CARGILL S.A.C.I. Leandro N. Alem 928 Piso 9 Ciudad Autónoma de Buenos Aires Dear Sirs, In our capacity as Agents of MOSAIC DE ARGENTINA S.A., hereinafter referred to as “Mosaic”, domiciled at Leandro N. Alem 928, 9° floor, City of Buenos Aires, we hereby write to you, hereinafter referred to as “Cargill”, in order to submit the following Business Proposal, hereinafter the “Proposal”, comprising a proposal for supplying the services detailed below. 1.Background I. Cargill’s core business is the production, processing, marketing and export of grain and oilseeds in Argentina. II. Mosaic’s core business is the manufacture, production, fractioning, bottling, marketing and distribution of fertilizers in Argentina. Cargill proceed to spin off from Cargill the activity specifically related to crops nutrition, as well as the assets and liabilities specifically allocated to or originated from said activity, thus creating the Corporation named Mosaic de Argentina S.A. IV. Cargill, in relation to the origination of grain and oilseeds, provides producers who supply grain and oilseeds with inputs of several nature, such as but not limited to fertilizers and agrochemicals, under barter contracts. V. Cargill has transferred the know how corresponding to the activity specifically referred to crop nutrition to Mosaic, which at present has all the experience and resources needed to render services related to the above mentioned activity that may help to enhance and improve the provision and marketing of inputs such as fertilizers in relation to the grain and oilseeds origination under barter contracts. 2.Mosaic hereby offers to render Cargill -in case you agree with this proposal - the services related to the purchase, import, storage, transportation, distribution, marketing and sale of fertilizers and/or agrochemicals, as described in the list of services and prices contained in Exhibit I, which forms part of the Proposal hereof: -------------------------------------------------------------------------------- In the event you accept the present Proposal, the following provisions shall apply: SECTION ONE: If accepted, the Proposal hereof, shall be in force for a period of twelve (12) months, provided always this proposal is implicitly accepted by you, by means of submitting the first service request, under the terms and conditions therein. In such event, we will understand that, effective from the date you make said request, the Proposal shall be deemed a valid and effective Agreement. SECTION TWO: In all events, Mosaic shall have the exclusive right to appoint the staff, being professional, technical and/or administrative, to provide the services hereof. Besides, Mosaic may appoint a coordinator, in order to centralize all the requests for services. Mosaic shall be exclusively liable for the labor and social security obligations relative to said personnel, undertaking the obligation to hold Cargill harmless against claims arising from labor or social security issues. SECTION THREE: In consideration for the services rendered, Mosaic shall receive the amounts stated in the list of prices described in Exhibit I hereof, plus VAT (Value Added Tax). For the purposes of receiving the fees, Mosaic shall bill Cargill, on a monthly basis, and Cargill shall make payments within seven (7) days after receiving the relevant invoice. The fees mentioned above are based on the detail of services and prices included in Exhibit I hereof, and comprise only the provision of the services specifically enumerated in said Exhibit. The fees agreed upon do not include the development of systems, which shall be separately agreed upon and billed by the Parties. SECTION FOUR: Mosaic in no way assures any results to Cargill, and does not undertake responsibility for any result whatsoever, such as but not limited to economic and/or financial results of its services, provided always the final decision shall only and exclusively be taken by Cargill according to its own criterion, and under its responsibility and risk, and under no circumstance whatsoever it shall be construed that the services provided by Mosaic imply more than a non-biding direction or counseling among different alternatives, the final choice thereof shall correspond to Cargill, being therefore an obligation of means and not and obligation of results. SECTION FIVE:   1. In the event there are additional services requests during the validity hereof, and said services may be provided by Mosaic, both Parties shall negotiate inclusion thereof, determining the relevant terms and conditions and prices.   2. In relation to the upgrade of Mosaic proprietary software systems used for the provision of the services hereof, in relation to which Mosaic is the owner of the intellectual property rights thereto, or the grantee of the licenses under the use thereof, Cargill shall accept any upgrade thereof and shall pay the corresponding proportional cost. Cargill may not install any software that may interfere with the Mosaic systems and software without the previous written authorization from Mosaic. Cargill is not granted the right to distribute, copy, perform works derived from, or modify any licensed software or system whatsoever. Unless otherwise provided for herein, no license or right whatsoever is hereunder granted to Cargill, by implication or otherwise, with respect to or under any intellectual property right, intellectual property -------------------------------------------------------------------------------- application, patent application, patent, patent claim, know-how, business secrets or other property rights owned by Mosaic, and Mosaic hereby reserves all intellectual and industrial property rights. Besides, Mosaic shall provide services to Cargill by means of the systems, which shall be operated exclusively by Mosaic personnel. In the cases of services provided using such systems, all tasks shall be performed by Mosaic personnel, and therefore the parties agree that, within 60 (sixty) days from acceptance hereof, they shall take all the steps and implement all that may be necessary for a correct and normal service provision to Cargill, including without limitations definition of procedures, lists and supporting worksheets. 3. The information hereinafter referred to as “Mosaic Confidential Information” shall include, without limitations, any and all Mosaic information derived from Mosaic’s performance pursuant to this Proposal, (I) any and all data and information that may be found as a result of access to the Mosaic Network, whether oral, written or in an electronic mode, among others; to the Mosaic employees; research, engineering and development of activities; data processing research and methods; manufacture; marketing; merchandising; data on prices, costs, suppliers, customers and any other data that may be available to Cargill through the Mosaic Network., (II) all Access Codes, and (III) the operation and functionality of Mosaic Network, (IV) Mosaic’s Know how, (V) any and all data owned by Mosaic, (VI) intellectual property under Mosaic’s systems and programs, including information, computer records, specifications, processes, documentation, techniques and ideas. The Mosaic Confidential Information shall include all data supplied by third parties to Mosaic. 4.Cargill Confidentiality Obligation. During the effective period hereof and further on, Cargill shall not provide or disclose Confidential Information of Mosaic, as defined in Paragraph 3 hereof, to third parties, nor shall it use such information for itself, nor shall it reproduce or copy it without Mosaic’s prior written authorization. Cargill Obligations are everlasting and shall survive after termination hereof. Cargill undertakes to follow the same procedure to guarantee compliance of the requirements detailed in this Paragraph, in order to protect the confidentiality of the information generated from the reports or data contained in the Mosaic Network, which undertaking shall include the limitation of the disclosure of Confidential Information of Mosaic to employees who have a reasonable need to know it, and who are aware of the obligation to preserve confidentiality of such Mosaic Confidential Information. Cargill shall take all the actions necessary to inform its employees, and/or contractors, and/or sub-contractors, and/or any other person appointed by Cargill, about the obligations set forth herein. Mosaic is hereby authorized, at its discretion, to supervise the procedures used by Cargill to comply with the obligations hereunder. Upon the termination of this Offer, and upon Mosaic’s request, Cargill shall return or destroy all the Confidential Information. The Confidential Information shall only be used in relation hereto; Cargill shall not use it in any other way, provided always Mosaic has reserved all the rights that are not specifically granted herein in relation to its Confidential Information. -------------------------------------------------------------------------------- 5. Cargill Obligations. Cargill shall indemnify Mosaic against any damage it may suffer, arising out of any claim, loss, direct or indirect damage, fine, penalty, cost and expense resulting from: (i) Cargill’s misuse of the Mosaic Network, including any intentional or negligent act or omission, (II) Cargill misuse, including any intentional or negligent act or omission, related to the Confidential Information of Mosaic, (III) Claims or demands made by third parties to Mosaic derived directly or indirectly from the use of the Network by Cargill, (IV) Breach of any other obligation hereof. Besides, Mosaic shall not be responsible for any direct or indirect damage held by Cargill due to the latter’s inability to use the Mosaic Network or confidential information. In case any employee and/or contractor, and/or subcontractor, and/or person appointed by Cargill may disclose all or part of the Mosaic Confidential Information they have access to pursuant hereto, Cargill shall pay, solely upon Mosaic’s request, all indirect or consequential damages incurred by Mosaic and/or third parties. 6. The information hereinafter referred to as “Cargill Confidential Information” shall include, without limitations, any and all Cargill information derived from the performance hereof, (I) any and all data and information that may be found as a result of access to the Cargill Network, whether oral, written or in an electronic mode, among others; to the Cargill employees; research, engineering and development of activities; data processing research and methods; manufacture; marketing; merchandising; data on prices, costs, suppliers, customers and any other data that may be available to Mosaic through the Cargill Network , (II) all Access Codes, and (III) the operation and functionality of Cargill Network, (IV) Cargill’s Know how, (V) any and all data owned by Cargill, (VI) intellectual property under Cargill’s systems and programs, including information, computer records, specifications, processes, documentation, techniques and ideas. The Cargill Confidential Information shall include any and all information supplied by third parties to Cargill. 7.Mosaic’s Confidentiality Obligation. During the effective period hereof and further on, Mosaic shall not provide or disclose Confidential Information of Cargill, as defined in Paragraph 6 hereof, to third parties, nor shall it use such information for itself, nor shall it reproduce or copy it without Cargill’s prior written authorization. Mosaic Obligations are everlasting and shall survive after termination hereof. Mosaic undertakes to follow the same procedure to guarantee compliance of the requirements detailed in this Paragraph, in order to protect the confidentiality of the information generated from the reports or data contained in the Cargill Network, which undertaking shall include the limitation of the disclosure of Confidential Information of Cargill to employees who have a reasonable need to know it, and who are aware of the obligation to preserve confidentiality of such Cargill Confidential Information. Mosaic shall take all the actions necessary to inform its employees, and/or contractors, and/or sub-contractors, and/or any other person appointed by Mosaic, about the obligations set forth herein. Cargill is hereby authorized, at its discretion, to supervise the procedures used by Mosaic to comply with the obligations hereunder. Upon the termination of this Offer, and upon Cargill’s request, Mosaic shall return or destroy all the Confidential Information. The -------------------------------------------------------------------------------- Confidential Information shall only be used in relation hereto; Mosaic shall not use it in any other way, provided always Cargill has reserved all the rights that are not specifically granted herein in relation to its Confidential Information. 8. Mosaic’s Responsibility. Mosaic shall indemnify Cargill against any damage it may suffer, arising out of any claim, loss, direct or indirect damage, fine, penalty, cost and expense resulting from: (I) Mosaic’s misuse of the Cargill Network, including any intentional or negligent act or omission, (II) Mosaic’s misuse, including any intentional or negligent act or omission, related to the Confidential Information of Cargill, (III) Claims or demands made by third parties to Cargill derived directly or indirectly from the use of the Network by Mosaic, (IV) Breach of any other obligation hereof. In addition, Cargill shall not be responsible for any direct or indirect damage held by Mosaic due to the latter’s inability to use the Cargill Network or confidential information. In case any employee and/or contractor, and/or subcontractor, and/or person appointed by Mosaic may disclose all or part of the Cargill Confidential Information they have access to pursuant hereto, Mosaic shall pay, solely upon Cargill’s request, all indirect or consequential damages incurred by Cargill and/or third parties. SECTION SIX: The Proposal herein may be unilaterally terminated by any of the Parties, without cause, by means of effective notice served on the other Party, no less than one hundred and twenty (120) calendar days of the termination date, which notice shall clearly state the decision to terminate, notwithstanding Mosaic’s collection of the fees accrued and still due. The termination notice set forth in the first paragraph hereof shall not preclude completion of works and/or services in the process of execution, unless the Parties mutually agree otherwise, provided always Mosaic shall be entitled to bill the fees that may correspond in relation to the works mentioned above pursuant to this Offer. In the event any of the Parties fails to comply with the obligations hereof, the non-defaulting Party may serve notice upon the defaulting party to request specific performance of the relevant obligation within ten (10) days from the effective notice of default, under penalty to terminate this Proposal and to demand indemnification for the damages incurred by the non-defaulting Party. SECTION SEVEN: All the prices and fees set forth herein are denominated in US Dollars pursuant to Act 23,928, as amendment of Section 1198 of the Civil Code. All payments denominated in US Dollars shall be converted and performed in Pesos, at the selling exchange rate published by Banco de la Nacion Argentina as of the banking day immediately prior to the date when the payment is effected. SECTION EIGHT: The Parties are not bound by the obligations arising from this Proposal, as accepted, when the breach of such obligations is the result of force majeure or act of God, duly proved. -------------------------------------------------------------------------------- SECTION NINE: In view of the nature assigned to this Proposal, neither we nor you may assign, transfer under any title, and/or grant license under the rights and/or obligations hereof , once accepted by you, to any individual or entity, without the prior consent of the other party. SECTION TEN: Cargill address shall be: Av L.N. Alem 928, Piso 9, City of Buenos Aires; Mosaic address shall be: Avda. L.N. Alem 928, piso 9, City of Buenos Aires; where all judicial and/or non-judicial notices shall be valid. SECTION ELEVEN: Any controversy that may arise from the commercial relationship created by your acceptance of this Proposal, its existence, validity, qualification, construction, scope and fulfillment, shall be finally resolved before the Courts of the Federal Capital [Tribunales Ordinarios de la Capital Federal], and shall be governed by the Argentine law.   By:     Name:     Title:     ANNEX I LIST OF SERVICE TO BE RENDERED AND PRICES   SERVICES    PRICES * 1.    Commercial strategy for the purchase and sale of fertilizers    US$ 3 (Three) (*) 2.    Purchase and Forwarding management, domestic and international including the supply of the necessary Software.    US$ 5 (Five) (*) 3.    Counseling in the administration and handling of fertilizers stocks in deposit.    US$ 1 (One) (*) 4.    Utilization specific materials and equipment for the mixture and distribution of fertilizers and agrochemicals    US$ 8 (Eight) (*) 5.    Counseling on equipment maintenance    (**) 6.    General technical – agronomical counseling    (**) 7.    Specialty technical – agronomical counseling    (**) 8.    Counseling on publicity and trademarks market positioning    (**) 9.    Research and development to offer value added to the farmer acquiring fertilizers and agrochemicals    US$ 1 (One) (*) 10.    Management of goods loans to third parties    US$ 1 (One) (*) 11.    Counseling on commercial management and personnel training with prizes pursuant to objectives agreed upon between the parties.    US$ 5 (Five) (***) -------------------------------------------------------------------------------- All prices are in US dollar. (*) For each MT of fertilizer dispatched by Cargill( not include Value Added Tax) (**)To reason of u$s 120.- per services hour (not include Value Added Tax). (***)Not include Value Added Tax and the objectives will be defined by between the parties.

Exhibit 10.1 PEAPACK-GLADSTONE FINANCIAL CORPORATION 1998 Stock Option Plan (As amended through December 31, 2005) 1. Purpose The purpose of the Peapack-Gladstone Financial Corporation’s (the “Corporation”) 1998 Stock Option Plan (the “Plan”) is to advance the interests of the Company and its shareholders by providing those key employees of the Corporation, upon whose judgment, initiative and efforts the successful conduct of the business of the Corporation largely depends, with additional incentive to perform in superior manner. A purpose of the Plan is also to attract people of experience and ability to the service of the Corporation. 2. Definitions   A. Board of Directors or Board: means the board of directors of the Corporation.     B. Change in Control: for purposes of this Plan, a Change in Control of the Company shall mean an event of a nature that; (1) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) who is not now presently but becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the Company’s outstanding securities except for any securities purchased by any tax-qualified employee benefit plan of the Company; or (2) individuals who constitute the Board on the date hereof (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 hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (2), considered as though he were a member of the Incumbent Board; or (3) filing is made for regulatory approval to implement a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Company or similar transaction in which the Company is not the resulting entity or such plan, merger consolidation, sale or similar transaction occurs; or (4) a proxy statement soliciting proxies from shareholders of the Company, by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan or transaction are exchanged for or converted into cash or property or securities not issued by the Company shall be distributed; or (5) a tender offer is made for 25% or more of the voting securities of the Company.   C. Committee: means a committee consisting of those members of the Compensation Committee of the Board of Directors who are non-employee members of the     --------------------------------------------------------------------------------   Board of Directors, all of whom are (i) “disinterested directors” as such term is defined under Rule 16b-3 (“Rule 16b-3”) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as promulgated by the Securities and Exchange Commission and (ii) “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code, subject to any transition rules applicable to the definition of outside director.   D. Date of Grant: means the date an Option is granted by the Committee.   E. Disability: means the permanent and total inability by reason of mental or physical infirmity, or both, of an employee to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board of Directors must advise the Committee that it is either not possible to determine when such Disability will terminate or that it appears probable that such Disability will be permanent during the remainder of said Participant’s lifetime.   F. Fair Market Value: for purposes of the 1998 Stock Option Plan when used in connection with Common Stock on a certain date, Fair Market Value means the average of the high and low prices of known trades of the Common Stock on the relevant date, or if the Common Stock was not traded on such date, on the next preceding day on which the Common Stock was traded thereon.   G. Incentive Stock Option: means an Option granted by the Committee to a Participant, which Option is designated as an Incentive Stock Option pursuant to Section 8.   H. Non-qualified Stock Option: means an Option granted by the Committee to a Participant and which is not designated by the Committee as an Incentive Stock Option.   I. Normal Retirement: means retirement at the normal or early retirement date as set forth in any tax-qualified retirement/pension plan of the Company.   J. Option: means the grant of Incentive Stock Options or Non-qualified Stock Options granted under Section 7 or Section 8.   K. Participant: means an employee of the Company or its affiliates chosen by the Committee to participate in the Plan.   L. Plan Year(s): means the part of the year beginning with the date the plan is approved by a majority of the shareholders and ending on December 31, 1998, and calendar years thereafter.   M. Termination for Cause: means the termination upon an intentional failure to perform stated duties, breach of a fiduciary duty involving personal dishonesty or willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order.   2   --------------------------------------------------------------------------------   3. Administration The Plan shall be administered by the Committee. The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it sees necessary for the proper administration of the Plan and to make determinations and interpretations in connection with the Plan it sees as necessary or advisable. All awards to the proxy executives shall be approved in writing by the Committee. All determinations and interpretations made by the Committee shall be binding and conclusive on all Participants in the Plan and on their legal representatives and successors in interest. 4. Types of Awards Awards under the Plan may be granted in any one or a combination of:   (a) Non-qualified Stock Options;   (b) Incentive Stock Options; and as defined below in paragraphs 7 and 8 of the Plan. Subject to adjustment as provided in Section 13, the maximum number of shares reserved for purchase pursuant to the exercise of options granted under the Plan shall not exceed 65,000 of the shares of Common Stock of the Company, no par value per share, subject to adjustments pursuant to this Section 5. These shares of Common Stock may be either authorized but unissued shares or shares previously issued and reacquired by the Company. No more than 6,500 shares may be granted to any one individual under this Plan in any one year, subject to adjustment as provided in Section 13. Shares subject to any unexercised portion of a terminated, canceled or expired option granted hereunder, and pursuant to which a Participant never acquired benefits of ownership, including payment of a stock dividend (but excluding voting rights), may again be subjected to grant and awards under the Plan. 6. Eligibility Officers and other employees of the Company shall be eligible to receive Incentive Stock Options and Non-qualified Stock Options under the Plan. Directors who are not employees or officers of the Company shall not be eligible to receive Options under the Plan. 7. Non-qualified Stock Options   7.1 Grant of Non-qualified Stock Options. The Committee may, from time to time, grant Non-qualified Stock Options to eligible employees and, upon such terms and conditions as the Committee may determine, grant Non-qualified options in exchange for and upon surrender of previously granted Options under this Plan. Non-qualified Stock Options granted under this Plan are subject to the following terms and conditions.   (a) Price. The purchase price per share of Common Stock deliverable upon the exercise of each Non-qualified Stock Option shall determined by the Committee on the date the option is granted. The purchase price shall not   3   --------------------------------------------------------------------------------   be less than 100% of the Fair Market Value of the Company’s Common Stock on the Date of Grant and in no event below the par value of the Common Stock on the Date of Grant. Shares may be purchased only upon full payment of the purchase price. Payment of the purchase price may be made, in whole or in part, through the surrender of shares of the Common Stock of the Company at the Fair Market Value of such shares on the date of surrender determined in the manner described in Section 2(i).   (b) Terms of Options. The terms during which each Non-qualified Stock Option may be exercised shall be determined by the Committee, but in no event shall a Non-qualified Stock Option be exercisable in whole or in part more than 10 years from the Date of Grant. The Committee shall determine the date on which each Non-qualified Stock Option shall become exercisable and may provide that a Non-qualified Stock Option shall become exercisable in installments. The shares comprising each installment may be purchased in whole or in part at any time after such installment becomes purchasable. The Committee may, in its sole discretion, accelerate the time at which any Non-qualified Stock Option may be exercised in whole or in part. Notwithstanding the above, in the event of a Change in Control of the Company, all Non-qualified Stock Options shall become immediately exercisable.   (c) Termination of Employment. Unless otherwise determined by the Committee at the time a Stock Option is granted, upon the termination of a Participant’s service for any reason other than Disability, Normal Retirement, Change in Control, death or Termination for Cause, the Participant’s Non-qualified Stock Options shall be exercisable only as to those shares which were immediately purchasable by the Participant at the date of termination and only for a period of three years following termination. Notwithstanding any provision set forth herein or contained in any Agreement relating to the award of a Stock Option, in the event of Termination for Cause, all rights under the Participant’s Non-qualified Stock Options shall expire upon termination. Unless otherwise determined by the Committee at the time a Stock Option is granted, in the event of the death, Disability, termination due to Change in Control or Normal Retirement of any Participant, all Non-qualified Stock Options held by the Participant, whether or not exercisable at such time, shall be exercisable by the Participant or his legal representatives or successors in interest of the Participant for three years or such longer period as determined by the Committee following the date of the Participant’s death, Normal Retirement or cessation of employment due to Disability or Change in Control, provided that in no event shall the period extend beyond the expiration of the Non-qualified Stock Option term. 8. Incentive Stock Options   8.1 Grant of Incentive Stock Options.   4   --------------------------------------------------------------------------------   The Committee may, from time to time, grant Incentive Stock Options to eligible employees. Incentive Stock Options granted pursuant to the Plan shall be subject to the following terms and conditions:   (a) Price. The purchase price per share of Common Stock deliverable upon the exercise of each Incentive Stock Option shall not be less than 100% of the Fair Market Value of the Company’s Common Stock on the Date of Grant and in no event below the par value of the Common Stock on the Date of Grant. However, if a Participant owns stock possessing more than 10% of the total combined voting power of all classes of Common Stock of the Company, the purchase price per share of Common Stock deliverable upon the exercise of each Incentive Stock Options shall not be less than 110% of the Fair Market Value of the Company’s Common Stock on the Date of Grant. Shares may be purchased only upon payment of the full purchase price. Payment of the purchase price may be made, in whole or in part, through the surrender of shares of the Common Stock of the Company at the Fair Market Value of such shares on the date of surrender determined in the manner described in Section 2(i).   (b) Amounts of Options. Incentive Stock Options may be granted to any eligible employee in such amounts as determined by the Committee. The aggregate Fair Market Value (determined as of the time the option is granted) of the Common Stock with respect to which Incentive Stock Options granted are exercisable for the first time by the Participant during any calendar year (under all plans of the Participant’s employer corporation and its parent and subsidiary corporations, if any) shall not exceed $100,000. The provisions of this Section 8.1(b) shall be construed and applied in accordance with Section 422(d) of the Code and the regulations, if any, promulgated thereunder. To the extent an award under this Section 8.1 exceeds this $100,000 limit, the portion of the award in excess of such limit shall be deemed a Non-qualified Option.   (c) Terms of Options. The term during which each Incentive Stock Option may be exercised shall be determined by the Committee, but in no event shall an Incentive Stock Options be exercisable in whole or in part more than 10 years from the Date of Grant. If at the time an Incentive Stock is granted to any employee, the employee owns Common Stock representing more than 10% of the total combined voting power of the Company (or, under Section 425(d) of the Code, is deemed to own Common Stock representing more than 10% of the total combined voting power of all such classes of Common Stock, by reason of the ownership of such classes of Common Stock, directly or indirectly, by or for any brother, sister, spouse, ancestor or lineal descendent of such employee, or by or for any corporation, partnership, estate or trust of which such employee is a shareholder, partner or beneficiary), the Incentive Stock Option granted to such employee shall not be exercisable after the expiration of five years from the Date of Grant. No Incentive Stock Option granted under the Plan   5   --------------------------------------------------------------------------------   is transferable except by will or the laws of descent and distribution and is exercisable in his lifetime only by the employee to whom it is granted. The Committee shall determine the date on which each Incentive Stock Option shall become exercisable and may provide that an Incentive Stock Option shall become exercisable in installments. The shares comprising each installment may be purchased in whole or in part at any time after such installment becomes purchasable, provided that the amount able to be first exercised in a given year is consistent with the terms of Section 422 of the Code. The Committee may, in its sole discretion, accelerate the time at which any Incentive Stock Option may be exercised in whole or in part. In the event of a Change in Control of the Company, all Incentive Stock Options shall become immediately exercisable.   (d) Termination of Employment. Upon the termination of a Participant’s service for any reason other than Disability, Normal Retirement, Change in Control, death or Termination for Cause, the Participant’s Incentive Stock Options shall be exercisable only as to those shares which were immediately purchasable by the Participant at the date of termination and only for a period of three months following termination. In the event of Termination for Cause all rights under the Participant’s Incentive Stock Options shall expire upon termination. In the event of death or Disability of any employee, all Incentive at such time, shall be exercisable by the Participant or the Participant’s legal representatives or beneficiaries for three years following the date of the Participant’s death or cessation of employment due to Disability. Upon termination of the Participant’s service due to Normal Retirement, or a Change in Control, all Incentive Stock Options held by such Participant, whether or not exercisable at such time, shall be exercisable for a period of three months following the date of Participant’s cessation of employment. In no event shall the exercise period extend beyond the expiration of the Incentive Stock Option term.   (e) Compliance with Code. The options granted under this Section 8 of the Plan are intended to qualify as incentive stock options within the meaning of Section 4212 of the Code, but the Company makes no warranty as to the qualifications of any option as an incentive stock options within the meaning of Section 422 of the Code. 9. Rights of a Shareholder: Nontransferablility No Participant shall have any rights as a shareholder with respect to any shares covered by a Non-qualified and/or Incentive Stock Option until the date of issuance of a stock certificate for such shares. Nothing in this Plan or in any Option granted confers on any person any right to continue in the employ of the Company or to continue to perform services for the Company or   6   --------------------------------------------------------------------------------   interferes in any way with the right of the Company to terminate a Participant’s services as an officer or other employee at any time. No Option under the Plan shall be transferable by the optionee other than by will or the laws of descent and distribution and may only be exercised during his lifetime by the optionee, or by a guardian or legal representative. 10. Rights of a Shareholder: Transferability. No Option under the Plan shall be transferable or assignable, or payable to or exercisable by, anyone other than the Participant to whom it was granted, except (i) by will or by the laws of descent and distribution, (ii) as a result of the disability of a Participant or (iii) that the Committee (in the form of an Option Agreement or otherwise) may permit transfers of Options by gift or otherwise to a member of a Participant’s immediate family and/or trusts whose beneficiaries are members of the Participant’s immediate family, or to such other persons or entities as may be approved by the Committee. Notwithstanding the foregoing, in no event shall Incentive Stock Options be transferable or assignable other than by will or by the laws of descent and distribution.   11. Agreement with Grantees Each grant of Options, will be evidenced by a written agreement, executed by the Participant and the Company which describes the conditions for receiving the Options including the date of grant, the purchase price if any, applicable periods, and any other terms and conditions as may be required by the Board of Directors or applicable securities law. 12. Designation of Beneficiary A Participant may, with the consent of the Committee, designate a person or persons to receive, in the event of death, any Options to which the Participant would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If a Participant fails effectively to designate a beneficiary, then the Participant’s estate will be deemed to be the beneficiary. 13. Dilution and other Adjustments In the event of any change in the outstanding shares of Common Stock of the Company by reason of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares, or other similar corporate change, or other increase or decrease in such shares without receipt or payment of consideration by the Company, the Committee will make such proportionate adjustments to previously granted Options, to prevent dilution or enlargement of the rights of the Participant, including any or all of the following:   (a) proportionate adjustments in the aggregate number of kind of shares of Common Stock which may be awarded under the Plan;   7   --------------------------------------------------------------------------------     (b) adjustments in the aggregate number or kind of shares of Common Stock covered by Options already granted under the Plan;   (c) adjustments in the purchase price of outstanding Incentive and/or Non-qualified Stock Options. No such adjustments may, however, materially change the value of benefits available to a Participant under a previously granted Options. 14. Tax Withholding There shall be deducted from each distribution of cash and/or Common Stock under the Plan the amount required by any governmental authority to be withheld for income tax purposes. 15. Amendment of the Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect subject to obtaining any shareholder approval required by applicable New Jersey and Federal banking law; provided further that if it has been determined to continue to qualify the Plan under Rule 16b-3, shareholder approval shall be required for any such modification or amendment is required in order to qualify under 16B-3, including any modifications or amendments which:   (a) increases the maximum number of shares for which options may be granted under the Plan (subject, however, to the provisions of Section 12 hereof);   (b) reduces the exercise price at which Options may be granted (subject, however, to the provisions of Section 12 hereof):   (c) extends the period during which Options may be granted or exercised beyond the times originally prescribed; or   (d) changes the persons eligible to participate in the Plan. Failure to ratify or approve amendments or modifications to subsections (a) through (d) of this Section by shareholders shall be effective only as to the specific amendment or modification requiring such ratification. Other provisions, sections, and subsections of this Plan will remain in full force and effect. No such termination, modification or amendment may affect the rights of a Participant under an outstanding Option. 16. Effective Date of Plan This Plan was approved by the Board of Directors on February 12, 1998 and, subject to first obtaining approval at the 1998 Annual Meeting of the Shareholders of the Company by the affirmative vote of a majority of the shares of Common Stock of the Company entitled to vote at the 1998 Annual Meeting.   8   --------------------------------------------------------------------------------   17. Termination of the Plan The right to grant Options under the Plan will terminate upon the earlier of ten (10) years after the Effective Date of the Plan or the issuance of Common Stock or the exercise of Options equivalent to the maximum number of shares reserved under the Plan as set forth in Section 5. The Board of Directors has the right to suspend or terminate the Plan at any time, provided that no such action will, without the consent of a Participant, adversely affect his rights under a previously granted Option. 18. Applicable Law The Plan will be administered in accordance with the laws of the State of New Jersey and applicable Federal law. 19. Compliance with Section 16 If this Plan is qualified under Rule 16b-3, with respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provisions of the Plan or action by the Committee fail to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.     9      

  EXHIBIT 10.2 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [NRT Incorporated Letterhead] March 15, 2006 Jim Caulfield, Senior Corporate Counsel Homestore, Inc. 30700 Russell Ranch Road Westlake Village, California 91362 Re: Amendment to Master Distribution Agreement Dear Jim, Pursuant to Section 25 of the Master Distribution Agreement, dated February 2, 2005, among Homestore Inc. (“HS”), Move Sales, Inc., formerly known as Homestore Sales Company, Inc. (“HSC”) (collectively, “Homestore”), and NRT Incorporated (“NRT”) (the “Agreement”), the parties agree to amend certain provisions of the Agreement effective as of April 1, 2006, as follows: 1. Section 1(b) shall be amended and restated as follows: Featured Home – thumbnail photograph of a property listing presented on the web page after a search is entered but before the web page presenting the actual search results. The current size of the thumbnail photograph is 120 wide by 80 pixels high. Each Featured Home slot is assigned to a specific zip code (as determined by the United State Postal service) and is classified into one of four tiers based on the volume of searches on Realtor.com within that zip code. HSC offers eight (8) Featured Home slots within each tier. When a consumer searches on Realtor.com for property listings, the geographic areas defined in their search criteria are compared with the zip codes of all of the property listings designated as a Featured Home. If four (4) or less Featured Homes exist within an area of the search, those Featured Homes are displayed. If more than four (4) Featured Homes exists within the area of the search, the Featured Homes are grouped into sets of four (4) and displayed randomly. 2. Section 1 (c) Featured Company/Companion Advertisements and Section 2 (c) Companion Advertisements shall each be deleted in their entirety.   --------------------------------------------------------------------------------   3. Section 2 (b) shall be amended and restated as follows: Featured Home — NRT will have the ability to designate as a Featured Home any property listed for sale by NRT within [*] Featured Home zip code slots listed on Exhibit B attached hereto, subject to a cap on inventory of two (2) Featured Home slots per NRT Local Operating Company office location per zip code. When purchasing a Featured Home product, (i) if NRT does not specify a listing to feature, HSC will select the highest priced listing in NRT inventory that has a photo, (ii) text, individual agent photos or office logos shall not be featured in the Featured Homes spot, and (iii) in the event NRT does not have any inventory to display, HSC will place in NRT’s spot a placeholder image that will re-direct to a NRT Local Operating Company website. [*] If at any time during the Term of this Agreement HSC increases the number of Featured Home slots per zip code, HSC shall proportionately increase the number of Featured Home slots provided hereunder, at no additional charge, subject to any required limitation set forth by the National Association of Realtors® (“NAR”). The Featured Homes purchased hereunder shall be displayed randomly and equitably based on neutral criteria applied to all of HSC’s customers. 4. The first paragraph of Section 3 shall be amended and restated as follows: The term of this Agreement shall commence on April 1, 2005 (the “Effective Date”) and shall terminate on March 31, 2008 (the “Term”). Pricing for the Term is as set forth in Section 4, and all other terms and conditions shall remain the same during the Term. 5. Sections 4 (ii) and (iii) shall be amended and restated as follows: (ii) For April 1, 2006 through March 31, 2007 – [*] Dollars ($[*]) payable in monthly installments of $[*] per month, payable by the 10th day of each month; and (iii) For April 1, 2007 through March 31, 2008 – [*] Dollars ($[*]) payable in monthly installments of $[*], payable by the 10th day of each month. 6. Section 4 shall be amended to include the following term following Section 4 (iii): HSC agrees that within thirty (30) days after the end of each month it shall pay to NRT an amount equal to [*] percent ([*]%) of the net sales revenue actually received by HSC during such month applicable to sales by HSC of products to NRT real estate sales agents during the Term of this Agreement at special NRT sponsored and coordinated events, as agreed upon by the parties, which are attended by Homestore   --------------------------------------------------------------------------------   sales personnel. “Net sales revenue” shall mean amounts actually paid to HSC for such products sold less all applicable (i) taxes directly related to such sales that HSC is required to collect, (ii) credit card fees, (iii) cancellations, refunds and returns, and (iv) sales commissions (such commissions not to exceed [*]% of HSC net revenue received from such sales). Along with such payment HSC shall also provide NRT with a monthly report detailing the net sales revenue actually received by HSC from applicable NRT real estate revenues received during such month. Very truly yours, /s/ Bruce Zipf Please indicate your agreement with the above by obtaining the required signatures below and returning this letter to my attention at the address above.                   Move Sales, Inc.       Homestore, Inc.                   By:   /s/ Jack Dennison       By:   /s/ Allan Dalton                   Name: Jack Dennison       Name: Allan Dalton Title: COO       Title: REALTOR.com CEO   [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.   [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.   --------------------------------------------------------------------------------   EXHIBIT B                           Billing                     Group   Spots     LOC Name           BOP1224     [*]       [*]           BOP793     [*]       [*]           BOP21     [*]       [*]           BOP1263     [*]       [*]           BOP1056     [*]       [*]           BOP1204     [*]       [*]           BOP869     [*]       [*]           BOP1262     [*]       [*]           BOP1243     [*]       [*]           BOP1035     [*]       [*]           BOP1355     [*]       [*]           BOP1187     [*]       [*]           BOP1226     [*]       [*]           BOP1211     [*]       [*]           BOP1202     [*]       [*]           BOP1194     [*]       [*]           BOP1269     [*]       [*]           BOP1212     [*]       [*]           BOP1356     [*]       [*]           BOP1062     [*]       [*]           BOP867     [*]       [*]                                                                   [*]                                             Unassigned Featured Home slots     [*]                             Total Featured Home slots     [*]                             [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.   --------------------------------------------------------------------------------                                         Zip   State   County   Community   Tier   Rank   Value   Slots   OracleLoc   OfficeName   [*]   [*]   [*]   [*]   [*]   [*]   [*]   [*]   [*]   [*]   [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.  

Exhibit 10.22   GOOGLE REGISTRATION RIGHTS AGREEMENT MARCH __, 2006 -------------------------------------------------------------------------------- TABLE OF CONTENTS             Page Section 1 Definitions    1         1.1    Certain Definitions    1 Section 2 Registration Rights    4         2.1    Request for Registration.    4         2.2    Company Registration.    7         2.3    Registration Procedures    9         2.4    Indemnification and Contribution.    12         2.5    Information by Holder    14         2.6    Rule 144 Reporting and Administration    14         2.7    Market Stand-Off Agreement    15         2.8    Transfer or Assignment of Registration Rights    15         2.9    Limitations on Subsequent Registration Rights    15         2.10    Termination of Registration Rights    15 Section 3 Miscellaneous    15         3.1    Amendment    15         3.2    Notices    15         3.3    Governing Law; Waiver of Jury Trial    17         3.4    Successors and Assigns    17         3.5    Entire Agreement    17         3.6    Delays or Omissions    17         3.7    Severability    17         3.8    Titles and Subtitles    17         3.9    Counterparts    18         3.10    Telecopy Execution and Delivery    18         3.11    No Impairment    18         3.12    Confidentiality    18   i -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this “Agreement”) is made as of March __, 2006, by and among Time Warner Inc., a Delaware corporation, AOL Holdings LLC, a Delaware limited liability company (“Holdco”), and Google Inc., a Delaware corporation (“Google”). Unless otherwise defined herein, capitalized terms used in this Agreement have the meanings ascribed to them in Section 1 hereof. RECITALS WHEREAS, Google, Time Warner Inc. and America Online, Inc. have entered into a Contribution Agreement, dated as of [                    ] (the “Contribution Agreement”). WHEREAS, pursuant to the Contribution Agreement Google will be issued limited liability company interests in Holdco (the “Securities”) in exchange for one billion dollars ($1,000,000,000) in cash. WHEREAS, it is a condition to the closing of the sale of the Securities to Google pursuant to the Contribution Agreement that Holdco and Google execute and deliver this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and in the Contribution Agreement, and other consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: Section 1 Definitions 1.1 Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: (a) “business day” shall mean any day other than a Saturday or Sunday or a day on which banks in New York, New York are closed. (b) “Commission” shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. (c) “Company” shall mean Holdco; provided that following the Entity Conversion, “Company” shall mean the Conversion Entity. (d) “Contribution Agreement” shall have the meaning set forth in the Recitals. (e) “Conversion Entity” shall mean the corporation resulting from the Entity Conversion. (f) “Conversion Stock” shall mean the Common Stock of the Conversion Entity issued in exchange for the membership interests of Holdco upon the Entity Conversion. (g) “Distribution” shall mean a distribution (by pro rata distribution or dividend, by exchange offer/”split-off” or by any comparable means) of direct or indirect equity interests of Holdco or Conversion Stock to the holders of TW Common Stock or the holders of capital stock of any parent entity of TW; provided that such equity interests or Conversion Stock are (immediately -------------------------------------------------------------------------------- following such distribution) registered under the Exchange Act and registered on or listed for trading on, as applicable, an Eligible Exchange. (h) “Eligible Exchange” shall mean either the New York Stock Exchange or the Nasdaq National Market. (i) “Entity Conversion” shall mean the conversion of Holdco from a limited liability company to a corporation pursuant to Section 9.01 of the Operating Agreement. (j) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time. (k) “Google” shall mean Google Inc., a Delaware corporation. (l) “Holder” shall mean any Google Entity (as such term is defined in the Operating Agreement) that is a holder of Registrable Securities. (m) “Indemnified Party” shall have the meaning set forth in Section 2.4(c). (n) “Indemnifying Party” shall have the meaning set forth in Section 2.4(c). (o) “Initial Public Offering” shall mean the closing of the Conversion Entity’s first public offering of its common stock pursuant to an effective registration statement under the Securities Act. (p) “Initiating Holder” shall mean any Holder making a Demand Registration Request pursuant to Section 2.1. (q) “Inspectors” shall have the meaning set forth in Section 2.3(k). (r) “IPO Demand” shall mean a request for registration pursuant to Section 2.1 which registration would constitute the Initial Public Offering of the Company. (s) “Material Adverse Effect” on the Company shall mean a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its subsidiaries, taken as a whole. (t) “Minimum Amount” shall mean (i) if in connection with an IPO Demand, the lesser of: (x) an amount of Registrable Securities the aggregate market value of which is equal to $200 million or more, as determined and certified in writing by the proposed managing underwriter of the Initial Public Offering, and (y) 40% of the Registrable Securities then held by the Holders and (ii) if in connection with a Demand Registration Request made after the Initial Public Offering or the Distribution, as the case may be, the lesser of: (x) an amount of Registrable Securities the aggregate value of which is equal to $100 million or more based on the closing sale prices of Conversion Stock on an Eligible Exchange, as reported in The Wall Street Journal, Northeastern edition, for each of the twenty (20) consecutive Trading Days immediately preceding such Demand Registration Request and (y) 20% of the Registrable Securities then held by the Holders. (u) “Operating Agreement” shall mean the Amended and Restated Limited Liability Company Agreement of Holdco, as such may be amended from time to time in accordance with the provisions thereof.   -2- -------------------------------------------------------------------------------- (v) “Other Selling Stockholders” shall mean persons other than Holders (including any Time Warner Entity (as such term is defined in the Operating Agreement)) who either: (i) by virtue of agreements with the Company, are entitled to include their Other Shares in any registration subject to this Agreement or (ii) hold Other Shares sought to be included in a registration subject to this Agreement. (w) “Other Shares” shall mean shares of common stock or other equity interests of the Company, other than Registrable Securities, with respect to which registration rights have been granted or are otherwise sought to be included in a registration subject to this Agreement. (x) The terms “register,” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act or the Exchange Act, and the declaration or ordering of the effectiveness of such registration statement by the Commission. (y) “Registrable Securities” shall mean (i) shares of Conversion Stock issued or issuable pursuant to the conversion of the Securities upon the Entity Conversion; (ii) any Conversion Stock otherwise acquired by the Holders after the date hereof in a manner that is not in violation of the Operating Agreement; and (iii) any common stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in clause (i) or (ii) above; provided, however, that Registrable Securities shall not include any securities described in clause (i), (ii) or (iii) above which (A) have previously been registered under the Securities Act, (B) have been sold to the public either pursuant to an effective registration statement or Rule 144 under the Securities Act or (C) have been sold in a private transaction in which the transferor’s rights under this Agreement are not validly assigned pursuant to Section 2.8. (z) “Registration Expenses” shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and one special counsel for the Holders, blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses and fees and disbursements of additional counsel for the Holders. (aa) “Rule 144” shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. (bb) “Rule 145” shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. (cc) “Rule 415” shall mean Rule 415 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. (dd) “Securities” shall have the meaning set forth in the Recitals. (ee) “Securities Act” shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time. (ff) “Selling Expenses” shall mean all underwriting discounts, brokers or other selling commissions and stock transfer taxes applicable to the sale of Registrable Securities, and fees   -3- -------------------------------------------------------------------------------- and disbursements of counsel for any Holder (other than the fees and disbursements of one special counsel to the Holders included in Registration Expenses). (gg) “Shelf Registration” shall mean a registration on Form S-3 (or any successor thereto) or any other appropriate form pursuant to Rule 415 under the Securities Act (or any successor rule that may be adopted by the Commission) providing for the sale of securities on a delayed or continuous basis. (hh) “Suspension Period” shall have the meaning set forth in Section 2.3(d). (ii) “Trading Day” shall mean, for a particular equity security, a day on which trading prices for such equity security are quoted on the Eligible Exchange on which such equity security is traded. (jj) “TW” shall mean Time Warner Inc., a Delaware corporation, unless and until any of the following events occur: (i) any person the common stock of which is registered under Section 12 of the Exchange Act becomes the beneficial owner of more than 50% of the total outstanding equity interests of Time Warner Inc. and Time Warner Inc. ceases to have its common stock registered under the Exchange Act and listed on a national securities exchange, in which case “TW” shall mean such person, (ii) Time Warner Inc. consolidates with or merges with or into, or transfers all or substantially all its assets to, any person the common stock of which is registered under Section 12 of the Exchange Act, in which case “TW” shall mean such person, or (iii) Time Warner Inc. transfers all (but not less than all) of its equity interests in the Company, directly or indirectly, to any person the common stock of which is registered under Section 12 of the Exchange Act, in which case “TW” shall mean such person. (kk) “TW Common Stock” shall mean the common stock of TW. (ll) “Withdrawn Registration” shall have the meaning set forth in Section 2.1(f). Section 2 Registration Rights 2.1 Request for Registration. (a) Request for Registration. Subject to the conditions set forth in this Section 2.1, if the Company shall receive from Initiating Holders a written request (a “Demand Registration Request”) signed by such Initiating Holders that the Company effect any registration with respect to not less than a Minimum Amount of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Initiating Holders, including the proposed managing underwriters, if any), the Company will as soon as practicable (but in any event within sixty (60) calendar days of the Demand Registration Request), file such registration and use its reasonable best efforts to cause such registration to become effective (including, without limitation, filing pre-effective and post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act and/or Exchange Act and any other governmental regulations or requirements) and to permit or facilitate the sale and distribution of such Registrable Securities. Upon receipt of such request, the Company shall promptly deliver notice of such request to all other Holders who each shall then have twenty (20) calendar days to notify the Company in writing of their desire to be included in such registration. If the request for registration contemplates an underwritten public offering, the Company shall state such in the written notice and, in such event, the right of any such other Holder to participate in such registration shall be conditioned upon such   -4- -------------------------------------------------------------------------------- Holder’s participation in such underwritten public offering and the inclusion of such Holder’s Registrable Securities in the underwritten public offering to the extent provided herein. (b) Limitations on Requested Registration. No Holder shall make (or be deemed to have made) a Demand Registration Request (and, with respect to Section 2.1(b)(iv), the Company shall not be obligated to file a preliminary registration statement) pursuant to this Section 2.1: (i) prior to the earlier of: (A) July 1, 2008, (B) one hundred eighty (180) calendar days following the effective date of the Company’s Initial Public Offering and (C) ninety (90) calendar days following a Distribution; (ii) after the Company has effected three (3) such registrations pursuant to this Section 2.1; provided, however, that the Company shall only be required to effect two (2) such registrations pursuant to this Section 2.1 following the Initial Public Offering or Distribution (counting for all purposes of this Section 2.1(b)(ii) only registrations which have been declared or ordered effective and pursuant to which either: (A) all securities registered thereunder have been sold, or (B) the registration statement relating thereto has been effective and not suspended for the applicable period set forth in Section 2.3(a)); (iii) during the period starting with the date thirty (30) calendar days (sixty (60) calendar days in the case of an IPO Demand) prior to the Company’s reasonably estimated date of filing of, and ending on the date ninety (90) calendar days (one hundred eighty (180) calendar days in the case of an IPO Demand or such shorter period to which any officer or director of the Company or holder of at least five percent (5%) of the Company’s outstanding securities is subject pursuant to a lockup restriction similar to that described in Section 2.7) immediately following the effective date of, any registration statement pertaining to securities offered by the Company (other than a registration of securities on Form S-8 (as promulgated under the Securities Act), a registration of securities on Form S-4 (as promulgated under the Securities Act), a registration of securities in a Rule 145 transaction, or a registration of securities with respect to an employee benefit plan (including in each case pursuant to successor forms and rules)), provided that the Company is actively employing in good faith its reasonable best efforts to cause such registration statement to be filed (if not already filed) and to become effective and the managing underwriter(s) of such offering certifies in writing that the registration of Registrable Securities would have, in its reasonable estimation, a material adverse effect on the marketability of the offering for which such registration statement was filed; or (iv) if the Company shall furnish to the Holders a certificate signed by any executive officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, by majority vote, it would be materially detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then the Company shall have the right to defer such filing for a period of not more than ninety (90) calendar days after receipt of the Demand Registration Request; provided, however, that the Company shall not defer its obligation in this manner for more than an aggregate of one hundred twenty (120) calendar days in any consecutive twelve-month period; or (c) Other Shares. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Sections 2.1(d) and 2.9, include Other Shares, and may include securities of the Company being sold for the account of the Company. (d) Form of Registration; Underwriting. (i) The Initiating Holders shall determine the method of distribution of the Registrable Securities covered by a Demand Registration Request pursuant to this Section 2.1, whether   -5- -------------------------------------------------------------------------------- by means of an underwritten offering or any other lawful means, and the Initiating Holders shall determine the form of the registration statement to be used in connection therewith, whether an underwritten or non-underwritten offering on Form S-1 or Form S-3, or a Shelf Registration, subject to the Company’s eligibility to utilize such form of registration statement under the Securities Act; provided, however, that (A) any such method of distribution (other than a firm commitment underwritten public offering or an offering from time to time through the facilities of an Eligible Exchange (including so-called “block trades”) pursuant to a Shelf Registration)) shall be reasonably acceptable to the Company, (B) the IPO Demand must be for a firm commitment underwritten public offering, (C) the Company shall not be required to file a Shelf Registration until after the first anniversary of an Initial Public Offering and (D) if the Company is selling securities for its own account in an Initial Public Offering, any such method of distribution shall be mutually agreed between the Company and the Initiating Holders. The right of any Holder to include all or any portion of its Registrable Securities in such registration pursuant to this Section 2.1 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities to the extent provided herein. If the Company shall request inclusion in any registration pursuant to Section 2.1 of securities being sold for its own account, or if Other Selling Stockholders shall request inclusion in any registration pursuant to Section 2.1, the Initiating Holders shall, on behalf of all Holders, offer to include such securities in the underwriting and such offer shall be conditioned upon the participation of the Company or such Other Selling Stockholders in such underwriting and the inclusion of the Company’s and Other Selling Stockholders’ other securities of the Company and their acceptance of the further applicable provisions of this Section 2 (including Sections 2.1(g) and 2.7). The Company shall (together with all Holders and Other Selling Stockholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the holders of a majority of the Registrable Securities held by the Initiating Holders. Such representative or representatives must be reasonably acceptable to the Company, and if the representative or representatives selected by the Initiating Holders are not reasonably acceptable to the Company there must be two “co-lead” representatives, both of which must be underwriters of national reputation, one of which is selected by the Initiating Holders and the other of which is selected by the Company. (ii) Notwithstanding any other provision of this Section 2.1, if the managing underwriter(s) advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated as follows: (A) first, to the Holders requesting to include Registrable Securities in such registration statement based on the pro rata percentage of Registrable Securities held by such Holders relative to all other Holders requesting to include Registrable Securities in such registration statement, (B) second, to the Other Selling Stockholders requesting to include Other Shares in such registration statement based on the pro rata percentage of Other Shares held by such Other Selling Stockholders relative to all the Other Selling Stockholders requesting to include Other Shares in such registration statement, and (C) third, to the Company. For avoidance of doubt, no securities of the Company or Other Shares shall be included in a registration under this Section 2.1 unless all Registrable Securities that are requested to be included in such registration are so included. (iii) If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company, the managing underwriter(s) or the Initiating Holders. The securities so excluded shall also be withdrawn from such registration. If securities are so withdrawn from the registration and if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2.1(d), then the Company shall offer to all Holders and Other Selling Stockholders who have retained rights to include securities in the registration the right to include additional Registrable Securities and Other Shares in the registration in an aggregate amount   -6- -------------------------------------------------------------------------------- equal to the number of shares so withdrawn, with such shares to be allocated among such Holders and Other Selling Stockholders requesting additional inclusion, in the manner set forth in Section 2.1(d)(ii). (e) Company Standstill. The Company may not (in the case of a request for registration pursuant to Section 2.1 which is for an underwritten public offering, without the consent of the managing underwriter(s)) cause any other registration of securities for sale for its own account (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Securities Act is applicable) to become effective within (i) one hundred eighty (180) calendar days following the effective date of any registration pursuant to this Section 2.1 if such registration is in connection with the Initial Public Offering (or such shorter period as is required by the managing underwriters, if any), or (ii) sixty (60) calendar days following the effective date of any other registration pursuant to this Section 2.1 that is not in connection with the Initial Public Offering (or such shorter period as is required by the managing underwriters, if any). (f) Right to Terminate Registration. The holders of a majority of the Registrable Securities held by the Initiating Holders to be included in a registration pursuant to this Section 2.1 shall have the right to terminate or withdraw any registration under this Section 2.1 prior to the effectiveness of such registration whether or not the Company, any Holder or Other Selling Stockholder has elected to include securities in such registration (a “Withdrawn Registration”), in which case the Company will no longer be required to proceed with the registration; provided, however, that such Withdrawn Registration shall be counted as a registration for the purposes of Section 2.1(b)(ii) unless either: (i) the withdrawal by the Holders occurs prior to the initial filing of a preliminary registration statement with the Commission with respect to such registration, (ii) there is a Material Adverse Effect on the Company after the filing date of the most recent annual report or, if later, the most recent quarterly report, of TW filed with the Commission on a Form 10-K or Form 10-Q, as the case may be, filed prior to the making of the relevant Demand Registration Request pursuant to Section 2.1 (the “Last SEC Report”), (iii) the Last SEC Report includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, relating to a Material Adverse Effect or (iv) in the event the Company has not previously filed a periodic report under the Exchange Act, the withdrawal occurs following a Material Adverse Effect that was not known to the Initiating Holders prior to the making of the relevant Demand Registration Request. (g) Expenses of Registration. All Registration Expenses incurred in connection with registrations pursuant to Section 2.1 shall be borne by the Company; provided, however, that the Initiating Holders and Other Selling Stockholders (and not the Company) shall be required to pay for all expenses (including Registration Expenses) of any Withdrawn Registration (unless the withdrawal is pursuant to Section 2.1(f)(iii) or 2.1(f)(iv); provided that, in the event of a withdrawal pursuant to Section 2.1(f)(iv), the relevant Material Adverse Effect existed at the time of the relevant Demand Registration Request) pro rata among each other on the basis of the number of Registrable Securities or Other Shares proposed to be registered. All Selling Expenses relating to securities registered on behalf of the Holders or Other Selling Stockholders pursuant to Section 2.1 shall be borne by the holders of securities included in such registration pro rata among each other on the basis of the number of Registrable Securities or Other Shares so registered. 2.2 Company Registration. (a) Company Registration. If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders, other than a registration pursuant to a Demand Registration Request (including a registration contemplated by Section 2.1(b)(iii)), a registration of securities on Form S-8, a registration on Form S-4 (as   -7- -------------------------------------------------------------------------------- promulgated under the Securities Act), a registration of securities in a Rule 145 (as promulgated under the Securities Act) transaction, a registration of securities solely with respect to an employee benefit plan, or a registration relating to the offer and sale of debt securities (including in each case pursuant to successor forms and rules), the Company will: (i) give to the Holders written notice thereof at least twenty (20) calendar days prior to the filing of a registration therefore; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request by the Holders made within twenty (20) calendar days after receipt of such written notice from the Company. Notwithstanding the foregoing, if any such registration is being filed to effect the registration of a Distribution, the Holders shall not be entitled to include in such registration any Registrable Securities held by the Holders. (b) Underwriting. (i) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.2(a)(i). In such event, the right of any Holder to registration pursuant to this Section 2.2 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the Other Selling Stockholders) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. (ii) Notwithstanding any other provision of this Section 2.2, if the underwriters advise the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the underwriters may (subject to the limitations set forth below) limit the number of Registrable Securities to be included in the registration and underwriting. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated, as follows: (A) first, to the Company for securities being sold for its own account, and (B) second, to the Holders and Other Selling Stockholders requesting to include Registrable Securities or Other Shares in such registration statement based on the aggregate pro rata percentage of Registrable Securities and Other Shares held by such Holders and Other Selling Stockholders, on a pari passu basis. Notwithstanding the foregoing, no such exclusion or allocation shall reduce the amount of securities of the Holders included in such registration statement below fifty percent (50%) of the total amount of securities included in such registration statement for the account of the persons other than the Company. (iii) If a Holder or Other Selling Stockholder who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall also be excluded therefrom by written notice from the Company or the managing underwriter(s). The Registrable Securities or Other Shares so excluded shall also be withdrawn from such registration. If securities are so withdrawn from the registration and if the number of shares of Registrable Securities or Other Shares to be included in such registration was previously reduced as a result of marketing factors pursuant to Section 2.2(b), the Company shall then offer to all Holders and Other Selling Stockholders who have retained the right to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so   -8- -------------------------------------------------------------------------------- withdrawn, with such shares to be allocated among the persons requesting additional inclusion, in the manner set forth in Section 2.2(b)(ii). (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder or Other Selling Stockholder has elected to include securities in such registration. (d) Expenses of Registration. All Registration Expenses incurred in connection with any registrations pursuant to this Section 2.2 shall be borne by the Company. All Selling Expenses relating to securities registered on behalf of the Holders or Other Selling Stockholders pursuant to this Section 2.2 shall be borne by the holders of securities included in such registration pro rata among each other on the basis of the number of Registrable Securities or Other Shares so registered, and it shall be a further condition to the participation of Other Selling Stockholders in such registration that they have agreed in writing to pay their pro rata portion of such Selling Expenses. (e) Effect of Registration. Notwithstanding any other provision of this Agreement, the Holders hereby agree that if the Company initiates a registration of equity securities for its own account in compliance with the provisions of Section 2.1(b)(iii) after the making of the IPO Demand but prior to the filing of the preliminary registration statement therefor, then, so long as the Company complies with the provisions of Section 2.1(b)(iii), such registration shall be deemed a Company registration that shall be governed by the terms of this Section 2.2 (and not by the terms of Section 2.1 other than the provisions of Section 2.1(b)(iii)) and such registration shall preempt the IPO Demand in accordance with Section 2.1(b)(iii) so long as the Company complies with the provisions of Section 2.1(b)(iii). 2.3 Registration Procedures. In the case of each registration effected by the Company pursuant to Section 2.1 and each registration effected by the Company pursuant to Section 2.2 in which any Holder participates, the Company will keep each participating Holder advised in writing as to the initiation of each registration and as to the completion thereof, and will, subject to Sections 2.1(g) and 2.2(d), at its expense: (a) prepare and file with the Commission pre-effective amendments and post-effective amendments to such registration statement and such amendments to the prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration or as may be required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or the Exchange Act or the rules and regulations thereunder necessary to keep such registration statement effective for up to thirty (30) calendar days or, in the case of a Shelf Registration, three hundred sixty (360) calendar days, and cause the prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to otherwise comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement until the earlier of: (i) such 30th or 360th calendar day, as applicable, and (ii) such time as all Registrable Securities covered by such registration statement have ceased to be Registrable Securities; provided that a reasonable time before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company will furnish to each participating Holder, the managing underwriter(s) (if applicable) and their respective counsel for review and comment, copies of all documents proposed to be filed and will not file any such documents to which any of them reasonably object prior to the filing thereof; (b) furnish to each participating Holder such number of copies of such registration statement and of each amendment and post-effective amendment thereto (in each case including all exhibits), any prospectus or prospectus supplement and such other documents as such participating   -9- -------------------------------------------------------------------------------- Holder may reasonably request in order to facilitate the disposition of the Registrable Securities by such participating Holder (the Company hereby consenting to the use of the prospectus or any amendment or supplement thereto in connection with such disposition); (c) register or qualify such Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as the participating Holders reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable the participating Holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by the participating Holders, except that the Company will not for any such purpose be required to qualify generally to do business as a foreign corporation, to subject itself to taxation or to consent to general service of process in any such jurisdiction where, but for the requirements of this paragraph, it would not be obligated to be so qualified or to be so subject to taxation or to general service of process; (d) promptly notify each participating Holder at any time (a “Suspension Period”) when a prospectus relating to any such Registrable Securities is required to be delivered under the Securities Act and the Company has become aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. As promptly thereafter as is practicable using reasonable best efforts, the Company shall prepare and file, and furnish to each participating Holder a reasonable number of copies of an amendment to such registration statement and/or supplement to the related prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include 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 not misleading in light of the circumstances then existing; provided that, in the event that an executive officer of the Company determines in good faith that the disclosure of such information as would result in such prospectus not including an untrue statement of material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading would be materially detrimental to the Company, the Company shall be permitted to delay the filing of such corrective amendment or supplement for a period of time not to exceed one hundred twenty (120) days; and provided further, that the time during which such registration statement shall remain effective pursuant to Section 2.3(a) (if applicable) will be extended by the number of calendar days that any Holder is prevented from selling because it is unable to deliver a prospectus as a result of a Suspension Period; (e) notify each participating Holder at any time: (i) when any preliminary prospectus, final prospectus or prospectus supplement or post-effective amendment has been filed, and, with respect to the registration statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; (iii) of the receipt by the Company of any written comments to the registration statement or the prospectus from the Commission (and the Company shall provide such comments and any responses thereto to a participating Holder upon request); (iv) of the issuance by the Commission of any stop order of which the Company or its counsel is aware or should be aware suspending the effectiveness of the registration statement or any order preventing the use of a related prospectus, or the initiation or any threats of any proceedings for such purposes; and   -10- -------------------------------------------------------------------------------- (v) of the receipt by the Company of any written notification of the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or any threats of any proceeding for that purpose; (f) otherwise comply with all applicable rules and regulations of the Commission, and make available to each participating Holder an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act; provided that the Company will be deemed to have complied with this Section 2.3(f) if it has satisfied the provisions of Rule 158 under the Securities Act; (g) cause all such Registrable Securities to be listed on any Eligible Exchange on which the Company’s common stock is then listed, if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such Eligible Exchange, and to provide a transfer agent and registrar and a CUSIP number for such Registrable Securities covered by such registration statement no later than the effective date of such registration statement; (h) enter into agreements (including underwriting agreements) and in connection therewith: (i) make such representations and warranties to each participating Holder and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in comparable underwritten offerings; (ii) use all reasonable efforts to obtain opinions of counsel to the Company thereof (which counsel and opinions (in form, scope and substance) will be reasonably satisfactory to the managing underwriter(s), if any, and the participating Holders) addressed to the participating Holders and the underwriters, if any, covering the matters customarily covered in opinions requested in comparable underwritten offerings and such other matters as may be reasonably requested by the participating Holders and the managing underwriter(s), if any; (iii) use all reasonable efforts to obtain “cold comfort” letters and bring-downs thereof from the Company’s independent certified public accountants addressed to the participating Holders and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters by independent accountants in connection with underwritten offerings; (iv) if requested, provide indemnification in accordance with the provisions and procedures of Section 2.4 to all parties to be indemnified pursuant to said section; and (v) deliver such documents and certificates as may be reasonably requested by the participating Holders and the managing underwriter(s), if any, to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; provided, however, that the Company shall not be obligated to take any of the actions under this Section 2.3(h) more than an aggregate of three times in connection with registrations pursuant to Section 2.1; (i) cooperate with each participating Holder and the managing underwriter(s) or underwriters or agents, if any, to facilitate, to the extent reasonable under the circumstances, the timely preparation and delivery of certificates (not bearing any restrictive legends) representing the Registrable Securities to be sold under such registration statement, and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter(s) or underwriters or agents, if any, or any participating Holder may request;   -11- -------------------------------------------------------------------------------- (j) if reasonably requested by the managing underwriter(s) or underwriters or the participating Holders, incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter(s) and the participating Holders agree should be included therein relating to the plan of distribution with respect to such Registrable Securities, including without limitation information with respect to the purchase price being paid by such underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering and make all required filings of such prospectus supplement or post-effective amendment as promptly as practicable upon being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; (k) provide each participating Holder, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by such participating Holder or underwriter (collectively, the “Inspectors”) reasonable access, during normal business hours and upon prior notification, to appropriate officers of the Company and the Company’s subsidiaries to ask questions and to obtain information reasonably requested by any such Inspector and make available for inspection all financial and other records and other information, pertinent corporate documents and properties of any of the Company and its subsidiaries and affiliates as may be reasonably necessary to enable them to exercise their due diligence responsibilities; (l) in the event of the issuance of any stop order of which the Company or its counsel is aware or should be aware suspending the effectiveness of the registration statement or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Registrable Securities included in the registration statement for sale in any jurisdiction, the Company will use its reasonable best efforts promptly to obtain its withdrawal; and the period for which the registration statement will be kept effective will be extended by a number of calendar days equal to the number of calendar days between the issuance and withdrawal of any stop orders; (m) only in the event of a registration in connection with an Initial Public Offering, reasonably cooperate to make available members of senior management of the Company to participate in a customary “road show” with potential purchasers of the Registrable Securities, which “road show” shall last no longer than seven (7) calendar days and shall not require more than four (4) members of senior management of the Company to make investor presentations; and (n) cause an Entity Conversion prior to effectiveness of the registration statement if such Entity Conversion has not occurred prior to such time. 2.4 Indemnification and Contribution. (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its officers, directors and partners, legal counsel, and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification, or compliance has been effected pursuant to this Section 2, and each underwriter, if any, and each of its officers, directors, and each person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any preliminary prospectus, final prospectus, summary prospectus, “issuer free writing prospectus” as defined in Rule 433 of the Securities Act, offering circular, or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification, or compliance, (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading,   -12- -------------------------------------------------------------------------------- or (iii) any violation (or alleged violation) by the Company of the Securities Act, any state securities laws or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any offering covered by such registration, qualification, or compliance, and the Company will reimburse each such Holder, each of its officers, directors, partners, legal counsel, and accountants and each person controlling such Holder, each such underwriter, each of its officers, directors, and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability, or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or action arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder, any of such Holder’s officers, directors, partners, legal counsel or accountants, any person controlling such Holder, such underwriter or any person who controls any such underwriter and stated to be specifically for use therein; and provided, further, that, the obligations of the Company contained in this Section 2.4(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld). (b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify and hold harmless the Company, each of its directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder, and each of their officers, directors, and partners, and each person controlling such Holder, against all claims, losses, damages and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any such preliminary prospectus, final prospectus, summary prospectus, “issuer free writing prospectus” as defined in Rule 433 of the Securities Act, offering circular, or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification, or compliance, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, directors, officers, partners, legal counsel, and accountants, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such preliminary prospectus, final prospectus, summary prospectus, issuer free writing prospectus, offering circular, or other document (including any related registration statement, notification, or the like) in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however, that the obligations of such Holder contained in this Section 2.4(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); provided, further, that in no event shall any indemnity under this Section 2.4 exceed the net proceeds from the offering received by such Holder unless such liability arises out of or is based on wilful misconduct by such Holder. (c) Each party entitled to indemnification under this Section 2.4 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party,   -13- -------------------------------------------------------------------------------- who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party’s expense; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.4, to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.4 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations provided, that, in no event shall any contribution by a Holder under this Section 2.4(d) exceed the net proceeds from the offering received by such Holder unless such liability arises out of or is based on wilful misconduct by such Holder. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.5 Information by Holder. Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may request in writing and as shall be reasonably required in connection with any registration, qualification, or compliance referred to in this Section 2. 2.6 Rule 144 Reporting and Administration. (a) If the Company registers a class of securities under Section 12 of the Exchange Act or shall commence to file reports under Section 13 or 15(d) of the Exchange Act, the Company agrees to use all reasonable efforts to: (i) make and keep “public information” regarding the Company available as such term is defined in Rule 144 under the Securities Act; and (ii) so long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of the Exchange Act.   -14- -------------------------------------------------------------------------------- (b) From and after an Initial Public Offering, the Company shall use all reasonable efforts to facilitate and expedite transfers of Registrable Securities pursuant to Rule 144 under the Securities Act, which efforts shall include timely notice to its transfer agent to expedite such transfers of Registrable Securities. 2.7 Market Stand-Off Agreement. Each Holder hereby agrees that such Holder shall not sell or otherwise transfer, or make any short sale of, any common stock (or other securities) of the Company held by such Holder (other than those included in the registration) during the one hundred eighty (180) calendar day period following the effective date of the Initial Public Offering; provided that, all officers and directors of the Company and all holders of at least five percent (5%) of the Company’s outstanding securities are bound by and have entered into similar agreements. The obligations described in this Section 2.7 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. 2.8 Transfer or Assignment of Registration Rights. The rights to cause the Company to register securities granted to a Holder by the Company under this Section 2 may be transferred or assigned by a Holder only to a transferee or assignee of Registrable Securities which is a permitted transferee pursuant to the applicable terms of the Operating Agreement. 2.9 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of Google or those Holders holding a majority of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are senior to, or which otherwise impair, the registration rights granted to the Holders hereunder. 2.10 Termination of Registration Rights. The right of any Holder to request registration or inclusion in any registration pursuant to Sections 2.1 or 2.2 shall terminate on the date that is the earlier of (i) four (4) years after the closing of the Company’s Initial Public Offering and (ii) the first date following the second anniversary of the closing of the Company’s Initial Public Offering on which (x) the Conversion Stock of the Company has been listed on an Eligible Exchange for two years and remains so listed and (y) the Company is eligible to use Form S-3 under the Securities Act. Section 3 Miscellaneous 3.1 Amendment. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Company and the Holders holding a majority of the Registrable Securities. Any such amendment, waiver, discharge or termination effected in accordance with this paragraph shall be binding upon each Holder and each future holder of all such Registrable Securities. 3.2 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or otherwise delivered by hand or by messenger addressed:   -15- -------------------------------------------------------------------------------- (a) if to Google, to: 1600 Amphitheater Parkway Mountain View, CA 94043 Facsimile: (650) 649-1920 Attention: David C. Drummond, Senior Vice President, Corporate Development Attention: Donald Harrison, Corporate Counsel, M&A and Securities with a copy to (which shall not constitute notice): Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, CA 94034 Facsimile: (650) 493-6811 Attention: David J. Segre (b) if to the Company, to: AOL Holdings LLC c/o AOL LLC 22000 AOL Way Dulles, VA 20166 Facsimile: (703) 265-1105 Attention: General Counsel; SVP Mergers and Acquisitions with a copy to (which shall not constitute notice): Cravath, Swaine & Moore LLP 825 Eighth Avenue New York, NY 10019 Facsimile: (212) 474-3700 Attention: Richard Hall (c) if to any Holder (other than Google), at such address or facsimile number shown in the Company’s records, or, until any such person so furnishes an address or facsimile number to the Company, then to and at the address of the last holder of such shares for which the Company has contact information in its records. Each such notice or other communication shall be deemed to have been delivered and given for all purposes (i) on the delivery date if delivered by confirmed facsimile, (ii) on the delivery date if delivered personally to the party to whom the same is directed, (iii) one (1) business day after deposit with a commercial overnight carrier, with written verification of receipt, or (iv) five (5) business days after the mailing date, whether or not actually received, if sent by U.S. mail, return receipt requested, postage and charges prepaid, or any other means of rapid mail delivery for which a receipt is available addressed to the receiving party as specified on the signature page of this Agreement. Changes of the   -16- -------------------------------------------------------------------------------- person to receive notices or the place of notification shall be effectuated pursuant to a notice given under this Section 3.2. 3.3 Governing Law. This Agreement and the rights of the parties hereto shall be interpreted in accordance with the laws of the State of New York, and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. To the fullest extent permitted by applicable law, each of the parties hereto irrevocably agrees that any legal action or proceeding arising out of this Agreement shall be brought only in the state or United States Federal courts located in the State of New York. Each party hereto irrevocably consents to the service of process outside the territorial jurisdiction of such courts in any such action or proceeding by the mailing of such documents by registered United States mail, postage prepaid, to the respective address set forth in Section 3.2. Successors and Assigns. Without the prior written consent of the Company and Holders holding a majority of the Registrable Securities, this Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by any party hereto to any third party (except as expressly permitted pursuant to Section 2.8). Any attempt by a party to assign, transfer, delegate or sublicense any rights, duties or obligations that arise under this Agreement, other than as permitted by the immediately preceding sentence, shall be void. Except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 3.4 Entire Agreement. This Agreement and the exhibits hereto and the applicable provisions set forth in the Operating Agreement constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof. No party hereto shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein. 3.5 Delays or Omissions. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 3.6 Severability. If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Agreement shall be enforceable in accordance with its terms. 3.7 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.   -17- -------------------------------------------------------------------------------- 3.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties that execute such counterparts, and all of which together shall constitute one instrument. 3.9 Telecopy Execution and Delivery. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen. Such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute and deliver an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof. 3.10 No Impairment. The Company agrees that it shall not amend its charter documents (e.g., certificate of formation, operating agreement, certificate of incorporation, bylaws) or enter into or amend any agreement if such amendment or agreement would materially impair or otherwise adversely affect the rights of the Holders pursuant to this Agreement. 3.11 Confidentiality. Each Holder expressly acknowledges that such Holder may receive confidential and proprietary information relating to the Company, including information relating to the Company’s financial condition and business plans, and that the disclosure of such confidential information to a third party would cause irreparable injury to the Company. Except with the prior written consent of the Company, no Holder shall disclose any such information to a third party (other than (i) on a “need to know” basis to any affiliate or any employee, agent, representative or contractor of such Holder or its affiliates or (ii) in connection with any disclosure made to a prospective Financial Investor transferee as defined in and in accordance with Section 7.04(b) of that certain Amended and Restated Limited Liability Company Agreement, by and among the parties hereto and certain additional persons, dated as of the date hereof (each of whom shall agree to maintain the confidentiality of such information)), and each Holder shall use reasonable efforts to preserve the confidentiality of such information. The obligations of a Holder under this Section 3.12 shall survive the termination of this Agreement or cessation of a Holder’s status as a Holder for a period of five years. Information exchanged between Holders shall be non-confidential unless exchanged pursuant to a separate confidentiality agreement executed between such Holders. Notwithstanding the foregoing, a Holder shall not be bound by the confidentiality obligations in this Section 3.12 with respect to any information that is currently or becomes: (a) required to be disclosed by such Holder pursuant to applicable law, including federal or state securities laws, or a domestic national securities exchange rule (but in each case only to the extent of such requirement); (b) required to be disclosed in order to protect such Holder’s interest in the Company or enforce Holder’s rights under this Agreement (but in each case only to the extent of such requirement and only after consultation with the Company); (c) publicly known or available in the absence of any improper or unlawful action on the part of such Holder; or (d) known or available to such Holder via legitimate means other than through or on behalf of the Company or the other Holders.   [Remainder of Page Intentionally Left Blank]   -18- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement effective as of the day and year first above written.   TIME WARNER INC. By:      Name:      Title:      “COMPANY”   AOL HOLDINGS, LLC By:      Name:      Title: Chief Executive Officer “GOOGLE”   GOOGLE, INC. By:      Name:      Title:     [SIGNATURE PAGE FOR THE REGISTRATION RIGHTS AGREEMENT]

  Exhibit 10.1 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). NO INTEREST IN THIS NOTE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT), OR (iii) AN EXEMPTION FROM REGISTRATION UNDER THE ACT WHERE THE HOLDER HAS FURNISHED TO THE PAYOR AN ACCEPTABLE OPINION OF ITS COUNSEL THAT AN EXEMPTION PROM REGISTRATION UNDER THE ACT IS AVAILABLE. ARCADIA RESOURCES, INC. PROMISSORY NOTE $21,000,000.00   November 30, 2006      FOR VALUE RECEIVED, the undersigned, Arcadia Resources, Inc., a Nevada corporation (‘Payor”), having its executive office and principal place of business at 26777 Central Park Boulevard, Suite 200, Southfield, Michigan 48076, hereby promises to pay to JANA Master Fund, Ltd. (“Payee”), having an address at 200 Park Avenue, Suite 3300, New York, NY 10166, at Payee’s address set forth above (or at such other place as Payee may from time to-time hereafter direct by notice in writing to Payor), the principal sum of TWENTY-ONE MILLION DOLLARS ($21,000,000.00), in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts in accordance with the terms hereof. 1.   Payment of Principal and Interest.   1.1   The principal amount of this Note outstanding from time to time shall bear simple interest at the annual rate (the “Note Rate”) equal to the One Year Libor Rate (as such rate is published in the Wall Street Journal) plus seven and one half percent (7.5%) from the date hereof (“Base Interest Rate”) until the entire principal balance due under this Note has been paid in full; provided, however, that in the event the entire principal balance due under this Note has not been paid in full as of January 31, 2007, the Base Interest Rate shall increase by 1% per month on the first day of each month beginning February 1, 2007, not to exceed a maximum aggregate increase of 5% in total.     1.2   The unpaid principal balance shall be due and payable on January 31, 2008 (“Maturity Date”). Accrued unpaid interest on the unpaid principal balance due under this Note at the Note Rate shall be due and payable on the following dates: December 31, 2006; March 31, 2007; June 30, 2007; September 30, 2007; December 31, 2007; and the Maturity Date.     1.3   If Payor prepays any portion of the principal amount due under this Note on or before December 30, 2006 (“Permitted Prepayment Date”), together with the unpaid interest thereon accrued through the date of such prepayment, Payor shall pay a prepayment fee equal to the One Year Libor Rate (as such rate is Page 1 of 7 --------------------------------------------------------------------------------         published in the Wall Street Journal on the date of such prepayment) plus one and one-half percent (1.5%).     1.4   All payments (including prepayments) made by the Payor on this Note shall be applied first to the payment of accrued unpaid interest on this Note and then to the reduction of the unpaid principal balance of this Note.     1.5   In the event that the date for the payment of any amount payable under this Note falls due on a Saturday, Sunday or public holiday under the laws of the State of New York, the time for payment of such amount shall be extended to the next succeeding business day and interest at the Note Rate shall continue to accrue on any principal amount so effected until the payment thereof on such extended due date. 2.   Replacement of Note.   2.1   In the event that this Note is mutilated, destroyed, lost or stolen, Payor shall, at its sole expense, execute, register and deliver a new Note, in exchange and substitution for this Note, if mutilated, or in lieu of and substitution for this Note, if destroyed, lost or stolen. In the case of destruction, loss or theft, Payee shall furnish to Payor indemnity reasonably satisfactory to Payor, and in any such case, and in the case of mutilation, Payee shall also furnish to Payor evidence to its reasonable satisfaction of the mutilation, destruction, loss or theft of this Note and of the ownership thereof. Any replacement Note so issued shall be in the same outstanding principal amount as this Note and dated the date to which interest shall have been paid on this Note or, if no interest shall have yet been paid, dated the date of this Note.     2.2   Every Note issued pursuant to the provisions of Section 2.1 above in substitution for this Note shall constitute an additional contractual obligation of the Payor, whether or not this Note shall be found at any time or be enforceable by anyone. 3.   Intentionally Omitted   4.   Covenants of Payor.       Payor, on behalf of itself and its subsidiaries, covenants and agrees that, so long as this Note remains outstanding and unpaid, in whole, or in part:   4.1   Payor and its subsidiaries will not sell, transfer or dispose of, nor permit or suffer the placement of any lien (statutory or other), priority, security interest, encumbrance or any other preferential arrangement upon, any of their material assets (including but not limited to real property and Payor’s equity interests in such subsidiaries) without obtaining Payee’s written consent, other than inventory in the ordinary course of business;     4.2   Payor shall upon Payee’s request furnish Payee with monthly financial updates;     4.3   Payor and its subsidiaries will not pay any type of bonus to senior executive Page 2 of 7 --------------------------------------------------------------------------------         officers unless Payor’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the fiscal year ending March 30, 2007 is greater than Eleven Million Dollars ($11,000,000) or Payee otherwise gives its written consent;     4.4   Payor and its subsidiaries will not engage in sale/lease back transactions wherein real or personal property of Payor or its subsidiaries is sold and then reacquired in any type of lease transaction if the aggregate amount of all such transactions would exceed Five Million Dollars ($5,000,000);     4.5   Payor and its subsidiaries will promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon any of them, their income and profits, or any of their property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided, however, that Payor or such subsidiary shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and Payor or such subsidiary, as the case may be, shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested;     4.6   Payor and its subsidiaries will do or cause to be done all things necessary to preserve and keep in full force and effect each of their corporate existence, rights and franchises and substantially comply with all laws applicable to them as their counsel may advise;     4.7   Except with respect to any debt owing to Payee or the refinancing of any existing debt of Payor and/or its subsidiaries owing to Payee, Payor and its subsidiaries will not: (i) incur any obligation for borrowed money, any obligation evidenced by bonds, notes or similar instruments (including any obligations incurred in the acquisition of property, assets or business), any reimbursement obligation, any deferred purchase price obligation, any guarantees of any such obligations, or any similar obligations (collectively, “debt”) which is senior or pari passu to the debt under this Note, or to which the debt under this Note would be structurally subordinate, if such debt together with such existing debt of Payor and its subsidiaries would exceed Twenty Five Million Dollars ($25,000,000), without Payee’s consent or (ii) incur debt junior to the debt under this Note in an aggregate amount which exceeds Twenty Five Million Dollars ($25,000,000), other than to the extent such junior debt is issued to finance acquisitions in the ordinary course of Payor or its subsidiaries’ business, without Payee’s consent;     4.8   Payor and its subsidiaries will utilize the proceeds of any sale of any of real or personal property for any of: (i) additional capital expenditures, (ii) payment of any debt which is senior to the debt under this Note, or (iii) the payment of debt arising under this Note;     4.9   Payor and its subsidiaries will not issue any form of equity or other security Page 3 of 7 --------------------------------------------------------------------------------         (other than debt) in a public or private placement capital raise without Payee’s consent;     4.10   Payor and its subsidiaries will at all times maintain, preserve, protect and keep each of their property used or useful in the conduct of business in good repair, working order and condition (except for the effects of reasonable wear and tear in the ordinary course of business) and will from time to time, make all necessary and proper repairs, renewals, replacements, betterments and improvements thereto;     4.11   Payor and its subsidiaries will keep adequately insured, by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations;     4.12   Payor will, promptly following the occurrence of an Event of Default or of any condition or event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, furnish a statement of Payor’s Chief Executive Officer or Chief Financial Officer to Payee setting forth the details of such Event of Default or condition or event and the action which Payor intends to take with respect thereto; and     4.13   Payor will, and will cause each of its subsidiaries to, at all times maintain books of account in which all of its financial transactions are duly recorded in conformance with generally accepted accounting principles. 5.   Events of Default. The following events each constitute an “Event of Default”:   5.1   The dissolution of Payor or any vote in favor thereof by the board of directors and shareholders of Payor; or     5.2   Payor makes an assignment for the benefit of creditors, or files with a court of competent jurisdiction an application for appointment of a receiver or similar official with respect to it or any substantial part of its assets, or Payor files a petition seeking relief under any provision of the Federal Bankruptcy Code or any other federal or state statute now or hereafter in effect affording relief to debtors, or any such application or petition is filed against Payor, which application or petition is not dismissed or withdrawn within sixty (60) days from the date of its filing; or     5.3   Payor fails to pay the principal amount, or interest on, or any other amount payable under this Note within five (5) days of when the same becomes due and payable; or     5.4   Payor admits in writing its inability to pay its debts as they mature; or     5.5   Payor sells all or substantially all of its assets or merges or is consolidated with or into another corporation other than a transaction whose primary purpose is to re-domicile the Payor ; or     5.6   A proceeding is commenced to foreclose a security interest or lien in any Page 4 of 7 --------------------------------------------------------------------------------         property or assets of Payor as a result of a default in the payment or performance of any debt (in excess of $350,000 and secured by such     5.7   property or assets) of Payor or of any subsidiary of Payor; or 5.7 A final judgment for the payment of money in excess of $350,000 is entered against Payor by a court of competent jurisdiction, and such judgment is not discharged (nor the discharge thereof duly provided for) in accordance with its terms, nor a stay of execution thereof procured, within sixty (60) days after the date such judgment is entered, and, within such period (or such longer period during which execution of such judgment is effectively stayed), an appeal therefrom has not been prosecuted and the execution thereof caused to be stayed during such appeal; or     5.8   An attachment or garnishment is levied against the assets or properties of Payor or any subsidiary of Payor involving an amount in excess of $350,000 and such levy is not vacated, bonded or otherwise terminated within sixty (60) days after the date of its effectiveness; or     5.9   Payor or any subsidiary defaults in the due observance or performance of any covenant, condition or agreement to be observed or performed pursuant to the terms of this Note (other than the default specified in Section 5.3 above) and such default continues uncured for a period of thirty (30) days from the date Payor receives written notice from the Payee; or     Upon the occurrence of any such Event of Default and at any time thereafter, the holder of this Note shall have the right (at such holder’s option) to declare the principal of, accrued unpaid interest on, and all other amounts payable under this Note to be forthwith due and payable, whereupon all such amounts shall be immediately due and payable to the holder of this Note, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived; provided.   6.   Suits for Enforcement and Remedies.   6.1   If any one or more Events of Default shall occur and be continuing, the Payee may proceed to (1) protect and enforce Payee’s rights either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, condition or agreement contained in this Note or in any agreement or document referred to herein or in aid of the exercise of any power granted in this Note or in any agreement or document referred to herein, (ii) enforce the payment of this Note, or (iii) enforce any other legal or equitable right of the holder of this Note. No right or remedy herein or in any other agreement or instrument conferred upon the holder of this Note is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. Page 5 of 7 --------------------------------------------------------------------------------   7.   Unconditional Obligation; Fees, Waivers, Other.   7.1   The obligation to make the payments provided for in this Note are absolute and unconditional and are not subject to any defense, set-off, counterclaim, rescission, recoupment or adjustment whatsoever.     7.2   If, following the occurrence of an Event of Default, Payee shall seek to enforce the collection of any amount of principal of and/or interest on this Note, there shall be immediately due and payable from Payor, in addition to the then unpaid principal of, and accrued unpaid interest on, this Note, all reasonable costs and expenses incurred by Payee in connection therewith, including, without limitation, reasonable attorneys’ fees and disbursements.     7.3   No forbearance, indulgence, delay or failure to exercise any right or remedy with respect to this Note shall operate as a waiver or as an acquiescence in any default, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy.     7.4   This Note may not be modified or discharged (other than by payment) except by a writing duly executed by Payor and Payee.     7.5   Payor hereby expressly waives demand and presentment for payment, notice of nonpayment, notice of dishonor, protest, notice of protest, bringing of suit, and diligence in taking any action to collect amounts called for hereunder, and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission with respect to the collection of any amount called for hereunder or in connection with any right, lien, interest or property at any and all times which Payee had or is existing as security for any amount called for hereunder. 8.   Intentionally Deleted.   9.   Intentionally Deleted.   10.   Intentionally Deleted.   11.   Miscellaneous.   11.1   The headings of the various paragraphs of this Note are for convenience of reference only and shall in no way modify any of the terms or provisions of this Note.     11.2   All notices required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when personally delivered or sent by registered or certified mail (return receipt requested, postage prepaid), facsimile transmission or overnight courier to the address of the intended recipient as set forth in the preamble to this Note or at such other address as the intended recipient shall have hereafter given to the other party hereto pursuant to the provisions of this Note. Page 6 of 7 --------------------------------------------------------------------------------     11.3   This Note and the obligations of Payor and the rights of Payee shall be governed by and construed in accordance with the substantive laws of the State of New York without giving effect to the choice of laws rules thereof.     11.4   This Note shall bind Payor and its successors and assigns.     11.5   This Note amends, supersedes and restates in its entirety that certain Note dated June 29, 2006, given by Payor to Payee, in the principal amount of $15 million (the “June 29, 2006 Note”), which June 29, 2006 Note is hereby rendered null and void.             ARCADIA RESOURCES, INC.       By:   /s/ John E. Elliott, II         John E. Elliott, II        Its: Chief Executive Officer      Accepted and Agreed to: JANA MASTER FUND, LTD. By: Its Investment Advisor, JANA Partners LLC           By:   /s/ Marc Lehmann   Marc Lehmann               Its:   Partner     Page 7 of 7

Exhibit 10.6 EMPLOYMENT AGREEMENT This Employment Agreement (the “Agreement”) is entered into as of May 15, 2006 (the “Effective Date”) between Raptor Pharmaceutical Inc., a Delaware corporation with its principal offices located at 9 Commercial Blvd., Suite 200, Novato, CA 94949 (the “Company”), and Todd C. Zankel., a resident of San Francisco, California (the “Employee”). In consideration of the promises and the terms and conditions set forth in this Agreement, the parties agree as follows: 1.            Position. During the term of this Agreement, Company will employ Employee, and Employee will serve Company in the capacity of Chief Scientific Officer. Employee will report directly to the Company's Chief Executive Officer. 2.            Duties. Employee will perform duties that are executive in nature, consistent with his title; provided, however, that the Company shall not, without Employee's express written consent, require Employee to be based anywhere other than in Marin or Sonoma County, except for required travel on the Company's business to an extent substantially consistent with travel required of persons who hold similar positions or have similar duties with the Company. 3.            Exclusive Service. Employee will devote substantially all his working time and efforts to the business and affairs of the Company. The foregoing shall not, however, preclude Employee (a) from engaging in appropriate civic, charitable or religious activities, (b) from devoting a reasonable amount of time to private investments and business interests, (c) from serving on the boards of directors or advisors of, or as a consultant to, other entities, or (d) from providing incidental assistance to family members on matters of family business, so long as the foregoing activities and service do not conflict with Employee's responsibilities to the Company.   4. Term of Employment. 4.1          Initial Term. The Company agrees to continue Employee's employment, and Employee agrees to remain in the employ of the Company, for a period of three (3) years after the Effective Date unless Employee's employment is earlier terminated pursuant to the provisions of this Agreement. 4.2          Renewal. The term of Employee's employment shall be extended automatically, without further action of either party, as of thirty three (33) months after the Effective Date and on each succeeding anniversary of that date, for terms of one (1) year, unless on or before ninety (90) days prior to the last day of the term of Employee's employment or any extension thereof, the Company or Employee shall notify the other in writing of its intention not to renew Employee's employment, in which case Employee's employment shall terminate at the end of the original term or any extension thereof. If either party notifies the other of its intention not to renew Employee's employment less than ninety (90) days prior to the end of the term of this Agreement or any extension thereof, then such termination shall be effective ninety (90) days from such notice. No notice of non-renewal may be given by either party after a renewal term has commenced. Any such renewal shall be upon such terms and conditions set forth   1   --------------------------------------------------------------------------------   herein, unless otherwise agreed between the Company and Employee. The notice of non-renewal by either party shall in no way constitute a breach of this Agreement. 4.3         Termination of Agreement. This Agreement shall terminate on the date on which all obligations of the parties hereto have been satisfied.   5. Compensation and Benefits. 5.1          Base Salary. The Company agrees to pay Employee a minimum annual salary of One hundred fifty thousand ($150,000), or in the event of any portion of a year, a pro rata amount of such annual salary. Employee's base salary shall be reviewed by the Board of Directors or for possible increases prior to the start of each fiscal year, effective at the beginning of such fiscal year. Employee's salary will be payable as earned in accordance with Company's customary payroll practice. 5.2          Cash Bonus. Employee will be eligible to receive annual and discretionary cash bonuses as determined by the Board of Directors. 5.3          Additional Benefits. Employee will be eligible to participate in Company's employee benefit plans of general application, including without limitation pension and profit-sharing plans, deferred compensation, supplemental retirement or excess-benefit plans, stock option, incentive or other bonus plans, life, health, disability, accident and dental insurance programs, 401(k) plan, paid vacations and sabbatical leave plans, and similar plans or programs, in accordance with the rules established for individual participation in any such plan. Employee shall be entitled each year to four (4) weeks leave for vacation at full pay, provided, that at the end of each year, Employee may accrue and carry over to the next succeeding year a maximum of two (2) weeks of unused vacation. Employee shall also be entitled to reasonable holidays and illness days with full pay in accordance with the Company's policy from time to time in effect. 5.4          Stock Options. Upon approval by the Board of Directors, Employee will be granted options to purchase 250,000 of the Company’s or the Company’s parent’s common stock at the closing price on the date of grant. Such stock options will vest 6/36ths on the six month anniversary of the grant date and 1/36th per month thereafter and will expire ten (10) years from date of grant. Employee will be eligible to receive future stock grants and stock option awards in the discretion of the Board of Directors. 5.5         Expenses. The Company will reimburse Employee for all reasonable and necessary expenses incurred by Employee in connection with the Company's business, provided that such expenses are in accordance with applicable policy set by the Board from time to time and are properly documented and accounted for in accordance with the policy of the Company and with the requirements of the Internal Revenue Service. 6.            Proprietary Rights. Employee hereby agrees to execute an Employee Invention Assignment and Confidentiality Agreement with the Company in substantially the form attached hereto as Exhibit A.   2   --------------------------------------------------------------------------------       7. Termination. 7.1         Events of Termination. Employee's employment with the Company shall terminate upon any one of the following: (a)          Ninety (90) days after the effective date of a written notice sent to Employee stating the Company's determination made in good faith that it is terminating Employee for “Cause” as defined under Section 7.2 below (“Termination for Cause”), provided, that if the “Cause” for termination is a curable failure by Employee to properly perform his assigned duties, then the Company will give Employee written notice of such failure (a “Cause Notice”), and if Employee failure to cure such failure to the reasonable satisfaction of the Chief Executive Officer within sixty (60) days after the Company gives the Cause Notice, then the Company may immediately terminate Employee's employment, and such termination will be conclusively deemed to be for “cause” hereunder; or (b)          thirty (30) days after the effective date of a written notice sent to Employee stating the Company's determination made in good faith that, due to a mental or physical incapacity, Employee has been unable to perform his duties under this Agreement for a period of not less than six (6) consecutive months or 180 days in the aggregate in any 12-month period unless Employee has been on a leave approved by the Company’s Chief Executive Officer (“Termination for Disability”); or   (c) Employee's death (“Termination Upon Death”); or (d)          the effective date of a written notice sent to the Company stating Employee's determination made in good faith of “Constructive Termination” by the Company, as defined under Section 7.3 below (“Constructive Termination”); or (e)          thirty (30) days after the effective date of a notice sent to Employee stating that the Company is terminating his employment, without cause, which notice can be given by the Company at any time after the Effective Date at the Company's sole discretion, for any reason or for no reason (“Termination Without Cause”); or (f)           the effective date of a notice sent to the Company from Employee stating that Employee is electing to terminate his employment with the Company (“Voluntary Termination”). 7.2          “Cause” Defined. For purposes of this Agreement, “cause” for Employee's termination means Employee's conviction of a felony involving moral turpitude and will exist at any time after the happening of one or more of the following events: (a)          any willful act or acts of dishonesty undertaken by Employee and intended to result in substantial gain or personal enrichment of Employee at the expense of the Company; or (b)          any willful act of gross misconduct which is materially and demonstrably injurious to the Company.   3   --------------------------------------------------------------------------------     No act, or failure to act, by Employee shall be considered “willful” if done, or omitted to be done, by him in good faith and in the reasonable belief that his act or omission was in the best interest of the Company and/or required by applicable law. 7.3          “Constructive Termination” Defined. “Constructive Termination” shall mean: (a)          a material reduction in Employee's salary or benefits not agreed to by Employee; or (b)          a material change in Employee's responsibilities not agreed to by Employee; or (c)          the Company's failure to comply in any material respect with any material term of this Agreement; or (d)          a requirement that Employee relocate to an office that would increase Employee's one-way commute distance by more than fifty (50) miles; or (e)          a “Change in Control” of the Company, as defined herein. A “Change in Control” means the occurrence of any of the following events: (i) any sale or exchange of the capital stock by the stockholders of the Company in one transaction or series of related transactions where more than fifty percent (50%) of the outstanding voting power of the Company is acquired by a person or entity or group of related persons or entities; or (ii) any reorganization, consolidation or merger of the Company where the outstanding voting securities of the Company immediately before the transaction represent or are converted into less than fifty percent (50%) of the outstanding voting power of the surviving entity (or its parent corporation) immediately after the transaction; or (iii) the consummation of any transaction or series of related transactions that results in the sale of all or substantially all of the assets of the Company; or (iv) any “person” or “group” (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) becoming the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly of securities representing more than fifty percent (50%) of the voting power of the Company then outstanding; or (v) less than a majority of the Board of Directors are persons who were either nominated for election by the Board of Directors or were elected by the Board of Directors. A “change of control” will specifically exclude the Company’s initial stock for stock exchange with Highland Clan Creations Corp. expected to occur in May 2006.   8. Effect of Termination. 8.1         Termination for Cause or Voluntary Termination. In the event of any termination of Employee's employment pursuant to Section 7.1(a) or Section 7.1(f), the Company shall immediately pay to Employee the compensation and benefits otherwise payable to Employee under Section 5 through the date of termination. Employee's rights under the Company's benefit plans of general application shall be determined under the provisions of those plans. 8.2         Termination for Disability. In the event of termination of employment pursuant to Section 7.1(b):   4   --------------------------------------------------------------------------------     (a)          the Company shall immediately pay to Employee the compensation and benefits otherwise payable to Employee under Section 5 through the date of termination, (b)          for three (3) months after the termination of Employee's employment, the Company shall continue to pay Employee (A) his salary under Section 5.1 above at Employee's then-current salary, less applicable withholding taxes, payable on the Company's normal payroll dates during that period, (B) his annual cash bonus pro rata for three (3) months under Section 5.2 above, (C) shall continue his benefits under Section 5.3 above, and (D) Employee’s options under section 5.4 shall continue to vest for three months after termination, and (c)          Employee shall receive other severance and disability payments as provided in the Company's standard benefit plans. Within thirty (30) days of the Effective Date, the Company will procure disability insurance sufficient to fund its obligations to Employee hereunder, naming the Employee as payee. The Company shall maintain such insurance in force at all times that Employee is employed pursuant to this Agreement. 8.3         Termination Upon Death. In the event of termination of employment pursuant to Section 7.1(c), all obligations of the Company and Employee shall cease, except the Company shall immediately pay to Employee (or to Employee's estate) the compensation and benefits otherwise payable to Employee under Section 5 through the date of termination. 8.4          Constructive Termination or Termination Without Cause. In the event of any termination of this Agreement pursuant to Section 7.1(d) or Section 7.1(e), (a)          the Company shall immediately pay to Employee the compensation and benefits otherwise payable to Employee under Section 5 through the date of termination, and (b)          for twelve (12) months after the termination of Employee's employment, the Company shall continue to pay Employee (A) his salary under Section 5.1 above at Employee's then-current salary, less applicable withholding taxes, payable on the Company's normal payroll dates during that period, (B) his annual cash bonus under Section 5.2 above, and (C) shall continue his benefits under Section 5.3 above, and (c)          If the termination occurs after a Change in Control, then in addition to the foregoing benefits, all of Employee's vested and unvested options to purchase the Company's or the Company’s parent’s Common Stock shall, as of the date of employment termination, be immediately exercisable in full and shall remain exercisable for the periods specified in such options or the plans governing such options, and all shares of the Company's or the Company’s parent’s Common Stock owned by Employee shall immediately be released from any and all vesting restrictions, and Company shall pay Employee in a lump sum, in cash, on or before the fifth business day following the effective date of termination, an amount equal to Employee's salary for one year at the time of termination; provided, that if the total amount of the benefits available to Employee under this Section 8.4, either alone or together with other payments which Employee has the right to receive from the Company, would constitute a   5   --------------------------------------------------------------------------------   “parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), then the Company shall pay to Employee at the time of termination an additional amount such that the net amount retained by Employee, after deduction of the excise tax imposed by Section 4999 of the Code and any federal, state and local income tax and excise tax imposed on such additional amount, shall be equal to the amount payable to the Employee under this Section 8.4 as originally determined prior to the deduction of the excise tax.   9. Miscellaneous.     9.1 Dispute Resolution. (a)          Arbitration of Disputes. Any dispute under this Agreement shall be resolved by arbitration in the State of California, Sonoma County, and, except as herein specifically stated, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA Rules”) then in effect. However, in all events, these arbitration provisions shall govern over any conflicting rules which may now or hereafter be contained in the AAA Rules. Any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction over the subject matter thereof. The arbitrator shall have the authority to grant any equitable and legal remedies that would be available in any judicial proceeding instituted to resolve such dispute; provided, however, that the parties retain their right to, and shall not be prohibited, limited or in any other way restricted from, seeking or obtaining equitable relief from a court having jurisdiction over the parties. (b)          Compensation of Arbitrator. Any such arbitration will be conducted before a single neutral arbitrator who will be compensated for his or his services at a rate to be determined by the parties or by the American Arbitration Association, but based upon reasonable hourly or daily consulting rates for the arbitrator in the event the parties are not able to agree upon his or his rate of compensation. (c)          Selection of Arbitrator. The American Arbitration Association will have the authority to select an arbitrator from a list of arbitrators who are partners in a nationally recognized firm of independent certified public accountants from the management advisory services department (or comparable department or group) of such firm; provided, however, that such firm cannot be the firm of certified public accountants then auditing the books and records of either party or providing management or advisory services for either party. (d)          Payment of Costs. Employee shall bear only those costs of arbitration he or she would otherwise bear had he or she brought a claim covered by this Agreement in court. (e)          Burden of Proof. For any dispute submitted to arbitration, the burden of proof will be as it would be if the claim were litigated in a judicial proceeding. (f)           Award. Upon the conclusion of any arbitration proceedings hereunder, the arbitrator will render findings of fact and conclusions of law and a written opinion setting forth the basis and reasons for any decision reached and will deliver such documents to each party to this Agreement along with a signed copy of the award.   6   --------------------------------------------------------------------------------     (g)          Terms of Arbitration. The arbitrator chosen in accordance with these provisions will not have the power to alter, amend or otherwise affect the terms of these arbitration provisions or the provisions of this Agreement. (h)          Exclusive Remedy. Except as specifically otherwise provided in this Agreement, arbitration will be the sole and exclusive remedy of the parties for any dispute arising out of this Agreement. 9.2          Severability. If any provision of this Agreement shall be found by any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such arbitrator or court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect. 9.3          No Waiver. The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced. 9.4          Assignment. This Agreement and all rights hereunder are personal to Employee and may not be transferred or assigned by Employee at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided, however, that any such assignee assumes the Company's obligations hereunder. 9.5         Withholding. All sums payable to Employee hereunder shall be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law. 9.6         Entire Agreement. This Agreement constitutes the entire and only agreement and understanding between the parties relating to employment of Employee with Company and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings with respect to Employee's employment; except that the Employee Invention Assignment and Confidentiality Agreement shall remain as an independent contract and shall remain in full force and effect according to its terms. 9.7          Amendment. This Agreement may be amended, modified, superseded, cancelled, renewed or extended only by an agreement in writing executed by both parties hereto. 9.8          Notices. All notices and other communications required or permitted under this Agreement shall be in writing and hand delivered, sent by telecopier, sent by registered first class mail, postage pre-paid, or sent by nationally recognized express courier   7   --------------------------------------------------------------------------------   service. Such notices and other communications shall be effective upon receipt if hand delivered or sent by telecopier, five (5) days after mailing if sent by mail, and one (l) day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party shall notify the other parties:   If to the Company: Raptor Pharmaceutical Inc. 9 Commercial Blvd., Suite 200 Novato, CA 94949     Telecopier: 415-382-1368   Attention: Christopher M. Starr, Ph.D. Chief Executive Officer     If to Employee: Todd C. Zankel, Ph.D. 6930 California Street San Francisco, CA 94121   Telecopier: N/A 9.9          Binding Nature. This Agreement shall be binding upon, and inure to the benefit of, the successors and personal representatives of the respective parties hereto. 9.10       Headings. The headings contained in this Agreement are for reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, the singular includes the plural, the plural included the singular, the masculine gender includes both male and female referents and the word “or” is used in the inclusive sense. 9.11       Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement. 9.12        Governing Law. This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws. 9.13       Attorneys' Fees. In the event of any claim, demand or suit arising out of or with respect to this Agreement, the prevailing party shall be entitled to reasonable costs and attorneys' fees, including any such costs and fees upon appeal. IN WITNESS WHEREOF, the Company and Employee have executed this Agreement as of the date first above written. Raptor Pharmaceutical Inc. Todd C. Zankel, Ph.D.                                                                               By: Christopher M. Starr, Ph.D.     Chief Executive Officer       8      

EXHIBIT 10.85.12 TWELFTH AMENDMENT TO CREDIT AGREEMENT Dated as of July 14, 2006 This TWELFTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is among MICROSEMI CORPORATION, a Delaware corporation (the “Borrower”), the several financial institutions party to the Credit Agreement referred to below (collectively, the “Lenders”; individually, a “Lender”), and COMERICA BANK, as administrative agent for the Lenders (the “Administrative Agent”). PRELIMINARY STATEMENTS: (1) The Borrower, the Lenders and the Administrative Agent have entered into that certain Credit Agreement dated as of April 2, 1999, as amended by the First Amendment to Credit Agreement dated as of June 25, 1999, the Second Amendment to Credit Agreement dated as of February 14, 2000, the Third Amendment to Credit Agreement dated as of April 2, 2001, the Fourth Amendment to Credit Agreement dated as of May 25, 2002, the Fifth Amendment to Credit Agreement dated as of December 5, 2002, the Sixth Amendment to Credit Agreement dated as of December 10, 2003, the Seventh Amendment to Credit Agreement dated as of March 31, 2004, the Eighth Amendment to Credit Agreement dated as of March 31, 2004, the Ninth Amendment to Credit Agreement dated as of March 29, 2005, the Tenth Amendment to Credit Agreement dated as of June 1, 2006, and the Eleventh Amendment to Credit Agreement dated as of June 28, 2006 (as so amended the “Credit Agreement”; capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the Credit Agreement). (2) The Borrower has requested that the Administrative Agent and the Lenders make certain amendments to the Credit Agreement. (3) The Administrative Agent and the Lenders are, on the terms and conditions stated below, willing to grant the request of the Borrower. NOW, THEREFORE in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as: follows: 1. Amendment to Credit Agreement. Effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, the Credit Agreement is hereby amended as follows: (a) Schedule 6.8 (Existing Subsidiaries) is amended to be in the form of Amended Schedule 6.8 attached hereto. 2. Conditions to Effectiveness. The amendment in Section 1 of this Amendment shall be effective as of the date hereof, subject to the Administrative Agent’s receipt of the following on or before July 31, 2006: (a) counterparts of this Amendment executed by the Administrative Agent, the Borrower and all Lenders; (b) a Fourth Amendment to Guaranty and a Fourth Amendment to Security Agreement; (c) a Consent of Guarantors, in form and substance satisfactory to the Agent, duly executed by each Guarantor; and (d) such other documentation as the Administrative Agent or any Lender shall reasonably request. -------------------------------------------------------------------------------- 3. Representations and Warranties. The Borrower represents and warrants as follows: (a) Authority; Enforceability. The Borrower has the requisite corporate power and authority to execute, deliver and perform this Amendment, and to perform its obligations under the Credit Agreement as amended hereby. The execution, delivery and performance by the Borrower of this Amendment, and the consummation of the transactions contemplated hereby, have been duly approved by the Board of Directors of the Borrower and no other corporate proceedings on the part of the Borrower are necessary to consummate such transactions. This Amendment has been duly executed and delivered by the Borrower. Each of this Amendment and the Credit Agreement as amended hereby constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms. (b) Loan Document Representations and Warranties. The representations and warranties contained in each Loan Document are true and correct on and as of the date hereof, before and after giving effect to this Amendment, as though made on and as of such date (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date). (c) Absence of Default. No event has occurred and is continuing, or would result from the effectiveness of this Amendment, that constitutes a Default. 4. Reference to and Effect on the Loan Documents. (a) Upon and after the effectiveness of this Amendment, 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 and amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents 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 shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by facsimile shall be effective as delivery of a manually executed account of this Amendment. [end of Amendment; signature page follows] -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Twelfth Amendment to Credit Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.   COMERICA BANK, as Administrative Agent By:   /s/ Jennifer S. Seto Name:   Jennifer S. Seto Title:   V.P. Address:   Comerica Bank     500 North State College Boulevard     Suite 570     Orange, CA 92868     Telephone: 714-940-6767     Facsimile: 714-940-6719     Attention: Jennifer S. Seto COMERICA BANK, as a Lender By:   /s/ Jennifer S. Seto Name:   Jennifer S. Seto Title:   V.P. Address:   Comerica Bank     500 North State College Boulevard     Suite 570     Orange, CA 92868     Telephone: 714-940-6767     Facsimile: 714-940-6719     Attention: Jennifer S. Seto   This Amendment is approved and accepted as of the date first above written MICROSEMI CORPORATION By:   /s/ David R. Sonksen Name:   David R. Sonksen Title:   Executive V.P., C.F.O., Treasurer and Secretary -------------------------------------------------------------------------------- Amended Schedule 6.8 MICROSEMI CORP. – INTEGRATED PRODUCTS MICROSEMI CORP. – SCOTTSDALE MICROSEMI CORP. – MASSACHUSETTS MICROSEMI CORP. – COLORADO MICROSEMIC CORP. – SANTA ANA MICROSEMI CORP. – POWER PRODUCTS GROUP (f/k/a Advanced Power Technology, Inc.) MICROSEMI CORP. – ADVANCED TECHNOLOGY CENTER (f/k/a Advanced Power Technology Colorado, Inc.) MICROSEMI CORP. – MONTOGMERYVILLE (f/k/a Advanced Power Technology RF – Pennsylvania, Inc.) MICROSEMI CORP. – RF POWER PRODUCTS (f/k/a Advanced Power Technology RF, Inc.) MICROSEMI RF PRODUCTS, INC. MICROSEMI REAL ESTATE, INC. MICRO WAVESYS, INC.

Exhibit 10.1 THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “1933 ACT”) NOR REGISTERED UNDER ANY STATE SECURITIES LAWS AND ARE “RESTRICTED SECURITIES” AS THAT TERM IS DEFINED IN RULE 144, UNDER THE 1933 ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.   AGREEMENT FOR THE EXCHANGE OF COMMON STOCK Agreement made this 5th day of April, 2006, by and between Greens Worldwide, Incorporated, an Arizona corporation, OTCBB GRWW (the “Issuer”) and Still Moving, Inc., a Florida corporation (the “Company”), and the shareholder of Company, (the “Shareholder”). In consideration of the mutual promises, covenants, and representations contained herein, and other good and valuable consideration, THE PARTIES HERETO AGREE AS FOLLOWS: 1. TERMS.   Subject to the terms and conditions of this Agreement, the Issuer agrees: i. that the total common shares issued and outstanding of the Issuer at Closing shall be approximately Seventeen Million Five Hundred Thousand (17,500,000).   ii. that the Issuer at Closing shall transfer to the Shareholder, shares of common stock of Issuer, no par value, in exchange for 100% of the issued and outstanding shares of Company, such that Company shall become a wholly owned subsidiary of the Issuer. The number of shares of Issuer to be issued to shareholders shall be computed by dividing the average thirty day closing price of Issuer’s stock prior to closing into the purchase price of One Hundred Fifty Thousand Dollars ($150,000). Shareholder shall also be entitled to an earn out of additional common stock of Issuer as follows: If company achieves $500,000 in revenue and positive EBITDA for 2006, then shareholder shall be entitled to an additional $100,000 in common stock of Issuer according to the same method for determining shares as set forth above; if company achieves $1 million in revenue and positive EBITDA for 2007, the shareholder shall be entitled to an additional $250,000 in common stock of Issuer according to the same method for determining shares as set forth above: if Company achieves $2 million in revenue and positive EBITDA for 2008, then shareholder shall receive an additional $250,000 in common stock of the Issuer according to the same method for determining shares as set forth above.  EBITDA is defined as (Earnings Before Interest, Taxes, Depreciation and Amortization). However, once an earn out is obtained on each increment of revenue and EBITDA, it is not cumulative and carried forward.  Upon attainment of the earn out milestones within the prescribed time periods, the shareholder will be entitled to an additional number of shares of Issuer computed by dividing the average thirty day closing share price of Issuer prior to 12-31 of each year into the amount of the earn out as set forth above. 1 -------------------------------------------------------------------------------- iii. that the Issuer requires the Company to   a) Provide compiled financial statements to the Issuer’s auditor, Most and Company, LLC New York, at Closing and to engage Most and Company, LLC to complete an audit of the Company’s books and records. b) Agree to the announcement of the transaction with the SEC on form 8K within four days of the execution of this definitive agreement and within 4 days of the Closing if required. iv. that this transaction is subject to delivery by the Issuer, Company and Shareholder of all required documents and financial statements pre and post closing to effectuate the transaction.   v.  that Issuer and Company shall take all necessary corporate actions so that at closing, all actions required of Issuer and Company will be in accordance with the Bylaws of Issuer. 2. REPRESENTATIONS  OF ISSUER  Issuer is in good standing under the laws of Arizona, and has all necessary corporate powers to own properties and carry on a business, and is duly qualified to do business and is in good standing in Arizona.  All actions taken by the incorporators, directors and shareholders of Issuer have been valid and in accordance with the laws of the State of Arizona. i. Capital.  The authorized capital stock of Issuer consists of Fifty Million (50,000,000) shares of common stock, no par value of which approximately Seventeen Million Five Hundred Thousand (17,500,000) Shares are issued and outstanding, and Five Million (5,000,000) preferred shares, par value $10, of which none are issued and outstanding. All outstanding shares are fully paid and non-assessable, free of pre-emptive rights.  At the Closing, there will be no outstanding subscriptions, options, rights, warrants, convertible securities, or other agreements or commitments obligating Issuer to issue or to transfer from treasury any additional shares of its capital stock. ii. SEC Reports.  Issuer has filed all required forms, reports, statements, schedules and other documents with the Securities and Exchange Commission (“SEC”) since June 30, 2005 (collectively, the “Issuer SEC Reports”). The financial statements, including all related notes and schedules, contained in the Issuer SEC Reports (or incorporated by reference therein) fairly present the consolidated financial position of Issuer as at the respective dates thereof and the consolidated results of operations and cash flows of Issuer for the periods indicated in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved (except for changes in accounting principles disclosed in the notes thereto) and subject in the case of interim financial statements to normal year-end adjustments and the absence of notes.  For purposes of this Agreement, the balance sheet of Issuer as of September 30, 2005, is referred to as the “Issuer Balance Sheet” and the date thereof is referred to as the “Issuer Balance Sheet Date”. iii. Absence of Changes.  Since the Issuer Balance Sheet Date, there has not been any change in the financial condition or operations of Issuer, except changes in the ordinary course of business, which changes have not in the aggregate been materially adverse to Issuer. 2 -------------------------------------------------------------------------------- iv. Liabilities.  Issuer does not have any debt, liability, or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected on the Issuers Balance Sheet.  Issuer is not aware of any pending, threatened, or asserted claims, lawsuits or contingencies involving Issuer or its common stock.  There is no material dispute of any kind between Issuer and any third party, and no such dispute will exist at Closing not fully disclosed to Company.   v. Ability to Carry Out Obligations.  Issuer has the right, power, and authority to enter into and perform its obligations under this Agreement. The execution and delivery of this Agreement by Issuer and the performance by Issuer of its obligations hereunder will not cause, constitute, or conflict with or result in (a) any breach or violation or any of the provisions of or constitute a default under any license, indenture, mortgage, charter, instrument, articles of incorporation, bylaw, or other agreement or instrument to which Issuer is a party, or by which it may be bound, nor will any consents or authorizations of any party other than those hereto be required, (b) an event that would cause Issuer to be liable to any party, or (c) an event that would result in the creation or imposition of any lien, charge, encumbrance on any asset of Issuer. vi. Full Disclosure.  None of the representations and warranties made by the Issuer in this Agreement, contains any untrue statement of a material fact, or omit any material fact the omission of which would be misleading. vii. Contract and Leases.  Issuer is currently carrying on its business and is not a party to contracts, agreements, or lease other than those items disclosed on the Issuer Balance Sheet. No person holds a power of attorney from Issuer. viii. Compliance with Laws.  To the best of its knowledge, Issuer has complied with all federal, state, and local statutes, laws, and regulations pertaining to Issuer.  To the best of its knowledge, Issuer has complied with all federal and state securities laws in connection with the issuance, sale, and distribution of its securities. ix. Litigation.  Issuer is not (and has not been), except as disclosed in the Issuers SEC filings, a party to any suit, action, arbitration, or legal, administrative, or other proceeding, or pending governmental investigation. To the best knowledge of the Issuer, there is no basis for any such action or proceeding and no such action or proceeding is threatened against Issuer, and Issuer is not subject to or in default with respect to any order, writ, injunction, or decree of any federal, state, local, or foreign court, department, agency, or instrumentality. x. Conduct of Business.  From the Issuer Balance Sheet Date to the Closing, Issuer has conducted its business in the normal course, and has not (1) sold, pledged, or assigned any assets, other than in the ordinary course of business; (2) amended its Certificate of Incorporation or ByLaws; (3) declared dividends;  (4) redeemed or sold stock or other securities; (5) incurred any liabilities, other than in the ordinary course of business; (6) acquired or disposed of any assets, other than in the ordinary course of business; (7) entered into any contract, other than in the ordinary course of business; (8) guaranteed obligations of any third party; or (9) entered into any other transaction, other than in the ordinary course of business. 3 -------------------------------------------------------------------------------- xi. Documents.  All minutes, consents, or other documents pertaining to Issuer to be delivered at Closing shall be valid and in accordance with the laws of the State of Arizona. xii. Title.  At the Closing all shares issued to Shareholders shall be non-assessable; and (ii) free and clear of all liens, security interests, pledges, charges, claims, encumbrances and restrictions of any kind, except as otherwise created by Company and except as pursuant to the Pledge Agreement.  There is no applicable local, state, or federal law, rule, regulation, or decree which would, as a result of the issuance of the Shares to Shareholders, impair, restrict, or delay Shareholders voting rights with respect to the Issuer Shares. xiii. Brokers.  Issuer has not retained any Broker or finder to which compensation would be due in connection with this transaction. 3. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company represents and warrants to Issuer the following: i. Organization.  The Company is a corporation duly organized, validly existing, and in good standing under the laws of Florida, and it has all necessary corporate powers to own properties and carry on a business, and is duly qualified to do business and is in good standing in the jurisdictions where qualification is required.  All actions taken by the incorporators, directors, and stockholders of Company have been valid and in accordance with the laws of the State of Florida. ii. Capital.  The authorized capital stock of Company consists of (1000) shares of common stock, $1.00 par value, of which (1000) shares are issued and outstanding (the “Shares”).  The Shareholder is the sole record and beneficial owner of the Shares and has sole management and dispositive power over the Shares.  The Shares were validly issued and are fully paid, non-assessable and free of pre-emptive rights.  At Closing, there will be no outstanding subscriptions, options, rights, warrants, convertible securities, or other agreements or commitments obligating the Company to issue or to transfer from treasury any additional shares of its capital stock. iii. Financial Statements.   Within 4 days days of the Closing, Company shall engage, Most and Company, LLC, New York, an auditor practicing before the SEC, to audit the books and records of the Company. Company warrants and represents that the audit will be completed within 60 days of the Closing, and that the appropriate filings with the SEC shall be completed no later than 75 days after the Closing. iv. Absence of Changes.  Since December 31, 2005, there has not been any change in the financial condition or operations of Company, except changes in the ordinary course of business. v. Liabilities.  Company does not have any debt, liability, or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether  due or to become due, that is not reflected on the Financial Statement attached as Exhibit A to this Agreement.  Company is not aware of any pending, threatened, or asserted claims, lawsuits or contingencies involving its capital stock.   4 -------------------------------------------------------------------------------- vi. Ability to Carry Out Obligations.  Company has the right, power, and authority to enter into and perform its obligations under this Agreement.  The execution and delivery of this Agreement by Company and the performance by Company of its obligations hereunder will not cause, constitute, or conflict with or result in (a) any breach of violation or any of the provisions of or constitute a default under any license, indenture, mortgage, charter, instrument, articles of incorporation, bylaw, or other agreement or instrument to which Company is a party, or by which either of them may be bound, nor will any consents or authorizations of any party other than those hereto be required; (b) an event that would cause Company to be liable to any party; or (c) an event that would result in the creation or imposition of any lien, charge, encumbrance on any asset of Company. vii. Full Disclosure.  None of the representations and warranties made by Company herein contains any untrue statement of a material fact, or omits any material fact the omission of which would be misleading. viii. Compliance with Laws.  Company has complied with, and is not in violation of any federal, state, or local statute, law, and/or regulation pertaining to them.  Company has complied with all federal and state securities laws in connection with the issuance, sale, and distribution of its securities. ix. Litigation.  Company is not (and has never been) a party to any suit, action, arbitration, or legal, administrative, or other proceeding, or pending governmental investigation.  To the best knowledge of Company, there is no basis for any such action or proceeding and no such action or proceeding is threatened against Company, and Company is not subject to or in default with respect to any order, wit, injunction, or decree of any federal, state, local, or foreign court, department, agency, or instrumentality. x. Conduct of Business.  From December 31, 2005, to the Closing Date, Company has conducted its business in the normal course, and has not (1) sold, pledged, or assigned any assets other than in the ordinary course of business; (2) amended its Certificate of Incorporation or Bylaws; (3) declared dividends; (4) redeemed or sold stock or other securities except in the ordinary course of business; (5) incurred any liabilities not in the ordinary course of business; (6) acquired or disposed of any assets other than in the ordinary course of business; (7) entered into any contract other than in the ordinary course of business; (8) guaranteed obligations of any third party; or (9) entered into any other transactions other than in the ordinary course of business. xi. Documents.  All minutes, consents, or other documents pertaining to Company and to be delivered by Company to Issuer, are true, complete, and correct, and are valid and in accordance with applicable law. 5 -------------------------------------------------------------------------------- xii. Title.  The Shares to be delivered to Issuer will be, at closing, free and clear of all liens, security interests, pledges, charges, claims, encumbrances and restrictions of any kind.  None of the Shares are subject to any voting trust or agreement.  No person holds or has the right to receive any proxy or similar instrument with respect to the Shares, except as provided in this Agreement.  Company is not a party to any agreement that offers or grants to any person the right to purchase or acquire any of the Shares.  There is no applicable local, state, or federal law, rule, regulation, or decree which would, as a result of the transfer of the Shares to Issuer, impair, restrict, or delay Issuer’s voting rights with respect to the Shares. xiii. Counsel.  Company and Shareholder represent and warrant that prior to Closing, that they are represented by independent counsel or have had the opportunity to retain independent counsel to represent them in this transaction and that prior to Closing, Counsel for the Company and Shareholder have not represented either the Issuer or Issuer’s stockholders in any manner whatsoever known to the Company. xiv. Brokers.  Company and/or Shareholder have not retained any broker for which fees would become due as a result of this transaction. xv. Conflicts of Interests of Issuer  Company and Shareholder have reviewed and understand the conflicts of interests, if any, between the Issuer and its officers and directors as disclosed in the Issuers filings with the SEC.     4. INVESTMENT INTENT.   i. Restricted Shares.  Shareholder understands that (A) the Issuer Shares Shareholder is receiving from Issuer under this Agreement have not been registered under the Securities Act of 1933, as amended (“the Act”) or the securities laws of any state, based upon an exemption from such registration requirements pursuant to Section 4(2) of the Act; (B) the Issuer Shares are and will be “restricted securities”, as said term is defined in Rule 144 of the Rules and Regulations promulgated under the Act; and (C) the Issuer Shares may not be sold or otherwise transferred unless exemptions from such registration provisions are available with respect to said resale or transfer or the shares have been registered under the Act. ii. Transferability.  Shareholder will not sell or otherwise transfer any of the Issuer Shares, any interest therein except as pursuant to the Pledge Agreement, unless and until (A) the Issuer Shares shall have first been registered under the Act and/or all applicable state securities laws; or (B) Shareholder shall have first delivered to Issuer a written opinion of counsel, which counsel and opinion (in form and substance) shall be reasonably satisfactory to Issuer, to the extent that the proposed sale or transfer is exempt from the registration provisions of the Act and all applicable state securities laws. iii. Investment Intent.  Shareholder is acquiring the Issuer Shares for Investment purposes only, without a view for resale or distribution thereof. iv. Legend.  Shareholder understands that the certificate representing the Issuer Shares will bear the following legend: 6 -------------------------------------------------------------------------------- The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred, further pledged, hypothecated or otherwise disposed of in absence of (i) an effective registration statement for such securities under said Act or (ii) an opinion of company counsel that such registration is not required. 5. Closing.  The Closing of the share exchange and the transactions contemplated by this Agreement (the “Closing”) shall be subject to and wholly conditioned upon the completion of due diligence and the delivery of all documentation required to close this transaction, but in no event later than April 15, 2006.  Closing of this transaction is subject to the complete delivery of all documentation necessary to effect this transaction including verification that Company is a C corporation for tax reporting purposes.   6. Documents to be Delivered at Closing. i. By Issuer: (1) Resolution of the Board of Directors authorizing the issuance of a certificate for the number of shares to be delivered to Shareholder pursuant to Schedule 6(i)(1). (2) Schedule for the number of Issuer shares registered in the name of Shareholder pursuant to schedule 6(i)(1). (3) Certificate for the number of Issuer shares registered in the name of shareholder pursuant to Schedule 6(i)(1). (4) Such other resolutions of Issuer’s stockholders and/or directors as may reasonably be required by Company and Shareholder. (5) Such other agreements relating to the transaction as may reasonably be required by the Company or Shareholder. (6) Certificate of Good Standing from the State of Arizona. (7) Copy of the 8K to be filed with the SEC, if applicable. (8) Copy of a draft press release for review and approval. (9) Employment agreement between the Company and Richard W. Hall, Jr. ii. By Company and Shareholder: (1) Delivery to the Issuer, certificates evidencing the Shares, and such stock powers as are required in order to transfer to Issuer good and marketable title to the Shares. (2) Resolution by the Board of Directors approving the transaction. 7 -------------------------------------------------------------------------------- (3) Copies of the business and corporate records of Company, including but not limited to correspondence files, bank statements, checkbooks, savings account books, minutes of stockholder and directors meetings, corporate bylaws, financial statements, stockholder listings, stock transfer records, agreements, and contracts and any and all other information required and utilized in the operation of the business. (4) A certificate of good standing from the State of Florida. (5) Such other resolutions of Company and Shareholder and/or directors as may reasonably be required by Issuer. (6) Such other agreements relating to the transaction as may reasonably be required by the Issuer. (7) Evidence of the Company’s tax reporting status as a C corporation. 7. ARBITRATION.  Any controversy or claim arising out of, or relating to, this Agreement, or the making, performance, or interpretation thereof, shall be settled by arbitration in Phoenix, Arizona, in accordance with the Commercial Rules of the American Arbitration Association then existing.  The arbitrator assigned shall have authority and power to decide all arbitratible issues.  Judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter of the controversy. The prevailing party in such claim or controversy shall be entitled to recover all costs and expenses of such claim or controversy, including attorney’s fees from the non-prevailing party. 8. POST-CLOSING AGREEMENTS. i. Further Assurances.  The parties shall execute such further documents and perform such further acts, as may be necessary to effect the transactions contemplated hereby, on the terms herein contained and otherwise to comply with the terms of this Agreement, provided, that, except as contemplated by this Agreement, no party shall be required to waive any right or incur an obligation in connection therewith. ii. Indemnification of Directors and Officers.  For at least seven (7) years after the Closing Date, Issuer shall (a) maintain in effect the current provisions regarding the indemnification of officers and directors contained in Issuer’s Certificate of Incorporation and Bylaws; provided, however, Issuer may adopt new indemnification provisions no less favorable than the current provisions as to the persons who served as directors and officers of Issuer prior to the Closing Date; and (b) indemnify the persons who served as directors and officers of Issuer prior to the Closing Date to the fullest extent to which Issuer is permitted to indemnify such officers and directors under its Certificate of Incorporation and ByLaws and applicable law as in effect immediately prior to the Closing Date. 8 -------------------------------------------------------------------------------- iii. Press Release Issuer and Shareholder agree that no public announcement of the specifics of this transaction or a disclosure of the parties to this agreement will be made until the 8K filing with the SEC is completed and on record if applicable, or until the Issuer has authorized the release. The parties hereto agree that they will take steps to insure that this provision is adhered to by Issuer and Shareholders principals, employees, agents and representatives. 9. MISCELLANEOUS. i. Captions and Headings.  The headings throughout this Agreement are for convenience and reference only, and shall in no way be deemed to define, limit, or add to the meaning of any provision of this Agreement. ii. No Oral Change.  This Agreement and any provision hereof may not be waived, changed, modified, or discharged orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. iii. Non Waiver.  Except as otherwise expressly provided herein, no waiver of any covenant, condition, or provision of this Agreement shall be deemed to have been made unless expressly in writing and signed by the party against whom such waiver is charged; and (1) the failure of any party to insist in any one or more cases upon the performance of any of the provisions, covenants, or conditions of this Agreement or to exercise any option herein contained shall not be construed as a waiver or relinquishment for the future of any such provisions, covenants, or conditions; (2) the acceptance of performance of any thing required by this Agreement to be performed with knowledge of the breach or failure of a covenant, condition, or provision hereof shall not be deemed a waiver of such breach or failure; and (3) no waiver of any party of one breach by another party shall be construed as a waiver with respect to any subsequent breach. iv. Time of Essence.  Time is of the essence of this Agreement and of each and every provision hereof. v. Entire Agreement.  This Agreement contains the entire Agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings. vii. Notices.  All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the third 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, and by fax, as follows: Issuer: Attention:  R. Thomas Kidd, CEO Greens Worldwide Incorporated 346 Woodland Church Road Hertford, NC 27944 Company and Shareholder: Richard W. Hall, Jr., President 219 Lookout Drive Apollo Beach, Florida 33572 9 -------------------------------------------------------------------------------- vi. Counterparts.  This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned has executed this Agreement this 5th day of April, 2006.                                                                                   Greens Worldwide Incorporated            Still Moving, Inc. By: /s/ Richard W. Hall, Jr.                    By: /s/ R. Thomas Kidd                                             Its President          Its Chief Executive Officer SHAREHOLDER: /s/ Richard W. Hall, Jr.                           Richard W. Hall, Jr. 10 -------------------------------------------------------------------------------- Schedule 6(i)(1) Stock to Company To be determined based on the average thirty day closing price divided into $150,000 described in paragraph 1 of the Agreement. 11

            Exhibit 10.1 EMPLOYMENT AGREEMENT      This EMPLOYMENT AGREEMENT is made by and between CorVel Corporation, a Delaware Company (the “Company”), and Dan Starck (“Executive”) to be effective as of May 26, 2006.      1. Duties and Responsibilities.      A. Executive shall serve as the Company’s President/Chief Operating Officer or such other title or position as may be designated from time to time by the Company’s Chief Executive Officer. Executive shall report to and perform the duties and responsibilities assigned to him by the Company’s Chief Executive Officer, or such other person as may be designated by the Company’s Chief Executive Officer .      B. Executive agrees to devote his full time and attention to the Company, to use his best efforts to advance the business and welfare of the Company, to render his services under this Agreement fully, faithfully, diligently, competently and to the best of his ability, and not to engage in any other employment activities .      C. Executive shall be based at the Company’s office located at 2010 Main Street, Suite 600 Irvine, CA 92614 but Executive shall be required to travel to other geographic locations in connection with the performance of his executive duties.      2. Period of Employment. Executive’s employment with the Company shall be governed by the provisions of this Agreement for the period commencing May 26, 2006 and continuing until this Agreement terminates pursuant to written notification by either the Company or Executive, which notification may occur at any time for any reason. The period during which the Executive provides services to the Company pursuant to this Agreement shall be referenced in this Agreement as the “Employment Period.”      3. Cash Compensation.      A. Executive’s initial base salary shall be $330,000 per year payable in accordance with the Company’s standard payroll schedule. Executive’s compensation shall be subject to periodic review by the Company, and may be increased or decreased in the Company’s discretion based on economic/business needs. If the Company decreases Executive’s base salary to an amount less than $297,000 per year without the Executive’s agreement, within 60 days following such a decrease, Executive may terminate his employment and treat the termination as an involuntary termination without cause for the purposes of receiving severance benefits under Section 7B below. If the Executive remains employed longer than 60 days after such a compensation decrease, Executive waives any right to terminate his employment and receive the severance benefit contemplated for Section 7B.      B. For each calendar year during the Employment Period, Executive shall be eligible for an incentive bonus at the Company’s sole discretion. For partial calendar year 2006 the incentive bonus will include two components: (i) a guaranteed payment of $75,000, provided   --------------------------------------------------------------------------------   Executive completes six (6) months of employment before the end of calendar year 2006, and (ii) an additional payment of up to $75,000 to be based upon completing a set of objectives to beapproved by the Board of Directors. Thereafter, for each full calendar year of employment, Executive shall be eligible for an incentive bonus of up to 70% of his annual base salary for meeting expectations (up to 100% for exceeding expectations). The bonus amount will be based on the following factors: (1) the financial performance of the Company as determined and measured by the Company’s Board of Directors and Chief Executive Officer; and (2) Executive’s achievement of management targets and goals as set by the Company. The bonus amount is intended to reward contribution to the Company’s performance over an entire calendar year, and consequently will be paid only if Executive is employed and in good standing at the time of bonus payments which generally occurs within 15 days after the close of the Company’s fiscal year. Bonus determinations will be made at the Company’s sole discretion.      C. The Company shall deduct and withhold from the compensation payable to Executive hereunder any and all applicable Federal, State and local income and employment withholding taxes and any other amounts required to be deducted or withheld by the Company under applicable statutes, regulations, ordinances or orders governing or requiring the withholding or deduction of amounts otherwise payable as compensation or wages to employees.      4. Equity Compensation. Pursuant and subject to the terms and conditions of the Company’s stock option plan, stock option agreements, and addendums to stock option agreements (collectively, the “Option Documents”), the Company’s Chief Executive Officer will recommend to the Company’s Board of Directors that Executive be granted options to purchase a total of 100,000 shares of the Company’s common stock, 50,000 of which option shares will vest over time in accordance with the terms and conditions of the Option Documents and 50,000 of which option shares will vest based on performance criteria approved by the Board of Directors and the Compensation Committee and in accordance with the terms and conditions of the Options Documents. All vesting will cease upon termination of Executive’s service to the Company. Any such options will be made pursuant and subject to the terms and conditions of the Option Documents. The Company’s Board of Directors has sole discretion concerning stock option grants and the terms and conditions of such grants, and may elect not to adopt the recommendation of the Chief Executive Officer. The option price on any option grant will be established as of the date the Company’s Board of Directors grants such options pursuant to the Company’s stock option plan.      5. Expense Reimbursement. In addition to the compensation specified in Paragraph 3, Executive shall be entitled, in accordance with the reimbursement policies in effect from time to time, to receive reimbursement from the Company for reasonable business expenses incurred by Executive in the performance of Executive’s duties hereunder, provided Executive furnishes the Company with vouchers, receipts and other details of such expenses in the form required by the Company, sufficient to substantiate a deduction for such business expenses under all applicable rules and regulations of federal and state taxing authorities.      6. Fringe Benefits.      A. Executive shall, throughout the Employment Period, be eligible to participate in all group term life insurance plans, group health plans, accidental death and 2 --------------------------------------------------------------------------------   dismemberment plans, and short-term disability programs and other executive perquisites which are made available to the Company’s executives and for which Executive qualifies. Please refer to the Company’s Employee Handbook and Summary Plan Descriptions for further information concerning these benefits.      B. Executive shall earn vacation time during the Employment Period at the rate of three (3) weeks per year. Vacation shall accrue and be taken pursuant to the Company’s vacation benefit policy set forth in the Company’s Employee Handbook.      7. Employment at Will.      Executive’s employment with the Company is at will, which means that it is not for a specific term and may be terminated by either the Company or Executive at any time, for any reason, without advance notice. Similarly, the Company may change the terms and conditions of Executive’s employment at any time, for any reason, without advance notice.      A. Should the Company terminate Executive’s employment for cause or as a result of Executive’s death or Disability, as defined in the following paragraphs, the Company shall have no obligation to Executive other than for accrued but unpaid salary and vacation as of the date of termination.      B. Should the Company terminate Executive’s employment other than for cause, because of his death, or as a result of a Disability, the Company shall have no further obligation to Executive, except as follows: In the event that Executive signs a general release of all known and unknown claims against the Company, the Company shall continue to pay Executive’s base salary following termination of Executive’s employment as follows: (i) for a minimum of twenty-six (26) weeks and (ii) an additional one week for each quarter of service completed by Executive during the Employment Term, provided, however, that total severance benefits payable hereunder shall not to exceed one year and in any event shall cease at such time as Executive is gainfully employed elsewhere. If Executive fails to generally release all known and unknown claims, the Company shall have no further obligation to Executive other than for accrued but unpaid compensation and vacation earned through the termination date.      C. For purposes of this Agreement, “cause” shall mean a reasonable belief that Executive has engaged in any one of the following: (i) financial dishonesty, including, without limitation, misappropriation of funds or property, or any attempt by Executive to secure any personal profit related to the business or business opportunities of the Company without the informed, written approval of the Company’s Board of Directors; (ii) refusal to comply with reasonable directives of the Company’s Chief Executive Officer or Board of Directors; (iii) misconduct in the performance of Executive’s duties; (iv) failure to perform, or neglect in the performance of, duties assigned to Executive; (v) misconduct which has a materially adverse effect upon the Company’s business or reputation; (vi) the conviction of, or plea of nolo contendre to, any felony or a misdemeanor involving dishonesty or fraud; (vii) the material breach of any provision of this agreement; or (viii) violation of Company policies including, without limitation, the Company’s policies on equal employment opportunity and prohibition of unlawful harassment. 3 --------------------------------------------------------------------------------        D. Disability shall mean a physical or mental impairment that precludes Executive from performing the essential functions of his job even with reasonable accommodation for a period of ninety (90) days in any one hundred and twenty (120) day period.      8. Restrictive Covenants. During the Employment Period:      (i) Executive shall devote Executive’s full time and energy solely and exclusively to the performance of Executive’s duties described herein, except during periods of illness or vacation periods.      (ii) Executive shall not directly or indirectly provide services to or through any person, firm or other entity except the Company, unless otherwise authorized by the Board in writing.      (iii) Executive shall not render any services of any kind or character for Executive’s own account or for any other person, firm or entity without first obtaining the Company’s written consent. Executive, however, shall have the right to perform such incidental services as are necessary in connection with (a) Executive’s private passive investments, but only if Executive is not obligated or required to (and shall not in fact) devote any managerial efforts which interfere with the services required to be performed by Executive under this Agreement, or (b) Executive’s charitable or community activities, or participation in trade or professional organizations, but only if such incidental services do not interfere with the performance of Executive’s services to the company.      9. Non-Competition during the Employment Period. Executive acknowledges and agrees that given the extent and nature of the confidential and proprietary information he will obtain during the course of his employment with the Company, it would be inevitable that such confidential information would be disclosed or utilized by the Executive should he obtain employment from, or otherwise become associated with, an entity or person that is engaged in a business or enterprise that directly competes with the Company. Consequently, during any period for which Executive is receiving payments from the Company, either as wages or as a severance benefit, Executive shall not, without prior written consent of the Company’s Board of Directors, directly or indirectly own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any enterprise which is engaged in any business competitive with or similar to that of the Company; provided, however, that such restriction shall not apply to any passive investment representing an interest of less than 2% of an outstanding class of publicly-traded securities of any company or other enterprise which is not, at the time of such investment, engaged in a business competitive with the Company’s business.      10. Non-Solicitation. During the Employment Period, and for one year following termination of Executive’s employment, Executive shall not encourage or solicit any of the Company’s employees to leave the Company’s employ for any reason or interfere in any other manner with employment relationships at the time existing between the Company and its employees. In addition, Executive shall not solicit, directly or indirectly, business from any 4 --------------------------------------------------------------------------------   client of the Company, induce any of the Company’s clients to terminate their existing business relationship with the Company, or interfere in any other manner with any existing business relationship between the Company and any client or other third party.      Executive acknowledges that monetary damages may not be sufficient to compensate the Company for any economic loss which may be incurred by reason of his breach of the foregoing restrictive covenants. Accordingly, in the event of any such breach, the Company shall, in addition to the termination of this Agreement and any remedies available to the Company at law, be entitled to obtain equitable relief in the form of an injunction precluding Executive from continuing such breach.      11. Proprietary Information. As a condition precedent to Executive’s employment with the Company, Executive will execute the Company’s standard Confidential Information and Assignment of Inventions Agreement. Executive’s obligations pursuant to the Confidential Information and Assignment of Inventions Agreement will survive termination of Executive’s employment with the Company.      12. Golden Parachute Payments.      A. Gross-Up Payment. In the event Employee becomes entitled to any payments under this Agreement, the Company shall cause an accounting firm of its choice (the “Accountants”) promptly to review, at the Company’s sole expense, the applicability of Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) to those payments.      (i) If the Accountants shall determine that any payment or distribution of any type by the Company to the Employee or for the Employee’s benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the “Total Payments”), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (the excise tax, together with any interest and penalties, are collectively referred to as the “Excise Tax”), then the Employee shall be entitled to receive an additional cash payment (a “Gross-Up Payment”) equal to an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Employee would retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. Notwithstanding anything to contrary contained in this Agreement, the total amount of the Gross-Up Payment shall not exceed $500,000.      (ii) For purposes of determining the amount of any tax pursuant to this Section, the Employee’s tax rate shall be deemed to be the highest statutory marginal state and federal tax rate (on a combined basis and including the Employee’s share of F.I.C.A. and Medicare taxes) then in effect.      (iii) Employee and the Company shall in good faith cooperate with the Accountants in making the determination of whether a Gross-Up Payment is required, including, but not limited to, providing the Accountants with information or 5 --------------------------------------------------------------------------------   documentation as reasonably requested by the Accountants. A determination by the Accountants regarding whether a Gross-Up Payment is required and the amount of such Gross-Up Payment shall be conclusive and binding upon the Employee and the Company for all purposes.      B. Payment Date. A Gross-Up Payment required to be made by Section 12A of this Agreement shall be paid to Employee within thirty (30) days of a final determination by the Accountants that the Gross-Up Payment is required.      (i) If the Accountants have not yet made the determination required by Section 12A prior to the time the Employee is required to file a tax return reflecting the Total Payments, the Employee will be entitled to receive a Gross-Up Payment calculated on the basis of the Total Payments reported by the Employee in such tax return within thirty (30) days of the filing of such tax return.      (ii) Controversies with Tax Authorities. The Company and the Employee shall promptly deliver to each other copies of any written communications and summaries of any oral communications with any taxing authority regarding the applicability of Sections 280G or 4999 of the Code to any portion of the Total Payments. In the event of any controversy with the Internal Revenue Service or other tax authority with regard to the applicability of Sections 280G or 4999 of the Code to any portion of the Total Payments, the Company shall have the right, exercisable in its sole discretion, to control the resolution of such controversy at its own expense. Employee and the Company shall in good faith cooperate in the resolution of such controversy.      (iii) If the Internal Revenue Service or any tax authority makes a final determination that a greater Excise Tax should be imposed upon the Total Payments than is determined by the Accountants or reflected in the Employee’s tax return pursuant to this Section, the Employee shall be entitled to receive from the Company the full Gross-Up Payment calculated on the basis of the amount of Excise Tax determined to be payable by such tax authority. That amount shall be paid to the Employee within thirty (30) days of the date of such final determination by the relevant tax authority; provided, however, that in no event shall the total amount of Gross-Up Payments exceed $500,000.      13. Successors and Assigns. This Agreement is personal in its nature and the Executive shall not assign or transfer his rights under this Agreement. The provisions of this Agreement shall inure to the benefit of, and shall be binding on, each successor of the Company whether by merger, consolidation, transfer of all or substantially all assets, or otherwise, and the heirs and legal representatives of Executive.      14. Notices. Any notices, demands or other communications required or desired to be given by any party shall be in writing and shall be validly given to another party if served either personally or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If such notice, demand or other communication shall be served personally, service shall be conclusively 6 --------------------------------------------------------------------------------   deemed made at the time of such personal service. If such notice, demand or other communication is given by mail, such notice shall be conclusively deemed given 48 hours after the deposit thereof in the United States mail addressed to the party to whom such notice, demand or other communication is to be given as hereinafter set forth:      To the Company:      CorVel Corporation      2010 Main Street, Suite 600      Irvine, CA 92614      Att: Director, Legal Services      To Executive:      Dan Starck      19 Pegasus Drive      Cota de Caza, CA 92679 Any party may change its address for the purpose of receiving notices, demands and other communications by providing written notice to the other party in the manner described in this paragraph.      15. Governing Documents. This Agreement, along with the documents expressly referenced in this Agreement, constitute the entire agreement and understanding of the Company and Executive with respect to the terms and conditions of Executive’s employment with the Company and the payment of severance benefits, and supersedes all prior and contemporaneous written or verbal agreements and understandings between Executive and the Company relating to such subject matter. This Agreement may only be amended by written instrument signed by Executive and an authorized officer of the Company. Any and all prior agreements, understandings or representations relating to the Executive’s employment with the Company are terminated and cancelled in their entirety and are of no further force or effect.      16. Governing Law. The provisions of this letter agreement will be construed and interpreted under the laws of the State of California. If any provision of this Agreement as applied to any party or to any circumstance should be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to the maximum extent permissible by law) the application of such provision under circumstances different from those adjudicated by the court, the application of any other provision of this Agreement, or the enforceability or invalidity of this Agreement as a whole. Should any provision of this Agreement become or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision will be stricken and the remainder of this Agreement shall continue in full force and effect.      17. Remedies. All rights and remedies provided pursuant to this Agreement or by law shall be cumulative, and no such right or remedy shall be exclusive of any other. A 7 --------------------------------------------------------------------------------   party may pursue any one or more rights or remedies hereunder, or may seek damages or specific performance in the event of another party’s breach hereunder, or may pursue any other remedy by law or equity, whether or not stated in this Agreement.      18. No Waiver. The waiver by either party of a breach of any provision of this Agreement shall not operate as, or be construed as, a waiver of any later breach of that provision.      19. Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.             CorVel Corporation       /s/ V. Gordon Clemons       By: V. Gordon Clemons      Title:   Chief Executive Officer                  Executive       /s/ Dan Starck       Dan Starck            8

Exhibit 10.3   SECURED TERM NOTE   FOR VALUE RECEIVED, STOCKERYALE, INC., a Massachusetts corporation (the “Borrower”), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the “Holder”) or its registered assigns or successors in interest, without demand, the sum of Four Million Dollars ($4,000,000) (the “Principal Amount”), together with any accrued and unpaid interest, on December 30, 2008 (the “Maturity Date”), if not sooner paid.   The following terms shall apply to this Note:   ARTICLE I   INTEREST   1.1 Interest Rate. Interest payable on this Note shall accrue at the annual rate of Prime Rate plus two percent (2%) (but in no event less than eight percent (8%) per annum) and be payable in arrears commencing one month from the date hereof and on the first business day of each consecutive calendar month thereafter, and on the Maturity Date, accelerated or otherwise, due and payable as described below (the “Interest Rate”). Interest shall be computed on the basis of actual days elapsed in a year of 360 days. “Prime Rate” means the “base rate” or “prime rate” published in the Wall Street Journal from time to time. The Prime Rate shall be increased or decreased as the case may be for each increase or decrease in the Prime Rate in an amount equal to such increase or decrease in the Prime Rate; each change to be effective as of the day of the change in such rate.   ARTICLE II   PAYMENTS OF PRINCIPAL AND INTEREST   2.1 Monthly Payments. Subject to the terms of this Article II, the Borrower shall make monthly payments to the Holder in the principal amount of $121,212 (the “Monthly Principal Amount”), together with interest accrued to date on such portion of the Principal Amount plus any and all other amounts owing under this Note but not previously paid (the “Monthly Interest Amount and, together with the Monthly Principal Amount and all other amounts owing under this Note, collectively, the “Monthly Amount”), on April 1, 2006 and on the first business day of each consecutive calendar month thereafter (each, a “Repayment Date”).   2.2 Optional Prepayments. In the event Borrower wishes to prepay all or a portion of the Principal Amount or any and all other amounts owing under this Note (collectively, the “Obligations”), Borrower shall deliver to the Holder written notice indicating the amount intended to be so prepaid (the “Prepayment Amount”) and the date on which such prepayment shall be made (the “Prepayment Date”). Such notice shall be delivered to the Holder at least five (5) Business Days’ prior to the Prepayment Date. On the Prepayment Date, -------------------------------------------------------------------------------- Borrower shall pay to the Holder the Applicable Percentage of the Prepayment Amount in satisfaction of the Prepayment Amount. All such prepayments shall be (a) applied to the Obligations in such order as the Holder shall elect and (b) credited (conditional upon final collection) to the Obligations three (3) Business Days after receipt of such amounts by Holder in good funds in dollars of the United States of America. Any amount received by Holder after 12:00 noon (New York time) on any business day shall be deemed received on the next business day. For purposes of this Section 2.2, the term “Applicable Percentage” means (1) 115% for the period commencing on the date hereof (the “Closing Date”) and ending on the first anniversary of the Closing Date, (2) 110% for the period commencing on the first day following the first anniversary of the Closing Date and ending on the second anniversary of the Closing Date and (3) 105% for the period commencing on the first day following the second anniversary of the Closing Date and ending on the day immediately preceding the Maturity Date.   ARTICLE III   EVENT OF DEFAULT   The occurrence of any of the following events is an Event of Default (“Event of Default”):   3.1 Failure to Pay Principal, Interest or other Fees. The Borrower fails to pay any installment of principal, interest or other fees hereon or in respect of any other promissory note issued pursuant to the Purchase Agreement when due.   3.2 Breach of Covenant. The Borrower breaches any covenant or other term or condition of this Note or the Purchase Agreement (as hereafter defined) in any material respect and such breach, if subject to cure, continues for a period of five (5) business days after the occurrence thereof.   3.3 Breach of Representations and Warranties. Any material representation or warranty of the Borrower made herein, in the Purchase Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading.   3.4 Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed.   3.5 Judgments. Any money judgment, writ or similar final process shall be entered or filed against the Borrower or any of its property or other assets for more than $250,000 (to the extent not covered by independent third-party insurance as to which the Holder is a lender’s loss payee and a named additional insured and the insurer has been notified of such judgment and has not denied coverage), and shall remain unvacated, unbonded or unstayed for a period of ninety (90) days.   2 -------------------------------------------------------------------------------- 3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower.   3.7 Stop Trade; Delisting. (a) An SEC stop trade order or Principal Market trading suspension of the Common Stock for 5 consecutive days or 5 days during a period of 10 consecutive days, excluding in all cases a suspension of all trading on a Principal Market or (b) Borrower’s Common Stock shall fail to be listed on a Principal Market or any securities exchange or other securities market (including the Nasdaq OTC Bulletin Board, but excluding the pink and yellow sheets).   3.8 Guaranty. (a) Any guarantor of all or any part of the obligations owing under this Note (each, a “Guarantor”) attempts to terminate, challenges the validity of, or its liability under any guaranty agreement made in favor of the Holder (each, a “Guaranty”), (b) any Guarantor shall default under any Guaranty or any guaranty security agreement made in favor of the Holder (each a “Guaranty Security Agreement”), which such default is not cured within any applicable cure or grace period or (c) any Guaranty or Guaranty Security Agreement shall cease to be valid, binding and enforceable in accordance with its terms.   3.9 Further Encumbrance. The Borrower shall not encumber, mortgage, pledge, assign or grant any lien or security interest in any or all of its assets to any person or entity other than those liens and security interests set forth on Schedule 3.9 hereof.   3.10 Security Agreement. An Event of Default shall have occurred under and as defined in the Security Agreement dated as of the date hereof between Borrower and Holder, as the same may be amended, modified and supplemented from time to time.   ARTICLE IV   DEFAULT PAYMENT   4.1 Default Rate. Upon the occurrence and during the continuance of an Event of Default, a default interest rate of five percent (5%) per annum above the Interest Rate shall apply to the amounts owed hereunder.   4.2 Cumulative Remedies. The remedies under this Note shall be cumulative.   ARTICLE V   MISCELLANEOUS   5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder hereof 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. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.   3 -------------------------------------------------------------------------------- 5.2 Notices. Any notice herein required or permitted to be given shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Borrower at the address as set forth on the signature page to the Purchase Agreement executed in connection herewith and to the Holder at the address set forth on the signature page to the Purchase Agreement for such Holder, with a copy to Scott J. Giordano, Esq., Loeb & Loeb LLP, 345 Park Avenue, New York, New York 10154, facsimile number (212) 407-4990, or at such other address as the Borrower or the Holder may designate by ten days advance written notice to the other parties hereto. A Notice of Conversion shall be deemed given when made to the Borrower pursuant to the Purchase Agreement.   5.3 Amendment Provision. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.   5.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder.   5.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.   5.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individual signing this Note on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. 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 unenforceability of any other provision of this Note.   5.7 Maximum Payments. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower.   4 -------------------------------------------------------------------------------- 5.8 Construction. Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other.   5.9 Management Fee. Simultaneously with the execution of this Note, the Borrower shall pay to Laurus Capital Management, LLC a management fee in an amount equal to two percent (2%) of the Principal Amount, which such amount at the Holder’s option may be deducted from funds made available by the Holder to the Borrower hereunder.   5.10 Security Interest. The Holder has been granted a security interest in certain assets of the Company under the Security Agreement.   5.11 Registered Obligation. This Note is intended to be a registered obligation within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i) and the Borrower (or its agent) shall register the Note (and thereafter shall maintain such registration) as to both principal and any stated interest. Notwithstanding any document, instrument or agreement relating to this Note to the contrary, transfer of this Note (or the right to any payments of principal or stated interest thereunder) may only be effected by (i) surrender of this Note and either the reissuance by the Borrower of this Note to the new holder or the issuance by the Borrower of a new instrument to the new holder, or (ii) transfer through a book entry system maintained by the Borrower (or its agent), within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).   [Balance of page intentionally left blank; signature page follows]   5 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Borrower has caused this Secured Term Note to be signed in its name effective as of this 30th day of December, 2005.   STOCKERYALE, INC. By:   /s/    MARIANNE MOLLEUR         Name:   Marianne Molleur Title:   Senior Vice President and Chief Financial Officer   WITNESS: /s/    DONNA F. HOWARD        

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  Exhibit 10.1 ACKNOWLEDGEMENT AND AMENDMENT REGARDING EMPLOYMENT AGREEMENT      Reference is made that certain Employment Agreement (“Employment Agreement”) between ARTISTdirect, Inc., a Delaware corporation (the “Company”) and Jon Diamond (“Employee”), effective July 28, 2005. Capitalized terms used herein and not defined shall have the meanings given to them in the Employment Agreement.      For valuable consideration, the receipt of which is hereby acknowledged, the parties hereto acknowledge and agree that the date “March 1, 2006” set forth in the second sentence of Section 2 of the Employment Agreement shall be deleted and replaced with “July 1, 2006.”      Except as expressly set forth in this Acknowledgement and Amendment, the terms and provisions of the Employment Agreement shall continue unmodified and in full force and effect. This Acknowledgement and Amendment shall be governed and construed under the laws of the State of California, and shall be binding on and shall inure to the benefit of the parties and their respective successors and permitted assigns.      IN WITNESS WHEREOF, the parties hereto have duly executed this Acknowledgement and Amendment, effective as of the 3rd day of February, 2006.           “EMPLOYEE”   “COMPANY” Jon Diamond   ARTISTdirect, Inc.                /s/ Jon Diamond   By:   /s/ Frederick W. Field           Jon Diamond       Frederick W. Field     Its:   Chairman

  EXHIBIT 10.1 Memorandum of Understanding This Memorandum of Understanding (“MOU”) is entered into and is effective as of 9 Nov. 2006, between General Dynamics Land Systems Inc., (“GDLS”) and Force Protection Inc., (“FPI”), Individually, a “Party” and collectively, the “Parties.” Whereas FPI is a new business which has designed and produced a mine-protected and armored vehicle called the Cougar; and, Whereas the Government requires additional Cougar vehicles; and Whereas FPI has limited capacity to meet these requirements and needs industry assistance in the production of FPI’s Cougar vehicles, and; Whereas GDLS has recognized capability in combat vehicle systems integration, to include production expertise, and has available capacity at Joint Services Manufacturing Center (“JSMC”) for structure fabrication; and, Whereas, GDLS and FPI intend to establish a relationship where FPI will be the Prime and GDLS with be the Subcontractor, for structure fabrication of two hundred (200) variants of the Cougar vehicle (“Work”). Therefore, GDLS and FPI to the extent allowed by applicable law and regulations, agree to the following: 1.                                       Subcontractor Relationship The Parties agree to negotiate a subcontract agreement for fabrication of the Cougar structures in accordance with the attached Term Sheet (Attachment A). 2.                                       Term and Conditions The terms and conditions of the subcontract agreement will be mutually agreed upon by the parties for the Work which will be substantially similar to the attached form of subcontract (Attachment B). 3.                                       Expenses Each of the Parties will bear all expenses incurred by it or on its behalf in connection with its actions pursuant to this MOU. 4.                                       Assignment Neither Party may assign or delegate to a third party (including but not limited to any successor in interest to either Party as the result of a merger, sale or acquisition of all or substantially all of the assets or stock of either Party) such Party’s rights or obligations in connection with this MOU without the written consent of the other Party. 5.                                       Severability This MOU will be interpreted in such manner as to be effective and valid under any applicable law and/or regulation, but if any provision of this MOU is held to be prohibited by or invalid under any applicable law and/or regulation, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this MOU. 6.                                       Entire Agreement This MOU constitutes the entire agreement between the Parties with respect to the subject matter hereof, and supercedes any prior understandings, agreements or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof. --------------------------------------------------------------------------------   7.                                       Life of the Agreement This MOU shall be effective from the date of the last signature below.  The life of the agreement will be for five (5) years with an option to renew upon mutual agreement of the parties. The MOU may be terminated by either party upon ninety (90) days written notice. 8.                                       Confidentiality and Intellectual Property The Parties agree to negotiate a confidentiality agreement under this MOU which shall be substantially similar to the terms of the attached confidentiality agreement (Attachment C). FPI shall at all times retain the sole and exclusive rights to the design of the Cougar vehicles or any of its derivatives or improvements, and the design, bill of materials, drawings, work instructions, transition to production plans, and technical data package relating to the Cougar vehicles whether provided by FPI, developed by GDLS from FPI information or the Work or developed by FPI and GDLS jointly (“intellectual property”) provided, however, GDLS shall own any processes developed by GDLS in the performance of the Work and FPI shall have the right to use such processes.  GDLS agrees to implement a firewall procedure, acceptable to FPI, with respect to FPI Confidential Information and Intellectual Property to prevent disclosures to other corporations, divisions, affiliates, contractors or consultants to GDLS. 9.                                       Public Relations Clause Any news release, public announcement, advertisement, or other publicity to be released by a party in connection with this MOU must fires have the prior written approval of the other party, which approval shall not be unreasonably withheld. 10.                                 Limitations of Liability EXCEPT AS SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE PRODUCTS AND SERVICES CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTIBILITY, NON-INFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR A VIOLATION OF ANY CONFIDENTIALITY OR INTELLECTUAL PROPERTY PROVISIONS, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL PUNITIVE OR EXEMPLARY DAMAGES, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES ARISING FROM ANY PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF USE, INCOME OR PROFITS, OR ANTICIPATED PROFITS OR LOST BUSINESS OR THE COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES. 11.                                 Dispute Resolution All claims, disputes controversies, or other matter in question arising out of, connected with, or relating to the Agreement that cannot be resolved by the Parties through face to face negotiations between senior executives of each Party, will be settled by binding arbitration in accordance with the Commercial Rules of the American Arbitration Association then in effect.  All arbitration proceedings will be held in Delaware.  The Parties may take discovery by any mean s allowed by the Federal Rules of Civil Procedure then in effect.  The arbitrator may exclude from evidence any evidence not previously shared with the other side.  The administrative costs of any arbitration or litigation will be borne equally by the Parties pending the arbitrator’s award.  The arbitrator shall be bound by the express provisions set forth in this agreement and shall not modify any terms of this agreement or make any award of damages in excess of the amounts set forth in this agreement or grant any relief not expressly set forth in this agreement.  The determinations of the arbitrator shall be final and, except as provided by law, shall not be subject to judicial revue.  Any court of competent jurisdiction may enforce any award or determination rendered by the arbitrator.  The language to be used in the arbitral proceedings shall be English.  The arbitrator shall not have the authority to award consequential damages of any sort (which are -------------------------------------------------------------------------------- defined to include, without limitation, damages for lost profits, damages for delay, damages for lost opportunities and the like) or punitive exemplary damages of any sort.  This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of Delaware without regard to its conflict of law principles. In Witness Whereof, the Parties have executed this MOU General Dynamics Land Systems Inc.   Force Protection, Inc.       /s/ David K. Heeber   /s/ Gordon McGilton Name: David K. Heeber   Name: Gordon McGilton Title: President, GDLS   Title: CEO Date: November 9, 2006   Date: November 9, 2006   --------------------------------------------------------------------------------   Attachment A:  Term Sheet GDLS/FPI Subcontractor Relationship for Cougar Production GDLS’ Scope 1) Exclusively for a minimum of two hundred (200) Cougar variants GDLS intends to fabricate, blast and paint the crew capsule, install the spall liner, and deliver to an FPII designated final assembly location. 2) GDLS will busy all material and services and manage the supply chain for GDLS’entire content. Alternatively, upon mutual agreement, FPI may buay all material, manage the supply chain and provide to GDLS. 3) GDLS scope may include procurement of additional material as mutually agreed (e.g. Weapon Station or other special equipment for mission variants). 4) Price lead-time and delivery schedules will be mutually agreed at the time of negotiation of the subcontract. 5) Respond to an RFQ for the Work. FPI SCOPE 1) Provide GDLS with the Confidential Information and Intellectual Property associated with the capsule of the Cougar vehicle to be fabricated by GDLS. 2) Provide GDLS with an RFQ for the Work. Other Conditions of this Agreement 1) GDLS will be FPIIs subcontractor for GDLS’ content, except for: a) capsule fabrication to be completed by FPI b) ILAV vehicles covered under the current teaming obligation with BAE c) Work outside of GDLS’ scope (e.g. automotive, final assembly, capsule fabrication by FPII or its subcontractors) 2) GDLS will not use any of FPIIs Confidential Information or Intellectual Property except for performance of the Work. Not Included in this Agreement 1) Fabrication and integration of Buffalo, Mastiff or Cheetah 2) Cougar and its variants service and support work.   --------------------------------------------------------------------------------

  EXHIBIT 10.2 Zimmer Holdings, Inc. 2006 STOCK INCENTIVE PLAN NONQUALIFIED STOCK OPTION GRANTED TO OPTIONEE: STOCK AWARD SHARES: EXERCISE PRICE PER SHARE: $ AWARD DATE: Compensation and Management Development Committee: Gentlemen:      I understand that this option has been granted to provide a means for me to acquire and/or expand an ownership position in Zimmer Holdings, Inc., and it is expected that I will retain the stock I receive upon the exercise of this option consistent with the Company’s share retention guidelines in effect at the time of exercise.      I hereby agree to the foregoing and following terms and conditions and accept the grant of this option subject thereto.               Date   Signature         ZIMMER HOLDINGS, INC. 2006 STOCK INCENTIVE PLAN NONQUALIFlED STOCK OPTION      Zimmer Holdings, Inc (the “Company”) hereby grants pursuant to the terms of the heretofore designated stock option plan (the “Plan”) to the heretofore named employee (the “Optionee”), as a matter of separate inducement and agreement in connection with her/his employment, and not as or in lieu of any salary or other compensation for her/his services, and upon the terms and conditions set forth below, the option to purchase the number of fully paid and non-assessable shares of the common stock of Zimmer Holdings, Inc., par value $.01 per share (“Common Stock”), heretofore set forth (this “Option”) on or before the expiration of ten years from the date hereof (the “Expiration Date”) at the aforementioned exercise price per share. The Board of Directors of the Company (the “Board”) has authorized the Compensation and Management Development Committee of the Board (the “Committee”) to administer the Plan.      This Option is granted upon and subject to the following terms and conditions:      1. No Option may be exercised hereunder for the purchase of shares unless the Optionee shall have remained in the continuous employ of the Company or of one of its subsidiaries for one year following the date hereof. Thereafter, provided that the Optionee shall at the time of such exercise, except as specifically set forth herein to the contrary, been in the employ of the Company or of one of its subsidiaries, this Option may from time to time prior to the Expiration Date be exercised in the manner hereinafter set forth, and this Option may be exercised (i) only to the extent of 25 percent of the number of shares to which this Option applies on or after the first anniversary and prior to the second anniversary of the date of grant hereof, (ii) only to the extent of 50 percent of the number of shares to which this Option applies on or after the second anniversary and prior to the third anniversary of the date of grant hereof, (iii) only to the extent of 75 percent of the number of shares to which this Option applies on or after the third anniversary and prior to the fourth anniversary of the date of grant hereof; and (iv) in its entirety on or after the fourth anniversary of the date of grant hereof.   --------------------------------------------------------------------------------        2. This Option hereby granted may be exercised, in whole or in part in accordance with the vesting schedule set forth in Section 1 above, by the delivery of an exercise notice to the Company or the Company’s designated agent. The exercise notice will be effective upon receipt by the appropriate person at the Company or the Company’s agent and upon payment of the exercise price, any fees and any other amounts due to cover the withholding taxes, payroll taxes and similar-type payments as described herein. Such exercise notice (which, in the Company’s discretion, may be, or may be required to be, given by electronic, telefax or other specified means) shall specify the number of shares with respect to which this Option is being exercised and such other representations and agreements as may be required by the Company. In the event the specified Expiration Date falls on a day which is not a regular business day at the Company’s executive office in Warsaw, Indiana, then such written notification must be received on or before the last regular business day prior to such Expiration Date. Payment is to be made by certified personal check, or bank draft, by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, or by delivery of a certificate or certificates for shares of Common Stock owned by the Optionee for at least six months having a fair market value at the date of exercise equal to the purchase price for such shares, or in any combination of the foregoing; provided, however, that payment in shares of Common Stock will not be permitted unless at least 100 shares of Common Stock are required and delivered for such purpose. Any stock certificate or certificates so delivered must be endorsed, or accompanied by an appropriate stock power, to the order of Zimmer Holdings, Inc., with the signature guaranteed by a bank or trust company or by a member firm of the New York Stock Exchange. No shares shall be sold or delivered hereunder until full payment for such shares has been made. At its discretion, the Committee may modify or suspend any method for the exercise of this Option. The Optionee shall have the rights of a shareholder only with respect to shares of stock for which certificates have been issued to her/him.      3. The Company shall not be required to issue or deliver any certificate or certificates for shares of its Common Stock purchased upon the exercise of any part of this Option prior to (i) the admission of such shares to listing on any stock exchange on which the stock may then be listed, (ii) the completion of any registration or other qualification of such shares under any state or federal law or rulings or regulations of any governmental regulatory body, (iii) the obtaining of any consent or approval or other clearance from any governmental agency, which the Company shall, in its sole discretion, determine to be necessary or advisable, and (iv) the payment to the Company, upon its demand, of any amount requested by the Company for the purpose of satisfying its withholding obligation, if any, with respect to federal, state or local income or FICA or earnings tax or any other applicable tax assessment (plus interest or penalties thereon, if any, caused by a delay in making such payment) incurred by reason of the exercise of this Option or the transfer of shares thereupon (the “Withholding Tax Obligation”). The Optionee may satisfy the Withholding Tax Obligation by authorizing the Company or its agent to withhold an appropriate number of shares being issued on exercise; provided, however, that the value of the shares withheld shall not exceed the Company’s minimum required Withholding Tax Obligation with respect to the exercise of this Option.      4. This Option is not transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and is exercisable, during the life of the Optionee, only by her/him.      5. Notwithstanding any other provision hereof:           (a) If the Optionee shall retire or cease to be employed by the Company or any of its subsidiaries for any reason (other than death or disability entitling the Optionee to receive payments under a disability pay plan of the Company or any of its subsidiaries) after the Optionee shall have been continuously so employed for one year from the aforementioned date of grant, the Optionee may exercise this Option only to the extent that the Optionee was otherwise entitled to exercise it at the time of such retirement or cessation of employment with the Company or any of its subsidiaries, but in no event after (i) the date that is ten years next succeeding the date this Option was granted, in the case of retirement or cessation of employment with the Company or any of its subsidiaries on or after the Optionee’s 65th birthday, or on or after the Optionee’s 55th birthday after having completed 10 years of service with the Company or any of its subsidiaries, or on or after the date the sum of the Optionee’s age plus years of service, when rounded up to the next highest number, equals at least 70 and the Optionee has completed ten years of service with the Company or any of its subsidiaries and the Optionee’s employment terminates for any reason other than death, disability, resignation, willful misconduct, or activity deemed detrimental to the interest of the Company and, where applicable, the Optionee has executed a general release, a covenant not to compete and/or a covenant not to solicit as required by the Company, or (ii) the date that is three months next succeeding retirement or cessation of employment, in the case of any other retirement or cessation of employment with the Company or any of its subsidiaries.           (b) Whether military or government service or other bona fide leave of absence shall constitute termination of employment for the purpose of this Option shall be determined in each case by the Committee in its sole discretion.           (c) If the Optionee has been continuously employed by the Company or one of its subsidiaries for one year after the granting of this Option and retires or ceases to be so employed by reason of disability entitling such Optionee to receive payments under a disability pay plan of the Company or a subsidiary, the Optionee shall be treated as though he/she remained in the employ of the Company or a subsidiary until the earlier of (i) cessation of payments under the disability pay plan, (ii) death, or (iii) attainment of 65th birthday.           (d) Except as provided in section 4, in the event of the death of the Optionee while in the employ of the Company or of any of its subsidiaries or within whichever period after retirement or cessation of employment of the Optionee specified in subparagraphs (a) and (c) is applicable, and after he/she shall have been continuously so employed for one year after the granting 2 --------------------------------------------------------------------------------   of her/his Option, this Option theretofore granted to her/him shall be exercisable by the executors, administrators, legatees or distributees of her/his estate, as the case may be, only to the extent that the Optionee would have been entitled to exercise it if the Optionee were then living, subject to subparagraph (e) herein, but in the case of the death of any Optionee after retirement or cessation of employment in no event after the later of (i) the date twelve months next succeeding such death and (ii) the last day of the period after Retirement or other cessation of employment of the Optionee specified in subparagraphs (a)(i) or (a)(ii) and provided, in any case, not after the Expiration Date.           In the event this Option is exercised by the executors, administrators, legatees or distributees of the estate of the Optionee, the Company shall be under no obligation to issue stock hereunder unless and until the Company is satisfied that the person or persons exercising this Option are the duly appointed legal representatives of the Optionee’s estate or the proper legatees or distributees thereof.           (e) The provisions of section 1 hereof restricting the percentage of shares of an Option grant which can be exercised prior to the fourth anniversary of the date of such grant shall not apply if (i) the Optionee has reached age 60; (ii) the Optionee dies while in the employ of the Company or any of its subsidiaries; (iii) the Optionee shall have retired or ceased to be employed by the Company or any of its subsidiaries (1) on or after the Optionee’s 65th birthday, or (2) on or after the Optionee’s 55th birthday after having completed 10 years of service with the Company or any of its subsidiaries, or (3) on or after the date the sum of the Optionee’s age plus years of service, when rounded up to the next highest number, equals at least 70 and the Optionee has completed ten years of service with the Company or any of its subsidiaries and the Optionee’s employment terminates for any reason other than death, resignation, willful misconduct, or activity deemed detrimental to the interest of the Company and, where applicable, the Optionee has executed a general release, a non-solicitation and/or non-compete agreement with the Company as required by the Company; or (iv) the Optionee’s employment terminates for any reason other than death, resignation, willful misconduct, or activity deemed detrimental to the interest of the Company provided the Optionee executes a general release and, where applicable, a non-solicitation and/or non-compete agreement with the Company as required by the Company. For the purposes of this Option, service with Bristol-Myers Squibb Company and its subsidiaries and affiliates before the effective date of the Plan shall be included as service with the Company.      6. Under certain circumstances, if the Optionee’s employment with the Company or one of its subsidiaries terminates during the three year period following a change in control of the Company, this Option may become fully vested and exercisable. Please refer to the Plan for more information.      7. If prior to the Expiration Date changes occur in the outstanding Common Stock by reason of stock dividends, recapitalization, mergers, consolidations, stock splits, combinations or exchanges of shares and the like, the exercise price per share and the number and class of shares subject to this Option shall be appropriately adjusted by the Committee, whose determination shall be conclusive. If as a result of any adjustment under this paragraph any Optionee should become entitled to a fractional share of stock, the Optionee shall have the right to purchase only the adjusted number of full shares and no payment or other adjustment will be made with respect to the fractional share so disregarded.      8. Until the Optionee is advised otherwise by the Committee, all notices and other correspondence with respect to this Option will be effective upon receipt at the following address: Compensation and Management Development Committee of the Board of Directors of Zimmer Holdings, Inc. Zimmer Holdings, Inc. 345 East Main Street Post Office Box 708 Warsaw, Indiana 46581-0708      9. Except as explicitly provided in this agreement, this agreement will not confer any rights upon the Optionee, including any right with respect to continuation of employment by the Company or any of its subsidiaries or any right to future awards under the Plan. In no event shall the value, at any time, of this agreement, the Common Stock covered by this agreement or any other benefit provided under this agreement be included as compensation or earnings for purposes of any other compensation, retirement, or benefit plan offered to employees of the Company or its subsidiaries unless otherwise specifically provided for in such plan.      10. As a condition of receiving the Option, the Optionee has entered into or reaffirmed a non-solicitation and/or non-compete agreement with the Company. The Optionee understands and agrees that if he or she violates any provision of such agreement, the Committee may require the Optionee to forfeit his or her right to any unexercised portion of the Option, even if vested, and, to the extent any portion of the Option has previously been exercised, the Committee may require the Optionee to return to the Company any shares of Common Stock received by the Optionee upon such exercise or any cash proceeds received by the Optionee upon the sale of any such shares.      11. The Company may, in its sole discretion, decide to deliver any documents related to the Option granted under and participation in the Plan or future options that may be granted under the Plan by electronic means or to request the Optionee’s consent to participate in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic 3 --------------------------------------------------------------------------------   delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.      12. The Board and the Committee shall have full authority and discretion, subject only to the express terms of the Plan, to decide all matters relating to the administration and interpretation of the Plan and this agreement and all such Board and Committee determinations shall be final, conclusive, and binding upon the Optionee and all interested parties. The terms and conditions set forth in this agreement are subject in all respects to the terms and conditions of the Plan, as amended from time to time, which shall be controlling. This agreement contains the entire understanding of the parties and may not be modified or amended except in writing duly signed by the parties. The waiver of, or failure to enforce, any provision of this agreement or the Plan by the Company will not constitute a waiver by the Company of the same provision or right at any other time or a waiver of any other provision or right. The various provisions of this agreement are severable and any determination of invalidity or unenforceability of any provision shall have no effect on the remaining provisions. This agreement will be binding upon and inure to the benefit of the successors, assigns, and heirs of the respective parties. The validity and construction of this agreement shall be governed by the laws of the State of Indiana.             ZIMMER HOLDINGS, INC.       By                         4

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Exhibit 10.2 2004 EQUITY INCENTIVE PLAN OF HYPERION SOLUTIONS CORPORATION INTERNATIONAL RESTRICTED STOCK UNIT AGREEMENT       Grant Number: Employee:       Pursuant to the terms of the 2004 Equity Incentive Plan of Hyperion Solutions Corporation, as amended (the “Plan”), Hyperion Solutions Corporation, a Delaware corporation (the “Company”), hereby offers to grant to you (the “Grantee”) the number of Restricted Stock Units (“RSUs”) set forth immediately below, on the terms and conditions and subject to the restrictions set forth in the Plan and this Restricted Stock Unit Agreement (the “Agreement”). Each unit of the RSU corresponds to one share of common stock of the Company. To accept this offer, sign one copy of this Agreement and return it by [], 200[] to [Lisa Deilus, Stock Administration,] in the envelope provided. Grantee: Number of RSUs Granted: Grant Date: Purchase Price: $0.001 per Share 1. Definitions. Capitalized terms used in this Agreement that are not otherwise defined herein shall have the same meanings as in the Plan. 2. Form of Payment. Except as otherwise provided in the Plan, each RSU granted hereunder shall represent the right to receive [one] Share upon the vesting of such RSU, the consideration for which shall be services rendered through the Restricted Period (as defined below). 3. Restrictions (a) The RSUs may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of or encumbered and shall be subject to a risk of forfeiture as described in Section 3(c) until the lapse of the Restricted Period (as defined below) and any additional requirements or restrictions contained in this Agreement or in the Plan have been otherwise satisfied, terminated or expressly waived by the Company in writing. (b) Unless the Restricted Period is previously terminated in accordance with Section 3(c), the restrictions set forth in Section 3(a) shall lapse and the RSUs shall vest and become fully and freely transferable (provided, that such transfer is otherwise in accordance with federal and state securities laws) and non-forfeitable as to 25% of the RSUs on the first anniversary of the Grant Date and thereafter in equal installments every six (6) months for the following thirty-six (36) months measured from and after the first anniversary of the Grant Date (the “Restricted Period”). (c) Except as otherwise provided under the terms of the Plan, if Grantee’s employment with the Company or Affiliate is terminated for any reason, then this Agreement shall terminate and all rights of the Grantee with respect to RSUs that have not vested shall immediately terminate as of the date Grantee is no longer actively employed and will not be extended by any notice period mandated under local law. The RSUs that are subject to restrictions upon the date of Termination, and any and all accrued but unpaid dividends thereon, shall be forfeited to the Company without payment of any consideration by the Company, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such RSUs or accrued but unpaid dividends. 4. Voting and Other Rights. Grantee shall have no rights of a stockholder of the Company until Shares are issued upon vesting of Grantee’s RSUs. 5. Withholding Tax. (a) Regardless of any action the Company or Grantee’s employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by him or her is and remains Grantee’s responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the grant, including the grant or vesting of the RSUs, the subsequent sale of Shares acquired pursuant to such vesting and the receipt of any dividends or dividend equivalents; and (2) do not commit to structure the terms of the grant or any aspect of the RSU to reduce or eliminate Grantee’s liability for Tax-Related Items. (b) Prior to issuance of the Shares, Grantee will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, Grantee authorizes the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by Grantee from his or her wages or other cash compensation paid to Grantee by the Company and/or the Employer or from proceeds of the sale of Shares. Alternatively, or in addition, if permissible under local law, the Company may (1) sell or arrange for the sale of Shares that Grantee acquires to meet the withholding obligation for Tax-Related Items, and/or (2) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, Grantee will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver the Shares if Grantee fails to comply with his or her obligations in connection with the Tax-Related Items as described in this section. 6. Agreement Subject to Plan. This Agreement is made pursuant to all of the provisions of the Plan, which is incorporated herein by this reference, and is intended, and shall be interpreted in a manner, to comply therewith. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. 7. Nature of Grant. In accepting the grant, Grantee acknowledges that: (a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Agreement; (b) the grant of the RSU is voluntary and occasional and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted repeatedly in the past; (c) all decisions with respect to future RSUs, if any, will be at the sole discretion of the Company; (d) the Grantee’s participation in the Plan will not create a right to further employment with the Employer and shall not interfere with the ability of the Employer to terminate Grantee’s employment relationship at any time with or without cause; (e) the Grantee is voluntarily participating in the Plan; (f) the RSU is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which is outside the scope of Grantee’s employment contract, if any; (g) the RSU 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 and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer; (h) in the event that Grantee is not an employee of the Company, the RSU grant will not be interpreted to form an employment contract or relationship with the Company; and furthermore, the RSU grant will not be interpreted to form an employment contract with the Employer or any subsidiary or affiliate of the Company; (i) the future value of the underlying Shares is unknown and cannot be predicted with certainty; (j) if Grantee vests in the RSU and obtains Shares, the value of those Shares may increase or decrease in value; (k) in consideration of the grant of the RSU, no claim or entitlement to compensation or damages shall arise from termination of the RSU or diminution in value of the RSU or Shares acquired through vesting of the RSU resulting from termination of Grantee’s employment by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and Grantee irrevocably releases the Company and the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this Agreement, Grantee will be deemed irrevocably to have waived his or her entitlement to pursue such claim; and (l) in the event of termination of Grantee’s employment (whether or not in breach of local labor laws), Grantee’s right to receive the RSU and vest in the RSU under the Plan, if any, will terminate effective as of the date that Grantee is no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); the Board/Committee shall have the exclusive discretion to determine when Grantee is no longer actively employed for purposes of his or her RSU grant. 8. Data Privacy. (a) Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in this document by and among, as applicable, the Employer, the Company and its Affiliates for the exclusive purpose of implementing, administering and managing Grantee’s participation in the Plan. (b) Grantee understands that the Company and the Employer may hold certain personal information about him or her, including, but not limited to, Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in Grantee’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). (c) Grantee understands that Data will be transferred to Smith Barney, or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Grantee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than Grantee’s country. Grantee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting Grantee’s local human resources representative. Grantee authorizes the Company, Smith Barney and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing Grantee’s participation in the Plan. Grantee understands that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. Grantee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Grantee’s local human resources representative. Grantee understands, however, that refusing or withdrawing his or her consent may affect Grantee’s ability to participate in the Plan. For more information on the consequences of Grantee’s refusal to consent or withdrawal of consent, Grantee understands that he or she may contact his or her local human resources representative. 9. Governing Law. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choices of laws, of the State of Delaware applicable to agreements made and to be performed wholly within the State of Delaware. For purposes of litigating any dispute that arises under this grant of RSUs or this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California, and agree that such litigation shall be conducted in the courts of California, or the federal courts for the United States for the Northern District of California, and no other courts, where their grant of RSUs is made and/or to be performed. 10. Agreement Binding on Successors. The terms of this Agreement shall be binding upon Grantee and upon Grantee’s heirs, executors, administrators, personal representatives, transferees, assignees and successors in interest, and upon the Company and its successors and assignees, subject to the terms of the Plan. 11. No Assignment. Notwithstanding anything to the contrary in this Agreement, neither this Agreement nor any rights granted herein shall be assignable by Grantee. 12. Necessary Acts. Grantee hereby agrees to perform all acts, and to 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, state or foreign securities and/or tax laws. 13. Invalid Provisions. If one or more of the provisions of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Agreement to be construed so as to foster the intent of this Agreement and the Plan. 14. Electronic Delivery and Consent to Electronic Participation. The Company may, in its sole discretion, decide to deliver any documents related to the RSU grant under and participation in the Plan or future RSUs that may be granted under the Plan by electronic means, or to request Grantee’s consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company, including the acceptance of restricted share unit grants and the execution of restricted share unit agreements through electronic signature. 15. Notices. Subject to Section 14, all notices or other communications required or permitted hereunder shall be in writing, and shall be sufficient in all respects only if delivered in person or sent via certified mail (postage prepaid), expedited mail service, facsimile, or electronic mail, addressed as follows: If to Grantee:                   If to the Company:   Hyperion Solutions Corporation 5450 Great America Parkway Santa Clara, CA 95054 Attn: [] e-mail:     Fax: 16. Entire Agreement. This Agreement and the Plan contain the entire agreement and understanding among the parties as to the subject matter hereof. 17. Headings. Headings are used solely for the convenience of the parties and shall not be deemed to be a limitation upon or descriptive of the contents of any such Section. 18. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and taken together shall constitute one and the same document. 19. Language. If Grantee has received this Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control. 20. Amendment. No amendment or modification hereof shall be valid unless it shall be in writing and signed by all parties hereto. 1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on [], 200[]. HYPERION SOLUTIONS CORPORATION By Print Name: Title: The undersigned hereby accepts and agrees to all the terms and provisions of the foregoing Agreement. GRANTEE Signature Print Name: 2

MDU RESOURCES GROUP, INC. EXECUTIVE INCENTIVE COMPENSATION PLAN ____________________________________________________________ I. PURPOSE The purpose of the Executive Incentive Compensation Plan (the "Plan") is to provide an incentive for key executives of MDU Resources Group, Inc. (the "Company") to focus their efforts on the achievement of challenging and demanding corporate objectives. The Plan is designed to reward successful corporate performance as measured against specified performance goals as well as exceptional individual performance. When corporate performance reaches or exceeds the performance targets and individual performance is exemplary, incentive compensation awards, in conjunction with salaries, will provide a level of compensation which recognizes the skills and efforts of the key executives. II. BASIC PLAN CONCEPT  The Plan provides an opportunity to earn annual incentive compensation based on the achievement of specified annual performance objectives. A target incentive award for each individual within the Plan is established based on the position level and actual base salary, provided, however, that the Compensation Committee of the Board of Directors (the “Committee”) in its sole discretion, may, instead of actual base salary, use the assigned salary grade market value (midpoint) (“Salary”). The target incentive award represents the amount to be paid, subject to the achievement of the performance objective targets established each year. Larger incentive awards than target may be authorized when performance exceeds targets; lesser or no amounts may be paid when performance is below target. It is recognized that during a Plan Year major unforeseen changes in economic and environmental conditions or other significant factors beyond the control of management may substantially affect the ability of the Plan Participants to achieve the specified performance goals. Therefore, in its review of corporate performance the Committee, in consultation with the Chief Executive Officer of the Company, may modify the performance targets. However, it is contemplated that such target modifications will be necessary only in years of unusually adverse or favorable external conditions. III. ADMINISTRATION The Plan shall be administered by the Committee with the assistance of the Chief Executive Officer of the Company. The Committee shall approve annually, prior to the beginning of each Plan Year, the list of eligible Participants, and the target incentive award level for each position within the Plan. The Plan’s performance targets for the year shall be approved by the Committee no later than its regularly scheduled February meeting during that Plan Year. The Committee shall have final discretion to determine actual award payment levels, method of payment, and whether or not payments shall be made for any Plan Year. The Board of Directors of the Company may, at any time and from time to time, alter, amend, supersede or terminate the Plan in whole or in part, provided that no termination, amendment or modification of the Plan shall adversely affect in any material way an award that has met all requirements for payment without the written consent of the Participant holding such award, unless such termination, modification or amendment is required by applicable law. IV. ELIGIBILITY Executives who are determined by the Committee to have a key role in both the establishment and achievement of Company objectives shall be eligible to participate in the Plan. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, for any reason or no reason in the Company’s sole discretion, or confer upon any Participant any right to continue in the employment of the Company. No executive shall have the right to be selected to receive an award under the Plan, or, having been so selected, to be selected to receive a future award. V. PLAN PERFORMANCE MEASURES Performance measures shall be established that consider shareholder and customer interests. These measures shall be evaluated annually based on achievement of specified goals. The performance measure reflective of shareholder’s interest will be the percentage attainment of corporate goals, as determined each year by the Committee. This measure may be applied at the corporate level for individuals, such as the Chief Executive Officer, or at the business unit level for individuals whose major or sole impact is on business unit results. Individual performance will be assessed based on the achievement of annually established individual objectives. Threshold, target and maximum award levels will be established annually for each performance measure and business unit. The Committee will retain the right to make all interpretations as to the actual attainment of the desired results and will determine whether any circumstances beyond the control of management need to be considered. VI. TARGET INCENTIVE AWARDS Target incentive awards will be expressed as a percentage of each Participant’s Salary. These percentages shall vary by position and reflect larger reward opportunity for positions having greater effect on the establishment and accomplishment of the Company’s or business unit’s objectives. An exhibit showing the target awards as a percentage of Salary for eligible positions will be attached to this Plan at the beginning of each Plan Year. VII. INCENTIVE FUND DETERMINATION The target incentive fund is the sum of the individual target incentive awards for all eligible Participants. Once the incentive targets have been determined by the Committee, a target incentive fund shall be established and accrued ratably by the Company. The incentive fund and accruals may be adjusted during the year. At the close of each Plan Year, the Chief Executive Officer of the Company will prepare an analysis showing the Company's or business unit's performance in relation to each of the performance measures employed. This will be provided to the Committee for review and comparison to threshold, target and maximum performance levels. In addition, any recommendations of the Chief Executive Officer will be presented at this time. The Committee will then determine the amount of the target incentive fund earned. VIII. INDIVIDUAL AWARD DETERMINATION Each individual Participant's award will be based first upon the level of performance achieved by the Company or business unit and secondly based upon the individual's performance. The performance measures applicable for assessing individual performance will be established at the beginning of each Plan Year. The assessment by the Committee, after consultation with the Chief Executive Officer, of achievement relative to the established performance measures, as determined by a percentage from 0 percent to 200 percent, will be applied to the Participant's target incentive award which has been first adjusted for Company or business unit performance. IX. PAYMENT OF AWARDS Except as provided below or as otherwise determined by the Committee, in order to receive an award under the Plan, the Participant must remain in the employment of the Company or business unit for the entire Plan Year. If a Participant terminates employment with the Company pursuant to Section 5.01 of the Company’s Bylaws which provides for mandatory retirement for certain officers on their 65th birthday (or terminates employment with a subsidiary of the Company pursuant to a similar subsidiary Bylaw provision) and if the Participant’s 65th birthday occurs during the Plan Year, determination of whether the performance measures have been met will be made at the end of the Plan Year, and to the extent met, payment of the award will be made to the Participant, prorated. Proration of awards shall be based upon the number of full months elapsed from and including January to and including the month in which the Participant’s 65th birthday occurs. An individual Participant who transfers between the Company and business units may receive a prorated award at the discretion of the Committee. Payments made under this Plan will not be considered part of compensation for pension purposes. Payments when made will be in cash. Incentive awards may be deferred if the appropriate elections have been executed prior to the end of the Plan Year. Deferred amounts will accrue interest at a rate determined annually by the Committee. In the event of a "Change in Control" (as defined by the Committee in its Rules and Regulations) then any award deferred by each Participant shall become immediately payable to the Participant in cash, together with accrued interest thereon to the date of payment. In the event the Participant files suit to collect the Participant's deferred award then all of the court costs, other expenses of litigation, and attorneys' fees shall be paid by the Company in the event the Participant prevails upon any of the Participant's claims for payment of a deferred award. X. ACCOUNTING RESTATEMENTS This Section X shall apply to incentive awards granted to all Participants in the Plan. Notwithstanding anything in the Plan or the Plan's Rules and Regulations to the contrary, if the Company's audited financial statements are restated, the Committee may, in accordance with the Company's Guidelines for Repayment of Incentives Due to Accounting Restatements, take such actions as it deems appropriate (in its sole discretion) with respect to (a) unpaid incentive awards under the Plan (including incentive awards relating to completed Plan Years, but with respect to which payments have not yet been made or deferred) ("Outstanding Awards") and (b) prior incentive awards that were paid (or deferred) within the 3 year period preceding the restatement ("Prior Awards"), provided such Prior Awards were not paid prior to the date the Plan was amended to add this Section X, if the calculation of the amounts payable, paid or deferred under such awards are, or would have been, directly impacted by the restatement, including, without limitation, (i) securing (or causing to be secured) repayment of some or all payments made pursuant to (or deferrals relating to) Prior Awards, (ii) making (or causing to be made) additional payments (or crediting additional deferrals), (iii) reducing or otherwise adjusting the amount payable pursuant to Outstanding Awards and/or (iv) causing the forfeiture of Outstanding Awards. The Committee may, in its sole discretion, take different actions pursuant to this Section X with respect to different awards, different Participants (or beneficiaries) and/or different classes of awards or Participants (or beneficiaries). The Committee has no obligation to take any action permitted by this Section X. The Committee may consider any factors it chooses in taking (or determining whether to take) any action permitted by this Section X, including, without limitation, the following: (A) The reason for the restatement of the financial statements; (B) The amount of time between the initial publication and subsequent restatement of the financial statements; and (C) The Participant's current employment status, and the viability of successfully obtaining repayment. If the Committee requires repayment of all or part of a Prior Award, the amount of repayment may be based on, among other things, the difference between the amount paid to the individual and the amount that the Committee determines in its sole discretion should have been paid based on the restated results. The Committee shall determine whether repayment shall be effected (i) by seeking repayment from the Participant, (ii) by reducing (subject to applicable law and the terms and conditions of the applicable plan, program or arrangement) the amount that would otherwise be provided to the Participant under any compensatory plan, program or arrangement maintained by the Company or any of its affiliates, (iii) by withholding payment of future increases in compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards that would otherwise have been made in accordance with the Company's otherwise applicable compensation practices, or (iv) by any combination of the foregoing. Additionally, by accepting an incentive award under the Plan, Participants acknowledge and agree that the Committee may take any actions permitted by this Section X with respect to Outstanding Awards to the extent repayment is to be made pursuant to another plan, program or arrangement maintained by the Company or any of its affiliates.

Exhibit 10.2 -------------------------------------------------------------------------------- PURCHASE AGREEMENT among DEERFIELD TRIARC CAPITAL CORP. DEERFIELD TRIARC CAPITAL LLC DEERFIELD TRIARC CAPITAL TRUST III and BEAR, STEARNS & CO. INC. -------------------------------------------------------------------------------- Dated as of October 27, 2006 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PURCHASE AGREEMENT ($25,000,000 Trust Preferred Securities)           THIS PURCHASE AGREEMENT, dated as of October 27, 2006 (this “Purchase Agreement”), is entered into among Deerfield Triarc Capital Corp., a Maryland corporation (the “Guarantor”), Deerfield Triarc Capital LLC, a Delaware limited liability company (the “Company”), and Deerfield Triarc Capital Trust III, a Delaware statutory trust (the “Trust”, and together with the Guarantor and the Company, the “Sellers”), and Bear, Stearns & Co. Inc. or its assignee (the “Purchaser”). WITNESSETH:           WHEREAS, the Sellers propose to issue and sell 25,000 Floating Rate Preferred Securities of the Trust, having a stated liquidation amount of $1,000 per security, bearing a variable rate, reset quarterly, equal to LIBOR (as defined in the Indenture (as defined below)) plus 2.25% thereafter (the “Preferred Securities”);           WHEREAS, the Purchaser desires to purchase 25,000 of the Preferred Securities;           WHEREAS, the entire proceeds from the sale of the Preferred Securities will be combined with the proceeds from the sale by the Trust to the Company of its common securities (the “Common Securities”), and will be used by the Trust to purchase Twenty-Five Million Seven Hundred Seventy-Four Thousand Dollars ($25,774,000) in principal amount of the unsecured junior subordinated notes of the Company (the “Junior Subordinated Notes”);           WHEREAS, the Preferred Securities and the Common Securities for the Trust will be issued pursuant to the Amended and Restated Trust Agreement (the “Trust Agreement”), dated as of the Closing Date, among the Company, as depositor, The Bank of New York Trust Company, National Association, a limited purpose national banking association with trust powers, as property trustee (in such capacity, the “Property Trustee”), The Bank of New York (Delaware), a Delaware banking corporation, as Delaware trustee (in such capacity, the “Delaware Trustee”), the Administrative Trustees named therein (in such capacities, the “Administrative Trustees”);           WHEREAS, the Junior Subordinated Notes will be issued pursuant to a Junior Subordinated Indenture, dated as of the Closing Date (the “Indenture”), between the Company and The Bank of New York Trust Company, National Association, a limited purpose national banking association with trust powers, as indenture trustee (in such capacity, the “Indenture Trustee”) and;           WHEREAS, the Preferred Securities will be guaranteed on a subordinated basis by the Guarantor as to the timely payment of distributions, and as to the timely payments on liquidation and redemption, to the extent set forth in the Parent Guarantee Agreement (the “Guarantee”) between the Guarantor and The Bank of New York Trust Company, National Association, a limited purpose national banking association with trust powers, as guarantee trustee. --------------------------------------------------------------------------------           NOW, THEREFORE, in consideration of the mutual agreements and subject to the terms and conditions herein set forth, the parties hereto agree as follows:           1. Definitions. The Preferred Securities, the Common Securities and the Junior Subordinated Notes are collectively referred to herein as the “Securities.” This Purchase Agreement, the Indenture, the Trust Agreement, the Guarantee and the Securities are collectively referred to herein as the “Operative Documents.” All other capitalized terms used but not defined in this Purchase Agreement shall have the respective meanings ascribed thereto in the Indenture.           2. Purchase and Sale of the Preferred Securities.             a) The Trust agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Trust the Preferred Securities for an amount (the “Purchase Price”) equal to Twenty-Five Million Dollars ($25,000,000). The Purchaser shall be responsible for the rating agency costs and expenses. The Trust shall use the Purchase Price, together with the proceeds from the sale of the Common Securities and the proceeds from the sale of Preferred Securities purchased by another purchaser, to purchase the Junior Subordinated Notes.             b) Delivery or transfer of, and payment for, the Preferred Securities shall be made at 11:00 A.M. New York time, on October 27, 2006 or such later date (but not later than November 27, 2006) as the parties may mutually agree (such date and time of delivery and payment for the Preferred Securities being herein called the “Closing Date”). The Preferred Securities shall be transferred and delivered to the Purchaser against the payment of the Purchase Price to the Trust made by wire transfer in immediately available funds on the Closing Date to a U.S. account designated in writing by the Company at least two business days prior to the Closing Date.             c) Delivery of the Preferred Securities shall be made at such location, and in such names and denominations, as the Purchaser shall designate at least two business days in advance of the Closing Date. The Company and the Trust agree to have the Preferred Securities available for inspection and checking by the Purchaser in New York, New York, not later than 2:00 P.M. New York time on the business day prior to the Closing Date. The closing for the purchase and sale of the Preferred Securities shall occur at the offices of Kelley Drye & Warren LLP, 101 Park Avenue, New York, New York 10178, or such other place as the parties hereto shall agree.           3. Conditions. The obligations of the parties under this Purchase Agreement are subject to the following conditions:             a) The representations and warranties contained herein shall be accurate as of the date of delivery of the Preferred Securities.             b) Winston & Strawn LLP, counsel for the Guarantor, the Company and the Trust (the “Company Counsel”), shall have delivered an opinion, dated the Closing Date, addressed to the Purchaser and The Bank of New York Trust Company, National Association, in substantially the form set out in Annex A-I hereto and the Company shall have furnished to the Purchaser a certificate signed by the Company’s Chief Executive Officer, President, a Senior --------------------------------------------------------------------------------       Vice President, Chief Financial Officer, Treasurer or Assistant Treasurer, dated the Closing Date, addressed to the Purchaser, in substantially the form set out in Annex A-II hereto. In rendering their opinion, the Company Counsel may rely as to factual matters upon certificates or other documents furnished by officers, directors and trustees of the Guarantor, the Company and the Trust and by government officials (provided, however, that copies of any such certificates or documents are delivered to the Purchaser) and by and upon such other documents as such counsel may, in their reasonable opinion, deem appropriate as a basis for the Company Counsel’s opinion. The Company Counsel may specify the jurisdictions in which they are admitted to practice and that they are not admitted to practice in any other jurisdiction and are not experts in the law of any other jurisdiction. Such Company Counsel opinion shall not state that they are to be governed or qualified by, or that they are otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).             c) The Purchaser shall have been furnished the opinion of Kelley Drye & Warren LLP, dated the Closing Date, addressed to the Purchaser and The Bank of New York Trust Company, National Association, in substantially the form set out in Annex B hereto.             d) The Purchaser shall have received the opinion of Richards, Layton & Finger, P.A., special Delaware counsel for the Delaware Trustee, dated the Closing Date, addressed to the Purchaser, The Bank of New York Trust Company, National Association, the Delaware Trustee and the Company, in substantially the form set out in Annex C hereto.             e) The Purchaser shall have received the opinion of Gardere Wynne Sewell LLP, special counsel for the Property Trustee and the Indenture Trustee, dated the Closing Date, addressed to the Purchaser, in substantially the form set out in Annex D hereto.             f) The Purchaser shall have received the opinion of Richards, Layton & Finger, P.A., special Delaware counsel for the Delaware Trustee, dated the Closing Date, addressed to the Purchaser and The Bank of New York Trust Company, National Association, in substantially the form set out in Annex E hereto.             g) Each of the Guarantor and the Company shall have furnished to the Purchaser a certificate of the Guarantor and the Company, as applicable, signed by the Chief Executive Officer, President or an Executive Vice President, and Chief Financial Officer, Treasurer or Assistant Treasurer of the Company, and the Trust shall have furnished to the Purchaser a certificate of the Trust, signed by an Administrative Trustee of the Trust, in each case dated the Closing Date, and, in the case of the Guarantor and the Company, as to (i) and (ii) below and, in the case of the Trust, as to (i) below:                    (i) the representations and warranties of the Guarantor, the Company and the Trust in this Purchase Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date, and the Company and the Trust have complied in all material respects with all the agreements and satisfied in all material respects all the conditions on either of their part to be performed or satisfied pursuant to the Operative Documents at or prior to the Closing Date; --------------------------------------------------------------------------------                    (ii) since the date of the Interim Financial Statements (as defined below), there has been no material adverse change in the condition (financial or other), earnings, business or assets of the Guarantor, the Company or their subsidiaries taken as a whole, whether or not arising from transactions occurring in the ordinary course of business (a “Material Adverse Change”).             h) The Guarantor and the Company shall have executed the Parent Guarantee Agreement and delivered same to The Bank of New York Trust Company, National Association, as Guarantee Trustee.             i) Prior to the Closing Date, the Guarantor, the Company and the Trust shall have furnished to the Purchaser and its counsel such further information, certificates and documents as the Purchaser or its counsel may reasonably request.             If any of the conditions specified in this Section 3 shall not have been fulfilled when and as provided in this Purchase Agreement, this Purchase Agreement and all the Purchaser’s obligations hereunder may be canceled at, or at any time prior to, the Closing Date by the Purchaser. Notice of such cancellation shall be given to the Company and the Trust in writing or by telephone or facsimile confirmed in writing.             Each certificate signed by any trustee of the Trust or any officer of the Guarantor or the Company and delivered to the Purchaser or the Purchaser’s counsel in connection with the Operative Documents and the transactions contemplated hereby and thereby shall be deemed to be a representation and warranty of the Trust and/or the Guarantor or the Company, as the case may be, and not by such trustee or officer in any individual capacity.           4. Representations and Warranties of the Guarantor, the Company and the Trust. The Guarantor or the Company and the Trust, as applicable, jointly and severally represent and warrant to, and agree with the Purchaser, as of the Closing Date as follows:             a) None of the Guarantor, the Company or the Trust, nor any of their “Affiliates” (as defined in Rule 501(b) of Regulation D (“Regulation D”) under the Securities Act (as defined below) but not including Triarc Companies, Inc. or any of its direct or indirect subsidiaries, nor any person acting on its or their behalf, has, directly or indirectly, made offers or sales of any security, or solicited offers to buy any security, under circumstances that would require the registration of any of the Securities under the Securities Act of 1933, as amended (the “Securities Act”).             b) None of the Guarantor, the Company or the Trust, nor any of their Affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of any of the Securities.             c) The Securities (i) are not and have not been listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or quoted on a U.S. automated inter-dealer quotation system and (ii) are not of an open-end investment company, unit investment trust or face-amount certificate company that are, or are required to be, registered under section 8 of the Investment Company Act of --------------------------------------------------------------------------------       1940, as amended (the “Investment Company Act”), and the Securities otherwise satisfy the eligibility requirements of Rule 144A(d)(3) promulgated pursuant to the Securities Act (“Rule 144A(d)(3)”).             d) None of the Guarantor, the Company or the Trust, nor any of their Affiliates, nor any person acting on its or their behalf, has engaged, or will engage, in any “directed selling efforts” within the meaning of Regulation S under the Securities Act with respect to the Securities.             e) None of the Guarantor, the Company or the Trust is, and, immediately following consummation of the transactions contemplated hereby and the application of the net proceeds therefrom, will not be, an “investment company” or an entity “controlled” by an “investment company,” in each case within the meaning of section 3(a) of the Investment Company Act.             f) None of the Guarantor, the Company or the Trust has paid or agreed to pay to any person any compensation for soliciting another to purchase any of the Securities, except for the preferred securities commission and/or the sales commission the Company has agreed to pay to Taberna Securities, LLC in the total amount of One Million Three Hundred Fifty Thousand Dollars ($1,350,000) pursuant to the letter agreement among the Guarantor, Bear, Stearns & Co. Inc. and Taberna Securities, LLC, dated August 2, 2006.             g) The Trust has been duly created and is validly existing in good standing as a statutory trust under the Delaware Statutory Trust Act, 12 Del. C. §3801, et seq. (the “Statutory Trust Act”) with all requisite power and authority to own property and to conduct the business it transacts and proposes to transact and to enter into and perform its obligations under the Operative Documents to which it is a party. The Trust is duly qualified to transact business as a foreign entity and is in good standing in each jurisdiction in which such qualification is necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on the condition (financial or otherwise), earnings, business or assets of the Trust, whether or not occurring in the ordinary course of business. The Trust is not a party to or otherwise bound by any agreement other than the Operative Documents.             h) The Trust Agreement has been duly authorized by the Company and, on the Closing Date specified in Section 2(b) hereof, will have been duly executed and delivered by the Company and the Administrative Trustees of the Trust, and, assuming due authorization, execution and delivery by the Property Trustee and the Delaware Trustee, will be a legal, valid and binding obligation of the Company and the Administrative Trustees, enforceable against them in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general principles of equity. Each of the Administrative Trustees of the Trust is an employee of the Company and has been duly authorized by the Company to execute and deliver the Trust Agreement.             i) The Indenture has been duly authorized by the Company and, on the Closing Date, will have been duly executed and delivered by the Company, and, assuming due authorization, execution and delivery by the Indenture Trustee, will be a legal, valid and binding obligation of the Company enforceable against it in accordance with its terms, subject --------------------------------------------------------------------------------       to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general principles of equity.             j) The Preferred Securities and the Common Securities have been duly authorized by the Trust and, when issued and delivered against payment therefor on the Closing Date in accordance with this Purchase Agreement, in the case of the Preferred Securities, and in accordance with the Common Securities Subscription Agreement, dated as of the date hereof, by and between the Company and the Trust, in the case of the Common Securities, will be validly issued, fully paid and non-assessable and will represent undivided beneficial interests in the assets of the Trust entitled to the benefits of the Trust Agreement, enforceable against the Trust in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general principles of equity. The issuance of the Securities is not subject to any preemptive or other similar rights. On the Closing Date, all of the issued and outstanding Common Securities will be directly owned by the Company free and clear of any pledge, security interest, claim, lien or other encumbrance of any kind (each, a “Lien”).             k) The Junior Subordinated Notes have been duly authorized by the Company and, on the Closing Date, will have been duly executed and delivered to the Indenture Trustee for authentication in accordance with the Indenture and, when authenticated in the manner provided for in the Indenture and delivered to the Trust against payment therefor in accordance with the certain Junior Subordinated Note Purchase Agreement of even date herewith between the Company and the Trust (the “Junior Subordinated Note Purchase Agreement”, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general principles of equity.             l) This Purchase Agreement has been duly authorized, executed and delivered by the Company, the Guarantor and the Trust.             m) The Guarantee has been duly authorized by the Guarantor and, on the Closing Date, will have been duly executed and delivered by the Guarantor, and, assuming due authorization, execution and delivery by The Bank of New York Trust Company, National Association, will be a legal, valid and binding obligation of the Guarantor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general principles of equity.             n) Neither the issue and sale of the Common Securities, the Preferred Securities or the Junior Subordinated Notes, nor the purchase of the Junior Subordinated Notes by the Trust, nor the execution and delivery of and compliance with the Operative Documents by the Guarantor, the Company or the Trust, nor the consummation of the transactions contemplated herein or therein, (i) will conflict with or constitute a violation or breach of the Trust Agreement or the charter or bylaws of the Guarantor or any subsidiary of the Guarantor (including the Company) or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, governmental authority, agency or instrumentality or court, domestic or foreign, having jurisdiction over the Trust or the Guarantor or any of its --------------------------------------------------------------------------------       subsidiaries (including the Company) or their respective properties or assets (collectively, the “Governmental Entities”), (ii) will conflict with or constitute a violation or breach of, or a default or Repayment Event (as defined below) under, or result in the creation or imposition of any Lien upon any property or assets of the Trust, the Guarantor or any of the Guarantors’ subsidiaries (including the Company) pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which (A) the Trust, the Guarantor or any of its subsidiaries (including the Company) is a party or by which it or any of them may be bound, or (B) to which any of the property or assets of any of them is subject, or any judgment, order or decree of any court, Governmental Entity or arbitrator, except, in the case of this clause (ii), for such conflicts, breaches, violations, defaults, Repayment Events (as defined below) or Liens which (X) would not, singly or in the aggregate, materially adversely affect the consummation of the transactions contemplated by the Operative Documents and (Y) would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings, business, liabilities and assets (taken as a whole) of the Guarantor and its subsidiaries (including the Company) taken as a whole, whether or not occurring in the ordinary course of business (a “Material Adverse Effect”) or (iii) require the consent, approval, authorization or order of any court or Governmental Entity. As used herein, a “Repayment Event” means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Trust or the Guarantor or any of its subsidiaries (including the Company) prior to its scheduled maturity.             o) The Guarantor has been duly incorporated and is validly existing as a corporation in good standing under the laws of Maryland, with all requisite corporate power and authority to own, lease and operate its properties and conduct the business it transacts and proposes to transact, and is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction where the nature of its activities requires such qualification, except where the failure of the Guarantor to be so qualified would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.             p) The Guarantor has no subsidiaries that are material to its business, financial condition or earnings other than those subsidiaries listed in Schedule 1 attached hereto (collectively, the “Significant Subsidiaries”). Each Significant Subsidiary is a corporation, partnership or limited liability company duly incorporated, organized or formed, as the case may be, validly existing and in good standing under the laws of the jurisdiction in which it is chartered, organized or formed, with all requisite power and authority to own, lease and operate its properties and conduct the business it transacts and proposes to transact. Each Significant Subsidiary is duly qualified to transact business as a foreign corporation, partnership or limited liability company, as applicable, and is in good standing in each jurisdiction where the nature of its activities requires such qualification, except where the failure to be so qualified would not, singly or in the aggregate, have a Material Adverse Effect. No Significant Subsidiary is currently prohibited, directly or indirectly, under any agreement or other instrument, other than as required by applicable law, to which it is a party or is subject, from paying any dividends to the Guarantor, from making any other distribution on such Significant Subsidiary’s capital stock or other Equity Interests, from repaying to the Guarantor any loans or advances to such Significant Subsidiary from the Guarantor or from transferring --------------------------------------------------------------------------------       any of such Significant Subsidiary’s properties or assets to the Guarantor or any other subsidiary of the Guarantor.             q) Each of the Trust, the Guarantor and each of the Significant Subsidiaries hold all necessary approvals, authorizations, orders, licenses, consents, registrations, qualifications, certificates and permits (collectively, the “Governmental Licenses”) of and from Governmental Entities necessary to conduct their respective businesses as now being conducted, and neither the Trust, the Guarantor nor any of the Significant Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Government License, except where the failure to be so licensed or approved or the receipt of an unfavorable decision, ruling or finding, would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except where the invalidity or the failure of such Governmental Licenses to be in full force and effect, would not, singly or in the aggregate, have a Material Adverse Effect; and the Guarantor and its subsidiaries are in compliance with all applicable laws, rules, regulations, judgments, orders, decrees and consents, except where the failure to be in compliance would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.             r) All of the issued and outstanding Equity Interests of the Guarantor and each of its subsidiaries are validly issued, fully paid and non-assessable; except as disclosed in the Interim Financial Statements, all of the issued and outstanding Equity Interests of each subsidiary of the Guarantor is owned by the Guarantor, directly or through subsidiaries, free and clear of any Lien, claim or equitable right; and none of the issued and outstanding Equity Interests of the Guarantor or any subsidiary was issued in violation of any preemptive or similar rights arising by operation of law, under the charter, articles of organization, certification of formation, certificate of limited partnership, by-laws or operating agreement (collectively, “Organizational Documents”) of such entity or under any agreement to which the Guarantor or any of its subsidiaries is a party.             s) Neither the Guarantor nor any of its subsidiaries is (i) in violation of its respective Organizational Documents or (ii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Guarantor or any such subsidiary is a party or by which it or any of them may be bound or to which any of the property or assets of any of them is subject, except, in the case of clause (ii), where such violation or default would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.             t) There is no action, suit or proceeding before or by any Governmental Entity, or arbitrator, domestic or foreign, now pending or, to the knowledge of the Guarantor, the Company or the Trust after due inquiry, threatened against or affecting the Guarantor, the Trust or the Company or any of the Guarantor’s subsidiaries, except for such actions, suits or proceedings that, if adversely determined, would not, singly or in the aggregate, materially adversely affect the consummation of the transactions contemplated by the Operative Documents or have a Material Adverse Effect; and the aggregate of all pending legal or governmental proceedings to which the Guarantor, the Trust, the Company or any of the Guarantor’s subsidiaries is a party or of which any of their respective properties or assets is --------------------------------------------------------------------------------       subject, including ordinary routine litigation incidental to the business, are not expected to result in a Material Adverse Effect.             u) The accountants of the Guarantor who certified the Financial Statements (as defined below) are independent public accountants of the Guarantor and its subsidiaries within the meaning of the Securities Act, and the rules and regulations of the Securities and Exchange Commission (the “Commission”) thereunder.             v) The audited consolidated financial statements (including the notes thereto) and schedules of the Guarantor and its consolidated subsidiaries for the fiscal year ended December 31, 2005 (the “Financial Statements”) and the interim unaudited consolidated financial statements of the Company and its consolidated subsidiaries for the quarter ended June 30, 2006 (the “Interim Financial Statements”) provided to the Purchaser are the most recent available audited and unaudited consolidated financial statements of the Guarantor and its consolidated subsidiaries, respectively, and fairly present in all material respects, in accordance with U.S. generally accepted accounting principles, the financial position of the Guarantor and its consolidated subsidiaries, and the results of operations and changes in financial condition as of the dates and for the periods therein specified, subject, in the case of Interim Financial Statements, to year-end adjustments (which are expected to consist solely of normal recurring adjustments). Such consolidated financial statements and schedules have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) consistently applied throughout the periods involved (except as otherwise noted therein).             w) None of the Trust, the Guarantor nor any of the Guarantor’s subsidiaries has any material liability, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any liability for taxes (and there is no past or present fact, situation, circumstance, condition or other basis for any present or future action, suit, proceeding, hearing, charge, complaint, claim or demand against the Guarantor or its subsidiaries that could give rise to any such liability), except for (i) liabilities set forth in the Financial Statements or the Interim Financial Statements and (ii) normal fluctuations in the amount of the liabilities referred to in clause (i) above occurring in the ordinary course of business of the Trust, the Guarantor and all of the Guarantor’s subsidiaries since the date of the most recent balance sheet included in such Financial Statements.             x) Since the respective dates of the Financial Statements and the Interim Financial Statements, there has not been (A) material adverse change in the condition (financial or other), earnings, business or assets of the Guarantor and its subsidiaries, taken as a whole, whether or not arising from transactions occurring in the ordinary course of business (a “Material Adverse Change”) or (B) any dividend or distribution of any kind declared, paid or made by the Guarantor on any class of its capital stock other than regular quarterly dividends on the Guarantor’s common stock.             y) The documents of the Guarantor filed with the Commission in accordance with the Exchange Act, from and including the commencement of the fiscal year covered by the Guarantor’s most recent Annual Report on Form 10-K, at the time they were filed by the Guarantor with the Commission (collectively, the “1934 Act Reports”), complied in all --------------------------------------------------------------------------------       material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder (the “1934 Act Regulations”), and, at the date of this Purchase Agreement and on the Closing Date, do not and will not include 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; and other than such instruments, agreements, contracts and other documents as are filed as exhibits to the Guarantor’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, there are no instruments, agreements, contracts or documents of a character described in Item 601 of Regulation S-K promulgated by the Commission to which the Guarantor or any of its subsidiaries is a party. The Guarantor is in compliance with all currently applicable requirements of the Exchange Act that were added by the Sarbanes-Oxley Act of 2002.             z) No labor dispute with the employees of the Trust, the Guarantor or any of the Guarantor’s subsidiaries exists or, to the knowledge of the executive officers of the Trust or the Guarantor, is imminent, except those which would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.             aa) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any Governmental Entity, other than those that have been made or obtained, is necessary or required for the performance by the Trust or the Guarantor of their respective obligations under the Operative Documents, as applicable, or the consummation by the Trust and the Guarantor of the transactions contemplated by the Operative Documents.             bb) Each of the Trust, the Guarantor and each subsidiary of the Guarantor has good and marketable title to all of its respective real and personal properties, in each case free and clear of all Liens and defects, except for those that would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; and all of the leases and subleases under which the Trust, the Guarantor or any subsidiary of the Guarantor holds properties are in full force and effect, except where the failure of such leases and subleases to be in full force and effect would not, singly or in the aggregate, reasonably be expect to have a Material Adverse Effect, and none of the Trust, the Guarantor or any subsidiary of the Guarantor has any notice of any claim of any sort that has been asserted by anyone adverse to the rights of the Trust, the Guarantor or any subsidiary of the Guarantor under any such leases or subleases, or affecting or questioning the rights of such entity to the continued possession of the leased or subleased premises under any such lease or sublease, except for such claims that would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.             cc) [Reserved].             dd) Commencing with its taxable year ended December 31, 2004 the Guarantor has been, and upon the completion of the transactions contemplated hereby, the Guarantor will continue to be, organized and operated in conformity with the requirements for qualification and taxation as a real estate investment trust (a “REIT”) under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and the Guarantor’s proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code, and no actions have been taken (or not taken which are --------------------------------------------------------------------------------       required to be taken) which would cause such qualification to be lost. The Guarantor expects to continue to be organized and to operate in a manner so as to qualify as a REIT in the taxable year ending December 31, 2005 and succeeding taxable years.             ee) The Company and each of the Significant Subsidiaries have timely and duly filed all Tax Returns required to be filed by them or have obtained a valid extension for such filing, and all such Tax Returns are true, correct and complete in all material respects. The Company and each of the Significant Subsidiaries have timely and duly paid in full all material Taxes required to be paid by them (whether or not such amounts are shown as due on any Tax Return). There are no federal, state, or other Tax audits or deficiency assessments proposed or pending with respect to the Company or any of the Significant Subsidiaries, and no such audits or assessments are threatened. As used herein, the terms “Tax” or “Taxes” mean (i) all federal, state, local, and foreign taxes, and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto, imposed by any Governmental Entity, and (ii) all liabilities in respect of such amounts arising as a result of being a member of any affiliated, consolidated, combined, unitary or similar group, as a successor to another person or by contract. As used herein, the term “Tax Returns” means all federal, state, local, and foreign Tax returns, declarations, statements, reports, schedules, forms, and information returns and any amendments thereto filed or required to be filed with any Governmental Entity.             ff) The Trust will not be subject to U.S. federal income tax with respect to income received or accrued on the Junior Subordinated Notes, interest payable by the Company on the Junior Subordinated Notes will be deductible by the Company, in whole or in part, for U.S. federal income tax purposes, and the Trust is not, or will not be within ninety (90) days of the date hereof, subject to more than a de minimis amount of other taxes, duties or other governmental charges. There are no rulemaking or similar proceedings before the U.S. Internal Revenue Service or comparable federal, state, local or foreign government bodies which involve or affect the Company or any subsidiary, which, if the subject of an action unfavorable to the Company or any subsidiary, could reasonably be expected to result in a Material Adverse Effect.             gg) The books, records and accounts of the Guarantor and its subsidiaries accurately and fairly reflect, in reasonable detail, the transactions in, and dispositions of, the assets of, and the results of operations of, the Guarantor and its subsidiaries. The Guarantor, for itself and its subsidiaries, maintains a system of internal accounting controls sufficient to provide reasonable assurances 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 accordance with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.             hh) The Guarantor and the Significant Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts in all material respects as are customary in the businesses in which they are engaged or propose to engage after giving effect to the transactions contemplated hereby including but not limited to, --------------------------------------------------------------------------------       real or personal property owned or leased against theft, damage, destruction, act of vandalism and all other risks customarily insured against. All policies of insurance and fidelity or surety bonds insuring the Guarantor or any of the Significant Subsidiaries or the Guarantor’s or Significant Subsidiaries’ respective businesses, assets, employees, officers and directors are in full force and effect. The Guarantor and each of the subsidiaries are in compliance with the terms of such policies and instruments in all material respects. None of the Guarantor, the Company or any Significant Subsidiary has 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 have a Material Adverse Effect. Within the past twelve months, none of the Guarantor, the Company or any Significant Subsidiary has been denied any insurance coverage which it has sought or for which it has applied.             ii) None of the Guarantor or any of its subsidiaries or any person acting on behalf of the Guarantor and its subsidiaries including, without limitation, any director, officer, agent or employee of the Company or its subsidiaries has, directly or indirectly, while acting on behalf of the Guarantor and its subsidiaries (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any other unlawful payment.             jj) The information provided by the Guarantor, the Company and the Trust pursuant to this Purchase Agreement and the transactions contemplated hereby does not, as of the date hereof, and will not as of the Closing Date, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.             kk) The Guarantor and its subsidiaries do not own or lease any real property.           5. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to, and agrees with, the Company and the Trust as of the Closing Date as follows:             a) The Purchaser is aware that the Preferred Securities have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to “U.S. persons” (as defined in Regulation S under the Securities Act) except in accordance with Rule 903 of Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act.             b) The Purchaser is an “accredited investor,” as such term is defined in Rule 501(a) of Regulation D under the Securities Act.             c) Neither the Purchaser, nor any of the Purchaser’s affiliates, nor any person acting on the Purchaser’s or the Purchaser’s Affiliate’s behalf has engaged, or will engage, in any form of “general solicitation or general advertising” (within the meaning of Regulation D under the Securities Act) in connection with any offer or sale of the Preferred Securities. --------------------------------------------------------------------------------             d) The Purchaser understands and acknowledges that (i) no public market exists for any of the Preferred Securities and that it is unlikely that a public market will ever exist for the Preferred Securities, (ii) the Purchaser is purchasing the Preferred Securities for its own account, for investment and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act or other applicable securities laws, subject to any requirement of law that the disposition of its property be at all times within its control and subject to its ability to resell such Preferred Securities pursuant to an effective registration statement under the Securities Act or pursuant to an exemption therefrom or in a transaction not subject thereto, and the Purchaser agrees to the legends and transfer restrictions applicable to the Preferred Securities contained in the Trust Agreement and the Preferred Securities, and (iii) the Purchaser has had the opportunity to ask questions of, and receive answers and request additional information from, the Company and is aware that it may be required to bear the economic risk of an investment in the Preferred Securities.             e) The Purchaser is a company with limited liability duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it is organized with all requisite (i) power and authority to execute, deliver and perform the Operative Documents to which it is a party, to make the representations and warranties specified herein and therein and to consummate the transactions contemplated herein and (ii) right and power to purchase the Preferred Securities.             f) This Purchase Agreement has been duly authorized, executed and delivered by the Purchaser and no filing with, or authorization, approval, consent, license, order registration, qualification or decree of, any governmental body, agency or court having jurisdiction over the Purchaser, other than those that have been made or obtained, is necessary or required for the performance by the Purchaser of its obligations under this Purchase Agreement or to consummate the transactions contemplated herein.             g) The Purchaser is a “Qualified Purchaser” as such term is defined in section 2(a)(51) of the Investment Company Act.           6. Covenants and Agreements of the Company, the Guarantor and the Trust. The Company, the Guarantor and the Trust jointly and severally agree with the Purchaser as follows:             a) During the period from the date of this Purchase Agreement to the Closing Date, the Company and the Trust shall use their commercially reasonable efforts and take all action necessary or appropriate to cause their representations and warranties contained in Section 4 hereof to be true as of the Closing Date, after giving effect to the transactions contemplated by this Purchase Agreement, as if made on and as of the Closing Date.             b) The Company and the Trust will arrange for the qualification of the Preferred Securities for sale under the laws of such jurisdictions as the Purchaser in writing may designate and will maintain such qualifications in effect so long as required for the sale of the Preferred Securities. The Company or the Trust, as the case may be, will promptly advise the Purchaser in writing of the receipt by the Company or the Trust, as the case may be, of any --------------------------------------------------------------------------------       notification with respect to the suspension of the qualification of the Preferred Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose.             c) None of the Guarantor, the Company or the Trust will, nor will any of them permit any of their Affiliates to, nor will any of them permit any person acting on its or their behalf (other than the Purchaser) to, resell any Preferred Securities that have been acquired by any of them.             d) None of the Guarantor, the Company or the Trust will, nor will any of them permit any of their Affiliates or any person acting on their behalf to, engage in any “directed selling efforts” within the meaning of Regulation S under the Securities Act with respect to the Securities.             e) None of the Guarantor, the Company or the Trust will, nor will any of them permit any of their Affiliates or any person acting on their behalf to, directly or indirectly, make offers or sales of any security, or solicit offers to buy any security, under circumstances that would require the registration of any of the Securities under the Securities Act.             f) None of the Guarantor, the Company or the Trust will, nor any either of them permit any of its Affiliates or any person acting on their behalf to, engage in any form of “general solicitation or general advertising” (within the meaning of Regulation D) in connection with any offer or sale of the any of the Securities.             g) So long as any of the Securities are outstanding, (i) the Securities shall not be listed on a national securities exchange registered under section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system and (ii) none of the Guarantor, the Company or the Trust shall be an open-end investment company, unit investment trust or face-amount certificate company that is, or is required to be, registered under section 8 of the Investment Company Act, and, the Securities shall otherwise satisfy the eligibility requirements of Rule 144A(d)(3).             h) Each of the Guarantor, the Company and the Trust shall furnish to (i) the holders, and subsequent holders of the Preferred Securities, (ii) Taberna Capital Management, LLC (at 450 Park Avenue, New York, New York 10022, or such other address as designated by Taberna Capital Management, LLC) and (iii) any beneficial owner of the Preferred Securities reasonably identified to the Guarantor, the Company and the Trust (which identification may be made by either such beneficial owner or by Taberna Capital Management, LLC), a duly completed and executed certificate in the form attached hereto as Annex F, including the financial statements referenced in such Annex, which certificate and financial statements shall be so furnished by the Guarantor, the Company and the Trust not later than forty five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Guarantor, and not later than ninety (90) days after the end of each fiscal year of the Guarantor.             i) Each of Guarantor, the Company and the Trust will, during any period in which it is not subject to and in compliance with section 13 or 15(d) of the Exchange Act, or it is not exempt from such reporting requirements pursuant to and in compliance with Rule 12g3-2(b) --------------------------------------------------------------------------------       under the Exchange Act, shall provide to each holder of the Securities and to each prospective purchaser (as designated by such holder) of the Securities, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Securities Act, if applicable. If the Guarantor, the Company and the Trust are required to register under the Exchange Act, such reports filed in compliance with Rule 12g3-2(b) shall be sufficient information as required above. This covenant is intended to be for the benefit of the Purchaser, the holders of the Securities, and the prospective purchasers designated by the Purchaser and such holders, from time to time, of the Securities.             j) None of the Guarantor, the Company or the Trust will, until one hundred eighty (180) days following the Closing Date, without the Purchaser’s prior written consent, offer, sell, contract to sell, grant any option to purchase or otherwise dispose of, directly or indirectly, (i) any Preferred Securities or other securities substantially similar to the Preferred Securities other than as contemplated by this Purchase Agreement or (ii) any other securities convertible into, or exercisable or exchangeable for, any Preferred Securities or other securities substantially similar to the Preferred Securities, unless in either case the Guarantor shall deliver to Purchaser an opinion of experienced securities law counsel reasonably acceptable to Purchaser stating that such offer, sale, contract to sell, grant or other disposition will not result in the loss of the private placement exemption under the Securities Act relied upon with respect to the sale of the Preferred Securities under this Purchase Agreement. For the avoidance of doubt, the parties hereto agree that any preferred securities issued by a statutory trust, other than the Trust, which such securities have an interest rate, interest payment dates and maturity date that are different from the Preferred Securities would not be deemed to be substantially similar to the Preferred Securities and shall not be subject to the limitations set forth in the first sentence of this Section 6(j).             k) The Guarantor will use its commercially reasonable efforts to meet the requirements to qualify as a REIT under sections 856 through 860 of the Code, effective for the taxable year ending December 31, 2005 (and each fiscal quarter of such year) and succeeding taxable years.             l) The Purchaser is granted the right under the Indenture and the Trust Agreement to request the substitution of new notes for all or a portion of the Junior Subordinated Notes held by the Trust. The Trust is required under the terms of the Indenture and the Trust Agreement to accept such newly issued notes (the “Replacement Notes”) and surrender a like amount of Junior Subordinated Notes to the Company. The Replacement Notes shall bear terms identical to the Junior Subordinated Notes with the sole exception of interest payment dates (and corresponding redemption date and maturity date), which will be specified by the Purchaser. In no event will the interest payment dates (and corresponding redemption date and maturity date) on the Replacement Notes vary by more than sixty (60) calendar days from the original interest payment dates (and corresponding redemption date and maturity date) under the Junior Subordinated Notes. Each of the Guarantor, the Company and the Trust acknowledges and agrees that, to the extent of the principal amount of the Replacement Notes issued to the Trust under the Indenture, the Purchaser (and each successor to Purchaser’s interest in the Preferred Securities) will require the Trust to issue a new series of Preferred Securities having a principal amount equal to the principal amount of the Replacement Notes (the “Replacement Securities”) to designated holders of Preferred Securities, provided that any --------------------------------------------------------------------------------       such Replacement Securities, and any distributions from the Trust to the holders of Replacement Securities, must relate solely to the Trust’s interest in the Replacement Notes and in no event will the Preferred Securities other than the Replacement Securities share in the returns from any Replacement Notes and in no event will the Replacement Securities receive payments other than payments in respect of the Replacement Notes. The Replacement Securities shall have payment dates (and corresponding redemption date and maturity date) that correspond to the payment dates and maturity dates of the Replacement Notes. Each of the Guarantor, the Company and the Trust agrees to cooperate with all reasonable requests of Purchaser in connection with any of the foregoing, provided that no action requested of the Guarantor, the Company or the Trust in connection with such cooperation shall materially increase the obligations or materially decrease the rights of the Guarantor, the Company or the Trust pursuant to such documents.             m) None of the Guarantor, the Company or the Trust will identify any of the Indemnified Parties (as defined below) in a press release or any other public statement without the consent of such Indemnified Party, except as may be required under applicable securities law as determined in the reasonable judgment of the Guarantor, provided that to the extent permitted by applicable law, the Guarantor, the Company or the Trust, as the case may be, shall redact the name of the Purchaser in any such press release or other public statement.           7. Payment of Expenses. The Guarantor and the Company, as depositor of the Trust, agree to pay all costs and expenses incident to the performance of the obligations of the Guarantor, the Company and the Trust under this Purchase Agreement, whether or not the transactions contemplated herein are consummated or this Purchase Agreement is terminated, including all costs and expenses incident to (i) the authorization, issuance, sale and delivery of the Preferred Securities and any taxes payable in connection therewith; (ii) the fees and expenses of qualifying the Preferred Securities under the securities laws of the several jurisdictions as provided in Section 6(b) hereof; (iii) the fees and expenses of the counsel, the accountants and any other experts or advisors retained by the Guarantor, the Company or the Trust; (iv) the fees and all reasonable expenses of the Property Trustee, the Delaware Trustee, the Indenture Trustee and any other trustee or paying agent appointed under the Operative Documents, including the fees and disbursements of counsel for such trustees, which fees shall not exceed a $2,000 acceptance fee, $3,500 for the fees and expenses of Richards, Layton & Finger, P.A., special Delaware counsel retained by the Delaware Trustee in connection with the Closing, and $4,000 in administrative fees annually; (v) the reasonable and actual fees and expenses of Kelley Drye & Warren LLP, special counsel retained by Taberna Capital Management, LLC not to exceed $25,000; and (vi) a due diligence fee in an amount equal to $12,500 payable to Taberna Securities, LLC. Nothing in this Section 7 shall require duplication of the foregoing expenses in connection with a sale of the Preferred Securities pursuant to any other purchase agreement.                      If the sale of the Preferred Securities provided for in this Purchase Agreement is not consummated because any condition set forth in Section 3 hereof to be satisfied by the Guarantor, the Company or the Trust is not satisfied, or because of any failure, refusal or inability on the part of either of the Company or the Trust to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder other than by reason of a default by the Purchaser, the Company will reimburse the Purchaser upon demand for all reasonable out-of-pocket expenses (including the reasonable and actual fees and expenses of Purchaser’s -------------------------------------------------------------------------------- counsel specified in subparagraph (v) of the immediately preceding paragraph but not to exceed $25,000) that shall have been incurred by the Purchaser in connection with the proposed purchase and sale of the Preferred Securities. The Company shall not in any event be liable to the Purchaser for the loss of anticipated profits from the transactions contemplated by this Purchase Agreement.           8. Indemnification.               a) The Sellers agree, jointly and severally, to indemnify and hold harmless the Purchaser, the Purchaser’s affiliates, Taberna Capital Management, LLC, Taberna Securities, LLC, Cohen Bros. & Company, and their respective affiliates (collectively, the “Indemnified Parties”) each person, if any, who controls any of the Indemnified Parties within the meaning of the Securities Act or the Exchange Act, and the Indemnified Parties’ respective directors, officers, employees and agents and each person, if any, who controls the Indemnified Parties within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which the Indemnified Parties may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement of a material fact contained in any information or documents furnished to the Purchaser by or on behalf of the Sellers, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) the breach or alleged breach of any representation, warranty or agreements of the Sellers contained herein, and agree, jointly and severally, to reimburse each Indemnified Party for any legal or other expenses reasonably incurred by the Indemnified Parties in connection with investigating or defending any such loss, claim, damage, liability or action. This indemnity agreement will be in addition to any liability that any of the Sellers may otherwise have.             b) The Company agrees to indemnify the Trust against all loss, liability, claim, damage and expense whatsoever due from the Trust under paragraph (a) above.             c) Promptly after receipt by an Indemnified Party under this Section 8 of notice of the commencement of any action, such Indemnified Party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, promptly notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve the indemnifying party from liability under paragraph (a) above unless and to the extent that such failure results in the forfeiture by the indemnifying party of material rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any Indemnified Party other than the indemnification obligation provided in paragraph (a) above. Purchaser shall be entitled to appoint counsel to represent the Indemnified Party in any action for which indemnification is sought. An indemnifying party may participate at its own expense in the defense of any such action; provided, that counsel to the indemnifying party shall not (except with the consent of the Indemnified Party) also be counsel to the Indemnified Party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all Indemnified Parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or --------------------------------------------------------------------------------       circumstances, unless an Indemnified Party in good faith believes that its interests are not aligned with the interests of another Indemnified Party or that a conflict of interest might result. An indemnifying party will not, without the prior written consent of the Indemnified Parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not the Indemnified Parties are actual or potential parties to such claim, action, suit or proceeding) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Party from all liability arising out of such claim, action, suit or proceeding.           9. Termination; Representations and Indemnities to Survive. This Purchase Agreement shall be subject to termination in the reasonable discretion of the Purchaser, exercised in good faith, by written notice given to the Guarantor, the Company and the Trust prior to delivery of and payment for the Preferred Securities, if prior to such time (i) a downgrading shall have occurred in the rating accorded the Guarantor’s debt securities or preferred stock by any “nationally recognized statistical rating organization,” as that term is used by the Commission in Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, or such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the Guarantor’s debt securities or preferred stock, (ii) a suspension or material limitation in trading in securities generally shall have occurred on the New York Stock Exchange, (iii) a suspension or material limitation in trading in any of the Guarantor’s securities shall have occurred on the exchange or quotation system upon which the Guarantor’s securities are traded, if any, (iv) a general moratorium on commercial business activities shall have been declared either by federal authorities or (v) there shall have occurred any outbreak or escalation of hostilities, or declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the Purchaser’s reasonable judgment, impracticable or inadvisable to proceed with the offering or delivery of the Preferred Securities. The respective agreements, representations, warranties, indemnities and other statements of the Guarantor, the Company and the Trust or their respective officers or trustees and of the Purchaser set forth in or made pursuant to this Purchase Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Purchaser, the Guarantor, the Company or the Trust or any of the their respective officers, directors, trustees or controlling persons, and will survive delivery of and payment for the Preferred Securities. The provisions of Sections 7, 8 and 9 hereof shall survive the termination or cancellation of this Purchase Agreement.           10. Amendments. This Purchase Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement by each of the parties hereto.           11. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Purchaser, will be mailed, delivered by hand or courier or sent by facsimile and confirmed to the Purchaser c/o Taberna Capital Management, LLC, 450 Park Avenue, New York, New York 10022, Attention: Thomas Bogal Facsimile: (212) 735-1499; with a copy to Kelley Drye & Warren LLP, 101 Park Avenue, New York, New York 10178, Attention: Gregory McKenzie, Facsimile: (212) 808-7897 or other address as the Purchaser shall designate for such purpose in a notice to the Company and the Trust; and if sent to the Company -------------------------------------------------------------------------------- or the Trust, will be mailed, delivered by hand or courier or sent by facsimile and confirmed to it at Deerfield Triarc Capital Corp., 6250 N. River Road, 9th Floor, Rosemont, IL 60018,Attention: General Counsel, Facsimile: (773) 380-1695, with a copy to Winston & Strawn, LLP, 35 West Wacker Drive, Chicago, IL 60657; Facsimile: (312) 558-5700; Attention: Wayne D. Boberg, or such other address as the Guarantor or the Company shall designate for such purpose in a notice to the Purchaser.           12. Successors and Assigns. This Purchase Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing expressed or mentioned in this Purchase Agreement is intended or shall be construed to give any person other than the parties hereto and the affiliates, directors, officers, employees, agents and controlling persons referred to in Section 8 hereof and their successors, assigns, heirs and legal representatives, any right or obligation hereunder. None of the rights or obligations of the Guarantor, the Company or the Trust under this Purchase Agreement may be assigned, whether by operation of law or otherwise, without the Purchaser’s prior written consent. The rights and obligations of the Purchaser under this Purchase Agreement may be assigned by the Purchaser without the Guarantor’s, the Company’s or the Trust’s consent; provided that the assignee assumes all of the obligations of the Purchaser under this Purchase Agreement.           13. Applicable Law. THIS PURCHASE AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW).           14. Submission To Jurisdiction. ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY PARTY HERETO OR WITH RESPECT TO OR ARISING OUT OF THIS PURCHASE AGREEMENT MAY BE BROUGHT IN OR REMOVED TO THE COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW YORK, OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK (IN EACH CASE SITTING IN THE BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF THIS PURCHASE AGREEMENT, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS (AND COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS PURCHASE AGREEMENT.           15. Counterparts and Facsimile. This Purchase Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. This Purchase Agreement may be executed by any one or more of the parties hereto by facsimile.           16. The parties hereto acknowledge and agree that upon execution of this Purchase Agreement, Taberna Securities, LLC’s obligation under that certain Letter Agreement dated August 2, 2006 (the “Letter Agreement”) between the Guarantor and Taberna Securities, LLC to cause the SPV (as defined in the Letter Agreement) to purchase the Securities (as defined in the Letter Agreement) is satisfied in full. --------------------------------------------------------------------------------           IN WITNESS WHEREOF, this Purchase Agreement has been entered into as of the date first written above.         DEERFIELD TRIARC CAPITAL LLC         By:  /s/ Frederick L. White     --------------------------------------------------------------------------------     Name: Frederick L. White     Title:  Secretary         DEERFIELD TRIARC CAPITAL TRUST III       By: DEERFIELD TRIARC CAPITAL LLC, as Depositor       By:  /s/ Frederick L. White     --------------------------------------------------------------------------------     Name: Frederick L. White     Title:  Secretary       DEERFIELD TRIARC CAPITAL CORP.       By:  /s/ Frederick L. White     --------------------------------------------------------------------------------     Name: Frederick L. White     Title:  Secretary --------------------------------------------------------------------------------         BEAR, STEARNS & CO. INC.       By:  /s/ Jonathan Lieberman     --------------------------------------------------------------------------------     Name: Jonathan Lieberman     Title:  Senior Managing Director -------------------------------------------------------------------------------- List of Significant Subsidiaries 1. Deerfield Triarc Capital LLC 2. Deerfield Triarc TRS Holdings, Inc. 3. Deerfield Triarc TRS Holdings, LLC -------------------------------------------------------------------------------- ANNEX A-I                Pursuant to Section 3(b) of the Purchase Agreement, Winston & Strawn LLP, counsel for the Company, shall deliver an opinion to the effect that:                (iii) The Company is a limited liability company validly existing and, based solely on the Company Good Standing Certificate, in good standing under the laws of the State of Delaware.                (iv) The Parent Guarantor is a corporation validly existing and, based solely on the Parent Guarantor Good Standing Certificate, in good standing under the laws of the State of Maryland.                (v) The issuance of the Preferred Securities and the Common Securities by the Trust has been duly approved by the Company and the Parent Guarantor.                (vi) The Junior Subordinated Notes have been duly authorized, executed and delivered by the Company. When paid for pursuant to the terms of the Note Purchase Agreement and duly authenticated and delivered to the Trust in accordance with the terms of the Indenture, the Junior Subordinated Notes will constitute valid and binding agreement of the Company, enforceable in accordance with their terms and the terms of the Indenture.                (vii) The Company and the Parent Guarantor have all requisite limited liability company or corporate, as applicable, power to enter into and perform their obligations under the Purchase Agreement and the Purchase Agreement has been duly authorized, executed and delivered by the Company and the Parent Guarantor. The Company has all requisite limited liability company power to enter into and perform its obligations under the Common Securities Subscription Agreement and the Junior Subordinated Note Purchase Agreement, and the Common Securities Subscription Agreement and the Junior Subordinated Note Purchase Agreement have been duly authorized, executed and delivered by the Company.                (viii) Each of the Indenture and the Declaration has been duly authorized, executed and delivered by the Company, and the Parent Guarantee Agreement has been duly authorized, executed and delivered by the Parent Guarantor.                (ix) The execution and delivery of the Purchase Agreement, the Common Securities Subscription Agreement, the Junior Subordinated Note Purchase Agreement, the Indenture and the Declaration by the Company and the Parent Guarantor, as applicable, or the performance by the Company and the Parent Guarantor of their respective obligations under the Purchase Agreement, the Common Securities Subscription Agreement, the Junior Subordinated Note Purchase Agreement and the Declaration do not and will not violate in any material respect, result in the creation or imposition of any material lien, claim, charge, encumbrance or restriction upon any material property or assets of the Company or the Parent Guarantor, as applicable, pursuant to, or constitute a material breach of, or constitute a material default under, with or without notice or lapse of time or both, any of the terms, provisions or conditions of the Company’s Certificate of Formation, the Company’s Operating Agreement, the Parent Guarantor’s Articles of Incorporation or the Parent’s Bylaws, or, to our knowledge, any material contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease, franchise, A-I-1 -------------------------------------------------------------------------------- license or any other material agreement or instrument known to us to which the Company or the Parent Guarantor is a party or by which any of them or any of their respective material properties may be bound or any order, decree, judgment, franchise, license or permit known to us of any court, arbitrator, government, or governmental agency or instrumentality, domestic or foreign, known to us, to have jurisdiction over the Company or the Parent Guarantor or any of their respective material properties which, in each case, is material to the Company and the Parent Guarantor on a consolidated basis. We do not express any opinion, however, as to whether the execution and delivery of the Purchase Agreement, the Common Securities Subscription Agreement, the Junior Subordinated Note Purchase Agreement, the Indenture and the Declaration by the Company and the Parent Guarantor, as applicable, or the performance by the Company and the Parent Guarantor of their respective obligations under the Purchase Agreement, the Common Securities Subscription Agreement, the Junior Subordinated Note Purchase Agreement and the Declaration will breach or result in a default under any covenant, restriction or provision with respect to financial ratios or tests or any aspect of the financial condition or results of operations of the Company, the Parent Guarantor or any of their subsidiaries.                (x) The Indenture constitutes the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.                (xi) The Trust is not an “investment company” as defined in section 3(a) of the Investment Company Act of 1940, as amended.                (xii) It is not necessary in connection with the offer and sale of (i) the Preferred Securities to the Purchaser under the circumstances contemplated by the Purchase Agreement, (ii) the Common Securities to the Company under the circumstances contemplated by the Common Securities Subscription Agreement and (iii) the Junior Subordinated Notes to the Trust under circumstances contemplated by the Note Purchase Agreement, to register the foregoing securities under the Securities Act of 1933, as amended, it being understood that no opinion is expressed as to any subsequent resale of the foregoing securities.                (xiii) Except for filings, registrations or qualifications that may be required by applicable securities laws, no authorization, approval, consent or other action by, or notice or filing with any governmental or regulatory body or authority is required to be obtained on or prior to the date hereof under the laws of the State of New York by the Company or Parent Guarantor in connection with the execution and delivery the Purchase Agreement, the Indenture, the Trust Agreement, the Parent Guarantee Agreement, the Preferred Securities or the Junior Subordinated Notes and the consummation of the transactions contemplated thereunder.                (xiv) The Purchase Agreement constitutes the valid and binding agreement of each of the Parent Guarantor and the Company, enforceable against each of the Parent Guarantor and the Company in accordance with its terms.                (xv) The Parent Guarantee Agreement constitutes the valid and binding agreement of the Parent Guarantor, enforceable against the Parent Guarantor in accordance with its terms. A-I-2 --------------------------------------------------------------------------------                (xvi) Beginning with the Guarantor’s initial taxable year ended December 31, 2004, the Guarantor has been organized in conformity with the requirements for qualification as a REIT under the Code, and the Guarantor’s actual method of operation has enabled, and its proposed method of operation will enable (as represented in the attached Officer’s Certificate), the Guarantor to satisfy the requirements for qualification and taxation as a REIT. A-I-3 -------------------------------------------------------------------------------- DEERFIELD TRIARC CAPITAL CORP. REIT BACK-UP OFFICER’S CERTIFICATE                The undersigned officer of Deerfield Triarc Capital Corp., a Maryland real estate investment trust (the “Guarantor”) hereby certifies, on behalf of the Company, that, after due inquiry, he/she has made the representations set forth below and hereby reaffirms as of the date hereof the accuracy of such representations on which Winston & Strawn LLP (“Counsel”) is relying in rendering its opinion with respect to the qualification of the Guarantor as a “real estate investment trust” under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”). The undersigned acknowledges that the Guarantor has engaged in and engages in transactions which Counsel has not reviewed and of which Counsel may be unaware. The representations and covenants contained in this Officer’s Certificate are true, correct and complete giving due regard to all such transactions.           1. During the period from _________ through ________ (the “Relevant Period”), the Guarantor at all times has been managed by one or more directors, and beneficial ownership in the Guarantor at all times has been evidenced by transferable shares.           2. During the Relevant Period, the Guarantor was not chartered or supervised as a bank, savings and loan, or similar association under state or federal law.           3. During the Relevant Period, the Guarantor was not operated as a small business investment Guarantor under the Small Business Investment Act of 1958.           4. During the Relevant Period, the Guarantor did not engage in the business of issuing life insurance, annuity contracts, or contracts of health or accident insurance.           5. During the Relevant Period, the Guarantor did not have, and did not succeed to, any earnings and profits of the Guarantor or of any other corporation accumulated during a non-REIT year.           6. During each taxable year of the Relevant Period, at least 95% of the Guarantor’s gross income, excluding gross income from the sale of property held as inventory or held primarily for sale to customers in the ordinary course of the Guarantor’s trade or business (“Prohibited Income”), was derived from:               a) dividends (not including amounts excluded from gross income, for federal income tax purposes, under Code section 959(a));               b) interest;               c) rents from real property (including charges for services other than Noncustomary Services (as described in paragraph 11 below) rendered by or on behalf of the Guarantor, whether or not such charges were separately stated, and including rents received from a taxable REIT subsidiary (“TRS”) of the Guarantor if (i) such TRS satisfied the requirements set forth in paragraphs 24 and 25 below; (ii) at least 90% of the leased space in the property was leased to persons other than TRSs and Related Party Tenants (as defined in A-I-4 --------------------------------------------------------------------------------       paragraph 9 below), provided that if the Guarantor satisfies the 90% requirement at the time a lease with a TRS is entered into, at the time such a lease is extended, or at the time of any modification of such a lease if the rent under that lease is effectively increased, then the Guarantor will be treated as continuing to satisfy the 90% requirement so long as there is no increase in the space leased to any TRS or Related Party Tenants; (iii) the amounts paid by the TRS to rent space at the property were substantially comparable to rents paid by other tenants of the property for comparable space (determined at the time the lease was entered into, at the time the lease was extended, and at the time of any modification of the lease if the rent under such lease was effectively increased); and (iv) the rents were not attributable to an increase on account of a modification of a lease entered into with a TRS in which the Guarantor owned, directly or indirectly, more than 50% of the total voting power or the total value of the stock (a “Controlled TRS”));               d) gain from the sale or other disposition of stock, securities, real property (including interests in real property and interests in mortgages on real property), and other real estate assets (including regular and residual interests in real estate mortgage investment conduits (“REMICs”), to the extent provided in Code section 856(c)(5)(E)), that was not Prohibited Income;               e) abatements and refunds of taxes on real property;               f) income and gain derived from real property acquired directly by foreclosure or deed in lieu thereof (“Foreclosure Property”) that was not Prohibited Income;               g) amounts received or accrued as consideration for entering into agreements (i) to make loans secured by mortgages on real property or on interests in real property or (ii) to purchase or lease real property (including interests in real property and interests in mortgages on real property); and               h) amounts included in the Guarantor’s gross income, for federal income tax purposes, under (i) Code section 951(a) (in respect of the Guarantor’s ownership of an interest in a controlled foreign corporation (within the meaning of Code section 957(a))) and (ii) Code section 1293(a) (in respect of the Guarantor’s ownership of an interest in a passive foreign investment Guarantor (within the meaning of Code section 1297(a))), in each case, to the extent such items are attributable to dividends, interest, and amounts set forth in subparagraph (d) or (g) of this paragraph 6 of the controlled foreign corporation or passive foreign investment Guarantor. Income from any transaction, including gain from the sale or disposition of such a transaction, entered into in the normal course of the Guarantor’s trade or business to manage interest rate risk or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by the Guarantor to acquire or carry real estate assets, if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into, shall not constitute gross income for the purposes of this paragraph 6. A-I-5 --------------------------------------------------------------------------------           7. During each taxable year of the Relevant Period, at least 75% of the Guarantor’s gross income (excluding Prohibited Income) was derived from:               a) rents from real property (including charges for services other than Noncustomary Services rendered by or on behalf of the Guarantor, whether or not such charges were separately stated, and including rents received from a TRS of the Guarantor if (i) such TRS satisfied the requirements set forth in paragraphs 24 and 25 below; (ii) at least 90% of the leased space in the property was leased to persons other than TRSs and Related Party Tenants, provided that if the Guarantor satisfies the 90% requirement at the time a lease with a TRS is entered into, at the time such a lease is extended, or at the time of any modification of such a lease if the rent under that lease is effectively increased, then the Guarantor will be treated as continuing to satisfy the 90% requirement so long as there is no increase in the space leased to any TRS or Related Party Tenants; (iii) the amounts paid by the TRS to rent space at the property were substantially comparable to rents paid by other tenants of the property for comparable space (determined as of the time the lease was entered into, the lease was extended, and at the time of any modification of the lease if the rent under such lease was effectively increased); and (iv) the rents were not attributable to an increase on account of a modification of a lease entered into with a Controlled TRS);               b) interest on obligations secured by mortgages on real property or on interests in real property (including interest on regular or residual interests in REMICs, to the extent provided in Code section 856(c)(5)(E));               c) gain from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) and other real estate assets (including regular and residual interests in REMICs, to the extent provided in Code section 856(c)(5)(E)) that was not Prohibited Income;               d) dividends or other distributions on, and gain (other than Prohibited Income) from the sale or other disposition of, transferable shares in other real estate investment trusts (“REITs”);               e) abatements and refunds of taxes on real property;               f) income and gain (other than Prohibited Income) derived from Foreclosure Property;               g) amounts received or accrued as consideration for entering into agreements (i) to make loans secured by mortgages on real property or on interests in real property or (ii) to purchase or lease real property (including interests in real property and interests in mortgages on real property); and               h) dividend and interest income from, and any gain on the disposition of, stock or debt instruments (as defined in Code section 1275(a)(1)) acquired with new capital that was (i) attributable either (A) to the issuance of shares of stock of the Guarantor or (B) to a public offering of the Guarantor’s debt obligations with maturity dates of at least five years and (ii) received or accrued during the one-year period beginning on the date on which the Guarantor received such new capital. A-I-6 -------------------------------------------------------------------------------- For purposes of subparagraph (b) above, interest amounts attributable to the excess of the highest principal amount of the related mortgage loan outstanding during the taxable year over the “loan value” of the associated real property that is security for the loan will not be treated as qualifying income. In the case of a loan purchased by the Guarantor, the “loan value” of real property is the fair market value of the associated real property as of the date on which the commitment by the Guarantor to acquire the loan becomes binding on the Guarantor.           8. During the Relevant Period, the Guarantor did not receive or accrue, directly or indirectly, any interest, rent, contingency fees, or other amounts that were determined in whole or in part with reference to the income or profits derived by any person (excluding amounts received as (i) rents from real property that are (A) based solely on a percentage or percentages of receipts or sales where the percentage or percentages are fixed at the time the lease is entered into, are not renegotiated during the term of the lease in a manner that has the effect of basing rent on income or profits, and conform with normal business practices or (B) attributable to qualified rents from subtenants as provided by Code section 856(d)(6) and (ii) interest that is (A) based solely on a fixed percentage or percentages of receipts or sales or (B) attributable to qualified rents received or accrued by debtors as provided by Code section 856(f)(2)).           9. During the Relevant Period, the Guarantor did not receive or accrue, directly or indirectly, any rents from real property from any of the following (a “Related Party Tenant”):               a) a corporation of which the Guarantor owned, directly or indirectly (within the meaning of Code section 856(d)(5)), 10% or more of the stock, by voting power or value; or               b) a noncorporate entity in which the Guarantor owned, directly or indirectly (within the meaning of Code section 856(d)(5)), an interest of 10% or more of the assets or net profits. A “Related Party Tenant” does not include any TRS as long as such (i) such TRS satisfied the requirements set forth in paragraphs 24 and 25 below; (ii) at least 90% of the leased space in the property was leased to persons other than TRSs and Related Party Tenants, provided that if the Guarantor satisfies the 90% requirement at the time a lease with a TRS is entered into, at the time such a lease is extended, or at the time of any modification of such a lease if the rent under that lease is effectively increased, then the Guarantor will be treated as continuing to satisfy the 90% requirement so long as there is no increase in the space leased to any TRS or Related Party Tenants; and (iii) the amounts paid by the TRS to rent space at the property were substantially comparable to rents paid by other tenants of the property for comparable space (determined at the time the lease was entered into, at the time the lease was extended, and at the time of any modification of the lease if the rent under such lease was effectively increased).           10. During the Relevant Period, with respect to each lease of any real property acquired by the Guarantor, the ratio of (i) the average of the fair market value of the personal property that is subject to a lease at the beginning and at the end of such taxable year to (ii) the average of the fair market values of both the real property and personal property subject to such lease at the beginning and at the end of such taxable year did not exceed 15%. If such 15% ratio was exceeded with respect to any lease, the receipt of such income from personal property did not cause the Guarantor to fail to satisfy the tests set forth in paragraph 6 or 7 above. A-I-7 --------------------------------------------------------------------------------           11. During the Relevant Period, except to the extent described in the following sentence, neither the Guarantor nor any other entity in which it owns a direct or indirect interest (other than any TRS) (a “Non-TRS Subsidiary”) of the Guarantor furnished or rendered, or bore the cost of furnishing or rendering, any services to the tenants of the Guarantor’s real property (the “Properties”), other than services (“Customary Services”) that (i) are usually or customarily provided to tenants in the geographic areas in which the Properties are located and (ii) are usually and customarily rendered in connection with the rental of space for occupancy only and are not provided primarily for the tenants’ convenience. To the extent that the Guarantor or a Non-TRS Subsidiary furnished or rendered services (“Noncustomary Services”) other than Customary Services to the tenants of a Property, the amount received for, or attributable to, such services did not exceed 1% of the Guarantor’s total receipts from the Property during the taxable year. For that purpose, the amount treated as received by the Guarantor or a Non-TRS Subsidiary with respect to the Noncustomary Services is the greater of (i) the fair market value of such services or (ii) 150% of the Guarantor’s direct cost of providing such services.           12. During the Relevant Period, the following requirements were met by any person who furnished or rendered Noncustomary Services to the tenants of the Properties (other than a TRS or a person providing Noncustomary Services falling within the 1% safe harbor described in paragraph 11 above):               a) such person did not own, directly or indirectly (within the meaning of Code section 856(d)(5)), more than 35% of the stock of the Guarantor;               b) if such person is a corporation, not more than 35% of its stock, measured by voting power or number of shares, or, if such person is a noncorporate entity, not more than 35% of the interests in its assets or net profits was owned, directly or indirectly (within the meaning of Code section 856(d)(5)), by one or more persons who owned 35% or more of the stock of the Guarantor;               c) the Guarantor did not derive or receive, directly or indirectly, any income from such person;               d) such person was adequately compensated for its services;               e) if such person is an individual, he or she was not an officer or employee of the Guarantor or a Non-TRS Subsidiary;               f) if such person is a corporation, none of its officers or employees was an officer or employee of the Guarantor or a Non-TRS Subsidiary;               g) if an individual served as both (i) one of such person’s directors and (ii) a director and officer (or employee) of the Guarantor, that individual did not receive any compensation for serving as one of such person’s directors;               h) if an individual served as both (i) one of such person’s directors and officers (or employees) and (ii) a director of the Guarantor, that individual did not receive any compensation for serving as a director of the Guarantor; A-I-8 --------------------------------------------------------------------------------               i) the costs of the Noncustomary Services were borne by such person; and               j) any charge for the Noncustomary Services were made, received, and retained by such person.           13. The Guarantor understands that, for purposes of the representations in paragraphs 6, 7, 8, 9, 11, and 12, (i) all items of income, deduction, and credit of any corporation with respect to which the Guarantor owns 100% of the stock (a “Qualified REIT Subsidiary”) directly or through one or more Qualified REIT Subsidiaries or Disregarded Entities (as defined below) and that has not elected to be a TRS of the Guarantor and any other non-TRS limited liability Guarantor or other non-corporate entity wholly-owned by the Guarantor directly or through one or more non-TRS limited liability companies or other non-corporate entities wholly-owned by a single owner and disregarded as an entity separate from such owner for federal income tax purposes (a “Disregarded Entity”) will be treated as items of income, deduction, and credit of the Guarantor, and (ii) the Guarantor’s proportionate share (based on its capital interest) of the income of any partnership or limited liability Guarantor treated as a partnership for federal income tax purposes in which it owns an interest (a “Partnership Subsidiary”) will be treated as income of the Guarantor.           14. At the close of each calendar quarter during the Relevant Period, at least 75% of the value of the Guarantor’s total assets was represented by the following items (the “75% Basket”):               a) land;               b) buildings, including wiring, plumbing systems, elevators, escalators, and other structural components thereof, but not including any personal property associated with such real property (such as furnishings, appliances, draperies, equipment, machinery, etc.);               c) loans directly secured by a duly recorded mortgage on real property of the type described in subparagraph (a) or (b) above;               d) cash and cash items, including cash on hand, time and demand deposits with financial institutions, and receivables arising in the ordinary course of the operations of the Guarantor (other than those purchased from another person), but excluding bankers’ acceptances, repurchase agreements, and other similar instruments;               e) securities (including accrued interest thereon) issued or guaranteed by the United States or by a person controlled or supervised by and acting as an instrumentality of the United States, pursuant to any authority granted by Congress, or any certificates of deposit for any of the foregoing, provided that securities described above that are acquired pursuant to a “repurchase agreement” or other similar arrangement shall, for purposes of this representation, be treated as a security issued by the counterparty to such “repurchase agreement” or similar arrangement and not as the ownership of the underlying security that is subject thereto;               f) only during the one-year period commencing on the date “new capital” (as such term is defined in Code section 856(c)(5)(D)(ii)) is received, stock or debt instruments (as A-I-9 --------------------------------------------------------------------------------       defined in Code section 1275(a)(1)) directly attributable to the temporary investment of new capital;               g) equity interests in other REITs; and               h) regular or residual interests in REMICs, provided that if less than 95% of the assets of the REMIC consists of assets that are not “real estate assets,” as described in subparagraphs (a), (b), or (c) of this paragraph 14, the Guarantor’s proportionate share of the “real estate assets” of the REMIC. For purposes of subparagraph (c) above, the portion of any mortgage loan equal to the excess of the highest principal amount of the mortgage loan outstanding during the taxable year over the “loan value” (as defined in paragraph 7) of the associated real property that was security for the loan was not treated as a qualifying asset.           15. At the close of each calendar quarter during the Relevant Period, with respect to the Guarantor’s securities not included in the 75% Basket, (i) not more than 5% of the value of the Guarantor’s total assets consisted of the securities of any one issuer (excluding any Disregarded Entity, any Qualified REIT Subsidiary, and any TRS), (ii) not more than 20% of the value of the Guarantor’s total assets were represented by securities of one or more TRSs, and (iii) the Guarantor did not hold securities possessing either more than 10% of the total voting power or 10% of the total value of the outstanding securities of any issuer (excluding securities of any Qualified REIT Subsidiary, Disregarded Entity or TRS). For the purposes of the 10% value test, “securities” shall not include any of the following:               a) “straight debt” securities (i.e., a written unconditional promise to pay on demand or on a specified date a sum certain in money if (i) the interest rate (and interest payment dates) are not contingent on profits, the borrower’s discretion or similar factors (except as provided in Code section 856(m)(2)(B)) and (ii) the debt is not convertible, directly or indirectly, into stock, but excluding any such securities issued by a corporation or partnership if the Guarantor or any of its Controlled TRSs hold securities of such corporation or partnership other than securities described in clauses (a) through (f) of this sentence that have an aggregate value of more than 1% of the corporation’s or partnership’s outstanding securities);               b) any loan to an individual or an estate;               c) any imputed debt obligation under a rental agreement, other than a rental agreement with a Related Party Tenant, for the use of tangible property under which (i) there is at least one amount allocable to the use of property during a calendar year which is to be paid after the close of the calendar year following the calendar year in which such use occurs or there are increases in the amount paid as rent under the agreement and (ii) the aggregate amount of the consideration for the use of the property exceeds $250,000;               d) any obligation to pay rents from real property (as described in paragraphs 6(c) and 7(a) hereof); A-I-10 --------------------------------------------------------------------------------               e) any security issued by a state or any political subdivision thereof, the District of Columbia, a foreign government or any political subdivision thereof, or the Commonwealth of Puerto Rico, but only if the determination of any payment thereunder does not depend in whole or in part on the profits of any entity not described in this clause (e) or payments on any obligation issued by an entity not described in this clause (e);               f) any security issued by a REIT;               g) any debt instrument issued by a partnership and not described in clauses (a) through (f) of this sentence to the extent of the Guarantor’s interest as a partner in the partnership; and               h) any debt instrument issued by a partnership and not described in clauses (a) through (f) of this sentence if at least 75% of the partnership’s gross income (excluding Prohibited Income) is derived from sources described in paragraph 7.           16. For purposes of representations 14 and 15, (i) all assets and liabilities of any Qualified REIT Subsidiary and any Disregarded Entity are treated as assets and liabilities of the Guarantor, (ii) the term “securities” does not include the Guarantor’s equity interests in any Partnership Subsidiary, (iii) the Guarantor’s proportionate share (based on its capital interest) of the assets of any Partnership Subsidiary is treated as assets of the Guarantor (except that for purposes of the 10% value test, the Guarantor’s proportionate share of the assets of a Partnership Subsidiary is based on the Guarantor’s proportionate interest in any securities issued by the Partnership Subsidiary, excluding securities described in clauses (g) and (h) of the last sentence of paragraph 15), and (iv) the term “value” means (A) fair value as determined in good faith by the Board of Directors of the Guarantor, (B) in the case of securities for which market quotations are readily available, the market value of such securities, or (C) in the case of a debt instrument, the “adjusted issue price” (as defined in Code section 1272(a)(4)) of such debt instrument.           17. During the Relevant Period, the Guarantor maintained sufficient records as to its investments to be able to show that it has complied with the asset composition and diversification requirements described in paragraphs 14 and 15 above.           18. During each taxable year of the Relevant Period, the deduction for dividends paid by the Guarantor (as defined in Code section 561, but without regard to capital gain dividends, as defined in Code section 857(b)(3)(C)), equaled or exceeded (i) the sum of (A) 90% of the Guarantor’s real estate investment trust taxable income (as defined in Code section 857(b)(2), but without regard to the deduction for dividends paid and excluding any net capital gain) and (B) 90% of the excess of its net income from Foreclosure Property over the tax imposed on such income by Code section 857(b)(4)(A), minus (ii) any excess noncash income (as defined in Code section 857(e)).           19. During the Relevant Period, the dividends paid by the Guarantor were made pro rata, with no preference to any share as compared with other shares of the same class.           20. During the Relevant Period, the Guarantor and the Non-TRS Subsidiaries held their assets, other than assets that constitute Foreclosure Property, for investment purposes and not as (i) stock in trade or other property of a kind which would be includible in inventory if on A-I-11 -------------------------------------------------------------------------------- hand at the close of the taxable year or (ii) property held primarily for sale to customers in the ordinary course of the trade or business of the Guarantor or the Non-TRS Subsidiaries.           21. Within 30 days after the end of each taxable year during the Relevant Period, the Guarantor demanded written statements from its shareholders that, at any time during the last six months of such taxable year, owned 5% or more of its stock (or, (i) if the Guarantor had fewer than 2,000 and more than 200 shareholders of record of its stock on any dividend record date, 1% or more of its stock, or (ii) if the Guarantor had 200 or fewer shareholders of record of its stock on any dividend record date, 0.5% or more of its stock) setting forth the following information:               a) the actual owners of the Guarantor’s stock (i.e., the persons who are required to include in gross income on their returns the dividends received on the stock); and               b) the maximum number of shares of stock of the Guarantor (including the number and face value of securities convertible into stock of the Guarantor) that were considered owned, directly or indirectly (within the meaning of Code section 544, as modified by Code section 856(h)(1)(B)), by each of the actual owners of any of the Guarantor’s shares of stock at any time during the last half of such taxable year.           22. During the Relevant Period, the Guarantor maintained the written statements described in the preceding paragraph at its offices in Rosemont, Illinois, and the written statements will be available for inspection by the Internal Revenue Service.           23. During the Relevant Period, the Guarantor used the calendar year as its taxable year.           24. During the Relevant Period, neither Deerfield Triarc Holdings, Inc. (“TRS Holdings”) nor any other TRS of the Guarantor directly or indirectly operated any hotel or health care facility or provided to any other person (under a franchise, license, or otherwise) rights to any brand name under which any lodging facility or health care facility was operated.           25. During the Relevant Period, the terms of any leases, loans, or other agreements between the Guarantor (or any Non-TRS Subsidiary) and TRS Holdings or any other TRS of the Guarantor were arm’s length and consistent with the terms of comparable agreements in the industry.           26. During its 2005 taxable year and future taxable years, the Guarantor will operate in such a manner to continue to satisfy the representations described in paragraphs 1 through 25 above as though, unless otherwise expressly provided herein, (i) the term “Guarantor” included any Qualified REIT Subsidiary and any Disregarded Entity, (ii) the term “Non-TRS Subsidiary” included any other direct or indirect subsidiary (other than a TRS) in which the Guarantor acquires an interest, (iii) the term “TRS” included Market Square CLO Ltd. (“Market Square”) and any other entity for which the Guarantor makes a TRS election, (iv) the term “Qualified REIT Subsidiary” included any other corporation with respect to which the Guarantor owns 100% of the stock directly or through one or more Qualified REIT Subsidiaries or Disregarded Entities and that has not elected to be a TRS of the Guarantor, (v) the term “Partnership Subsidiary” included any other partnership, limited liability Guarantor or any other entity treated A-I-12 -------------------------------------------------------------------------------- as a partnership for federal income tax purposes in which the Guarantor acquires, directly or indirectly, a partnership or membership interest, and (vi) the term “Disregarded Entity” included any other non-TRS limited liability Guarantor or other non-corporate entity wholly-owned by the Guarantor directly or through one or more non-TRS limited liability companies or other non-corporate entities wholly-owned by a single owner and disregarded as an entity separate from such owner for federal income tax purposes.           27. The Guarantor was not created by or pursuant to an act of a state legislature for the purpose of promoting, maintaining, or assisting the economy within the state by making loans that generally would not be made by banks.           28. The Guarantor was formed pursuant to Articles of Incorporation filed on November 22, 2004 with the Department of Assessments and Taxation of the State of Maryland, as amended by Articles of Amendment and Restatement filed on December 22, 2004 with the Department of Assessments and Taxation of the State of Maryland. The Guarantor has not at any time been a party to a tax-free reorganization with another corporation and does not hold any asset the disposition of which could be subject to Code section 1374.           29. The Guarantor elected to be a real estate investment trust (a “REIT”) for its taxable year beginning on November 22, 2004 and ending December 31, 2004 by computing its taxable income as a REIT on its timely filed federal income tax return for that taxable year (i.e., I.R.S. Form 1120-REIT) and will not terminate or revoke intentionally such election.           30. The Guarantor made a joint election with TRS Holdings to treat TRS Holdings as a TRS of the Guarantor, which election was effective as of November 22, 2004, and the Guarantor made a joint election with Market Square to treat Market Square as a TRS of the Guarantor, which election was effective as of March 8, 2005.           31. Beginning with the Guarantor’s 2005 taxable year, beneficial ownership of the Guarantor will be held by 100 or more persons for at least 335 days of each taxable year.           32. At no time during the last half of each taxable year beginning with the Guarantor’s 2005 taxable year will more than 50% in value of the Guarantor’s outstanding shares of common stock be owned, directly or indirectly (within the meaning of Code section 544, as modified by Code section 856(h)(1)(B)), by or for five or fewer individuals (the “5/50 Rule”). For that purpose, a supplemental unemployment compensation benefits plan (as described in Code section 501(c)(17)), a private foundation (as described in Code section 509(a)), or a portion of a trust permanently set aside or to be used exclusively for charitable purposes (as described in Code section 642(c)) is considered an individual. However, shares of stock held by a trust described in Code section 401(a) and exempt from tax under Code section 501(a) (a “Qualified Trust”) generally are treated as held directly by the Qualified Trust’s beneficiaries in proportion to their actuarial interests in the Qualified Trust. The Guarantor will exercise reasonable diligence to insure that it complies with the 5/50 Rule at all times after its 2004 taxable year.           33. The Guarantor will use its best efforts to enforce the restrictions on ownership and transfer of the Guarantor’s shares of stock that are contained in its Articles of Amendment and Restatement. A-I-13 --------------------------------------------------------------------------------           IN WITNESS WHEREOF, I have, on behalf of Deerfield Triarc Capital Corp., signed this Officer’s Certificate as of this 27th day of October, 2006.         DEERFIELD TRIARC CAPITAL CORP.   By:     -------------------------------------------------------------------------------- A-I-14 -------------------------------------------------------------------------------- ANNEX A-II           Pursuant to Section 3(b) of the Purchase Agreement the Company shall provide an Officers’ Certificate, to the effect that:                 (i) all of the issued and outstanding shares of [capital stock] of each Significant Subsidiary are owned of record by the Company, and the issuance of the Preferred Securities and the Common Securities is not subject to any contractual preemptive rights known to such officer;                 no consent, approval, authorization or order of any court or Governmental Entity is required for the issue and sale of the Common Securities, the Preferred Securities or the Junior Subordinated Notes, the purchase by the Trust of the Junior Subordinated Notes, the execution and delivery of and compliance with the Operative Documents by the Company or the Trust or the consummation of the transactions contemplated in the Operative Documents, except such approvals (specified in such certificate) as have been obtained;                 to the knowledge of such officer, there is no action, suit or proceeding before or by any government, governmental instrumentality, arbitrator or court, domestic or foreign, now pending or threatened against or affecting the Trust or the Company or any Significant Subsidiary that could adversely affect the consummation of the transactions contemplated by the Operative Documents or could have a Material Adverse Effect.                 The execution, delivery and performance of the Operative Documents, as applicable, by the Company and the Trust and the consummation by the Company and the Trust of the transactions contemplated by the Operative Documents, as applicable, (i) will not result in any violation of the charter or bylaws of the Company, the charter or bylaws of the Company’s subsidiaries, the Trust Agreement or the Certificate of Trust of the Trust, and (ii) will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the creation or imposition of any lien, charge and encumbrance upon any assets or properties of the Company or any Significant Subsidiary under, (a) any agreement, indenture, mortgage or instrument that the Company or any Significant Subsidiary of the Company is a party to or by which it may be bound or to which any of its assets or properties may be subject, or (b) any existing applicable law, rule or administrative regulation of any court or governmental agency or authority having jurisdiction over the Company or any Significant Subsidiary of the Company or any of their respective assets or properties, except in case of (ii), where any such violation, conflict, breach, default, lien, charge or encumbrance, would not have a material adverse effect on the assets, properties, business, results of operations or financial condition of the Company and its subsidiaries, taken as whole. A-II-1 -------------------------------------------------------------------------------- ANNEX B           Pursuant to Section 3(c) of the Purchase Agreement, Kelley Drye & Warren LLP, shall deliver an opinion to the effect that:                 (ii) the Trust will be classified for U.S. federal income tax purposes as a grantor trust and not as an association or a publicly traded partnership taxable as a corporation; and                 for U.S. federal income tax purposes, the Junior Subordinated Notes will constitute indebtedness of the Company.               In rendering such opinions, such counsel may (A) state that its opinion is limited to the federal laws of the United States and (B) rely as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company and public officials. B-2 -------------------------------------------------------------------------------- ANNEX C           Pursuant to Section 3(d) of the Purchase Agreement, Richards, Layton & Finger, P.A., special Delaware counsel for the Delaware Trustee, shall deliver an opinion to the effect that:                 (i) the Trust has been duly created and is validly existing in good standing as a statutory trust under the Delaware Statutory Trust Act, and all filings required under the laws of the State of Delaware with respect to the creation and valid existence of the Trust as a statutory trust have been made;                 (ii) under the Delaware Statutory Trust Act and the Trust Agreement, the Trust has the trust power and authority (A) to own property and conduct its business, all as described in the Trust Agreement, (B) to execute and deliver, and to perform its obligations under, each of the Purchase Agreement, the Common Securities Subscription Agreement, the Junior Subordinated Note Purchase Agreement and the Preferred Securities and the Common Securities and (C) to purchase and hold the Junior Subordinated Notes;                 (iii) under the Delaware Statutory Trust Act, the certificate attached to the Trust Agreement as Exhibit C is an appropriate form of certificate to evidence ownership of the Preferred Securities; the Preferred Securities have been duly authorized by the Trust Agreement and, when issued and delivered against payment of the consideration as set forth in the Purchase Agreement, the Preferred Securities will be validly issued and (subject to the qualifications set forth in this paragraph) fully paid and nonassessable and will represent undivided beneficial interests in the assets of the Trust; the holders of the Preferred Securities will be entitled to the benefits of the Trust Agreement and, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; and such counsel may note that the holders of the Preferred Securities may be obligated, pursuant to the Trust Agreement, to (A) provide indemnity and/or security in connection with and pay taxes or governmental charges arising from transfers or exchanges of Preferred Securities certificates and the issuance of replacement Preferred Securities certificates and (B) provide security or indemnity in connection with requests of or directions to the Property Trustee to exercise its rights and remedies under the Trust Agreement;                 (iv) the Common Securities have been duly authorized by the Trust Agreement and, when issued and delivered by the Trust to the Company against payment therefor as described in the Trust Agreement and the Common Securities Subscription Agreement, will be validly issued and fully paid and will represent undivided beneficial interests in the assets of the Trust entitled to the benefits of the Trust Agreement;                 (v) under the Delaware Statutory Trust Act and the Trust Agreement, the issuance of the Preferred Securities and the Common Securities is not subject to preemptive or other similar rights; C-1 --------------------------------------------------------------------------------                 (vi) under the Delaware Statutory Trust Act and the Trust Agreement, the execution and delivery by the Trust of the Purchase Agreement, the Common Securities Subscription Agreement and the Junior Subordinated Note Purchase Agreement, and the performance by the Trust of its obligations thereunder, have been duly authorized by all necessary trust action on the part of the Trust;                 (vii) the Trust Agreement constitutes a legal, valid and binding obligation of the Company and the Trustees, and is enforceable against the Company and the Trustees, in accordance with its terms subject, as to enforcement, to the effect upon the Trust Agreement of (i) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance or transfer and other similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution;                 (viii) the issuance and sale by the Trust of the Preferred Securities and the Common Securities, the purchase by the Trust of the Junior Subordinated Notes, the execution, delivery and performance by the Trust of the Purchase Agreement, the Common Securities Subscription Agreement and the Junior Subordinated Note Purchase Agreement, the consummation by the Trust of the transactions contemplated by the Purchase Agreement and compliance by the Trust with its obligations thereunder do not violate (i) any of the provisions of the Certificate of Trust or the Amended and Restated Trust Agreement or (ii) any applicable Delaware law, rule or regulation;                 (ix) no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any Delaware court or Delaware Governmental Entity or Delaware agency is necessary or required solely in connection with the issuance and sale by the Trust of the Common Securities or the Preferred Securities, the purchase by the Trust of the Junior Subordinated Notes, the execution, delivery and performance by the Trust of the Purchase Agreement, the Common Securities Subscription Agreement and the Junior Subordinated Note Purchase Agreement, the consummation by the Trust of the transactions contemplated by the Purchase Agreement and compliance by the Trust with its obligations thereunder; and                 (x) the holders of the Preferred Securities (other than those holders who reside or are domiciled in the State of Delaware) will have no liability for income taxes imposed by the State of Delaware solely as a result of their participation in the Trust and the Trust will not be liable for any income tax imposed by the State of Delaware. In rendering such opinions, such counsel may (A) state that its opinion is limited to the laws of the State of Delaware, (B) rely as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company and public officials and (C) take customary assumptions and exceptions as to enforceability and other matters. C-2 -------------------------------------------------------------------------------- ANNEX D           Pursuant to Section 3(e) of the Purchase Agreement, Gardere Wynne Sewell LLP, special counsel for the Property Trustee and the Indenture Trustee, shall deliver an opinion to the effect that:                 (i) The Bank of New York Trust Company, National Association(the “Bank”) is a limited purpose national banking association with trust powers, duly and validly existing under the laws of the United States of America, with corporate power and authority to execute, deliver and perform its obligations under the Indenture and to authenticate and deliver the Securities, and is duly eligible and qualified to act as Trustee under the Indenture pursuant to Section 6.1thereof and as Property Trustee under the Trust Agreement pursuant to Section 8.2 thereof. (The Indenture and the Trust Agreement are each, an “Agreement” and together, the “Agreements”).                 (ii) Each Agreement has been duly authorized, executed and delivered by the Bank and constitutes the valid and binding obligation of the Bank, enforceable against it in accordance with its terms except (A) as may be limited by bankruptcy, fraudulent conveyance, fraudulent transfer, insolvency, reorganization, liquidation, receivership, moratorium or other similar laws now or hereafter in effect relating to creditors’ rights generally, and by general equitable principles, regardless of whether considered in a proceeding in equity or at law and (B) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.                 (iii) Neither the execution or delivery by the Bank of the Agreements, the authentication and delivery of the Preferred Securities (as defined in the Trust Agreement) and junior subordinated notes (issued under the Indenture, and together with the Preferred Securities, the “Securities”) by the Trustee pursuant to the terms of the Agreements, nor the performance by the Bank of its obligations under the Agreements (A) requires the consent or approval of, the giving of notice to or the registration or filing with, any governmental authority or agency under any existing law of the United States of America governing the banking or trust powers of the Bank or (B) violates or conflicts with the Articles of Association or By-laws of the Bank or any law or regulation of the State of New York or the United States of America governing the banking or trust powers of the Bank.                 (iv) The Securities have been authenticated and delivered by a duly authorized officer of the Bank.                     In rendering such opinions, such counsel may (A) state that its opinion is limited to the laws of the State of New York and the laws of the United States of America, (B) rely as to matters of fact, to the extent deemed proper, on certificates of responsible officers of The Bank of New York Trust Company, National Association, the Company and public officials, and (C) make customary assumptions and exceptions as to enforceability and other matters. D-3 -------------------------------------------------------------------------------- ANNEX E Pursuant to Section 3(f) of the Purchase Agreement, Richards, Layton & Finger, P.A., counsel for the Delaware Trustee, shall deliver an opinion to the effect that:                 (i) The Bank of New York (Delaware) is duly incorporated and validly existing as a banking corporation under the laws of the State of Delaware;                 (ii) The Bank of New York (Delaware) has the corporate power and authority to execute, deliver and perform its obligations under, and has taken all necessary corporate action to authorize the execution, delivery and performance of, the Trust Agreement and to consummate the transactions contemplated thereby;                 (iii) The Trust Agreement has been duly authorized, executed and delivered by The Bank of New York (Delaware) and constitutes a legal, valid and binding obligation of The Bank of New York (Delaware), and is enforceable against The Bank of New York (Delaware), in accordance with its terms subject as to enforcement, to the effect upon the Trust Agreement of (i) applicable bankruptcy, insolvency, reorganization, moratorium, receivership, fraudulent conveyance or transfer and similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution;                 (iv) The execution, delivery and performance by The Bank of New York (Delaware) of the Trust Agreement do not conflict with or result in a violation of (A) certificate of incorporation or by-laws of The Bank of New York (Delaware) or (B) any law or regulation of the State of Delaware or the United States of America governing the trust powers of The Bank of New York (Delaware) or, to our knowledge, without independent investigation, of any indenture, mortgage, bank credit agreement, note or bond purchase agreement, long-term lease, license or other agreement or instrument to which The Bank of New York (Delaware) is a party or by which it is bound or, to our knowledge, without independent investigation, of any judgment or order applicable to The Bank of New York (Delaware); and                 (v) No approval, authorization or other action by, or filing with, any Governmental Entity of the State of Delaware or the United States of America governing the trust powers of The Bank of New York (Delaware) is required in connection with the execution and delivery by The Bank of New York (Delaware) of the Trust Agreement or the performance by The Bank of New York (Delaware) of its obligations thereunder, except for the filing of the Certificate of Trust with the Secretary of State of the State of Delaware, which Certificate of Trust has been filed with the Secretary of State of the State of Delaware. E-1 --------------------------------------------------------------------------------           In rendering such opinions, such counsel may (A) state that its opinion is limited to the laws of the State of Delaware and the federal laws of the United States governing the trust powers of The Bank of New York (Delaware), (B) rely as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company and public officials and (C) take customary assumptions and exceptions. E-2 -------------------------------------------------------------------------------- ANNEX F Officer’s Financial Certificate           The undersigned, the Chief Financial Officer, hereby certifies, pursuant to Section 6(h) of the Purchase Agreement, dated as of October 27, 2006, among Deerfield Triarc Capital Corp. (the “Company”), Deerfield Triarc Capital Trust III (the “Trust”) and Bear, Stearns & Co. Inc., that, as of [date], the Company, if applicable, and its Subsidiary had the following ratios and balances: As of [Quarterly/Annual Financial Date], 20__     Senior secured indebtedness for borrowed money (“Debt”) $_____ Senior unsecured Debt $_____ Subordinated Debt $_____ Total Debt $_____ Ratio of (x) senior secured and unsecured Debt to (y) total Debt   _____% * A table describing the quarterly report calculation procedures is provided on page __ [FOR FISCAL YEAR END: Attached hereto are the audited consolidated financial statements (including the balance sheet, income statement and statement of cash flows, and notes thereto, together with the report of the independent accountants thereon) of the Company and its consolidated subsidiaries for the three years ended [date], 20__.] [FOR FISCAL QUARTER END: Attached hereto are the unaudited consolidated and consolidating financial statements (including the balance sheet and income statement) of the Company and its consolidated subsidiaries for the fiscal quarter ended [date], 20__.] The financial statements fairly present in all material respects, in accordance with U.S. generally accepted accounting principles (“GAAP”), the financial position of the Company and its consolidated subsidiaries, and the results of operations and changes in financial condition as of the date, and for the [___ quarter interim] [annual] period ended [date], 20__, and such financial statements have been prepared in accordance with GAAP consistently applied throughout the period involved (expect as otherwise noted therein).           IN WITNESS WHEREOF, the undersigned has executed this Officer’s Financial Certificate as of this ___ day of ________, 20__.       DEERFIELD TRIARC CAPITAL CORP. F-1 -------------------------------------------------------------------------------- ANNEX F           By:     --------------------------------------------------------------------------------   Name:     --------------------------------------------------------------------------------       Deerfield Triarc Capital Corp.   6250 N. River Road, 9th Floor   Rosemont, Illinois 60018   (773) 380-1600 F-2 --------------------------------------------------------------------------------

Exhibit 10.5   AMENDMENT 2005-1   BECKMAN COULTER, INC. EXECUTIVE RESTORATION PLAN   WHEREAS, Beckman Coulter, Inc. (the “Corporation”) maintains the Beckman Coulter, Inc. Executive Restoration Plan (the “Plan”);   WHEREAS, compensation deferred by participants under the Plan that was not earned and vested as of December 31, 2004 is subject to the requirements of Section 409A of the Internal Revenue Code;   WHEREAS, it is advisable to amend the Plan to permit Plan participants to make certain elections with respect to compensation deferred under the Plan in accordance with the Section 409A transition relief afforded by IRS Notice 2005-1 and subsequent IRS guidance.   RESOLVED, that the Plan is hereby amended, effective as of January 1, 2005, by adding the following Appendix A:   “APPENDIX A   SECTION 409A TRANSITION RULES   A1.  As contemplated by IRS Notice 2005-1 and subsequent guidance from the IRS as to participant Plan deferrals that are subject to Section 409A of the Internal Revenue Code, a Plan participant may elect in writing on or before December 15, 2005 to cancel all (but not less than all) of his or her Plan deferral elections for any 2004 bonus (otherwise payable in 2005) and any 2005 salary, in which case the amount otherwise deferred by the participant to the Plan with respect to such a cancelled election, adjusted for deemed earnings and losses pursuant to the Plan for the period commencing with the date such deferred amount was credited to the Plan through the time such amount is paid to the participant, shall be paid to the participant (subject to required tax withholding and other authorized deductions) promptly after December 15, 2005 and in all cases no later than December 31, 2005.   A2.  As contemplated by IRS Notice 2005-1, a Plan participant may elect in writing on or before March 15, 2005 to defer any 2005 salary and/or 2004 bonus (that would otherwise be paid in 2005), provided that such amounts have not been paid or become payable at the time of such election.   A3.  As contemplated by IRS Notice 2005-1 and subsequent guidance from the IRS, a Plan participant may elect in writing to defer any “performance-based compensation” (as such term is defined in the applicable IRS guidance) on or before the   1 --------------------------------------------------------------------------------   date that is six (6) months before the end of the service period to which such compensation relates.   A4.  As contemplated by IRS Notice 2005-1 and subsequent guidance from the IRS, a Plan participant may elect in writing to change any distribution election such participant has made with respect to compensation deferred under the Plan, and any such election change need not comply with the requirements of Section 409A of the Code applicable to changes in distribution elections; provided, however, that any such change must be made on or before December 31, 2006, and provided, further, that to the extent that such change relates to distributions that would otherwise be made in 2006 or would result in any distributions being made in 2006, such change must be made on or before December 31, 2005.   A5.  Any election made by a Plan participant under this Appendix A must be irrevocable as of the date such election is required to be made pursuant to the terms hereof and must otherwise comply with the procedures for making distribution elections set forth in this Plan.”   IN WITNESS WHEREOF, the undersigned duly authorized officer of the Corporation has executed this Amendment on this 21st day of December, 2005.       BECKMAN COULTER, INC.           By: /s/James Robert Hurley         Title: Vice President, Human Resources     2 --------------------------------------------------------------------------------

  Exhibit 10.04 INTERWOVEN, INC. 2000 STOCK INCENTIVE PLAN NOTICE OF RESTRICTED STOCK UNIT AWARD      The terms defined in the Interwoven, Inc. 2000 Stock Incentive Plan (the “Plan”) shall have the same meanings in this Notice of Restricted Stock Unit Award (“Notice of Grant”).               Name:                                                          Address:                                            You (“Participant”) have been granted an award of Restricted Stock Units (“RSUs”), subject to the terms and conditions of the Plan and the attached Award Agreement (Restricted Stock Units) (hereinafter “RSU Agreement”) to the Plan (available in hard copy by request), as follows:               Number of RSUs:                                                          Date of Grant:                                                          First Vesting Date:                                                          Expiration Date:   The date on which settlement of all RSUs granted hereunder occurs, with earlier expiration upon the Termination Date               [Vesting Schedule:]     Participant understands that his/her employment or consulting relationship with the Company is for an unspecified duration, can be terminated at any time with or without cause (i.e., is “at-will”), and that nothing in this Notice of Grant, the Attached Award Agreement or the Plan changes the at-will nature of that relationship. Participant acknowledges that the vesting of the RSUs pursuant to this Notice of Grant is earned only by continuing service as an employee or consultant of the Company. Participant also understands that this Notice of Grant is subject to the terms and conditions of both the RSU Agreement and the Plan, both of which are incorporated herein by reference. Participant has read both the RSU Agreement and the Plan.               PARTICIPANT           INTERWOVEN, INC.                       By:                   Print Name:       Its:                     --------------------------------------------------------------------------------   INTERWOVEN, INC. AWARD AGREEMENT (RESTRICTED STOCK UNITS) TO THE INTERWOVEN, INC. 2000 STOCK INCENTIVE PLAN Unless otherwise defined herein, the terms defined in Interwoven, Inc.’s 2000 Stock Incentive Plan (the “Plan”) shall have the same defined meanings in this Award Agreement (Restricted Stock Units) (the “Agreement”). You have been granted Restricted Stock Units (“RSUs”) subject to the terms, restrictions and conditions of the Plan, the Notice of Restricted Stock Unit Grant (“Notice of Grant”) and this Agreement. 1. Settlement. Unless otherwise deferred by Participant as permitted by the Committee, settlement of RSUs shall be made within 30 days following the applicable date of vesting under the vesting schedule set forth in the Notice of Grant. Settlement of RSUs shall be in Shares or cash as determined by the Committee. 2. No Stockholder Rights. Unless and until such time as Shares are issued in settlement of vested RSUs, Participant shall have no ownership of the Shares allocated to the RSUs and shall have no right dividends or to vote such Shares. 3. Dividend Equivalents. Dividends, if any (whether in cash or Shares), shall not be credited to Participant. 4. [Cessation of Vesting Due to Employee Schedule Change. Notwithstanding the vesting provided for in the Notice of Grant in the event a Participant who is an employee of the Company or a Subsidiary, who is regularly scheduled to work twenty (20) hours or more per week, voluntarily chooses (i.e., other than for reasons protected by law) to reduce his or her work schedule with the Company or a subsidiary to fewer than twenty (20) hours per week, the RSUs subject to the award shall cease to vest during the period of time in which such employee regularly maintains such a schedule.][Vesting schedule may or may not be subject to the foregoing provision.] 5. No Transfer. The RSUs and any interest therein shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of. 6. Termination. If Participant’s continuous employment with the Company or any of its subsidiaries shall terminate for any reason, all unvested RSUs shall be forfeited to the Company forthwith, and all rights of Participant to such RSUs shall immediately terminate. In case of any dispute as to whether Termination has occurred, the Committee shall have sole discretion to determine whether such Termination has occurred and the effective date of such Termination. 7. Acknowledgement. The Company and Participant agree that the RSUs are granted under and governed by this Agreement, the provisions of the Plan and the Notice of Grant (incorporated herein by reference). Participant: (i) acknowledges receipt of a copy of the Plan and the Plan prospectus, (ii) represents that Participant has carefully read and is familiar with their provisions, and (iii) hereby accepts the RSUs subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice of Grant. 8. Tax Consequences. Participant acknowledges that there will be tax consequences upon settlement of the RSUs or disposition of the Shares, if any, received in connection therewith, and   --------------------------------------------------------------------------------   Participant should consult a tax adviser regarding Participant’s tax obligations prior to such settlement or disposition. Upon vesting of the RSU, Participant will include in income the fair market value of the Shares subject to the RSU. The included amount will be treated as ordinary income by Participant and will be subject to withholding by the Company. The Company will satisfy any withholding obligations by reducing the number of Shares deliverable upon settlement by such an amount to satisfy such withholding requirements. Information on possible arrangements can be obtained from the Company. Upon disposition of the Shares, any subsequent increase or decrease in value will be treated as short-term or long-term capital gain or loss, depending on whether the Shares are held for more than one year from the date of settlement. In the event you are not a US taxpayer, the tax consequences described above could be different, you should consult your tax or financial advisor. 9. Compliance with Laws and Regulations. The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer. 10. Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon Participant and Participant’s heirs, executors, administrators, legal representatives, successors and assigns. 11. Severability. The Plan and Notice of Grant are incorporated herein by reference. The Plan, the Notice of Grant and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 12. NO GUARANTEE OF EMPLOYMENT. PARTICIPANT UNDERSTANDS AND AGREES THAT HIS OR HER EMPLOYMENT WITH THE COMPANY OR ITS SUBSIDIARIES IS FOR AN UNSPECIFIED DURATION AND CONSTITUTES “AT-WILL” EMPLOYMENT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF RSU’S PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY OR ITS SUBSIDIARY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED RSU’S OR BEING ISSUED SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER, AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PARTICIPANT’S RIGHT OR THE COMPANY’S AND/OR SUBSIDIARY’S RIGHT TO TERMINATE PARTICIPANT’S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.      By Participant’s signature and the signature of the Company’s representative on the Notice of Grant, Participant and the Company agree that this RSU is granted under and governed by the terms and conditions of the Plan, the Notice of Grant and this Agreement. Participant has reviewed the Plan, the Notice of Grant and this Agreement in their entirety, has had an opportunity to obtain the advice of   --------------------------------------------------------------------------------   counsel prior to executing this Agreement, and fully understands all provisions of the Plan, the Notice of Grant and this Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice of Grant and this Agreement. Participant further agrees to notify the Company upon any change in Participant’s residence address.  

Exhibit 10.3 PROMISSORY NOTE $370,000,000.00 New York, New York July 14, 2006   FOR VALUE RECEIVED, KAPALUA BAY, LLC, a Delaware limited liability company, having an address at c/o Maui Land & Pineapple Company, Inc., 120 Kane Street, Kapalua, Maui, Hawaii 96732 (“Borrower”), hereby unconditionally promises to pay to the order of LEHMAN BROTHERS HOLDINGS INC.,  a Delaware corporation, having an address at 399 Park Avenue, New York, New York 10022 (“Lender”), as payee, at its office set forth above or at such other place as the holder hereof may from time to time designate in writing, the principal sum of THREE HUNDRED SEVENTY MILLION and 00/100 DOLLARS ($370,000,000.00), or so much thereof as is advanced pursuant to the Loan Agreement (hereinafter defined) in lawful money of the United States of America with interest thereon to be computed on the unpaid principal balance from time to time outstanding at the Applicable Rate or, if applicable, the Default Rate, and to be paid in accordance with the terms of this Note and that certain Construction 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 I PAYMENT TERMS BORROWER AGREES TO PAY THE PRINCIPAL SUM OF THIS NOTE AND INTEREST ON THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE IN ACCORDANCE WITH THIS NOTE AND THE LOAN AGREEMENT.  THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE MAY ONLY BE PREPAID IN ACCORDANCE WITH THE LOAN AGREEMENT.  THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE, ALL ACCRUED AND UNPAID INTEREST THEREON AND ALL OTHER AMOUNTS DUE HEREUNDER AND UNDER THE MORTGAGE AND THE OTHER LOAN DOCUMENTS SHALL BE DUE AND PAYABLE ON THE MATURITY DATE OR SUCH OTHER DATE ON WHICH BY ACCELERATION OR OTHERWISE THE PRINCIPAL SUM OF THIS NOTE BECOMES DUE AND PAYABLE IN ACCORDANCE WITH THE LOAN AGREEMENT. INTEREST ON THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE SHALL ACCRUE AT THE APPLICABLE RATE AND SHALL BE CALCULATED AS PROVIDED IN SECTION 5.1(F) OF THE LOAN AGREEMENT. ON OR BEFORE 3:00 PM (NEW YORK TIME) ON EACH PAYMENT DATE, BORROWER SHALL MAKE PAYMENTS OF INTEREST DUE AND PAYABLE HEREUNDER BY DEPOSIT OF IMMEDIATELY AVAILABLE FUNDS TO SUCH ACCOUNT AS LENDER MAY DESIGNATE FROM TIME TO TIME. ARTICLE II 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 the Maturity Date or on the happening of any other Event of Default which continues beyond applicable notice and grace periods. ARTICLE III DEFAULT INTEREST Borrower hereby agrees that upon the occurrence and during the continuance of an Event of Default, Lender shall be entitled to receive and Borrower shall pay interest on the entire unpaid principal sum at the Default Rate.  The Default Rate shall be computed from the occurrence of the Event of Default until the earlier of the date upon which the Event of Default is cured or waived or the date upon which the Debt is paid in full.  Interest calculated at the Default Rate shall be added to the Debt, and shall be deemed secured by the Mortgage and the other Loan Documents.  This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence and continuance of any Event of Default. ARTICLE IV 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 V 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 legal rate, (b) in calculating whether any interest exceeds the maximum legal rate, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all outstanding principal indebtedness with respect to the Loan to Borrower by Lender, and (c) if through any contingency or event, Lender receives or is deemed to receive interest in excess of the maximum legal rate, any such excess shall be deemed to have been applied to the outstanding principal amount of the Loan, with any excess refunded to Borrower. 2 --------------------------------------------------------------------------------   ARTICLE VI 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 VII WAIVERS Except as otherwise provided in the Loan Agreement, 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.  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.  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.  If Borrower is a partnership, the agreements herein contained shall remain in force and 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.  If Borrower is a corporation, the agreements contained herein shall remain in full force and 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.  If Borrower is a limited liability company, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the individuals comprising the members thereof, 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 hereunder.  Nothing in this Article VII shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, limited liability company or corporation, which may be set forth in the Loan Agreement or any of the other Loan Documents. 3 --------------------------------------------------------------------------------   ARTICLE VIII TRANSFER Subject to and in accordance with the Loan Agreement, upon the transfer of this Note, Borrower hereby waiving notice of any such transfer, 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 Laws 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 after the date of transfer, provided that Lender shall retain all rights hereby given to it and obligations hereunder with respect to any liabilities and the collateral not so transferred. ARTICLE IX EXCULPATION The Loan shall be non-recourse to Borrower and its respective officers, directors, employees, members, partners and Affiliates (collectively, the “Exculpated Parties”), and accordingly, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in this Note and the other Loan Documents by an action or proceeding wherein a money judgment shall be sought against Borrower or any of the other Exculpated Parties, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon this Note and the other Loan Documents, and the interests in the Project and any other collateral given to Lender pursuant to the Mortgage or any of the other Loan Documents; provided, however, that, except as specifically provided in this Article IX, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower’s interest in the Project and in any other collateral given to Lender pursuant to the Mortgage or any of the other Loan Documents.  Lender, by accepting this Note and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against Borrower or the Exculpated Parties in any such action or proceeding, under, by reason of or in connection with this Note or the other Loan Documents.  The provisions of this Article IX shall not, however: (i) constitute a waiver, release or impairment of any obligation evidenced or secured by this Note or the other Loan Documents; (ii) impair the right of Lender to name Borrower as a party defendant in any action or suit for foreclosure and sale under the Mortgage; (iii) affect the validity or enforceability of any guaranty or indemnity made in connection with this Note or the other Loan Documents against the party having made the same; (iv) impair the right of Lender to obtain the appointment of a receiver; (v) impair the enforcement of the assignment of leases and rents in favor of Lender; (vi) impair the right of Lender to bring suit with respect to fraud or intentional misrepresentation by Borrower or any other person or entity in connection with this Note or the other Loan Documents; or (vii) affect the validity or enforceability of the Environmental Indemnity or limit the liability of Borrower or any other party thereunder. Nothing in this Article IX shall be deemed to be a waiver of any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Debt or to require that all collateral 4 --------------------------------------------------------------------------------   shall continue to secure all of the Debt in accordance with this Note and the other Loan Documents. Notwithstanding the foregoing provisions of this Article IX or any other provision in the Loan Documents, Borrower shall be fully liable for, and shall indemnify and defend Lender from and against any actual loss, cost, liability, judgment, claim, damage or expense sustained, suffered or incurred by Lender (including, without limitation, reasonable attorneys’ fees and expenses) arising out of or attributable or relating to: (i)            fraud or intentional misrepresentation by Borrower, Borrower Principals or any of the Exculpated Parties in connection with the Loan; (ii)           the gross negligence or willful misconduct of Borrower, Borrower Principals or any Guarantor; (iii)          the physical waste or willful destruction of the Project or any part thereof which is attributable to the acts or omissions of Borrower, Borrower Principals or any of the Exculpated Parties; (iv)          the breach of provisions in the Loan Agreement concerning Environmental Laws and Hazardous Material, including any obligation to indemnify Lender with respect to such Environmental Laws or Hazardous Material; (v)           the removal of any portion of the Personal Property in violation of the Loan Documents (other than fixtures, furniture and equipment in the ordinary course of business, or as otherwise permitted under the Loan Documents); (vi)          the misapplication, misappropriation or conversion by Borrower in violation of the Loan Documents of (A) any insurance proceeds paid by reason of any loss, damage or destruction to the Project; (B) any awards or other amounts received in connection with the condemnation of all or a portion of the Project; or (C) rents, issues, profits, proceeds, security deposits, or Contract Deposits (as defined in the Loan Agreement); (vii)         any financial information concerning Borrower, Borrower Principals or any of the Exculpated Parties delivered to Lender by Borrower, Borrower Principals or any of the Exculpated Parties proving to be fraudulent in any material respect of the financial condition of Borrower, Borrower Principals or any of the Exculpated Parties; (viii)        any unapplied security deposits collected with respect to the Project which are not delivered to Lender upon a foreclosure of the Project or action in lieu thereof in accordance with the terms of the Loan Documents; (ix)           Borrower’s failure to permit on-site inspections of the Project  in accordance with the Loan Documents or to provide financial statements pertaining to the Project as required by the Loan Agreement, unless, in either case, such failure is cured within five (5) days after a second notice therefor is delivered to Borrower; (x)            Borrower’s failure to comply with the single-purpose entity provisions of the Loan Documents; (xi)           the Project or any part thereof becoming an asset in (A) a voluntary bankruptcy or insolvency proceeding or (B) an involuntary bankruptcy or insolvency 5 --------------------------------------------------------------------------------   proceeding (unless such proceeding is dismissed within ninety (90) days after the commencement thereof) where Lender reasonably determines that Borrower (including Borrower’s employees, partners, directors, Affiliates, Member, Guarantor, Guarantor’s members or Borrower Principals) has colluded with any Persons to cause the filing of the same (other than an involuntary bankruptcy or insolvency proceeding commenced or approved in writing by Lender); (xii)          mechanic’s, materialmen’s and other similar liens and encumbrances against the Project or any portion thereof to the extent that Borrower had sufficient funds to discharge same or the work being the subject matter of such liens was not approved of by Lender or otherwise permitted by the Loan Documents; (xiii)         Borrower’s failure to timely pay taxes to the extent sufficient funds were available to Borrower to pay same from the operating revenue of the Project; (xiv)        Intentionally Deleted (xv)         Borrower’s failure to deliver an estoppel certificate to Lender pursuant to the Loan Agreement unless such failure is cured within five (5) days after a second notice therefor is delivered to Borrower; (xvi)        any amendment or modification to the organizational documents of Borrower or Borrower Principals, as the case may be, without obtaining Lender’s prior written consent therefor or as is otherwise permitted under the Loan Documents; (xvii)       any amendment, modification or termination of the Ground Lease without obtaining Lender’s prior written consent therefor or as is otherwise permitted under the Loan Documents; (xviii)      any breach of Article XVIII of the Loan Agreement; (xix)         any breach of Section 7.2 of the Loan Agreement; and (xx)          Intentionally Deleted; (xxi)         failure to comply (to the extent sufficient cash was available from the operating revenue of the Property to effect compliance) with known and material legal requirements. The liabilities listed in clauses (i) through (xxi) of this Paragraph are collectively known as the “Recourse Obligations”. For purposes of this Note, the term “Borrower Principal(s)” shall mean each of  Guarantor, Member, MLP KB Partner LLC, a Hawaii limited liability company, ER Kapalua Investors Fund, LLC, a Delaware limited liability company, and MH Kapalua Venture, LLC, a Delaware limited liability company. 6 --------------------------------------------------------------------------------   ARTICLE X GOVERNING LAW; SUBMISSION TO JURISDICTION THIS NOTE WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THIS NOTE WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY.  IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS NOTE AND THE OBLIGATIONS ARISING HEREUNDER 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 (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA.  TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER AND, BY ITS ACCEPTANCE HEREOF, LENDER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS NOTE MAY, AT THE OPTION OF LENDER, BE INSTITUTED IN ANY FEDERAL COURT SITTING IN THE STATE OF HAWII OR STATE COURT SITTING IN THE ISLAND AND COUNTY OF MAUI, HAWAII, OR NEW YORK COUNTY, NEW YORK, AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING. ARTICLE XI NOTICES All notices or other written communications hereunder shall be delivered in accordance with Article XXIII of the Loan Agreement. ARTICLE XII TRIAL BY JURY BORROWER AND, BY ITS ACCEPTANCE OF THIS NOTE, LENDER EACH AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF 7 --------------------------------------------------------------------------------   RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS NOTE OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION HEREWITH.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND, BY ITS ACCEPTANCE OF THIS NOTE, LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.  EITHER PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER. [SIGNATURE PAGE TO FOLLOW] 8 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Borrower as of the day and year first above written.   BORROWER:           KAPALUA BAY, LLC,     a Delaware limited liability company         By: Kapalua Bay Holdings, LLC,     a Delaware limited liability company,     Its Managing Member           By: MLP KB Partner LLC,       a Hawaii limited liability company,       Its Managing Member               By: Maui Land & Pineapple Company, Inc., a Hawaii corporation,         Managing Member         By: /S/ ROBERT WEBBER     Name:   R. WEBBER     Title:           CFO             By:   /S/ RYAN CHURCHILL     Name:      RYAN CHURCHILL     Title: VICE PRESIDENT/COMMUNITY       DEVELOPMENT   --------------------------------------------------------------------------------

  EXHIBIT 10.8(b) AMENDMENT NO. 1 TO EXECUTIVE EMPLOYMENT AGREEMENT           THIS AMENDMENT NO. 1 TO EXECUTIVE EMPLOYMENT AGREEMENT (this “Amendment”) by and between Mylan Laboratories Inc., a Pennsylvania corporation (the “Company”) and John P. O’Donnell (the “Executive”), is made as of April 3, 2006.           WHEREAS, the Company and the Executive are parties to that certain Executive Employment Agreement dated as of July 1, 2004 (the “Agreement”);           WHEREAS, the Company and the Executive wish to amend the Agreement, effective as of April 1, 2006, as set forth below;           NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:   1.   The following proviso is hereby added to the end of the second sentence of Section 8(c) of the Agreement: “provided, that, such lump sum payment shall be reduced by any disability benefits that the Executive is entitled to pursuant to plans or arrangements of the Company.”   2.   The following proviso is hereby added to the end of the final sentence of Section 8(g) of the Agreement: “provided, however, that such consideration, compensation, and benefits shall be reduced by any death benefits that the Executive’s estate or beneficiaries are entitled to pursuant to plans or arrangements of the Company.”   3.   The following is hereby added as Section 8(h) of the Agreement: “Section 409A. Notwithstanding anything to the contrary in this Agreement, the payment of consideration, compensation, and benefits pursuant to this Section 8 shall be interpreted and administered in manner intended to avoid the imposition of additional taxes under Section 409A of the Internal Revenue Code.”   4.   This Amendment shall be governed by, interpreted under and construed in accordance with the laws of the Commonwealth of Pennsylvania.     5.   This Amendment may be executed in counterparts, each of which shall be an original and all of which shall constitute the same document.     6.   Except as modified by this Amendment, the Agreement is hereby confirmed in all respects.   --------------------------------------------------------------------------------             IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the year first written above.                   MYLAN LABORATORIES INC.                   By:   /s/ Robert J. Coury                     Name: Robert J. Coury     Title: Vice Chairman and CEO                   EXECUTIVE                     /s/ John P. O’Donnell               John P. O’Donnell 2

Exhibit 10.10   SUMMARY OF KEY TERMS OF COMPENSATION ARRANGEMENTS WITH MERIX CORPORATION EXECUTIVE OFFICERS   Merix’ executive officers each receive an annual salary. The executive officers are also eligible for a cash incentive under the Merix’ Executive Incentive Plan (“EIP”) and for equity incentives under our 1994 Stock Incentive Plan. Awards under the EIP are determined as percentages of base salary. Merix’ executives participate in Merix’ 401(k) plan and other employee benefits plans on the same basis as other employees. Merix makes annual matching contributions to Merix’ 401(k) Plan and pays Group Term Life Insurance premiums for each of its executive officers on the same basis as for all regular employees of Merix who satisfy minimum eligibility requirements. In addition, Merix’ executive officers are eligible to participate in Merix’ health and welfare and other employee benefit plans that are available on the same basis to all regular employees of Merix who satisfy minimum eligibility requirements.   Key elements of executive compensation for fiscal year ending May 27, 2006 are:   Name and Title --------------------------------------------------------------------------------    Fiscal 2006 Salary --------------------------------------------------------------------------------    2006 EIP Maximum Cash Incentive --------------------------------------------------------------------------------     2006 Target Bonus Allocation --------------------------------------------------------------------------------           North American Operations Operating Income --------------------------------------------------------------------------------     China Operations EBITDA --------------------------------------------------------------------------------     North American Quick Turn Revenue --------------------------------------------------------------------------------     San Jose Operations EBITDA --------------------------------------------------------------------------------   Mark R. Hollinger President and Chief Executive Officer    $ 330,000    70 %   40 %   60 %             Janie S. Brown Senior Vice President, Chief Financial Officer and Treasurer    $ 276,800    50 %   40 %   50 %   10 %       Daniel T. Olson Senior Vice President and Chief Executive Officer of Asian Operations    $ 230,000    70 %   40 %   60 %             Steve Robinson Vice President, Merix North American Operations and President, Merix San Jose, Inc.    $ 275,000    100 %   40 %         30 %   30 % Thomas R. Ingham (a) Vice President, Sales and Marketing    $ 210,000    60 %(a)     (b)     (b)     (b)     (b) -------------------------------------------------------------------------------- (a) Included in the percentage of 2006 EIP Maximum Cash Incentive to be awarded to Mr. Ingham is a $45,000 guaranteed amount payable in quarterly installments of $11,250.   (b) The distribution of the 2006 Target Bonus Allocation for Mr. Ingham has not yet been determined.

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT No. 10(t) Constellation Energy Group, Inc. Amended and Restated Executive Long-Term Incentive Plan (Plan) 1.    Purpose. The purpose of this Plan is to increase shareholder value by providing a long-term incentive to reward officers and key employees of the Company and its Subsidiaries, who are mainly responsible for the continued growth, development, and financial success of the Company and its Subsidiaries, and for the continued profitable performance of the Company and its Subsidiaries. The Plan is also designed to permit the Company and its Subsidiaries to attract and retain talented and motivated directors, officers and key employees and to increase their ownership of Company common stock. The Plan also provides the ability to award long-term incentives that qualify for federal income tax deduction. 2.    Definitions. All singular terms defined in this Plan will include the plural and vice versa. As used herein, the following terms will have the meaning specified below:         "Adjusted EBIT" means EBIT, subject to, and/or after giving effect to, any adjustments applicable pursuant to Section 9A(iv) at the time Business Criteria and Performance Target(s) are established for any Year or Years.         "Adjusted EPS" means EPS, subject to, and/or after giving effect to, any adjustments applicable pursuant to Section 9A(iv) at the time Business Criteria and Performance Target(s) are established for any Year or Years.         "Adjusted Net Income" means Net Income, subject to, and/or after giving effect to, any adjustments applicable pursuant to Section 9A(iv) at the time Business Criteria and Performance Target(s) are established for any Year or Years.         "Adjusted Return on Assets" means Return on Assets subject to, and/or after giving effect to, any adjustments applicable pursuant to Section 9A(iv) at the time Business Criteria and Performance Target(s) are established for any Year or Years.         "Adjusted Return on Equity" means Return on Equity, subject to, and/or after giving effect to, any adjustments applicable pursuant to Section 9A(iv) at the time Business Criteria and Performance Target(s) are established for any Year or Years.         "Award" means individually or collectively, Restricted Stock, Restricted Stock Units, Options, Performance Units, Stock Appreciation Rights, Dividend Equivalents, or Equity granted under this Plan.         "Board" means the Board of Directors of the Company.         "Book Value" means the book value of a share of Stock determined in accordance with the Company's regular accounting practices as of the last business day of the month immediately preceding the month in which a Stock Appreciation Right is exercised as provided in Section 10.         "Business Criteria" means any one or any combination of Net Income, Adjusted Net Income, Return on Equity, Adjusted Return on Equity, Return on Assets, Adjusted Return on Assets, Total Shareholder Return, Stock Fair Market Value, EBIT, Adjusted EBIT, EPS or Adjusted EPS.         "Code" means the Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code will be deemed to include any amendments or successor provisions to such section and any regulations promulgated thereunder.         "Committee" means the Committee on Management of the Board; provided, however, that if such Committee fails to satisfy the disinterested administration provisions of Section 16b-3 of the 1934 Act or the outside director provisions of Section 162(m)(4)(C) of the Code, "Committee" shall mean a committee of directors of the Company who satisfy the requirements of such Sections.         "Company" means Constellation Energy Group, Inc., a Maryland corporation, or its successor, including any "New Company" as provided in Section 15I.         "Covered Award" means any Award granted under the Plan on or after December 18, 2005.         "Date of Grant" means the date on which the granting of an Award is authorized by the Committee or such later date as may be specified by the Committee in such authorization.         "Date of Retirement" means the date of Retirement. --------------------------------------------------------------------------------         "Disability" means the determination that a Participant is "disabled" under the Company disability plan in effect at that time.         "Dividend Equivalent" means an Award granted under Section 11.         "EBIT" for any Year means the consolidated earnings before income taxes of the Company, as reported in the consolidated financial statements of the Company for the Year.         "Eligible Person" means any person who satisfies all of the requirements of Section 5.         "EPS" for any Year means diluted earnings per share of the Company, as reported in the Company's consolidated financial statements for the Year.         "Equity" means an Award granted under Section 12.         "Excluded Transactions" has the meaning set forth in Section 13.         "Exercise Period" means the period or periods during which a Stock Appreciation Right is exercisable as described in Section 10.         "Fair Market Value" means the average of the highest and lowest price at which the Stock was sold regular way on the New York Stock Exchange-Composite Transactions on a specified date.         "Incentive Stock Option" means an incentive stock option within the meaning of Section 422 of the Code.         "Net Income" for any Year means the consolidated net income of the Company, as reported in the consolidated financial statements of the Company for the Year.         "1934 Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.         "Option" or "Stock Option" means either a nonqualified stock option or an incentive stock option granted under Section 8.         "Option Period" or "Option Periods" means the period or periods during which an Option is exercisable as described in Section 8.         "Participant" means an individual who has been granted an Award under this Plan.         "Pension Plan" means the Pension Plan of Constellation Energy Group, Inc. as may be amended from time to time.         "Performance-Based" means that in determining the amount of a Restricted Stock or Restricted Stock Unit Award payout, the Committee will take into account the Performance Targets.         "Performance Period" means the taxable year of the Company or any other period designated by the Committee with respect to which an Award may be granted.         "Performance Target(s)" means the specific objective goal or goals that are timely set in writing by the Committee pursuant to Section 9A(ii) for each Participant for the applicable Performance Period in respect of any one or more of the Business Criteria.         "Performance Unit" means a unit of measurement equivalent to such amount or measure as defined by the Committee which may include, but is not limited to, dollars, market value shares, or book value shares.         "Plan Administrator" means, as set forth in Section 4, the Committee.         "Restricted Stock" means Stock issued in the name of a Participant that bears a restrictive legend prohibiting sale, transfer, pledge or hypothecation of the Stock until the expiration of the restriction period.         "Restricted Stock Unit" means a right granted under Section 7 that is denominated in shares of stock, each of which represents a right to receive the value of a share of stock (or a percentage of such value, which percentage may be higher than 100%) upon the terms and conditions set forth by the Committee.         "Retirement" means retirement on or after the "Early Retirement Date" (as such term is defined in the Pension Plan or a Subsidiary's retirement or pension plan). 2 --------------------------------------------------------------------------------         "Return on Assets" means Net Income divided by the average of the total assets of the Company at the end of the four fiscal quarters of the Year, as reported by the Company in its consolidated financial statements.         "Return on Equity" means the Net Income divided by the average of the common shareholders equity of the Company at the end of each of the four fiscal quarters of the Year, as reported by the Company in its consolidated financial statements.         "Service-Based" means that in determining the amount of a Restricted Stock or Restricted Stock Unit Award payout, the Committee will take into account only the period of time that the Participant performed services for the Company or its Subsidiaries since the Date of Grant.         "Stock" means the common stock, without par value, of the Company.         "Stock Appreciation Right" means an Award granted under Section 10.         "Subsidiary(ies)" means any entity that is directly or indirectly controlled by the Company or any entity, including an acquired entity, in which the Company has a significant equity interest, as determined by the Committee, in its discretion.         "Termination" means resignation or discharge from employment with the Company or any of its Subsidiaries except in the event of death, Disability, or Retirement.         "Total Shareholder Return" means the sum of the change in the Fair Market Value of the Stock plus the value of reinvested dividends and cash equivalents, over the Performance Period.         "Year" means a fiscal year of the Company commencing on or after January 1, 2002 that constitutes all or part of the applicable Performance Period. 3.    Effective Date, Duration and Stockholder Approval.         A.     Effective Date and Stockholder Approval. Subject to the approval of the Plan by a majority of the outstanding shares of Stock voted at the 2002 Annual Meeting of Stockholders, the Plan will be effective as of January 1, 2002. The Plan was most recently amended and restated effective as of December 18, 2005.         B.     Period for Grants of Awards. Awards may be made as provided herein for a period of 10 years after January 1, 2002.         C.    Termination. The Plan will continue in effect until all matters relating to the payment of outstanding Awards and administration of the Plan have been settled. 4.    Plan Administration. The Committee is the Plan Administrator and has sole authority (except as specified otherwise herein) to determine all questions of interpretation and application of the Plan, or of the terms and conditions pursuant to which Awards are granted, exercised or forfeited under the Plan provisions, and, in general, to make all determinations advisable for the administration of the Plan to achieve its stated purpose. Without limiting the generality of the foregoing, the Plan Administrator may modify, amend, extend or renew outstanding Awards, or accept the surrender of outstanding Awards and substitute new Awards (provided, however, that, except as provided in Section 15H of the Plan, any modification that would materially adversely affect any outstanding Award shall not be made without the consent of the Participant, and provided, further, that no modification, amendment or substitution that results in repricing a Stock Option to a lower exercise price, other than to reflect an adjustment made pursuant to Section 15H, shall be made without prior stockholder approval).         The Plan Administrator's determinations under the Plan (including without limitation, determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and any agreements evidencing such Awards) need not be uniform and may be made by the Administrator selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. Such determinations shall be final and not subject to further appeal.         The Committee may delegate its authority under the Plan with respect to Participants who are not directors or executive officers. 5.    Eligibility. Each officer, key employee or director of the Company and its Subsidiaries may be designated by the Committee as a Participant, from time to time, with respect to one or more Awards. No officer, employee or director of the Company or its Subsidiaries shall have any right to be granted an Award under this Plan. The Plan Administrator may also grant Awards to individuals in connection with hiring (as an officer, key employee or director), 3 -------------------------------------------------------------------------------- retention or otherwise, prior to the date the individual first performs services for the Company or a Subsidiary; provided, however, that such Awards shall not become vested or exercisable prior to the date the individual first commences performance of such services. 6.    Grant of Awards and Limitation of Number of Shares Awarded. The Committee may, from time to time, grant Awards to one or more Eligible Persons, provided that subject to any adjustment pursuant to Section 15H, the aggregate number of shares of Stock subject to Awards that may be delivered under this Plan may not exceed eight million (8,000,000) shares. Shares delivered by the Company under the Plan may be authorized and unissued Stock, Stock held in the treasury of the Company, or Stock purchased on the open market (including private purchases) in accordance with applicable securities laws.         Any shares of Stock covered by an Award (or portion of an Award) granted under the Plan that is forfeited or canceled, expires or is settled in cash, including the settlement of tax withholding obligations using shares, shall be deemed not to have been delivered for purposes of determining the maximum number of shares available for delivery under the Plan. Likewise, if any Option granted under the Plan is exercised by tendering shares of Stock to the Company as full or partial payment for such exercise under the Plan, only the number of shares issued net of the shares tendered shall be deemed delivered for purposes of determining the maximum number of shares available for delivery under the Plan.         The maximum number of shares of Stock that may be issued in conjunction with Service-Based Restricted Stock or Restricted Stock Unit Awards under Section 7 of the Plan, Performance-Based Restricted Stock or Restricted Stock Unit or Performance Unit Awards under Section 9 of the Plan and Equity Awards under Section 12 of the Plan shall in the aggregate be eight hundred thousand (800,000). The maximum number of shares of Stock subject to Awards of any combination that may be granted during any calendar year under the Plan to any one person is two million (2,000,000); provided, however, that to the extent the maximum permissible award is not made in a year, such amount may be carried over to subsequent years. Such per-individual limit shall not be adjusted to effect a restoration of shares of Stock with respect to which the related Award is terminated, surrendered or canceled.         The Plan Administrator may permit or require a recipient of an Award to defer all or part of such individual's receipt of the payment of cash or the delivery of Stock that would otherwise be due to such individual by virtue of the exercise of, payment of, or lapse or waiver of restrictions respecting, any Award. If any such payment deferral is required or permitted, the Plan Administrator shall, in its sole discretion, establish rules and procedures for such payment deferrals. 7.    Service-Based Restricted Stock and Restricted Stock Unit Awards.         A.     Grants of Service-Based Restricted Shares or Units. One or more shares of Restricted Stock or Restricted Stock Units may be granted to any Eligible Person. The Service-Based Restricted Stock will be issued or Restricted Stock Unit granted to the Participant on the Date of Grant without the payment of consideration by the Participant. The Service-Based Restricted Stock will be issued or Restricted Stock Unit granted in the name of the Participant and will bear a restrictive legend prohibiting sale, transfer, pledge or hypothecation of the Service-Based Restricted Stock or Restricted Stock Unit until the expiration of the restriction period.         The Committee may also impose such other restrictions and conditions on the Service-Based Restricted Stock or Restricted Stock Unit as it deems appropriate.         Upon issuance to the Participant of the Service-Based Restricted Stock the Participant will have the right to vote the Service-Based Restricted Stock. Upon issuance to the Participant of the Restricted Stock or grant of the Restricted Stock Unit and subject to the Committee's discretion, the Participant will have the right to receive the cash dividends (or Dividend Equivalents as provided in Section 11) distributable with respect to such shares or units, with such dividends or Dividend Equivalents treated as compensation to the Participant. The Committee, in its sole discretion, may direct the accumulation and payment of distributable dividends to the Participant at such times, and in such form and manner, as determined by the Committee.         B.     Restriction Period. At the time a Service-Based Restricted Stock or Restricted Stock Unit Award is granted, the Committee will establish a restriction period applicable to such Award which will be not less than one year and not more than ten years. Each Restricted Stock or Restricted Stock Unit Award may have a different restriction period, at the discretion of the Committee.         C.    Forfeiture or Payout of Award. In the event a Participant ceases employment (or ceases Board membership in the case of a director) during a restriction period, a Service-Based Restricted Stock or Restricted Stock Unit Award is 4 -------------------------------------------------------------------------------- subject to forfeiture or payout (i.e., removal of restrictions) as follows: (a) Termination—the Service-Based Restricted Stock or Restricted Stock Unit Award is completely forfeited; or (b) Retirement, Disability or death—payout of the Service-Based Restricted Stock or Restricted Stock Unit Award is prorated for service during the period; provided, however, that the Committee may modify the above if it determines at its sole discretion that special circumstances warrant such modification.         Any shares of Service-Based Restricted Stock which are forfeited will be transferred to the Company.         Upon completion of the restriction period, all Award restrictions will expire and new certificates representing the Award will be issued (the payout) without the restrictive legend described in Section 7A.         D.    Waiver of Section 83(b) Election. Unless otherwise directed by the Committee, as a condition of receiving an Award of Service-Based Restricted Stock, a Participant must waive in writing the right to make an election under Section 83(b) of the Code to report the value of the Service-Based Restricted Stock as income on the Date of Grant. 8.    Stock Options.         A.     Grants of Options. One or more Options may be granted to any Eligible Person on the Date of Grant without the payment of consideration by the Participant.         B.     Stock Option Agreement. Each Option granted under the Plan will be evidenced by a "Stock Option Agreement" between the Company and the Participant containing provisions determined by the Committee, including, without limitation, provisions to qualify Incentive Stock Options as such under Section 422 of the Code if directed by the Committee at the Date of Grant; provided, however, that each Incentive Stock Option Agreement must include the following terms and conditions: (i) that the Options are exercisable, either in total or in part, with a partial exercise not affecting the exercisability of the balance of the Option; (ii) every share of Stock purchased through the exercise of an Option will be paid for in full at the time of the exercise; (iii) each Option will cease to be exercisable, as to any share of Stock, at the earliest of (a) the Participant's purchase of the Stock to which the Option relates, (b) the Participant's exercise of a related Stock Appreciation Right, or (c) the lapse of the Option; (iv) Options will not be transferable by the Participant except by Will or the laws of descent and distribution and will be exercisable during the Participant's lifetime only by the Participant or by the Participant's guardian or legal representative; and (v) notwithstanding any other provision, in the event of a public tender for all or any portion of the Stock or in the event that any proposal to merge or consolidate the Company with another company is submitted to the stockholders of the Company for a vote, the Committee, in its sole discretion, may declare any previously granted Options to be immediately exercisable.         C.    Option Price. The Option price per share of Stock will be set by the grant, but will be not less than 100% of the Fair Market Value at the Date of Grant.         D.    Form of Payment. At the time of the exercise of the Option, the Option price will be payable in cash or in other shares of Stock or in a combination of cash and other shares of Stock, in a form and manner as required by the Committee in its sole discretion. When Stock is used in full or partial payment of the Option price, it will be valued at the Fair Market Value on the applicable date.         E.     Other Terms and Conditions. The Option will become exercisable in such manner and within such Option Period or Periods, not to exceed 10 years from its Date of Grant, as set forth in the Stock Option Agreement upon payment in full. Except as otherwise provided in this Plan or in the Stock Option Agreement, any Option may be exercised in whole or in part at any time.         F.     Lapse of Option. An Option will lapse upon the earlier of: (i) 10 years from the Date of Grant, or (ii) at the expiration of the Option Period set by the grant. If the Participant ceases employment (or ceases Board membership in the case of a director) within the Option Period and prior to the lapse of the Option, the Option will lapse as follows: (a) Termination-any unvested Option will lapse on the effective date of the Termination and any vested Option will lapse 90 days after the effective date of the Termination; or (b) Retirement, Disability or death-any unvested Option will lapse on the effective date of the Retirement, Disability or death and any vested Option will lapse on the earlier of 60 months after the effective date of the Retirement, Disability or death or at the expiration of the Option Period set by the Grant; provided, however, that the Committee may modify the above if it determines in its sole discretion that special circumstances warrant such modification.         G.    Individual Limitation. In the case of an Incentive Stock Option, the aggregate Fair Market Value of the Stock for which Incentive Stock Options (whether under this Plan or another arrangement) in any calendar year are first exercisable will not exceed $100,000 with respect to such calendar year (or such other individual limit as may be 5 -------------------------------------------------------------------------------- in effect under the Code on the Date of Grant) plus any unused portion of such limit as the Code may permit to be carried over. 9.    Performance-Based Restricted Stock or Restricted Stock Units/Performance Units.         A.     Provision for Awards.         (i)    General. For Awards under this Section 9, the Committee will establish (a) Performance Target(s) relative to the applicable Business Criteria, (b) the applicable Performance Period and (c) the applicable number of shares of Performance-Based Restricted Stock, Performance-Based Restricted Stock Units or Performance Units that are the subject of the Award. The applicable Performance Period and Performance Target(s) shall be determined by the Committee consistent with the terms of the Plan and Section 162(m) of the Code. Notwithstanding the fact that the Performance Target(s) have been attained, the Committee may pay an Award under this Section 9 of less than the amount determined by the formula or standard established pursuant to Section 9A(ii) or may pay no Award at all.         (ii)    Selection of Performance Target(s). The specific Performance Target(s) with respect to the Business Criteria must be established by the Committee in advance of the deadlines applicable under Section 162(m) of the Code and while the performance relating to the Performance Target(s) remains substantially uncertain within the meaning of Section 162(m) of the Code. The Performance Target(s) with respect to any Performance Period may be established on a cumulative basis or in the alternative, and may be established on a stand-alone basis with respect to the Company or on a relative basis with respect to any peer companies or index selected by the Committee. At the time the Performance Target(s) are selected, the Committee shall provide, in terms of an objective formula or standard for each Participant, the method of computing the specific amount that will represent the maximum amount of Award payable to the Participant if the Performance Target(s) are attained. The objective formula or standard shall preclude the use of discretion to increase the amount of any Award earned pursuant to the terms of the Award.         (iii)    Effect of Mid-Year Commencement of Service. If services as an executive officer or director commence after the adoption of the Plan and the Performance Target(s) are established for a Performance Period, the Committee may grant an Award that is proportionately adjusted based on the period of actual service during the Year, and the amount of any Award paid to such person shall not exceed that proportionate amount of the applicable maximum individual Award under Section 6.         (iv)    Adjustments. To preserve the intended incentives and benefits of an Award based on Adjusted EPS, Adjusted Net Income, Adjusted Return on Assets or Adjusted Return on Equity, the Committee may determine at the time the Performance Targets are established that certain adjustments shall apply to the objective formula or standard with respect to the applicable Performance Target to take into account, in whole or in part, in any manner specified by the Committee, any one or more of the following with respect to the Performance Period: (i) the gain, loss, income or expense resulting from changes in accounting principles that become effective during the Performance Period; (ii) the gain, loss, income or expense reported publicly by the Company with respect to the Performance Period that are extraordinary or unusual in nature or infrequent in occurrence, excluding gains or losses on the early extinguishment of debt; (iii) the gains or losses resulting from, and the direct expenses incurred in connection with, the disposition of a business, in whole or in part or the sale of investments or non-core assets; (iv) gain or loss from all or certain claims and/or litigation and all or certain insurance recoveries relating to claims or litigation; (v) the impact of impairment of tangible or intangible assets; (vi) the impact of restructuring or business recharacterization activities, including but not limited to reductions in force, that are reported publicly by the Company; and (vii) the impact of investments or acquisitions made during the year or, to the extent provided by the Committee, any prior year. Each of the adjustments described in this Section 9A(iv) may relate to the Company as a whole or any part of the Company's business or operations, as determined by the Committee at the time the Performance Targets are established. The adjustments are to be determined in accordance with generally accepted accounting principles and standards, unless another objective method of measurement is designated by the Committee. In addition to the foregoing, the Committee shall adjust any Business Criteria, Performance Targets or other features of an Award that relate to or are wholly or partially based on the number of, or the value of, any stock of the Company, to reflect any stock dividend or split, recapitalization, combination or exchange of shares or other similar changes in such stock.         (v)    Committee Discretion to Determine Award. The Committee has the sole discretion to determine the standard or formula pursuant to which each Participant's Award shall be calculated, whether all or any portion of the amount so calculated will be paid, and the specific amount (if any) to be paid to each Participant, subject in 6 -------------------------------------------------------------------------------- all cases to the terms, conditions and limits of the Plan. To this same extent, the Committee may at any time establish (and, once established, rescind, waive or amend) additional conditions and terms of payment of Awards (including but not limited to the achievement of other financial, strategic or individual goals, which may be objective or subjective) as it may deem desirable in carrying out the purposes of the Plan. The Committee may not, however, increase the maximum amount permitted to be paid to any individual under the Plan or pay Awards under this Section 9 if the applicable Performance Target(s) have not been satisfied.         B.     Performance-Based Restricted Stock or Restricted Stock Unit Awards.         (i)    Grants of Performance-Based Restricted Stock or Restricted Stock Units. Subject to Section 9A, one or more shares of Performance-Based Restricted Stock or Restricted Stock Units may be granted to any Eligible Person. The Performance-Based Restricted Stock or Restricted Stock Unit will be issued to the Participant on the Date of Grant without the payment of consideration by the Participant. The Performance-Based Restricted Stock or Restricted Stock Unit will be issued in the name of the Participant and will bear a restrictive legend prohibiting sale, transfer, pledge or hypothecation of the Performance-Based Restricted Stock or Restricted Stock Unit until the expiration of the restriction period.         The Committee may also impose such other restrictions and conditions on the Performance-Based Restricted Stock or Restricted Stock Unit as it deems appropriate.         Upon issuance to the Participant of the Performance-Based Restricted Stock, the Participant will have the right to vote the Performance-Based Restricted Stock. Upon issuance to the Participant of the Performance-Based Restricted Stock or Restricted Stock Unit and subject to the Committee's discretion, the Participant will have the right to receive the cash dividends (or Dividend Equivalents as provided in Section 11) distributable with respect to such shares or units, with such dividends or Dividend Equivalents treated as compensation to the Participant. The Committee, in its sole discretion, may direct the accumulation and payment of distributable dividends to the Participant at such times, and in such form and manner, as determined by the Committee.         (ii)    Restriction Period. At the time a Performance-Based Restricted Stock or Restricted Stock Unit Award is granted, the Committee will establish a restriction period applicable to such Award which will be not less than one year and not more than ten years. Each Performance-Based Restricted Stock or Restricted Stock Unit Award may have a different restriction period, at the discretion of the Committee.         (iii)    Waiver of Section 83(b) Election. Unless otherwise directed by the Committee, as a condition of receiving an Award of Performance-Based Restricted Stock, a Participant must waive in writing the right to make an election under Section 83(b) of the Code to report the value of the Performance-Based Restricted Stock as income on the Date of Grant.         C.    Performance Units. Subject to Section 9A, one or more Performance Units may be earned by an Eligible Person based on the achievement of preestablished performance objectives during a Performance Period.         D.    Forfeiture or Payout of Award. As soon as practicable after the end of each Performance Period, the Committee will determine whether the Performance Targets and other material terms of the Award were satisfied. The Committee's determination of all such matters will be final and conclusive.         As soon as practicable after the date the Committee makes the above determination, the Committee will determine the Award payment for each Participant. Before any payments are made under this Section 9, the Committee shall be responsible for certifying in writing to the Company that the applicable Performance Targets have been met.         In the event a Participant ceases employment (or ceases Board membership in the case of a director) during a Performance Period, the Performance-Based Restricted Stock, Performance-Based Restricted Stock Unit or Performance Unit Award is subject to forfeiture or payout as follows: (a) Termination—the Performance-Based Restricted Stock, Performance-Based Restricted Stock Unit or Performance Unit Award is completely forfeited; or (b) Retirement, Disability or death—payout of the Performance-Based Restricted Stock, Performance-Based Restricted Stock Unit or Performance Unit Award is prorated taking into account factors including, but not limited to, service and the performance of the Participant during the portion of the Performance Period before employment ceased; provided, however, that the Committee may modify the above if it determines in its sole discretion that special circumstances warrant such modification.         Any shares of Performance-Based Restricted Stock which are forfeited will be transferred to the Company. 7 --------------------------------------------------------------------------------         E.     Form and Timing of Payment. With respect to shares of Performance-Based Restricted Stock or Restricted Stock Units for which restrictions lapse, new certificates will be issued (the payout) without the restrictive legend described in Section 9B(i). Each Performance Unit is payable in cash or shares of Stock or in a combination of cash and Stock, as determined by the Committee in its sole discretion. Such payment will be made as soon as practicable after the Award payment is determined. 10.    Stock Appreciation Rights.         A.     Grants of Stock Appreciation Rights. Stock Appreciation Rights may be granted under the Plan in conjunction with an Option either at the Date of Grant or by amendment or may be separately granted. Stock Appreciation Rights will be subject to such terms and conditions not inconsistent with the Plan as the Committee may impose.         B.     Right to Exercise; Exercise Period. A Stock Appreciation Right issued pursuant to an Option will be exercisable to the extent the Option is exercisable; both such Stock Appreciation Right and the Option to which it relates will not be exercisable during the six months following their respective Dates of Grant except in the event of the Participant's Disability or death. A Stock Appreciation Right issued independent of an Option will be exercisable pursuant to such terms and conditions established in the grant. Notwithstanding such terms and conditions, in the event of a public tender for all or any portion of the Stock or in the event that any proposal to merge or consolidate the Company with another company is submitted to the stockholders of the Company for a vote, the Committee, in its sole discretion, may declare any previously granted Stock Appreciation Right immediately exercisable.         C.    Failure to Exercise. If on the last day of the Option Period, in the case of a Stock Appreciation Right granted pursuant to an Option, or the specified Exercise Period, in the case of a Stock Appreciation Right issued independent of an Option, the Participant has not exercised a Stock Appreciation Right, then such Stock Appreciation Right will be deemed to have been exercised by the Participant on the last day of the Option Period or Exercise Period.         D.    Payment. An exercisable Stock Appreciation Right granted pursuant to an Option will entitle the Participant to surrender unexercised the Option or any portion thereof to which the Stock Appreciation Right is attached, and to receive in exchange for the Stock Appreciation Right payment (in cash or Stock or a combination thereof as described below) equal to either of the following amounts, determined in the sole discretion of the Committee at the Date of Grant: (1) the excess of the Fair Market Value of one share of Stock at the date of exercise over the Option price, times the number of shares called for by the Stock Appreciation Right (or portion thereof) which is so surrendered, or (2) the excess of the Book Value of one share of Stock at the date of exercise over the Book Value of one share of Stock at the Date of Grant of the related Option, times the number of shares called for by the Stock Appreciation Right. Upon exercise of a Stock Appreciation Right not granted pursuant to an Option, the Participant will receive for each Stock Appreciation Right payment (in cash or Stock or a combination thereof as described below) equal to either of the following amounts, determined in the sole discretion of the Committee at the Date of Grant: (1) the excess of the Fair Market Value of one share of Stock at the date of exercise over the Fair Market Value of one share of Stock at the Date of Grant of the Stock Appreciation Right, times the number of shares called for by the Stock Appreciation Right, or (2) the excess of the Book Value of one share of Stock at the date of exercise of the Stock Appreciation Right over the Book Value of one share of Stock at the Date of Grant of the Stock Appreciation Right, times the number of shares called for by the Stock Appreciation Right.         The Committee may direct the payment in settlement of the Stock Appreciation Right to be in cash or Stock or a combination thereof. Alternatively, the Committee may permit the Participant to elect to receive cash in full or partial settlement of the Stock Appreciation Right, provided that (i) the Committee must consent to or disapprove such election and (ii) unless the Committee directs otherwise, the election and the exercise must be made during the period beginning on the 3rd business day following the date of public release of quarterly or year-end earnings and ending on the 12th business day following the date of public release of quarterly or year-end earnings. The value of the Stock to be received upon exercise of a Stock Appreciation Right shall be the Fair Market Value of the Stock on the trading day preceding the date on which the Stock Appreciation Right is exercised. To the extent that a Stock Appreciation Right issued pursuant to an Option is exercised, such Option shall be deemed to have been exercised, and shall not be deemed to have lapsed.         E.     Nontransferable. A Stock Appreciation Right will not be transferable by the Participant except by Will or the laws of descent and distribution and will be exercisable during the Participant's lifetime only by the Participant or by the Participant's guardian or legal representative. 8 --------------------------------------------------------------------------------         F.     Lapse of a Stock Appreciation Right. A Stock Appreciation Right will lapse upon the earlier of: (i) 10 years from the Date of Grant; or (ii) at the expiration of the Exercise Period as set by the grant. If the Participant ceases employment (or ceases Board membership in the case of a director) within the Exercise Period and prior to the lapse of the Stock Appreciation Right, the Stock Appreciation Right will lapse as follows: (a) Termination—any unvested Stock Appreciation Right will lapse on the effective date of the Termination and any vested Stock Appreciation Right will lapse 90 days after the effective date of the Termination; or (b) Retirement, Disability or death—any unvested Stock Appreciation Right will lapse on the effective date of the Retirement, Disability or death and any vested Stock Appreciation Right will lapse on the earlier of 60 months after the effective date of the Retirement, Disability or death or at the expiration of the Exercise Period set by the grant; provided, however, that the Committee may modify the above if it determines in its sole discretion that special circumstances warrant such modification. 11.    Dividend Equivalents.         A.     Grants of Dividend Equivalents. Dividend Equivalents may be granted under the Plan in conjunction with an Option or a separately awarded Stock Appreciation Right, at the Date of Grant or by amendment, without consideration by the Participant. Dividend Equivalents may also be granted under the Plan in conjunction with Performance-Based Restricted Stock, Performance-Based Restricted Stock Units or Performance Units, at any time during the Performance Period, without consideration by the Participant.         B.     Payment. Each Dividend Equivalent will entitle the Participant to receive an amount equal to the dividend actually paid with respect to a share of Stock on each dividend payment date from the Date of Grant to the date the Dividend Equivalent lapses as set forth in Section 11D. The Committee, in its sole discretion, may direct the payment of such amount at such times and in such form and manner as determined by the Committee.         C.    Nontransferable. A Dividend Equivalent will not be transferable by the Participant.         D.    Lapse of a Dividend Equivalent. Each Dividend Equivalent will lapse on the earlier of (i) the date of the lapse of the related Option or Stock Appreciation Right; (ii) the date of the exercise of the related Option or Stock Appreciation Right; (iii) the end of the Performance Period (or if earlier, the date the Participant ceases employment) of the related Performance Units or Performance-Based Restricted Stock or Restricted Stock Unit Award; or (iv) the lapse date established by the Committee on the Date of Grant of the Dividend Equivalent. 12.    Equity. One or more shares of Stock may be granted to any Eligible Person, in such amounts, on such terms and conditions, and for such consideration, including no consideration or such minimum consideration as may be required by law, as the Committee shall determine. An Equity Award may be denominated in Stock or other securities, stock-equivalent units, securities or debentures convertible into Stock, or any combination of the foregoing and may be paid in Stock or other securities, in cash, or in a combination of Stock or other securities and cash, all as determined in the sole discretion of the Committee. Unless the Committee determines otherwise, the vesting period for Equity Awards shall be at least three years. 13.    Accelerated Award Payout/Exercise.         A.     Change in Control. Notwithstanding anything in this Plan document to the contrary, a Participant is entitled to an accelerated payout (as set forth in Section 13B) with respect to any previously granted Award upon the happening of a change in control; provided, that, except as otherwise expressly provided to the contrary in the applicable grant agreement, a Participant will not be entitled to an accelerated vesting or payout of any Covered Awards in connection with the consummation of the transactions contemplated by the Agreement and Plan of Merger dated as of December 18, 2005 by and among FPL Group, Inc., CF Merger Corporation and the Company (the "Excluded Transactions"), and such Covered Awards shall remain outstanding in accordance with their terms following the consummation of the Excluded Transactions, subject to any adjustments made by the Plan Administrator in accordance with the provisions of Section 15.         A change in control for purposes of this Section 13 means the occurrence of any one of the following events:         (i)    individuals who, on January 24, 2003, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to January 24, 2003, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as 9 -------------------------------------------------------------------------------- a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;         (ii)    any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a change in control by virtue of any of the following acquisitions: (A) by the Company or any corporation with respect to which the Company owns a majority of the outstanding shares of common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors (a "Subsidiary Company"), (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary Company, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), or (E) pursuant to any acquisition by Participant or any group of persons including Participant (or any entity controlled by Participant or any group of persons including Participant);         (iii)    consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiary Companies (a "Business Combination"), unless immediately following such Business Combination: (A) more than 60% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of at least 95% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B), and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or         (iv)    the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or the consummation of a sale of all or substantially all of the Company's assets.         Notwithstanding the foregoing, a change in control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a change in control of the Company shall then occur.         B.     Amount of Award Subject to Accelerated Payout. The amount of a Participant's previously granted Award that will be paid or exercisable upon the happening of a change in control (or if earlier upon the termination of the Participant's employment with the Company or a Subsidiary if it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated to effect a change in control or (ii) otherwise arose in connection with or anticipation of a change in control) will be determined as follows, provided, that, except as otherwise expressly provided to the contrary in the applicable grant agreement, a Participant will not be entitled to an accelerated vesting or payout of any Covered Awards under this Section 13B in connection with the consummation of the Excluded Transactions:         Service-Based Restricted Stock or Restricted Stock Unit Awards. The Participant will be entitled to an accelerated Award payout, and the amount of the payout will be based on the number of shares of Service-Based Restricted Stock or Restricted Stock Units that were issued on the Date of Grant. 10 --------------------------------------------------------------------------------         Stock Option Awards and Stock Appreciation Rights. Any previously granted Stock Option Awards or Stock Appreciation Rights will be immediately vested, any gain will be immediately paid in cash, and the Stock Option Awards and/or Stock Appreciation Rights will then lapse.         Performance-Based Restricted Stock or Restricted Stock Units/Performance Units. The Participant will be entitled to an accelerated Award payout, and the amount of the payout will be based on the number of shares of Performance-Based Restricted Stock or Restricted Stock Units/Performance Units subject to the Award as established on the Date of Grant, prorated based on the number of months of the Performance Period that have elapsed as of the payout date, and assuming that maximum performance was achieved.         Equity Awards. Any previously granted Equity Award will be immediately vested.         Covered Awards. Except as may be expressly provided to the contrary in the applicable grant agreement, Covered Awards shall not vest or be subject to immediate payout as a result of the consummation of the Excluded Transactions, but will remain outstanding in accordance with their terms following the consummation of the Excluded Transactions, subject to any adjustments made by the Plan Administrator in accordance with the provisions of Section 15.         C.    Timing of Accelerated Payout/Option Period/Exercise Period. The accelerated payout set forth in Section 13B will be made in cash within 30 days after the date of the change in control. When Stock is related to the Award, the amount of cash will be determined based on the Fair Market Value of Stock on the payout date. 14.    Amendment of Plan.         The Committee may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part, except (i) no such action may be taken without stockholder approval which materially increases the number of securities which may be issued pursuant to the Plan (except as provided in Section 15H), extends the period for granting Options under the Plan or materially modifies the requirements as to eligibility for participation in the Plan; (ii) no such action may be taken without the consent of the Participant to whom any Award was previously granted, which adversely affects the rights of such Participant concerning such Award, except as such termination or amendment of the Plan is required by statute, or rules and regulations promulgated thereunder; and (iii) no such action that would require the consent of the Board and/or the stockholders of the Company pursuant to Section 162(m) of the Code or the 1934 Act, or any other applicable law, rule, or regulation, shall be effective without such consent. Notwithstanding the foregoing, the Committee may amend the Plan as desirable at the discretion of the Committee to address any issues concerning (i) Section 162(m) of the Code, or (ii) maintaining an exemption under rule 16b-3 of the 1934 Act. 15.    Miscellaneous Provisions.         A.     Nontransferability. No benefit provided under this Plan shall be subject to alienation or assignment by a Participant (or by any person entitled to such benefit pursuant to the terms of this Plan), nor shall it be subject to attachment or other legal process except (i) to the extent specifically mandated and directed by applicable state or federal statute; (ii) as requested by the Participant (or by any person entitled to such benefit pursuant to the terms of this Plan), and approved by the Committee, to satisfy income tax withholding; and (iii) as requested by the Participant and approved by the Committee, to members of the Participant's family, or a trust established by the Participant for the benefit of family members.         B.     No Employment Right. Participation in this Plan shall not constitute a contract of employment between the Company or any Subsidiary and any person and shall not be deemed to be consideration for, or a condition of, continued employment of any person.         C.    Tax Withholding. The Company or a Subsidiary may withhold any applicable federal, state or local taxes at such time and upon such terms and conditions as required by law or determined by the Company or a Subsidiary. Subject to compliance with any requirements of applicable law, the Committee may permit or require a Participant to have any portion of any withholding or other taxes payable in respect to a distribution of Stock satisfied through the payment of cash by the Participant to the Company or a Subsidiary, the retention by the Company or a Subsidiary of shares of Stock, or delivery of previously owned shares of the Participant's Stock, having a Fair Market Value equal to the withholding amount.         D.    Fractional Shares. Any fractional shares concerning Awards shall be eliminated at the time of payment or payout by rounding down for fractions of less than one-half and rounding up for fractions of equal to or more than one-half. No cash settlements shall be made with respect to fractional shares eliminated by rounding. 11 --------------------------------------------------------------------------------         E.     Government and Other Regulations. The obligation of the Company to make payment of Awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by any government agencies as may be required. The Company shall be under no obligation to register under the Securities Act of 1933, as amended ("Act"), any of the shares of Stock issued, delivered or paid in settlement under the Plan. If Stock awarded under the Plan may in certain circumstances be exempt from registration under the Act, the Company may restrict its transfer in such manner as it deems advisable to ensure such exempt status.         F.     Indemnification. Each person who is or at any time serves as a member of the Committee (and each person or Committee to whom the Committee or any member thereof has delegated any of its authority or power under this Plan) shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit, or proceeding to which such person may be a party or in which such person may be involved by reason of any action or failure to act under the Plan; and (ii) any and all amounts paid by such person in satisfaction of judgment in any such action, suit, or proceeding relating to the Plan. Each person covered by this indemnification shall give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Charter or By-Laws of the Company or any of its Subsidiaries, as a matter of law, or otherwise, or any power that the Company may have to indemnify such person or hold such person harmless.         G.    Reliance on Reports. Each member of the Committee (and each person or Committee to whom the Committee or any member thereof has delegated any of its authority or power under this Plan) shall be fully justified in relying or acting in good faith upon any report made by the independent public accountants of the Company and its Subsidiaries and upon any other information furnished in connection with the Plan. In no event shall any person who is or shall have been a member of the Committee be liable for any determination made or other action taken or any omission to act in reliance upon any such report or information or for any action taken, including the furnishing of information, or failure to act, if in good faith.         H.    Changes in Capital Structure. In the event of any change in the outstanding shares of Stock by reason of any stock dividend or split, recapitalization, combination or exchange of shares or other similar changes in the Stock, then appropriate adjustments shall be made in the shares of Stock theretofore awarded to the Participants and in the aggregate number of shares of Stock which may be awarded pursuant to the Plan. Such adjustments shall be conclusive and binding for all purposes. Additional shares of Stock issued to a Participant as the result of any such change shall bear the same restrictions as the shares of Stock to which they relate.         I.      Company Successors. In the event the Company becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which the Company will not be the surviving corporation or in which the holders of the Stock will receive securities of another corporation (in any such case, the "New Company"), then the New Company shall assume the rights and obligations of the Company under this Plan.         J.      Governing Law. All matters relating to the Plan or to Awards granted hereunder shall be governed by the laws of the State of Maryland, without regard to the principles of conflict of laws.         K.    Relationship to Other Benefits. Any Awards under this Plan are not considered compensation for purposes of determining benefits under any pension, profit sharing, or other retirement or welfare plan, or for any other general employee benefit program.         L.     Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.         M.   Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. 12 --------------------------------------------------------------------------------         This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933.         You may obtain without charge, upon written or oral request, a copy of documents incorporated by reference in the Registration Statement on file with the Securities and Exchange Commission pertaining to the securities offered under the Executive Long-Term Incentive Plan. In addition you may obtain, without charge, upon written or oral request, a copy of documents that are required to be delivered under Rule 428(b) of the Securities Act including our annual report to shareholders or annual report on Form 10-K and a copy of the documents that comprise the prospectus.         To make a request for any of these documents, you may telephone or write: Corporate Secretary 750 East Pratt Street 18th Floor Baltimore, Maryland 21202 (410) 783-3600 13 -------------------------------------------------------------------------------- 2002 Executive Long-Term Incentive Plan Appendix Additional Information         The Plan is not subject to any provisions of the Employee Retirement Income Security Act of 1974, and the Plan is not qualified under Section 401(a) of the Internal Revenue Code.         Participants may obtain additional information about the Plan by contacting: Manager – Executive Compensation Constellation Energy Group, Inc. 750 East Pratt Street 5th Floor Baltimore, MD 21202 410-783-3244         After each grant is made, participants will be furnished with information about the amount of the grant. Participants have access to information about their outstanding grants.         In general, grants subject to restrictions are taxable to participants when the restrictions lapse, and deductible by Constellation Energy at such time, based on the fair market value of the awards when the restrictions lapse. Grants not subject to restrictions are taxable/deductible at fair market value on the grant date. Additionally, options are subject to other special tax provisions. 14 -------------------------------------------------------------------------------- FORM OF SERVICE-BASED RESTRICTED STOCK AWARD AGREEMENT [DATE] Recipient Name Recipient Title Company Company Address City, State Zip Code RE: Service-Based Restricted Stock Award Dear Recipient: Effective date, The Board of Directors Compensation Committee, (The Committee), granted you [#] service-based restricted shares of CEG Common Stock (the "Award") pursuant to Section 7 of the Constellation Energy Group, Inc. Executive Long-Term Incentive Plan (the "Plan"). In addition to other provisions of the Plan (a copy of which is provided to you with this letter), your Award is subject to the following conditions: 1.The Plan restriction period for these shares expires as show on the restriction lapse dates in the table below: -------------------------------------------------------------------------------- # Shares Granted   Share Grant Date   Restriction Period   Restriction Lapse Date   Aggregate Shares Lapsed -------------------------------------------------------------------------------- [#]   mm/dd/yy   [one to five years]   [one to five years after Share Grant Date]   [#] --------------------------------------------------------------------------------     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- 2.The Plan requires that as a condition to receiving your Award, you waive in writing the right to make an election under Section 83(b) of the Internal Revenue Code of 1986 with respect to your Award (see Section 7D of the Plan). Your execution of this letter will constitute your waiver to make such election under Section 83(b). This waiver means that you will not have the option of electing to be taxed on the restricted shares at the time of the grant. Instead, you will be taxed on the restricted shares at the time the Plan restrictions are removed (see Attachment A). This waiver allows the Company to treat dividends paid to you during the period of the Plan restrictions as compensation, thereby giving the Company a tax deduction for such amounts. 3.As provided in the Plan, until the Plan restriction period expires, you may not sell, transfer, pledge or hypothecate the Award shares. CEG will hold the shares for safekeeping until the restriction lapse, unless you let us know that you want a stock certificate for the Award. If you prefer a certificate, it will be issued in your name with a legend to the effect that you may not sell, transfer, pledge, or hypothecate the Award shares and that the shares are subject to certain conditions under the Plan. 4.If you contemplate the sale or transfer (for example to a family member) of any shares after the restriction period expires, you should contact the SEC-related persons specified below for advice on the timing of any sale or transfer and any reporting obligations you may have. 15 -------------------------------------------------------------------------------- Please read the Plan carefully as it contains many other provisions relating to your Award. If you have any questions, please do not hesitate to call: -------------------------------------------------------------------------------- General   SEC-related   Tax-related -------------------------------------------------------------------------------- [NAME]   [NAME]   [NAME] -------------------------------------------------------------------------------- [PHONE NUMBER]   [PHONE [NUMBER]   [PHONE [NUMBER] -------------------------------------------------------------------------------- Please sign the enclosed copy of this letter and return it in the envelope provided. Sincerely, [NAME] [TITLE, DEPARTMENT] I have read the Plan and this letter and agree to the terms and conditions contained in each regarding my Award.     -------------------------------------------------------------------------------- Signature of Recipient   -------------------------------------------------------------------------------- Date 16 -------------------------------------------------------------------------------- ATTACHMENT A CONSTELLATION ENERGY GROUP, INC. INCOME TAX CONSEQUENCES TO PARTICIPANTS FOR SERVICE-BASED RESTRICTED STOCK AWARDS         Set forth is a brief overview of certain income tax consequences associated with your Service-Based Restricted Stock Award ("the Award"). Stock         Because the Plan places certain restrictions on the Award which could lead to forfeiture of the shares prior to lifting the Plan restrictions and because you have agreed to waive the Section 83(b) election1, the value of the restricted stock is not taxed to you when the initial grant is made. Rather, the stock is taxable to you at the time the restrictions are removed. The amount subject to income tax is the fair market value of the stock on the day that the Plan restrictions are removed. This amount is treated as compensation subject to withholding of income taxes, Medicare taxes and, if applicable, Social Security taxes. You are not taxed on the value of any stock forfeited.         For purposes of determining the gain or loss on any sale of the stock received pursuant to this Award, your basis in the stock is the amount that you included in taxable income when the Plan restrictions were removed. Your tax holding period, for purposes of determining whether a gain or loss on a sale is long-term or short-term, begins on the day after the day that the Plan restrictions were removed. Dividends         The dividends during the restriction period will be automatically reinvested in additional shares of company common stock. These shares will be subject to the same restrictions as the originally awarded shares and will vest accordingly. For tax purposes, the dividends on the restricted stock will not be taxable as dividend income. Rather, the accumulated shares of stock will be taxable to you in the same manner as stated above.         After the Plan restrictions on the stock are removed, the dividends are treated as regular dividend income (generally not subject to tax withholding). Tax Planning         You may wish to consult your tax advisor in the year the restrictions are lifted from the Award if you have questions regarding the impact of the Award on your tax withholding or if you have questions about the applicable capital gains holding period and rates for this Award. -------------------------------------------------------------------------------- 1The Plan requires that as a condition to receiving a Restricted Stock Award, you must waive in writing the right to make an election under Section 83(b) of the Internal Revenue Code of 1986 with respect to your Award (see Section 7 D of the Plan). This waiver means that you will not have the option of electing to be taxed on the restricted shares at the time of grant. Instead, you will be taxed on the restricted shares at the time the Plan restrictions are removed. This allows the Company to treat dividends paid during the period of Plan restrictions as compensation, thereby giving the Company a tax deduction for such amounts. 17 -------------------------------------------------------------------------------- PERFORMANCE UNIT AGREEMENT [date] TO: «First» «MI» «Last» Effective [Date], as part of the [3 CALENDAR YEAR PERFORMANCE PERIOD] Long-Term Incentive Program, you were granted [#] performance units (the "Units") under the Constellation Energy Group, Inc. Executive Long-Term Incentive Plan (the "Plan"). In addition to other provisions of the Plan, your award is subject to the conditions set forth in this document. Target Grant (# Units)   Grant Date   Performance Period   Vesting Date [#]   [MM/DD/YY]   [3-Year Period]   [End of 3-Year Period] -------------------------------------------------------------------------------- Under current tax law, you are not subject to tax on your Units until the Vesting Date. 1.Each Unit is worth $1. The final award payout on the Vesting Date will be based on Constellation Energy Group's relative Total Shareholder Return ("TSR") performance over the Performance Period as set forth below. TSR is defined as the stock price change from [BEGINNING TO END OF 3 CALENDAR YEAR PERFORMANCE PERIOD] and dividends during that period that are reinvested on the ex-dividend date (date stock trades without its dividend) at the closing price on that date. The Plan Administrator will determine the award payout soon after the conclusion of the Performance Period. The performance measures used to determine the award payout are as follows: •Primary Measure: Constellation Energy TSR for the Performance Period is compared to the TSR performance results of large and mid-size investment grade companies within the Dow Jones Electric Utilities Index (DJEUI) on [END OF PERFORMANCE PERIOD]. In the DJEUI, companies that are rated "non-investment grade' by both Moody's and S&P rating agencies on [END OF PERFORMANCE PERIOD] are excluded. •Secondary Measure: If Constellation Energy's percentile rank for the Primary Measure is below the [    ] percentile, then a comparison will be made to the TSR performance results of investment grade companies in the S&P 500 Index on [END OF PERFORMANCE PERIOD].         --------------------------------------------------------------------------------         Primary Measure TSR v. DJEUI Large & Mid-Cap Investment Grade Companies   Secondary Measure TSR v. S&P 500 Index Comparison Group         -------------------------------------------------------------------------------- Performance Level   Total Shareholder Return   Payout vs. Target   Payout vs. Target -------------------------------------------------------------------------------- <Threshold   <[        ] Percentile   [        ]%   [        ]% -------------------------------------------------------------------------------- Threshold   [        ] Percentile   [        ]%   [        ]% -------------------------------------------------------------------------------- Target   [        ] Percentile   [        ]%   [        ]% -------------------------------------------------------------------------------- Stretch   [        ] Percentile   [        ]%   [        ]% -------------------------------------------------------------------------------- Payout levels interpolated between points. Secondary measure applies only if performance vs. primary measure is below threshold. 2.The award payout amount is determined by multiplying the "Payout vs. Target" percentage by the number of Units (worth $1 each) that you were granted. This award payout amount may be settled, in the sole discretion of the Plan Administrator, in either restricted or unrestricted stock or stock units, or cash (or any combination thereof). 3.Under current tax law, you will be subject to tax on the Vesting Date on the award payout amount. The Company will be required to withhold applicable taxes at such time. If the award payout is settled in stock or stock units, the Company will withhold the required number of shares or units to pay these taxes. 4.As provided in the Plan, until the Vesting Date, you may not sell, transfer, or pledge the Units. 18 -------------------------------------------------------------------------------- Please read the Plan carefully as it contains many other provisions relating to your award. If you have any questions, please do not hesitate to call: General   SEC-related   Tax-related -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- [NAME]   [NAME]   [NAME] -------------------------------------------------------------------------------- [PHONE NUMBER]   [PHONE [NUMBER]   [PHONE [NUMBER] -------------------------------------------------------------------------------- Please sign this letter and return it in the envelope provided, and keep a copy for your records. Sincerely, [NAME] [TITLE, DEPARTMENT] I have read the Plan and this letter and agree to the terms and conditions contained in each regarding my Award.     -------------------------------------------------------------------------------- Signature of «First» «MI» «Last»   -------------------------------------------------------------------------------- Date 19 -------------------------------------------------------------------------------- FORM OF STOCK UNIT AWARD WITH SALE RESTRICTION AGREEMENT [DATE] Recipient Name Recipient Title Company Company Address City, State Zip Code RE: Stock Unit Award with Sale Restriction Dear Recipient: Effective date, as part of your [PERFORMANCE YEAR] annual incentive and in recognition of your performance during [PERFORMANCE YEAR], you were granted [#] restricted Constellation Energy Group, Inc. (the "Company") common stock units with sale restrictions ("Deferred Shares") under the Constellation Energy Group, Inc. Executive Long-Term Incentive Plan (the "Plan"). In addition to other provisions of the Plan, your award is subject to the following conditions: 1.Each Deferred Share entitles you to receive on the Restriction Lapse Date (set forth below) one share of Constellation Energy Group common stock ("Common Stock"). Under current tax law, you are not subject to tax on your Deferred Shares until the Restriction Lapse Date (see paragraph 4 below). 2.During the Restriction Period (set forth below), on any date that Constellation Energy Group pays dividends with respect to the Common Stock, the Company shall credit you with a number of Deferred Shares equal to (i) the number of your Deferred Shares on the dividend record date times (ii) the dividend rate per share, divided by (iii) the per share reinvestment price. These dividend-based additional Deferred Shares shall be subject to the same rules and restrictions as Deferred Shares originally granted to you. 3.The Restriction Period for your Deferred Shares expires on the Restriction Lapse Date as shown in the table below: -------------------------------------------------------------------------------- # Deferred Shares Granted   Deferred Share Grant Date   Restriction Period   Restriction Lapse Date -------------------------------------------------------------------------------- [#]   [MM/DD/YY]   [5 years]   [5 years after Grant Date] --------------------------------------------------------------------------------     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Your Deferred Shares are fully and immediately vested, however, during the Restriction Period, you may not sell, transfer, or pledge the Deferred Shares. During the Restriction Period, you will have no voting rights with respect to the Deferred Shares. The Restriction Period remains in effect irrespective of your employment status. 4.Following the Restriction Lapse Date, the Company shall cause to be issued to you a certificate for shares of Common Stock equal to the number of your Deferred Shares (including dividend-based additional Deferred Shares). Under current tax law, you will be subject to tax on the Restriction Lapse Date based on an amount equal to the number of shares of Common Stock issued to you times the Fair Market Value per share (i.e., the average of the high and low price of the Common Stock on the Restriction Lapse Date). The Company will be required to withhold applicable taxes at such time, and will withhold the required number of shares to pay these taxes. The total shares you receive will be rounded to the nearest whole share. You should consult your tax advisor regarding any tax issues. 20 -------------------------------------------------------------------------------- Please read the Plan carefully as it contains many other provisions relating to your award. If you have any questions, please do not hesitate to call: -------------------------------------------------------------------------------- General   SEC-related   Tax-related -------------------------------------------------------------------------------- [NAME]   [NAME]   [NAME] -------------------------------------------------------------------------------- [PHONE NUMBER]   [PHONE [NUMBER]   [PHONE [NUMBER] -------------------------------------------------------------------------------- Please sign the enclosed copy of this letter and return it in the envelope provided. Sincerely, [NAME] [TITLE, DEPARTMENT] I have read the Plan and this letter and agree to the terms and conditions contained in each regarding my Award.     -------------------------------------------------------------------------------- Signature of Recipient   -------------------------------------------------------------------------------- Date 21 -------------------------------------------------------------------------------- FORM OF STOCK OPTION AGREEMENT         This Stock Option Agreement ("Agreement") is subject to the terms and conditions of the Constellation Energy Group, Inc. Executive Long-Term Incentive Plan (the "Plan"). The «Administrator» Constellation Energy Group, Inc. (the "Plan Administrator") has authorized the option grant under this Agreement by and between Participant (designated below) and Constellation Energy Group, Inc. ("Constellation Energy"). 1.    Grant of Option.         (a)    The "Participant" is «First» «Middle» «Last».         (b)   The date of the grant is «GrantDate» ("Grant Date").         (c)    The number of shares subject to the option ("Option Shares") are «Grant» shares of Constellation Energy common stock ("Stock").         (d)   The exercise price is [OptionPrice = fair market value of stock on grant date] per share of Stock ("Exercise Price").         This Agreement specifies the terms of the option ("Option") granted to Participant to purchase the Option Shares at the Exercise Price set forth above. The Option is not intended to constitute an "incentive stock option" as that term is used in Internal Revenue Code section 422. The "Option Period" is the period during which the Option is exercisable as provided in this Agreement. 2.    Installment Exercise.         Subject to the terms of this Agreement, the Option will be exercisable in installments according to the following schedule (each a "Vesting Date"):   INSTALLMENT   VESTING DATE APPLICABLE TO INSTALLMENT -------------------------------------------------------------------------------- [1/3 of Option Shares] Options   [One year after Grant Date] -------------------------------------------------------------------------------- [1/3 of Option Shares] Options   [Two years after Grant Date] -------------------------------------------------------------------------------- [1/3 of Option Shares] Options   [Three years after Grant Date] -------------------------------------------------------------------------------- 3.    Termination of Option.         (a)    Except as provided in paragraph 3(b) below, the Option will terminate upon the earlier to occur of: (1) when all Option Shares have been exercised; or (2) ten (10) years from the Grant Date ("Expiration Date").         (b)   If Participant ceases employment, the Option will terminate as to any unvested Option Shares on the effective date of Participant's employment Termination (as defined in the Plan) and as to vested Option Shares 90 days after such effective date; provided that if Participant ceases employment because of Participant's Retirement, Disability (each as defined in the Plan), or death, the Option will terminate as to any unvested Option Shares on the effective date of the Retirement, Disability or death, and as to vested Option Shares, the Option will remain exercisable until the earlier of 60 months after such effective date or the Expiration Date.         (c)    In the event of Participant's death during the Option Period, vested Option Shares may be exercised by Participant's legal representative(s), or by other person(s) authorized under Participant's will. Alternatively, if Participant fails to make testamentary disposition of the Option or dies intestate, such vested Option Shares may be exercised by persons(s) entitled to receive the Option Shares under the applicable laws of descent and distribution.         (d)   A transfer of Participant's employment between Constellation Energy and any Subsidiary of Constellation Energy, or between Subsidiaries of Constellation Energy, will not be considered an employment Termination. 4.    Exercise of Option.         (a)    Subject to this Agreement and the Plan, the Option may be exercised in whole or in part by the method specified by the Plan Administrator from time to time or by contacting [NAME] at [PHONE NUMBER(S)]. 22 --------------------------------------------------------------------------------         (b)   On or before the exercise date specified pursuant to paragraph 4(a), Participant must fully pay the Exercise Price and the tax withholding obligation for the Option Shares exercised in U.S. dollars by cash or by check payable to Constellation Energy Group, Inc. All or a portion of the Exercise Price and tax withholding obligation may also be paid by Participant: (i) subject to the terms of paragraph 4(c) below, by delivery of shares of Stock owned by Participant and acceptable to the Plan Administrator having an aggregate Fair Market Value (as defined in paragraph 6 below) on the date of exercise that is equal to the amount of cash that would otherwise be required; or (ii) by authorizing a third party to sell the Option Shares (or a sufficient portion of the Option Shares), and immediately remit to Constellation Energy the Exercise Price and any tax withholding resulting from such exercise. Further, tax withholding up to the minimum required withholding rate (but not in excess of that rate) may also be satisfied through a holdback by Constellation Energy of some of the Option Shares that would otherwise be deliverable to Participant by reason of the Option exercise. The Option will cease to be exercisable, as to the portion exercised, when Participant purchases the Stock to which the exercised portion of the Option relates.         (c)    Other shares of Stock owned by Participant may be delivered to satisfy the Exercise Price, or to satisfy Participant's tax withholding obligation above the minimum withholding rate, only if the shares have been held by Participant for at least six months before delivery, except that there shall be no holding period imposed for shares purchased by Participant for cash on the open market. Use of previously-owned shares shall be effected by actual delivery of the Stock certificates to Constellation Energy, and by completing an affidavit available from Constellation Energy affirming that Participant owns the necessary shares and that any applicable holding period has been satisfied.         (d)   Participant is required to comply with Constellation Energy's Insider Trading Policy at all times, including in connection with exercise of the Option. The Option may not be exercised by Participant during any blackout or prohibited trading period established by Constellation Energy or applicable to Participant, nor shall the Option be exercisable if and to the extent Constellation Energy determines that such exercise would violate applicable state or Federal securities laws or the rules and regulations of any securities exchange on which the Stock is traded. If Constellation Energy makes such a determination, it will use all reasonable efforts to comply with such laws, rules or regulations. In making any such determinations, Constellation Energy may rely on the opinion of counsel for Constellation Energy.         (e)    As soon as practicable after the exercise date, Constellation Energy will deliver to Participant a Stock certificate or certificates (or other evidence of ownership) for the purchased Option Shares. 5.    Tax Withholding.         Constellation Energy will have the right to withhold any applicable federal, state or local taxes, deductions or withholdings due with respect to the Option or its exercise in such form and manner as provided in the Plan. 6.    Fair Market Value.         The "Fair Market Value" of a share of Stock is the average of the highest and lowest sale price per share of Stock on the New York Stock Exchange-Composite Transactions on the applicable date of reference, or if there are no sales on such date, then the average of such highest and lowest sale price on the last previous day on which sales are reported. 7.    No Rights of Stockholders.         Participant does not have any of the rights and privileges of a stockholder of Constellation Energy with respect to any shares of Stock purchasable or issuable upon the exercise of the Option, in whole or in part, before the date of exercise and purchase of the Option Shares. 8.    Non-Transferability of Option.         The Option is not transferable, except for a transfer to Participant's family member or to a trust established for the benefit of Participant's family members which has been approved by the Plan Administrator as provided in the Plan, or in case of Participant's death, by will or the laws of descent and distribution, nor shall the Option be subject to attachment, execution or other similar process. During Participant's lifetime, the Option is exercisable only by Participant, any guardian or legal representative of Participant, or a family member or trustee of a trust established for the benefit of Participant's family members to whom the Option has been transferred in accordance with the Plan. In the event of (a) any attempt by Participant to alienate, assign, pledge, hypothecate or otherwise dispose of the Option, except as provided in this Agreement, or (b) the levy of any attachment, execution or similar process upon the rights or interest conferred under this Agreement, Constellation Energy may terminate the Option by notice to Participant and it will become null and void. 23 -------------------------------------------------------------------------------- 9.    Employment Not Affected.         Neither this Agreement nor the grant of the Option constitutes a contract of employment between Constellation Energy or any Subsidiary and Participant, and neither will be deemed to be consideration for, or a condition of, continued employment of Participant. 10.    Incorporation of Plan by Reference.         The Option is granted pursuant to the terms of the Plan, the terms of which are incorporated in this Agreement by reference. The Option will in all respects be interpreted in accordance with the Plan. All capitalized terms, which are not otherwise defined in this Agreement, will have the meaning specified in the Plan. The Plan Administrator will interpret and construe the Plan and this Agreement, and its interpretations and determinations will be conclusive and binding on the parties and any other person claiming an interest with respect to any issue arising under this Agreement. 11.    Severability.         The provisions of this Agreement are severable. If any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions will nevertheless be binding and enforceable. IN WITNESS WHEREOF, Constellation Energy Group, Inc. and Participant have executed this Stock Option Agreement effective as of the Grant Date. Constellation Energy Group, Inc   ACCEPTED AND AGREED TO: [NAME] [TITLE, DEPARTMENT]   By: -------------------------------------------------------------------------------- ‹‹First›› ‹‹Middle›› ‹‹Last›› 24 -------------------------------------------------------------------------------- QuickLinks Constellation Energy Group, Inc. Amended and Restated Executive Long-Term Incentive Plan (Plan) 2002 Executive Long-Term Incentive Plan Appendix FORM OF SERVICE-BASED RESTRICTED STOCK AWARD AGREEMENT INCOME TAX CONSEQUENCES TO PARTICIPANTS PERFORMANCE UNIT AGREEMENT FORM OF STOCK UNIT AWARD WITH SALE RESTRICTION AGREEMENT FORM OF STOCK OPTION AGREEMENT

Exhibit 10.1 SENIOR MEZZANINE LOAN AGREEMENT This SENIOR MEZZANINE LOAN AGREEMENT (this “Agreement”) is made and entered into as of this 29th day of September, 2006, by and between SW 109 Wagon Wheel SM LLC, a Delaware limited liability company, whose address is 2001 Bryan Street, Suite 3700, Dallas, Texas, 75201 (“Borrower”), and Behringer Harvard Alexan Nevada, LLC, a Delaware limited liability company, whose address is 15601 Dallas Parkway, Suite 600, Addison, Texas, 75001 (“Lender”). R E C I T A L S: This Agreement is made with reference to the following facts: A.            Concurrently herewith, Comerica Bank, a Michigan banking corporation (“Senior Lender”) is making a mortgage loan in the amount of Twenty Nine Million Dollars ($29,000,000.00) (the “Senior Loan”) to SW 106 Wagon Wheel Holdings LLC, a Delaware limited liability company (“Mortgagor”) evidenced by a Promissory Note of even date herewith (the “Senior Note”). B.            Mortgagor, concurrently herewith, is the owner of that certain land located in Clark County, Nevada and more particularly described on Exhibit ”A” attached hereto (together with all improvements, fixtures and other appurtenances, the “Property”), and Mortgagor will construct on the Property a 213-unit apartment project (the “Project”). The Senior Note is secured by a deed of trust, mortgage, or deed to secure debt, of even date herewith (together with any and all extensions, renewals, substitutions, replacements, amendment, modifications and/or restatements thereof (the “Security Instrument”) in favor of Senior Lender encumbering the Project. C.            Borrower is the legal and beneficial owner of 100% of the Equity Interests in Mortgagor. D.            Borrower has requested that Lender, as senior mezzanine lender, make a loan to Borrower (the “Loan”) in the amount of Six Million Nine Hundred Thousand Dollars ($6,900,000) (the “Loan Amount”) subject to the term and provisions of this Agreement, which Loan is to be advanced as hereinafter provided and is to be evidenced by the Note. The Note is to be secured by the Pledge and Security Agreement and the other collateral referred to in Section 5 below. 1 --------------------------------------------------------------------------------   E.             Borrower desires to borrow the Loan Amount from Lender, the proceeds of which are to be used by Borrower to, among other things, pay the costs and expenses, if any, referred to in Section 3(b) below. NOW, THEREFORE, in consideration of the foregoing and the mutual promises and agreements hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1.             RECITALS. The recitals set forth above are true and correct and are incorporated herein by reference. 2.             DEFINITIONS. The following terms, when used in this Agreement (including when used in the above recitals), shall have the following meanings: (a)                                  “Accounting Records”: shall mean such records used to prepare financial statements including but not limited to: (i) supporting documentation for cash disbursements (including check copies and invoices); (ii) supporting documentation for cash receipts (including deposit slips); (iii) contracts; (iv) check registers; (v) monthly bank account reconciliations and (vi) such other documentation in the possession of Borrower or its Affiliates or which Borrower will use its best efforts to acquire, as Lender shall reasonably require for the preparation of financial statements for the Project, Mortgagor or Borrower. (b)                                 “Affiliate”: of any specified person or entity shall mean any other person or entity, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified person or entity. For purposes of this definition, “control” shall mean the ability, whether by the ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to make management decisions on behalf of, or independently to select the managing partner of, a partnership, or otherwise to have the power independently to remove and then select a majority of those individuals exercising managerial authority over an entity. Control of an entity shall be conclusively presumed in the case of the ownership of more than 50% of the equity interests in the entity. (c)                                  “Annual Budget”: shall mean, for any period, the budget submitted to Lender and in effect for such period as provided in Section 12 hereof. (d)                                 “Bankruptcy Proceedings”: is defined in Section 17(j). 2 --------------------------------------------------------------------------------   (e)                                  “Borrower”: means the entity identified as “Borrower” in the first paragraph of this Agreement, together with its successors and assigns. (f)                                    “Budget”: shall mean that construction budget attached hereto as Exhibit ”B” for the Property. (g)                                 “Business Day”: shall mean all days other than Saturday, Sunday or any other day on which national banks doing business in Dallas, Texas are not open for business. (h)                                 “Code”: the Internal Revenue Code of 1986, as amended from time to time, or the corresponding provisions of any successor federal income tax law. Any reference to a particular provision of the Code shall include any amendment of such provision or the corresponding provision of any successor federal income tax law. (i)                                     “Collateral”: is defined in the Pledge Agreement. (j)                                     “Completion Guaranty”: means that certain Senior Mezzanine Completion Guaranty of even date herewith, executed by the Guarantors, jointly and severally, in favor of Lender. (k)                                  “Default Interest Rate”: is defined in the Note. (l)                                     “Encumbrance”: shall mean any pledge, encumbrance, hypothecation or other grant of security interest, whether direct or indirect, voluntary or involuntary or by operation of law, and whether or not consented to by Lender, of or in (i) all or any portion of, or interest in, the Project (other than any encumbrance by the Senior Loan Documents and the Permitted Exceptions), or (ii) any Equity Interests in Mortgagor, or (iii) any part of the Principal’s Equity Interests in Borrower. (m)                               “Environmental Indemnity”: shall mean the Senior Mezzanine Environmental Indemnity Agreement of even date herewith, executed by Borrower and containing representations, warranties, covenants and indemnities in favor of Lender with respect to Hazardous Materials. (n)                                 “Equity Interests”: means, with respect to any Person, shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in such Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire from such Person any such equity interest issued by such Person. 3 --------------------------------------------------------------------------------   (o)                                 “Event of Default”: shall have the meaning given in Section 17 hereof. (p)                                 “Guarantors”: shall mean CFP Residential, L.P., Kenneth Valach, J. Ronald Terwilliger and Bruce Hart. (q)                                 “Hazardous Materials”: shall have the meaning given in the Environmental Indemnity. (r)                                    “Indebtedness”: shall mean the principal of, interest on, and any other amounts due at any time under, this Agreement, the Note, the Pledge Agreement or any other Loan Document, including prepayment premiums, late charges, default interest, and advances to protect the security of the Collateral. (s)                                  “Junior Mezzanine Loan”: shall mean that certain Junior Mezzanine Loan dated of even date herewith made to Principal, as borrower, by Lender, as junior mezzanine lender. (t)                                    “Leases”: shall mean all present and future leases, subleases, licenses, concessions or other possessory interests now or hereafter in force, whether oral or written, covering or affecting the Project, or any portion of the Project, and all modifications, extensions or renewals. (u)                                 “Lender”: means the entity identified as “Lender” in the first paragraph of this Agreement and its successors and assigns. (v)                                 “Loan Documents”: shall mean the Note, this Loan Agreement, the Pledge Agreement, the Completion Guaranty, the Environmental Indemnity, the Subordination of Management Agreement and all other documents executed by Borrower or Guarantors to evidence, secure or set out the terms of the Loan, each as the same may hereafter be amended, modified and restated from time to time. (w)                               “Loan Commitment Fee”: means the amount of Two Hundred Seven Thousand Dollars ($207,000), being 3% of the Loan Amount, paid by Borrower upon the closing of the Property. (x)                                   “Management Agreement”: shall mean that certain Management Agreement dated September 29, 2006, entered into by and between Mortgagor and Manager, pursuant to which Manager has agreed to manage the operations of the Project, as the same may be amended from time to time, or any other management agreement approved by Lender pursuant to Section 13(h) hereof. 4 --------------------------------------------------------------------------------   (y)                                 “Manager”: shall mean Riverstone Residential SW LLC or any other property management company approved by Lender pursuant to Section 13(h) hereof. (z)                                   “Maturity Date” shall have the meaning given in the Note. (aa)                            “Note”: shall mean that certain Senior Mezzanine Promissory Note, dated of even date herewith, in the Loan Amount, made payable by Borrower to the order of Lender, evidencing all amounts outstanding under the Loan from time to time, as the same may be amended from time to time. (bb)                          “Option Agreement”: shall mean that certain Option Agreement dated of even date herewith, among Lender and Principal, giving Lender the option to purchase either the Equity Interests in Mortgagor and Borrower or the Project on the terms and conditions set forth therein. (cc)                            “Option Guaranty”: shall mean that certain Limited Guaranty dated of even date herewith, executed by Guarantors for the benefit of Principal guaranteeing certain obligations in connection with the Option Agreement. (dd)                          “Permitted Exceptions”: shall mean (1) the title exceptions included in the Policy required to be delivered to Lender pursuant to Section 7(a) hereof, as the same may be endorsed from time to time with the consent of the Lender, (2) liens and security interests securing the Loan or the Senior Loan, (3) liens for taxes, assessments or other governmental charges or levies that are not then due or that are being contested in good faith and in accordance with applicable statutory procedures, (4) mechanic’s liens against the Project which are bonded off, released of record or otherwise remedied to Lender’s reasonable satisfaction within 30 days of the date of creation, (5) Leases entered into on terms allowed by this Agreement and (6) other matters approved in writing by Lender. (ee)                            “Person”: shall mean any individual, corporation, partnership, limited liability company, joint venture, estate, trust, or unincorporated association, any other entity, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of the foregoing. (ff)                                “Pledge Agreement”: shall mean that certain Senior Mezzanine Pledge and Security Agreement, dated of even date herewith, from the Borrower to Lender, as the same may be amended, modified and 5 --------------------------------------------------------------------------------   restated from time to time, pursuant to which the Borrower has pledged all of the Equity Interests in the Mortgagor. (gg)                          “Principal”: shall mean SW 108 Wagon Wheel JM LLC, a Delaware limited liability company, the sole member of Borrower and the holder of all Equity Interests in Borrower, and any person or entity who becomes the owner of any Equity Interest in Borrower after the date of this Agreement and is identified as such in an amendment or supplement to this Agreement. (hh)                          “Sale”: shall mean any sale, assignment, transfer, conveyance or other disposition, whether voluntary or involuntary, and whether or not consented to by Lender of (i) all or any portion of, or interest in, the Property or the Project, (ii) all or any portion of the Equity Interests in Mortgagor, or (iii) all or any portion of the Principal’s Equity Interests in Borrower. (ii)                                  “Senior Loan Agreement: shall mean that certain Loan Agreement dated of even date herewith between Senior Lender and Mortgagor. (jj)                                  “Senior Loan Documents”: shall mean the Senior Note, the Security Instrument, the Senior Loan Agreement and all other documents executed by Mortgagor or Guarantor in favor of Senior Lender to evidence or secure the Senior Loan, as they each may be amended, modified or restated with the consent of Senior Lender. (kk)                            “Senior Note”: shall mean the Promissory Note described in the Recitals to this Agreement, and all schedules, riders, allonges and addenda, as such Promissory Note may be amended from time to time with the consent of Senior Lender. (ll)                                  “Title Insurer”: shall mean Lawyer’s Title Insurance Corporation. (mm)                      “Third Party Agreement”: shall mean any agreement other than Leases and the Permitted Exceptions that will be binding on the Project, Mortgagor or Borrower after the closing of the Loan. 3.             THE LOAN; DISBURSEMENT OF LOAN. (a)                                  Loan. On the basis of the covenants, agreements and representations of Borrower contained herein and subject to the terms and conditions hereinafter set forth, Lender shall lend to Borrower and Borrower shall borrow from Lender a sum not to exceed the Loan Amount, the proceeds of which are to be disbursed by Lender in accordance with the provisions of Section 3(b) hereof. (b)                                 Loan Disbursements. Upon satisfaction of all the conditions set forth in Section 6 hereof, Borrower hereby directs and authorizes 6 --------------------------------------------------------------------------------   Lender to disburse the principal balance of the Loan to Borrower to be used, as applicable, to acquire the Property and/or to pay for or reimburse Borrower for payment of costs as described in the Budget. The Loan is not revolving. In no event shall the aggregate amount disbursed hereunder exceed the original principal amount of the Loan. 4.             INTEREST PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY; REPAYMENT. (a)                                  Interest. Interest on the principal balance of the Loan shall accrue and shall be payable in the amounts and at the times set forth in the Note. Borrower agrees to pay, on the Maturity Date, the unpaid principal balance of the Loan, together with all accrued but unpaid interest thereon. (b)                                 No Usury. The provisions of this Agreement, the Note, the Option Agreement and of all other agreements between Borrower and Lender, whether now existing or hereafter arising and whether written or oral, including, but not limited to, the Loan Documents, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand or acceleration of the maturity of this Note or otherwise, shall the amount contracted for, charged, taken, reserved, paid, or agreed to be paid to Lender for the use, forbearance, retention or detention of the money loaned under this Note and related indebtedness exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, performance or fulfillment of any provision hereof or of any agreement between Borrower and Lender shall, at the time performance or fulfillment of such provision shall be due, exceed the limit for interest prescribed by law or otherwise transcend the limit of validity prescribed by applicable law, then ipso facto the obligation to be performed or fulfilled shall be reduced to such limit; and if, from any circumstance whatsoever, Lender shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to the reduction of the principal balance owing under this Note in the inverse order of its maturity (whether or not then due) or at the option of Lender be paid over to Borrower, and not to the payment of interest. All interest (including any amounts or payments judicially or otherwise under the law deemed to be interest) contracted for, charged, taken, reserved, paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Note, including any extensions or renewals thereof, until payment in full of the Indebtedness so that the interest thereof for such full period will not exceed at any time the maximum amount 7 --------------------------------------------------------------------------------   permitted by applicable law. This paragraph 4(b) will control all agreements (including the Option Agreement) between Borrower and Lender. (c)                                  Loan Commitment Fee. Concurrently with the closing of the Loan, and as a condition precedent thereto, Lender shall receive the Loan Commitment Fee, which shall be deemed to have been earned in full by Lender, and is non-refundable, upon the disbursement of all or any portion of the Loan. (d)                                 Prepayment. All amounts due and owing under the Note from time to time may only be prepaid in accordance with the terms of the Note. (e)                                  Maturity Date. The outstanding principal balance of the Note and all accrued and unpaid interest thereon shall become due and payable on the Maturity Date unless the same is otherwise accelerated in accordance with the provisions hereof or the other Loan Documents. Subject to the provisions of Section 13(d) hereof, in the event that the Senior Note is paid in full at any time prior to the Maturity Date of the Loan, the Indebtedness shall then be immediately due and payable regardless of the then stated maturity date of the Loan. 5.             SECURITY FOR LOAN; GUARANTY. (a)                                  Pledge Agreement. The Loan shall be secured by, among other things, the Pledge Agreement. (b)                                 Other Loan Documents. The Loan shall be further secured and supported by the Environmental Indemnity and the other Loan Documents. (c)                                  Completion Guaranty. As additional security for the Loan, the Guarantors shall execute and deliver to Lender the Completion Guaranty. 6.             CONDITIONS PRECEDENT TO CLOSING OF THE LOAN. Prior to the funding of the Loan (unless otherwise provided), all of the following conditions shall have been satisfied and/or Borrower, Guarantors or Mortgagor, as applicable, shall have furnished to Lender the following, all in form and substance satisfactory to Lender in its sole and absolute discretion: (a)                                  Loan Documents. Borrower, Guarantors or Mortgagor, as applicable, shall have provided to Lender duly executed and, where appropriate, notarized originals of the Loan Documents, each satisfactory to Lender in its sole and absolute discretion, including the following: 8 --------------------------------------------------------------------------------   (i)                                     this Agreement (ii)                                  the Note; (iii)                               the Pledge Agreement; (iv)                              the Completion Guaranty; (v)                                 the Environmental Indemnity; (vi)                              the Subordination of Management Agreement; (vii)                           UCC Financing Statements, both state and local, as appropriate, with respect to items which are, or may be, personal property or other collateral including the Collateral as described in the Pledge Agreement; (viii)                        Certification of Organizational Documents; (ix)                                the Option Agreement; (x)                                   the Option Guaranty; and (xi)                                such other agreements by Borrower or Mortgagor as may be required by other provisions of this Agreement or as Lender may reasonably require in order to evidence or secure the Loan. (b)                                 Third Party Agreements. (i)                                     Copies. Borrower shall have provided to Lender executed copies, certified by the Borrower and Mortgagor as being true, correct and complete, of the Senior Loan Documents, the Management Agreement and the other Third Party Agreements then in effect, if any. (ii)                                  Purchase Agreement. Borrower shall have provided to Lender a copy of the fully-executed purchase agreement for the Property, together with all documents relating thereto, as the same may be assigned, amended or modified, which agreement and documents shall be satisfactory to Lender in form and substance. (iii)                               Intercreditor Agreement. Senior Lender shall have provided to Lender an executed copy of that certain Intercreditor Agreement by and between Senior Lender and Lender dated of even date herewith, which shall be satisfactory to Lender in form and substance. 9 --------------------------------------------------------------------------------   (iv)                              Manager’s Subordination Agreement. The Borrower shall cause the Manager to enter into an agreement with the Lender whereby the Manager: 1)     consents to the termination of the Management Agreement without fee or penalty upon foreclosure against the Collateral, 2)     consents to the removal and replacement of Manager upon foreclosure against the Collateral, and 3)     if Manager is an Affiliate of Borrower or Mortgagor, subordinates its right to receive its management fee to the payment of amounts due Lender under the Loan Documents, subject to the prior rights of Senior Lender. (c)                                  Certification Borrower shall have provided to Lender a certification by Borrower as of the date of this Agreement (which is the date that the commitment of Lender to make the Loan to Borrower becomes binding on Lender) of the Budget attached hereto as Exhibit ”B”, including certification of the purchase price of the Property, and the reasonably estimated costs of the improvements that would be capitalized by Mortgagor as real property for federal income tax purposes consistent with past practices of the affiliates of Mortgagor. (d)                                 Financial Statements. Borrower shall have provided to Lender (i) with respect to the Borrower, the Project and the Mortgagor, financial statements and other financial information, certified by the Borrower and Mortgagor as being true, correct and complete in all material respects, and in the form and containing the detail and supporting information as required by Lender for the underwriting for the Loan and (ii) with respect to Guarantors, the Estimated Collateral Value Statement, dated as of June 20, 2005 of each Guarantor. (e)                                  Insurance Policies. The Borrower shall have provided to Lender the original insurance policies, certified copies thereof or certificates thereof, together with evidence of premium payments, for the insurance as more fully provided in Section 8 hereof, which should include Builder’s Risk, Hazard and Public Liability and Worker’s Compensation Insurance in the event such insurance is not required by Senior Lender. (f)                                    Contracts. Borrower shall have provided to Lender copies of any contracts regarding the Project entered into by Mortgagor with any contractors or engineers and, if requested by Lender, copies of contracts with any subcontractors for the construction or installation of the improvements made in connection with the Project. 10 --------------------------------------------------------------------------------   (g)                                 Plans.  Borrower shall have provided to Lender copies of all available plans prepared by any engineers or architects in connection with the Project. (h)                                 Budget and Cost Review. Lender shall have received a report of its inspecting engineer with respect to Mortgagor’s construction budget and the available plans for the Project, which shall be satisfactory to Lender. (i)                                     Leases. Borrower shall have provided to Lender (i) the form lease for residential units within the Project and (ii) copies of any non-residential Leases affecting the Project. (j)                                     Title Insurance Policy. Lender shall have received, reviewed and approved the commitment for title insurance with respect to the Property and copies of all exceptions to such title insurance that have been delivered to Senior Lender in connection with its review and approval of the mortgage loan. (k)                                  UCC Policy. Lender shall have received the UCC Policy referred to in Section 7(b) hereof. (l)                                     ALTA Survey. Lender shall have received a current ALTA survey of the Property (the “Survey”) completed in accordance with Senior Lender’s requirements, satisfactory to Lender and to the Title Insurer and certified to Senior Lender, Lender (and its successors and assigns) and the Title Insurer. (m)                               Conditional Use Permits and Government Approvals. Lender shall have received any conditional use permit(s) affecting the Property and such evidence as Lender may require (including the written certification of Borrower’s engineer or any other person satisfactory to Lender) that the Project will be developed in accordance with all applicable governmental requirements and upon completion will satisfy all applicable governmental requirements. Any such certifications shall also be certified to Lender and its successors and assigns. (n)                                 Flood Plain Certification. To the extent not provided on the Survey, Lender shall have received evidence that the Property is not located within any flood plain or, if the Property is located within a flood plain, Borrower has obtained and is maintaining in full force and effect a policy or policies of flood insurance pursuant to Section 8 hereof. Any such certifications shall also be certified to Lender and its successors and assigns. (o)                                 Appraisal. Lender shall have received an appraisal of the Property prepared by a licensed appraiser acceptable to Lender, in form and 11 --------------------------------------------------------------------------------   substance required by Senior Lender, but also addressed to Lender and its successors and assigns, in the amount of $40,500,000. (p)                                 Environmental Report. Lender shall have received an environmental report covering the Property, prepared by a professional acceptable to Lender, in form and substance as required by Senior Lender, and also certified to Lender and its successors and assigns. (q)                                 Certification of Organizational Documents. Lender shall have received a written certification attaching the required documents with respect to both Mortgagor and Borrower, confirming (i) that true, complete and correct copies of the organizational documents have been attached to the certification, (ii) that no modifications of such documents exist which have not been provided to Lender, and (iii) that the provisions of Section 22 hereof have been incorporated into the organizational documents. (r)                                    Legal Opinion. Lender shall have received a written legal opinion or legal opinions from Borrower’s counsel (which counsel must be acceptable to Lender) in form acceptable to Lender and its counsel, opining as to such matters as Lender may reasonably require, including an opinion regarding:  (1) due organization and valid existence, (2) authority; (3) enforceability of the Loan Documents, (4) perfection of the security interests described in the Pledge Agreement and (5) no usury. (s)                                  UCC Searches. Lender shall have received full Uniform Commercial Code searches, performed by a search company and in jurisdictions satisfactory to Lender, with respect to the Borrower and the Mortgagor and disclosing no matters objectionable to Lender. (t)                                    Access and Utility Easements. Borrower shall have established such easements as may be necessary to adequately assure access and the availability of utilities to the Project. (u)                                 Utilities. Lender shall have received evidence that all sewer, water, electrical, telephone and any other utility services necessary to obtain a certificate of occupancy for the Project are available at the Property in adequate supply for the use and operation of the Project and each provider of utility services has a binding obligation to deliver the necessary services to the completed residences. This evidence may include letters from the applicable utility providers. (v)                                 Environmental Disclosure. In accordance with all applicable laws, including the laws of the jurisdiction of the Property, Borrower shall provide a true, correct and complete copy of any disclosure 12 --------------------------------------------------------------------------------   document or other instrument required by any such law relating to environmental matters. (w)                               Senior Lender Funding. Senior Lender shall have disbursed to or for the account of Mortgagor the disbursement of the initial draw of the Senior Loan for the purchase of the Property. (x)                                   No Default. The representations and warranties of Borrower contained in this Agreement shall be true, correct and complete in all material respects except the representation in 16(c) which need be accurate only as of the date of this Agreement, and no Event of Default, as defined below, or circumstance or event which upon the lapse of time, the giving of notice or both, could become an Event of Default shall have occurred; and (y)                                 Additional Matters. Borrower shall have delivered to Lender such other or additional documents, instruments, information or items as the Lender may request prior to the initial disbursement of the Loan. 7.             TITLE INSURANCE. Concurrently with the closing of the Loan: (a)                                  Owner’s Policy of Title Insurance. Borrower shall deliver or cause to be delivered to Lender a duplicate original of Mortgagor’s Owner’s Policy of Title Insurance (the “Policy”) issued by the Title Insurer, meeting the following requirements: (i)                                     with coverage amount not less than the purchase price of the Property, if the Property is being acquired by the Mortgagor concurrently with the closing of the Loan; (ii)                                  dated as of a date not earlier than the disbursement of the Loan; (iii)                               the Policy shall not be subject to any exceptions other than the Senior Loan Documents and the Permitted Exceptions; (iv)                              the legal description insured under the Policy shall include any easements benefiting the Property; and (v)                                 if available under local regulations, the Policy shall also contain a mezzanine financing endorsement, acknowledging that the coverage afforded by the Policy runs to the Lender. (b)                                 UCC Policy. Borrower shall deliver or cause to be delivered to Lender an Eagle 9 UCC Insurance Policy issued by First American Title Insurance Company (or a similar policy), which policy shall (i) insure Lender’s first priority security interest in all of the Equity Interests covered by the Pledge Agreement, (ii) be dated not earlier than the date of the disbursement of the Loan, (iii) be subject only to 13 --------------------------------------------------------------------------------   matters which would customarily appear on such a policy, and (iv) be in form and substance reasonably satisfactory to Lender (such policy, the “UCC Policy”). 8.             INSURANCE. (a)                                  Insurance Requirements. Borrower, at its sole cost (or at Mortgagor’s sole cost), for the mutual benefit of Borrower, Mortgagor and Lender, shall cause Mortgagor or Manager to obtain and maintain policies of insurance with respect to the Project as required by the Senior Loan Documents, as those requirements may from time to time be amended; provided that Lender shall be named as an additional insured under such liability coverage. Borrower agrees that it will cause Mortgagor to maintain coverage under its products/completed liability insurance for the period of the statute of repose in the state where the Project is located, but no less than ten years after Completion. If commercial general liability insurance as required in the Senior Loan Documents is unavailable for residential construction in the state where the Project is located, Owner shall or shall cause Manager or the contractor to purchase wrap-up construction insurance covering Mortgagor, contractor and all subcontractors for general liability and products/completed operations for the period of the statute of repose but no less than 10 years with limits no less than $5,000,000, naming Lender as additional insured. (b)                                 Insurance Premiums; Evidence of Renewal. All premiums on insurance policies required under this Section 8 shall be paid in the manner required by the Senior Loan Documents, provided, however, that if Senior Lender waives the requirement for impound of insurance premiums, Borrower agrees to provide evidence of payment of all insurance premiums. Borrower shall use its best efforts to deliver originals of all policies and renewals (or certificates evidencing the same), marked “paid” (or other evidence satisfactory to Lender of the continuing coverage) to Lender at least fifteen (15) days before the expiration of existing policies. If Lender has not received satisfactory evidence of such renewal or substitute insurance in the time frame herein specified, Lender shall have the right, but not the obligation, to purchase such insurance for Lender’s interest only. (c)                                  Policy Requirements. All Policies provided for or contemplated by Section 8.1(b) shall name Mortgagor as the insured and, in the case of liability coverage, Borrower as the insured or additional insured and Lender as the additional insured, in each case as their interests may appear. All insurance policies and renewals of insurance policies required by this Section 8 shall (i) be in such amounts and 14 --------------------------------------------------------------------------------   for such periods as Senior Loan Documents may from time to time require, (ii) be issued by insurance companies as required by the Senior Loan Documents, (iii) provide thirty (30) days’ advance written notice to Lender before any cancellation or adverse material modification and (iv) to the extent limits are not otherwise specified herein, contain deductibles which are in amounts acceptable to Lender. (Lender acknowledges that deductibles not in excess of $250,000 per occurrence will be acceptable to it.)  All certificates of insurance and “blanket” insurance policies shall reference the specific project being covered by name and address. (d)                                 Notice of Casualty. Borrower shall give to Lender immediate notice of any material loss occurring on or with respect to the Project. (e)                                  Settlement of Claim. In case of loss covered by any of such policies, Lender is authorized to adjust, collect and compromise, in its discretion, all claims thereunder if an Event of Default has occurred and is continuing at the time, subject to the rights of the Senior Lender. In the event of any adjustment, collection and compromise by Lender, Borrower covenants to sign upon demand, or Lender may sign or endorse on Borrower’s behalf, all necessary proofs of loss, receipts, releases and other papers required by the insurance companies to be signed by Borrower. Borrower hereby irrevocably appoints Lender as its attorney-in-fact for the purposes set forth in the preceding sentence, subject to the rights of the Senior Lender. Subject to the rights of the Senior Lender, Lender may deduct from such insurance proceeds any reasonable expenses incurred by Lender in the collection and settlement thereof, including attorneys’ and adjustors’ fees and charges. Nothing contained in this Agreement shall create any responsibility or obligation of the Lender to collect any amounts owing on any insurance policy, to rebuild or replace the damaged or destroyed portions of the Project or to perform any other related act. The Lender shall not, by the fact of approving, disapproving, accepting, preventing, obtaining or failing to obtain any insurance, incur any liability for or with respect to the amount of insurance carried, the form or legal sufficiency of insurance contracts, solvency of insurance companies, or payment or defense of lawsuits, and the Borrower hereby expressly assumes full responsibility therefor and all liability, if any, with respect thereto. (f)                                    Application of Insurance Proceeds. Any insurance proceeds received by Mortgagor or Borrower under any of such casualty policies shall, subject to the rights of the Senior Lender, be applied, at the option of the Lender, toward pre-payment or reimbursement of the Loan and any other amounts evidenced or secured by the Loan Documents, or to the rebuilding or repairing of the Project so damaged or destroyed, as the Lender in its sole and unreviewable 15 --------------------------------------------------------------------------------   discretion may elect; provided, however, that Lender will allow insurance proceeds to be used for restoration of the Project if the conditions for Borrower’s use of insurance contained in the Senior Loan Documents are satisfied (substituting Lender for Senior Lender thereunder in making related decisions). Lender’s election to apply such insurance proceeds to the Loan and other amounts evidenced or secured by the Loan Documents shall not relieve the Borrower of the duty to rebuild or repair. 9.             EMINENT DOMAIN. (a)                                  Notice of Condemnation. Borrower shall give to Lender immediate notice of any taking by condemnation of any portion of the Project or the institution of any proceedings the effect of which is to achieve a taking of any portion of the Project by condemnation. (b)                                 Settlement of Claim. In case the Project, or any part or interest in any thereof, is taken by condemnation, then subject to the rights of the Senior Lender, the Lender is hereby empowered to collect and receive all compensation and awards of any kind whatsoever (referred to collectively herein as “Condemnation Awards”) which may be paid for any property taken or for damages to any property not taken (all of which the Borrower hereby assigns to the Lender, subject to the rights of the Senior Lender in the same). Borrower covenants to sign upon demand, or Lender may sign or endorse on Borrower’s behalf, all necessary proofs of loss, receipts, releases and other papers required by the condemning authority to be signed by Borrower for such purpose. Borrower hereby irrevocably appoints Lender as its attorney-in-fact for the purposes set forth in this Section 9. Lender may deduct from any Condemnation Awards, any expenses reasonably incurred by Lender in the collection and settlement thereof, including reasonable attorneys’ and adjusters’ fees and charges. (c)                                  Application of Condemnation Awards. All Condemnation Awards so received shall, subject to the rights of the Senior Lender, be forthwith applied by the Lender, as it may elect in its sole and unreviewable discretion, to the payment or reimbursement of the Loan or the other amounts evidenced or secured by the Loan Documents, or to the repair and restoration of any property not so taken or damaged; provided, however, that Lender will allow Condemnation Awards to be used for restoration of the Project if the conditions for Borrower’s use of Condemnation Awards contained in the Senior Loan Documents are satisfied (substituting Lender for Senior Lender thereunder in making related decisions). 16 --------------------------------------------------------------------------------   (d)                                 Continuing Obligation to Repair. No election made by the Lender under this Section 9 shall relieve the Borrower of the duty to repair and restore. (e)                                  Lender Not Required to Act. Nothing contained in this Agreement shall create a responsibility or obligation of Lender to collect any amounts owing on account of any such condemnation or proceedings relating to the Project, to rebuild or replace any damaged or destroyed property or to perform any other related act. 10.           RIGHTS OF ACCESS AND INSPECTION. Borrower shall cause Mortgagor to permit agents, representatives and employees of Lender to inspect the Project and the installation of the Project or any part thereof during reasonable business hours upon reasonable advance notice. Without limiting the foregoing, Lender shall also be permitted access to the Project in order to examine, copy and audit Mortgagor’s books and records (including as part of any audit performed pursuant to Section 12(e) hereof) and any plans, drawings contracts, books or records relating to the Project. Borrower shall, to the extent within its control, cause any contractors or subcontractors to cooperate with Lender or its agents in connection with any inspection. Lender is under no duty to visit or observe the Project or to examine any books or records. Any site visit, observation or examination by Lender shall be solely for the purpose of protecting Lender’s security and preserving Lender’s rights under the Loan Documents. Neither Borrower, Mortgagor nor any other party is entitled to rely on any site visit, observation or testing by Lender or its agents or representatives. Lender owes no duty of care to protect Borrower, Mortgagor or any other party against, or to inform Borrower or any other party of, any adverse condition affecting the Project, including any defects in the design or construction of any improvements on the Property or the presence of any Hazardous Materials on the Property. So long as no Event of Default has occurred and is continuing, Lender shall give Borrower and Mortgagor reasonable prior notice of its intent to enter the Project. 11.           EXPENSES. Borrower shall pay, as and when due, all reasonable costs and expenses incurred in the procuring and making of the Loan by Lender, including without limitation, to the extent reasonable, Title Insurer’s fees and premiums, charges for examination of title to the Premises, expenses of surveys, transfer taxes and recording expenses, appraisal and appraisal review fees, fees of an inspector and fees and expenses of any attorneys, accountants, engineers, architects, surveyors, contractors, inspectors or other consultants, professionals or independent contractors employed, retained or utilized by Lender in connection with the Loan. Borrower shall cause Mortgagor to pay when due any and all insurance premiums, taxes, assessments, water, sewer and other utility charges, impact fees, liens and encumbrances on the Project and any other amounts payable for the cost of improvements to the Property, provided that Borrower and/or Mortgagor may in good faith contest any such liens, claims or amounts so long as it provides, for any filed lien, a bond in accordance with statutory requirements or other security reasonably satisfactory to Lender. Borrower shall pay upon demand or reimburse Lender for any and all reasonable fees, costs and expenses incurred by Lender in collecting the Indebtedness after an Event of Default including reasonable attorneys’ fees. All such amounts shall be paid to Lender or at Lender’s direction to such other person to 17 --------------------------------------------------------------------------------   whom payments are due or Lender may, at its option, pay such amounts and all sums paid shall be deemed a portion of the Indebtedness and shall bear interest at the Default Interest Rate. 12.           FINANCIAL REPORTS, PROPERTY REPORTS AND ANNUAL BUDGET. The parent company of Lender is a real estate fund that issues securities, maintains U.S. GAAP audited financial statements and/or is publicly registered with the United States Securities and Exchange Commission (“SEC”). As a result, such parent company is subject to GAAP financial statement requirements and other reporting requirements. These requirements include but are not limited to quarterly and annual financial reporting (including for public companies on Form 10-Q and Form 10-K and reporting under Rule 3-14 of Regulation S-X, which requires the filing of pro forma financial statements of acquired properties). In addition, certain accounting requirements may dictate that Lender report Borrower, Mortgagor and/or the Project as a subsidiary of Lender. Therefore, Borrower agrees to provide Lender with all information that Borrower or its Affiliates has in their possession and Borrower will use its best efforts to obtain such information not in its possession as Lender reasonably requires in order to prepare, audit and/or review financial statements of the Project, Mortgagor and Borrower for the applicable reporting periods. (a)                                  Borrower agrees that all accounting for the Project will be conducted by the Borrower and/or the Mortgagor and also by the Lender. Borrower agrees to provide Lender with copies of all Accounting Records (other than leases, which Borrower and/or the Mortgagor may make available at the Project rather than copying) on a monthly basis in order to enable Lender to prepare and maintain financial statements on the Borrower, Mortgagor and/or the Project in accordance with accounting principles generally accepted in the United States of America. (b)                                 Borrower agrees to provide Accounting Records by the 15th of the month for the preceding month. (c)                                  Borrower agrees to allow Lender and Lender’s external accountants access to original Accounting Records if needed in the process of their quarterly reviews and various audit processes. (d)                                 Borrower agrees to cooperate with any inquiries or interviews by Lender or its external independent accountants as may be necessary in relation to Lender’s or its Affiliates’ compliance with the Sarbanes-Oxley Act of 2002. (e)                                  In addition, Borrower shall furnish to Lender: (i)                                     within 30 days after the end of each fiscal year of Mortgagor, and at any other time upon Lender’s request, a statement that identifies all 18 --------------------------------------------------------------------------------   owners of any interest in Mortgagor and the interest held by each, if Mortgagor is a corporation, all officers and directors of Mortgagor, and if Mortgagor is a limited liability company, all members and managers (whether members or not); (ii)                                  within 15 days after the end of each month, a monthly property management report for the Project, showing the number of inquiries made and rental applications received from tenants or prospective tenants, deposits received from tenants and any other information reasonably requested by Lender; (iii)                               within 15 days following the end of each month, a monthly statement of income and expense for the Project; and (iv)                              beginning sixty (60) days prior to the first occupancy of the Property and for each succeeding calendar year, not later than ninety (90) days prior to the commencement of such calendar year, an annual budget which sets forth, in sufficient detail, Borrower’s projection of gross receipts and expenses for such period (the “Annual Budget”). Each Annual Budget shall be for a calendar year except that the Annual Budgets for the year of first occupancy of the Property shall only cover the remainder of the then-current year. (f)                                    If Borrower fails to provide in a timely manner the Accounting Records, statements, schedules and reports required by this Section 12, Lender shall have the right to have Mortgagor’s and Borrower’s books and records audited or to perform any other procedure reasonably requested by Lender, at Borrower’s expense, by independent certified public accountants selected by Lender in order to obtain such statements, schedules and reports, and all related costs and expenses of Lender shall become immediately due and payable and shall become an additional part of the Indebtedness as provided in Section 20. (g)                                 If Lender acquires the Project or acquires the Collateral through foreclosure, Borrower shall deliver, or cause to be delivered, to Lender upon written demand all books and records relating to the Project or its operation. Otherwise, during the term of the Loan, to the extent that copies of such books and records have not been provided pursuant to the provisions of this Section 12 set forth above, Borrower will provide Lender with all cost records necessary for Lender to perform its accounting procedures including, but not limited to, balance sheets, income statements, trial balance activity reports, general ledger detail reports, cash receipts journal, check register or cash disbursements journal and copies of checks and vendor invoices for all invoices paid. Borrower agrees to make 19 --------------------------------------------------------------------------------   available to Lender for examination and copying any other books and records upon Lender’s written demand. (h)                                 Borrower authorizes Lender to obtain a credit report on Borrower, Mortgagor and Guarantors at any time. 13.           GENERAL COVENANTS OF BORROWER. Until the full and final payment of the Loan, unless Lender waives compliance in writing, Borrower hereby covenants and agrees as follows: (a)                                  Commencement and Completion of Project. Borrower shall cause Mortgagor to begin construction and installation of the improvements in connection with the Project on or before the commencement date set forth in the Senior Loan Documents and shall cause Mortgagor to prosecute such construction and installation with diligence so that the construction and Completion (as defined in the Completion Guaranty) of the Project (other than payment of claims that are being contested in accordance with the Loan Documents) shall have occurred by the completion deadline set forth in the Senior Loan Documents. (b)                                 Lender Approval. No changes to the construction budget included in the Senior Loan Documents or the Budget attached hereto or the completion date required by the Senior Loan Documents shall be permitted without Lender’s written consent, with the exception of (i) completion date extensions due to force majeure and (ii) reallocation of amounts among the line items of the budgets; provided that Borrower shall provide Lender with notice of any changes in connection with (i) and (ii) above. Lender shall have the right to approve all contractors (except Vanguard, Inc.) and all construction contracts between Mortgagor and such contractors. Lender has approved the plans and specifications for the improvements to be constructed on the Property described in Exhibit “C” attached hereto, and no changes to such approved plans and specifications shall be permitted without Lender’s written consent, with the exception of (i) changes required by governmental authorities or Senior Lender and (ii) other changes that, individually, do not increase or decrease Project costs by more than $100,000 and, in the aggregate, do not increase or decrease Project costs by more than $300,000. Lender shall have ten (10) business days to provide any approval required under this Section 13(b) but if Lender does not provide written notice that it does not approve within the ten (10) business days, then the action shall be deemed approved. (c)                                  Operation and Maintenance of Project. In addition to the terms, conditions and provisions set forth in the other Loan Documents: 20 --------------------------------------------------------------------------------   (i)                                     Payment of Lawful Claims. Borrower shall pay or discharge all lawful claims, including taxes, assessments and governmental charges or levies imposed upon Borrower or its income or profits or upon any property belonging to Borrower prior to the date upon which penalties attach thereto; provided that Borrower may in good faith contest any such taxes, assessments, charges or levies so long as it provides, for any filed lien, a bond in accordance with statutory requirements or other security reasonably satisfactory to Lender. Without limiting the generality of the foregoing, Borrower shall pay (a) all taxes and recording expenses, including stamp taxes, if any, relating to all documents and instruments securing the Loan, (b) the fees and commissions (if any) lawfully due to brokers engaged by Borrower or its Affiliates in connection with this transaction (and Borrower shall hold Lender harmless from all such claims, whether or not lawfully due), and (c) the fees and expenses of Lender’s counsel relating to Lender’s consultation with such counsel in connection with the negotiation, documentation and closing of the Loan and any subsequent modifications of the Loan. (ii)                                  No Amendments. Borrower shall not, nor shall it permit Mortgagor to, without Lender’s prior written consent, enter into any amendments or modifications of (a) if Borrower or Mortgagor is a corporation, the Borrower’s and Mortgagor’s by-laws and articles of incorporation, (b) if Borrower or Mortgagor is a limited liability company, such entity’s operating agreement or articles of organization, (c) if Borrower or Mortgagor is a limited partnership, such entity’s partnership agreement or partnership certificate, (d) the construction contract between Mortgagor and Vanguard, Inc. (except for change orders that, individually, do not increase or decrease Project costs by more than $100,000 and, in the aggregate, do not increase or decrease Project costs by more than $300,000), (e) the Management Agreement, or (f) the Senior Loan Documents. (iii)                               Hazardous Substances. So long as Mortgagor owns the Project, Borrower shall cause Mortgagor to (a) keep the Project free from Hazardous Substances, except those in de minimis amounts ancillary to the Project activities that are used in compliance with all environmental laws, (b) promptly notify Lender if Borrower or Mortgagor becomes aware that any Hazardous Substance is on or near the Project in violation of any environmental laws or if the Project otherwise is in violation of any environmental laws, and (c) remove such Hazardous Substances contamination that violates any environmental laws and/or cure such violations as required by law. (iv)                              Maintenance and Repair of Project. After completion of the Project, Borrower shall cause Mortgagor to (a) maintain the Project, including the parking and landscaping portions thereof, in good 21 --------------------------------------------------------------------------------   condition and repair, (b) promptly make all necessary structural and non-structural repairs to the Project, (c) not demolish, alter, remove or add to any improvements on the Property, excepting (i) the repair and restoration of improvements following damage thereto as required by this Agreement, and (ii) as otherwise required by any applicable law, rule or regulations, and (d) not erect any new buildings, structures or building additions on the Project other than in accordance with the plans for the Project, without the prior written consent of Lender. Borrower shall pay when due all claims for labor performed and materials furnished therefor in connection with any improvements or construction activities on the Property; provided that Borrower may in good faith contest any liens, claims or amounts so long as it provides, for any filed lien, a bond in accordance with statutory requirements or other security reasonably satisfactory to Lender. (d)                                 Restricted Sale and Encumbrance of Project and of Borrower Interests; Other Indebtedness. Neither Borrower nor Principal shall engage in any Sale or Encumbrance without the prior written consent of Lender (which may be withheld by Lender in Lender’s sole and absolute discretion). Borrower will not issue any additional Equity Interests in Borrower. In addition, Borrower shall not permit Mortgagor to issue any additional Equity Interests in Mortgagor. In addition, Borrower shall not, nor shall it permit Mortgagor to, incur any indebtedness, whether secured or unsecured, other than (i) the Senior Loan and this Loan, (ii) obligations under interest rate hedging arrangements related to the Senior Loan and (iii) trade and operational indebtedness incurred in the ordinary course of business (including construction and operation of the Project) or for its administrative functions. Notwithstanding the foregoing, Lender’s consent shall not be required for: (i)                                     the grant of a leasehold interest in an individual dwelling unit for a term of two years or less not containing an option to purchase and otherwise in compliance with Section 13(f) hereof; (ii)                                  a Sale of obsolete, worn out or damaged property or fixtures that is contemporaneously replaced by items of equal or better function and quality, which are free of liens, encumbrances and security interests other than Permitted Exceptions, those created by the Loan Documents or the Senior Loan Documents or those otherwise consented to by Lender; (iii)                               a Sale that results from theft, condemnation or other involuntary conversion; 22 --------------------------------------------------------------------------------   (iv)                              the Sale (including through consumption) of personal property in the ordinary course of business that is contemporaneously replaced by items of equal or better function and quality; (v)                                 the grant of an easement if, before the grant, Lender determines (which determination must be made reasonably) that the easement will not materially affect the operation or value of the Project and Borrower pays to Lender, upon demand, all reasonable costs and expenses incurred by Lender in connection with reviewing Borrower’s request; and (vi)                              the creation of (1) a lien for taxes, assessments or other governmental charges or levies that are not then due or that are being contested in good faith and in accordance with applicable statutory procedures or (2) a mechanic’s lien against the Project which is bonded off, released of record or otherwise remedied to Lender’s reasonable satisfaction within 30 days of the date of creation. (e)                                  General Indemnity. Borrower shall, at Borrower’s expense, protect, defend, indemnify, save and hold Lender and each of its members and its respective members, stockholders, directors, officers, employees and agents (collectively the “Indemnified Parties”) harmless against any and all claims, demands, losses, expenses (including court costs and reasonable attorney’s fees and expenses), damages and causes of action (whether legal or equitable in nature) asserted by any person or entity arising out of, caused by or relating to the Project and the Lender’s exercise of its rights under the Loan Documents upon an Event of Default, except to the extent the same arises out of, is caused by or results from the gross negligence or willful misconduct of an Indemnified Party. Borrower shall pay to Lender upon demand all claims, judgments, damages, losses and expenses (including court costs and reasonable attorneys’ fees and expenses) incurred by Lender as a result of any legal or other action arising out of the aforesaid matters. Borrower acknowledges that the Indemnified Parties may defend any matter covered by the above indemnification by counsel of the relevant Indemnified Party’s choice, and the costs of such defense (including reasonable attorney’s fees) are part of the costs covered by the indemnity. The foregoing indemnification shall survive repayment of the Loan. (f)                                    Leases. (i)                                     Residential Lease Requirements. Mortgagor shall have the right, and Borrower may permit Mortgagor, to enter into residential Leases without Lender’s prior written consent, so long as:  (A) all Leases for residential dwelling units are on forms approved by Lender, and shall not include options to purchase and (B) all Leases shall be for 23 --------------------------------------------------------------------------------   initial terms of at least six months and not more than two years (with the exception of Leases for up to 3% of the units in the Project, which may have terms of less than six months). (ii)                                  Commercial Lease Requirements. Mortgagor shall not, nor shall Borrower permit Mortgagor to, enter into any non-residential Leases without Lender’s prior written consent in each instance. Mortgagor shall not, nor shall Borrower permit Mortgagor to, modify the terms of, or extend or terminate, any Lease for non-residential use (including any Lease in existence on the date of this Agreement) without the prior written consent of Lender. Borrower shall, without request by Lender, deliver a copy of each executed non-residential Lease to Lender promptly after such Lease is signed. (iii)                               Advance Rent. Mortgagor shall not, nor shall Borrower permit Mortgagor to, receive or accept rent under any Lease (whether residential or non-residential) for more than two months in advance. (iv)                              Performance of Obligations. Borrower shall cause Mortgagor to pay, perform and discharge, as and when payment, performance and discharge are due, all obligations of Mortgagor as landlord under all Leases. (v)                                 Security Interest. Except for the assignment to Senior Lender, Borrower shall not permit Mortgagor to further assign, pledge, transfer or otherwise encumber the Leases or the rents under the Leases. (vi)                              Defense; Pursuit of Remedies. Borrower shall, or shall cause Mortgagor to, at its sole cost and expense, appear in and defend any action or proceeding arising from or connected with any of the Leases or any obligation or liability of Mortgagor as landlord thereunder. Borrower shall, or shall cause Mortgagor to, use commercially reasonable efforts to pursue all remedies, including claims for damages available at law or in equity, against any tenant under a Lease who defaults in the performance of its obligations under the Lease. (g)                                 Notices. Borrower shall promptly notify Lender in writing of any litigation affecting (a) Borrower, Mortgagor or any Principal and, any general partner, managing member or controlling shareholder of Borrower, Mortgagor or Principal (excluding a Principal, general partner, managing member or controlling shareholder which is a natural person or trust), or (b) the Project, to the extent the same may result in a material adverse change in (i) the financial condition of any of the foregoing parties, (ii) Borrower’s ability to timely perform any of its obligations under any of the Loan Documents or 24 --------------------------------------------------------------------------------   Mortgagor’s ability to timely perform any of its obligations under any of the Senior Loan Documents, or (iii) the physical condition or operation of the Project. (h)                                 Development. If after the date of this Agreement, Borrower or Mortgagor intends to engage a developer of the Project, Lender shall have the right to approve such new developer and the written development agreement for the Project. (i)                                     Management. The Project shall be managed at all times by Manager or a professional residential rental property manager satisfactory to Lender under a contract approved by Lender. Lender hereby accepts the Manager as the initial property manager and the Management Agreement as the initial management agreement. If after the date of this Agreement, Borrower or Mortgagor intends to change the management of the Project, Lender shall have the right to approve such new property manager and the written contract for the management of the Project and, if the manager is an Affiliate or Borrower, require that Borrower and such new property manager enter into a Subordination of Management Agreement on a form reasonably acceptable to Lender. (j)                                     Senior Loan. The Borrower shall, or shall cause Mortgagor to, fully and timely pay all amounts owing under the Senior Loan Documents and timely and fully perform all of the Mortgagor’s covenants and agreements contained therein. Borrower shall provide Lender with copies of all notices (except routine notices which would not include any notice related to any failure to comply with any terms of the Senior Loan Documents or regarding any event of default under the Senior Loan Documents) given or received by Mortgagor under or pursuant to the Senior Loan Documents, promptly upon delivery or receipt as the case may be. Without limiting the Lender’s right to declare an Event of Default on account of a failure to comply with the terms and provisions of the Senior Loan Documents, if Borrower or Mortgagor fail to so pay or perform such obligations, and if such failure either (i) becomes an Event of Default hereunder or (ii) prior to becoming an Event of Default continues for twenty (20) days after Lender gives written notice to Borrower to cure, the Lender may pay or perform the same pursuant to Section 18(b) hereof. Notwithstanding the foregoing, (i) Lender shall have no obligation whatsoever to pay any of the amounts evidenced or secured by, or to perform any of the covenants or obligations imposed by, any Senior Loan Documents, and (ii) any such payment by Lender shall not cure Mortgagor’s default hereunder or under the Senior Loan Documents but shall only protect Lender’s interest in the Project. Borrower shall not, nor shall it permit Mortgagor to, amend or modify any of 25 --------------------------------------------------------------------------------   the Senior Loan Documents without the prior written consent of Lender. (k)                                  Principal Place of Business; Choice of Law Borrower shall not change its principal place of business or, if Borrower has more than one place of business, its chief executive office, from its address set forth in the first paragraph of this Agreement. In addition, Borrower shall not make an election under the Uniform Commercial Code to treat, as the governing law for perfection of uncertificated securities, the law of any jurisdiction other than the jurisdiction of its formation. Lender agrees not to unreasonably withhold its consent to any change in the Borrower’s principal place of business or the governing law with respect to uncertificated securities so long as (1) Borrower and any other party reasonably requested by Lender executes all documents and instruments reasonably deemed necessary by Lender to perfect the security interests granted pursuant to the Loan Documents, (2) the Borrower pays all of the Lender’s reasonable costs and expenses of perfecting such security interests and (3) if requested by Lender, Borrower delivers to Lender an opinion from counsel reasonably satisfactory to Lender opining as to the continued perfection of such security interest. (l)                                     Compliance with Governmental Prohibitions. No portion of the Loan proceeds will be used, disbursed or distributed by Borrower or any Principal for any purpose, or to any person, in violation of any Law (as defined in Section 16 (h)) including, without limitation, any of the Terrorism Laws (as defined in Section 16 (h)). Borrower shall provide Lender with immediate written notice (a) of any failure of any of the representations and warranties set forth in Section 16(h) of this Agreement to be true, correct and complete in all material respects at any time, or (b) if Borrower obtains knowledge that Borrower, Principal, or any holder at any time of any direct or indirect equitable, legal or beneficial interest in Borrower or Principal is the subject of any of the Terrorism Laws. Borrower shall immediately and diligently take, or cause to be immediately and diligently taken, all necessary action to comply with all Terrorism Laws and to cause the representations and warranties set forth in Section 16(h) to be true, correct and complete in all material respects. (m)                               Developer’s Fee. Borrower shall cause Mortgagor to refrain from drawing $200,000 from the Senior Loan allocated toward the developer’s allowance (as set forth in the budget attached to the Senior Loan) until the payment in full of this Loan. 14.           FURTHER ASSURANCES. Borrower shall, from time to time, upon Lender’s request, at Borrower’s sole cost and expense, execute, deliver, record and furnish such 26 --------------------------------------------------------------------------------   documents and do such other acts as Lender may reasonably deem necessary or desirable to (i) perfect and maintain valid liens upon the security contemplated by the Loan Documents, (ii) correct any errors of a typographical or other manifest nature which may be contained in any of the Loan Documents, (iii) evidence Borrower’s compliance with the Loan Documents, and (iv) consummate fully and carry out the intent of the transactions contemplated under this Agreement or the Loan Documents. 15.           APPRAISALS.  Lender has the right to obtain a new appraisal or update an existing appraisal of the Project at any time while the Loan or any portion thereof remains outstanding (a) when, in Lender’s reasonable judgment, such an appraisal is warranted as a result of Lender’s internal evaluation of the Loan, and/or (b) to comply with statutes, rules, regulations or directives of governmental agencies having jurisdiction over Lender. Borrower shall pay, upon demand, all reasonable appraisers’ fees and related expenses incurred by Lender from time to time in obtaining such appraisal reports; provided, however, that Borrower shall not be required to pay for a re-appraisal more than once every three years unless an Event of Default has occurred and is continuing. 16.           GENERAL REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and warrants to Lender, which representations and warranties shall survive the termination of this Agreement, the repayment of the Loan, any investigations, inspections or inquiries made by Lender or any of Lender’s representatives, and any disbursements made by Lender hereunder, as follows: (a)                                  Organization; Corporate Powers; Authorization of Borrowing. (i)                                     Organization. Borrower’s ownership structure set forth on Exhibit ”D” attached hereto is a true and correct depiction of the Equity Interests in Borrower and Mortgagor, and each entity set forth on Exhibit ”D” is duly organized and is validly existing and in good standing under the laws of the state of its organization, and Mortgagor is qualified to do business in the jurisdiction where the Property is located. (ii)                                  Power and Authority. Borrower has the full limited liability company power and authority to execute the Loan Documents and to undertake and consummate the transactions contemplated hereby and thereby, and to pay, perform and observe the conditions, covenants, agreements and obligations herein and therein contained; and the Loan Documents have been duly and validly executed by Borrower and constitute the legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms, except as such enforcement may be qualified or limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and general principles of equity. (iii)                               Not a Foreign Person. Neither Borrower, nor any entity that is a holder of an Equity Interest in Borrower, is organized under the laws 27 --------------------------------------------------------------------------------   of any jurisdiction other than the United States or one of the states thereof. (iv)                              No Defaults Under Existing Agreements. The consummation of the transactions contemplated hereby and the performance by Borrower of its obligations under the Loan Documents will not result in any breach of, or constitute a default under, the Senior Loan Documents, any other material Third Party Agreements or any mortgage, deed of trust, bank loan or security agreement, or other material instrument to which Borrower, Mortgagor or Principal are a party or by which the Property, the Borrower or the Principal are bound. (v)                                 True and Correct Copies of Documents. All due diligence documents required to be delivered by Borrower to Lender hereunder (including those due diligence documents referred to in Section 6 hereof) are true, correct and complete copies thereof and the same have not been amended or modified except as expressly disclosed therein. (vi)                              Ownership. SW 105 Wagon Wheel Limited Partnership, a Delaware limited partnership (“Parent”), owns and will own at all times during the term of the Loan one hundred percent (100%) of the ownership interests in Principal and Parent has not transferred, conveyed, pledged or encumbered (and will not transfer, convey, pledge or encumber) such interests except with the prior written consent of Lender. Parent is (and at all times during the term of the Loan will be) treated as a partnership for federal income tax purposes. During the term of the Loan, neither Parent nor Principal nor Borrower nor Mortgagor will borrow funds from Lender or an Affiliate of Lender other than the Loan or the Junior Mezzanine Loan. (b)                                 Title to Property; Matters Affecting Property. (i)                                     Title to Property. Mortgagor, upon the closing of the acquisition of the Property, will have good and marketable fee simple title to the Property, subject only to the Senior Loan Documents and the Permitted Exceptions, and good, marketable and freely alienable title to all personal property located on the Property, subject only to the Senior Loan Documents and the Permitted Exceptions; Borrower will cause Mortgagor to protect or cause to be protected the title to the Project, and Borrower will forever warrant and defend the same against any other claims of any persons or parties whomsoever, subject to the Senior Loan Documents and the Permitted Exceptions. (ii)                                  Mortgagor’s Equity Interests. Borrower owns and will own one hundred percent (100%) of the Equity Interests in Mortgagor, and 28 --------------------------------------------------------------------------------   Borrower has not transferred, conveyed, pledged or encumbered (and will not transfer, convey, pledge or encumber) such interests except to Lender pursuant to the Loan Documents. Borrower has and will have authority to encumber its Equity Interests in Mortgagor pursuant to the terms of the Pledge Agreement. (iii)                               Borrower’s Equity Interests. Principal owns and will own one hundred percent (100%) of the ownership interests in Borrower, and Principal has not transferred, conveyed, pledged or encumbered (and will not transfer, convey, pledge or encumber) such interests except as expressly permitted pursuant to the Junior Mezzanine Loan or otherwise with the prior written consent of Lender. (iv)                              No Actions. There are no actions, suits or proceedings at law or in equity (including condemnation or eminent domain proceedings) currently pending, or to the knowledge of Borrower threatened, against Mortgagor, Borrower, Principal or the Project or, to the knowledge of Borrower, involving the validity or enforceability of the Senior Loan Documents or the Loan Documents or the priority of the liens granted thereunder, by or before any governmental authority having or exercising jurisdiction over the Project. Borrower will promptly notify Lender of any such future actions, suits or proceedings. To Borrower’s knowledge, neither Borrower, nor Mortgagor, nor the Property is in default with respect to, or in violation of, any order, writ, injunction, decree or demand of any court or any governmental authority having or exercising jurisdiction over the Property. (v)                                 No Contracts Giving Rise to Liens. Neither Borrower nor Mortgagor has made any contract or arrangement of any kind, that does or could give rise to a lien on the Project, except for (i) the Senior Loan Documents and the Permitted Exceptions and (ii) contracts related to design and construction of the Project which have been provided to Lender. Neither Borrower nor the Principal has made any contract or arrangement of any kind that does or could give rise to a lien or encumbrance on any of the Equity Interests in Mortgagor. (vi)                              No Construction. Prior to the disbursement of this Loan and the recordation of the Security Instrument, no construction whatsoever has been performed on the Property by Borrower or its Affiliates. (vii)                           Compliance with Property Agreements. The Property in all respects conforms to and complies with all covenants, conditions, restrictions, reservations, regulatory agreements, conditional use permits and zoning ordinances affecting the Property whether or not recorded against the Property. 29 --------------------------------------------------------------------------------   (viii)                        Leases. There are no Leases of the Property in effect as of the closing of the Loan. (ix)                                Tax Treatment. Principal, Borrower and Mortgagor are (and at all times during the term of the Loan will be) disregarded as entities separate from Parent within the meaning of Treasury Regulation §301.7701-3(b)(i)(2). Principal, Borrower and Mortgagor have not (and at all times during the term of the Loan will not) elect to be classified as an association taxable as a corporation within the meaning of Treasury Regulation §301.7701-3(c). (x)                                   Permits. All permits required for the operation and construction of the Project are in effect or Borrower expects them to be available as required for construction of the Project in accordance with the schedule required by the Senior Loan Documents. Once issued, all such permits will remain in effect and the Project and its contemplated use and operation will comply therewith. All discretionary approvals for the construction of the Project in accordance with the Plans and Specifications have been obtained. (c)                                  Financial Statements. The financial statements heretofore delivered to Lender by Borrower, Mortgagor, and Principal are true and correct in all material respects, have been prepared in accordance with sound accounting practices, and fairly present the financial condition(s) of the person(s) referred to therein as of the date(s) indicated; no materially adverse change has occurred in the financial condition(s) reflected in such financial statements since the date(s) shown thereon and no additional borrowings or liabilities have been made or incurred by such person(s) since the date(s) thereof other than the borrowing contemplated hereby, the Senior Loan, the Junior Mezzanine Loan or other borrowings disclosed in writing to and approved by Lender. The Estimated Collateral Value Statement, dated as of June 30, 2005, for each Guarantor accurately lists the Available Assets of the Guarantor (as defined in the Completion Guaranty) as of such date and the value of such Available Assets calculated on the basis provided in the notes thereto. (d)                                 Budget Projections. Borrower’s and/or Mortgagor’s budget projections indicate that monthly income from Project operations will be sufficient to pay the combined monthly accrual of interest on the Senior Loan and the Loan by the Maturity Date and the projections are reasonable in Borrower’s opinion and have been prepared in a manner consistent with the past practices of affiliates of the Borrower. (e)                                  No Loan Broker. Borrower has not dealt with any person, firm or corporation who is or may be entitled to any finder’s fee, brokerage 30 --------------------------------------------------------------------------------   commission, loan commission or other sum in connection with the execution of this Agreement or the making of the Loan by Lender to Borrower. Borrower does hereby indemnify and agree to defend and hold Lender harmless from and against any and all loss, liability or expense, including court costs and reasonable attorneys’ fees and expenses, which Lender may suffer or sustain should such warranty or representation prove inaccurate in whole or in part. (f)                                    No Default. There are no defaults under any of the Senior Loan Documents or the Loan Documents on the part of Borrower, Mortgagor or the other parties signatory thereto, and no event has occurred and is continuing which, with the giving of notice or the passage of time, or both, would constitute a default under any thereof. (g)                                 Solvency. As of the date hereof, Borrower and Mortgagor are each solvent and able to pay their debts as the same shall become due and payable. (h)                                 Violations of Governmental Prohibitions. Neither the making of the Loan, nor the receipt of Loan proceeds by Borrower, violates any federal, state, county, municipal and other governmental and quasi-governmental statutes, laws, rules, orders, regulations, ordinances, judgments or decrees (collectively, “Law”) applicable to Borrower, including, without limitation, any of the Terrorism Laws. Neither the making of the Loan, nor the receipt of Loan proceeds by Borrower or Mortgagor or Principal, violates any of the Terrorism Laws applicable thereto. To Borrower’s best knowledge, no holder of any direct or indirect equitable, legal or beneficial interest in Borrower or Principal is the subject of any of the Terrorism Laws. No portion of the Loan proceeds will be used, disbursed or distributed by Borrower for any purpose, or to any person, directly or indirectly, in violation of any Law including, without limitation, any of the Terrorism Laws. “Terrorism Laws” means Executive Order 13224 issued by the President of the United States of America, the Terrorism Sanctions Regulations (Title 31 Part 595 of the U.S. Code of Federal Regulations), the Terrorism List Governments Sanctions Regulations (Title 31 Part 596 of the U.S. Code of Federal Regulations), and the Foreign Terrorist Organizations Sanctions Regulations (Title 31 Part 597 of the U.S. Code of Federal Regulations), and all other present and future federal, state and local laws, ordinances, regulations, policies and any other requirements of any governmental agency (including, without limitation, the United States Department of the Treasury Office of Foreign Assets Control) addressing, relating to, or attempting to eliminate, terrorist acts and acts of war, each as hereafter supplemented, amended or modified 31 --------------------------------------------------------------------------------   from time to time, and the present and future rules, regulations and guidance documents promulgated under any of the foregoing. 17.           EVENT OF DEFAULT. Borrower shall be in default under this Agreement upon the occurrence of any of the following events (hereinafter referred to as an “Event of Default”): (a)                                  Non-Payment. The failure of Borrower to pay when due any amount required by the Note, this Agreement or any other Loan Documents which continues, in the case of monthly interest payments required under the Note, for five (5) days or, in the case of other sums payable under the Note, this Agreement or the Loan Documents, for 20 days following written demand for payment on Borrower by Lender. (b)                                 Insurance. The failure of Borrower to keep in force any insurance policy required hereunder or to deliver evidence of its renewal to Lender and the continuation of such failure for 10 days following written demand on Borrower by Lender. (c)                                  Special Purpose Entity Covenants. The failure of Borrower to comply with the provisions of Section 22. (d)                                 Fraud or Material Misrepresentation Fraud or material misrepresentation by Borrower, Mortgagor, or Principal or any of their officers, directors or managers, or by any Guarantor in connection with (i) the application for or creation of the Indebtedness, (ii) any financial statement, rent roll, or other report or information provided to Lender during the term of the Indebtedness, or (iii) any request for Lender’s consent to any proposed action; (e)                                  Sale, Encumbrance or Other Indebtedness. The taking of any action by Borrower, Mortgagor, Principal or any other person contrary to the provisions of Section 13(d) of this Agreement; (f)                                    Reports and Documents. The failure of Borrower to deliver any notice, report, assignment, certificate, instrument or other document which Borrower is required to deliver to Lender under any of the Loan Documents within the twenty (20) days following written demand by Lender therefor; (g)                                 Option Agreement. The failure of Borrower or Principal to comply with the terms of the Option Agreement with respect to transfer of the Wagon Wheel Membership Interests (as defined in the Option Agreement) upon the exercise of the Purchase Option including but not limited to Borrower’s or Principal’s satisfaction of all of the Conditions to Closing and Closing Deliveries set forth therein. 32 --------------------------------------------------------------------------------   (h)                                 Other Breaches under this Agreement. The failure by Borrower to perform any of its obligations under this Agreement, as and when required, except as specifically set forth otherwise herein, which continues for a period of 30 days after notice of such failure by Lender to Borrower, if such failure is not reasonably susceptible of cure within such 30 day period and if Borrower promptly commences such cure within such 30 day period and diligently prosecutes the same to completion, then the cure period shall be extended for such period of time as may be reasonably necessary to effect a cure but in no event shall such period exceed 90 days; (i)                                     Other Breaches Under Other Loan Documents. The failure of Borrower, Principal or any Guarantor, indemnitor or obligor to perform and observe any covenant, obligation, agreement or undertaking under any Loan Document other than this Agreement following such notice and/or grace period, if any, as may be provided therein for curing such failure; (j)                                     Senior Loan Documents. The failure of Borrower or Mortgagor or any Guarantor to perform and observe any covenant, obligation, agreement or undertaking under any Senior Loan Documents following any notice or cure period, if any, as may be provided therein for curing such failure; or (k)                                  Bankruptcy Proceedings. (1)                                  If the Borrower or Mortgagor shall become insolvent, make a transfer in fraud of, or a general assignment for the benefit of, creditors, or admit in writing its inability, generally to pay its debts as they become due; or (2)                                  If the Borrower or Mortgagor shall have a receiver, custodian, liquidator or trustee appointed for all or substantially all of its assets or for the Project in any proceeding brought by the Borrower, Mortgagor or the Project, or any such receiver or trustee is appointed in any proceeding brought against the Borrower, Mortgagor or the Project and such appointment is not promptly contested and is not dismissed or discharged within ninety (90) days after such appointment; or (3)                                  If the Borrower or Mortgagor shall file a petition under Title 11 of the United States Code as amended or under any similar Federal or state law or statute; or (4)                                  If the Borrower or Mortgagor shall have a petition filed against it commencing an involuntary case under any present or future Federal or state bankruptcy or similar law and such petition is not 33 --------------------------------------------------------------------------------   dismissed or discharged within ninety (90) days after the filing thereof; or 6)                                      If the Borrower or Mortgagor shall request any composition, rearrangement, liquidation, extension, reorganization or other relief as a debtor under any present or future Federal or state bankruptcy or similar law now or hereafter existing. The proceedings or events set forth in this paragraph (j) are collectively referred to as “Bankruptcy Proceedings”. 18.           REMEDIES. (a)                                  Actions upon Event of Default. Upon the occurrence and during the continuance of an Event of Default beyond any applicable grace and cure period, Lender may, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in the Collateral, including, without limitation, at its option and without prior notice or demand, declare the unpaid principal balance of the Note and all accrued but unpaid interest thereon, as well as all other sums owing under the Loan Documents, immediately due and payable, Lender may make any advances on the Loan after the happening of any one or more of said Events of Default without thereby waiving the right to demand payment in full of the Note and such other amounts and without liability to make any other or further advances. (b)                                 Lender’s Right to Perform. If Borrower fails to perform any covenant or obligation contained herein or in the other Loan Documents and such failure continues for a period of 30 days after written notice of such failure by Lender to Borrower, or if such failure is not reasonably susceptible of cure within such 30 day period and if Borrower promptly commences such cure within such 30 day period and diligently prosecutes the same to completion, then the cure period shall be extended for such period of time as may be reasonably necessary to effect a cure but in no event shall such period exceed 90 days, without in any way limiting Lender’s right to exercise any of its rights, powers or remedies as provided hereunder, or under any of the other Loan Documents, Lender may, but shall have no obligation to, perform, or cause performance of, such covenant or obligation, and all costs, expenses, liabilities, penalties and fines of Lender reasonably incurred or paid in connection therewith shall be payable by Borrower to Lender upon demand and if not paid shall be added to the Indebtedness (and to the extent permitted under applicable laws, secured by the Pledge Agreement 34 --------------------------------------------------------------------------------   and other Loan Documents) and shall bear interest from the date expended at the Default Interest Rate. Notwithstanding the foregoing, Lender shall have no obligation to send notice to any Borrower of any such failure. (c)                                  Appointment of Lender as Attorney-in-Fact. Borrower hereby irrevocably, unconditionally and presently constitutes Lender as Borrower’s attorney-in-fact, with full power of substitution, to be exercised by Lender only upon the occurrence and during the continuation of an Event of Default, to exercise its rights under the Pledge Agreement (in its own name or the name of a designee) for purposes of preserving and protecting the Project or the collateral pledged under the Pledge Agreement and, as Lender in its sole discretion deems necessary or proper, to execute, acknowledge (when appropriate) and deliver all instruments and documents in the name of Borrower which may be necessary or desirable in order to do any and every act which Borrower might do on its own behalf in the performance of its obligations hereunder. This power of attorney is a power coupled with an interest and is irrevocable. (d)                                 Cross-Default to Note, Pledge Agreement and Other Loan Documents. At the option of Lender, any Event of Default by Borrower under this Agreement shall constitute a default under the Note, the Pledge Agreement or any of the other Loan Documents to the same extent as though the Note had by its own terms become due and payable at maturity and payment thereof had been refused, and in such event Lender may, without liability to Borrower, assert and exercise any and all rights and remedies provided for herein or in the Note, the Pledge Agreement or any of the other Loan Documents or otherwise as may be provided by law. Such rights and remedies may be asserted concurrently or successively from time to time (either before or after commencement of foreclosure proceedings or before or after the exercise of any other remedy of Lender) until the Note, including interest thereon, and all of the Indebtedness of Borrower to Lender under this Agreement and the other Loan Documents, have been paid in full. (e)                                  Recourse Limitations. Borrower’s liability in connection with this Agreement, the Note and the other Loan Documents (including Borrower’s liability for all amounts due hereunder or thereunder) is collectible only from the Collateral against which a security interest is created by the Pledge Agreement. In no case will any person who holds a direct or indirect ownership interest in Borrower, or any officer, director, manager, trustee, employee, agent or affiliate of Borrower or any such direct or indirect owner, have any responsibility for Borrower’s obligations in connection with this Agreement, the Note and the other Loan Documents (including 35 --------------------------------------------------------------------------------   Borrower’s liability for any amounts due hereunder or thereunder); provided, however, that nothing in this Section 18(e) limits the liability of any person under a guaranty or other agreement executed by such person. 19.           TRANSFER OF LOAN; LOAN SERVICER. (a)                                  Lender’s Right to Transfer Borrower hereby acknowledges that Lender shall have the right to transfer, assign or sell the Loan Documents, or grant participation interests in all or any portion of the Loan, in such manner and to such entities as Lender in its sole and absolute discretion shall select. (b)                                 Loan Servicer. At the option of Lender, the Loan may be serviced by a servicer selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to such servicer pursuant to a servicing agreement between Lender and such servicer. A sale may result in a change of the Loan servicer. There also may be one or more changes of Loan servicer unrelated to a sale of the Note. If there is a change of Loan servicer, Borrower will be given notice of the change. (c)                                  Dissemination of Information. Lender may forward to each purchaser, transferee, assignee, or servicer of, and each participant or investor in, the Loan (collectively, the “Investor”), any governmental regulators or others as may be required by securities law, all documents and information which Lender now has or may hereafter acquire relating to the Indebtedness and to Borrower, Mortgagor and Principal, including financial statements, whether furnished by Borrower or otherwise, as Lender determines necessary or desirable. Borrower irrevocably waives any and all rights it may have under applicable Laws to prohibit such disclosure. 20.           LENDER’S EXPENSES; RIGHTS OF LENDER. Borrower shall promptly pay to Lender, upon demand, with interest thereon from the date of demand at the Default Interest Rate, reasonable attorneys’ fees and all other reasonable costs and expenses paid or incurred by Lender in enforcing or exercising its rights or remedies created by, connected with or provided for in this Agreement or any of the other Loan Documents following an Event of Default, and payment thereof shall be secured by the Pledge Agreement. 21.           MISCELLANEOUS. (a)                      Notices. All notices, demands and other communications (“Notice”) under or concerning this Agreement shall be in writing. Each Notice shall be addressed to the intended recipient at its address set forth below, and a Notice shall be deemed given on the earliest to occur of 36 --------------------------------------------------------------------------------   (1) the date when the Notice is received by the addressee; (2) the first Business Day after the Notice is delivered to a recognized overnight courier service, with arrangements made for payment of charges for next Business Day delivery; or (3) the third Business Day after the Notice is deposited in the United States mail with postage prepaid, certified mail, return receipt requested. If to Lender:   Behringer Harvard Alexan Nevada, LLC     15601 Dallas Parkway, Suite 600     Addison, Texas 75001     Attention: Chief Legal Officer     Facsimile: (214) 655-1610   with copy to:   Powell & Coleman, L.L.P.     8080 North Central Expressway, Suite 1380     Dallas, Texas 75206     Attention: Carol D. Satterfield     Facsimile: (214) 373-8768   If to Borrower:   SW 109 Wagon Wheel SM LLC     Attention: Timothy J. Hogan     2001 Bryan Street, Suite 3700     Dallas, Texas 75201     Facsimile: (214) 922-8553   with copy to:   Michael K. Ording     Jones Day     325 John H. McConnell Blvd., Suite 600     Columbus, Ohio 43215     Facsimile: (614) 461-4198   Any party to this Agreement may change the address to which notices intended for it are to be directed by means of notice given to the other party in accordance with this Section 21(a). Each party agrees that it will not refuse or reject delivery of any notice given in accordance with this Section 21(a), that it will acknowledge, in writing, the receipt of any notice upon request by the other party and that any notice rejected or refused by it shall be deemed for purposes of this Section 21(a) to have been received by the rejecting party on the date so refused or rejected, as conclusively established by the records of the U.S. Postal Service or the courier service. Any notice under the Note and any other Loan Document which does not specify how notices are to be given shall be given in accordance with this Section 21(a). 37 --------------------------------------------------------------------------------   (b)                                 Waivers. No delay or omission in exercising any right or power arising from any default shall be construed as a waiver of such default or as acquiescence therein, nor shall any single or partial exercise thereof preclude any further exercise thereof or the exercise of any other right or power arising from any default. No waiver of any breach of any of the covenants or conditions of this Agreement shall be construed to be a waiver of or acquiescence in or consent to any previous or subsequent breach of the same or of any other condition or covenant. (c)                                  Lender Not Partner of Borrower; Borrower in Control. Neither the execution nor the performance of any of the Loan Documents by Lender, nor the exercise by the Lender of any of its rights, privileges or remedies conferred under the Loan Documents or under applicable law, shall be deemed to render the Lender a partner or a joint venturer with the Borrower, any guarantor of the Loan or any other person, or to render Borrower an agent of Lender for any purposes. Nothing contained herein shall characterize or be deemed to characterize, or be used as a basis for characterizing, Lender as a “mortgagee-in-possession”. Lender and Borrower agree that Mortgagor remains in control of the Project, and that it determines the business plan for the Project and employment, management, leasing and operating directions and decisions for the Project. All of Lender’s rights, and actions taken by Lender as provided or permitted, in or under this Agreement or the other Loan Documents are for and in its capacity as a secured lender attempting to protect the collateral security for the Loan and to collect the Indebtedness and any other amounts owing or outstanding under the Note or the Loan Documents. (d)                                 No Third Party. This Agreement is made for the sole benefit of Borrower and Lender and Lender’s successors and assigns, and no other person or persons shall have any rights or remedies under or by reason of this Agreement or any right to the exercise of any right or power hereunder or arising from any default, nor shall Lender owe any duty whatsoever to any claimant for labor performed or materials furnished in connection with the construction of the improvements to apply any undisbursed portion of the Loan to the payment of any such claims. (e)                                  Time of Essence; Context. Time is hereby declared to be of the essence of this Agreement and of every part hereof. When the context and construction so require, all words used in the singular herein shall be deemed to have been used in the plural and the masculine shall include the feminine and the neuter and vice versa. 38 --------------------------------------------------------------------------------   (f)                                    Successors and Assigns. This Agreement shall bind, and the rights granted by this Agreement shall inure to, the respective successors and assigns of Lender and Borrower. However, a Sale or Encumbrance prohibited by Section 13(d) shall be an Event of Default. (g)                                 Governing Jurisdiction. This Agreement and all of the other Loan Documents (except as otherwise expressly provided therein with respect to the enforcement of specific remedies) shall be governed by and construed in accordance with the substantive law of the State of Nevada without regard to the application of choice of law principles. (h)                                 SUBMISSION TO JURISDICTION/SERVICE OF PROCESS. BORROWER AND LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEVADA SITTING IN CLARK COUNTY, NEVADA FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER LOAN DOCUMENT AND THE SUBJECT MATTER THEREOF, OR THE LOAN. EACH OF BORROWER AND LENDER TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN THE ABOVE-NAMED COURTS ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF SUCH COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION BY ANY SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT, THE SUBJECT MATTER HEREOF, THE OTHER LOAN DOCUMENTS, THE SUBJECT MATTER THEREOF, OR THE LOAN (AS APPLICABLE) MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED IN STATE COURT TO FEDERAL COURT, OR TO REMAND AN ACTION INSTITUTED IN FEDERAL COURT TO STATE COURT AND (C) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT MATTER. BORROWER AND LENDER EACH HEREBY CONSENTS TO 39 --------------------------------------------------------------------------------   SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT TO SECTION 21(a) HEREOF, BUT ANY SUCH SERVICE WILL BE EFFECTIVE ONLY WHEN RECEIVED AT SUCH ADDRESS. BORROWER AND LENDER EACH AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE OTHER PARTY. FINAL JUDGMENT AGAINST A PARTY IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF INDEBTEDNESS OR LIABILITY OF THE PARTY THEREIN DESCRIBED, OR (Y) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION. (i)                                     WAIVER WITH RESPECT TO DAMAGES. BORROWER ACKNOWLEDGES THAT LENDER DOES NOT HAVE ANY FIDUCIARY RELATIONSHIP WITH, OR FIDUCIARY DUTY TO, BORROWER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, AND THE RELATIONSHIP BETWEEN LENDER AND BORROWER, IN CONNECTION HEREWITH AND THEREWITH, IS SOLELY THAT OF DEBTOR AND CREDITOR. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER SHALL NOT ASSERT, AND BORROWER HEREBY WAIVES, ANY CLAIMS AGAINST LENDER, 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, ANY OTHER LOAN DOCUMENT, ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. (j)                                     Entire Agreement. This Agreement and all of the other Loan Documents constitute the entire understanding between the parties hereto with respect to the subject matter hereof, superseding all prior written or oral understandings, and may not be modified, amended or terminated except by a written agreement signed by each of the parties hereto or thereto that is to be bound by the modification, amendment or termination. Notwithstanding the foregoing, the provisions of this Agreement are not intended to supersede the 40 --------------------------------------------------------------------------------   provisions of the Pledge Agreement, but shall be construed as supplemental thereto. Borrower and Lender each hereby acknowledges that this Agreement and the other Loan Documents accurately reflect the agreements and understandings of the parties hereto with respect to the subject matter hereof and hereby waives any claims against the other which it may now have or may hereafter acquire to the effect that the actual agreements and understandings of the parties hereto with respect to the subject matter hereof may not be accurately set forth in this Agreement or such other Loan Documents. (k)                                  Headings. The various headings of this Agreement are included for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. (l)                                     Severability. Each provision of this Agreement shall be interpreted so as to be effective and valid under applicable law, but if any such provision shall in any respect be ineffective or invalid under such law, such ineffectiveness or invalidity shall not affect the remainder of such provision or the remaining provisions of this Agreement. (m)                               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 but one and the same document. (n)                                 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER STATEMENTS OR ACTIONS OF THE LENDER OR BORROWER RELATED THERETO. BORROWER AND LENDER EACH ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE OTHER TO ENTER INTO THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT, AND THAT THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF THE OTHER LOAN DOCUMENTS AS IF FULLY INCORPORATED THEREIN. (o)                                 Sole and Absolute Discretion. Any option, consent, approval, or discretion or similar right of Lender set forth in this Agreement or any of the other Loan Documents may be exercised by Lender in its sole, absolute and unreviewable discretion, unless the provisions of this Agreement or the other Loan Documents specifically requires a different standard. 41 --------------------------------------------------------------------------------   (p)                                 Straight Debt Harbor. It is the intent of Borrower and Lender that the Loan shall be treated as a security that satisfies the requirements of Section 856(m)(1)(A) and Section 856(m)(2) of the Code (the “Straight Debt Safe Harbor”). Accordingly, notwithstanding any indication herein to the contrary, the parties hereto agree that the terms of the Loan shall be interpreted in such a manner that the Loan satisfies the Straight Debt Safe Harbor for so long as it is owned by Lender; and the terms of the Note shall be applied such that the Note has a constant effective yield to maturity, as determined under Section 1272 of the Code, at a fixed rate over the entire term of the Note equal to the Interest Rate (as defined in the Note); provided, however, that such contraction shall not alter the dates of the principal or interest payments (described in Section 1.1 of the Note) or the amounts of the principal or interest payments required to be paid on an interest payment date (described in Section 1.1. of the Note) prior to the Maturity Date or earlier prepayment date. 22.           SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. Borrower shall do all things necessary to preserve the existence of Borrower and Mortgagor each as a separate Special Purpose Bankruptcy Remote Entity unless Lender otherwise consents, in its sole discretion, in writing. Borrower covenants and agrees that with respect to Borrower and Mortgagor, until payment in full of the Indebtedness, it will not do or permit Mortgagor to do, directly or indirectly, any of the following unless Lender consents thereto, in its sole discretion, in writing. A “Special Purpose Bankruptcy Remote Entity” means a corporation, limited partnership or limited liability company which shall not: (a)                                  engage in any business or activity other than the ownership, construction, operation and maintenance, in each case directly or indirectly, of the Property and the Project (in case of Mortgagor) or the Equity Interests in Mortgagor (in case of Borrower), and activities incidental thereto; (b)                                 acquire or own any material assets other than (i) the Equity Interests, (ii) the Property and the Project, and (iii) such incidental personal property as may be necessary for the operation of the Project or as may arise out of the other activities of the Borrower or the Mortgagor; (c)                                  merge into or consolidate with any person, or dissolve, terminate or liquidate, or transfer or otherwise dispose of all or substantially all of its assets or change its legal structure; (d)                                 fail to preserve its existence as a person duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or amend, modify, or terminate the provisions of its organizational documents if such amendment, modification, or termination would adversely affect the 42 --------------------------------------------------------------------------------   ability of such Person to perform its obligations hereunder or under the other Loan Documents or would affect any other clause of this Section 22; (e)                                  own any subsidiary (except, in the case of Borrower, the Mortgagor) or make any investment in any person (except, in the case of Borrower, the Mortgagor); (f)                                    commingle its assets with the assets of any of its general partners, members, shareholders, affiliates, principals or of any other Person in such a manner that it will be costly or difficult segregate, ascertain or identify its individual assets from those of any general partner, member, shareholder, principal or Affiliate of Borrower or Mortgagor or any other Person; (g)                                 incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than (i) the Senior Loan and this Loan, (ii) obligations under interest rate hedging arrangements related to the Senior Loan and (iii) trade and operational indebtedness incurred in the ordinary course of business (including construction and operation of the Project) or for its administrative functions; (h)                                 fail to maintain its records, books of account and bank accounts separate and apart from those of its general partners, members, shareholders, principals and Affiliates and any other Person; (i)                                     enter into any contract or agreement with any general partner, member, shareholder, principal or Affiliate of Borrower or Mortgagor except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any general partner, member, shareholder, principal or Affiliate of Borrower or Mortgagor; (j)                                     seek the dissolution or winding up of Borrower or Mortgagor; (k)                                  maintain its assets in such a manner that it will be costly or difficult to segregate, ascertain or identify its individual assets from those of any general partner, member, shareholder, principal or Affiliate of Borrower or Mortgagor or any other Person. (l)                                     hold itself out to be responsible for the debts of another person, except through endorsement of negotiable instruments in the ordinary course of collection; 43 --------------------------------------------------------------------------------   (m)                               make any loans or advances to any third party, including any general partner, member, shareholder, principal or Affiliate of Borrower or Mortgagor (except, in the case of Borrower, to the Mortgagor); (n)                                 fail to file its own tax returns, if any, as may be required under applicable law, to the extent that the Borrower or Mortgagor are (1) not part of a consolidated group filing a consolidated return or returns or (2) not treated as a “disregarded entity” for tax purposes not required to file tax returns under applicable law; or (o)                                 fail either to hold itself out to the public as a legal person separate and distinct from any other person or to conduct its business solely in its own name if the result is (a) to mislead others as to the identity of the person with which such other party is transacting business; or (b) to suggest that it is responsible for the debts of any third party (including any general partner, principal or Affiliate of Borrower or Mortgagor, provided, however, Mortgagor and Borrower may hold itself out as doing business under the “Trammell Crow Residential” name. In addition to the foregoing, Borrower shall have at least one independent manager who is provided by a nationally recognized company that provides professional independent directors and who shall not be at the time of initial appointment, and may not have been during the preceding five years (i) a stockholder, director, officer, employee, partner, member, attorney or counsel of Mortgagor or an Affiliate of Mortgagor or Borrower, (ii) a customer, supplier (other than a supplier of registered agent or registered office service) or other Person who derives any of its purchases or revenues from its activities with Mortgagor or Borrower, (iii) a Person or other entity controlling or under common control with any such stockholder, director, officer employee, partner, customer, supplier (other than a supplier of registered agent or registered office service) or other Person or (iv) a member of the immediate family of any such stockholder, director, officer, employee, partner, customer, supplier or other Person (the “Independent Director”). At any time that the Senior Loan, this Loan or the Junior Mezzanine Loan is outstanding, the consent of the Independent Director should be required to : (i) file, consent to the filing of, or join in any filing of, a bankruptcy or insolvency petition; (ii) dissolve, liquidate, merge or consolidate; (iii) engage in any other business activity; and (iv) amend the articles of organization or limited liability agreement. [Signatures Follow on Next Page] 44 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day and year first above written.   BORROWER:           SW 109 WAGON WHEEL SM LLC, a Delaware limited liability company           By: SW 108 Wagon Wheel JM LLC, a Delaware limited liability company, its sole member               By: SW 105 Wagon Wheel Limited Partnership, a Delaware limited partnership, its sole member                   By: SW 104 Development GP LLC, a Delaware limited liability company, its general partner                       By:               Timothy J. Hogan, Vice President       LENDER:           BEHRINGER HARVARD ALEXAN NEVADA, LLC, a Delaware limited liability company           By:       Name: Gerald J. Reihsen, III Title:   Secretary   45 --------------------------------------------------------------------------------   JOINDER The undersigned have duly executed and delivered this Agreement as of the day and year first above written for the purpose of agreeing and consenting to the provisions of Section 22 of the Agreement.   MORTGAGOR:           SW 106 WAGON WHEEL HOLDINGS LLC           By: SW 109 Wagon Wheel SM LLC, a Delaware limited liability company, its sole member               By: SW 108 Wagon Wheel JM LLC, a Delaware limited liability company, its sole member                   By: SW 105 Wagon Wheel Limited Partnership, a Delaware limited partnership, its sole member                       By: SW 104 Development GP LLC, a Delaware limited liability company, its general partner                           By:                 Timothy J. Hogan, Vice President   46 --------------------------------------------------------------------------------   EXHIBIT A LEGAL DESCRIPTION PARCEL 1: A PORTION OF THE NORTHWEST QUARTER (NW ¼) OF SECTION 34, AND THE NORTHEAST QUARTER (NE ¼) OF SECTION 33, TOWNSHIP 22 SOUTH, RANGE 63 EAST, M.D.M., CLARK COUNTY, NEVADA, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: PARCEL 3, AS SHOWN BY MAP THEREOF ON FILE IN FILE 65, OF PARCEL MAPS, PAGE 89, IN THE OFFICE OF THE COUNTY RECORDER OF CLARK COUNTY, NEVADA. PARCEL 2: A PORTION OF THE EAST HALF (E ½) OF THE NORTHWEST QUARTER (NW ¼) OF SECTION 34, TOWNSHIP 22 SOUTH, RANGE 63 EAST, M.D.M., AND MORE PARTICULARLY DESCRIBED AS FOLLOWS, TO WIT: BEGINNING AT A POINT ON THE LEFT OR SOUTHWESTERLY RIGHT-OF-WAY LINE OF US-95 FREEWAY, 452.14 FEET LEFT OF AND AT RIGHT ANGLES TO HIGHWAY ENGINEER’S STATION “ESI” 311+53.29 P.O.T.; SAID POINT OF BEGINNING FURTHER DESCRIBED AS BEARING SOUTH 33°05’47” WEST A DISTANCE OF 1,665.04 FEET FROM THE NORTH QUARTER CORNER OF SECTION 34, TOWNSHIP 22 SOUTH, RANGE 63 EAST, M.D.M.; THENCE ALONG THE FORMER LEFT OR SOUTHWESTERLY RIGHT-OF-WAY LINE OF US-95 FREEWAY THE FOLLOWING SIX (6) COURSES AND DISTANCES: 1)  NORTH 59°12’25” WEST 179.53 FEET; 2)  FROM A TANGENT WHICH BEARS SOUTH 25°02’05” WEST, CURVING TO THE LEFT WITH A RADIUS OF 50 FEET, THROUGH AN ANGLE OF 82°00’10”, AN ARC DISTANCE OF 71.56 FEET; 3)  NORTH 56°58’05” WEST 285.01 FEET; 4)  FROM A TANGENT WHICH BEARS SOUTH 56°58’05” EAST, CURVING TO THE LEFT WITH A RADIUS OF 50 FEET, THROUGH AN ANGLE OF 75°47’09”, AN ARC DISTANCE OF 66.14 FEET; 5)  NORTH 47°14’46” EAST 75.10 FEET; --------------------------------------------------------------------------------   6)  FROM A TANGENT WHICH BEARS THE LAST DESCRIBED COURSE, CURVING TO THE LEFT WITH A RADIUS OF 50 FEET, THROUGH AN ANGLE OF 85°40’37”, AN ARC DISTANCE OF 74.77 FEET TO A POINT ON THE SOUTHWESTERLY RIGHT-OF-WAY LINE OF US-95 FREEWAY; THENCE SOUTH 39°26’45” EAST, ALONG SAID LEFT OR SOUTHWESTERLY RIGHT-OF-WAY LINE, A DISTANCE OF 399.07 FEET TO THE POINT OF BEGINNING. NOTE: THE ABOVE METES AND BOUNDS LEGAL DESCRIPTION APPEARED PREVIOUSLY IN THAT CERTAIN DOCUMENT RECORDED OCTOBER 8, 2004 IN BOOK 20041008 OF OFFICIAL RECORDS AS INSTRUMENT NO. 03637, CLARK COUNTY, NEVADA. --------------------------------------------------------------------------------   EXHIBIT B BUDGET CAPITALIZED                   Land & Improvements                   GC Fee   33 % 307,545           Land       8,951,250           Legal and Fees       535,635           Standard Site Development       2,556,357           Total           12,350,787                           Real Property                   All other Hard Costs & Contingency       20,561,666           Legal       70,458           Closing Costs       55,000           Municipal Fees       832,688           Arch & Engineering       122,918           GC Fee   64 % 615,841           Interest       680,632           Financing Fees       450,000           Soft Costs & Contingency       200,000           Taxes   70 % 70,000           Total           23,659,203       Total Capitalized to Real Property               36,009,990                       Personal Property                   GC Fee   2.51 % 23,082           Appliances       543,677           Legal and Fees       40,201           Marketing       320,000           Total           926,960                           TOTAL CAPITALIZED               36,936,950                       NON-CAPITALIZED                   Taxes   30 % 30,000           Developer Allowance       1,599,614           Interest       114,417           Marketing Brochures       30,000           Pre-Leasing       150,000           Op Deficits       14,891           TOTAL NON-CAPITALIZED           1,938,922   1,938,922                       TOTAL           38,875,872   38,875,872     --------------------------------------------------------------------------------   EXHIBIT C PROPERTY IMPROVEMENTS [see attached] --------------------------------------------------------------------------------   EXHIBIT D WAGON WHEEL OWNERSHIP CHART [g207731ke09i001.jpg] --------------------------------------------------------------------------------   SENIOR MEZZANINE LOAN AGREEMENT BY AND BETWEEN   SW 109 WAGON WHEEL SM LLC (“Borrower”)   AND   BEHRINGER HARVARD ALEXAN NEVADA, LLC (“Lender”) --------------------------------------------------------------------------------   TABLE OF CONTENTS 1. RECITALS   2 2. DEFINITIONS   2 3. THE LOAN; DISBURSEMENT OF LOAN   6   (a) Loan   6   (b) Loan Disbursements   6 4. INTEREST PAYMENTS; NO USURY, LOAN COMMITMENT FEE; PREPAYMENT; MATURITY; REPAYMENT   7   (a) Interest   7   (b) No Usury   7   (c) Loan Commitment Fee   8   (d) Prepayment   8   (e) Maturity Date   8 5. SECURITY FOR LOAN; GUARANTY   8   (a) Pledge Agreement   8   (b) Other Loan Documents   8   (c) Completion Guaranty   8 6. CONDITIONS PRECEDENT TO CLOSING OF THE LOAN   8   (a) Loan Documents   8   (b) Third Party Agreements   9   (c) Certification   10   (d) Financial Statements   10   (e) Insurance Policies   10   (f) Contracts   10   (g) Plans   11   (h) Budget and Cost Review   11   (i) Leases   11   (j) Title Insurance Policy   11   (k) UCC Policy   11   (l) ALTA Survey   11   (m) Conditional Use Permits and Government Approvals   11   (n) Flood Plain Certification   11   (o) Appraisal   11   (p) Environmental Report   12   (q) Certification of Organizational Documents   12   (r) Legal Opinion   12   (s) UCC Searches   12   (t) Access and Utility Easements   12   (u) Utilities   12   (v) Environmental Disclosure   12   (w) Senior Lender Funding   13   (y) No Default   13   (z) Additional Matters   13   i --------------------------------------------------------------------------------   7. TITLE INSURANCE   13 (a) Owner’s Policy of Title Insurance   13   (b) UCC Policy   13 8. INSURANCE   14   (a) Insurance Requirements   14   (b) Insurance Premiums; Evidence of Renewal   14   (c) Policy Requirements   14   (d) Notice of Casualty   15   (e) Settlement of Claim   15   (f) Application of Insurance Proceeds   15 9. EMINENT DOMAIN   16   (a) Notice of Condemnation   16   (b) Settlement of Claim   16   (c) Application of Condemnation Awards   16   (d) Continuing Obligation to Repair   17   (e) Lender Not Required to Act   17 10. RIGHTS OF ACCESS AND INSPECTION   17 11. EXPENSES   17 12. FINANCIAL REPORTS, PROPERTY REPORTS AND ANNUAL BUDGET   18 13. GENERAL COVENANTS OF BORROWER   20   (a) Commencement and Completion of Project   20   (b) Lender Approval   20   (c) Operation and Maintenance of Project   20   (d) Restricted Sale and Encumbrance of Project and of Borrower Interests; Other Indebtedness   22   (e) General Indemnity   23   (f) Leases   23   (g) Notices   24   (h) Development   25   (i) Management   25   (j) Senior Loan   25   (k) Principal Place of Business; Choice of Law   26   (l) Compliance with Governmental Prohibitions   26 14. FURTHER ASSURANCES   26 15. APPRAISALS   27 16. GENERAL REPRESENTATIONS AND WARRANTIES OF BORROWER   27   (a) Organization; Corporate Powers; Authorization of Borrowing   27   (b) Title to Property; Matters Affecting Property   28   (c) Financial Statements   30   (d) Budget Projections   30   (e) No Loan Broker   30   (f) No Default   31   (g) Solvency   31   (h) Violations of Governmental Prohibitions   31 17. EVENT OF DEFAULT   32   (a) Non-Payment   32   (b) Insurance   32   ii --------------------------------------------------------------------------------   (c) Special Purpose Entity Covenants   32   (d) Fraud or Material Misrepresentation   32   (e) Sale, Encumbrance or Other Indebtedness   32   (f) Reports and Documents   32   (g) Option Agreement   32   (h) Other Breaches under this Agreement   33   (i) Other Breaches Under Other Loan Documents   33   (j) Senior Loan Documents   33   (k) Bankruptcy Proceedings   33 18. REMEDIES   34   (a) Actions upon Event of Default   34   (b) Lender’s Right to Perform   34   (c) Appointment of Lender as Attorney-in-Fact   35   (d) Cross-Default to Note, Pledge Agreement and Other Loan Documents   35   (e) Recourse Limitations   35 19. TRANSFER OF LOAN; LOAN SERVICER   36   (a) Lender’s Right to Transfer   36   (b) Loan Servicer   36   (c) Dissemination of Information   36 20. LENDER’S EXPENSES; RIGHTS OF LENDER   36 21. MISCELLANEOUS   36   (a) Notices   36   (b) Waivers   38   (c) Lender Not Partner of Borrower; Borrower in Control   38   (d) No Third Party   38   (e) Time of Essence; Context   38   (f) Successors and Assigns   39   (g) Governing Jurisdiction   39   (h) SUBMISSION TO JURISDICTION/SERVICE OF PROCESS   39   (i) WAIVER WITH RESPECT TO DAMAGES   40   (j) Entire Agreement   40   (k) Headings   41   (l) Severability   41   (m) Counterparts   41   (n) Waiver of Jury Trial   41   (o) Sole and Absolute Discretion   41   (p) Straight Debt Harbor   42 22. SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER   42   iii --------------------------------------------------------------------------------

Exhibit 10.8   [LOGO] October 19th, 2006 140 BW LLC c/o Hines Interests Limited Partnership 29th Floor 140 Broadway New York, NY 10005 Copies to: 140 BW LLC c/o Deutsche Immobilen Funds AG Caffa Macherreihe 8 Hamburg, 20355 Germany Attention: Mr. Michael Montebaur 140 BW LLC Rottenberg Lipman Rich, P.C. 369 Lexington Avenue, 15th floor New York, NY 10017 Attention: Charles Rich RE: “Consent Request” as provided in Rider Section 41 C in Lease (“Lease”) dated as of December 31,1998 between MSDW 140 Broadway Property. L.L.C. as predecessor in interest to 140 BW L.L.C. (“Landlord”) and Platinum Technology International, Inc. (“Tenant). Ladies and Gentlemen, Tenant previously sent a A/S Notice dated September 15th, 2006 to Landlord. Tenant received a Landlord response, dated October 6th, to the A/S Notice in which Landlord waived its Recapture Right. -------------------------------------------------------------------------------- Tenant now seeks Landlord consent to enter into the sublease with ACA Financial Guaranty Corporation. Attached is a photo copy of the fully executed sublease. Terms of the sublease are consistent with the terms contained within the A/S Notice. Please prepare the Sublease Consent Agreement and e-mail to Matthew Ruffing at [email protected] [LOGO] Yours truly,               /s/ Charles Quinn       Charles Quinn Vice President Finance and Adminstration         -------------------------------------------------------------------------------- SUBLEASE THIS SUBLEASE is made and entered into this 19th day of October, 2006, by and between PLATINUM TECHNOLOGY INTERNATIONAL, INC., a Delaware corporation (“Landlord”) and ACA FINANCIAL GUARANTY CORPORATION, a Maryland insurance corporation (“Tenant”). 1.         BASIC SUBLEASE PROVISIONS. A. Property Address: 140 Broadway, New York, New York B. Tenant’s Address (for notices): 140 Broadway, 47th Floor, New York, New York 10005, Attention: General Counsel C. Landlord’s Address (for notices): c/o CA, Inc., One CA Plaza, Islandia, New York 11749, Attention: Lease Administration, with a copy to Landlord c/o CA, Inc., One CA Plaza, Islandia, New York 11749, Attention: Legal-Real Estate Notice D. Prime Landlord: 140 BW LLC (as successor in interest to MSDW 140 Broadway Property, L.L.C.) E. Prime Landlord’s Address (for notices): 140 BW LLC, c/o Hines Interests Limited Partnership, 29th Floor, 140 Broadway, New York, New York 10005, with copies to (i) 140 BW LLC, c/o Deutsche Immobilen Funds AG, Caffa Macherreihe 8, Hamburg 20355, Germany, Attention: Mr. Michael Montebaur, and (ii) 140 BW LLC, c/o Latham & Watkins LLP, 885 Third Avenue, Suite 1000, New York, New York 10022-4802, Attention: Joshua Stein, Esq. F. Identification of Prime Lease and all amendments thereto: Lease dated as of December 31,1998 between MSDW 140 Broadway Property, L.L.C., as landlord, and Platinum Technology International, Inc., as tenant; First Amendment of Lease dated as of -------------------------------------------------------------------------------- December 31, 1999 between MSDW 140 Broadway Property, L.L.C., as landlord, and Platinum Technology International, Inc., as tenant. G. Sublease Term: The period beginning on the Commencement Date and ending on the Expiration Date. H. Commencement Date: The date Landlord receives from Prime Landlord written notice that Prime Landlord has approved this Sublease. Landlord will notify Tenant of such approval as soon as may be practicable after receipt thereof. I.          Expiration Date: October 24, 2009 (subject to Section 38) J.         Base Rent: $396,900 per annum K.        Payee of Rent: Platinum Technology International, Inc. L.         Address for Payment of Rent: c/o CA, Inc., One CA Plaza, Islandia, New York 11749, Attention: Treasurer –  Rent Collection. Landlord will not, and is not obligated to, recognize the receipt of any payments not directed to the Treasurer — Rent Collection. Failure to address payments in this manner will be considered a default of payment under this Sublease and subject to the penalties and other remedies contained herein. M.       Sublease Share: Fourteen and 2,029/10,000 percent (14.2029%) N.        Description of Premises: The portion of the 48th floor in the building located at 140 Broadway, New York, New York shown in the diagram attached hereto as Exhibit A. O.        Security Deposit: $66,150 P.         Tenant’s Use: General and executive offices. Q.        Broker: Jones Lang LaSalle Americas, Inc. and Studley, Inc. 2 -------------------------------------------------------------------------------- 2.         PRIME LEASE. Landlord is the tenant under a Prime Lease (the “Prime Lease”) with the Prime Landlord identified in Section I(D), bearing the date specified in Section 1(F). Landlord represents to Tenant that (a) Landlord has delivered to Tenant a full and complete copy of the Prime Lease (with certain economic provisions not relevant to this Sublease redacted) and all other agreements between Prime Landlord and Landlord relating to the leasing, use or occupancy of the Premises, and (b) the Prime Lease is, as of the date hereof, in full force and effect. 3.         SUBLEASE. Landlord, for and in consideration of the rents herein reserved and of the covenants and agreements herein contained on the part of the Tenant to be performed, hereby subleases to the Tenant, and the Tenant accepts from the Landlord, certain space described in Section 1(N) (the “Premises”) and located in the building (the “Building”), situated on and a part of the property (the “Property”) located at the address set forth in Section 1(A). 4.         TERM. The term of this Lease (hereinafter, the “Term”) shall commence on the date specified in Section I(H). The Term shall expire on the date (the “Expiration Date”) specified in Section 1(I), unless sooner terminated or extended as otherwise provided elsewhere in this Sublease. 5.         POSSESSION. Landlord agrees to deliver possession of the Premises on or before the date specified in Section 1(H) in their condition as of the execution and delivery hereof, reasonable wear and tear excepted; that is to say, AS IS. 6.         TENANT’S USE. The Premises shall be used and occupied only for the Tenant’s Use set forth in Section 1(P). 7.         RENT. Beginning on November 1, 2006 (the “Rent Commencement Date”), Tenant agrees to pay the Base Rent set forth in Section I(J) to the Payee specified in Section 3 -------------------------------------------------------------------------------- 1(K), at the address specified in Section I(L), or to such other payee or at such other address as may be designated by notice in writing from Landlord to Tenant, without prior demand therefor and without any deduction whatsoever. Base Rent shall be paid in equal monthly installments in advance on the first day of each month of the Term, except that the first installment of Base Rent shall be paid by Tenant to Landlord within five (5) days after Landlord notifies Tenant of Prime Landlord’s approval of this Sublease. Base Rent shall be pro-rated for partial months at the beginning and end of the Term. All charges, costs and sums required to be paid by Tenant to Landlord under this Sublease in addition to Base Rent shall be deemed “Additional Rent”, and Base Rent and Additional Rent shall hereinafter collectively be referred to as “Rent”. No Rent shall be payable if Prime Landlord does not approve this Sublease, but if such approval is obtained, Rent shall be payable as of November 1, 2006 regardless of whether such approval is obtained prior to, on or after such date. Tenant’s covenant to pay Rent shall be independent of every other covenant in this Lease. If any item of Rent is not paid when due (or within five (5) days of the due date in the case of the first two late payments in any twelve (12)-month period), Tenant shall pay, relative to the delinquent payment, a late charge equal to five percent (5%) of the unpaid amount. 8.         ADDITIONAL RENT. Beginning on the Rent Commencement Date, to the extent that Landlord is obligated to pay additional rent under the Prime Lease, whether such additional rent is to reimburse Prime Landlord for taxes, operating expenses, common area maintenance charges or other expenses incurred by the Prime Landlord in connection with the Property or increases therein (including, without limitation, those set forth in Articles 39 and 40 of the Prime Lease, with no adjustment to the “Base Year” set forth in such Articles 39 and 40 of the Prime Lease), Tenant shall pay to Landlord the percentage of such additional rent (to the 4 -------------------------------------------------------------------------------- extent such additional rent is attributable to the term of this Sublease) which is set forth in Section I(M) as the Sublease Share. Such payment shall be due from Tenant to Landlord no fewer than five (5) days prior to the date upon which Landlord’s payment of such additional rent is due to the Prime Landlord. 9.         TENANT’S OBLIGATIONS. Tenant shall be responsible for, and shall, beginning on the Commencement Date, pay the following: A.        The cost of electricity furnished to the Premises in accordance with Article 46 of the Prime Lease. If electricity is furnished to the Premises on a “submetering” basis as set forth in subsection B(1) of Article 46 of the Prime Lease, Subtenant shall pay the “Electricity Additional Rent” as determined under such subsection B(1) in accordance with invoices therefor submitted by Landlord or Prime Landlord. If the Premises is separately submetered and Prime Landlord agrees that Landlord shall not be liable or responsible for payment of the costs of electricity for the Premises pursuant to the submeter, then Tenant may arrange with Prime Landlord for direct payments of electricity charges pursuant to the submeter. If electricity is furnished to the Premises on a “rent inclusion” basis as set forth in subsection B(2) of Article 46 of the Prime Lease, Subtenant shall pay the percentage of the “Electric Rent Inclusion Factor” or “ERIF” set forth therein which is set forth in Section I(M) as the Sublease Share (provided, however, that if the “Electric Rent Inclusion Factor” or “ERIF” is increased as a result of excess consumption of electricity by Tenant, as determined by any electrical survey performed by Landlord or Prime Landlord, Tenant shall pay the entire amount of such increase). Payments by Tenant for electricity provided on a “rent inclusion” basis shall be made monthly by Tenant together with payments of Base Rent under this Sublease. Tenant 5 -------------------------------------------------------------------------------- shall hold Landlord harmless from all costs or expenses Landlord may incur from Tenant’s failure to pay invoices or to perform any of its obligations with respect to the purchase of electricity. B.        All maintenance, repairs and replacements as to the Premises and its equipment, and cleaning and refuse removal, to the same extent Landlord is obligated to perform the same under the Prime Lease. 10.       QUIET ENJOYMENT. Landlord represents that it has full power and authority to enter into this Sublease, subject to the consent of the Prime Landlord if required under the Prime Lease. So long as Tenant is not in default in the performance of its covenants and agreements in this Sublease, Tenant’s quiet and peaceable enjoyment of the Premises shall not be disturbed or interfered with by Landlord, or by any person claiming by, through, or under Landlord. 11.       TENANT’S INSURANCE. Tenant shall procure and maintain, at its own cost and expense, such liability insurance as is required to be carried by Landlord under the Prime Lease, naming Landlord, as well as Prime Landlord, in the manner required therein and such property insurance as is required to be carried by Landlord under the Prime Lease to the extent such property insurance pertains to the Premises. If the Prime Lease requires Landlord to insure leasehold improvements or alterations, then Tenant shall insure such leasehold improvements which are located in the Premises, as well as alterations in the Premises made by Tenant. Tenant shall furnish to Landlord a certificate of Tenant’s insurance required hereunder not later than ten (10) days prior to Tenant’s taking possession of the Premises. Each party hereby waives claims against the other for property damage provided such waiver shall not invalidate the waiving party’s property insurance; each party shall attempt to obtain from its insurance carrier a waiver 6 -------------------------------------------------------------------------------- of its right of subrogation. Tenant hereby waives claims against Prime Landlord and Landlord for property damage to the Premises or its contents if and to the extent that Landlord waives such claims against Prime Landlord under the Prime Lease. Tenant agrees to obtain, for the benefit of Prime Landlord and Landlord, such waivers of subrogation rights from its insurer to the extent the same are required of Landlord under the Prime Lease. 12.       ASSIGNMENT OR SUBLETTING. A. Tenant shall not (i) assign, convey or mortgage this Sublease or any interest under it; (ii) allow any transfer thereof or any lien upon Tenant’s interest by operation of law; (iii) further sublet the Premises or any part thereof; or (iv) permit the occupancy of the Premises or any part thereof by anyone other than Tenant. Transfers of fifty percent (50%) or more of the stock or other ownership interests in Tenant, whether in one transaction or in the aggregate, shall be deemed to be an assignment of this Sublease. The preceding sentence shall not apply to shares of stock in Tenant sold to the public in an initial public offering, or to transfers of shares publicly traded in a recognized securities exchange or over-the-counter market. Subject to the provisions of the Prime Lease and Prime Landlord’s rights thereunder, Tenant shall have the same rights as are available to Landlord pursuant to Sections D(1), D(2) and F of Article 41 of the Prime Lease, which provisions are incorporated herein by reference and shall be deemed to apply to transactions by Tenant. If Tenant desires to assign its interest in this Sublease, or further sublet all or part of the Premises, then Tenant shall submit a written request to Landlord accompanied by such financial and other information concerning the proposed assignee or subtenant, and the terms of the assignment or further sublease, as Landlord may reasonably request. Any such request made by Tenant to assign this 7 -------------------------------------------------------------------------------- Sublease or enter into a further sublease of all or any portion of the Premises shall be deemed an offer by Tenant which shall be irrevocable for a period of thirty (30) days to surrender all of the Premises to Landlord. If such offer is accepted, such surrender shall be effective as of the date that the proposed assignment or further sublease would have commenced. Tenant shall quit and surrender the Premises as if this Sublease by its terms expired on such date, and the Base Rent and Additional Rent under Section 8 shall be apportioned as of such date. If Tenant’s offer to surrender the Premises in connection with a proposed assignment or further sublease of all or a portion of the Premises is not accepted by Landlord within thirty (30) days, or if Landlord declines such offer, then Landlord’s consent to such an assignment of this Sublease or such a further sublease of the Premises shall not be unreasonably withheld. If Landlord consents to any assignment of this Lease or further subletting of all or any portion of the Premises, Landlord shall request the consent of Prime Landlord and deliver to Prime Landlord any information that Tenant submits in connection with its proposal to assign or sublet. B.        No permitted assignment shall be effective and no permitted sublease shall commence unless and until any defaults by Tenant hereunder shall have been cured. No permitted assignment or subletting shall relieve Tenant from Tenant’s obligations and agreements hereunder and Tenant shall continue to be liable as a principal and not as a guarantor or surety to the same extent as though no assignment or subletting had been made (unless Landlord shall have accepted a surrender of the Premises pursuant to Section 12(A) above). 8 -------------------------------------------------------------------------------- C.        The consent of Landlord or Prime Landlord to an assignment or a subletting shall not relieve Tenant from its obligation to obtain the express consent in writing of Landlord and Prime Landlord to any other assignment or subletting. D.        If Tenant’s interest in this Sublease is assigned, or if the Premises or any part hereof is sublet or occupied by anyone other than Tenant, Landlord may collect rent from the assignee, subtenant or occupant and apply the net amount collected to the Base Rent and all Additional Rent herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of the provisions of this Section 12 or of any default hereunder or the acceptance of the assignee, subtenant or occupant as Tenant, or a release of any of the covenants, conditions, terms and provisions on the part of Tenant to be performed or observed. 13.       RULES. Tenant agrees to comply with all rules and regulations that Prime Landlord has made or may hereafter from time to time make for the Building. Landlord shall not be liable in any way for damage caused by the non-observance by any of the other tenants of such similar covenants in their leases or of such rules and regulations. 14.       REPAIRS AND COMPLIANCE. Tenant shall promptly pay for the repairs set forth in Section 9(B) hereof and Tenant shall, at Tenant’s own expense, comply with all laws and ordinances, and all orders, rules and regulations of all governmental authorities and of all insurance bodies and their fire prevention engineers at any time in force, applicable to the Premises or to Tenant’s use thereof. 15.       FIRE OR CASUALTY OR EMINENT DOMAIN. In the event of a fire or other casualty affecting the Building or the Premises, or of a taking of all or a part of the Building or Premises under the power of eminent domain, Tenant shall promptly notify Landlord thereof in 9 -------------------------------------------------------------------------------- writing. If Landlord receives a rent abatement under the Prime Lease as a result of a fire or other casualty or as a result of a taking under the power of eminent domain, then Tenant shall be entitled to the Sublease Share of such rent abatement unless the effect on the Premises of such fire or other casualty or such taking shall be substantially disproportionate to the amount of the abatement, in which event the parties shall equitably adjust the abatement as between themselves, based on the relative impact of the fire or other casualty, or the taking, as the case may be. To the extent the Prime Lease gives Landlord the right to terminate the Prime Lease in the event of damage or destruction to the Building or the Premises or a taking of all or part thereof by eminent domain, Landlord may, in its sole discretion, exercise any such right and shall notify Tenant of such exercise, in which case this Sublease shall terminate one day prior to the date of termination of the Prime Lease. If the Prime Lease imposes on Landlord the obligation to repair or restore leasehold improvements or alterations in the Premises, Tenant shall be responsible for repair or restoration of such leasehold improvements or alterations. 16.       ALTERATIONS. Tenant shall not make any alterations in or additions to the Premises (“Alterations”) without the prior written consent of Landlord (which shall not be unreasonably withheld, conditioned or delayed by Landlord) and Prime Landlord (if required). Landlord consents to the proposed Alterations described in Exhibit B annexed hereto, subject to Tenant providing detailed drawings and plans for submission to Prime Landlord as necessary to seek Prime Landlord’s consent to such proposed Alterations. If Landlord consents to any proposed Alteration, Landlord shall request the consent of Prime Landlord, if such consent is required under the Prime Lease. If Alterations by Tenant are consented to as aforesaid, Tenant shall comply with all of the covenants of Landlord contained in the Prime Lease pertaining to the performance of such Alterations. In addition, Tenant shall indemnify, defend and hold harmless 10 -------------------------------------------------------------------------------- Landlord and Prime Landlord against liability, loss, cost, damage, liens and expense imposed on Landlord arising out of the performance of Alterations by Tenant, including, without limitation, the removal of the Alterations as contemplated pursuant to Section 20 hereof. 17.       SURRENDER. Upon the expiration of this Sublease, or upon the termination of the Sublease or of the Tenant’s right to possession of the Premises, Tenant will at once surrender and deliver up the Premises, together with all improvements thereon, to Landlord in good condition and repair, reasonable wear and tear excepted; conditions existing because of Tenant’s failure to perform maintenance, repairs or replacements as required of Tenant under this Sublease shall not be deemed “reasonable wear and tear”. Said improvements shall include all plumbing, lighting, electrical, heating, cooling and ventilating fixtures and equipment used in the operation of the Premises (as distinguished from operations incident to the business of Tenant). Tenant shall surrender to Landlord all keys, security codes and the like to the Premises and make known to Landlord the combinations for all combination locks which Tenant is permitted to leave on the Premises. All Alterations in or upon the Premises made by Tenant shall become a part of and shall remain upon the Premises upon such termination without compensation, allowance or credit to Tenant; provided, however, that Landlord shall have the right to require Tenant to remove any Alterations made by Tenant, or portion thereof. Tenant shall also remove any Alterations made by Tenant, or portion thereof, which Prime Landlord may require Landlord to remove, pursuant to the terms of the Prime Lease. In any such event, Tenant shall restore the Premises to their condition prior to the making of such Alteration, repairing any damage occasioned by such removal or restoration. If Landlord or Prime Landlord requires removal of any Alteration made by Tenant, or a portion thereof, and Tenant does not make such removal in accordance with this Section, Landlord may remove the same (and repair any damage occasion 11 -------------------------------------------------------------------------------- thereby), and dispose thereof, or at its election, deliver the same to any other place of business of Tenant, or warehouse the same. Tenant shall pay the costs of such removal, repair, delivery and warehousing on demand, together with interest thereon from the date any such cost is incurred by Landlord at the interest rate set forth in Section 52(F) of the Prime Lease, which costs and interest shall be Additional Rent under this Sublease. The provisions of this Section 17 shall be subject to the provisions of Section 38 hereof. 18.       REMOVAL OF TENANT’S PROPERTY. Subject to Section 38 of this Sublease, upon the expiration of this Sublease, Tenant shall remove Tenant’s articles of personal property incident to Tenant’s business (“Trade Fixtures”); provided, however, that Tenant shall repair any injury or damage to the Premises which may result from such removal, and shall restore the Premises to the same condition as prior to the installation thereof. If Tenant does not remove Tenant’s Trade Fixtures from the Premises prior to the expiration or earlier termination of the Term, Landlord may, at its option, remove the same (and repair any damage occasioned thereby and restore the Premises as aforesaid) and dispose thereof or deliver the same to any other place of business of Tenant, or warehouse the same, and Tenant shall pay the cost of such removal, repair, restoration, delivery or warehousing to Landlord on demand, which cost, together with interest thereon from the date incurred by Landlord at the interest rate set forth in Section 52(F) of the Prime Lease, which cost and interest shall be Additional Rent under this Sublease. 19.       HOLDING OVER. Subject to Section 38 of this Sublease, Tenant shall have no right to occupy the Premises or any portion thereof after the expiration of this Sublease or after termination of this Sublease or of Tenant’s right to possession in consequence of an Event of Default hereunder. In the event Tenant or any party claiming by, through or under Tenant holds over, Landlord may exercise any and all remedies available to it at law or in equity to recover 12 -------------------------------------------------------------------------------- possession of the Premises, and to recover damages, including without limitation, damages payable by Landlord to Prime Landlord by reason of such holdover. For each and every month or partial month that Tenant or any party claiming by, through or under Tenant remains in occupancy of all or any portion of the Premises after the expiration of this Sublease or after termination of this Sublease or Tenant’s right to possession, Tenant shall pay, as minimum damages and not as a penalty, monthly rental at a rate equal to double the rate of Base Rent and Additional Rent payable by Tenant hereunder immediately prior to the expiration or other termination of this Sublease or of Tenant’s right to possession. The acceptance by Landlord of any lesser sum shall be construed as payment on account and not in satisfaction of damages for such holding over. 20.       ENCUMBERING TITLE. Tenant shall not do any act which shall in any way encumber the title of Prime Landlord in and to the Building or the Property, nor shall the interest or estate of Prime Landlord or Landlord be in any way subject to any claim by way of lien or encumbrance, whether by operation of law by virtue of any express or implied contract by Tenant, or by reason of any other act or omission of Tenant. Any claim to, or lien upon, the Premises, the Building or the Property arising from any act or omission of Tenant shall accrue only against the subleasehold estate of Tenant and shall be subject and subordinate to the paramount title and rights of Prime Landlord in and to the Building and the Property and the interest of Landlord in the premises leased pursuant to the Prime Lease. Without limiting the generality of the foregoing, Tenant shall not permit the Premises, the Building or the Property to become subject to any mechanics’, laborers, or materialmen’s lien on account of labor or material furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed on the Premises by, or at the direction or 13 -------------------------------------------------------------------------------- sufferance of, Tenant. If any such lien (as a result of the matters described in the immediately preceding sentence) is filed against the Premises, the Building or the Property on which it is situated, Tenant shall cause the same to be discharged, by payment, bonding or otherwise, within thirty (30) days after the filing thereof, and shall indemnify and hold harmless Landlord and Prime Landlord with respect to any costs, expenses (including, without limitation, attorneys’ fees and expenses), losses, damages and liabilities in connection therewith. Landlord shall give Tenant prompt notice of any such lien upon receiving notice thereof. If Tenant fails to have any such lien discharged as provided above, Landlord may take any actions it deems appropriate to have such lien discharged, including, without limitation, payment of any sums claimed to be due, and Tenant shall reimburse Landlord on demand for any such sums expended by Landlord, together with interest thereon from the date incurred by Landlord at the rate set forth in Section 52(F) of the Prime Lease, all of which amounts shall be Additional Rent under this Sublease. 21.       INDEMNITY. Tenant agrees to indemnify Landlord and hold Landlord harmless from all losses, damages, liabilities and expenses which Landlord may incur, or for which Landlord may be liable to Prime Landlord, arising from the acts or omissions of Tenant which are the subject matter of any indemnity or hold harmless of Landlord to Prime Landlord under the Prime Lease. 22.       LANDLORD’S RESERVED RIGHTS. Landlord reserves the right, on reasonable prior notice, to inspect the Premises during the Term, or to exhibit the Premises to persons to whom Landlord is required to give access pursuant to the terms of the Prime Lease. 23.       DEFAULTS. Tenant further agrees that any one or more of the following events shall be considered Events of Default as said term is used herein, that is to say, if: 14 -------------------------------------------------------------------------------- A.        Tenant shall be adjudged an involuntary bankrupt, or a decree or order approving, as properly filed, a petition or answer filed against Tenant asking reorganization of Tenant under the Federal bankruptcy laws as now or hereafter amended, or under the laws of any State, shall be entered, and any such decree or judgment or order shall not have been vacated or stayed or set aside within sixty (60) days from the date of the entry or granting thereof; or B.        Tenant shall file, or admit the jurisdiction of the court and the material allegations contained in, any petition in bankruptcy, or any petition pursuant or purporting to be pursuant to the Federal bankruptcy laws now or hereafter amended, or Tenant shall institute any proceedings for relief of Tenant under any bankruptcy or insolvency laws or any laws relating to the relief of debtors, readjustment of indebtedness, reorganization, arrangements, composition or extension; or C.        Tenant shall make any assignment for the benefit of creditors or shall apply for or consent to the appointment of a receiver for Tenant or any of the property of Tenant; or D.        Tenant shall admit in writing its inability to pay its debts as they become due; or E.         The Premises are levied on by any revenue officer or similar officer; or F.         A decree or order appointing a receiver of the property of Tenant shall be made and such decree or order shall not have been vacated, stayed or set aside within sixty (60) days from the date of entry or granting thereof; or G.        Tenant shall abandon the Premises during the Term hereof; or 15 -------------------------------------------------------------------------------- H.        Tenant shall default in any payment of Rent required to be made by Tenant hereunder when due as herein provided and such default shall continue for five (5) days after notice thereof in writing to Tenant; or I.          A violation of any provision of Section 12 of this Sublease shall occur; or J.         Tenant shall default in securing insurance or in providing evidence of insurance as set forth in Section 11 of this Sublease or shall default with respect to lien claims as set forth in Section 20 of this Sublease and either such default shall continue for five (5) days after notice thereof in writing to Tenant; or K.        Tenant shall, by its act or omission to act, cause a default under the Prime Lease and such default shall not be cured within the time, if any permitted for such cure under the Prime Lease, less five (5) days; or L.         Tenant shall default in any of the other covenants and agreements herein contained to be kept, observed and performed by Tenant, and such default shall continue for thirty (30) days after notice thereof in writing to Tenant. 24.       REMEDIES. Upon the occurrence of any one or more Events of Default, Landlord may exercise any remedy against Tenant which Prime Landlord may exercise for default by Landlord under the Prime Lease and any remedy available at law or in equity for a breach of this Sublease. 25.       SECURITY DEPOSIT. To secure the faithful performance by Tenant of all the covenants, conditions and agreements in this Sublease set forth and contained on the part of Tenant to be fulfilled, kept, observed and performed including, but not by way of limitation, such covenants and agreements in this Sublease which become applicable upon the termination of the same by re-entry or otherwise, Tenant has deposited with Landlord the Security Deposit as 16 -------------------------------------------------------------------------------- specified in Section 1(O) on the understanding that: (a) the Security Deposit or any portion thereof not previously applied, or from time to time, such one or more portions thereof, may be applied to the curing of any default by Tenant that may then exist, without prejudice to any other remedy or remedies which Landlord may have on account thereof, and upon such application Tenant shall pay Landlord on demand the amount so applied which shall be added to the Security Deposit so the same may be restored to its original amount; (b) should the Prime Lease be assigned by Landlord, the Security Deposit or any portion thereof not previously applied may be turned over to Landlord’s assignee and if the same be turned over as aforesaid, Tenant hereby releases Landlord from any and all liability with respect to the Security Deposit and/or its application or return; (c) if Tenant shall faithfully fulfill, keep, perform and observe all of the covenants, conditions and agreements in this Sublease set forth and contained on the part of Tenant to be fulfilled, kept, performed and observed, the sum deposited or the portion thereof not previously applied, shall be returned to Tenant without interest no later than thirty (30) days after the expiration of the Term of this Sublease or any renewal or extension thereof, provided (subject to Section 38 of this Sublease) that Tenant has vacated the Premises and surrendered possession thereof to Landlord at the expiration of the Term or any extension or renewal thereof as provided herein; (d) in the event that Landlord terminates this Sublease or Tenant’s right to possession by reason of an Event of Default by Tenant, Landlord may apply the Security Deposit against damages suffered to the date of such termination and/or may retain the Security Deposit to apply against such damages as may be suffered or shall accrue thereafter by reason of Tenant’s default; (e) in the event any bankruptcy, insolvency, reorganization or other creditor-debtor proceedings shall be instituted by or against Tenant, or its successors or assigns, the Security Deposit shall be deemed to be applied first to the payment of any Rent due Landlord for all periods prior to the 17 -------------------------------------------------------------------------------- institution of such proceedings, and the balance, if any, of the Security Deposit may be retained or paid to Landlord in partial liquidation of Landlord’s damages; and (f) Landlord shall not be required to deposit the Security Deposit in an interest-bearing account. 26.       NOTICES AND CONSENTS. All notices, demands, requests, consents or approvals which may or are required to be given by either party to the other shall be in writing and shall be deemed given when received or refused if sent by United States registered or certified mail, postage prepaid, return receipt requested or if sent by overnight commercial courier service (a) if to Tenant, addressed to Tenant at the address specified in Section 1(B) or at such other place as Tenant may from time to time designate by notice in writing to Landlord or (b) if for Landlord, addressed to Landlord at the address specified in Section 1(C) or at such other place as Landlord may from time to time designate by notice in writing to Tenant. Each party agrees promptly to deliver a copy of each notice, demand, request, consent or approval from such party to Prime Landlord relating to this Sublease or the Premises and promptly to deliver to the other party a copy of any notice, demand, request, consent or approval received from Prime Landlord relating to this Sublease or the Premises. Such copies shall be delivered by overnight commercial courier. 27.       PROVISIONS REGARDING SUBLEASE. This Sublease and all the rights of parties hereunder are subject and subordinate to the Prime Lease. Tenant agrees that it will not, by its act or omission to act, cause a default under the Prime Lease. In furtherance of the foregoing, the parties hereby confirm, each to the other, that it is not practical in this Sublease agreement to enumerate all of the rights and obligations of the various parties under the Prime Lease and specifically to allocate those rights and obligations in this Sublease agreement. Accordingly, in order to afford to Tenant the benefits of this Sublease and of those provisions of 18 -------------------------------------------------------------------------------- the Prime Lease which by their nature are intended to benefit the party in possession of the Premises, and in order to protect Landlord against a default by Tenant which might cause a default or event of default by Landlord under the Prime Lease: A.        Except as otherwise expressly provided herein, Landlord shall perform its covenants and obligations under the Prime Lease which do not require for their performance possession of the Premises and which are not otherwise to be performed hereunder by Tenant on behalf of Landlord. B.        Except as otherwise expressly provided herein, Tenant shall perform all affirmative covenants and shall refrain from performing any act which is prohibited by the negative covenants of the Prime Lease, where the obligation to perform or refrain from performing is by its nature imposed upon the party in possession of the Premises. If reasonably practicable, Tenant shall perform affirmative covenants which are also covenants of Landlord under the Prime Lease at least five (5) days prior to the date when Landlord’s performance is required under the Prime Lease. Landlord shall have the right to enter the Premises to cure any default by Tenant under this Section, and Tenant shall reimburse Landlord on demand for any actual out-of-pocket costs and expenses, including, without limitation, reasonable attorneys’ fees and expenses, incurred by Landlord in connection with any such entry and cure. To the extent Landlord becomes liable to Prime Landlord under the Prime Lease as a result of any act or omission of Tenant, Tenant’s agents, representatives, contractors, employees or invitees, or any other person claiming by, through or under Tenant, then Tenant shall pay to Landlord immediately upon demand the amount so payable by Landlord to Prime Landlord. Amounts payable by Tenant under the preceding two sentences shall bear interest from 19 -------------------------------------------------------------------------------- the date of demand to the date of payment in full at the rate set forth in Section 52(F) of the Prime Lease. C.        Landlord hereby grants to Tenant the right to receive all of the services and benefits with respect to the Premises which are to be provided by Prime Landlord under the Prime Lease. Landlord shall have no duty to perform any obligations of Prime Landlord which are, by their nature, the obligation of an owner or manager of real property. For example, Landlord shall not be required to provide the services or repairs which the Prime Landlord is required to provide under the Prime Lease. Landlord shall have no responsibility for or be liable to Tenant for any default, failure or delay on the part of Prime Landlord in the performance or observance by Prime Landlord of any of its obligations under the Prime Lease, nor shall such default by Prime Landlord affect this Sublease or waive or defer the performance of any of Tenant’s obligations hereunder. Notwithstanding the foregoing, the parties contemplate that Prime Landlord shall, in fact, perform its obligations under the Prime Lease and in the event of any default or failure of such performance by Prime Landlord, Landlord agrees that it will, upon notice from Tenant, make demand upon Prime Landlord to perform its obligations under the Prime Lease. 28.       PRIME LANDLORD’S CONSENT. This Sublease and the obligations of the parties hereunder are expressly conditioned upon Landlord’s obtaining prior written consent hereto by Prime Landlord and Prime Landlord not exercising its right to recapture the Premises pursuant to Article 41 of the Prime Lease. Tenant shall promptly deliver to Landlord any information reasonably requested by Prime Landlord (in connection with Prime Landlord’s approval of this Sublease) with respect to the nature and operation of Tenant’s business and/or 20 -------------------------------------------------------------------------------- the financial condition of Tenant. Landlord and Tenant hereby agree, for the benefit of Prime Landlord, that this Sublease and Prime Landlord’s consent hereto shall not (a) create privity of contract between Prime Landlord and Tenant; (b) be deemed to have amended the Prime Lease in any regard; or (c) be construed as a waiver of Prime Landlord’s right to consent to any assignment of the Prime Lease by Landlord or any further subletting of premises leased pursuant to the Prime Lease, or as a waiver of Prime Landlord’s right to consent to any assignment by Tenant of this Sublease or any sub-subletting of the Premises or any part thereof. If Prime Landlord fails to consent to this Sublease within thirty (30) days after a written request for consent is delivered to Prime Landlord, either party shall have the right to terminate this Sublease by giving written notice thereof to the other at any time thereafter, but before Prime Landlord grants such consent. Such written request shall be delivered by Landlord to Prime Landlord within three (3) business days after this Sublease is executed and delivered by the parties, and Landlord shall promptly send Tenant a copy of such request for consent (specifying the date on which the request was delivered to Prime Landlord). 29.       [INTENTIONALLY OMITTED] 30.       BROKERAGE. Each party represents and warrants to the other that it has had no dealings with any broker or agent in connection with this Sublease other than the Broker as specified in Section 1(Q), whose commission shall be paid by Landlord, and covenants to pay, hold harmless and indemnify the other party from and against (i) any and all costs (including, without limitation, attorneys’ fees and expenses), expense or liability for any compensation, commissions or charges claimed by any other broker or other agent with whom such party is alleged to have dealt with respect to this Sublease or the negotiation thereof on behalf of such 21 -------------------------------------------------------------------------------- party, or the breach by such party of the foregoing representation and warranty, and (ii) the costs and expenses of the indemnified party in connection with any such claim. 31.       GOVERNING LAW. This Sublease shall be governed by and construed in accordance with the laws of the State of New York. 32.       JURY TRIAL WAIVER. Landlord and Tenant hereby waive trial by jury in any action or proceeding brought by either of the parties hereto against the other on any matters arising out of or in any way connected with this Sublease or Tenant’s use or occupancy of the Premises. 33.       NUMBER AND GENDER. All terms used herein shall include any number or gender, as the context may require. 34.       NO WAIVER; CUMULATIVE REMEDIES. A.        No receipt of moneys by Landlord from Tenant after the termination or cancellation of this Sublease shall reinstate, continue or extend the Term, or operate as a waiver of the right of Landlord to enforce the payment of Base Rent or Additional Rent then due, or thereafter falling due, or operate as a waiver of the right of Landlord to recover possession of the Premises by proper suit, action, proceeding or remedy. B.        The failure of Landlord or Tenant to enforce any agreement, condition, covenant or term of this Sublease shall not be deemed to waive or affect the right of Landlord or Tenant to enforce the same or any other agreement, condition, covenant or term of this Sublease in the event of a subsequent default or breach. 22 -------------------------------------------------------------------------------- C.        The receipt by Landlord of Rent with knowledge of the breach of any of the terms, covenants or conditions of this Sublease shall not be deemed a waiver of such breach. The acceptance of any check or payment bearing or accompanied by any endorsement, legend or statement shall not be deemed an accord and satisfaction. No surrender of the Premises by Tenant (prior to the expiration or termination of this Lease) shall be valid unless consented to in writing by Landlord. D.        Tenant, for itself and any and all persons claiming through or under Tenant, including its creditors, upon the termination of this Lease or expiration of the Term in accordance with the terms hereof, or in the event of entry of judgment for the recovery of the possession of the Premises in any action or proceeding, or if Landlord shall reenter the Premises by process of law or otherwise lawfully, hereby waives any right of redemption provided or permitted by any statute, law or decision now or hereafter in force, and does hereby waive, surrender and give up all rights or privileges which it or they may or might have under and by reason of any present or future law or decision, to redeem the Premises or for a continuation of this Lease for the Term of this Lease after having been dispossessed or ejected therefrom by process of law after a final, non-appealable order. E.         The rights and remedies given to the parties in this Sublease are distinct, separate and cumulative, and none of them, whether or not exercised by a party, shall be deemed to be in exclusion of any of the others, or of any rights or remedies otherwise provided at law or in equity. In addition to the other remedies in this Sublease provided, either party shall be entitled to pursue the restraint by injunction of the violation or attempted or threatened violation of any of the terms, covenants or conditions of this Sublease or to a decree compelling performance of any of such terms, covenants or conditions. 23 -------------------------------------------------------------------------------- F.         This Sublease contains the entire agreement of the parties with respect to the subject matter hereof, and any prior agreements or understandings, oral or written, are merged herein. This Sublease may not be extended, renewed, terminated or modified, nor may any provision hereof be waived, except by an instrument in writing executed by the party against whom enforcement of the same is sought. G.        There shall be no allowance or credit or abatement or diminution of Rent or liability on the part of Landlord or Prime Landlord by reason of inconvenience, injury or annoyance to business or otherwise arising from or in connection with the making of any repairs, alterations, additions or improvements in or to any portion of the Premises, the Building or the Property (except that if Landlord actually receives an allowance, credit or abatement under the Prime Lease with respect to the Premises, Tenant shall receive a corresponding credit under this Sublease). H.        Tenant shall, at any time and from time to time, as requested by Landlord, execute and deliver to Landlord within ten (10) days after receipt of such request a statement (a) certifying that this Sublease is unmodified and in full force and effect (or if modified, that same is in full force and effect as modified and stating the modifications), (b) certifying the dates to which Base Rent and Additional Rent have been paid, (c) stating whether or not, to the best knowledge of Tenant, either party is in default in the performance of any of its obligations under this Sublease, and, if so, specifying each such default of which Tenant has knowledge, and (d) stating whether or not, to the best knowledge of Tenant, any condition or event exists which with the giving of notice or the passage of time, or both, would constitute such a default, and, if so, specifying each such condition or event. 24 -------------------------------------------------------------------------------- 36.     REPRESENTATIONS OF THE PARTIES. Landlord and Tenant represent to each other that, subject to obtaining the consent of Prime Landlord to this Sublease and the provisions of any agreement pursuant to which such consent is granted, each party has the power and authority to execute and deliver this Sublease and perform its obligations hereunder. Landlord and Tenant represent to each other that the execution, delivery and performance of this Sublease by such party does not (i) violate any agreement to which such party is a party or by which such party or any of its respective properties is bound, or (ii) result in a breach of or constitute a default under any such agreement. 37.       SUCCESSORS AND ASSIGNS. The agreements, terms, covenants and conditions herein shall bind and inure to the benefit of Landlord and Tenant and their respective successors and assigns. 38.       POSSIBLE SIX-DAY EXTENSION OF SUBLEASE. Provided that not later than September 1, 2009 (i) Tenant enters into a lease agreement with Prime Landlord pursuant to which Tenant will lease the Premises from Prime Landlord for a term beginning on November 1, 2009 and Tenant delivers to Landlord written evidence of such agreement in a form reasonably acceptable to Landlord, and (ii) Tenant delivers to Landlord a written agreement from Prime Landlord providing that Landlord need not deliver vacant possession of the Premises to Prime Landlord as of the expiration date of the Prime Lease as provided in the Prime Lease and Landlord is not required to remove or restore any property, improvements or Alterations in the Premises as of the expiration date of the Prime Lease, and further provided that no Event of Default shall have occurred and then be continuing, Tenant may, by written notice given to Landlord not later than September 1, 2009, extend the Term to October 30, 2009. In such case, Tenant shall not be required to deliver vacant possession of the Premises or remove Alterations 25 -------------------------------------------------------------------------------- as provided in Section 17 hereof or remove property as provided in Section 18 hereof, and Landlord agrees that it shall not exercise remedies for holdover based on Tenant’s remaining in the Premises on October 31, 2009. Notwithstanding the foregoing, the provisions of this Section 38 shall be null and void, and of no effect, if such new lease between Prime Landlord and Tenant is not in effect as of October 24, 2009 or Tenant is not entitled to remain in possession of the Premises on November 1, 2009 pursuant to an agreement with Prime Landlord. 39.       ARRANGEMENTS FOR BUILDING SERVICES. Tenant may deal directly with Prime Landlord for the procurement of building services for the Premises. 40.       WAIVER OF CERTAIN EXTENSION RIGHTS. Landlord hereby waives any options it may have to extend the term of the Prime Lease with respect to the Premises beyond October 31, 2009. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 26 -------------------------------------------------------------------------------- The parties have executed this Sublease the day and year first above written.   LANDLORD               PLATINUM TECHNOLOGY INTERNATIONAL, INC.                 By:  /s/ JAY H. DIAMOND       Name: JAY H. DIAMOND       Title: VP & Secretary         TENANT               ACA FINANCIAL GUARANTY CORPORATION                 By:  /s/ Edward U. Gilpin       Name: Edward U. Gilpin       Title: Chief Financial Officer     27 -------------------------------------------------------------------------------- EXHIBIT A DIAGRAM OF SUBLEASED PREMISES -------------------------------------------------------------------------------- EXHIBIT A [GRAPHIC] -------------------------------------------------------------------------------- EXHIBIT B APPROVED ALTERATIONS 29 -------------------------------------------------------------------------------- EXHIBIT B [GRAPHIC]   --------------------------------------------------------------------------------

Exhibit 10.8 WUHU HENGLONG AUTO STEERING SYSTEM CO., LTD       CONTRACT     May, 2006 -------------------------------------------------------------------------------- Table of Contents Chapter 1 General Principal 3       Chapter 2 Parties to the Joint Venture 3       Chapter 3 Establishment of the Joint Venture Company 3       Chapter 4 Purpose, Scope and Scale of Operation 4       Chapter 5 Total Investment, Registered Capital, Increase Investment, Loans and Debts 4       Chapter 6 Sales and Marketing 6       Chapter 7 Board of Directors 6       Chapter 8 Operating and Management 8       Chapter 9 Obligations of Both Parties 8       Chapter 10 Labor Management and Composition of Labor Union 9       Chapter 11 Equipment, Raw Material Purchase, Commodity Inspection 10       Chapter 12 Financing, Taxing , Auditing and Profit Distribution 10       Chapter 13 Management of Foreign Exchange 11       Chapter 14 Term of the Joint Venture 11       Chapter 15 Insurance 11       Chapter 16   11       Chapter 17 Amendment, Termination and Dissolution of JV 11       Chapter 18 Liquidation 12       Chapter 19 Obligation of the Party Breaching the Contract 13       Chapter 20 Force Majeure 13       Chapter 21 Laws Applicable 13       Chapter 22 Dispute Solution 14       Chapter 23 Language of the Text 14       Chapter 24 Validity of the Contract 14 2 -------------------------------------------------------------------------------- CONTRACT FOR JOINT VENTURE COMPANY WUHU HENGLONG AUTO STEERING SYSTEM CO., LTD Chapter 1 General Principal In accordance with the Law of the People’s Republic of China on Joint Ventures Using Chinese and Foreign Investment (the “Joint Venture Law”) and other relevant Chinese laws and regulations, WUHU CHERY TECHNOLOGY CO., LTD. and GREAT GENESIS HOLDINGS LIMITED, in accordance with the principle of equality and mutual benefit and through friendly consultations, agree to jointly invest to set up a joint venture enterprise WUHU HENGLONG AUTO STEERING SYSTEM CO., LTD (WHAS or JV) in Wuhu, Anhui , People’s Republic of China. Chapter 2 Parties to the Joint Venture Article 2.1        Parties to this contract are as follows: Wuhu Chery Technology Co., Ltd. (hereinafter referred to as Party A), registered in Wuhu City, Anhui Province, with its legal address being: ANSHAN ROAD, ECONOMY & TECHNOLOGY DEVELOPMENT ZONE, WUHU CITY, ANHUI PROVINCE 241009 PRC and legal representative: Name: Lei Kan, Position: Chairman of Board, Nationality: German. Great Genesis Holdings Limited (hereinafter referred to as Party B), registered in Hong Kong, PRC with its legal address being: 6/F WHEELOCK HOUSE 20 PEDDAR STREET CENTRAL HONGKONG. Telephone No: 00852-2526-7572, Fax No: 00852-2526-7572, legal representative: Name: Hanlin Chen, Position: Chairman of Board, Nationality: Chinese. Chapter 3 Establishment of the Joint Venture Company Article 3.1        Both Party A and Party B agree to set up a joint venture enterprise, WUHU HENGLONG AUTO STEERING SYSTEM CO., LTD (hereinafter referred to as WHAS, the Joint Venture or JV). Legal address of the Joint Venture: Economy & Technology Development Zone, Wuhu City, Anhui Province, PRC. The Joint Venture, upon the approval of the board and the relevant authorities, may establish branch offices in any city of China or any other country or district when it’s necessary.  Article 3.2        The organization form of the JV is a Limited Liability Company. Each party to the joint venture company is liable to the joint venture company within the limit of the capital subscribed by it. The profits, risks and losses of the joint venture company shall be shared by the parties in proportion to their contributions to the registered capital. 3 -------------------------------------------------------------------------------- Article 3.3        The Joint Venture, a Chinese company, registered in Wuhu City, Anhui Province and its all legitimate management rights are protected by the People’s Republic of China. All the activities of the Joint Venture should abide by the stipulations of the laws, rules and related regulations of the People’s Republic of China and share the preferential conditions and policies as well. Article 3.4        The Joint Venture shall be established on the Business License Issuance Date of the Joint Venture. Chapter 4 Purpose, Scope and Scale of Operation Article 4.1        Business Objectives: To achieve satisfactory financial returns through competitive products in terms of quality and price with advanced technology and equipment. Article 4.2        Operation Scopes: Development, production and sale of Hydraulic Power Steering System, EPS, EHPS and related products. The operation scopes of the Joint Venture shall be finally ratified by the Industrial and Commercial Administration  Office. Article 4.3        Production Capacity 4.3.1 The production capacity of the Joint Venture shall be 300,000 units of Automotive Power Steering System and related products per year.     4.3.2 Hydraulic Power Steering System shall be manufactured by Joint Venture particularly for the medium/high end products of Chery.     4.3.3 Within one month from the date the Joint Venture is capable of manufacturing products, Party B shall transfer its production of products supplied to Chery to the Joint Venture.     4.3.4 The Joint Venture should set up R&D center or R&D team for Chery products’ application. Chapter 5 Total Investment, Registered Capital, Increase Investment, Loans and Debts Article 5.1        The total investment of the Joint Venture shall be RMB ¥ 50,000,000. The investment shall be paid into two phases as follows: the first payment, that is RMB ¥ 30,000,000, shall be paid in 2006 and the second part of total investment, RMB ¥ 20,000,000 shall be paid in 2007. 4 -------------------------------------------------------------------------------- Article 5.2        The registered capital of the Joint Venture shall be RMB ¥ 30,000,000. (a) Party A’s contribution to the registered capital of the Joint Venture shall be RMB ¥ 6,800,000, representing 22.67% of the registered capital of the Joint Venture. (b) Party B’s contribution to the registered capital of the Joint Venture shall be RMB ¥ 23,200,000, representing 77.33% of the registered capital of the Joint Venture. If Party B paid in foreign currency, the payment shall be exchange to RMB as the published exchange rate by the People’s Bank of China on the issue date of Business Registration Certificate of the Joint Venture. Article 5.3       Both parties shall simultaneously pay up the registered capital in one time within one month from the effective date of the contract. Before the registered capital wired into the account, the Joint Venture shall not borrow any loans from any banks. Article 5.4       When either Party has made its contribution to the registered capital of the Joint Venture, a Chinese registered accountant shall verify such contribution and issue a capital contribution verification report in the form required under applicable laws. The Joint Venture shall issue an Investment Certificate to each Party within fifteen (15) days of receipt of such report. Article 5.5       In case any party to the joint venture intends to assign all or part of its investment subscribed to a third party, written consent shall be obtained from the  other party to the joint venture, and approval from the examination and approval authority shall be required. If any Party proposes to transfer all or any part of its interest of the Joint Venture, the Party shall notify the other Party in writing of the terms and conditions of the proposed transfer at least thirty (30) days in advance. If a Party proposes to transfer all or any part of its interest of the Joint Venture to a third party, the other Party shall have a pre-emptive right to purchase such interest. If the other Party does not exercise its pre-emptive right of purchase within ninety (90) days after delivery of such notice, such other Party shall be deemed to have consented to such transfer. Neither Party can sell its ownership to the third Party with terms and conditions better than the offer to the other Party to the Joint Venture. Article 5.6       If the Board of Directors decides to increase the registered capital of the Joint Venture, either Party shall have to right to subscribe the increase in   proportion to their contributions to the registered capital. 5 -------------------------------------------------------------------------------- If within sixty (60) days of the notice of increase in the registered capital, any Party (“Declining Party”) for any reason declines to contribute all or part of its proportionate share of any required increase, such Declining Party hereby agrees that the other Party shall have the pre-emptive right to contribute to the extent of the increase not subscribed in the registered capital unilaterally. The resulting changes in the Parties’ relative shares of the registered capital shall be approved and registered by the Approval Authority. Article 5.7   If a guarantee is required for debts of the Joint Venture and both Parties deem they may provide, such guarantee shall be provided by both Parties in proportion to their contributions to the registered capital. Chapter 6 Sales and Marketing Article 6.1        Products manufactured by the Joint Venture will be sold primarily in the Chinese market, with the remainder sold overseas. Article 6.2        The Joint Venture may either export its products directly, or sign sales contracts with Chinese foreign trade companies, entrusting them to be the sales agencies for overseas market.   Article 6.3        The brand used by the Joint Venture shall be approved by the Board and ratified by the China Brand Registration Authority. Chapter 7 Board of Directors Article 7.1        The date of registration of the joint venture shall be the date of the establishment of the board of directors of the joint venture. Article 7.2        The Board shall consist of five directors, of which, two (2) shall be appointed by Party A and three (3) by Party B.  Each director shall be appointed for a term of four (4) years and may serve consecutive terms if re-appointed by the nominating Party. The chairman of the Board shall be appointed by Part B. If any director on the Board is removed by the nominating Party, a successor shall serve out such director’s term. When a director served out his or her term or be removed on his or her term by the nominating Party, the Party shall submit a written notice of the new director’s candidate to the Joint Venture within fifteen (15) days.  Article 7.3        Powers of the Board 7.3.1 The Board shall be the highest authority of the Joint Venture and entitled to decide all major issues. 6 -------------------------------------------------------------------------------- 7.3.2 Chairman shall be the legal representative of the Joint Venture. Whenever the Chairman is unable to perform his responsibilities for any reason, the Chairman shall designate another director to perform his responsibilities.     7.3.3 More than two third (2/3) of total number of directors present shall constitute a quorum necessary for the conduct of business at a meeting of the Board. If a Board member is unable to attend a Board meeting, he or she may issue a written proxy and entrust a representative to attend the meeting on his or her behalf. Article 7.4        The Board meeting shall be held at least once each year. The Chairman shall be responsible for calling on and presiding over Board meetings. Initiated by more than one third (1/3) of directors, the Chairman can call on a temporary board meeting. When the Board meeting finished, eight copies of approved minutes with all directors’ signatures shall be delivered to the each Party, the Joint Venture and all directors. The meeting shall be held at the legal address of the Joint Venture or other place designated by the Parties. The Joint Venture shall pay for the expenses of Board meetings. The Board may invite relevant person to present the meeting of the Board. The Joint Venture shall not pay any salary to a director who is not in the management team of the Joint Venture. Article 7.5        The unanimous approval of all directors shall be required in connection with the following issues: 7.5.1 Amendment of the articles of association of the Joint Venture;     7.5.2 Termination or dissolution of the Joint Venture;     7.5.3 Increase, decrease or transfer of the Joint Venture’s registered capital;     7.5.4 Merge, separation or association with other economic organization;     7.5.5 Acquisition of any other enterprise;     7.5.6 Pledge of JV’s assets;     7.5.7 Any other matter requires unanimous approval by the Board. Article 7.6 The following issues require approval by at least two third (2/3) of Directors present at the meeting: 7.6.1 Middle and long-term plans;     7.6.2 Annual budgets, financial reports and annual report;     7.6.3 Appointment of the General Manager, Deputy General Manager;     7.6.4 Major contracts;     7.6.5 Profit distribution;     7.6.6 Establishment or evacuation of branch or liaison offices in China or overseas; 7 -------------------------------------------------------------------------------- 7.6.7 Material changes of the organization of the Joint Venture;     7.6.8 Single investment or purchase with a value in excess of RMB ¥ 500,000, provided, such investment or purchase is not in operating budget;     7.6.9 Any other matter the Board deems substantial.     Article 7.7        The first Board meeting shall be held at an appropriate time after the Business License issued. Chapter 8 Operating and Management Article 8.1.1        General manager shall be responsible for JV’s daily operating and management, under the direction of the Board of Directors. Article 8.1.2        General Manager for the preparation and construction of the first phase investment shall be appointed by Party B. After the conclusion of the construction, the GM shall be selected and hired by the Board inside and outside the JV. A vice General Manager shall be appointed by Party A. A finance manager shall be appointed by Party B, and an assistant finance manager shall appointed by Party A. Article 8.2        The responsibility of General Manager is to execute all the resolutions of the Board meeting, organize and guide daily operating activities and management. Vice General Manager is to assist the General Manger. The structure can set a few department managers to be in charge of all departments and handle the matters required by the GM and Vice GM and responsible to the GM and Vice GM. Article 8.3        The General Manager and Deputy General Manager shall not concurrently serve in other economic organizations and shall not participate in any commercial competition activities of other economic organizations against JV. The GM, Vice GM, finance manager and assistant finance manager may be removed at any time by resolution of the Board of Directors for his or her malpractice or dereliction of duty.  Chapter 9 Obligations of Both Parties Party A and Party B shall be respectively responsible for matters related as follows: Article 9.1        Party A: 9.1.1 Contribute cash pursuant to the Contract;     9.1.2 To assist the JV in premise matters;     9.1.3 To assist the JV to apply for Hi-Tech Enterprise and tax and other preferential treatment;     9.1.4 To assist the JV in customs clearance of the equipment, raw material and parts and their transportation within China; 8 -------------------------------------------------------------------------------- 9.1.5 To assist the JV to purchase equipment, raw material, office stuff and transportation means and communications utilities in the PRC     9.1.6 To assist the JV to complete infrastructure facilities of water, electricity and traffic     9.1.7 Assistance in hiring personnel of Chinese nationality including administrators, technicians, workers and foreign staff needed by the JV;     9.1.8 To assist the foreign staff in handling visa, work certificate and travel formalities.     Article 9.2        Party B:     9.2.1 to contribute cash according to the stipulation of the Contract;     9.2.2 to procure the advanced and applicable machinery and equipment and materials from the international market entrusted by Joint Venture.     9.2.3 to provide the required technical personnel for the installation, adjustment and trial production of the machinery and equipment; and for manufacturing and inspection     9.2.4 to train administrators and technical personnel and workers for the Joint Venture;     9.2.5 to be responsible for stable production upon the designed capacity and production of quality product over the license term;     9.2.6 to help the JV to develop overseas market;     9.2.7 Other matters entrusted by the Joint Venture. Chapter 10 Labor Management and Composition of Labor Union Article 10.1      All issues such as recruitment, employment, dismissal, resignation, wages, welfare, labor insurance, labor protection, labor safety and labor discipline shall be handled in accordance with stipulations and provisions of labor and social issuance laws of the People’s Republic of China.  Article 10.2      JV shall sign employment contract with the employees recruited, in accordance with the related laws and regulations stipulated by the State and Wuhu City. The salaries, social insurance, welfare and standards of traveling allowance of the senior administrators recommended by Party A and Party B, shall be discussed and decided at the Board meeting. The other Employee’s salary, reward and welfare shall be proposed by the general manager by reference to the level of other auto parts JV in Wuhu and approved by the Board. Article 10.3      The employees of the Joint Venture are authorized to establish the basic labor union and to engage in labor activities according to “the Labor Law of People Republic of China” and “China Labor Union Regulations”. The Joint Venture will provide the essential activity necessities for its labor union. 9 -------------------------------------------------------------------------------- Chapter 11 Equipment, Raw Material Purchase, Commodity Inspection Article 11.1      All of the production equipments, vehicles, raw materials, fuel and office supplies and so on which are needed by the Joint Venture may be purchased both in China and overseas at the discretion of the Joint Venture. Article 11.2      All import equipments, raw materials must be submitted to the Chinese commodity inspection institution for inspection in accordance with “People’s Republic of China Commodity inspection Rule.” Chapter 12 Financing, Taxing , Auditing and Profit Distribution Article 12.1      The Joint Venture should pay all the taxes required according to the related laws and stipulations of the People’s Republic of China. Article 12.2      The staff members of the Joint Venture should pay individual income tax according to Individual Income Tax Law of the People’s Republic of China. Article 12.3      The fiscal year of the Joint Venture starts from the 1st day of January and ends on the 31st day of December of each year. Article 12.4      JV shall adopt RMB as the standard bookkeeping currency Article 12.5      All the accounting certificates, documents, reports and account books should be written in Chinese. Article 12.6      For accounting and auditing, the Joint Venture should hire accountants and auditors registered in the People’s Republic of China, and report these results to the Board of Directors and the General Manager. Article 12.7      In case a Party considers it is necessary to employ a foreign auditor registered in another country to undertake annual financial checking and examination, the other Party shall give its consent.  All the expenses thereof shall be borne by such Party. Article 12.8      Within 90 days of a fiscal year end, General Manager shall submit the previous year’s balance sheet, profit and loss statement and cash flow statement reviewed and signed by a CPA to the Board of Directors for review and approval. Article 12.9      Profit distribution JV shall set aside reserve fund, expansion fund of JV and welfare funds and bonuses for employee from the JV’s after-tax profit, the ratio of which shall be determined by the Board. The ratio of reserve fund to the JV’s after-tax profit shall not be lower than 10%. 10 -------------------------------------------------------------------------------- The distributable profit, which is the profit after above three funds have been allocated, shall be distributed to the Parties in proportion to their contributions to the registered capital. The profit shall be distributed to the Parties within 30 days after the distribution plan    approved by the Board. Article 12.10      Current year profits shall not be distributed before losses from previous year have been made up. Undistributed profits of previous year may be carried over to and distributed in current year.  Chapter 13 Management of Foreign Exchange Article 13.1      All foreign exchange matters of the Joint Venture will follow the regulations of the “People Republic of China exchange Control”. Chapter 14 Term of the Joint Venture Article 14.1      The term of this Joint Venture is 15 years, from the date of the business license issued.  Article 14.2      The term of this Contract may be extended with the approval of all parties before the expiration of this agreement.  Chapter 15 Insurance Article 15.1      Each item of insurance of the Joint Venture shall be sourced from the People’s Insurance Company of China .The insurance category; value and term shall be handled in accordance with the insurance laws and regulations of People’s Republic of China. Chapter 16 Chapter 17 Amendment, Termination and Dissolution of JV Article 17.1      The amendment of the contract or its appendices shall come into force only after a written agreement has been signed by both Parties and approved by the original examination and approval authority. Article 17.2      With the unanimous agreement of the Board of Directors and approval of the original inspection department, the Joint Venture can be terminated prior to the initial term or the contract be terminated in advance if the contract cannot be executed for reason of force majeure or the Joint Venture suffers losses in consecutive years and is incapable of going on with the business for certain reasons. 11 -------------------------------------------------------------------------------- If one party not execute the obligations stipulated by the contract and the Article of Association, or gravely breach the contract and the Article resulting in the JV unable to operate or unable to achieve the targeted objective in the contract, it shall be considered single-party termination of the contract by the breaching party. Except the right to reclaim penalty from the breaching party, the other party has the right to terminate the contract upon report to and approved by the original approver according to the stipulation in the contract. If the parties agree to continue the operating, the breaching party shall compensate the JV’s losses. Chapter 18 Liquidation Article 18.1      If this Contract is terminated for any reason, the Board of Directors shall present liquidation principle, liquidation procedure and establish a Liquidation Committee to liquidate the Joint Venture. Article 18.1      The Liquidation Committee shall determine the reasonable dispose price of the assets of the Joint Venture by reference to the fair market value. Article 18.2      After the discharge of all debts of JV, the remaining assets of JV shall be distributed as follows: Distributions to the Parties to JV shall be in proportion to the capital contribution they subscribe in the registered capital; Party A shall have the right of first refusal to purchase the fixed assets such as premise, land of JV, pricing at liquidation. Party B shall have the right of first refusal to purchase cash, equipment, die etc, pricing at the price of liquidation. Reserve fund and expansion fund shall be distributed to the Parties in proportion to the capital contribution they subscribe in the registered capital; Welfares and bonuses fund shall be distributed to the employees on list. Article 18.2      After the completion of all liquidation proceedings, the Liquidation Committee shall issue a final report, which shall be approved by the Board of Directors, undertake the cancellation of registration and submit the business license to the original registration authorities. The liquidation accounting books and other documents shall be kept by Party A. 12 -------------------------------------------------------------------------------- Chapter 19 Obligation of the Party Breaching the Contract Article 19.1      If either Party fails to contribute the amount of the contribution committed by the time stipulated in Article 5 of the contract, the Party breaching the contract shall pay the JV 0.03% for each day of the total amount of its contribution overdue. Should the Party breaching the contract fail to contribute the amount of capital it committed for 60 days, the Party observing the contract has the right to terminate the contract according to article 19.3 item of contract and demand the Party breaching the contract to compensate for its losses. Article 19.2      Should the Joint Venture be unable to operate or to achieve the operating objectives thereof due to either Party’s failure to perform the obligations   or its material breach hereof, provided such failure or breach can not be corrected, or such breach has not been corrected within 60 days upon a written notice, the complying Party shall be entitled to damages and terminate the Contract. Even though the complying Party agrees to continue to operate, the Party in breach shall compensate the losses that the Joint Venture and the complying Party suffered. Article 19.3      Should all or part of the contract and its appendices unable to be fulfilled owing to the fault of any party, the party in breach shall bear the liability thereof.  Should it be the fault of both parties, they shall bear their respective liabilities according to the actual situation. Chapter 20 Force Majeure Article 20.1      As the consequence of force majeure, such as earthquakes, typhoons, floods, fires, wars or other natural calamities, which can not be predicted, or the happening or consequence of which can not be prevented or avoided, and directly affects the execution of the contract, or execution of the contract according to the terms stipulated in the contract, the Party that encounters the force majeure should notify the other Party by cable of the actual situation of the accident, and valid documents to certify the detailed happenings of the accident, and valid documents to certify the reasons of its inability to fulfill or completely fulfill, or the necessity to postpone the fulfillment of the contract , should be submitted to the other Party within 15 days of the accident , and should be certified by the notarization department of the region where the accident took place. Disputes arising out of cases of force majeure shall be resolved through negotiations between the two Parties as to whether to terminate the contract or partially release the obligations of the affected party, or postpone the fulfillment of the contract according to the effect of the accident on the fulfillment of the contract. Chapter 21 Laws Applicable Article 21.1      The signing, validity, explanation and implementation of this contract should be governed by the Laws of the People’s Republic of China. 13 -------------------------------------------------------------------------------- Chapter 22 Dispute Solution Article 22.1      Should any dispute arise from the contract or relating to the contract, shall be submitted to Chinese International Economic and Trade Arbitration Committee, and be arbitrated according to the valid and current arbitration rule upon the application time, whose decision shall be final and legally binding upon both Parties. Should any dispute arise from the implementation of or relating to the contract, both Parties shall resolve them through friendly negotiations .If the discrepancies cannot be solved by negotiations, they should be submitted for arbitration. During the process of arbitration, the contract should be executed with no interruption, except for those parts relating to discrepancies under arbitration. Chapter 23 Language of the Text Article 23.1      This contract is written in Chinese.  Chapter 24 Validity of the Contract Article 24.1      The contract and its appendices shall have the same force. All the articles of the contract including its appendixes stipulated under the Contract, are indispensable parts of this contract. Article 24.2      The contract and its appendices shall come into force commencing from the date of approval of the administration department of the People’s Republic of China. Article 24.3      Any notices, if sent by fax or email and relating to the rights and obligations of the two Parties, should be notified by written letter later. Correspondence Part A: Wuhu Chery Technology Co.,Ltd Address: Anshan Road, Economy & Technology Development Zone, Wuhu City, Anhui Province, 241009 PRC Telephone: (86)553-584-0382 Facsimile: (86)553-584-0382   Part B: Great Genesis Holdings Limited Address: 6/F Wheellock House 20, Peddar Street, Central Hongkong. Telephone: 00852-2526-7572, Fax: 00852-2526-7572 Any changes of the statutory address should be notified to the other Party in time and confirmed by written form, the confirm letter has legal effect. 14 -------------------------------------------------------------------------------- IN WITNESS WHEREOF,  this Contract is signed by the Parties to the Joint Venture on May 2, 2006. Wuhu Chery Technology Co., Ltd   Great Genesis Holdings Limited           By:  /s/ Kan, Lei   By: /s/ Hanlin Chen   --------------------------------------------------------------------------------     --------------------------------------------------------------------------------   Chairman     Chairman           --------------------------------------------------------------------------------

  EXHIBIT 10.1 EMPLOYMENT SEPARATION AGREEMENT      This is an agreement between you, Sharon J. Johnston, and us, Fisher Communications, Inc. (“the Company”). This Agreement is dated for reference purposes December 20, 2005, which is the date we delivered it to you for your consideration. 1)   Separation Agreement. Your employment by the Company is terminated effective close of business December 31, 2005, (the “Separation Date”). 2)   Compensation. You will be paid your regular salary plus all accrued vacation benefits, less authorized deductions and withholdings, through the Separation Date. 3)   Separation Payment. In addition to payment for accrued vacation, any earned bonus, and any other financial obligations of the Company to you not arising under this Agreement, including the Supplemental Employee Retirement Plan at the time of entitlement, the Company will provide you a lump sum separation payment equal to twelve (12) months’ base salary ($135,000); any legally required withholding or deductions will be subtracted. To be eligible for this payment, you must satisfy your obligations under this Agreement and continue to perform your duties in a satisfactory manner until your Separation Date. You understand and agree that this separation pay, to which you would not otherwise be entitled, is provided as consideration, and in exchange for, your agreement to the release and other terms of this Agreement. 4)   Termination. Your employment is terminated effective December 31, 2005, in connection with a reorganization and elimination of your position. You have resigned or will resign as an officer of the Company, and any official or unofficial committees or bodies of the Company and its subsidiaries, effective December 31, 2005. 5)   Employee Benefit Plans. You and any participating family members will be eligible to continue participation in our group medical, dental and vision plans pursuant to COBRA for up to eighteen (18) months (or longer if applicable under the COBRA regulations) following your separation. The Company will pay your COBRA premiums for eighteen (18) months, plus will provide you the amount necessary to purchase comparable insurance for the eighteen (18) months thereafter. Your rights under other employee benefit plans in which you may have participated will be determined in accordance with the written plan documents governing those plans. Notwithstanding that you may be retained in the future for part-time employment or consulting services, you acknowledge and agree that your employment with the Company will terminate on the Separation Date for the purpose of Section 13(a) of the Amended and Restated Fisher Companies Incentive Plan of 1995 and Section 13(a) of the Fisher Communications Incentive Plan of 2001, and that you may exercise your vested stock options at any time prior to the expiration date of the option or the expiration of three (3) months after the Separation Date, whichever is the shorter period. 1 --------------------------------------------------------------------------------   6)   References. Upon your request, the Company will provide a mutually acceptable letter of reference to future potential employers. Requests for such letter should be directed to the Company’s President and CEO or her designee. 7)   Release. In consideration of the promises contained in this Agreement, the parties agree:   a.   On behalf of yourself and anyone claiming through you or who otherwise can be legally bound by you in this Release, you irrevocably and unconditionally release, acquit and forever discharge the Company and/or its subsidiaries, affiliates, divisions, predecessors, successors and assigns, as well as their past and present officers, directors, employees, shareholders, trustees, joint venturers, partners, agents, and anyone else against whom you could assert the claims released herein, in their individual and/or corporate capacities (hereinafter collectively “Releasees”), from any and all claims, liabilities, promises, actions, damages and the like, known or unknown, which you ever had against any of the Releasees arising out of or relating to your employment with the Company and/or the termination of your employment with the Company. Such claims include, but are not limited to:  (1) employment discrimination (including claims of sex discrimination and/or sexual harassment) and retaliation under local, state or federal law, including claims under RCW ch. 49.50; the Americans with Disabilities Act; Title VII of the Civil Rights Act of 1964 (42 U.S.C.A. 2000e et seq.) or under 42 U.S.C.A. section 1981 or section 1983; and age discrimination under the Age Discrimination in Employment Act (29 U.S.C.A. sections 621 et seq.) (except you do not waive rights or claims under the federal Age Discrimination in Employment Act that may arise after the date this waiver is executed); (2) disputed wages and benefits; (3) wrongful discharge and/or breach of any alleged employment contract; and (4) claims based on any tort, such as invasion of privacy, defamation, fraud and infliction of emotional distress. Excluded from this release are claims under ERISA and any benefit plans that may arise after the Separation Date, and any claims arising out of or relating to this Agreement.     b.   The Releasees and anyone who can be legally bound by Releasees to this Release, irrevocably and unconditionally release, acquit and forever discharge you from any and all claims, liabilities, promises, actions, damages and the like, known or unknown, which they ever had against you arising during and out of or relating to your employment with the Company. Excluded are claims arising under this Agreement.     c.   That neither party shall bring any legal action against the other for any claim waived and released under this Agreement and that the parties represent and warrant that no such claims have been filed to date. The parties further agree that should they bring any type of administrative or legal action arising out of claims waived under this Agreement, the prevailing party with respect to such claim will bear all legal fees and costs, including those of the other party. 2 --------------------------------------------------------------------------------     d.   Without limiting the release set forth in subparagraphs a., b. and c. above, the matters expressly waived and released herein are not limited to matters which are known or disclosed, and the parties hereby waive any and all rights and benefits which they now have, or in the future may have, conferred upon them, by virtue of the provisions of any Washington statute, the effect of which would be to prevent a general release, such as contemplated by this Agreement, from extending to claims which they do not know or suspect to exist in their favor at the time of executing this Agreement, which if known by them must have materially affected their decision to execute the release. They realize and acknowledge that the factual matters now unknown to them may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which are presently unknown, unanticipated and unsuspected, and they further agree that this Agreement has been negotiated and agreed upon in light of that realization and that they nevertheless hereby intend to release, discharge and acquit each other from any such unknown causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which in any way arise by virtue of the prior acts or omissions of such parties. 8)   Return of Property. You represent and agree that you have returned or will return all keys, credit cards, documents, equipment and other material that belong to the Company on or before signing this Agreement. 9)   Confidentiality. You understand and acknowledge that, in order to properly perform your duties the Company has entrusted you with certain Proprietary Information that is the result of great effort and expense on the part of the Company, that this Propriety Information is critical to the success of the Company and that the disclosure or use of this Proprietary Information would cause the Company irreparable harm, and that you, in entering into this Agreement, are fully aware of the Company’s need to protect this Proprietary Information. You therefore agree not to reveal Proprietary Information or trade secrets to any person, firm, corporation, or entity unless required to do so by a valid subpoena or unless being required to maintain such confidentiality would be in violation of the law. For the purposes of this Agreement, “Proprietary Information” shall be defined as information, whether disclosed orally or in writing, of any nature in any form, including without limitation all writings, memoranda, copies, reports, papers, surveys, analyses, drawings, letters, computer printouts, computer programs, computer applications, specifications, customer data, trade secrets, business methods, business processes, business techniques, business plans, data, graphs, charts, sound recordings and/or pictorial reproductions and other information that is not generally and publicly known, whether in oral, audio, visual, written or other form. Should you reveal or threaten to reveal this information, the Company shall be entitled to an injunction restraining you from disclosing same, or from rendering any services to any entity to whom said information has been, or is threatened to be, disclosed. The right to secure an injunction is not exclusive, and the Company may pursue any other remedies it has against you for a breach or threatened breach of this promise, including the recovery of damages from you. This promise is intended to and will apply in the broadest sense 3 --------------------------------------------------------------------------------       possible to information regarding Company’s business activities, plans, audience and clients and is not intended to be limited solely to matters which might meet the legal definition of “trade secrets” under Washington law. You further agree to keep the terms of this Agreement confidential. You agree that except as otherwise required by law, you will not disclose to any third party any of the terms of this Agreement, except your spouse, legal counsel, accountants and tax advisors, all of whom shall be bound by this confidentiality provision. You represent and warrant that you have not already acted inconsistently with the terms of this section. You acknowledge and agree that the Company may disclose this Agreement and/or describe the terms hereof when there is a business justification for doing so, including in its filings with the Securities and Exchange Commission at any time after the date hereof. 10)   Cooperation. You agree to meet with the individual who will be serving as the Company’s President and CEO and/or her designee at such time or times as may be reasonably requested to discuss transition issues. You agree to cooperate fully to effectuate a smooth and efficient transition. You also agree to make yourself reasonably available for a period of six (6) months from the Separation Date to consult by telephone on an as-needed basis regarding transitional matters; provided, however, that such consultation shall not require you to expend an unreasonable amount of time. 11)   Nonsolicitation/No Hires/Nondisruption. As an inducement for, and as additional consideration to, the Company to enter into this Agreement, you agree that for a period of six (6) months after the Separation Date:   a.   Nonsolicitation of Employees and Consultants. You will not directly or indirectly solicit, influence, entice or encourage any person who is then or who at any time in the twelve (12) month period prior to this Agreement had been an employee of or consultant to the Company to cease or curtail his or her relationship with the Company.     b.   No-Hire. You agree that you will not directly or indirectly hire or attempt to hire, whether as an employee, consultant or otherwise, any person who is then or who at any time in the twelve (12) month period prior to this Agreement had been employed by the Company.     c.   Nondisruption, Other Matters. You agree that you will not directly or indirectly interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, between the Company, or any of its affiliates, on the one hand, and any of their respective customers, suppliers, employees or business relation of the Company, on the other hand. 12)   Nondisparagement. You agree that you will not disparage, criticize or otherwise malign the reputation of the Company, its parents or affiliates or any of their officers, directors or employees. 4 --------------------------------------------------------------------------------   13)   Consideration and Revocation Periods. You acknowledge that you have been advised to consult legal counsel. You have up to forty-five (45) calendar days to consider this Agreement; you may use as much or as little of that time as you wish. The 45 days start to run when you receive this document (or the information described in Section 18, if that is later). You also have seven (7) calendar days following your execution of this Agreement to revoke it. You must make any such revocation in writing to the General Counsel. This Agreement shall not become effective or enforceable until the revocation period has expired. 14)   Resolution of Claims. The parties shall attempt to resolve through good-faith negotiation any controversy or claim arising out of, or relating to this Agreement, or a breach thereof, including without limitation, any claim as to which the applicability or enforceability of the Release in section 7 above is disputed by you or that the parties agree is not subject to the Release. (This includes, without limitation, any claims under Title VII of the Civil Right Act of 1964, as amended, wrongful discharge, defamation, state anti-discrimination statutes, the Americans with Disabilities Act, wage-and-hour claims, and any claim arising out of any other federal or state statute or common law.) If negotiation is unsuccessful, the parties agree to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Employment Mediation Rules. If mediation is unsuccessful, the dispute shall be settled by final and binding arbitration in Seattle before a single arbitrator selected by the parties in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. The only disputes not covered by this Agreement shall be worker’s compensation claims, claims for unemployment compensation, and claims for injunctive relief and/or equitable relief brought by either party pursuant to paragraphs 9, 11 and 12 above. The parties agree to abide by and perform in accordance with any award rendered by the arbitrator, and that judgment upon the award rendered may be entered by the prevailing party in any court having jurisdiction thereof. The arbitrator’s fees and costs of arbitration shall be borne equally by the parties, and each party shall be responsible for its own legal fees and costs. 15)   Applicable Law. The laws of the state of Washington will govern the validity and execution of this Agreement and the disposition of any claims related to this Agreement. 16)   Assignment. Your rights hereunder shall not be assigned or transferred without the Company’s prior written consent. Any assignment without the Company’s prior written consent shall be null and void. The Company’s rights and obligations under this Agreement will inure to the benefit and be binding upon the Company’s successors and assignees. 17)   Complete Agreement. This Agreement is the final and complete expression of all agreements between us on all subjects, and supersede any and all prior oral or written agreements or understandings between you and the Company concerning the subject matter of this Agreement. You acknowledge that you have had adequate time to review and consider this Agreement and consult with counsel. You acknowledge you are not signing this Agreement relying on anything not set out here. 5 --------------------------------------------------------------------------------   18)   Names, Job Titles and Ages of Individuals Selected for Job Elimination Severance and Other Officers. This information is either attached as an exhibit hereto or will be provided to you separately.                   AGREED BY Fisher Communications, Inc.:       AGREED BY Sharon J. Johnston:                       By   /s/ Colleen B. Brown       /s/ Sharon J. Johnston           Its President and CEO                   Date:   January 3, 2006   Date:   January 4, 2006 6

  Exhibit 10.01 FIRST AMENDMENT TO THE FISHER SCIENTIFIC INTERNATIONAL INC. DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS The Board of Directors of Fisher Scientific International Inc. hereby amends the Fisher Scientific International Inc. Deferred Compensation Plan for Non-Employee Directors (the “Plan”), effective as of March 1, 2006, as follows: 1.   The second sentence of Subparagraph 2(a) is hereby amended by replacing the word “as” with the word “was.”   2.   The first paragraph of Section 3 is hereby amended by adding the following sentence thereto, which shall be inserted after the first sentence of such Section: “Such amounts shall be denominated in cash or in shares of the Corporation’s common stock (“Shares”), in accordance with the Director’s election.” 3.   The last sentence of the first paragraph of Section 3 is hereby restated in its entirety, as follows: “The Director shall not have any interest in the amounts or Shares credited to his account until they are distributed in accordance with the Plan.” 4.   The first sentence of the second paragraph of Section 3 is amended by inserting the words “and denominated in cash” between the words “to the Director’s account” and “shall accrue amounts” therein.   5.   A new third paragraph is hereby added to Section 3, as follows: “Amounts credited to the Director’s account and denominated in Shares shall be determined by dividing the amount of the deferred compensation elected to be deferred in the form of Shares by the closing price of the Shares on the New York Stock Exchange on the last trading day of the calendar quarter with respect to which such compensation is payable (with any fractional amounts being denominated in cash). No interest shall accrue with respect to amounts deferred in Shares. Any cash dividends and/or special dividends and distributions with respect to such shares shall be credited to the Director’s account in cash. 6.   Subparagraphs 4(a) and 4(b) of the Plan are hereby amended by adding the words “or Shares” between the words “amount of cash” and “credited to the” in the first sentence of each such subparagraph.   7.   Paragraph 5 of the Plan is hereby re-titled “DISTRIBUTION ON DEATH.”   8.   Subparagraph 6(b) of the Plan is hereby amended by adding the words “or Shares” between the words “set aside funds” and “for the payment” therein. 1 --------------------------------------------------------------------------------   9.   Subparagraph 6(d) of the Plan is hereby amended by adding the words “of cash or Shares” between the words “with respect to amounts” and “then in the Director’s account” therein.   10.   Subparagraph 6(e) of the Plan is hereby amended by adding the words “of cash or Shares” between the words “indicating the amount” and “credited to the” therein. 2

Exhibit 10.4 DOLBY LABORATORIES, INC. 2005 STOCK PLAN STOCK OPTION AGREEMENT (For Participants in China) Unless otherwise defined herein, the terms defined in the Dolby Laboratories, Inc. 2005 Stock Plan as amended (the “Plan”) shall have the same defined meanings in this Stock Option Agreement (the “Option Agreement”).   I. NOTICE OF STOCK OPTION GRANT   Participant:   [insert name of record] Address:   [insert address line 1, 2, and 3 (as required)] [insert city, state/province zip/postal code (country)] Participant has been granted an Option, subject to the terms and conditions of the Plan and this Option Agreement, as follows:   Grant Number   [insert option number] Date of Grant   [insert option date] Vesting Commencement Date   [insert vest base date] Exercise Price per Share   [insert option price] Total Number of Shares Granted   [insert shares granted] Total Exercise Price   [insert total option price] Type of Option:   [insert long type] Term/Expiration Date:   [insert expiration date] -------------------------------------------------------------------------------- Vesting Schedule: Subject to Participant continuing to be a Service Provider and other limitations set forth in the Plan and this Option Agreement, this Option may be exercised, in whole or in part, in accordance with the following schedule:   Date of Vesting   Shares Vesting [Vest Date Period 1]   [Shares Period 1] [Vest Date Period 2]   [Shares Period 2] [Vest Date Period 3]   [Shares Period 3] [Vest Date Period 4]   [Shares Period 4] Termination Period: This Option will be exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death or Disability, in which case this Option will be exercisable for one (1) year after Participant ceases to be Service Provider. Notwithstanding the foregoing, in no event may this Option be exercised after the Term/Expiration Date as provided above.   II. AGREEMENT A. Grant of Option. The Administrator hereby grants to Participant named in the Notice of Stock Option Grant (the “Notice of Grant”) an Option to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference, and this Option Agreement. Subject to Section 20(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d), or otherwise does not qualify as an Incentive Stock Option, it shall be treated as a Nonstatutory Stock Option. B. Exercise of Option. 1. Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. 2. Method of Exercise. This Option is exercisable by (i) delivery of an exercise notice, in the form and manner determined by the Administrator, or (ii) following an electronic or other exercise procedure prescribed by the Administrator, which in either case shall state the election to exercise the Option, the number of Shares in respect of which the Option is   2 -------------------------------------------------------------------------------- being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. Participant shall provide payment of the aggregate Exercise Price as to all Exercised Shares at the time of exercise, together with any applicable withholding taxes arising in connection with such exercise. This Option shall be deemed to be exercised upon receipt by the Company of a fully executed exercise notice or completion of such exercise procedure, as the Administrator may determine in its sole discretion, accompanied by such aggregate Exercise Price and any applicable withholding taxes. 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 Participant on the date the Option is exercised with respect to such Exercised Shares. C. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of Participant: 1. consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or 2. any other methods approved by the Administrator and permitted by Applicable Laws. D. 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 Participant only by Participant. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of Participant. E. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. F. Tax Obligations. Regardless of any action the Company or Participant’s employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by him or her is and remains Participant’s responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option grant, including the grant, vesting or exercise of the Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends;   3 -------------------------------------------------------------------------------- and (2) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate Participant’s liability for Tax-Related Items. Participant understands that he or she may suffer adverse tax consequences as a result of Participant’s purchase or disposition of the Shares. Participant represents that he or she will consult with any tax advisors Participant deems appropriate in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice. Prior to exercise of the Option, Participant will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, Participant authorizes the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by Participant from his or her wages or other cash compensation paid to Participant by the Company and/or the Employer or from proceeds of the sale of Shares. Alternatively, or in addition, if permissible under local law, the Company may (1) sell or arrange for the sale of Shares acquired through exercise to meet the withholding obligation for Tax-Related Items, and/or (2) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, Participant will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of Participant’s participation in the Plan or Participant’s purchase of Shares that cannot be satisfied by the means previously described. Participant acknowledges and agrees that the Company may refuse to honor the exercise if such withholding amounts are not delivered at the time of exercise. G. Acknowledgements. 1. Participant acknowledges receipt of a copy of the Plan (including any applicable appendixes or sub-plans thereunder) and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan (including any applicable appendixes or sub-plans thereunder) and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company upon any change in the residence address in the Notice of Grant. 2. The Company (and not Participant’s employer) is granting the Option. The Company will administer the Plan from outside Participant’s country of residence. 3. That benefits and rights provided under the Plan are wholly discretionary and, although provided by the Company, do not constitute regular or periodic payments. The benefits and rights provided under the Plan are not to be considered part of Participant’s salary or compensation for purposes of calculating any severance, resignation, termination, redundancy or other end of service payments, vacation, bonuses, long-term service awards, indemnification, pension or retirement benefits, or any other payments, benefits or rights of any kind and in no   4 -------------------------------------------------------------------------------- event should be considered as compensation for, or relating in any way to, services for the Company or the Employer. 4. The grant of the Option, and any future grant of Options under the Plan is entirely voluntary, and at the complete discretion of the Company. Neither the grant of the Option nor any future grant of an Option by the Company will be deemed to create any obligation to grant any further Options, whether or not such a reservation is explicitly stated at the time of such a grant. The Company has the right, at any time to amend, suspend or terminate the Plan. 5. The future value of the underlying Shares is unknown and cannot be predicted with certainty. 6. If the underlying Shares do not increase in value, the Option will have no value. 7. The Plan will not be deemed to constitute, and will not be construed by Participant to constitute, part of the terms and conditions of employment, and that the Company will not incur any liability of any kind to Participant as a result of any change or amendment, or any cancellation, of the Plan at any time. 8. In the event that the Participant is not an employee of the Company, Participation in the Plan will not be deemed to constitute, and will not be deemed by Participant to constitute, an employment or labor contract with the Company and furthermore, the Option grant will not be interpreted to form an employment or labor contract with the Employer or any Subsidiary or affiliate of the Company. 9. Participant has received the terms and conditions of this Option Agreement and any other related communications in English, and Participant consents to having received these documents in English. 10. The Participant is voluntarily participating in the Plan. 11. In consideration of the grant of the Option, no claim or entitlement to compensation or damages shall arise from termination of the Option or diminution in value of the Option resulting from termination of Participant’s employment by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and Participant irrevocably releases the Company and the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting this Option Agreement, Participant will be deemed irrevocably to have waived his or her entitlement to pursue such claim. 12. In the event of termination of Participant’s employment (whether or not in breach of local labor laws), Participant’s right to receive the Option and vest in the Option under the Plan, if any, will terminate effective as of the date that Participant is no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law). In the event of termination of employment (whether or not in breach of local labor laws),   5 -------------------------------------------------------------------------------- Participant’s right to exercise the Option after termination of employment, if any, will be measured by the date of termination of Participant’s active employment and will not be extended by any notice period mandated under local law. The Administrator shall have the exclusive discretion to determine when Participant is no longer actively employed for purposes of his or her Option grant. H. Data Privacy. By entering into this Option Agreement, and as a condition of the grant of the Option, Participant consents to the collection, use, and transfer of personal data as described in this section to the full extent permitted by and in full compliance with Applicable Law. Participant understands that the Company and its Subsidiaries hold certain personal information about the Participant, including, but not limited to, name, home address and telephone number, date of birth, social insurance number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Options or other entitlement to Shares awarded, canceled, exercised, vested, unvested, or outstanding in Participant’s favor, for the purpose of managing and administering the Plan (“Data”). Participant further understands that the Company and/or its Subsidiaries will transfer Data among themselves as necessary for the purposes of implementation, administration, and management of Participant’s participation in the Plan, and that the Company and/or its Subsidiary may each further transfer Data to any third parties assisting the Company in the implementation, administration, and management of the Plan (“Data Recipients”). Participant understands that these Data Recipients may be located in Participant’s country of residence or elsewhere, such as the United States and that that country may have different data privacy laws and protections than Participant’s country. Participant authorizes the Data Recipients to receive, possess, use, retain, and transfer Data in electronic or other form, for the purposes of implementing, administering, and managing Participant’s participation in the Plan, including any transfer of such Data, as may be required for the administration of the Plan. Participant understands that Participant may, at any time, review the Data, request that any necessary amendments be made to it, or withdraw Participant’s consent herein in writing by contacting the Company. Participant further understands that withdrawing consent may affect Participant’s ability to participate in the Plan. I. 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 Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s interest except by means of a writing signed by the Company and Participant.   6 -------------------------------------------------------------------------------- This Option Agreement is governed by the internal substantive laws, but not the choice of law rules, of California. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this grant or the Option Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed. J. NO GUARANTEE OF CONTINUED SERVICE. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS OPTION AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH IN THE NOTICE OF GRANT DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PARTICIPANT’S RIGHT OR THE COMPANY’S (OR PARENT’S OR SUBSIDIARY’S) RIGHT TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. K. Severability. The provisions of this Option Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. L. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to the Option granted under, and Participant’s participation in the Plan, or future options that may be granted under the Plan by electronic means or to request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. By Participant’s electronic signature and the electronic signature of the Company’s representative, Participant and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Participant has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement.   7

Exhibit 10.2 TERMS AND CONDITIONS 2006 STOCK UNIT AWARD NORTHERN TRUST CORPORATION 2002 STOCK PLAN THIS STOCK UNIT AGREEMENT (AS DEFINED BELOW) IS AN AGREEMENT BETWEEN YOU AND NORTHERN TRUST CORPORATION. PLEASE READ THIS AGREEMENT CAREFULLY. IF YOU AGREE TO BE BOUND BY ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT, PLEASE CLICK THE “I ACCEPT” BUTTON AT THE END OF THIS AGREEMENT. IF YOU DO NOT AGREE TO THESE TERMS AND CONDITIONS, PLEASE CLICK THE “I DECLINE” BUTTON AT THE END OF THIS AGREEMENT, IN WHICH CASE THIS AGREEMENT WILL BE OF NO FORCE AND EFFECT AND YOUR AWARD UNDER THIS AGREEMENT WILL BE CANCELLED. Your stock unit grant is subject to the provisions of the Northern Trust Corporation 2002 Stock Plan (the “Plan”) and the stock unit award notice (the “Award Notice”). The Award Notice and these Terms and Condition constitute the “Stock Unit Agreement” as defined in the Plan. If there is any conflict between the information in the Stock Unit Agreement and the Plan, the Plan will govern.   1. Grant. The Corporation hereby grants to the Participant an award of Stock Units, as set forth in the Award Notice, subject to the terms and conditions of the Plan and the Stock Unit Agreement. A Stock Unit is the right, subject to the terms and conditions of the Plan and the Stock Unit Agreement, to receive a distribution of a share of Common Stock pursuant to Paragraph 6 of these Terms and Conditions.   2. Stock Unit Account. The Corporation shall maintain an account (“Stock Unit Account”) on its books in the name of the Participant which shall reflect the number of Stock Units awarded to the Participant that the Participant is eligible to receive in distribution pursuant to Paragraph 6 of these Terms and Conditions.   3. Dividend Equivalents. Upon the payment of any dividend on Common Stock occurring during the period preceding the distribution of the Participant’s Stock Unit award pursuant to Paragraph 6 of these Terms and Conditions, the Corporation shall promptly pay to the Participant an amount in cash equal in value to the dividends that the Participant would have received had the Participant been the actual owner of the number of shares of Common Stock represented by the Stock Units in the Participant’s Stock Unit Account on that date (“Dividend Equivalents”).   4. Forfeiture. The Stock Units granted to the Participant pursuant to the Stock Unit Agreement shall be forfeited and revert to the Corporation if prior to the date on which the Stock Units vest pursuant to Paragraph 5 of these Terms and Conditions (a) the Participant violates any provision of Paragraph 7 of these Terms and Conditions, or (b) except as described in Paragraphs 5 and 8 of these Terms and Conditions, the Participant’s employment with the Corporation or any of its Subsidiaries terminates. -------------------------------------------------------------------------------- 5. Vesting. The Participant shall become vested in the Stock Units in accordance with the vesting schedule set forth in the Award Notice, subject to (a) prorated vesting in accordance with Paragraph 8 of these Terms and Conditions upon the Participant’s death, Retirement or Disability (each as defined below) or upon termination of employment under certain circumstances described in Paragraph 8 of these Terms and Conditions where the Participant is entitled to severance benefits, (b) prorated vesting in accordance with Paragraph 8 of these Terms and Conditions in the event that prior to vesting the Participant’s employment with the Corporation or any of its Subsidiaries has terminated and (i) the Participant is a Management Committee member on the date of grant, (ii) the Participant is 55 years or older on the date of termination of employment and (iii) the Participant has not violated any provision of Paragraph 7 of these Terms and Conditions during the period ending on the latest vesting date set forth in the Award Notice (“Vesting Period”), or (c) full vesting in the event of a Change in Control (as defined in the Plan) of the Corporation. If the Participant’s employment with the Corporation or any of its Subsidiaries terminates for any reason other than as set forth above in this Paragraph 5, the Stock Units in the Participant’s Stock Unit Account that have not yet vested shall be forfeited and revert to the Corporation on such termination date, and the Corporation shall have no further obligation after such date to pay Dividend Equivalents pursuant to Paragraph 3 of these Terms and Conditions. The Corporation shall have no further obligation to the Participant under these Terms and Conditions following the Participant’s forfeiture of Stock Units. For purposes of these Terms and Conditions, “Retirement” means retirement occurring by reason of the Participant having qualified for a Normal, Early, or Postponed Retirement under The Northern Trust Company Pension Plan. For purposes of these Terms and Conditions, “Disability” means a disability that continues for a period of 12 months as defined by Northern Trust’s Managed Disability Program.   6. Distribution. Except as provided below in this Paragraph 6 or in Paragraphs 9 or 10 of these Terms and Conditions, the Participant shall become entitled to the distribution of the Participant’s Stock Units on the Applicable Date in the year in which the Stock Units vest pursuant to Paragraph 5 of these Terms and Conditions, and such distribution shall be made to the Participant as soon as practicable thereafter. In the event of the Participant’s death prior to the end of the Vesting Period, the Participant’s beneficiary shall become entitled to the distribution of any vested Stock Units on the Applicable Date immediately after the Participant’s death in accordance with Paragraph 8 of these Terms and Conditions, and such distribution shall be made (a) as soon as practicable thereafter, and (b) to such beneficiary and in such proportions as the Participant may designate in writing, and in the absence of a designation, to the following persons in the order indicated below:     •   The Participant’s spouse; if none, then,     •   The Participant’s children (in equal amounts); if none, then,     •   The Participant’s parents (in equal amounts); if none, then,   -2- --------------------------------------------------------------------------------   •   The Participant’s brothers and sisters (in equal amounts); if none, then,     •   The Participant’s estate. In the event of the Participant’s Retirement or Disability prior to the end of the Vesting Period, the Participant shall become entitled to the distribution of any vested Stock Units on the Applicable Date immediately after the Participant’s Retirement or Disability in accordance with Paragraph 8 under these Terms and Conditions. Stock Units shall be distributed only in shares of Common Stock so that, pursuant to Paragraph 1 of these Terms and Conditions and this Paragraph 6, a Participant shall be entitled to receive one share of Common Stock for each Stock Unit in the Participant’s Stock Unit Account. No distribution shall be made prior to the first date that shares of Common Stock may be distributed to the Participant without penalty or forfeiture under federal or state laws or regulations governing short-swing trading of securities. In determining whether a distribution would result in such a penalty or forfeiture, the Corporation may rely upon information reasonably available to it or upon representations of the Participant’s legal or personal representative. For purposes of these Terms and Conditions, “Applicable Date” with respect to a given year means the first trading day of that year, after the vesting of the Stock Units, on which the Corporation’s trading blackout is not in effect for the Participant, except that for a Participant subject to Paragraph 9 of these Terms and Conditions, “Applicable Date” with respect to a given year means the first trading day of the fourth quarter of that year on which the Corporation’s trading blackout is not in effect for the Participant; or, in any case, such other date in that year as the Committee or the Executive Vice President of Human Resources may determine.   7. Restricted Activity. Despite anything to the contrary in Paragraph 5, 6 or 8 of these Terms and Conditions, the Participant’s Stock Units (whether vested or unvested) shall be forfeited and the Corporation shall have no obligation to distribute the Stock Units to the Participant (or the Participant’s beneficiary) pursuant to Paragraph 6, or to pay any Dividend Equivalents pursuant to Paragraph 3, if the Participant:     (a) at any time after the date of these Terms and Conditions, has divulged, directly or indirectly, or used, for the Participant’s own or another’s benefit, any Confidential Information; or     (b) at any time after the date of these Terms and Conditions and through a period of twelve (12) months after the Participant ceases to be employed by the Corporation or any of its Subsidiaries for any reason, has Solicited, or assisted in the Solicitation of, any Client or Prospective Client; or solicited, encouraged, advised, induced or caused any employee of the Corporation or any of its Subsidiaries to terminate his or her employment with the Corporation or any of its Subsidiaries, or provided any assistance, encouragement, information, or suggestion to any person or entity regarding the solicitation or hiring of any employee of the Corporation or any of its Subsidiaries; provided, however, this clause (b) shall not prohibit the Participant’s Solicitation of any Client or Prospective Client with   -3- -------------------------------------------------------------------------------- whom he or she had a business relationship prior to the start of his or her employment with the Corporation or any of its Subsidiaries, provided no Confidential Information, directly or indirectly, is used in such Solicitation.     (c) If the Participant shall have so engaged in any such activity described in clauses (a) or (b) above without the written consent of the Corporation, the Participant’s Stock Units (whether vested or unvested) shall be forfeited to the Corporation by notice in writing to the Participant within a reasonable period of time after the Corporation acquires knowledge of the Participant’s violation of this Paragraph 7. Any failure by the Participant to comply with this Paragraph 7 shall entitle the Corporation, as determined by the Committee in its sole discretion, to (i) cancel and terminate all of the Participant’s unexercised, unexpired, unpaid or deferred Stock Units (whether vested or unvested) under the Plan, and (ii) rescind any exercise, payment or delivery with respect to any Stock Units occurring within twelve (12) months prior to, or at any time following, the date of the Participant’s termination of employment for any reason (including but not limited to termination of employment due to Retirement or Disability). Upon any such rescission, (1) the Participant shall immediately pay to the Corporation the amount of any gain realized or payment received, and (2) the Participant shall immediately forfeit to the Corporation any shares of the Corporation’s Common Stock received, in each case as a result of the rescinded exercise, payment or delivery with respect to any Stock Units, in such manner and on such terms and conditions as the Committee shall require, and the Corporation shall be entitled, as permitted by applicable law, to deduct from any amounts the Corporation owes the Participant from time to time the amount of any such gain realized or payment received. “Gain realized” shall be determined by the Committee in its sole discretion.   8. Proration.     (a) The Participant shall cease to participate in the Plan under these Terms and Conditions as of the date of the Participant’s death, Disability or Retirement. If the Participant’s death, Retirement or Disability occurs prior to the end of the Vesting Period, or if prior to the end of the Vesting Period, the Participant’s employment is terminated under circumstances that entitle the Participant to severance benefits under the Northern Trust Corporation Severance Plan (the “Severance Plan”) and the Participant has executed and not revoked a settlement agreement, waiver and release under the Severance Plan (a “Release”), then, in each such case, the Participant shall have credited, and be deemed vested in, on such date of death, Retirement or Disability or date of termination of employment, a number of Stock Units as determined by multiplying the number of Stock Units which would have been distributable to the Participant if the Participant had participated in the Plan under these Terms and Conditions for the full Vesting Period, by the ratio of the number of full calendar months of the Participant’s actual participation in the Plan under these Terms and Conditions during the Vesting Period to the number of full calendar months in the Vesting Period.   -4- --------------------------------------------------------------------------------   (b) If, prior to the end of the Vesting Period, a Participant’s employment with the Corporation or any of its Subsidiaries has terminated and (i) the Participant is 55 years or older on the date of such termination and (ii) the Participant has not violated any provision of Paragraph 7 of these Terms and Conditions during the Vesting Period, then the Participant shall have credited, and be deemed vested in, on the vesting date of the award, a number of Stock Units as determined by multiplying the number of Stock Units which would have been distributable to the Participant if the Participant had been employed by the Corporation or any of its Subsidiaries for the full Vesting Period, by the ratio of the number of full calendar months of the Participant’s actual employment by the Corporation or any of its Subsidiaries under these Terms and Conditions during the Vesting Period to the number of full calendar months in the Vesting Period.   9. Mandatory Deferral. Subject to applicable law, if the Participant is, or in the sole judgment of the Committee is reasonably expected to be, a “covered employee” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations promulgated thereunder (“Section 162(m)”) in the calendar year in which the Participant would otherwise become entitled to the distribution of the Participant’s Stock Units, the Participant shall not become entitled to the distribution of the Participant’s Stock Units until the Applicable Date in the first calendar year that the Participant is not a “covered employee” under Section 162(m), as determined by the Committee. Notwithstanding the foregoing, the Committee, in its sole discretion, shall have the right to distribute to the Participant all or any portion of the Stock Units or any deferred Stock Units that it determines is not subject to the deduction limitation of Section 162(m) in a given calendar year, after taking into account all other compensation payable to the Participant for that year that it determines is subject to the deduction limitation of Section 162(m). All determinations relating to “covered employee” status and the application of the deduction limitation of Section 162(m) shall be made by the Committee, in its sole discretion, as promptly as reasonably practical. The provisions of this Paragraph 9 shall not apply following a Change in Control of the Corporation, and the Participant shall be entitled to the distribution of the Participant’s Stock Units without regard to the Participant’s status as a “covered employee” within the meaning of Section 162(m).   10. Voluntary Deferral.     (a) Subject to applicable law, in addition and subject to any mandatory deferral under Paragraph 9 of this Agreement, the Participant may elect to defer all or any portion of the Stock Units so that the Participant becomes entitled to the distribution of any vested Stock Units on the Applicable Date of any year that is (i) no earlier than the end of the third calendar year after the calendar year in which the Stock Units vest pursuant to Paragraph 5 of these Terms and Conditions, and (ii) no later than the fifth calendar year beginning after the Participant’s Retirement or other termination of employment. Notwithstanding the previous sentence, in no event shall distribution of the Stock Units begin earlier than six months following termination of employment, unless due to the Participant’s death, if the Participant was a “Specified Employee” (as defined in   -5- -------------------------------------------------------------------------------- Section 409A(a)(2)(B)(i) of the Code) of the Corporation at termination of employment, as determined in accordance with procedures adopted by the Corporation pursuant to Section 409A of the Code and related regulations.     (b) The Participant shall make any election to defer receipt of the payment of all or any portion of the Stock Units by filing a deferral election form with the Corporation within thirty (30) days after the date of these Terms and Conditions and at least thirteen (13) months prior to the end of the Vesting Period set forth in the Award Notice.     (c) Distribution of any deferred Stock Units pursuant to this Section 10 shall be made at one time or in up to five (5) annual installments, as the Participant shall have elected in the deferral election form described in clause (b) above. If the Participant has elected an installment distribution, the initial installment shall be distributed as soon as practical after the Applicable Date in the first year to which distribution has been deferred, and the remaining installments shall be distributed on each anniversary date of the initial distribution.   11. Delivery of Shares. The Corporation shall not be required to issue or deliver any shares of Common Stock pending compliance with applicable federal and state securities laws (including any registration required) and compliance with applicable stock exchange rules and practices. The Corporation shall use its reasonable efforts to cause compliance with those laws, rules and practices.   12. Adjustment. The Stock Units provided herein are subject to adjustment in accordance with the provisions of Section 11 of the Plan.   13. No Right to Employment. Nothing in the Plan or the Stock Unit Agreement shall be construed as creating any right in the Participant to continued employment or as altering or amending the existing terms and conditions of employment of the Participant except as otherwise specifically provided in the Stock Unit Agreement.   14. Nontransferability. No interest hereunder of the Participant is transferable except as provided in the Stock Unit Agreement.   15. Withholding. The Corporation shall have the right to deduct from any distribution made hereunder in cash any sum required to be withheld by the Corporation for federal, state or local taxes. In the case of any distribution made hereunder in shares of Common Stock, the Corporation requires as a condition of distribution that the Participant or the Participant’s beneficiary pay the Corporation the amount which the Corporation determines to be required to be withheld for federal, state or local taxes. Unless the Participant otherwise elects, the tax withholding obligation with respect to shares of Common Stock shall be satisfied by the Corporation’s withholding a portion of such shares otherwise distributable to the Participant. The Participant may elect to satisfy the tax withholding obligation by the delivery to the Corporation’s of shares of Common Stock acceptable to the Corporation. Any shares withheld or delivered shall be valued at their fair market value as of the date of distribution.   -6- -------------------------------------------------------------------------------- 16. Administration. The Plan is administered by the Committee. The rights of the Participant hereunder are expressly subject to the terms and conditions of the Plan (including continued shareholder approval of the Plan), together with such guidelines as have been or may be adopted from time to time by the Committee. The Participant hereby acknowledges receipt of a copy of the Plan.   17. No Rights as Shareholder. Except as provided herein, the Participant will have no rights as a shareholder with respect to the Stock Units.   18. Interpretation. Any interpretation by the Committee of the terms and conditions of the Plan, the Stock Unit Agreement or any guidelines shall be final. The Stock Unit Agreement shall be construed under the laws of the State of Illinois without regard to the conflict of law provisions of any state.   19. Sole Agreement. The Stock Unit Agreement, together with the Plan, is the entire Agreement between the parties hereto, all prior oral and written representations being merged herein. No amendment or modification of the terms of the Stock Unit Agreement shall be binding on either party unless reduced to writing and signed by the party to be bound. The Stock Unit Agreement shall be binding upon, inure to the benefit of, and be enforceable by the parties hereto and their respective successors.   20. Definitions. Capitalized terms not defined in the Stock Unit Agreement shall have the meanings assigned to them in the Plan. For purposes of the Stock Unit Agreement:     (a) “Client” means any person or entity with which the Corporation, or any of its Subsidiaries, did business and with which the Participant had contact, or about which the Participant had access to Confidential Information, during the last twelve (12) months of his or her employment.     (b) “Competitive Service or Product” means any service or product: (i) that is substantially similar to or competitive with any service or product that the Participant created or provided, or of which the Participant assisted in the creation or provision, during his or her employment by the Corporation or any of its Subsidiaries; or (ii) about which the Participant had access to Confidential Information during his or her employment by the Corporation or any of its Subsidiaries.     (c) “Confidential Information” means any trade secrets or other information, including, but not limited to, any client information (for example, client lists, information about client accounts, borrowings, and current or proposed transactions), any internal analysis of clients, marketing strategies, financial reports or projections, business or other plans, data, procedures, methods, computer data or system program or design, devices, lists, tools, or compilation, which relate to the present or planned business of the Corporation or any of its Subsidiaries and which has not been made generally known to the public by authorized representatives of the Corporation.   -7- --------------------------------------------------------------------------------   (d) “Prospective Client” means any person or entity to which the Corporation, or any of its Subsidiaries, provided, or from which the Corporation, or any of its Subsidiaries received, a proposal, bid, or written inquiry (general advertising or promotional materials and mass mailings excepted) and with which the Participant had contact, or about which the Participant had access to Confidential Information, during the last twelve (12) months of his or her employment.     (e) “Solicit” and “Solicitation” (with respect to Clients or Prospective Clients) mean directly or indirectly, and without the Corporation’s written authorization, to invite, encourage, request, or induce (or to assist another to invite, encourage, request or induce) any Client or Prospective Client of the Corporation, or any of its Subsidiaries, to: (i) surrender, redeem or terminate a product, service or relationship with the Corporation, or any of its Subsidiaries; (ii) obtain any Competitive Service or Product from the Participant or any third party; or (iii) transfer a product, service or relationship from the Corporation, or any of its Subsidiaries, to the Participant or any third party.   -8-

  Exhibit 10.5 September 28, 2005 Mr. Norris Nissim 269 Broad Avenue Englewood, NJ 07631 Dear Norris:      This letter will confirm our agreement concerning the terms of your 2005 compensation. This Agreement is entered into for and in consideration of the mutual covenants, agreements and promises set forth herein, and for other good and valid consideration, the receipt and sufficiency of which is hereby acknowledged. Your signature at the end of this letter will signify your acceptance of and agreement to the provisions of this letter.      1. 2005 Compensation. Subject to the terms and conditions of this Agreement, you shall receive 2005 total compensation in an amount at least equal to $600,000 (“2005 Minimum Total Compensation”). Your 2005 Minimum Total Compensation amount (which includes amounts already paid to you for services rendered in calendar year 2005) includes your current base salary through December 31, 2005, Company contributions made on your behalf into the 401(k) plan, and any other form of cash compensation that you may receive. You shall continue to receive your current base salary on regularly scheduled paydays through December 31, 2005. The 2005 year-end benefit payments are payable on or around January 15, 2006.      2. Termination of Employment. If your employment ceases prior to December 31, 2005, you shall only be entitled to payment as follows.      a. Termination for Cause. The Company, in it sole discretion, may terminate your employment for Cause (as defined herein), upon written notice, and your employment shall terminate on the date such notice is given. For purposes of this Agreement, “Cause” means (i) continued failure to substantially perform your duties with the Company after delivery by your Manager of a written demand for substantial performance and a failure to cure in all respects within 10 days of receiving the written demand; (ii) committing any willful act of fraud, dishonesty, misrepresentation, breach of trust or act of moral turpitude; (iii) willful violation of any law, rule, order or regulation that is demonstrably and   --------------------------------------------------------------------------------   materially injurious to the Company; (iv) committing any act not approved of or ratified by the Company involving any conflict of interest or self-dealing relating to any aspect of the Company that is demonstrably and materially injurious to the Company.           (i) Payment upon Termination for Cause. If you are terminated for Cause, the Company shall pay you all earned and accrued base salary and you shall not be entitled to any other compensation or payments from the Company.      b. Termination without Cause. The Company may terminate your employment without Cause at any time between now and December 31, 2005.         (i) Payment upon Termination without Cause. If the Company terminates your employment without Cause, the Company shall provide you with the amounts below as applicable:   A.   any unpaid base salary that has been earned and accrued up to and including the termination date, payable no later than the next regularly scheduled payday; and     B.   any unused vacation days that you have accrued up to the termination date, payable no later than the next regularly scheduled payday; and     C.   a lump sum payment in an amount equal to your 2005 Minimum Total Compensation, less any compensation payments that the Company has made to you for services rendered in calendar year 2005, provided however, that you provide the Company with a complete release of all claims in a form provided by the Company. The lump sum described in this sub-paragraph C shall be payable within 10 business days of the date that the Company receives a complete release of claims from you. The Company may increase this lump sum payment in its sole discretion.      c. Resignation. You may terminate your employment with the Company at any time. If you resign from your employment, the Company shall pay you all earned and accrued base salary on the next regularly scheduled payroll date. You shall not be entitled to any portion of your 2005 year-end benefit. Provided that you give the Company at least two weeks advance notice of your resignation, the Company shall pay you for any accrued and unused vacation days.   --------------------------------------------------------------------------------           d. Death or Disability. In the event that you die or become entitled to the Company’s long-term disability benefits under the Company’s long-term disability policy, you shall be entitled to receive (i) earned and accrued base salary and (ii) a pro rata portion of any year-end benefit that may be due to you as of the date of your death or disability.      3. Non-Solicitation. You acknowledge that the Company provides you with the opportunity to work closely with various Company employees, officers and directors and that the knowledge and experience acquired by these employees in the course of their employment constitutes a valuable asset of the Company. Accordingly, you agree that in order to protect the goodwill and valuable assets of the Company, you shall not, without the express written consent of the Company, directly or indirectly, on your behalf or on the behalf of any other person or entity (i) solicit, induce or encourage the resignation of any employee, officer, director or independent contractor of the Company; (ii) interfere in any way with the relationship between the Company and any employee, officer, director or independent contractor thereof; or (iii) hire any individual whom the Company employed at any time during the six month period preceding your departure from the Company. The restrictions in this paragraph 3 shall apply through December 31, 2005.      a. Reformation and Severability. It is the intent of the parties that the provisions of this Agreement be enforced to the fullest extent permitted by law. In case any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or unenforceable as written, the parties agree that the court shall modify and reform such provision to permit enforcement to the greatest extent permitted by law. In addition, if any provision of this Agreement shall be declared invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall in no way be affected or impaired thereby.      b. Remedies for Breach. You acknowledge that a breach by you of the Non-Solicitation provision in this paragraph 3 would be material, and would cause irreparable injury. You therefore agree that the rights and remedies of the Company hereunder may be enforced both at law and in equity, by injunction or otherwise, without the requirement that the Company post any bond or security.      c. Survival of Provision. You understand that this paragraph 3 shall survive the termination of your employment, whether such termination is voluntary or involuntary, by you or the Company, with or without cause.      4. Entire Agreement. This letter agreement constitutes the entire agreement between you and the Company as of the date hereof with respect to your compensation and cannot be amended or terminated orally.   --------------------------------------------------------------------------------        5. Governing Law. This letter agreement will be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in that State, without regard to conflicts of law.      6. Paragraph Headings. Paragraph headings used herein are included for convenience of reference only and shall not affect the meaning of any provision of this letter agreement.      If you are in agreement with the terms of this letter, please so indicate by signing and returning the enclosed copy of this letter, whereupon this letter shall constitute a binding agreement between you and the Company.                   Very truly yours,                   Levin Management Co., Inc.                   By:  /s/  Glenn A. Aigen                   Name: Glenn A. Aigen Title: Senior Vice President and Chief Financial Officer                   BKF Capital Group, Inc                   By:  /s/  Anson M. Beard, Jr.                   Name: Anson M. Beard, Jr. Title: Chairman of the Board                   By:  /s/  John C. Siciliano                   Name: John C. Siciliano Title: Chief Executive Officer           Acknowledged and Agreed:                   /s/  Norris Nissim                                            9/28/05         Date          

-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FINANCING AGREEMENT Dated as of September 1, 2006 By and Between CLARK COUNTY, NEVADA and SOUTHWEST GAS CORPORATION relating to CLARK COUNTY, NEVADA INDUSTRIAL DEVELOPMENT REVENUE BONDS (SOUTHWEST GAS CORPORATION PROJECT) SERIES 2006A -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FINANCING AGREEMENT _________________ TABLE OF CONTENTS (This Table of Contents is not a part of this Agreement and is only for convenience of reference) Page ARTICLE I DEFINITIONS 1   SECTION 1.1 Definitions of Terms 1   SECTION 1.2 Number and Gender 1   SECTION 1.3 Articles, Sections 1   ARTICLE II REPRESENTATIONS 2   SECTION 2.1 Representations by the Issuer 2   SECTION 2.2 Representations by the Borrower 2 ARTICLE III THE PROJECT; ISSUANCE OF THE BONDS 4   SECTION 3.1 The Project 4   SECTION 3.2 Agreement to Issue Bonds; Application of Bond Proceeds 4   SECTION 3.3 Disbursements from the Construction Fund and the Costs of Issuance Fund       Issuance Fund 4   SECTION 3.4 Investment of Moneys 5   SECTION 3.5 Costs of Issuance 6 ARTICLE IV LOAN AND PROVISIONS FOR REPAYMENT 6   SECTION 4.1 Loan of Bond Proceeds 6   SECTION 4.2 Loan Repayments and Other Amounts Payable 6   SECTION 4.3 Unconditional Obligation 8   SECTION 4.4 Payments Pledged and Assigned 9   SECTION 4.5 Payment of the Bonds and Other Amounts 9 ARTICLE V SPECIAL COVENANTS AND AGREEMENTS 10   SECTION 5.1 Right of Access to the Project and Records 10   SECTION 5.2 Borrower’s Maintenance of Its Existence; Assignments 10   SECTION 5.3 Establishment of Completion Date; Obligation of Borrower to       Complete 12   SECTION 5.4 Maintenance and Repair; Taxes; Utility and Other Charges 12 -i- -------------------------------------------------------------------------------- TABLE OF CONTENTS (CONTINUED) Page   SECTION 5.5 Qualification in Nevada 13   SECTION 5.6 No Warranty by the Issuer 13   SECTION 5.7 Agreement as to Use of the Project 13   SECTION 5.8 Notices and Certificates Required to be Delivered to the Trustee 13   SECTION 5.9 Borrower to Furnish Notice of Adjustments of Interest Rate Periods 14   SECTION 5.10 Information Reporting 14   SECTION 5.11 Tax Covenants; Rebate 14   SECTION 5.12 Continuing Disclosure 15   SECTION 5.13 Liquidity Facility 15   SECTION 5.14 Letter of Credit 16   SECTION 5.15 Requirement to Deliver Letter of Credit or Liquidity Facility       Under Certain Circumstances 16   SECTION 5.16 Bond Insurance 17 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES 18   SECTION 6.1 Events of Default Defined 18   SECTION 6.2 Remedies on Default 19   SECTION 6.3 No Remedy Exclusive 21   SECTION 6.4 Agreement to Pay Fees and Expenses of Counsel 22   SECTION 6.5 No Additional Waiver Implied by One Waiver; Consents to       Waivers 22 ARTICLE VII OPTION AND OBLIGATION OF BORROWER TO PREPAY 22   SECTION 7.1 Option to Prepay 22   SECTION 7.2 Obligation to Prepay 23   SECTION 7.3 Notice of Prepayment; Amount to be Prepaid 23   SECTION 7.4 Cancellation at Expiration of Term 23 ARTICLE VIII NON-LIABILITY OF ISSUER 24   SECTION 8.1 Non-Liability of the Issuer 24 ARTICLE IX MISCELLANEOUS 24 -ii- -------------------------------------------------------------------------------- TABLE OF CONTENTS (CONTINUED) Page   SECTION 9.1 Notices 24   SECTION 9.2 Assignments 24   SECTION 9.3 Severability 25   SECTION 9.4 Execution of Counterparts 25   SECTION 9.5 Amounts Remaining in Bond Fund 25   SECTION 9.6 Amendments, Changes and Modifications 25   SECTION 9.7 Governing Law 25   SECTION 9.8 Authorized Issuer and Borrower Representatives 25   SECTION 9.9 Term of the Agreement 25   SECTION 9.10 Binding Effect 26   SECTION 9.11 Trustee and Bond Insurer as Parties in Interest and Third Party     Beneficiaries 26 EXHIBIT A Description of the Project A-1     -iii- --------------------------------------------------------------------------------         THIS FINANCING AGREEMENT made and entered into as of September 1, 2006 (this “Agreement”), by and between CLARK COUNTY, NEVADA, a political subdivision of the State of Nevada, party of the first part (hereinafter sometimes referred to as the “Issuer”), and SOUTHWEST GAS CORPORATION, a California corporation, party of the second part (hereinafter sometimes referred to as the “Borrower”),         W I T N E S S E T H:         WHEREAS, concurrently with the execution and delivery of this Agreement, the Issuer is entering into an Indenture of Trust, dated as of September 1, 2006 (the “Indenture”), with The Bank of New York Trust Company, N.A., as trustee (the “Trustee”) thereunder, pursuant to which $56,000,000 principal amount of Clark County, Nevada Industrial Development Revenue Bonds (Southwest Gas Corporation Project) Series 2006A (the “Bonds”) will be issued and secured; and         WHEREAS, the Issuer hereby confirms and the Borrower hereby acknowledges and adopts the recitals to the Indenture as though fully set forth here;         NOW, THEREFORE, in consideration of the respective representations and agreements hereinafter contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS         SECTION 1.1 Definitions of Terms. Except as defined below, for all purposes of this Agreement, unless the context clearly requires otherwise, all terms defined in Article I of the Indenture have the same meanings in this Agreement.         “Event of Default” under this Agreement is defined in Section 6.1.         SECTION 1.2 Number and Gender. The singular form of any word used herein, including the terms defined in Section 1.02 of the Indenture, shall include the plural, and vice versa. The use herein of a word of any gender shall include all genders.         SECTION 1.3 Articles, Sections. Unless otherwise specified, references to Articles, Sections and other subdivisions of this Agreement are to the designated Articles, Sections and other subdivisions of this Agreement as originally executed. The words “hereof,” “herein,” “hereunder” and words of similar import refer to this Agreement as a whole. The headings or titles of the several articles and sections, and the table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of the provisions hereof.   1                                                                                                              -------------------------------------------------------------------------------- ARTICLE II REPRESENTATIONS         SECTION 2.1 Representations by the Issuer. The Issuer makes the following representations as the basis for the undertakings on its part herein contained:         (a)     The Issuer is a political subdivision of the State. Under the provisions of the Act, the Issuer has the power to enter into the transactions contemplated by this Agreement and to carry out its obligations hereunder. By proper action, the Issuer has been duly authorized to execute, deliver and duly perform this Agreement and the Indenture. To the extent the foregoing representation involves a legal conclusion, such representation is made in reliance on the opinion of Bond Counsel.         (b)     To finance part of the Cost of the Project, the Issuer will issue the Bonds, which will mature, bear interest and be subject to redemption as provided in the Indenture.         (c)     The Issuer’s interest in this Agreement (except certain rights of the Issuer to payment of fees and expenses and indemnification, to rights of inspection and to consents and rights to receive any notices, certificates, requests, requisitions and other communications) will be pledged to the Trustee as security for payment of the principal of, and premium, if any, and interest on the Bonds.         (d)     The Issuer has not pledged and will not pledge its interest in this Agreement for any purpose other than to secure the Bonds under the Indenture.         (e)     The Issuer is not in default under any of the provisions of the laws of the State which default would affect its existence or its powers referred to in subsection (a) of this Section 2.1.         (f)     The Issuer has found and determined and hereby finds and determines that all requirements of the Act with respect to the issuance of the Bonds and the execution of this Agreement and the Indenture have been complied with and that financing the Project by issuing the Bonds and entering into this Agreement and the Indenture is in the public interest, serves the public purposes and meets the requirements of the Act.         (g)     On September 20, 2005, the Issuer adopted an initial resolution authorizing the issuance of bonds in an amount not to exceed $250,000,000 for a variety of purposes, from which authorization $100,000,000 of bonds have been issued to date to finance a portion of the Cost of the Project. On September 5, 2006, the Issuer adopted a resolution approving the issuance of the Bonds in an amount not to exceed $56,000,000.         (h)     No member, officer or other official of the Issuer has any interest whatsoever in the Borrower or in the transactions contemplated by this Agreement.         SECTION 2.2 Representations by the Borrower. The Borrower makes the following representations as the basis for the undertakings on its part herein contained:   2                                                                                                              --------------------------------------------------------------------------------         (a)     The Borrower is a corporation duly incorporated and in good standing in the State of California, is duly qualified to transact business and in good standing in the State, has power to enter into and by proper corporate action has been duly authorized to execute and deliver this Agreement and all other documents contemplated hereby to be executed by the Borrower in connection with the issuance and sale of the Bonds.         (b)     Neither the execution and delivery of this Agreement or any other documents contemplated hereby to be executed by the Borrower in connection with the issuance and sale of the Bonds, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement, conflicts with or results in a breach of any of the terms, conditions or provisions of the Borrower’s articles of incorporation or by-laws or of any corporate actions or of any agreement or instrument to which the Borrower is now a party or by which it is bound, or constitutes a default (with due notice or the passage of time or both) under any of the foregoing, or result in the creation or imposition of any prohibited lien, charge or encumbrance whatsoever upon any of the property or assets of the Borrower under the terms of any instrument or agreement to which the Borrower is now a party or by which it is bound.         (c)     The Cost of the Project is as set forth in the Tax Certificate and has been determined in accordance with sound engineering/construction and accounting principles. All the information provided by, and all the representations made by, the Borrower in the Tax Certificate are true and correct as of the date thereof.         (d)     The Project consists of those facilities described in Exhibit A to this Agreement and in the Southwest Gas Corporation Engineering Certificate dated the date of issuance of the Bonds (the “Engineering Certificate”), which is incorporated by reference herein, and the Borrower shall not make any changes to the Project except as otherwise permitted hereunder or to the operation thereof which would affect the qualification of the Project under the Act or impair the Tax-Exempt status of the Bonds. In particular, the Borrower shall comply with all requirements set forth in the Tax Certificate. The Borrower intends to cause the Project to be used for the local furnishing of natural gas until the principal of, the premium, if any, and the interest on the Bonds shall have been paid.         (e)     The Borrower has and will have title to and all necessary easements to install the Project, sufficient to carry out the purposes of this Agreement.         (f)     At the time of submission of an application to the Issuer for financial assistance in connection with the Project and on the dates on which the Issuer took action on such application, permanent financing for the Project had not otherwise been obtained or arranged.         (g)     All certificates, approvals, permits and authorizations with respect to the construction of the Project of agencies of applicable local governments, the State and the federal government have been obtained or will be obtained in the normal course of business.   3                                                                                                              --------------------------------------------------------------------------------         (h)     No event has occurred and no condition exists which would constitute an Event of Default or which with the passing of time or with the giving of notice or both would become such an Event of Default.         (i)     To the best of the knowledge of the Borrower, no member, officer, or other official of the Issuer has any interest whatsoever in the Borrower or in the transactions contemplated by this Agreement.         (j)     The Borrower has reviewed the Indenture and hereby accepts the terms thereof. ARTICLE III THE PROJECT; ISSUANCE OF THE BONDS         SECTION 3.1 The Project. The Borrower agrees that it will acquire, construct, equip, and install, or complete the acquisition, construction, equipping, and installation of the Project and all other facilities and real and personal property necessary for the operation of the Project. The Borrower further agrees that it at all times shall operate the Project as a “project” within the meaning of the Act and so that the Project constitutes Exempt Facilities. The Borrower agrees to proceed with due diligence to complete the Project within three years from the date hereof.         SECTION 3.2 Agreement to Issue Bonds; Application of Bond Proceeds. In order to provide funds to lend to the Borrower to finance part of the Cost of the Project as provided in Section 4.1 hereof, the Issuer agrees that it will issue under the Indenture and sell and cause to be delivered to the Initial Purchaser thereof the Bonds in an aggregate principal amount not to exceed $56,000,000, each bearing interest and maturing as set forth in the Indenture. The Issuer will thereupon deposit the proceeds received from the sale of the Bonds as provided in Section 2.02(e) of the Indenture.         SECTION 3.3 Disbursements from the Construction Fund and the Costs of Issuance Fund. The Borrower will request pursuant to the terms of the Indenture, authorize and direct the Trustee to disburse the moneys in the Construction Fund to or on behalf of the Borrower, upon compliance with Section 6.07 of the Indenture, for the following purposes (but, subject to the provisions of Section 3.4 hereof, for no other purpose):         (a)     Payment to the Borrower of such amounts, if any, as shall be necessary to reimburse the Borrower, in full for all advances and payments made by it at any time prior to or after the delivery of the Bonds for expenditures incurred in connection with the preparation of plans and specifications for the Project (including any preliminary study or planning of the Project or any aspect thereof) and the acquisition, construction and installing of the Project.         (b)     Payment for labor, services, materials and supplies used or furnished in site improvement and in the acquisition, construction and installing of the Project and miscellaneous expenditures incidental to any of the foregoing items.   4                                                                                                              --------------------------------------------------------------------------------         (c)     Payment of the fees, if any, for architectural, engineering, legal, underwriting and supervisory services with respect to the Project and the Bonds.         (d)     Payment of the premiums on all insurance that was required to be acquired and maintained in connection with the Project during the construction period with respect to the Project.         (e)     Payment of the taxes, assessments and other charges, if any, that may have become payable during the construction period with respect to the Project.         (f)     Payment of expenses incurred in seeking to enforce any remedy against any contractor or subcontractor or any other third party in respect of any default under a contract relating to the Project.         (g)     Payment of any other costs which constitute a part of the Cost of the Project in accordance with generally accepted accounting principles, which are permitted by the Act and which will not adversely affect the Tax-Exempt status of the Bonds.         Each of the payments referred to in Sections 3.3(a)-(g) shall be made upon receipt by the Trustee of a written requisition in the form prescribed by Section 6.07 of the Indenture, signed by the Authorized Borrower Representative.         The Borrower will authorize and direct the Trustee, upon compliance with Section 6.08 of the Indenture, to disburse the moneys in the Costs of Issuance Fund to or on behalf of the Borrower only for Costs of Issuance. Each of the payments referred to in this paragraph shall be made upon receipt by the Trustee of a written requisition in the form prescribed by Section 6.08 of the Indenture.         The Borrower covenants and agrees that at all times at least 97% of the moneys so disbursed out of the Construction Fund will be used to pay or reimburse the Borrower for the payment of qualifying costs of Exempt Facilities as described in the Tax Certificate. The Borrower further covenants and agrees that it will not take any action or authorize or permit, any action to be taken which would adversely affect the Tax-Exempt status of the Bonds.         The Borrower understands that the Tax Certificate may impose additional restrictions on withdrawals from the Construction Fund, and the Borrower agrees to be bound by such restrictions, if any.         SECTION 3.4 Investment of Moneys. Any moneys held as a part of the Bond Fund or the Construction Fund or the Costs of Issuance Fund shall be invested or reinvested by the Trustee at the written direction of an Authorized Borrower Representative as to specific investments, to the extent permitted by law, in accordance with Section 7.01 of the Indenture. The Borrower shall not direct the Trustee to make any investments or reinvestments other than those permitted by the Indenture and as permitted by law. In making any such investments, the Trustee may rely on directions delivered to it pursuant to this Section, and the Trustee and the Issuer shall be relieved of all liability with respect to making such investments in accordance with such directions. The Borrower agrees that to the extent any moneys in the Bond Fund represent moneys held for the payment of the principal of Bonds which have become due at maturity or on a redemption date and the premium, if any, on such Bonds or interest due on Bonds in all cases where Bonds have not been presented for payment and paid or such interest is unclaimed, or to the extent any moneys are held by the Trustee for the payment of the purchase price of Bonds which have not been presented for payment, such moneys shall not be invested.   5                                                                                                              --------------------------------------------------------------------------------         SECTION 3.5 Costs of Issuance. The Borrower covenants and agrees to pay all costs incurred in connection with the issuance of the Bonds, which may be reimbursed or paid out of the proceeds of the Bonds to the extent permitted by the Act, the Code and the Tax Certificate, and the Issuer shall have no obligation with respect to such costs. ARTICLE IV LOAN AND PROVISIONS FOR REPAYMENT         SECTION 4.1 Loan of Bond Proceeds. (a)  The Issuer agrees, upon the terms and conditions in this Agreement, to lend to the Borrower the proceeds received by the Issuer from the sale of the Bonds in order to finance a portion of the Cost of the Project. The Issuer’s obligation herein shall be solely to deposit the proceeds of the Bonds with the Trustee as provided in Section 3.2 hereof. Upon such deposit, the Issuer will be deemed to have made a loan to the Borrower in an amount equal to the principal amount of the Bonds.         (b)     The Issuer and the Borrower expressly reserve the right to enter into, to the extent permitted by law, an agreement or agreements other than this Agreement, with respect to the issuance by the Issuer, under an indenture or indentures other than the Indenture, of obligations to provide additional funds to pay the Cost of the Project or to refund all or any principal amount of the Bonds (or any portions thereof), or any combination thereof.         SECTION 4.2 Loan Repayments and Other Amounts Payable. (a)  On each date provided in or pursuant to the Indenture for the payment of principal (whether at maturity or upon redemption or acceleration) of and/or premium, if any, and/or interest on any Bonds, until the principal of and premium, if any, and interest on the Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, the Borrower shall pay to the Trustee in immediately available funds, for deposit in the account within the Bond Fund, as a repayment installment of the loan of the proceeds of the Bonds pursuant to Section 4.1 hereof, a sum equal to the amount payable on such interest payment or redemption or acceleration or maturity date as principal (whether at maturity or upon redemption or acceleration) of and premium, if any, and interest on the Bonds as provided in the Indenture. In the event the Borrower shall fail to make any of the payments required in this subsection, the payment so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid.         (b)     The Borrower shall pay or cause to be paid to the Trustee amounts equal to the amounts to be paid by the Trustee for the purchase of Bonds which have not been remarketed pursuant to Article IV of the Indenture and the premium, if any, on the Bonds which have been remarketed pursuant to Article IV of the Indenture, in each case as and to the extent provided in the Indenture. Such amounts shall be paid or caused to be paid by the Borrower to the Trustee, acting as Tender Agent (or, for so long as the Bonds are Book-Entry Bonds, to the Securities Depository), in immediately available funds on the dates and no later than the times such payments pursuant to Section 4.05 of the Indenture are to be made. In the event the Borrower shall fail to make (or cause to be made) any of the payments required in this subsection, the payment so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid. The obligation of the Borrower to make any payment under this subsection shall be deemed to have been satisfied to the extent of any corresponding payment made by a Bank or a Liquidity Provider to the Trustee under any Letter of Credit or Liquidity Facility.   6                                                                                                              --------------------------------------------------------------------------------         (c)     The Borrower agrees to pay to the Trustee, (i)  the reasonable fees, charges and expenses of the Trustee, as Registrar, and as Paying Agent and Tender Agent, as and when the same become due, and (ii) the reasonable fees, charges and expenses of the Trustee, as and when the same become due under the Indenture, including payments under Section 6.4 hereof, and including the annual fee of the Trustee for the services rendered by it and the expenses incurred by it under the Indenture. In the event the Borrower should fail to make any of the payments required in this subsection, the item or installment so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid; provided, however, that such failure of payment shall not be deemed an event of default during the period in which the Borrower is in good faith contesting, by appropriate proceedings promptly initiated and diligently conducted, such payment required by this subsection. The provision of this subsection shall survive the retirement of the Bonds, the termination of this Agreement and the resignation or approval of the Trustee.         (d)     The Borrower shall pay to the Issuer upon demand all Administrative Expenses, including payments under Section 6.4 hereof. In the event the Borrower should fail to make any of the payments required in this subsection, the item or installment so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid.         (e)     The Borrower releases the Issuer and the Trustee from, and covenants and agrees that neither the Issuer nor the Trustee shall be liable for, and covenants and agrees, to the extent permitted by law, to indemnify and hold harmless the Issuer and the Trustee and their directors, officers, employees and agents from and against, any and all losses, claims, damages, liabilities or expenses, of every conceivable kind, character and nature whatsoever arising out of, resulting from or in any way connected with (1) the Project, or the conditions, occupancy, use, possession, conduct or management of, or work done in or about, or from the planning, design, acquisition, installation or construction of the Project or any part thereof (including without limitation any of the foregoing relating to any federal, state or local environmental law, rule or regulation); (2) the issuance of any Bonds or any certifications, covenants or representations made in connection therewith and the carrying out of any of the transactions contemplated by the Bonds and this Agreement; (3) the Trustee’s acceptance or administration of the trusts under the Indenture, or the exercise or performance of any of its powers or duties under the Indenture; or (4) any untrue statement or alleged untrue statement of any material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, in any official statement or other offering circular utilized by the Issuer or any underwriter or placement agent in connection with the sale or remarketing of any Bonds; provided that such indemnity shall not be required for damages that result from willful misconduct (or, as to the Trustee, negligence), including willful misconduct (or, as to the Trustee, negligence) in the provision of any statements or information, on the part of the party seeking such indemnity. The Borrower further covenants and agrees, to the extent permitted by law, to pay or to reimburse the Issuer and the Trustee and their respective officers, employees and agents for any and all costs, reasonable attorneys’ fees, liabilities or expenses incurred in connection with investigating, defending against or otherwise in connection with any such losses, claims, damages, liabilities, expenses or actions, except to the extent that the same arise out of the willful misconduct (or, as to the Trustee, negligence) of the party claiming such payment or reimbursement. The provisions of this Section shall survive the retirement of the Bonds, the expiration of this Agreement and the resignation or removal of the Trustee.   7                                                                                                              --------------------------------------------------------------------------------         The indemnified party shall promptly notify the Borrower in writing of any claim or action covered by this indemnity and brought against the indemnified party, or in respect of which indemnity may be sought against the Borrower, setting forth the particulars of such claim or action, and the Borrower will assume the defense thereof, including the employment of counsel satisfactory to the indemnified party and the payment of all expenses. The indemnified party may employ separate counsel in any such action and participate in the defense thereof, and the fees and expenses of such counsel shall be payable by the Borrower.         (f)     The Borrower agrees to pay to the Remarketing Agent and the Auction Agent the reasonable fees, charges and expenses of such Remarketing Agent and Auction Agent, and the Issuer shall have no obligation or liability with respect to the payment of any such fees, charges or expenses.         (g)     The Borrower agrees to pay any Rebate Requirement (as defined in the Tax Certificate) to the Trustee for deposit in the Rebate Fund.         (h)     The Borrower also agrees to pay, (i) as soon as practicable after receipt of request for payment thereof, all expenses required to be paid by the Borrower under the terms of any bond purchase agreement relating to the sale of the Bonds; (ii) at the time of issuance of any Bonds, the Issuer’s administrative fee in the amount of $50,000; and (iii) at the time of issuance of any Bonds, all reasonable expenses of the Issuer related to such Bonds which are not otherwise required to be paid by the Borrower under the terms of this Agreement.         SECTION 4.3 Unconditional Obligation. The obligation of the Borrower to make the payments pursuant to this Agreement and to perform and observe the other agreements on its part contained herein shall be absolute and unconditional, irrespective of any defense or any rights of set-off, recoupment or counterclaim it might otherwise have against the Issuer, and during the term of this Agreement, the Borrower shall pay (or cause to be paid) absolutely the payments to be made on account of the loan as prescribed in Section 4.2 and all other payments as prescribed herein, free of any deductions and without abatement, diminution or set-off. Until such time as the principal of and premium, if any, and interest on the Bonds shall have been fully paid, or provisions for the payment thereof shall have been made as required by the Indenture, the Borrower (i) will not suspend or discontinue any payments required hereunder, including payments provided for in Section 4.2 hereof; (ii) will perform and observe all of its other covenants contained in this Agreement and all obligations required to be performed by it by the Indenture; and (iii) except as provided in Article VII hereof, will not terminate this Agreement for any cause, including, without limitation, the occurrence of any act or circumstance that may constitute failure of consideration, destruction of or damage to the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either of them, or any failure of the Issuer or the Trustee to perform and observe any covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement or the Indenture, except to the extent permitted by this Agreement.   8                                                                                                              --------------------------------------------------------------------------------         SECTION 4.4 Payments Pledged and Assigned. It is understood and agreed that all rights to the payment of moneys hereunder (except payments made to the Trustee pursuant to Sections 4.2(c), 4.2(e) 4.2(g), 4.2(h) and 6.4 hereof and payments to be made to the Remarketing Agent and the Auction Agent pursuant to Section 4.2(f) hereof and payments to be made to the Issuer pursuant to Sections 4.2(d), 4.2(e), 4.2(h) and 6.4 hereof and its rights of indemnification and inspection and rights to receive notices, certificates, requests, requisitions or other communications and to give consents hereunder) are pledged and assigned to the Trustee by the Indenture. The Borrower consents to such pledge and assignment. The Issuer hereby directs the Borrower and the Borrower hereby agrees to pay or cause to be paid to the Trustee all said amounts required to be paid by or for the account of the Borrower pursuant to Section 4.2 hereof (except payments to be made directly to the Remarketing Agent and the Auction Agent pursuant to Section 4.2(f) hereof and payments to be made directly to the Issuer pursuant to Sections 4.2(d), 4.2(e), 4.2(h) and 6.4 hereof). The Project will not constitute any part of the security for the Bonds.         SECTION 4.5 Payment of the Bonds and Other Amounts. The Bonds shall be payable from payments made by the Borrower to the Trustee under Section 4.2(a) hereof and/or from amounts received by the Trustee from a draw on a Letter of Credit. Payments of principal of or premium, if any, or interest on the Bonds with moneys in the Bond Fund or earnings on investments made under the provisions of the Indenture shall be credited against the obligation to pay required by Section 4.2(a) hereof. To the extent provided in the Indenture, whenever any Bonds are redeemable in whole or in part at the option of the Borrower, the Trustee, on behalf of the Issuer, shall redeem the same upon the request of the Borrower and such redemption shall constitute payment of amounts required by Section 4.2(a) hereof equal to the redemption price of such Bonds.         Whenever payment or provision therefor has been made in respect of the principal of or premium, if any, or interest on all or any portion of the Bonds in accordance with the Indenture (whether at maturity or upon redemption or acceleration or upon provision for payment in accordance with Article VIII of the Indenture), payments shall be deemed paid to the extent such payment or provision therefor has been made and is considered to be a payment of principal of or premium, if any, or interest on such Bonds. If, pursuant to the terms of the Indenture, such Bonds are thereby deemed paid in full, the Trustee shall notify the Borrower and the Issuer that such payment requirement has been satisfied. Subject to the foregoing, or unless the Borrower is entitled to a credit under this Agreement or the Indenture, all payments shall be in the full amount required by Sections 4.2(a) and (b) hereof.   9                                                                                                              -------------------------------------------------------------------------------- ARTICLE V SPECIAL COVENANTS AND AGREEMENTS         SECTION 5.1 Right of Access to the Project and Records. The Borrower agrees that during the term of this Agreement the Issuer, the Trustee and the duly authorized agents of either of them shall have the right at all reasonable times during normal business hours to examine the books and records of the Borrower with respect to the Project and to enter upon the site of the Project to examine and inspect the Project; provided, however, that this right is subject to federal and State laws and regulations applicable to the site of the Project. The rights of access hereby reserved to the Issuer and the Trustee may be exercised only after such agent shall have executed release of liability and secrecy agreements if requested by the Borrower in the form then currently used by the Borrower, and nothing contained in this Section or in any other provision of this Agreement shall be construed to entitle the Issuer or the Trustee to any information or inspection involving the confidential know-how of the Borrower.         SECTION 5.2Borrower's Maintenance of Its Existence; Assignments.         (a) To the extent permitted by law and its articles of incorporation, the Borrower agrees that during the term of this Agreement it will maintain its corporate existence in good standing and its authorization to do business in the State and will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another Person or permit one or more other Persons to consolidate with or merge into it; provided, however, that the Borrower may, without violating the covenants in this Section, merge into or consolidate with or transfer all or substantially all of its assets to a wholly-owned subsidiary of the Borrower; and provided further that the Borrower may, without violating the covenants in this Section, combine, consolidate with or merge into another Person qualified to do business in one of the states of the United States, or permit one or more other Persons to combine, consolidate with or merge into it, or sell to another Person all or substantially all of its assets, if:         (i) the surviving, resulting or transferee Person, as the case may be (A) assumes and agrees in writing to pay and perform all of the obligations of the Borrower hereunder, unless such obligations are assumed by operation of law, and (B) is qualified to do business in the State;         (ii) any existing Bond Insurance, Liquidity Facility or Letter of Credit will remain in full force and effect or will be replaced as provided in Sections 5.13 or 5.14, or 5.16, or the Bonds covered by such existing Bond Insurance, Liquidity Facility or Letter of Credit shall have been redeemed;         (iii) the long-term ratings on the outstanding Bonds, as applicable, shall be no lower than the lower of (1) “Baa3” from Moody’s, “BBB-” from S&P and “BBB-” from Fitch, as applicable, or (2) the long-term ratings on the outstanding Bonds immediately prior to the transaction;         (iv) the short-term ratings on the outstanding Bonds, as applicable, shall be no lower than the lower of (1) “A-1” from Moody’s, “P-1” from S&P and “F-1” from Fitch, as applicable, or (2) the short-term ratings on the outstanding Bonds immediately prior to the transaction; and   10                                                                                                              --------------------------------------------------------------------------------         (v) if immediately prior to such merger, consolidation, reorganization or conversion, or such sale or other disposition, the Borrower is a public utility regulated by the Public Utility Commission of their respective jurisdictions (or a similar body in another jurisdiction) or the Federal Energy Regulatory Commission, such successor entity shall be a public utility regulated by the Public Utility Commission of their respective jurisdiction (or another similar body in another jurisdiction) or the Federal Energy Regulatory Commission.         The Borrower agrees to provide the Issuer such information as the Issuer may reasonably request in order to assure compliance with this Section 5.2(a).         Within ten (10) Business Days after the consummation of the merger or other transaction described above, the Borrower shall (except as provided in the next sentence) provide the Issuer, any Bond Insurer, any Bank, any Liquidity Provider and the Trustee with counterpart copies of the merger instruments or other documents constituting the transaction but only to the extent that such documents or instruments are available to the public and not subject to any confidentiality agreement or restriction, and an officer’s certificate satisfactory to the Issuer executed by an Authorized Borrower Representative that all of the provisions of this Section 5.2(a) have been complied with. In the case of a (i) merger or consolidation of the Borrower and any wholly-owned subsidiary of the Borrower or (ii) the transfer to any wholly-owned subsidiary of the Borrower of all or substantially all of the assets of the Borrower, the Borrower shall send the Issuer, any Bond Insurer, any Bank, any Liquidity Provider and the Trustee a notice of such merger within ten (10) Business Days after its completion, together with the officer’s certificate described in the preceding sentence.         Notwithstanding any other provision of this Section 5.2, the Borrower need not comply with any of the provisions of Section 5.2(a) if, at the time of such merger, combination, sale of assets, dissolution or reorganization, the Bonds will be defeased as provided in Article VIII of the Indenture or redeemed in full as provided in Article III of the Indenture.         (b) The rights and obligations of the Borrower under this Agreement may be assigned and delegated, respectively, by the Borrower to any person in whole or in part, subject, however, to each of the following conditions:         (i) No assignment other than pursuant to subsection (a) of this Section shall relieve the Borrower from primary liability for any of its obligations hereunder, and in the event of any assignment not pursuant to said subsection (a) the Borrower shall continue to remain primarily liable for the payments specified in Section 4.2 hereof and for performance and observance of the other agreements on its part herein provided to be performed and observed by it.         (ii) Any assignment from the Borrower shall retain for the Borrower such rights and interests as will permit it to perform its obligations under this Agreement, and any assignee from the Borrower shall assume in writing the obligations of the Borrower hereunder to the extent of the interest assigned, unless such obligations are assumed by operation of law.   11                                                                                                              --------------------------------------------------------------------------------         (iii) The Borrower shall, within thirty (30) days of each such assignment, furnish or cause to be furnished to the Issuer and the Trustee a true and complete copy of each such assignment together with an instrument of assumption, if required, and an opinion of Counsel satisfactory to the Issuer that the Borrower has complied with the provision of this Section 5.2(b).         (c)        In the case of any consolidation, merger or transfer pursuant to subsection (a) hereof or any assignment pursuant to subsection (b) hereof, the Borrower shall cause to be delivered to the Issuer and the Trustee, not later than the effective date of such consolidation, merger, transfer or assignment, an opinion of Bond Counsel to the effect that such consolidation, merger, transfer or assignment will not, in and of itself, adversely affect the Tax-Exempt status of any Bonds.         SECTION 5.3 Establishment of Completion Date; Obligation of Borrower to Complete. As soon as the Project is completed, the Authorized Borrower Representative, on behalf of the Borrower, shall evidence the Completion Date by providing a certificate to the Trustee and the Issuer stating the Cost of the Project and further stating that (i) the acquisition, equipping and construction of the Project has been completed substantially in accordance with the plans, specifications and work orders therefor, and all labor, services, materials and supplies used in the acquisition, equipping, rehabilitation and construction have been paid or provided for, and (ii) all other facilities necessary in connection with the Project have been acquired, constructed and installed substantially in accordance with the plans and specifications and work orders therefor and all costs and expenses incurred in connection therewith have been paid or provided for. Notwithstanding the foregoing, such certificate may state that it is given without prejudice to any rights of the Borrower against third parties for any claims or for the payment of any amount not then due and payable which exists at the date of such certificate or which may subsequently exist. At the time such certificate is delivered to the Trustee, moneys remaining in the Construction Fund, including any earnings resulting from the investment of such moneys, shall be used as provided in Section 6.07 of the Indenture.         SECTION 5.4 Maintenance and Repair; Taxes; Utility and Other Charges. The Borrower agrees to maintain, to the extent permitted by applicable law and regulation, the Project, or cause the Project to be so maintained, during the term of this Agreement (i) in as reasonably safe condition as its operations shall permit and (ii) in good repair and in good operating condition, ordinary wear and tear excepted, making from time to time all necessary repairs thereto and renewals and replacements thereof.         The Borrower agrees to pay or cause to be paid during the term of this Agreement all taxes, governmental charges of any kind lawfully assessed or levied upon the Project or any part thereof, all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project and all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a lien on the Project, provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Borrower shall be obligated to pay only such installments as are required to be paid during the term of this Agreement. The Borrower may, at the Borrower’s expense and in the Borrower’s name, in good faith, contest any such taxes, assessments and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during that period of such contest and any appeal therefrom unless by such nonpayment the Project or any part thereof will be subject to loss or forfeiture.   12                                                                                                              --------------------------------------------------------------------------------         The Borrower agrees that it will keep, or cause to be kept, (i) the Project insured against such risks and in such amounts as are consistent with its insurance practices for similar types of facilities (which may include self-insurance), and (ii) insurance against all direct or contingent loss or liability for personal injury, death or property damage occasioned by the operation of the Project, which insurance may include self-insurance and may be a part of the policy or policies of insurance customarily maintained by the Borrower in connection with its general property and liability insurance upon all of the plants and properties operated by it (including such deductibles as may be provided in said policies).         SECTION 5.5 Qualification in Nevada. The Borrower agrees that throughout the term of this Agreement it, or any successor or assignee as permitted by Section 5.2 hereof, will be qualified to do business in the State.         SECTION 5.6 No Warranty by the Issuer. The Issuer makes no warranty, either express or implied, as to the Project or that it will be suitable for the purposes of the Borrower or needs of the Borrower.         SECTION 5.7 Agreement as to Use of the Project. The Issuer and the Borrower agree that the Issuer shall have no interest in the Project.         SECTION 5.8 Notices and Certificates Required to be Delivered to the Trustee. The Borrower hereby agrees to provide the Trustee with the following:         (a)     Within one hundred twenty (120) days of the end of the fiscal year of the Borrower, a certificate of an Authorized Borrower Representative to the effect that (i) all payments have been made under this Agreement and that, to the best of such Authorized Borrower Representative’s knowledge, no Event of Default or event or condition which with the passage of time or giving of notice or both would constitute an Event of Default has occurred and is continuing and (ii) audited financial statements of the Borrower for such fiscal year;         (b)     Upon knowledge of an Event of Default under this Agreement or the Indenture, notice of such Event of Default, such notice to include a description of the nature of such event and what steps are being taken to remedy such Event of Default;         (c)     Prompt written disclosure of any significant change known to the Borrower that occurs which would adversely impact the Trustee’s ability to perform its duties under the Indenture, or of any conflicts which may result because of other business dealings between the Trustee and the Borrower (including, without limitation, removal or replacement of the Remarketing Agent, if any); and   13                                                                                                              --------------------------------------------------------------------------------         (d)     prompt notice of any change in the “CUSIP” numbers for the Bonds, to the extent the Borrower has actual knowledge of any such change.         SECTION 5.9 Borrower to Furnish Notice of Adjustments of Interest Rate Periods. The Borrower is hereby granted the option to designate from time to time changes in Rate Periods (and to rescind such changes) in the manner and to the extent set forth in Section 2.03 of the Indenture. In the event the Borrower elects to exercise any such option, the Borrower agrees that it shall cause notices of adjustments of Rate Periods (or rescissions thereof) to be given to the Issuer, the Trustee, the Liquidity Provider, the Bank, the Remarketing Agent and the Auction Agent in accordance with Section 2.03 of the Indenture. The exercise of any such option, and all actions in connection therewith, may be taken by the Borrower through agents acting on its behalf, as provided in the Indenture, including without limitation, the Remarketing Agent. In connection with any change in Rate Periods, if the Indenture requires an opinion of Bond Counsel as a condition thereto, the Borrower shall, at its sole expense, cause such opinion to be delivered to the Issuer and the Trustee in accordance with the Indenture.         SECTION 5.10 Information Reporting. The Issuer covenants and agrees that, upon the direction of the Borrower or Bond Counsel, it will mail or cause to be mailed to the Secretary of the Treasury (or his designee as prescribed by regulation, currently the Internal Revenue Service Center, Ogden, UT 84201) a statement setting forth the information required by Section 149(e) of the Code, which statement shall be in the form of the Information Reporting Statement (Form 8038) of the Internal Revenue Service (or any successor form as may be necessary from time to time with respect to any Bonds).         SECTION 5.11 TAX COVENANTS; REBATE.         (a)     The Borrower covenants that it will not take any action which would adversely affect the Tax-Exempt status of any of the Bonds, and will take, or require to be taken, such acts as may be reasonably within its ability and as may from time to time be required under applicable law or regulation to continue such Tax-Exempt status of such Bonds; and, in furtherance of such covenants, the Borrower agrees to comply with the Tax Certificate and the Engineering Certificate.         (b)     The Borrower covenants that it will not take any action or fail to take any action with respect to the Bonds which would cause any of the Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code.         (c)     The Borrower covenants that it will not use or permit the use of any property financed with the proceeds of any of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as would result in loss of the Tax-Exempt status of any of the Bonds.         (d)     The Borrower shall calculate, or cause to be calculated, its rebate liability at such times as are required by Section 148(f) of the Code and any temporary, proposed or final Regulations as may be applicable to such Bonds from time to time. The Borrower shall provide to the Trustee a copy of each calculation of rebate liability prepared by or on behalf of the Borrower, which documentation shall be made available to the Issuer upon request. The Borrower shall make any and all payments to the Trustee for deposit in the Rebate Fund, or as otherwise required to be made to the United States Department of the Treasury in connection with any of the Bonds pursuant to Section 148(f) of the Code.   14                                                                                                              --------------------------------------------------------------------------------         (e)     Notwithstanding any other provisions of this Agreement to the contrary, so long as necessary in order to maintain the Tax-Exempt status of any of the Bonds, the covenants in this Section 5.11 shall survive the payment for such Bonds and the interest thereon, including any payment or defeasance thereof pursuant to Section 8.01 of the Indenture.         SECTION 5.12 Continuing Disclosure. The Borrower shall undertake the continuing disclosure requirements promulgated under S.E.C. Rule 15c2-12, as it may from time to time hereafter be amended or supplemented, if applicable, and the Issuer shall have no liability to the holders of the Bonds or any other person with respect to such disclosure matters. Notwithstanding any other provision of the Indenture, failure of the Borrower to comply with the requirements of S.E.C. Rule 15c2-12, as it may from time to time hereafter be amended or supplemented, shall not be considered an Event of Default; however, the Trustee, subject to Article X of the Indenture, may (and, at the request of the Remarketing Agent or the holders of at least 25% in aggregate principal amount of Outstanding Bonds, shall) or any Bondholder or beneficial owner of any Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Borrower to comply with its obligations under this Section 5.12.         To the extent that the Borrower enters into a continuing disclosure agreement with respect to the Bonds, the Bond Insurer shall be included as a party to be notified under such agreement.         SECTION 5.13 Liquidity Facility. At the time of initial issuance and delivery of the Bonds, there is no Liquidity Facility in effect. The Borrower may at any time, upon notice to the Issuer, deliver to the Trustee a Liquidity Facility effective at the start of a Rate Period or at another time consistent with the Indenture, subject to the conditions set forth in this Section 5.13 and in Section 5.15 and to the requirements of the Indenture.         Not less than thirty (30) days prior to the delivery of a Liquidity Facility, the Borrower shall (i) deliver to the Trustee and the Remarketing Agent a written commitment for the delivery of such Liquidity Facility, (ii) inform the Trustee and the Remarketing Agent of the date on which the Liquidity Facility will become effective and (iii) inform the Trustee of the rating expected to apply to the Bonds after the related Liquidity Facility is delivered. On or prior to the date of the delivery of a Liquidity Facility to the Trustee, the Borrower shall cause to be furnished to the Trustee and the Issuer (i) an opinion of Bond Counsel to the effect that the delivery of such Liquidity Facility to the Trustee is authorized under the Indenture and complies with the terms hereof and thereof and will not adversely affect the Tax-Exempt status of the Bonds and (ii) an opinion to the effect that the Liquidity Facility is exempt from registration under the Securities Act of 1933, as amended, and is enforceable in accordance with its terms, except to the extent that enforceability thereof may be limited by bankruptcy, reorganization or similar laws limiting the enforceability of creditors’ rights generally and except that no opinion need be expressed as to the availability of any discretionary equitable rights.   15                                                                                                              --------------------------------------------------------------------------------         SECTION 5.14 Letter of Credit. At the time of initial issuance and delivery of the Bonds, there is no Letter of Credit in effect. The Borrower may at any time, upon notice to the Issuer, deliver a Letter of Credit effective at the start of a Rate Period or at another time consistent with the Indenture, subject to the conditions set forth in this Section 5.14 and in Section 5.15 and to the requirements of the Indenture.         Not less than thirty (30) days prior to the delivery of a Letter of Credit, the Borrower shall (i) deliver to the Trustee and the Remarketing Agent a written commitment for the delivery of such Letter of Credit, (ii) inform the Trustee and the Remarketing Agent of the date on which the Letter of Credit will become effective and (iii) inform the Trustee of the rating expected to apply to the Bonds after the related Letter of Credit is delivered. On or prior to the date of the delivery of a Letter of Credit to the Trustee, the Borrower shall cause to be furnished to the Trustee and the Issuer (i) an opinion of Bond Counsel to the effect that the delivery of such Letter of Credit to the Trustee is authorized under the Indenture and complies with the terms hereof and thereof and will not adversely affect the Tax-Exempt status the Bonds and (ii) an opinion to the effect that the Letter of Credit is exempt from registration under the Securities Act of 1933, as amended, and is enforceable in accordance with its terms, except to the extent that enforceability thereof may be limited by bankruptcy, reorganization or similar laws limiting the enforceability of creditors’ rights generally and except that no opinion need be expressed as to the availability of any discretionary equitable rights.         If a Letter of Credit is already in effect, upon delivery of a new Letter of Credit pursuant to this Section 5.14, the provider of the new Letter of Credit shall refund to the provider of the existing Letter of Credit the purchase price of all Outstanding Bank Bonds, including any accrued and unpaid interest on such Bank Bonds, calculated as set forth in the Reimbursement Agreement relating to the existing Letter of Credit, unless the Borrower pays such purchase price and interest directly to the Bank.         SECTION 5.15 Requirement to Deliver Letter of Credit or Liquidity Facility Under Certain Circumstances. Unless otherwise authorized by the Bond Insurer, or unless the provisions of the last sentence of this Section apply, the Borrower agrees that, should all or any of the Bonds bear interest at a Daily Rate, a Weekly Rate, a Flexible Rate or a Term Rate for a Term Rate Period ending before the Maturity Date, then the Borrower’s obligations to purchase such Bonds pursuant to Section 4.2(b) hereof shall at all times be supported by a Liquidity Facility having the following characteristics: (i) such Liquidity Facility must conform with the requirements of Section 5.13; (ii) such Liquidity Facility must be accompanied by written evidence from each Rating Agency then rating the Bonds that, following the delivery of such Liquidity Facility, the rating on the Bonds shall not be lower than A-1, P-1 or F-1, as applicable; (iii) should any of such ratings fall below such level after the issuance or renewal of such Liquidity Facility, the Borrower will have 90 days to replace such Liquidity Facility with a Liquidity Facility that meets the requirements of this Section 5.15; and (iv) the terms of such Liquidity Facility, and of any supplement to or modification of the Indenture or Agreement to accommodate such Liquidity Facility, shall be acceptable to the Bond Insurer. The terms of any Letter of Credit, and of any supplement to or modification of the Indenture or Agreement to accommodate such Letter of Credit, shall be acceptable to the Bond Insurer. If such Letter of Credit is being delivered to secure the purchase price of the Bonds purchased by the Tender Agent as provided in Article IV, then such Letter of Credit must meet the requirements of the foregoing paragraph as if it were a Liquidity Facility. Notwithstanding the foregoing, but subject to the terms and conditions on which any Bond Insurance may be issued, no Liquidity Facility shall be required for any Bonds if not otherwise required by the Indenture.   16                                                                                                              --------------------------------------------------------------------------------         SECTION 5.16 BOND INSURANCE.         (a)     At the time of their initial issuance and delivery, the Bonds will be secured by an Initial Financial Guaranty Insurance Policy issued by the Bond Insurer. Thereafter, the Borrower may at any time, upon notice to the Issuer, deliver to the Trustee Bond Insurance effective at the start of a Rate Period or at another time consistent with the Indenture, subject to the conditions set forth in this Section 5.16 and to the requirements of the Indenture.         (b)     Not less than thirty (30) days prior to the delivery of any Bond Insurance, the Borrower shall (i) deliver to the Trustee, the Remarketing Agent and the Auction Agent a written commitment for the delivery of such Bond Insurance, (ii) inform the Trustee, the Remarketing Agent and the Auction Agent of the date on which the Bond Insurance will become effective and (iii) inform the Trustee of the rating expected to apply to the Bonds after the related Bond Insurance is delivered. On or prior to the date of the delivery of any Bond Insurance to the Trustee, the Borrower shall cause to be furnished to the Trustee and the Issuer (i) an opinion of Bond Counsel to the effect that the delivery of such Bond Insurance to the Trustee is authorized under the Indenture and complies with the terms hereof and thereof and will not adversely affect the Tax-Exempt status of the Bonds and (ii) an opinion to the effect that the Bond Insurance is exempt from registration under the Securities Act of 1933, as amended, and is enforceable in accordance with its terms, except to the extent that enforceability thereof may be limited by bankruptcy, reorganization or similar laws limiting the enforceability of creditors’ rights generally and except that no opinion need be expressed as to the availability of any discretionary equitable rights.         (c)     Concurrently with delivery to the Trustee, the Borrower shall deliver to any Bond Insurer copies of any notices delivered to the Trustee pursuant to Sections 5.8, 5.9, 5.13, 5.14, 5.15 and this Section 5.16.         (d)     The representations and covenants in this Agreement are in addition to, and not in replacement of, any representations and covenants contained in any agreement between the Borrower and any Bond Insurer. Without limiting the generality of the foregoing, any Liquidity Facility delivered pursuant to Section 5.13 above shall, in addition to conforming to the requirements of this Agreement, conform to such other requirements as shall be contained in any such agreement between the Borrower and any Bond Insurer. ARTICLE VI EVENTS OF DEFAULT AND REMEDIES         SECTION 6.1 Events of Default Defined. The following events shall be Events of Default under this Agreement, and the terms “Event of Default” or “Events of Default” shall mean, whenever they are used in this Agreement, any one or more of the following events:   17                                                                                                              --------------------------------------------------------------------------------         (a)     Failure by the Borrower to pay when due any amounts required to be paid under Section 4.2(a) or 4.2(b) hereof; or         (b)     Failure by the Borrower to observe and perform any covenant, condition or agreement on its part to be observed or performed in this Agreement, other than as referred to in (a) above, for a period of ninety (90) days after written notice, specifying such failure and requesting that it be remedied and stating that such notice is a “Notice of Default” hereunder, given to the Borrower by the Trustee or to the Borrower and the Trustee by the Issuer, unless the Issuer and the Trustee shall agree in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Issuer and the Trustee will not unreasonably withhold their consent to an extension of such time if corrective action is instituted within the applicable period and diligently pursued until the failure is corrected and the fact of such non-correction, corrective action or diligent pursuit is evidenced to the Trustee by a certificate of an Authorized Borrower Representative; or         (c)     A proceeding or case shall be commenced, without the application or consent of the Borrower, in any court of competent jurisdiction seeking (i) liquidation, reorganization, dissolution, winding-up or composition or adjustment of debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower or of all or any substantial part of its assets, or (iii) similar relief under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or cause shall continue undismissed, or an order, judgment, or decree approving or ordering any of the foregoing shall be entered and shall continue in effect for a period of ninety (90) days; or an order for relief against the Borrower shall be entered against the Borrower in an involuntary case under the United States Bankruptcy Code (as now or hereafter in effect) or other applicable law; or         (d)     The Borrower shall admit in writing its inability to pay its debts generally as they become due or shall file a petition in voluntary bankruptcy or shall make any general assignment for the benefit of its creditors, or shall consent to the appointment of a receiver or trustee of all or substantially all of its property, or shall commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect), or shall file in any court of competent jurisdiction a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, or shall fail to controvert in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under such United States Bankruptcy Code or other applicable law; or         (e)     Dissolution or liquidation of the Borrower; provided that the term “dissolution or liquidation of the Borrower” shall not be construed to include the cessation of the corporate existence of the Borrower resulting either from a merger or consolidation of the Borrower into or with another corporation or a dissolution or liquidation of the Borrower following a transfer of all or substantially all of its assets as an entirety, under the conditions permitting such actions contained in Section 5.2 hereof; or         (f)     The occurrence of an “Event of Default” under the Indenture (other than an Event of Default described in Section 9.01(e) thereof); or   18                                                                                                              -------------------------------------------------------------------------------- (g)     Receipt by the Trustee from the Bond Insurer, Bank or Liquidity Provider of notice of the occurrence of an ‘event of default’ or under the insurance agreement entered into between the Borrower and the Bond Insurer relating to the Bond Insurance or under the Reimbursement Agreement or Liquidity Facility.         The foregoing provisions of Section 6.1(b) are subject to the following limitations: If by reason of Force Majeure the Borrower is unable in whole or in part to carry out its agreements on its part herein contained other than the obligations on the part of the Borrower contained in Article IV and Section 6.4 hereof the Borrower shall not be deemed in default during the continuance of such inability. The Borrower agrees, however, to remedy with all reasonable dispatch the cause or causes preventing the Borrower from carrying out its agreements; provided that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Borrower and the Borrower shall not be required to make settlement of strikes, lockouts and other industrial disturbances by acceding to the demands of the opposing party or parties when such course is in the sole judgment of the Borrower unfavorable to the Borrower.         SECTION 6.2 Remedies on Default. Subject to the rights of any Bond Insurer or Bank (except in the event of an Insurer Default or Bank Default, respectively), whenever any Event of Default referred to in Section 6.1 hereof shall have occurred and be continuing,         (a)     The Trustee may, to the extent and in the manner set forth in Section 9.02 of the Indenture, by notice in writing to the Borrower declare the unpaid indebtedness under Section 4.2(a) hereof to be due and payable immediately, if concurrently with or prior to such notice the unpaid principal amount of the Bonds shall have been declared to be due and payable, and upon any such declaration the same (being an amount sufficient, together with other moneys available therefor in the Bond Fund, to pay the unpaid principal of and premium, if any, and interest accrued on the Bonds) shall become and shall be immediately due and payable as liquidated damages.         (b)     The Issuer or the Trustee may take whatever action at law or in equity may appear necessary or desirable to collect the payments and other amounts then due and thereafter to become due hereunder or to enforce performance and observance of any obligation, agreement or covenant of the Borrower hereunder; provided, however, that nothing in Section 4.4 hereof shall be deemed to limit the rights of the Issuer under this Section 6.2(b); provided, nevertheless, that the Issuer will not exercise any remedies, with respect to any of the Issuer’s rights assigned to the Trustee pursuant to Section 4.4 hereof unless, in the Issuer’s reasonable judgment and after written request to a Responsible Officer of the Trustee, the Trustee has failed to enforce such rights. The Issuer has no obligation to take any action under this Section.         (c)     Upon the occurrence of an Event of Default described in Section 6.1(a) hereof, the Trustee shall immediately draw upon any Bond Insurance, Liquidity Facility or Letter of Credit, if permitted by the terms thereof and required by the terms of the Indenture, and apply the amount so drawn in accordance with the Indenture and may exercise any remedy available to it thereunder.   19                                                                                                              --------------------------------------------------------------------------------         The provisions of clause (a) of the preceding paragraph are subject to the condition that if, at any time after the unpaid indebtedness under Section 4.2(a) hereof shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, there shall have been deposited with the Trustee a sum sufficient to pay all the principal of the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal as provided herein, and the reasonable expenses of the Trustee and the Issuer, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Trustee shall, on behalf of the Owners of all the Bonds, with the consent of the Bank and the Bond Insurer, as required pursuant to Section 9.03 of the Indenture, rescind and annul such declaration and its consequences and waive such default; provided that no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.         In case the Trustee or the Issuer, as the case may be, shall have proceeded to enforce its rights under this Agreement, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Issuer, then, and in every such case, the Borrower, the Trustee and the Issuer shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Borrower, the Trustee and the Issuer shall continue as though no such action had been taken.         Any amounts collected pursuant to action taken under this Section 6.2 shall be paid into the Bond Fund (unless otherwise provided in this Agreement) and applied in accordance with the provisions of the Indenture. No action taken pursuant to this Section 6.2 shall relieve the Borrower from the Borrower’s obligations pursuant to Section 4.2 hereof.         No recourse shall be had for any claim based on this Agreement against any officer, director or shareholder, past, present or future, of the Borrower as such, either directly or through the Borrower, under any constitutional provision, statute or rule of law, or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise.         Nothing herein contained, including, without limitation, the last two paragraphs of this Section 6.2, shall be construed to prevent the Issuer from enforcing directly any of its rights under Section 5.1 hereof and under Sections 4.2(d), 4.2(e), 4.2(h) and 6.4 hereof.         In case proceedings shall be pending for the bankruptcy or for the reorganization of the Borrower under the federal bankruptcy laws or any other applicable law, or in case a receiver or trustee shall have been appointed for the property of the Borrower or in the case of any other similar judicial proceedings relative to the Borrower, or the creditors or property of the Borrower, then the Trustee shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount owing and unpaid pursuant to this Agreement and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee allowed in such judicial proceedings relative to the Borrower, its creditors or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute such amounts as provided in the Indenture after the deduction of its reasonable charges and expenses. Any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to the Trustee, and to pay to the Trustee any amount due if for reasonable compensation and expenses, including reasonable expenses and fees of counsel incurred by it up to the date of such distribution.   20                                                                                                              --------------------------------------------------------------------------------         Anything in this Agreement to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default with respect to Bonds supported by Bond Insurance, except in the event of an Insurer Default applicable to a particular Bond Insurer, the Bond Insurer providing Bond Insurance shall be entitled to control and direct the enforcement of all rights and remedies granted to the Issuer, the Bondholders or the Trustee for the benefit of the Bondholders hereunder covered by such Bond Insurance, including, without limitation: (i) the right to accelerate the payment, in the manner described in subsection (a) of this Section 6.2, of that portion of the Borrower’s indebtedness hereunder attributable to the Bonds, (ii) the right to annul any declaration of acceleration relating to the Borrower’s indebtedness hereunder attributable to the Bonds, and (iii) the right to consent to all waivers of Events of Default hereunder in respect of the Bonds.         Subject to the rights of the Bond Insurer as provided in the preceding paragraph, but anything else in this Agreement to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default with respect to Bonds supported by a Letter of Credit, except in the event of a Bank Default applicable to a particular Bank, the Bank providing the Letter of Credit shall be entitled to control and direct the enforcement of all rights and remedies granted to the Issuer, the Bondholders or the Trustee for the benefit of the Bondholders hereunder covered by such Letter of Credit, including, without limitation: (i) the right to accelerate the payment, in the manner described in subsection (a) of this Section 6.2, of that portion of the Borrower’s indebtedness hereunder attributable to the Bonds and (ii) the right to annul any declaration of acceleration relating to the Borrower’s indebtedness hereunder attributable to the Bonds, and the Bank shall also be entitled to approve all waivers of Events of Default hereunder in respect of the Bonds.         SECTION 6.3 No Remedy Exclusive. No remedy herein conferred upon or reserved to the Issuer or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. Such rights and remedies as are given the Issuer hereunder shall also extend to the Trustee and the Owners of the Bonds, subject to the provisions of the Indenture, and the Trustee and Owners of the Bonds shall be entitled to the benefit of all covenants and agreements herein contained.   21                                                                                                              --------------------------------------------------------------------------------         SECTION 6.4 Agreement to Pay Fees and Expenses of Counsel. In the event the Borrower should default under any of the provisions of this Agreement and the Issuer or the Trustee should employ Counsel or incur other expenses for the collection of the indebtedness hereunder or the enforcement of performance or observance of any obligation or agreement on the part of the Borrower herein contained, the Borrower agrees that it will on demand therefor pay to the Trustee, the Issuer or, if so directed by the Issuer, to the Counsel for the Issuer, the reasonable fees of such Counsel and such other reasonable expenses so incurred by or on behalf of the Issuer or the Trustee. If the circumstances set forth in this Section 6.4 shall occur with the result that the Borrower is obligated to make payments to the Trustee under this Section 6.4, and so long as such obligation shall be continuing, in order to secure such obligation of the Borrower to the Trustee, the Trustee shall have a lien prior to the Bonds on all moneys held by the Trustee under the Indenture except those moneys held in trust to pay the principal of and premium, if any, and interest on, or the purchase price of, particular Bonds and except for moneys, if any, in the Rebate Fund. If the Trustee incurs fees and expenses in connection with a default specified in Section 6.1(c), 6.1(d) or 6.1(e) of this Agreement, such fees and expenses are understood to include expenses of administration under any bankruptcy law.         SECTION 6.5 No Additional Waiver Implied by One Waiver; Consents to Waivers. In the event any agreement contained in this Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. No waiver shall be effective unless in writing and signed by the party making the waiver. The Issuer shall have no power to waive any default hereunder by the Borrower without the consent of the Trustee. Subject to the provisions of Section 6.2, the Trustee shall have the power to waive any default by the Borrower hereunder, except a default under Sections 4.2(d), 4.2(e), 4.2(h) or 6.4, without the prior written concurrence of the Issuer. ARTICLE VII OPTION AND OBLIGATION OF BORROWER TO PREPAY         SECTION 7.1 Option to Prepay. The Borrower shall have, and is hereby granted, the option to prepay the payments due hereunder in whole or in part at any time or from time to time (a) to provide for the redemption of the Bonds pursuant to the provisions of Section 3.01(A) of the Indenture or (b) to provide for the defeasance of the Bonds pursuant to Article VIII of the Indenture. In the event the Borrower elects to provide for the redemption of Bonds as permitted by this Section, the Borrower shall notify and instruct the Trustee in accordance with Section 7.3 hereof to redeem all or any portion of the Bonds in advance of maturity.         SECTION 7.2 Obligation to Prepay. The Borrower shall be obligated to prepay amounts due hereunder, in whole or in part, to provide for the redemption of Bonds in whole or in part pursuant to the provisions of Section 3.01(B) of the Indenture. In the case of any of the events stated in Section 3.01(B) of the Indenture, the Borrower must satisfy its obligation by prepaying within 180 days after such event.   22                                                                                                              --------------------------------------------------------------------------------         SECTION 7.3 Notice of Prepayment; Amount to be Prepaid. (a)  In order to exercise the option granted to the Borrower in Section 7.1 hereof, or fulfill an obligation described in Section 7.2 hereof, the Borrower shall give at least 30 days written notice of such prepayment to the Issuer, the Trustee, the Bond Insurer, the Auction Agent and the Remarketing Agent. On the date fixed for redemption of the Bonds or portions thereof, there shall be deposited with the Trustee from payments by the Borrower as required by Section 7.l or 7.2, as appropriate, for payment into the Bond Fund the amount required in subsection (b) of this Section. The notice shall provide for the date of the application of the prepayment made by the Borrower hereunder to the redemption of the Bonds or portions thereof in whole or in part pursuant to call for redemption, shall specify the redemption date and shall be given to the Trustee, the Issuer, the Auction Agent and the Remarketing Agent in accordance with the provisions of the Indenture for the redemption of Bonds or portions thereof.         (b)     The prepayment payable by the Borrower hereunder upon either (i) the exercise of the option granted to the Borrower in Section 7.1 hereof, or (ii) the fulfillment of an obligation specified in Section 7.2 shall be, to the extent applicable and except as otherwise provided in Article VIII of the Indenture, the sum of the following:     (1)        the amount of money which, when added to the amount on deposit in the Bond Fund prior to the prepayment being made and available for such purpose, will be sufficient to provide all funds necessary to redeem the Bonds or portions thereof designated in the notice specified in subsection (a) of this Section to be redeemed on the date set forth in the notice, including, without limitation, principal, premium, if any, and all interest to accrue to said redemption date and redemption expenses; plus     (2)        in the event all of the Bonds are to be redeemed, an amount of money equal to all Administrative Expenses and the Trustee’s, Auction Agent’s and Remarketing Agent’s fees and expenses under the Indenture accrued and to accrue until the final payment and redemption of the Bonds.         (c)     Any prepayment made pursuant to Section 7.1 or 7.2 hereof shall be deposited into the Bond Fund. No prepayment or investment of the proceeds thereof shall be made which shall cause any Bonds to be “arbitrage bonds” within the meaning of Section 148(a) of the Code.         SECTION 7.4 Cancellation at Expiration of Term. At the acceleration, termination or expiration of the term of this Agreement and following full payment of the Bonds or provision for payment thereof and of all other fees and charges having been made in accordance with the provisions of this Agreement and the Indenture, the Issuer shall deliver to the Borrower any documents and take or cause the Trustee to take such actions as may be necessary to effectuate the cancellation and evidence the termination of this Agreement.   23                                                                                                              -------------------------------------------------------------------------------- ARTICLE VIII NON-LIABILITY OF ISSUER         SECTION 8.1 Non-Liability of the Issuer. The Issuer shall not be obligated to pay the principal of, or premium, if any, or interest on the Bonds, except from Revenues, and shall not be obligated to pay the purchase price of any Bonds, except from the proceeds of the remarketing of the Bonds or from moneys paid or caused to be paid by the Borrower pursuant to Section 4.2(b) hereof. The Borrower hereby acknowledges that the Issuer’s sole source of moneys to repay the Bonds will be provided by the payments made or caused to be made by the Borrower pursuant to this Agreement, together with other Revenues and the proceeds of Bond Insurance, including investment income on certain funds and accounts held by the Trustee under the Indenture, and hereby agrees that if the payments to be made hereunder shall ever prove insufficient to pay all principal of, and premium, if any, and interest on the Bonds as the same shall become due (whether by maturity, redemption, acceleration or otherwise), then upon notice from the Trustee, the Borrower shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal, premium or interest. ARTICLE IX MISCELLANEOUS         SECTION 9.1 Notices. All notices, certificates or other communications shall be sufficiently given in writing and shall be deemed given on the day on which the same have been mailed by certified mail, postage prepaid, or by qualified overnight courier service, courier charges prepaid, addressed as set forth in Section 13.06 of the Indenture. A duplicate copy of each notice, certificate or other communication given hereunder by either the Issuer or the Borrower to the other shall also be given to the Trustee. The Issuer, the Borrower, the Trustee, the Bond Insurer, the Liquidity Provider, the Bank, the Remarketing Agent and the Auction Agent may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent.         SECTION 9.2 Assignments. This Agreement may not be assigned by either party without consent of the other, except that (i) the Issuer shall assign to the Trustee its rights under this Agreement (except under Sections 4.2(d), 4.2(e), 4.2(h) and 6.4 hereof and rights of the Issuer to make inspections or to receive any notices, certificates, requests, requisitions or communications hereunder and to give consent hereunder) as provided by Section 4.4 hereof, (ii) the Borrower may assign its rights under this Agreement as provided by Section 5.2 hereof; and (iii) the Issuer may not assign this Agreement except upon receipt by the Trustee of an Opinion of Bond Counsel to the affect that such assignment will not adversely affect the Tax-Exempt status of the Bonds.         SECTION 9.3 Severability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative, or unenforceable to any extent whatever. SECTION 9.4 Execution of Counterparts. This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument; provided, however, that for purposes of perfecting a security interest in this Agreement by the Trustee, only the counterpart delivered, pledged and assigned to the Trustee shall be deemed the original.   24                                                                                                              --------------------------------------------------------------------------------         SECTION 9.5 Amounts Remaining in Bond Fund. It is agreed by the parties hereto that after payment in full of (i) the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture), (ii) the fees, charges and expenses of the Trustee in accordance with the Indenture, (iii) the Administrative Expenses of the Issuer, (iv) the fees and expenses of the Auction Agent and the Remarketing Agent, and (v) all other amounts required to be paid under this Agreement and the Indenture, any amounts remaining in the Bond Fund shall belong to and be paid to the Borrower by the Trustee. Notwithstanding any other provision of this Agreement or the Indenture, under no circumstances shall proceeds of Bond Insurance, a Liquidity Facility or a Letter of Credit be paid to the Issuer or the Borrower.         SECTION 9.6 Amendments, Changes and Modifications. This Agreement may be amended, changed, modified, altered or terminated only by written instrument executed by the Issuer and the Borrower and in accordance with Article XII of the Indenture.         SECTION 9.7 Governing Law. This Agreement shall be governed exclusively by and construed in accordance with the applicable laws of the State; provided, however, that the rights, duties and benefits of the Trustee shall be governed by the laws of the State of New York.         SECTION 9.8 Authorized Issuer and Borrower Representatives. Whenever under the provisions of this Agreement the approval of the Issuer or the Borrower is required to take some action at the request of the other, such approval or such request shall be given for the Issuer by the Authorized Issuer Representative and for the Borrower by the Authorized Borrower Representative, and the other party hereto and the Trustee shall be authorized to act on any such approval or request and neither party hereto shall have any complaint against the other or against the Trustee as a result of any such action taken.         SECTION 9.9 Term of the Agreement. This Agreement shall be in full force and effect from its date to and including such date as all of the Bonds issued under the Indenture shall have been fully paid or retired (or provision for such payment shall have been made as provided in the Indenture) and all other fees and expenses shall have been paid pursuant to this Agreement or the Indenture, provided that all representations and certifications by the Borrower as to all matters affecting the Tax-Exempt status of interest on any Bonds and the covenants of the Borrower in Sections 4.2(c), 4.2(d), 4.2(e), 4.2(h), 5.11 and 6.4 hereof shall survive the termination of this Agreement.         SECTION 9.10 Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Borrower and their respective successors and assigns, subject, however, to the limitations contained in Section 5.2 hereof.         SECTION 9.11 Trustee and Bond Insurer as Parties in Interest and Third Party Beneficiaries. The parties hereto acknowledge and agree that as to any right to indemnity or payment of fees and expenses provided in Section 4.2 hereof the Trustee is a party in interest and third party beneficiary under this Agreement entitled to enforce its rights as so stated herein as if it were a party hereto. To the extent that this Agreement confers upon or gives or grants to the Bond Insurer any right, remedy or claim under or by reason of this Agreement, the Bond Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder.   25                                                                                                              --------------------------------------------------------------------------------       [REMAINDER OF THIS PAGE INTENTIONALLY BLANK]                               26                                                                                                              --------------------------------------------------------------------------------         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. CLARK COUNTY, NEVADA By: /s/ RORY REID —————————————— Rory Reid Chairman, Board of County Commissioners (SEAL) Attest: /S/ SHIRLEY B. PARRAGUIRRE Shirley B. ParraguirreCounty Clerk SOUTHWEST GAS CORPORATION By: /s/ KENNETH J. KENNY —————————————— Kenneth J. Kenny Authorized Borrower Representative               27                                                                                                              -------------------------------------------------------------------------------- EXHIBIT A DESCRIPTION OF THE PROJECT         The Project will be undertaken in the Southern Nevada Division in Clark County and will consist of certain additions and improvements to, and replacements of, the Borrower’s natural gas distribution and transmission system through which the Borrower furnishes natural gas to its customers in Clark County, Nevada, and certain other plant, property and equipment used or to be used for the same purposes, including meters, customer service connections, mains and pressure regulators.               A-1                                                                                                              --------------------------------------------------------------------------------

Exhibit 10.1   Marten Transport, Ltd. Named Executive Officers’ Compensation Summary   On May 4, 2006, Marten Transport, Ltd.’s (the “Company’s”) Compensation Committee approved a 10% increase to the base salary, retroactive to April 1, 2006, for the Company’s “named executive officers” (defined in Regulation S-K Item 402(a)(3)), except for James J. Hinnendael, the Company’s Chief Financial Officer. Effective April 1, 2006, the named executive officers are scheduled to receive the following annual base salaries in their current positions:   Name and Current Position   Base Salary           Randolph L. Marten (Chairman, President and Chief Executive Officer)   $ 440,000           James J. Hinnendael (Chief Financial Officer)   $ 175,000           Robert G. Smith (Chief Operating Officer)   $ 221,753           Timothy P. Nash (Executive Vice President of Sales and Marketing)   $ 221,753           Donald J. Hinson (Vice President of Operations)   $ 175,049     1 --------------------------------------------------------------------------------

  Exhibit 10.1 AMENDMENT TO THE RADYNE CORPORATION 2000 LONG-TERM INCENTIVE PLAN      Radyne Corporation (the “Company”) previously approved and adopted the Radyne Corporation 2000 Long-Term Incentive Plan (the “Plan”) to promote the success and enhance the value of the Company by linking the personal interests of the Plan’s participants to those of the Company’s stockholders and by providing such individuals with an incentive for outstanding performance in order to help grow the Company and to generate superior returns to shareholders of the Company. By this instrument, the Company desires to amend the Plan to make certain changes consistent with the Company’s desire to comply with certain institutional shareholder initiatives.      1. Capitalized terms used but not otherwise defined herein shall have the respective meanings assigned to such terms in the Plan.      2. The effective date of this amendment to the Plan shall be June 7, 2006.      3. Section 4.3(d) is amended and restated as follows:           (d) Determine the terms and conditions of any Award granted under the Plan including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines; provided, however, that (i) the Committee will not have the authority to accelerate the vesting, or waive the forfeiture, of any Performance-Based Awards, and (ii) the Committee will not have the authority to reprice previously granted Options;      4. Section 5.2 is amended and restated as follows:           5.2 LAPSED OR ASSUMED AWARDS. To the extent that an Award terminates, expires, or lapses for any reason, any shares of Stock subject to the Award will again be available for the grant of an Award pursuant to the Plan. Additionally, to the maximum extent permitted by applicable law or any securities exchange rule, shares of Stock issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any Subsidiary shall not be counted against shares of Stock available for grant pursuant to this Plan. However, for avoidance of doubt, the exercise of a stock-settled SAR or net-cashless exercise of an Option (or a portion thereof) will reduce the number of shares of Stock available for issuance hereunder by the entire number of shares of Stock subject to that SAR or Option (or applicable portion thereof), even though a smaller number of shares of Stock will be issued upon such an exercise. Also, shares of Stock tendered to pay the exercise price of an Option or to satisfy a tax withholding obligation arising in connection with an Award will not become available for grant or sale under the Plan.      5. Section 7.1(a) is amended and restated as follows:           (a) EXERCISE PRICE. The exercise price per share of Stock under an Option will be determined by the Committee and set forth in the Award Agreement; provided that the exercise price for any Option will not be less than the Fair Market Value as of the date of grant.      6. Section 13.2 is deleted and is intentionally left blank.      7. Section 15.1 is amended and restated as follows:           15.1 AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that the Company must obtain stockholder approval of any Plan amendment (i) to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule in such a manner and to such a degree as required, or (ii) that permits the Committee to reprice previously granted Options.      8. This Amendment shall amend only the provisions of the Plan as set forth herein.      Those provisions of the Plan not expressly amended hereby shall be considered in full force and effect.           The Company has caused this Amendment to be signed by its duly authorized representative.           RADYNE CORPORATION           By: /s/ Malcolm C. Persen     Its: Chief Financial Officer  

  EXHIBIT 10.20 THIRD AMENDMENT TO MANAGEMENT AGREEMENT           This Agreement is being entered into as of October 30, 2006 (this “Agreement”), between National Energy Group, Inc. (the “Company”) and NEG Operating LLC (the “LLC”). All capitalized terms used but not defined herein shall have the meanings given such terms in the Management Agreement dated as of May 1, 2001, as amended on December 31, 2002 and April 1, 2004, respectively (the “Management Agreement”), between the Company and the LLC.           WHEREAS, Section 4 of that certain Agreement dated as of October 25, 2006 (the “Agreement”), by and among the Company, NEG Oil & Gas LLC, NEG, Inc. and American Real Estate Holdings Limited Partnership, provides, among other things, that, at the time the Payment (as such term is defined in the Agreement) is delivered, automatically and without any further action necessary, the Management Agreement will be terminated.           NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the Company and the LLC hereby agree as follows:           1. Notwithstanding any provisions to the contrary contained in the Management Agreement, subject to earlier termination pursuant to the Agreement or the Management Agreement, the Management Agreement shall be and remain in effect until December 15, 2006.           2. This Agreement may be executed through the use of separate signature pages or in any number of counterparts and all such counterparts shall be deemed one and the same instrument.           3. This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the law of the State of Delaware without regard to the conflict of law principles thereof. [The balance of this page has been left blank intentionally.]   --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first written above.                       NATIONAL ENERGY GROUP, INC.                               By:   /s/ Bob G. Alexander   Name: Bob G. Alexander                 Title: President                               NEG OPERATING LLC         By: NEG Holding LLC, its sole member         By: NEG Oil & Gas LLC, its sole member         By: AREP O & G Holding LLC, its sole member         By: AREP Oil & Gas Holding LLC, its sole member         By: American Real Estate Holdings Limited Partnership, its sole member         By: American Property Investors, Inc., its general partner                           By:   /s/ Keith Meister   Name: Keith Meister                 Title: Principal Executive Officer         [Signature page to Agreement between National Energy Group, Inc. and NEG Operating LLC regarding Management Agreement]  

Exhibit 10.18 Danaher Corporation Description of Non-Management Director Compensation Arrangements Following is a description of the compensation arrangements for each of the Company’s non-management directors. Non-management directors receive meeting attendance fees of $2,500 per board meeting (whether telephonically or in person) and $1,000 per committee meeting (whether telephonically or in person), plus an annual cash retainer of $40,000. In addition, the non-management directors are eligible for grants of equity awards under the Amended and Restated Danaher Corporation 1998 Stock Option Plan, which is attached as Exhibit 10.1 and Exhibit 10.2 to Danaher’s Annual Report on Form 10-K for the year ended December 31, 2005.

Conexant Systems Inc. Board of Directors Annual Remuneration As of 2/22/06 Cash Compensation Effective February 22, 2006, the cash compensation of the non-employee Directors was set as follows           Type   Amount           Annual   (in dollars)           Board membership     30,000             Committee membership     7,500             Committee Chair – Audit Committee     20,000             Committee Chair – all other committees     15,000             Meeting Attendance                   Board meeting     1,500             Committee meeting     1,000             The retainers and fees are payable as follows:   (i)   Base and Committee chairmanship and membership annual retainers – in cash quarterly in advance; unless a director elects to take payment in Shares under the provisions of Section 7 of the Directors Plan, in which case the director may elect, not later than December 31 of the year preceding the year as to which the election is applicable; a director electing to take payment in Shares will be issued his shares on the same date as the cash retainer and applicable meeting fees are paid to non-electing directors; and   (ii)   Meeting fees – quarterly in arrears. Directors are also reimbursed for transportation and other expenses actually incurred in attending Board and Committee meetings. Equity Compensation Under the Directors Stock Plan, upon initial election to the Board, each non-employee Director shall be granted an option to purchase 40,000 shares of the Corporation’s Common Stock at the closing price per share (the Fair Market Value) on the date of grant as reported in the Nasdaq reporting system (or on the next preceding day such stock was traded if it was not traded on the date of grant). Thereafter, each non-employee director who has served as a non-employee director for at least one (1) month and is elected a director at, or who was previously elected and continues as a director after, that Annual Meeting shall be granted:   •   an option to purchase 10,000 shares on the day of the Annual Meeting of Shareholders (“First Annual Grant”); and   •   an option to purchase 10,000 shares six (6) months after the First Annual Grant (“Second Annual Grant”) ; provided that the Board may, by action taken on or before the day following the date of any such Annual Meeting, defer the First Annual Grant for up to forty five (45) days following such Annual Meeting and may defer the Second Annual Grant up to forty five (45) days before or after the six (6) month anniversary of the First Annual Grant. These stock options become exercisable in four (4) approximately equal annual installments and are exercisable during a Director’s Board service for up to ten (10) years after the grant date. A Director who retires from the Board at or after age fifty-five (55) and with at least five (5) years of Board service may exercise all remaining stock options granted (whether or not otherwise exercisable) for up to five (5) years after his or her retirement date (or the expiration date specified in the option). If a Director dies while serving on the Board, his or her estate, heirs or legatees (or a permitted assignee) may exercise all remaining stock options (whether or not otherwise exercisable) for up to three (3) years after the Director’s date of death (or the expiration date specified in the option ). A Director who becomes disabled or resigns for reasons of the antitrust laws, compliance with the Corporation’s conflict of interest policies or other circumstances that the Compensation and Management Development Committee (the Committee) may determine as serving the best interests of the Corporation may exercise his or her remaining stock options to the extent exercisable at the date of termination of his or her Board service for such period after that date as the Committee may determine (or the expiration date specified in the option). If a Change of Control occurs, as defined in the Bylaws, all stock options outstanding under the Directors Stock Plan become fully exercisable (whether or not otherwise then exercisable) and each such option shall expire at the earlier of five (5) years from the date of the Change of Control or the expiration date specified in the option. In all other cases, a Director’s stock options expire upon termination of his or her Board service. Directors’ stock options are not transferable except by will or the laws governing intestate succession or by gift to a Director’s spouse or natural, adopted or stepchildren or grandchildren. In addition, any Director may transfer any stock options granted under the Plan to any entity affiliated with the Director, to be designated in writing by the Director and approved by the Board, all such transfers to be subject to the same terms and conditions as the original grant made directly to the individual Director. Deferred Cash Compensation A Director may elect to defer receipt of all or a portion of his or her compensation for Board service under the Corporation’s Deferred Compensation Plan, Directors Stock Plan or both. Pursuant to the Deferred Compensation Plan, a Director may elect to defer receipt of all or a portion of the cash compensation the Director will receive beginning January 1 of the year following the year in which such an election is made. All amounts so deferred will be payable to the Director at a specified future time and will be paid either in a lump sum or through a series of periodic payments in accordance with the Director’s instructions. Amounts deferred may be invested in a number of benchmark funds at the Director’s discretion. Deferred Equity Compensation Under the Directors Stock Plan, a Director may elect each calendar year:   •   to defer all or any part of his or her cash retainer fees payable during the following calendar year through receipt of non-forfeitable or restricted shares of the Corporation’s Common Stock (Restricted Shares), valued at the closing market price on the date when each payment of retainer fees would otherwise be made in cash; or Compensation deferred through receipt of Restricted Shares will not be subject to federal income tax (under present laws and regulations) until the restrictions on those Shares lapse. The amount of the taxable income a Director is deemed to receive when the restrictions lapse, however, will be the value of the shares at that time. Restricted Shares are subject to forfeiture if the Director ceases to be a Director prior to his or her normal retirement date under the Board’s retirement policy (presently age fifty-five (55) and with at least five (5) years of Board service for non-employee Directors) for reasons other than compliance with antitrust laws or the Corporation’s conflict of interest policies, death or other circumstances the Board determines not to be adverse to the Corporation’s best interests. This “risk of forfeiture” is what makes the Restricted Shares eligible for deferred taxation. An election form for making an election or elections under either or both of these Plans is included in the Forms section. Mileage Reimbursement For Use Of Personal Automobile For use of your personal automobile in connection with attending meetings of the Board or Board Committees or other activities incident to Board service, the Corporation will reimburse per mile at the maximum per mile rate set by the Internal Revenue Service.

Exhibit 10.1   SEPARATION AGREEMENT AND GENERAL RELEASE This Separation Agreement and General Release (this “Agreement”) is made and entered into as of October 3, 2006, by and between Douglas K. Freeman (“Executive”) and NetBank, Inc., a Georgia corporation (the “Company”). RECITALS WHEREAS, Executive has been employed by the Company as its Chief Executive Officer (“CEO”) pursuant to that certain Employment Agreement dated November 18, 2001 by and between Executive and the Company, as amended on April 1, 2002 and April 30, 2004 (collectively, the “Employment Agreement”). WHEREAS, Executive recently initiated discussions with the Board of Directors of the Company (the “Board”) regarding whether, in the Board’s judgment, a transition in leadership of the Company at this time is in the best interests of the Company and its shareholders.  As a result of the ensuing discussions between Executive and the Board, Executive and the Company have reached a mutual agreement that Executive will, effective as of the close of business on October 5, 2006 (the “Separation Date”), resign from his position as CEO and as Chairman of the Board and resign as a director of the Company. WHEREAS, inasmuch as Executive’s separation is the result of mutual agreement of the parties hereto, a termination circumstance not contemplated in the Employment Agreement, the parties hereto desire to (i) terminate the Employment Agreement and (ii) enter into this Agreement to define the terms and conditions of Executive’s separation from the Company, such that this Agreement shall supersede the Employment Agreement. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Executive, intending to be legally bound,  hereby agree as follows: 1)             Recitals.  The Recitals above are true and correct and incorporated by reference as if fully set forth herein. 2)             Termination of Employment Agreement; Other Agreements and Plans.  Executive and the Company mutually acknowledge and agree that the Employment Agreement is hereby terminated and superseded by this Agreement.  All terms and conditions relating to Executive’s separation from the Company and the Company’s entire obligations with respect thereto shall be as set forth in this Agreement.  In addition, and for the avoidance of doubt, this Agreement supersedes any and all agreements set forth in the Employment Agreement with respect to compensation and termination of benefits and the Company’s obligations with respect thereto, including, but not limited to, annual base salary, cash bonuses under the Management Incentive Plan, options to purchase the stock of the Company (“Stock Options”), restricted stock of the Company (“Restricted Stock”), and any awards or grants under the NetBank, Inc. 1996 Stock Incentive Plan and the NetBank, Inc. Mid-Term Incentive Plan thereunder (“Plan Awards”), and any other fringe benefits and perquisite programs previously provided to Executive; provided, -------------------------------------------------------------------------------- however, that Executive’s rights under and pertaining to the NetBank, Inc. 401(k) Plan (“401(k) Plan”) will in all respects be governed by the terms of the 401(k) Plan. 3)             Corporate Positions.  Executive hereby resigns from his positions as CEO and Chairman of the Board of the Company effective on the Separation Date. 4)             Separation Benefits.  Executive’s exclusive compensation and remedy with respect to his separation from the Company shall be to receive from the Company the following as set forth in this Section 4.  Executive shall be responsible for the payment of all applicable income, transfer, sales, use and other taxes under federal, state, local or other law, due and owing as a result of the payments or transfers or use of property from the Company to Executive hereunder. a)             Payments.  The Company shall pay Executive in one lump sum on the Separation Date the sum of (i) $2,900,000; and (ii) any unpaid base salary of Executive that is due and owing as of the Separation Date. b)            Continuation of Employment Benefits.  The Company shall provide Executive with continued participation in the medical, dental and vision insurance coverage plans of the Company (“Welfare Plans”) in which Executive is participating on the Separation Date until the earlier of: (i)  the termination by the Company of Welfare Plans that permit the participation of former employees;  (ii) the end of the 36-month period following the Separation Date; and (iii) the date, or dates, Executive receives comparable coverage and benefits under the plans and programs of any subsequent employer; provided, however, that the provision of such benefits to Executive by the Company shall be in accordance with Welfare Plans as maintained by the Company from time to time for its then current senior executives. c)             Equity-based Compensation.  All unvested Stock Options granted, and all unvested and outstanding Restricted Stock awarded, to Executive by the Company prior to the date hereof shall immediately vest upon the Separation Date.  For the avoidance of doubt, Executive agrees that he is not entitled to receive shares of common stock of the Company, if any, which are payable, or may otherwise be payable, to him under the 2004 and 2006 Mid-Term Incentive Plans.  All outstanding Stock Options not exercised by Executive within ninety (90) days from the Separation Date shall expire at the end of such ninety (90) day period. 5)             Withholding Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 6)             Release of Claims.  Executive does hereby unconditionally release, acquit, discharge, and agree to hold the Company, its parent, subsidiaries and affiliated companies, and its and their officers, directors, shareholders, employees, agents, representatives, successors and assigns (collectively referred to in this paragraph as the “Releasees”), harmless from and against any and all actions, claims, suits, rights, liabilities, or demands of any kind or nature (each such action, claim, suit, right, liability, or demand being hereinafter individually referred to as a “Claim” and collectively referred to as “Claims”) that Executive may now or hereafter have against Releasees, or any one or group of them, which Claim arose or accrued on or prior to the 2 -------------------------------------------------------------------------------- Separation Date, including, but not limited to, (i) any and all Claims in connection with (A) his employment relationship with the Company, (B) the terms and conditions of such employment relationship (including compensation and benefits), (C) his service as a director of the Company (except for indemnification pursuant to the Company’s Certificate of Incorporation, bylaws or any director or officer indemnification agreement between Executive and the Company) or (D) the termination of such employment or director relationship and the circumstances surrounding each such termination, and (ii) any and all Claims arising pursuant to any law, constitution, regulation, or any statute or common law theory, whether in tort, contract, equity, or otherwise.  Without limiting the generality of the foregoing, Executive specifically releases, acquits, discharges, waives and agrees to hold Releasees harmless from and against any and all Claims (i) arising under the Civil Rights Acts of 1866, 1964, and 1991; the Americans with Disabilities Act; the Older Workers Benefit Protection Act of 1990, the Family and Medical Leave Act of 1993 and any other federal law, and the laws of the state(s) governing Executive’s employment with the Company concerning fair employment practices (which Acts and laws prohibit discrimination based upon race, religion, sex, national origin, color, age, disability, and in some jurisdictions, sexual orientation); and Employee Retirement Income Security Act of 1974, as amended (other than such rights as are mandated or vested by law), or (ii) arising under federal, state, or local laws or regulations, or any common law theories of recovery.  Executive hereby waives all rights to any benefits, including, but not limited to, monetary recovery and reinstatement, derived from any actions, suits, or proceedings brought on Executive’s behalf related to his employment with Employer, including any action, suit, or proceeding brought by the Equal Employment Opportunity Commission or anyone else.  If Executive files any action, suit, or proceeding with respect to any Claim released by him herein, Executive agrees to indemnify Employer against any damages or judgments arising there from. 7)             No Admission.  Executive acknowledges and agrees that this Agreement is not intended by either party to be construed, and will not be construed, as an admission by the Company of any liability or violation of any law, statute, ordinance, regulation or legal or moral duty of any nature whatsoever. 8)             Cooperation with Transition and Claims.  Executive agrees that, as necessary and upon request, he will cooperate with the Company and will render all reasonable assistance in the prosecution or defense by the Company of all claims, demands, suits, actions, proceedings and causes of action brought against or by any party, howsoever and whenever arising, including, but not limited to, meeting with attorneys who represent the Company, making affidavits or signed statements, giving deposition testimony and appearing as a witness, whenever such evidence may be necessary or desirable in any such matter.   Executive further agrees that, during the month of October, 2006, he will provide all necessary assistance to the Company’s new CEO as the new CEO transitions into such position.  All of Executive’s reasonable out of pocket expenses in connection with his performance under this Section 8 shall be reimbursed by the Company. 9)             Non-Disparagement.  Executive agrees not to disclose any information or make or publish any statement or do any other thing that may tend to harm or prejudice the reputation or good name of the Company or its officers, directors, or employees.  Executive agrees not to say or do anything to or in relation to officers, directors, employees, clients, customers, agents, or 3 -------------------------------------------------------------------------------- representatives of the Company that is adverse or prejudicial to the Company, or inconsistent with the management or policies of the Company. 10)           Confidentiality. a)             Executive shall keep confidential all non-public information he has learned during his employment with the Company regarding the Company, its business, its operations, its systems, its employees, its customers, its clients and prospective clients.  In addition, Executive agrees that he will not disclose non-public information obtained from the Company or its officers, directors, or management during his employment, including, but not limited to, information regarding or statements by the Company or its officers, directors or management, to anyone other than as required by law or in response to a lawful court order or subpoena.  Nothing in this Section 10 shall prohibit Executive from initiating a claim as a charging party with the Equal Employment Opportunity Commission (“EEOC”), or participating as a witness at the request of the Company or a third party, in any investigation by the Securities and Exchange Commission, the EEOC, or any other governmental agency charged with investigation of any matters related to Executive’s employment with the Company (“investigating agency”), nor shall Executive be prohibited from testifying in response to a subpoena, court order, or notice of deposition.  Executive agrees to notify the Company’s chief legal executive, in writing, at least ten (10) days prior to the response deadline or appearance date (whichever is earlier) for any such court order, subpoena, or notice of deposition issued by the court or investigating agency which seeks disclosure of the information referenced in this paragraph and agrees to take any actions reasonably requested by the Company in order to allow the Company to protect the release of information regarding Executive’s employment and separation from the Company in such court or agency proceeding. b)            Executive shall upon the Separation Date return to the Company all records, lists, files and documents which are in his possession and which relate to the Company, or any of its subsidiaries or affiliates. 11)           Use.  Executive agrees that Executive will not use any of the information or property described in Section 10 of this Agreement for his own benefit or for the benefit of any new employer or any third person. 12)           Non-solicitation; Non-competition.  Executive acknowledges that the Company operates its retail banking, financial intermediary, transaction processing and servicing asset business segments throughout the United States of America.  By virtue of Executive’s position as Chairman of the Board and CEO, he has significant confidential information about the Company and its existing and future plans and strategies.  As a result, Executive acknowledges that the Company has a legitimate business interest supporting the restrictive covenants set forth in this Section 12. Until the second (2nd) anniversary of the Separation Date, Executive shall not, in any manner, directly or indirectly, within the United States of America (without the prior written consent of the Company): (i) accept any engagement in any capacity that involves Executive performing employment, management, consultation or advisory services of any kind with a Competitive Enterprise (as hereinafter defined), (ii) Solicit (as hereinafter defined) any Customer (as hereinafter defined) to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Company or any of its subsidiaries or affiliates (iii) transact 4 -------------------------------------------------------------------------------- business with any Customer that would cause Executive to be a Competitive Enterprise, (iv) interfere with or damage any relationship between the Company or any of its subsidiaries or affiliates and a Customer or (v) Solicit anyone who is then an employee of the Company or any of its subsidiaries or affiliates (or who was an employee of the Company or any of its subsidiaries or affiliates within the prior 12 months) to resign from the Company or any of its subsidiaries or to apply for or accept employment with any other business or enterprise.  For purposes of this Agreement:  a “Customer” means any customer or prospective customer of the Company or its subsidiaries or affiliates whose identity became known to Executive in connection with Executive’s relationship with or employment by the Company or its subsidiaries or affiliates; and “Solicit” means any direct or indirect communication of any kind, regardless of who initiates it, that in any way invites, advises, encourages or requests any person to take or refrain from taking any action.  In addition, for purposes of this Agreement, “Competitive Enterprise” means any business enterprise that either (A) engaged in any activity that competes anywhere with any activity that the Company or its subsidiaries or affiliates is then engaged in or (B) holds a 5% or greater equity, voting or profit participation interest in any enterprise that competes anywhere with any activity that the Company or its subsidiaries or affiliates is then engaged in; provided, however, if the Company, including its subsidiaries and affiliates, ceases to do, and intends to exit, a particular type of business activity, the Company and its subsidiaries and affiliates will be deemed not to be “then engaged” in such business; further provided, however, in the case where the activity sought to be engaged in by Executive is retail banking, the “business enterprise” will be deemed to not be engaged in an activity that competes with the Company if such business enterprise’s current or prospective business does not include as a significant component internet banking. 13)           Remedies.  The Company shall be entitled to injunctive or other equitable relief to enforce the covenants of this Agreement, such relief to be without the necessity of posting a bond, cash or otherwise, without limiting other possible remedies of the Company.  In any action to enforce any provision of this Agreement, the prevailing party shall recover reasonable attorneys’ fees, costs and expenses from the non-prevailing party.  If any aspect of the restrictive covenants contained in Sections 9, 10, 11 or 12 are deemed by a court of competent jurisdiction to be too broad as to time, area or restricted activity, then such defective aspect shall be reduced to such scope as is reasonable and enforceable, and the restrictive covenant as so modified shall be enforceable by injunction or any other legal or equitable remedy. 14)           Consultation with Legal Counsel.  Executive expressly acknowledges that, before signing this Agreement, Executive was advised of his right to consult with legal counsel and/or other advisors selected by Executive regarding the terms and conditions of this Agreement, that Executive knows and understands the contents of this Agreement and that Executive enters into this Agreement of his own free will, and without any inducement not described in this Agreement, and not under duress or coercion of any nature. 15)           Severability.  If any provision of this Agreement should be declared or determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions will not be affected, and the illegal or invalid parts, terms or provisions will be deemed not to be a part of this Agreement. 5 -------------------------------------------------------------------------------- 16)           Governing Law. This Agreement will be governed by the laws of the State of Florida without reference to any principles of conflict of laws. 17)           Arbitration.  Executive and the Company agree that all controversies that may arise between Executive and the Company concerning, arising out of or relating to Executive’s employment, or to the interpretation, construction, performance or breach of this Agreement (other than injunctive proceedings to enforce Executive’s obligations under this Agreement), shall be determined by arbitration conducted in Atlanta, Georgia, before a single arbitrator.  Executive hereby waives the right to a jury trial on such claims.  Any arbitration under this Agreement shall be pursuant to the Federal Arbitration Act and the laws of the State of Florida.  The arbitrator shall be selected, and the arbitration conducted, in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association.  The award of the arbitrator shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.  The arbitrator shall have jurisdiction to award any and all damages other than injunctive relief.  This jury trial waiver specifically includes, but is not limited to, employment discrimination claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, Executive Retirement Insurance Security Act, the Family and Medical Leave Act, and any other federal, state, or local anti-discrimination statutes.  In the event that suit is filed in court for injunctive relief, no claim that Executive may seek to assert against the Company shall be deemed to be a compulsory counterclaim, and any such claim by Executive shall be brought exclusively by arbitration.   Arbitration   Accepted:       /s/ DKF   Executive’s   initials           /s/ THM   Employer’s Initials                               18)           Integration.  This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.  This Agreement supersedes any prior oral or written agreements, drafts, understandings or representations between Executive and the Company.  No other agreements regarding Executive’s services or termination, oral or otherwise, shall be deemed to exist or to bind either party. 19)           Amendments; Modifications; Waivers.  The provisions of this Agreement may be amended, modified or waived only with the prior written consent of each party hereto. 20)           Counterparts. This Agreement may be executed in one or more counterparts.  A copy or facsimile of a signature on this Agreement shall have the same force and effect as an original signature. 21)           Binding Effect.  This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors, legal representatives and assigns. 22)           Construction.  Throughout this Agreement, nouns, pronouns and verbs will be construed as masculine, feminine, neuter, singular or plural, whichever will be applicable.  All 6 -------------------------------------------------------------------------------- references herein to “Sections” and paragraphs will refer to corresponding provisions of this Agreement.  The parties 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 will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.  The word “including” will mean including without limitation.   The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 23)           Expenses.  Each of the parties hereto shall pay its own fees and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby. [This space intentionally left blank; next page is signature page.] 7 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, and intending to be legally bound, the parties to this Agreement have executed this Agreement as of the day and year first above written.   /s/ DOUGLAS K. FREEMAN     DOUGLAS K. FREEMAN           NETBANK, INC.       By: /s/ THOMAS H. MULLER, JR.         Print Name: Thomas H. Muller, Jr.         Title: Director     8 --------------------------------------------------------------------------------

Exhibit 10.22     REINSURANCE AGREEMENT   EFFECTIVE: OCTOBER 1, 2005   BETWEEN   AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY 5000 Westown Parkway, Suite 440 WEST DES MOINES, IOWA 50266 (Referred to in this Agreement as the Company)   AND   HANNOVER LIFE REASSURANCE COMPANY OF AMERICA 800 North Magnolia Ave., Suite 1400 ORLANDO, FLORIDA 32803 (Referred to in this Agreement as the Reinsurer)     AUTOMATIC YRT HA-AEIL-05   March 22, 2006   --------------------------------------------------------------------------------   Table of Contents   Article I   Preamble           Article II   Automatic Reinsurance           Article III   Liability           Article IV   Duration of Agreement           Article V   Premiums           Article VI   Claims and Claim Reimbursements           Article VII   Experience Refunds           Article VIII   Accounting and Reporting           Article IX   Recapture           Article X   Extra Contractual Obligations           Article XI   General Provisions           Article XII   DAC Tax           Article XIII   Insolvency           Article XIV   Reinsurer’s Right of Notice of Unusual Practices           Article XV   Arbitration           Article XVI   Confidentiality           Article XVII   Execution     --------------------------------------------------------------------------------   Exhibit A   Reinsurer’s Share and Company’s Share       Exhibit B-1   Plans Covered       Exhibit B-2   Reinsured Risks       Exhibit C-1   Procedures For Reporting       Exhibit C-2   Request For Financial Reporting Information       Exhibit D   Reinsurance Premium Calculation       Exhibit E   Experience Refund Calculation   --------------------------------------------------------------------------------   ARTICLE I   PREAMBLE   1)             Parties to the Agreement. This is a Yearly Renewable Term Reinsurance Agreement for indemnity reinsurance (the “Agreement”) solely between Hannover Life Reassurance Company of America, Orlando, Florida (the “Reinsurer”), and American Equity Investment Life Insurance Company, West Des Moines, Iowa (the “Company”), collectively referred to as the “parties”.   The acceptance of risks under this Agreement will create no right or legal relationship between the Reinsurer and the annuitant, owner or beneficiary of any insurance policy or other contract of the Company.   The Agreement will be binding upon the Company and the Reinsurer and their respective successors and assigns.   2)             Compliance. This Agreement applies only to the issuance of insurance by the Company in a jurisdiction in which it is properly licensed.   The Company represents that it is in compliance with all state and federal laws applicable to the business reinsured under this Agreement. In the event that the Company is found to be in non-compliance with any law material to this Agreement, the Agreement will remain in effect and the Company will indemnify the Reinsurer for any loss the Reinsurer suffers as a result of the non-compliance, and will seek to remedy the non-compliance immediately upon discovery thereof.   3)             Construction. This Agreement will be construed in accordance with the laws of the state of Iowa.   4)             Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the business reinsured hereunder. There are no understandings between the parties other than as expressed in this Agreement. Any change or modification to this Agreement will be null and void unless made by amendment to this Agreement and signed by both parties.   5)             Severability. If any provision of this Agreement is determined to be invalid or unenforceable, such determination will not impair or affect the validity or the enforceability of the remaining provisions of this Agreement.   6)             Assignment. Neither party may assign, transfer, sell, convey or otherwise dispose of any of its rights, duties or obligations under this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that the parties acknowledge and agree that the Reinsurer may retrocede any or all of the risks that it accepts under this Agreement.   …END OF ARTICLE I   1 --------------------------------------------------------------------------------   ARTICLE II   AUTOMATIC REINSURANCE   1)             General Conditions. On and after the Effective Date (as specified in Article XVII) of this Agreement, the Company will cede to the Reinsurer a portion of the “Reinsured Risks”, which are those risks specified in Exhibit B-2, in respect of the policy plans listed in Exhibit B-1 (the “Reinsured Policies”).   The Reinsurer will automatically accept its share (the “Reinsurer’s Share”) of the Reinsured Risks on the above-referenced policies, provided that the Company retains in full its share (the “Company’s Share”) of the same risks. The Company will not transfer, assign, convey, reinsure or otherwise dispose of its share of the Reinsured Risks without the Reinsurer’s written consent.   The Reinsurer’s Share and the Company’s Share are specified in Exhibit A. The Reinsurer’s Share and the Company’s Share may be revised, at any quarter end, by mutual consent of both parties.   …END OF ARTICLE II   2 --------------------------------------------------------------------------------   ARTICLE III   LIABILITY   1)             Reinsurer’s Liability. The Reinsurer’s liability will commence on the effective date of this Agreement, will continue in accordance with the terms and conditions of this Agreement, and will end on termination of this Agreement. Payment by the Company to the Reinsurer of all Reinsurance Premiums due under this Agreement, as specified in Article V, is a condition precedent to the Reinsurer’s liability hereunder.   …END OF ARTICLE III   3 --------------------------------------------------------------------------------   ARTICLE IV   DURATION OF AGREEMENT   1)             This Agreement is indefinite as to its duration. The Company or the Reinsurer may terminate this Agreement with respect to the reinsurance of new business by giving ninety (90) days written notice of such termination to the other party.   During the notification period, the Company will continue to cede and the Reinsurer will continue to accept policies covered under the terms of this Agreement. The Reinsurer will not be liable for policies with issue dates on and after the ninetieth (90th) day after the date notice is given.   Reinsurance coverage on all Reinsured Policies will remain in force until the termination or expiry of the Reinsured Policies or until the contractual termination of reinsurance under the terms of this Agreement, as provided for in Article V and Article IX, whichever comes first. When reinsurance coverage is no longer in force, this Agreement will be terminated.   …END OF ARTICLE IV   4 --------------------------------------------------------------------------------   ARTICLE V   PREMIUMS   1)             Premiums. The basis of calculation of the premiums (the “Reinsurance Premiums”) for the risks reinsured under this Agreement is shown in Exhibit D.   2)             Premium Guarantee. The basis of calculation of the Reinsurance Premiums, and the “Reinsurance Premium Rate”, which is also specified in Exhibit D, are guaranteed for the duration of this Agreement.   3)             Payment of Premiums and Reporting. Reinsurance Premiums in respect of each of the Reinsured Policies are payable by the Company to the Reinsurer quarterly in arrears. The Company will self-administer the calculation, reporting and payment of Reinsurance Premiums due, in accordance with Article VIII.   4)             Failure to Pay Premiums. The payment of Reinsurance Premiums is a condition precedent to the liability of the Reinsurer for reinsurance covered by this Agreement. In the event that Reinsurance Premiums are not paid within thirty (30) days of the Remittance Date, as specified in Article VIII, the Reinsurer will have the right to terminate the reinsurance under all policies having Reinsurance Premiums in arrears. If the Reinsurer elects to exercise its right of termination, it will give the Company thirty (30) days written notice of its intention.   If all Reinsurance Premiums in arrears, including any that become in arrears during the thirty- day notice period, are not paid before the expiration of the notice period, the Reinsurer will be relieved of all liability under those policies as of the last date to which Reinsurance Premiums have been paid. Reinsurance on policies on which Reinsurance Premiums subsequently fall due will automatically terminate as of the last date to which premiums have been paid for each policy, unless reinsurance premiums on those policies are paid on or before their Remittance Dates. Reinsurance Premiums in arrears shall accrue interest at a rate of ten percent (10%) per annum.   Terminated reinsurance may be reinstated, subject to approval by the Reinsurer, within sixty (60) days of the date of termination, and upon payment of all Reinsurance Premiums in arrears including any interest accrued thereon. The Reinsurer will have no liability for any claims incurred between the date of termination and the date of the reinstatement of the reinsurance. The right to terminate reinsurance will not prejudice the Reinsurer’s right to collect premiums for the period during which reinsurance was in force prior to the expiration of the thirty (30) days notice.   If the Reinsurer terminates reinsurance on all of the Reinsured Policies in accordance with the provisions in this paragraph 4, this will constitute contractual termination of reinsurance, as referred to in Article IV.   The Company will not force termination under the provisions of this Article solely to avoid the provisions regarding recapture in Article IX, or to transfer the reinsured policies to another reinsurer.   …END OF ARTICLE V   5 --------------------------------------------------------------------------------   ARTICLE VI   CLAIMS AND CLAIM REIMBURSEMENTS   1)             Claim Amounts. Claims covered under this Agreement include only claims relating to the Reinsured Risks on the Reinsured Policies. The amounts payable in respect of such claims (the “Claim Amounts”) are defined in Exhibit B-2.   2)             Claim Reimbursements. Where claims have been made under this Agreement, reimbursements of these claims may in certain circumstances be made at a later date. The amounts payable in respect of such reimbursements (the “Claim Reimbursements”) are defined in Exhibit B-2.   3)             Payment of Claim Amounts, Claim Reimbursements and Reporting. Claim Amounts in respect of each of the Reinsured Policies are payable by the Reinsurer to the Company quarterly in arrears. Claim Reimbursements in respect of each of the Reinsured Policies are payable by the Company to the Reinsurer quarterly in arrears. The Company will self-administer the calculation and reporting of the Claim Amounts and Claim Reimbursements due, in accordance with Article VIII.   …END OF ARTICLE VI   6 --------------------------------------------------------------------------------   ARTICLE VII   EXPERIENCE REFUNDS   1)             At the end of each quarter, an experience refund will be calculated and, if positive, paid by the Reinsurer to the Company. The Company will self-administer the calculation and reporting of any such amount due (the “Experience Refund Amount”), in accordance with Article VIII.   The calculation of the Experience Refund Amount is described in Exhibit E.   …END OF ARTICLE VII   7 --------------------------------------------------------------------------------   ARTICLE VIII   ACOUNTING AND REPORTING   1)             Quarterly Reporting. The company will self-administer the calculation and payment of Reinsurance Premiums, Claim Amounts, Claim Reimbursements and Experience Refunds due under this Agreement. Within thirty (30) days after the end of each quarter (the “Remittance Date”), the Company will send the Reinsurer a report that contains the information shown in Exhibit C-1 and Exhibit C-2, showing the Reinsurance Premiums, Claim Amounts, Claim Reimbursements and Experience Refund Amount due for that quarter. If an amount is due the Reinsurer, the Company will remit that amount together with the statement. If an amount is due the Company, the Reinsurer will remit such amount within thirty (30) days of receipt of the statement.   2)             Electronic Data Transmission. The Company shall report its reinsurance transactions via electronic media. The Company shall consult with the Reinsurer to determine the appropriate reporting format. Should the Company subsequently desire to make changes in the data format or the code structure, the Company shall communicate such changes to the Reinsurer in writing (describing in reasonable detail the changes) and obtain the Reinsurer’s written approval thereof prior to the use of such changes.   3)             Policy Changes. Whenever a change is made in the status, plan, amount or other material feature of a policy reinsured under this Agreement, the Company will notify the Reinsurer of such change with the next statement following the month in which the change was made.   …END OF ARTICLE VIII   8 --------------------------------------------------------------------------------   ARTICLE IX   RECAPTURE   1)             The Company may recapture the risks reinsured under this Agreement as of the end of any quarter beginning October 1, 2008, subject to a non-negative Experience Account Balance as defined in Exhibit E. On recapture, the regular quarterly accounting and reporting described in Article VIII will be completed and any amounts owed the Reinsurer or the Company will be paid. No amounts other than those specified in Article VIII will be due either of the parties on recapture or thereafter.   On recapture, that portion of the Reinsured Risks in respect of the Reinsured Policies, which was previously ceded to the Reinsurer in accordance with Article II, will be recaptured by the Company. The Reinsurer’s liability in respect of the Reinsured Risks on the Reinsured Policies will cease and this Agreement will be terminated with effect from the end of the quarter in question.   Recapture will constitute a contractual termination of reinsurance, as referred to in Article IV.   No form of partial recapture is allowed under this Agreement.   …END OF ARTICLE IX   9 --------------------------------------------------------------------------------   ARTICLE X   EXTRA CONTRACTUAL OBLIGATIONS   1)             The Reinsurer will not participate in any Extra Contractual Obligations, including, but not limited to, Punitive Damages or Compensatory Damages, that are awarded against the Company as a result of an act, omission, or course of conduct committed by the Company, its agents, or representatives in connection with the risks reinsured under this Agreement.   For purposes of this Article, the following definitions will apply.   “Extra Contractual Obligations” shall mean any liabilities or obligations of the Company other than those liabilities or obligations arising under the express terms and conditions of the risks reinsured under this Agreement. Payments not covered by this Agreement include, but are not limited to: (a) delayed claims interest; (b) statutory or regulatory fines or other penalties; (c) ex gratia payments; (d) Compensatory Damages; (e) Punitive Damages or exemplary damages; (f) consequential damages; (g) declaratory judgments; (h) legal fees or expenses; (i) costs relating to the investigation, settlement or handling of claims; (j) payments resulting from the failure to pay, the delay in payment, or errors in calculating or administering the payment of benefits or claims or any other amounts due or alleged to be due under or in connection with the risks reinsured under this Agreement; (k) costs relating to the administration of the risks reinsured under this Agreement; (l) costs relating to the design, marketing, sale, underwriting, production, issuance, rating and cancellation of the risks reinsured under this Agreement; (m) any other costs or expenses of settling or adjudicating contested claims, if such costs or expenses are not incurred in the ordinary course of claims settlement or payment.   “Punitive Damages” are those damages awarded as a penalty, the amount of which is neither governed nor fixed by statute.   “Compensatory Damages” are those amounts awarded to compensate for the actual damages sustained, and are not awarded as a penalty, nor fixed in amount by statute.   …END OF ARTICLE X   10 --------------------------------------------------------------------------------   ARTICLE XI   GENERAL PROVISIONS   1)             Currency. All payments and reporting by both parties under this Agreement will be made in United States Dollars (US$).   2)             Premium Tax. The Reinsurer will not reimburse the Company for premium taxes.   3)             Inspection of Records. The Reinsurer and the Company, or their duly authorized representatives, will have the right to inspect and audit original papers, records, and all documents relating to the business reinsured under this Agreement including but not limited to underwriting, claims processing, and administration. Such access will be provided during regular business hours at the office of the inspected party. The Reinsurer may suspend payments relating to matters in dispute that arise from such inspection and audit until such dispute is resolved by the parties either through mutual agreement or by arbitration in accordance with Article XV.   4)             USA Patriot Act and Blocked Persons. The Company covenants to the Reinsurer that it will comply with United States Treasury Department’s Office of Foreign Assets Control and USA Patriot Act requirements (the “Laws”) in connection with the Reinsured Policies. The Company agrees to indemnify and hold harmless the Reinsurer from and against any and all sanctions, penalties, assessments and other liabilities suffered or incurred by the Reinsurer arising from any breach by the Company of the Laws.   5)             Off-Set. Any debts or credits, in favor of or against either the Reinsurer or the Company with respect to this Agreement, are deemed mutual debts or credits and may be offset, and only the balance will be allowed or paid.   The right of offset will not be affected or diminished because of the insolvency of either party.   6)             Errors and Omissions. If through unintentional error, oversight, omission, or misunderstanding (collectively referred to as “errors”), the Reinsurer or the Company fails to comply with the terms of this Agreement and if, upon discovery of the error by either party, the other is promptly notified, each thereupon will be restored to the position it would have occupied if the error had not occurred, including interest.   If it is not possible to restore each party to the position it would have occupied but for the error, the parties will endeavor in good faith to promptly resolve the situation in a manner that is fair and reasonable, and most closely approximates the intent of the parties as evidenced by this Agreement.   For the avoidance of doubt, the parties agree that this paragraph 6 relates only to clerical errors.   11 --------------------------------------------------------------------------------   However, the Reinsurer will not provide reinsurance for policies that do not satisfy the parameters of this Agreement, nor will the Reinsurer be responsible for negligent or deliberate acts or for repetitive errors in administration by the Company. If either party discovers that the Company has failed to cede reinsurance as provided in this Agreement, or failed to comply with its reporting requirements, the Reinsurer may require the Company to audit its records for similar errors and to take the actions necessary to avoid similar errors in the future.   7)     Company Forms and Rates. The Company will furnish the Reinsurer with copies of its application forms, policy forms and any other forms or tables needed for proper handling of reinsurance under this Agreement. The Reinsurer acknowledges that the Company may on occasion need to make changes to its forms or tables, or introduce new forms. Where this occurs, the parties agree that:   (i) where the forms in question do not introduce or change any provisions that relate to the Reinsured Risks, the Company is required only to furnish the Reinsurer with copies of the relevant forms, and the Reinsurer’s liability will remain unchanged; and   (ii) where the forms in question introduce or change provisions that relate to the Reinsured Risks, the Reinsurer’s liability will cease in respect of each of the Reinsured Policies to which the forms relate, unless the Company obtains from the Reinsurer written agreement to the contrary.   …END OF ARTICLE XI   12 --------------------------------------------------------------------------------   ARTICLE XII   DAC TAX   1)             The parties to this Agreement agree to the following provisions pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations effective December 29, 1992, under Section 848 of the Internal Revenue Code of 1986, as amended:   a.             The term ‘party’ refers to either the Company or the Reinsurer, as appropriate.   b.             The terms used in this Article are defined by reference to Regulation Section 1.848-2, effective December 29, 1992.   c.             The party with the net positive consideration for this Agreement for each taxable year will capitalize specified policy acquisition expenses with respect to this Agreement with regard to the general deductions limitation of Section 848(c)(1).   d.             Both parties agree to exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency, or as otherwise required by the Internal Revenue Service.   e.             The Company will submit a schedule to the Reinsurer by May of each year with its calculation of the net consideration for the preceding calendar year. This schedule of calculations will be accompanied by a statement signed by an officer of the Company stating that the Company will report such net consideration in its tax return for the preceding calendar year. The Reinsurer may contest such calculation by providing an alternative calculation to the Company in writing within thirty (30) days of the Reinsurer’s receipt of the Company’s calculation. If the Reinsurer does not so notify the Company within the required timeframe, the Reinsurer will report the net consideration as determined by the Company in the Reinsurer’s tax return for the previous calendar year.   f.              If the Reinsurer contests the Company’s calculation of the net consideration, the parties will act in good faith to reach an agreement as to the correct amount within thirty (30) days of the date the Reinsurer submits its alternative calculation. If the Company and the Reinsurer reach an agreement on an amount of net consideration, each party will report the agreed upon amount in its tax return for the previous calendar year.   g.             Both the Company and the Reinsurer represent and warrant that they are subject to United States taxation under either Subchapter L or Subpart F of Part III of Subchapter N of the Internal Revenue Code of 1986, as amended.   …END OF ARTICLE XII   13 --------------------------------------------------------------------------------   ARTICLE XIII   INSOLVENCY   1)             Insolvency. The Company will be deemed insolvent when it:   a.  applies for or consents to the appointment of a receiver, rehabilitator, conservator, liquidator or statutory successor of its properties or assets; or   b. is adjudicated as bankrupt or insolvent; or   c.  files or consents to the filing of a petition in bankruptcy, seeks reorganization to avoid insolvency or makes formal application for any bankruptcy, dissolution, liquidation or similar law or statute; or   d. becomes the subject of an order to rehabilitate or an order to liquidate as defined by the insurance code of the jurisdiction of the party’s domicile.   2)             Insolvency of the Company. In the event of the insolvency of the Company, all reinsurance payments due under this Agreement will be payable directly to the liquidator, rehabilitator, receiver, or statutory successor of the Company, without diminution because of the insolvency, for those claims allowed against the Company by any court of competent jurisdiction or by the liquidator, rehabilitator, receiver or statutory successor having authority to allow such claims.   In the event of insolvency of the Company, the liquidator, rehabilitator, receiver, or statutory successor will give written notice to the Reinsurer of all pending claims against the Company on any policies reinsured within a reasonable time after such claim is filed in the insolvency proceeding. While a claim is pending, the Reinsurer may investigate and interpose, at its own expense, in the proceeding where the claim is adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, rehabilitator, receiver, or statutory successor.   The expense incurred by the Reinsurer will be chargeable, subject to court approval, against the Company as part of the expense of liquidation to the extent of a proportionate share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. Where two or more reinsurers are participating in the same claim and a majority in interest elect to interpose a defense or defenses to any such claim, the expense will be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by the Company.   The Reinsurer will be liable only for the amounts reinsured and will not be or become liable for any amounts or reserves to be held by the Company on policies reinsured under this Agreement.   …END OF ARTICLE XIII   14 --------------------------------------------------------------------------------   ARTICLE XIV   REINSURER’S RIGHT OF NOTICE OF UNUSUAL PRACTICES   1)             In providing reinsurance facilities to the Company under this Agreement, the Reinsurer has granted the Company considerable authority with respect to automatic binding power, reinstatements, claim settlements, and the general administration of the reinsurance account. To facilitate transactions, the Reinsurer has required the minimum amount of information and documentation possible, reflecting its utmost faith and confidence in the Company. The Reinsurer assumes that, except as otherwise notified in writing by the Company, and agreed to in writing by the Reinsurer, the underwriting, claims, general administrative processing rules or guidelines, and other insurance practices employed by the Company with respect to reinsurance ceded under this Agreement are generally consistent with the customary and usual practices of the insurance industry as a whole. Where the Company does engage in exceptional or uncustomary practices or implements a change in its underwriting rules or guidelines, with respect to business covered under this Agreement, the Company agrees to advise the Reinsurer in writing forty-five (45) days prior to implementing such practice or change and receive a written acceptance of said practice or change from the Reinsurer before assigning any liability to the Reinsurer with respect to any reinsurance issued under such practice or change. The Company acknowledges and agrees that its covenant to the Reinsurer to so advise the Reinsurer of any exceptional or uncustomary practice or implementation of such a significant change including changes in its key managerial personnel and corporate or legal structure is a material incentive to the Reinsurer agreeing to enter into this Agreement, and absent such a covenant, the Reinsurer would not have entered into this Agreement.   …END OF ARTICLE XIV   15 --------------------------------------------------------------------------------   ARTICLE XV   ARBITRATION   1)             It is the intention of the Reinsurer and the Company that the customs and practices of the life insurance and reinsurance industry will be given full effect in the operation and interpretation of this Agreement. The parties agree to act in all matters with the highest good faith. However, if the Reinsurer and the Company cannot mutually resolve a dispute that arises out of or relates to this Agreement, the dispute will be decided through arbitration as a precedent to any right of action hereunder.   To initiate arbitration, either the Company or the Reinsurer will notify the other party in writing of its desire to arbitrate, stating the nature of its dispute and the remedy sought. The party to which the notice is sent will respond to the notification in writing within fifteen (15) days of its receipt.   There will be three arbitrators who will be current or former senior officers of life insurance or life reinsurance companies other than the parties to this Agreement, their affiliates or subsidiaries. Each of the parties will appoint one of the arbitrators and these two arbitrators will select the third. If either party refuses or neglects to appoint an arbitrator within sixty (60) days of the initiation of the arbitration, the other party may appoint the second arbitrator. If the two arbitrators do not agree on a third arbitrator within thirty (30) days of the appointment of the second arbitrator, then each arbitrator shall nominate three individuals selected from the ARIAS-US list of certified arbitrators. Each arbitrator shall then decline two of the nominations presented by the other arbitrator. The third arbitrator shall then be chosen from the remaining two nominations by drawing lots.   Once chosen, the arbitrators are empowered to select the site of the arbitration and decide all substantive and procedural issues by a majority of votes. As soon as possible, the arbitrators will establish arbitration procedures as warranted by the facts and issues of the particular case. The arbitrators will have the power to determine all procedural rules of the arbitration, including but not limited to inspection of documents, examination of witnesses and any other matter relating to the conduct of the arbitration. The arbitrators may consider any relevant evidence; they will weigh the evidence and consider any objections. Each party may examine any witnesses who testify at the arbitration hearing.   The arbitrators will base their decision on the terms and conditions of this Agreement and the customs and practices of the life insurance and reinsurance industries rather than on strict interpretation of the law. The decision of the arbitrators will be made by majority rule and will be submitted in writing. The decision will be final and binding on both parties and there will be no appeal from the decision. Either party to the arbitration may petition any court having jurisdiction over the parties to reduce the decision to judgment.   Unless the arbitrators decide otherwise, each party will bear the expense of its own arbitration activities, including its appointed arbitrator and any outside attorney and witness fees. The parties will jointly and equally bear the expense of the third arbitrator and other costs of the arbitration.   This Article will survive termination of this Agreement.   …END OF ARTICLE XV   16 --------------------------------------------------------------------------------   ARTICLE XVI   CONFIDENTIALITY   1)             The Company and the Reinsurer agree that Customer and Proprietary Information will be treated as confidential. Customer Information includes, but is not limited to, medical, financial, and other personal information about proposed, current, and former policyowners, annuitants, applicants, and beneficiaries of policies issued by the original Company. Proprietary Information includes, but is not limited to, business plans and trade secrets, mortality and lapse studies, underwriting manuals and guidelines, applications and contract forms, and the specific terms and conditions of this Agreement.   Customer and Proprietary Information will not include information that:   a.             is or becomes available to the general public through no fault of the party receiving the Customer or Proprietary Information (the “Recipient”);   b.             is independently developed by the Recipient;   c.             is acquired by the Recipient from a third party not covered by a confidentiality agreement; or   d.             is disclosed under a court order, law or regulation.   The parties will not disclose such information to any other parties unless agreed to in writing, except as necessary for retrocession purposes, as requested by external auditors, as required by court order, or as required or allowed by law or regulation.   The Company acknowledges that the Reinsurer can aggregate data with other companies reinsured with the Reinsurer as long as the data cannot be identified as belonging to the Company.   …END OF ARTICLE XVI   17 --------------------------------------------------------------------------------   ARTICLE XVII   EXECUTION   This Agreement is effective as of 12:01 a.m. on October 1, 2005 (the “Effective Date”).   This Agreement has been made in duplicate and is hereby executed by both parties.   AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY WEST DES MOINES, IOWA   Date:   3/26/06           By:   /s/ Wendy L. Carlson           Title:   General Counsel           Witness:   /s/ Sandra Lockhart       HANNOVER LIFE REASSURANCE COMPANY OF AMERICA ORLANDO, FLORIDA   Date:   3/29/06           By:   /s/ Jeffrey R. Burt           Title:   VP – Marketing           Witness:   /s/ Gary L. Gray     …END OF ARTICLE XVII   18 --------------------------------------------------------------------------------   EXHIBIT A   REINSURER’S SHARE AND COMPANY’S SHARE   The Reinsurer’s Share is forty percent (40%), which is the portion of the Reinsured Risks accepted by the Reinsurer. The Company’s Share is sixty percent (60%), which is the portion of the Reinsured Risks retained by the Company.   19 --------------------------------------------------------------------------------   EXHIBIT B-1   PLANS COVERED   This Agreement provides for reinsurance of the Company’s Single Premium Deferred Annuities (SPDAs) and Flexible Premium Deferred Annuities (FPDAs), with the plan codes listed below.   All such plans issued and in-force as of the Effective Date of the Agreement and all such plans issued on or after the Effective Date are reinsured under the Agreement.   With respect to plans reinsured with EquiTrust Life Insurance Company as of the Effective Date of this Agreement, the Agreement provides reinsurance on the portion of such plans not reinsured with EquiTrust Life Insurance Company.   Plan Codes   ACCUMULATOR   FPDA-3 7.3   I-2001TX   INDEX-26   SNF ACC55 BN PROCEED   FPDA-3 REV   I-2001TX-5   INDEX-27   SNF ACCUM BRAVO   FPDA-3FL   I-2002   INDEX-27IN   SPDA-1 BRAVO 2003   FPDA-3IN   I-2002 REV   INDEX-28   SPDA-1(3%) CUMULATOR   FPDA-3TX   I-25 (REV)   INDEX-28IN   SPDA-1PA F-3FLREV   FPDA-4   I-27 (REV)   INDEX-28KY   SPDA-1PLUS F-3INREV   FPDA-4PA   I-27REV IN   INDEX-29   SPDA-1SNF F-3REVTX   FPDA-4SNF   I-27REV KY   INDEX-30   SPDA-1UT FPD22.25IN   FPDA-5   I-29 (REV)   INDEX-3-05   SPDA-2 FPD32.25IN   FPDA5 2.25   IDX-1-05IN   INDEX-30IN   SPDA-2(3%) FPD72.25IN   FPDA5225IN   IDX-1-05KY   INDEX-30KY   SPDA-2PA FPD82.25IN   FPDA-5FL   IDX-26 7.5   INDEX-4   SPDA-2SNF FPDA-1   FPDA-5PLUS   IDX-4-05TX   INDEX-4-05   SPDA-5 FPDA-1(3%)   FPDA-6   INDEX   INDEX-5   STRETCH FPDA-10   FPDA-6FL   INDEX-1   INDEX-5-05   SUPER-7 FPDA-10SNF   FPDA-6TX   INDEX-2   INDEX-6   SUPER-7REV FPDA-10TX   FPDA-7   INDEX-10   INDEX-6SNF   SUPER-7TX FPDA-10VA   FPDA7 2.25   INDEX-1-05   INDEX-6TX   SUPR7 2.25 FPDA-11   FPDA-8   INDEX-12   INDEX-8   SUPR7225IN FPDA-11SNF   FPDA8 2.25   INDEX-13   INDEX-T03     FPDA-11TX   FPDA-PD2   INDEX-15   INDEXP3     FPDA-1PA   GFIR   INDEX-16   INDEXP3FL     FPDA-1SNF   GFIR2-3   INDEX-17   INDEXP3-PA     FPDA-2   GFIR-5   INDEX-18   INDEXP3TX     FPDA2 2.25   I-19 (REV)   INDEX-19   INDX-2     FPDA2-2001   I-19 REV7   INDEX-22   INDX-I     FPDA-2PLUS   I-2000   INDEX-23   INDX-IIN     FPDA-2TX   I-2000TX   INDEX-24   INDX-IPA     FPDA-3   I-2000TX-5   INDEX-25   INDX-ITX     FPDA3 2.25   I-2001   INDEX-25WA   S-7TXREV       20 --------------------------------------------------------------------------------   EXHIBIT B-2   REINSURED RISKS   The following risks are covered under this Agreement, resulting in the Claim Amounts and Claim Reimbursements defined below, for each of the Reinsured Policies:   (a) Waiver of Surrender Charge on Partial Withdrawal   Where the contract issued by the Company to the holder of one of the Reinsured Policies provides for it, the Company waives the surrender charge that normally applies to surrenders or withdrawals, and allows a free partial withdrawal. The cost to the Company of such waived surrender charges is a Reinsured Risk under this Agreement.   Any surrender charge waived for any reason other than as provided for in the contract originally issued to the holder of the Reinsured Policy by the Company is not a Reinsured Risk.   Without prejudice to the generality of the foregoing, in no event will a surrender charge waived in the following circumstances be considered a Reinsured Risk:   (i) on withdrawal in the first contract year of the Reinsured Policy; (ii) on partial withdrawals in excess of 10% of the fund value in any contract year of the Reinsured Policy; (iii) at the discretion of the Company; (iv) as required or demanded of the Company by any third party.   Where a surrender charge actually waived by the Company is a Reinsured Risk, the Reinsurer’s Share of that surrender charge is a Claim Amount.   Where the contract issued by the Company to the holder of one of the Reinsured Policies provides for it, the Company applies a charge on surrender, to recover any surrender charge waived on partial withdrawal during the preceding twelve months. Where the waived surrender charge on the partial withdrawal in question was a Reinsured Risk under this Agreement, the Reinsurer’s Share of the charge applied on surrender (to recover the surrender charge waived on the partial withdrawal) is a Claim Reimbursement.   (b) Waiver of Surrender Charge on Death   In the event of the death of the holder of one of the Reinsured Policies, the Company waives the surrender charge that would have applied if the policy had been surrendered as at the date of death. The cost to the Company of such waived surrender charges is a Reinsured Risk under this Agreement.   The Reinsurer’s Share of any such waived surrender charge is a Claim Amount.   21 --------------------------------------------------------------------------------   EXHIBIT C-1   PROCEDURES FOR REPORTING   The Company will maintain adequate records to administer the reinsurance accounts and will cede reinsurance under this Agreement on a bordereau self-administration basis. The Company will provide the Reinsurer with an activity report on computer disk or other mutually agreed upon electronic media, substantially in conformity with the following:   A)            Quarterly Statement of Reinsured Policies   The Company will provide the Reinsurer with a report of all reinsured policies issued or renewing during the past quarter, which should include the following:   1)             Policy number 2)             Policy status 3)             Policy plan 4)             Name: surname, first name, middle initial 5)             Issue age 6)             Sex 7)             Issue date 8)             Fund value at beginning of quarter 9)             Applicable surrender charge at beginning of quarter (or policy date if later) 10)           Reinsurance Premium for quarter 11)           Claim Amount(s) for quarter 12)           Claim Reimbursement for quarter   B)            QUARTERLY EXPERIENCE REFUND STATEMENT   The Company will provide the Reinsurer with a statement showing the calculation of the Experience Refund Amount for the quarter, which should include the following items:   1)             Total Reinsurance Gain (TRG) 2)             Total Reinsurance Risk Charge (TRRC) 3)             Experience Account Balance at the end of the previous quarter (EABt-1) 4)             Experience Account Balance at the end of the current quarter (EABt) 5)             Experience Refund Amount (ERA)   The terms and symbols used above are defined in Exhibit E.   22 --------------------------------------------------------------------------------   EXHIBIT C-2   REQUEST FOR FINANCIAL REPORTING INFORMATION   Please provide the following information as soon as practical after the close of the quarter but not later than the due date as stated in Article VIII. Please provide monthly or other interim reports if available. All reports should include both the Reinsurer’s Treaty Number (HA-AEIL-05) as well as the Company’s reference number. The Company must maintain and provide, upon request, sufficiently detailed reports such that reserve calculations can be independently verified by the Reinsurer’s auditors and examiners.   A)            Quarterly Reporting   1)     Policy counts. 2)     Statutory reserves, split by issue year and (if appropriate) in accordance with Exhibits 5–8 of the statutory annual statement. 3)     Policy level detail statutory reserve listing via electronic media.   B)            Annual Statutory Reporting   1)     Statutory reserves, in Exhibit 5 format. 2)     Page 7, Analysis of Increase in Reserves. 3)     Policy Exhibit. 4)     Policy level detail statutory reserve listing via electronic media. 5)     Exhibit reconciling detail listing to summary reports.   C)            Statutory Annual Statement, when published.   23 --------------------------------------------------------------------------------   EXHIBIT D   REINSURANCE PREMIUM CALCULATION   The Reinsurance Premium (RP) payable each quarter in respect of each of the Reinsured Policies is given by:   RP = RPR × FV × RS × SC ÷ 4   where   RPR is the Reinsurance Premium Rate, which is 7.2%; FV is the fund value of the policy at the beginning of the quarter (or zero if the policy date falls after the beginning of the quarter in question); RS is the Reinsurer’s Share, as specified in Exhibit A; SC is the surrender charge applicable to the policy at the beginning of the quarter (or zero if the policy date falls after the beginning of the quarter in question).   24 --------------------------------------------------------------------------------   EXHIBIT E   EXPERIENCE REFUND CALCULATION   The method of calculation of the Experience Refund Amount is described below.   Define the following terms in respect of each Reinsured Policy:   RP is the Reinsurance Premium for the quarter, calculated in accordance with Exhibit D; FV is the fund value of the policy at the beginning of the quarter; RS is the Reinsurer’s Share, as specified in Exhibit A; SC is the surrender charge applicable to the policy at the beginning of the quarter (or policy date if later); CA is the Claim Amount on the policy in the quarter, where the Claim Amount is as defined in Exhibit B-2; CR is the Claim Reimbursement on the policy in the quarter, where the Claim Reimbursement is as defined in Exhibit B-2;   Calculate the Reinsurance Gain (RG) on the policy as:   RG = RP - (CA - CR)   Calculate the Reinsurance Risk Charge (RRC) for the policy as:   RRC = FV × RS × SC × (0.1 + 0.02) × 0.0125   Calculate the Total Reinsurance Gain (TRG) and Total Reinsurance Risk Charge (TRRC) as the sum of the values of RG and RRC, calculated as described above, for all the Reinsured Policies.   The Experience Account Balance at the end of the quarter (EABt) is defined as:   EABt = min[0, (EABt-1 × 1.03) + TRG - TRRC]   where EABt-1 is the Experience Account Balance at the end of the previous quarter (or zero if the Experience Refund Calculation is being done for the first time).   The Experience Refund Amount (ERA) for the quarter is given by:   ERA = max[0, (EABt-1 × 1.03) + TRG - TRRC]   25 --------------------------------------------------------------------------------

  Exhibit 10.1 NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT FIRST PARK TEN COCO SAN ANTONIO, L.P., a Delaware limited partnership, BORROWER TO PETER S. GRAF, ESQ., AS TRUSTEE FOR THE BENEFIT OF CIBC INC., LENDER DATED: AS OF NOVEMBER 22, 2006           Property Address           Corinthian College     6550 First Park Ten Boulevard     San Antonio, Texas 78213           Assessor’s     Parcel No.: 16502-000-80     County: Bexar     State: Texas Record and Return to: Cassin Cassin & Joseph LLP 711 Third Avenue, 20th Floor New York, New York 10017 Attn: Michael J. Hurley, Jr., Esq.   --------------------------------------------------------------------------------             THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT (this “Deed of Trust”) is made as of the 22nd day of November, 2006, by FIRST PARK TEN COCO SAN ANTONIO, L.P., a Delaware limited partnership, with an address c/o Gladstone Commercial Corporation, 1521 Westbranch Drive, McLean, Virginia 22102, as grantor (“Borrower”) to PETER S. GRAF, ESQ., as trustee (“Trustee”), whose address is 2626 Howell Street, 10th Floor, Dallas, Texas 75204, in favor of CIBC INC., a Delaware corporation, as beneficiary (“Lender”), whose address is Attn: Real Estate Finance Group, 300 Madison Avenue, 8th Floor, New York, New York 10017. W I T N E S S E T H:           WHEREAS, Borrower, SLEE GRAND PRAIRIE, L.P., a Delaware limited partnership and OB MIDWAY NC GLADSTONE COMMERCIAL LLC, a Delaware limited liability company (collectively, the “Borrower Parties”) have requested that Lender make a loan to the Borrower Parties in the principal amount of FOURTEEN MILLION THREE HUNDRED NINE THOUSAND AND 00/100 DOLLARS ($14,309,000.00) (the “Loan”);           NOW THEREFORE, in consideration of the making of the Loan and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Borrower hereby agrees, covenants, represents and warrants with and to Lender as follows:           THAT FOR THE PURPOSES OF SECURING:           (1) The Loan together with interest thereon evidenced by that certain promissory note (such promissory note, together with any and all renewals, modifications, consolidations and extensions thereof, is hereinafter referred to as the “Note”) of even date with this Deed of Trust, made by Borrower Parties to the order of Lender in like amount;           (2) The full and prompt payment and performance of all of the provisions, agreements, covenants and obligations herein contained and contained in any other agreements, documents or instruments now or hereafter evidencing, securing or otherwise relating to the indebtedness evidenced by the Note, whether executed or delivered by Borrower, Borrower Parties or by any indemnitor or guarantor with respect to any obligation of Borrower under the Loan Documents (each, hereinafter, an “Indemnitor”), as defined herein, or jointly and severally (the Note, this Deed of Trust, Assignment of Leases and Rents, Assignment of Warranties and Other Contract Rights, Hazardous Substances Indemnity Agreement, Indemnity & Guaranty Agreement, Manager’s Subordination Agreement, Closing Certificate, Cash Management Agreement, Clearing Bank Instruction Letter, and FIRPTA Certificate, together with any and all renewals, amendments, extensions and modifications thereof, are hereinafter collectively referred to as the “Loan Documents”) excluding only the obligations pursuant to that certain Hazardous Substances Indemnity Agreement of even date herewith by Borrower Parties and Gladstone Commercial Corporation, a Maryland corporation (“Indemnitor”), jointly and severally, for the benefit of Lender (the “Hazardous Substances Indemnity”) and the Indemnity and Guaranty Agreement of even date herewith by Indemnitor for the benefit of Lender (the “Guaranty Indemnity”);           (3) Any and all additional advances made by Lender to protect or preserve the Property (as defined herein) or the lien or security interest created hereby on the Property, or for Taxes and Other Charges (each as defined in Section 1.5) or Insurance Premiums (as defined in Section 1.6) as hereinafter provided or for performance of any of Borrower’s obligations hereunder or Borrower Parties’ obligations under the other Loan Documents or for any other purpose provided herein or in the other Loan Documents (whether or not the original Borrower named herein remains the owner of the Property at the time of such advances), and any and all out of pocket third party costs and expenses (including reasonable attorney’s fees) incurred by Lender hereunder in performing the obligations required to be performed by Borrower or Borrower Parties or otherwise incurred by Lender pursuant to the terms of this Deed of   --------------------------------------------------------------------------------   Trust, together with interest on each such advance, cost or expense (which interest shall accrue at the Default Interest Rate (as defined in the Note) from the date such amounts are advanced or paid by Lender until the date repaid by Borrower); and           (4) Any and all other indebtedness now owing or which may hereafter be owing by Borrower and Borrower Parties to Lender in connection with the Loan, the Loan Documents and/or the Property, including, without limitation, all prepayment fees, however and whenever incurred or evidenced, whether express or implied, direct or indirect, absolute or contingent, or due or to become due, and all renewals, modifications, consolidations, replacements and extensions thereof; (All of the sums referred to in Paragraphs (1) through (4) above are herein sometimes referred to as the “Obligations”) and for and in consideration of the sum of Ten and no/100 Dollars ($10.00), and other valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged, BORROWER HAS IRREVOCABLY GRANTED, BARGAINED, SOLD and CONVEYED, and by these presents does GRANT, BARGAIN, SELL and CONVEY, unto Trustee, in trust, with power of sale, in all of Borrower’s estate, right, title and interest in, to and under any and all of the following described property, whether now owned or hereafter acquired (collectively, the “Property”):           A. All that certain real property referenced on the cover page of this Deed of Trust and situated in the County of Bexar, State of Texas, more particularly described on Exhibit A attached hereto and incorporated herein by this reference (the “Real Estate”) together with all of the easements, rights, privileges, franchises, tenements, hereditaments and appurtenances now or hereafter thereunto belonging or in any way appertaining thereto, and all of the estate, right, title, interest, claim and demand whatsoever of Borrower therein or thereto, either at law or in equity, in possession or in expectancy, now or hereafter acquired;           B. All structures, buildings and improvements of every kind and description now or at any time hereafter located or placed on the Real Estate (the “Improvements”);           C. All furniture, furnishings, fixtures, goods, equipment, inventory or personal property owned by Borrower now or hereafter located on, attached to or used in and about the Improvements, including, but not limited to, all machines, engines, boilers, dynamos, elevators, stokers, tanks, cabinets, awnings, screens, shades, blinds, carpets, draperies, lawn mowers, and all appliances, plumbing, heating, air conditioning, lighting, ventilating, refrigerating, disposal and incinerating equipment, and all fixtures and appurtenances thereto, and such other goods and chattels and personal property owned by Borrower as are now and hereafter used or furnished in operating the Improvements, or the activities conducted therein, and all building materials and equipment hereafter situated on or about the Real Estate or Improvements, and all warranties and guaranties relating thereto, and all additions thereto and substitutions and replacements therefor (exclusive of any of the foregoing owned or leased by tenants of space in the Improvements) (hereinafter, all of the foregoing items described in this paragraph D, collectively, the “Equipment”);           D. All easements, rights-of-way, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, air rights and other development rights now or hereafter located on the Real Estate or under or above the same or any part or parcel thereof, and all estates, rights, titles, interests, tenements, hereditaments and appurtenances, reversions and remainders whatsoever, in any way belonging, relating or appertaining to the Real Estate and/or Improvements or any part thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Borrower; - 2 - --------------------------------------------------------------------------------             E. All water, ditches, wells, reservoirs and drains and all water, ditch, well, reservoir and drainage rights which are appurtenant to, located on, under or above or used in connection with the Real Estate or the Improvements, or any part thereof, whether now existing or hereafter created or acquired;           F. All minerals, crops, timber, trees, shrubs, flowers and landscaping features now or hereafter located on, under or above the Real Estate;           G. All cash funds, deposit accounts and other rights and evidence of rights to cash, now or hereafter created or held by Lender pursuant to this Deed of Trust or any other of the Loan Documents, including, without limitation, all funds now or hereafter on deposit in the Impound Account, as defined in Section 1.6, and in the reserves required pursuant to Section 1.28 (all such funds, together with the Impound Account, collectively, the “Reserves”);           H. All leases, subleases (including, without limitation, oil, gas and mineral leases, and that certain Lease Agreement for the entire Property dated September 26, 2003 between Borrower, as landlord, and Corinthian Colleges, Inc., a Delaware corporation (“Principal Tenant”), as tenant, (as subsequently amended and assigned, the “Principal Lease”, the Principal Lease, all subleases, licenses, concessions and occupancy agreements of all or any part of the Real Estate or the Improvements now or hereafter entered into and any guaranty thereof are each referred to as a “Lease”, and collectively, the “Leases”) and all rents, subrents, sub-subrents, royalties, issues, profits, revenue, income, claims, judgments, awards, settlements and other benefits (collectively, the “Rents and Profits”) of the Real Estate or the Improvements, now or hereafter arising from the use or enjoyment of all or any portion thereof or from any present or future Lease or other agreement pertaining thereto or arising from any of the Contracts (as hereinafter defined) or any of the General Intangibles (as hereinafter defined) and all cash or securities deposited to secure performance by the tenants, lessees, subtenants, sub-subtenants, sublessees, sub-sublessees or licensees, as applicable (each, a “Tenant” and collectively, the “Tenants”), of their obligations under any such Leases, whether said cash or securities are to be held until the expiration of the terms of said Leases or applied to one or more of the installments of rent coming due prior to the expiration of said terms, subject to, however, the provisions contained in Section 1.9 hereinbelow;           I. All rights of the Borrower under contracts, agreements and documents now or hereafter entered into relating to the ownership or operation or management of the Real Estate or the Improvements or any portion of either of them (collectively, the “Contracts”) including, without limitation, service contracts, maintenance contracts, equipment leases, personal property leases and any contracts or documents relating to construction on any part of the Real Estate or the Improvements (including plans, drawings, surveys, tests, reports, bonds and governmental approvals) or to the management or operation of any part of the Real Estate or the Improvements and any and all warranties and guaranties, to the extent assignable, relating to the Real Estate or the Improvements or any fixtures, equipment or personal property owned by Borrower and located on and/or used in connection with the Property, together with all revenue, income and other benefits thereof and all claims, judgments, awards and settlements arising thereunder;           J. All present and future monetary deposits given to any public or private utility with respect to utility services furnished to any part of the Real Estate or the Improvements;           K. All present and future funds, accounts, instruments, accounts receivable, documents, causes of action, claims, general intangibles (including without limitation, trademarks, trade names, servicemarks and symbols now or hereafter used in connection with any part of the Real Estate or the Improvements, all names by which the Real Estate or the Improvements may be operated or known, - 3 - --------------------------------------------------------------------------------   all rights to carry on business under such names, and all rights, interest and privileges which Borrower has or may have as developer or declarant under any covenants, restrictions or declarations now or hereafter relating to the Real Estate or the Improvements) and all notes or chattel paper, to the extent assignable, now or hereafter arising from or by virtue of any transactions related to the Real Estate or the Improvements (collectively, the “General Intangibles”);           L. All water taps, sewer taps, certificates of occupancy, permits, licenses, franchises, certificates, consents, approvals and other rights and privileges now or hereafter obtained in connection with the Real Estate or the Improvements and all present and future warranties and guaranties relating to the Improvements or to any equipment, fixtures, furniture, furnishings, personal property or components of any of the foregoing now or hereafter located or installed on the Real Estate or the Improvements, to the extent assignable;           M. All building materials, supplies and equipment now or hereafter placed on the Real Estate or in the Improvements and all architectural renderings, models, drawings, plans, specifications, studies and data now or hereafter relating to the Real Estate or the Improvements;           N. Any insurance policies or binders now or hereafter relating to the Property including any unearned premiums thereon;           O. All proceeds, products, substitutions and accessions (including claims and demands therefor) of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation awards and proceeds of refunds of any Taxes or Other Charges with respect to any period from and after the date hereof until the Loan is indefeasibly paid or defeased in full;           P. All of Borrower’s claims and rights to damages and any other remedies in connection with or arising from the rejection of the Principal Lease by tenant, or any trustee, custodian or receiver pursuant to the Bankruptcy Code in the event that there shall be filed by or against tenant any petition, action or proceeding under the Bankruptcy Code or under any other similar federal or state law now or hereafter in effect;           Q. All right, title and interest of Borrower in, under and to the Mutual Access Easement and Parking and Maintenance Agreement dated February 10, 2005 and recorded in Volume 11226, Page 181, Real Property Records of Bexar County, Texas (the “Easement Agreement”); and           R. All other or greater rights and interests of every nature in the Real Estate or the Improvements and in the possession or use thereof and income therefrom, whether now owned or hereafter acquired by Borrower.           TO HAVE AND TO HOLD the above granted and described Property unto Trustee, its successors and assigns forever, and Borrower does hereby bind itself, its successors and assigns, to WARRANT AND FOREVER DEFEND the title to the Property unto Trustee against every person whomsoever lawfully claiming or to claim the same or any part thereof. - 4 - --------------------------------------------------------------------------------   ARTICLE I COVENANTS OF BORROWER           For the purpose of further securing the Obligations and for the protection of the security of this Deed of Trust, for so long as the Obligations or any part thereof remains unpaid, Borrower represents, warrants, covenants and agrees as follows:           1.1 Representations and Warranties of Borrower. Borrower, for itself and its successors and assigns, does hereby represent, warrant and covenant to and with Lender, its successors and assigns, that:           (a) Organization and Existence. Borrower is duly organized and validly existing as a limited liability company in good standing under the laws of the State of Delaware and is qualified to do business in the State of Texas and in all other jurisdictions in which Borrower is transacting business.           (b) Authorization. Borrower has the power and authority to execute, deliver and perform the obligations imposed on it under the Loan Documents and to consummate the transactions contemplated by the Loan Documents. Borrower has obtained or made all necessary consents, approvals, authorizations, orders or filings required by any partners or members of Borrower whose approval is required by the terms of Borrower’s organizational documents have duly approved the transactions contemplated by the Loan Documents and have authorized execution and delivery thereof by the respective signatories.           (c) Valid Execution and Delivery. All of the Loan Documents requiring execution by Borrower have been duly and validly executed and delivered by Borrower.           (d) Enforceability. All of the Loan Documents executed by Borrower constitute valid, legal and binding obligations of Borrower and are fully enforceable against Borrower in accordance with their terms, subject only to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors rights generally and statutory or other laws (including common law) now or hereafter in effect regarding fraudulent conveyances or preferential transfers and general principles of equity.           (e) No Defenses. The Note, this Deed of Trust and the other Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense, nor would the operation of any of the terms of the Note, this Deed of Trust or any of the other Loan Documents, or the exercise of any right thereunder, render this Deed of Trust unenforceable, in whole or in part, or subject to any right of rescission, set-off, counterclaim or defense.           (f) Defense of Usury. Borrower knows of no facts that would support a claim of usury to defeat or avoid its obligation to repay the principal of, interest on, and other sums or amounts due and payable by the Borrower under, the Loan Documents.           (g) No Conflict/Violation of Law. The execution, delivery and performance of the Loan Documents by the Borrower will not cause or constitute a default under or conflict with the organizational documents of Borrower, any Indemnitor or any Constituent Entity (as defined in Section 1.27) of either of them. The execution, delivery and performance of the obligations imposed on Borrower under the Loan Documents will not cause Borrower or any Indemnitor or any Constituent Entity of either of them to be in default, including after due notice or lapse of time or both, under the provisions of any agreement, judgment or order to which Borrower or any Indemnitor or any Constituent Entity of either of them is a party or by which Borrower or any Indemnitor or any Constituent Entity of either of them is bound. - 5 - --------------------------------------------------------------------------------             (h) Compliance with Applicable Laws and Regulations. To the knowledge of Borrower, after due and diligent inquiry and investigation, except as disclosed in Lender’s zoning reports, all of the Improvements and the use of the Property by the Borrower comply in all material respects with, and shall remain in material compliance with, all applicable statutes, rules, regulations and private covenants now or hereafter relating to the ownership, construction, use or operation of the Property, including all applicable health, fire and building codes, and all applicable statutes, rules and regulations pertaining to requirements for environmental protection, zoning and land use (collectively, “Applicable Laws”). To the knowledge of Borrower, after due and diligent inquiry and investigation, all certifications, permits, licenses and approvals, including, without limitation, certificates of completion and occupancy permits required for the legal use, occupancy and operation of the Property and for the use currently being made thereof have been obtained and are in full force and effect. To the knowledge of Borrower, after due and diligent inquiry and investigation, all of the Improvements comply with all material requirements of any applicable zoning and subdivision laws and ordinances.           (i) Consents Obtained. All consents, approvals, authorizations, orders or filings with any court or governmental agency or body, if any, required for the execution, delivery and performance of the Loan Documents by Borrower have been obtained or made.           (j) No Litigation. There are no pending actions, suits or proceedings, arbitrations or governmental investigations against Borrower, or to the knowledge of Borrower, after due and diligent inquiry, the Property, any Indemnitor or any Constituent Entity of Borrower or any Indemnitor, an adverse outcome of which could reasonably be expected to materially affect the Borrower’s performance under the Note, the Deed of Trust or the other Loan Documents.           (k) Title. Borrower has good and marketable fee simple title to the Real Estate and Improvements, subject only to those matters expressly listed as exceptions to title or subordinate matters in the title insurance policy (the “Permitted Exceptions”) accepted by Lender in connection with this Deed of Trust (the “Title Insurance Policy”). Borrower’s title to the Property has been peaceful and undisturbed and to the best of Borrower’s knowledge title thereto has not been disputed or questioned. Further, Borrower has full power and lawful authority to grant, bargain, sell, convey, assign, transfer and mortgage its interest in the Property in the manner and form hereby done or intended. Borrower will preserve its interest in and title to the Property and will forever warrant and defend the same to Lender against any and all claims whatsoever and will forever warrant and defend the validity and priority of the lien and security interest created herein against the claims of all persons and parties whomsoever, subject, in each case, to the Permitted Exceptions. The foregoing warranty of title shall survive the foreclosure of this Deed of Trust and shall inure to the benefit of and be enforceable by Lender in the event Lender acquires title to the Property pursuant to any foreclosure.           (l) Permitted Exceptions. The Permitted Exceptions do not materially and adversely affect (1) the ability of the Borrower to pay in full the principal and interest on the Note in the manner provided for therein or (2) the use of the Property for the use currently being made thereof, the operation of the Property as currently being operated or the value of the Property.           (m) First Lien. Upon the execution by the Borrower and the recording of this Deed of Trust in the land records of Bexar, Texas, and upon the execution and filing of UCC-1 financing statements or amendments thereto with the State of Delaware Secretary of State, the Lender will have a valid first lien on the Property and a valid security interest in all personal property encumbered hereby, subject to no liens, charges or encumbrances other than the Permitted Exceptions.           (n) ERISA. Borrower is not an entity subject to regulation or restriction under ERISA, and no assets of Borrower are “plan assets” (as defined in ERISA). - 6 - --------------------------------------------------------------------------------             (o) Contingent Liabilities. Neither Borrower nor any Indemnitor has any known material contingent liabilities, except for contingent liabilities of Borrower or any Indemnitor explicitly set forth on the financial statements of Borrower and Indemnitor that were delivered to Lender in connection with the Loan.           (p) No Other Obligations. The Borrower has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Borrower is a party or by which the Borrower or the Property is otherwise bound, other than (i) obligations incurred in the ordinary course of the operation of the Property that do not violate Section 1.27, (ii) the Obligations, and (iii) the Principal Lease.           (q) Fraudulent Conveyance. The Borrower (1) has not entered into the Loan or any Loan Document with the actual intent to hinder, delay, or defraud any creditor and (2) the Borrower Parties have received reasonably equivalent value in exchange for their obligations under the Loan Documents. Giving effect to the Loan contemplated by the Loan Documents, the fair saleable value of the Borrower Parties’ assets exceed and will, immediately following the execution and delivery of the Loan Documents, exceed the Borrower Parties’ total liabilities, including, without limitation, subordinated, unliquidated, disputed or contingent liabilities. The fair saleable value of the Borrower Parties’ assets is and will, immediately following the execution and delivery of the Loan Documents (including the Loan Documents as defined in those certain Deed of Trusts given by the two other Borrower Parties to secure the Note (collectively, the “Other Loan Documents”), be greater than the Borrower Parties’ probable liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. To the Borrower’s knowledge, after due and diligent inquiry and investigation, the Borrower Parties’ assets do not and, immediately following the execution and delivery of the Loan Documents and the Other Loan Documents will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. The Borrower Parties do not intend to, and do not believe that they will, incur debts and liabilities (including, without limitation, contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of the Borrower Parties).           (r) Investment Company Act. Borrower is not (1) an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended; (2) a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of either a “holding company” or a “subsidiary company” within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (3) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.           (s) Access/Utilities. The Property has vehicular and pedestrian access to and from public ways that is adequate for the use of the Property as of the date hereof, and such access is pursuant to either access easements for the benefit of the Property or as a result of the Real Property abutting a public way. The Property is served by water, sewer, sanitary sewer and storm drain facilities that provide such utilities in amounts that are adequate for the use of the Property as of the date hereof. All public utilities necessary to the continued use and enjoyment of the Property as presently used and enjoyed are located in the public right-of-way abutting the Property, or enter the Property via permanent easements not subject to termination except with the consent of Borrower, and all such utilities are connected so as to serve the Property. All roads providing vehicular and pedestrian access from the Property to public ways are located on either access easements for the benefit of the Property of the Property. All such roads necessary for the full utilization of the Property for its current purpose have been completed. - 7 - --------------------------------------------------------------------------------             (t) Taxes Paid. Borrower has filed all federal, state, county and municipal tax returns required to have been filed by Borrower, and has paid all taxes which have become due pursuant to such returns or to any notice of assessment received by Borrower. Borrower has no knowledge of any basis for additional assessment with respect to such Taxes and Other Charges. Further, the Property is free from any liens for delinquent Taxes and Other Charges.           (u) Single Tax Lot. The Real Estate consists of a single lot or multiple tax lots; no portion of said tax lot(s) covers property other than the Real Estate or a portion of the Real Estate and no portion of the Real Estate lies in any other tax lot.           (v) Special Assessments. Except as disclosed in the Title Insurance Policy, to the knowledge of Borrower, there are no pending or, to the knowledge of Borrower, proposed special or other assessments for public improvements or otherwise affecting the Property, nor, to the knowledge of Borrower, are there any contemplated improvements to the Property that may result in such special or other assessments.           (w) Flood Zone. The Property is not located in a flood hazard area as defined by the Federal Insurance Administration.           (x) Seismic Exposure. The Real Estate is not located in Zone 3 or Zone 4 of the “Seismic Zone Map of the U.S.”           (y) Misstatements of Fact. No statement of fact made in the Loan Documents contains any untrue statement of a material fact. All reports, certificates, affidavits, representations, statements and other data furnished by or on behalf of Borrower, Indemnitor and each Constituent Entity of each of them to Lender, or their respective agents, in connection with the Loan are true and correct in all material respects.           (z) Condition of Improvements. The Property has not been materially damaged by fire, water, wind or other cause of loss since the date of the inspection of the Property by Lender’s property consultant as set forth in the property condition report prepared by said consultant and delivered to Lender in connection with the Loan (the “Property Condition Report”). Except as set forth in the Property Condition Report, the Improvements are structurally sound, in good repair and free of defects in materials and workmanship. Except as set forth in the Property Condition Report, to Borrower’s knowledge after due and diligent inquiry and investigation all major building systems located within the Improvements, including, without limitation, the heating and air conditioning systems and the electrical and plumbing systems, are in good working order and condition.           (aa) No Insolvency or Judgment. Neither Borrower, nor any Indemnitor, nor any Constituent Entity of Borrower or any Indemnitor, (a) has been or is currently the subject of or a party to any completed or pending bankruptcy, reorganization or insolvency proceeding; or (b) is currently the subject of any judgment unsatisfied of record or docketed in any court of the state in which the Property is located or in any other court located in the United States. The proposed Loan will not render the Borrower and the Borrower Parties (collectively) or any general partner or member of Borrower insolvent. As used in this Deed of Trust, the term “insolvent” means that the sum total of all of an entity’s liabilities (whether secured or unsecured, contingent or fixed, or liquidated or unliquidated) is in excess of the value of all such entity’s non-exempt assets, i.e., all of the assets of the entity that are available to satisfy claims of creditors.           (bb) No Condemnation. No proceeding for the partial or total condemnation or taking of the Property is pending, or the knowledge of Borrower, threatened. - 8 - --------------------------------------------------------------------------------             (cc) No Labor or Materialmen Claims. All parties furnishing labor and materials to Borrower or the Property (on behalf of Borrower) have been paid in full (or will be paid in the ordinary course of business, provided that the amount due such parties are not due and payable as of the date hereof) and, except for such liens or claims expressly disclosed in, and insured against by the Title Insurance Policy, there are no mechanics’, laborers’ or materialmen’s liens or claims outstanding for work, labor or materials affecting the Property, whether prior to, equal with or subordinate to the lien of the Deed of Trust.           (dd) No Purchase Options. No Tenant, person, party, firm, corporation or other entity has an option, right of first offer, or right of first refusal, to purchase the Property, any portion thereof or any interest therein, except as specifically described in the Title Insurance Policy.           (ee) Leases. The Property is not subject to any leases, subleases, licenses, concessions or other agreements related to the leasing or renting of the Property or any portion thereof, except for Principal Lease (as amended from time to time), as set forth on the Rent Roll (as defined herein). No person has any possessory interest in the Property or right to occupy the same, other than pursuant to the Principal Leases disclosed in the Rent Roll. Borrower hereby represents that: (i) Borrower has delivered a schedule (the “Rent Roll”) of all Leases affecting the Property, which is attached to the Closing Certificate, which accurately and completely sets forth in all material respects for each Lease, the following: the name of the Tenant, the Lease expiration date, the space demised and amount of rent, which Rent Roll is true, correct and complete as of the date hereof; and (ii) the Borrower is the owner and holder of the landlord’s interest under the Leases, and there are no prior assignments of all or any portion of the Leases or any portion of the Rents and Profits which are presently outstanding and have priority over the assignment of leases and rents contained herein in Section 1.9 given by Borrower to Lender; and (iii) each Lease constitutes the legal, valid and binding obligation of Borrower; and (iv) to Borrower’s knowledge, after due and diligent inquiry and investigation no default exists, or with the passing of time or the giving of notice or both would exist, under any Lease which would, in the aggregate, have a material adverse effect on Borrower or the Property; and (v) except as disclosed in writing in an estoppel certificate by such Tenant that has been delivered to Lender in connection with the Loan, to the Borrower’s knowledge, after due and diligent inquiry and investigation, no Tenant has any offset or defense to the payment of rent under its Lease; and (vi) except as disclosed in writing in an estoppel certificate by such Tenant that has been delivered to Lender in connection with the Loan, no Tenant has, as of the date hereof, paid rent under its Lease more than one (1) month in advance, and the rents under such Lease has not been waived, released, or otherwise discharged or compromised; and (vii) except as disclosed in writing in the estoppel certificate delivered to Lender in connection with the Loan all work to be performed by Borrower under each Lease has been substantially performed, all contributions to be made by Borrower to the Tenant thereunder have been made and all other conditions precedent to each Tenant’s obligations thereunder have been satisfied; and (viii) except as disclosed in writing in an estoppel certificate by such Tenant that has been delivered to and accepted by Lender in connection with the Loan, each Tenant under a Lease has entered into occupancy of the demised premises; and (ix) Borrower has delivered to Lender true, correct and complete copies of all Leases described in the Rent Roll; and (x) to the best of Borrower’s knowledge and belief, each Tenant is free from bankruptcy, reorganization or arrangement proceedings or a general assignment for the benefit of creditors; and (xi) except as specifically described in the Title Insurance Policy, no Lease provides any party with the right to obtain a lien or encumbrance upon the Property superior to the lien of this Deed of Trust.           (ff) Appraisal. All information provided by or on behalf of Borrower to the appraiser in connection therewith was true, correct and complete in all material respects at the time such information was provided. - 9 - --------------------------------------------------------------------------------             (gg) Boundary Lines. Except as disclosed on the survey of the Property delivered to Lender in connection with the Loan, the Improvements which were included in determining the appraised value of the Property lie wholly within the boundaries and building restriction lines of the Property, and except as specifically described in the Title Insurance Policy, no improvements on adjoining properties encroach upon the Property and no easements or other encumbrances upon the Real Estate encroach upon any of the Improvements, in each case so as to affect the value or marketability of the Property.           (hh) Survey. The survey of the Property does not fail to reflect any material matter affecting the Property or the title thereto of which the Borrower has knowledge.           (ii) Intentionally Omitted.           (jj) Use of Rents and Profits. All Rents and Profits generated by or derived from the Property shall first be utilized solely for current expenses directly attributable to the ownership and operation of the Property, including, without limitation, current expenses relating to Borrower’s liabilities and obligations with respect to this Deed of Trust and the other Loan Documents, and none of the Rents and Profits generated by or derived from the Property shall be diverted by Borrower or utilized for any other purposes unless all such current expenses attributable to the ownership and operation of the Property have been fully paid and satisfied.           (kk) No Broker. No financial advisors, brokers, underwriters, placement agents, agents or finders have been dealt with by the Borrower in connection with the Loan, except for any broker whose full commission is being paid out of the proceeds of the Loan and is set forth in the written instructions from Borrower to Lender regarding disbursement of the proceeds of the Loan.           (ll) Conviction of Criminal Acts. Each of Borrower and Indemnitor has never been convicted of a crime (which shall not include traffic violations) and is not currently the subject of any pending or threatened criminal investigation or proceeding. Borrower has disclosed to Lender in writing any civil action (whether or not such action resulted in a judgment) and regulatory or enforcement proceeding to which Borrower and any Indemnitor was a defendant or respondent in which it was alleged that Borrower or such Indemnitor engaged in fraud, deception or misrepresentation, or with respect to which Borrower or any Indemnitor was ordered or agreed not to engage in the banking or securities industry.           (mm) Security Agreements. There are no security agreements or financing statements affecting or encumbering any of the Property other than the security agreements and financing statements created in favor of Lender.           (nn) Homestead. The Property forms no part of any property owned, used or claimed by Borrower as a residence or business homestead and is not exempt from forced sale under the laws of the State in which the Real Estate is located. Borrower hereby disclaims and renounces each and every claim to all or any portion of the Property as a homestead.           (oo) Contracts. Borrower will comply with all of its obligations under all Contracts which are material to the operation of the Property in accordance with Borrower’s current practice (to the extent any non-compliance with the obligations under such Contracts shall result in an event of default or adversely affect the respective Contract or the Property in any manner as determined by Lender in its discretion), and with all material obligations under all other Contracts.           (pp) Compliance with Anti-Terrorism, Embargo and Anti-Money Laundering Laws. (i) None of Borrower, Managing Member, any indemnitor or guarantor, or any Person who owns any - 10 - --------------------------------------------------------------------------------   direct equity interest in or controls Borrower or Managing Member currently is identified on the OFAC List or otherwise qualifies as a Prohibited Person, and Borrower will implement procedures, approved by Managing Member, to ensure that no Person who now or hereafter owns any direct equity interest in Borrower or Managing Member is a Prohibited Person or controlled by a Prohibited Person, and (ii) none of Borrower, Managing Member, or any indemnitor or guarantor are in violation of any applicable laws relating to anti-money laundering or anti-terrorism, including, without limitation, any applicable laws related to transacting business with Prohibited Persons or the requirements of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, U.S. Public Law 107-56, and the related regulations issued thereunder, including temporary regulations, all as amended from time to time. For purposes hereof: (1) the term “Managing Member” shall mean, if Borrower is a partnership, each general partner of Borrower and, if Borrower is a limited liability company, each manager or managing member of Borrower and in each case, if applicable, each general partner or managing member of such general partner or managing member. In the event that Borrower or any Managing Member is a single member limited liability company, the term “Managing Member” shall include such single member; (2) the term “Person” shall mean any individual, corporation, limited liability company, partnership, joint venture, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing; (3) the term “Prohibited Person” shall mean any Person identified on the OFAC List or any other Person with whom a U.S. Person may not conduct business or transactions by prohibition of Federal law or Executive Order of the President of the United States or America; (4) the term “OFAC List” shall mean the list of specially designated nationals and blocked persons subject to financial sanctions that is maintained by the U.S. Treasury Department, Office of Foreign Assets Control and accessible through the internet website www.treas.gov/ofac/t11sdn.pdf. Notwithstanding the foregoing, no representation is made as to whether any shareholder of Gladstone Commercial Corporation (A) is identified on the OFAC List or otherwise qualifies as a Prohibited Person, or (B) is in violation of any applicable laws relating to anti-money laundering or anti-terrorism or the requirements of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 and the related regulations issued thereunder, all as amended from time to time.           (qq) The Easement Agreement. The Easement Agreement is in full force and effect and neither Borrower nor, to Borrower’s knowledge, any other party to or bound by the Easement Agreement, is in default thereunder, and there are no conditions which, with the passage of time or the giving of notice, or both, would constitute a default thereunder. The Easement Agreement has not been modified, amended or supplemented. Borrower has complied and continues to comply with all terms and provisions of the Easement Agreement. Borrower shall use commercially reasonable efforts to deliver to Lender, upon request, estoppel certificates from the other party to the Easement Agreement (or Borrower shall provide Lender with such other documents that Lender may reasonably require in the event that Borrower cannot obtain an estoppel certificate from the other party); provided that Borrower shall not be required to deliver such certificates more than once per calendar year. Other than the Amendment to the Easement Agreement executed in connection with the Loan, Borrower shall not amend or modify the Easement Agreement or permit an amendment or modification to the Easement Agreement without obtaining Lender’s prior written consent. Borrower shall fully and timely perform its obligations under the Easement Agreement in all material respects. All fees, costs, expenses and assessments due or payable under the Easement Agreement have been paid in full.           (rr) Principal Lease. (i) The Principal Lease is in full force and effect, to Borrower’s knowledge, after due and diligent inquiry, there is no existing default under the Principal Lease, nor is there any event which, with notice or the passage of time or both, would constitute a default under the Principal Lease, (ii) to Borrower’s knowledge, after due and diligent inquiry, there is no defense, offset, claim or counterclaim in favor of any party under the Principal Lease, (iii) there is no suit, action, - 11 - --------------------------------------------------------------------------------   proceeding or audit pending, or, to Borrower’s knowledge, threatened against or affecting the parties to the Principal Lease or the Property, before or by any court, administrative agency, or other governmental authority which brings into question the validity of the Principal Lease or which, if determined adversely to any party, might result in any adverse change to estates demised under the Principal Lease, (iv) the only real property presently demised under the Principal Lease is the Land and Improvements, and, to such person’s knowledge, the only person or entity presently having an interest in the Principal Lease as tenant under the Principal Lease is Principal Tenant and (v) neither the execution and delivery of this Deed of Trust, nor any modification thereof or assignment of the beneficial interests thereunder, constitutes a default under the Principal Lease.           (ss) Financial Condition of Borrower. Borrower is solvent.           (tt) Leasing. Borrower agrees that, upon the execution of any Lease approved or deemed approved in accordance with Section 1.10 of this Deed of Trust, Borrower shall timely perform all build-out, construction, tenant improvement work and other work required to be performed by Borrower under such Lease (the foregoing, “Tenant Improvements”) and timely pay as and when due any and all commissions to brokers in connection with such Lease (“Leasing Commissions”; Tenant Improvements and Leasing Commissions shall collectively be referred to as “Leasing Costs”). Borrower shall perform all Tenant Improvements in a good and workmanlike manner, in accordance with all applicable codes and regulations, and each case in a manner satisfactory to Lender and as necessary to maintain the Property in good condition and in compliance with all applicable laws, ordinances, rules and regulations.           (uu) Registration of Above-ground Storage Tank. Borrower hereby undertakes to register any and all above-ground storage tanks located on the Property with Texas Commission on Environmental Quality (“TCEQ”). Borrower undertakes to complete said registration and to provide Lender with evidence of same within ninety (90) days of the date hereof.           1.2 Defense of Title. If, while this Deed of Trust is in force, the title to the Property or the interest of Lender therein shall be the subject, directly or indirectly, of any action at law or in equity, or be attached directly or indirectly, or endangered, clouded or adversely affected in any manner, Borrower, at Borrower’s expense, shall take all necessary and proper steps for the defense of said title or interest, including the employment of counsel approved by Lender (it being agreed that Lender shall not unreasonably withhold its consent to counsel appointed pursuant to the Title Insurance Policy for such purposes), the prosecution or defense of litigation, and the compromise or discharge of claims made against said title or interest. Notwithstanding the foregoing, in the event that Lender determines that Borrower is not adequately performing its obligations under this Section, Lender may, without limiting or waiving any other rights or remedies of Lender hereunder, take such steps with respect thereto as Lender shall deem necessary or proper; any and all third party out of pocket costs and expenses (including reasonable attorney fees) incurred by Lender in connection therewith, together with interest thereon at the Default Interest Rate, shall be immediately paid by Borrower on demand.           1.3 Performance of Obligations. Borrower shall pay when due the principal of and the interest on and other amounts evidenced by the Note. Borrower shall also pay and perform all of the Obligations as and when due. Further, Borrower shall promptly and strictly perform and comply with all covenants, conditions, obligations and prohibitions required of Borrower in connection with any other document or instrument affecting title to the Property (to the extent that any failure to comply with such documents or instruments shall endanger, cloud or adversely affect title to the Property in any manner as determined by Lender in its discretion), or any part thereof, regardless of whether such document or instrument is superior or subordinate to this Deed of Trust. - 12 - --------------------------------------------------------------------------------             1.4 Insurance. Borrower shall at no cost or expense to Lender, maintain, or cause to be maintained, in force and effect on the Property at all times while this Deed of Trust continues in effect the following insurance.           (a) Insurance against loss or damage to the Property by fire, windstorm, tornado and hail and against loss and damage by such other, further and additional risks as may be now or hereafter embraced by an “all-risk” form of insurance policy. The amount of such insurance shall be not less than one hundred percent (100%) of the full replacement (insurable) cost of the Improvements, furniture, furnishings, fixtures, equipment and other items (whether personalty or fixtures) included in the Property and owned by Borrower from time to time, without reduction for depreciation. The determination of the replacement cost amount shall be adjusted annually to comply with the requirements of the insurer issuing such coverage or, at Lender’s election, by reference to such indices, appraisals or information as Lender determines in its reasonable discretion. Full replacement cost, as used herein, means, with respect to the Improvements, the cost of replacing the Improvements without regard to deduction for depreciation, exclusive of the cost of excavations, foundations and footings below the lowest basement floor, and means, with respect to such furniture, furnishings, fixtures, equipment and other items, the cost of replacing the same, in each case, with inflation guard coverage to reflect the effect of inflation, or annual valuation. Each policy or policies shall contain a replacement cost endorsement and either an agreed amount endorsement (to avoid the operation of any co-insurance provisions) or a waiver of any co-insurance provisions, all subject to Lender’s approval. The deductible with respect to such insurance shall not exceed $10,000.00 per claim.           (b) Comprehensive Commercial General Liability Insurance for personal injury, bodily injury, death and property damage liability in amounts not less than $1,000,000.00 per occurrence and $2,000,000.00 in the aggregate, together with umbrella coverage in amounts not less than $5,000,000.00. During any construction on the Property by Borrower or Principal Tenant, Borrower’s (or Principal Tenant’s) general contractor for such construction shall also provide the insurance required in this Subsection (b). Lender hereby retains the right to periodically review the amount of said liability insurance being maintained by Borrower and to require an increase in the amount of said liability insurance should Lender deem an increase to be reasonably prudent under then existing circumstances. No deductible shall be permitted with respect to such insurance.           (c) General boiler and machinery insurance coverage is required if steam boilers or other pressure-fired vessels are in operation at the Property. Minimum liability amount per accident must equal the lesser of the replacement (insurable) value of the Improvements housing such boiler or pressure-fired machinery or $2,000,000.00. The deductible with respect to such insurance shall not exceed $10,000.00 per claim.           (d) If the Property or any part thereof is identified by the Secretary of Housing and Urban Development as being situated in an area now or subsequently designated as having special flood hazards (including, without limitation, those areas designated as Zone A or Zone V), flood insurance in an amount equal to the lesser of: (i) the minimum amount required, under the terms of coverage, to compensate for any damage or loss on a replacement basis (or the unpaid balance of the Obligations if replacement cost coverage is not available for the type of building insured); or (ii) the maximum insurance available under the appropriate National Flood Insurance Administration program. The deductible with respect to such insurance shall not exceed $25,000.00 per occurrence.           (e) During the period of any construction on the Property or renovation or alteration of the Improvements, a so-called “Builder’s All-Risk Completed Value” or “Course of Construction” insurance policy in non-reporting form for any Improvements under construction, renovation or alteration in an amount approved by Lender and Worker’s Compensation Insurance covering all persons engaged in - 13 - --------------------------------------------------------------------------------   such construction, renovation or alteration. The deductible for such insurance, if any, shall be satisfactory to Lender.           (f) Loss of rents or loss of business income insurance in amounts sufficient to compensate Borrower for all Rents and Profits following a casualty until completion of Restoration (as defined in Section 1.7 below) together with an additional period of not less than twelve (12) months thereafter. The amount of coverage shall be adjusted annually to reflect the then-current Rents and Profits or income payable during such period. The deductible for such insurance, if any, shall be satisfactory to Lender.           (g) Such other insurance on the Property or on any replacements or substitutions thereof or additions thereto as may from time to time be required by Lender against other insurable hazards or casualties which at the time are commonly insured against in the case of property similarly situated including, without limitation, Sinkhole, Mine Subsidence, Terrorism, Earthquake and Environmental insurance, due regard being given to the height and type of buildings, their construction, location, use and occupancy.           All such insurance shall (i) be with insurers authorized to do business in the state within which the Property is located and who have and maintain a rating of at least “A-” from Standard & Poors except that Lender has approved Affiliated FM Insurance Company as the issuer of the insurance described in Section 1.4(a) above, which insurer has, and shall maintain, a rating of at least “A+:XV” from A.M. Best Company (or, alternatively, if the insurers maintain re-insurance with re-insurers maintaining such rating, Lender will not unreasonably withhold its consent to satisfying such required rating by means of a “cut-through” endorsement allowing recourse directly against a reinsurer maintaining such rating), (ii) contain the complete address of the Property (or a complete legal description), (iii) be for terms of at least one year, and (iv) be subject to the approval of Lender as to insurance companies, amounts, content, forms of policies, method by which premiums are paid and expiration dates.           Borrower shall deliver to Lender evidence that said insurance policies have been paid current as of the date hereof and original certificates of insurance signed by an authorized agent of the applicable insurance companies evidencing such insurance satisfactory to Lender. Borrower shall renew (or cause to be renewed) all such insurance and deliver (or cause to be delivered) to Lender certificates evidencing such renewals at least thirty (30) days before any such insurance shall expire. Without limiting the required endorsements to the insurance policies, Borrower further agrees that all such policies shall include a standard, non-contributory, mortgagee clause naming: CIBC Inc., its successors and/or assigns, as their interests may appear Attn: Real Estate Finance Group 300 Madison Avenue, 8th Floor New York, New York 10017 (x) as an additional insured under all liability insurance policies, (y) as the first mortgagee on all property insurance policies and (z) as the loss payee on all loss of rents or loss of business income insurance policies. Borrower further agrees that all such insurance policies: (1) shall provide for at least thirty (30) days’ prior written notice to Lender prior to any cancellation or termination thereof and prior to any modification thereof which affects the interest of Lender; (2) shall contain an endorsement or agreement by the insurer that any loss shall be payable to Lender in accordance with the terms of such policy notwithstanding any act or negligence of Borrower which might otherwise result in forfeiture of such insurance; (3) shall waive all rights of subrogation against Lender; (4) in the event that the Real Estate or the Improvements constitutes a legal non-conforming use under applicable building, zoning or land use - 14 - --------------------------------------------------------------------------------   laws or ordinances, shall include an ordinance or law coverage endorsement which will contain Coverage A: “Loss Due to Operation of Law” (with a minimum liability limit equal to Replacement Cost With Agreed Value Endorsement), Coverage B: “Demolition Cost” and Coverage C: “Increased Cost of Construction” coverages; and (5) may be in the form of a blanket policy provided that, in the event that any such coverage is provided in the form of a blanket policy, Borrower hereby acknowledges and agrees that failure to pay any portion of the premium therefor which is not allocable to the Property or by any other action not relating to the Property which would otherwise permit the issuer thereof to cancel the coverage thereof, would require the Property to be insured by a separate, single-property policy. The blanket policy must properly identify and fully protect the Property as if a separate policy were issued for 100% of Replacement Cost at the time of loss and otherwise meet all of Lender’s applicable insurance requirements set forth in this Section 1.4. In the event of foreclosure of this Deed of Trust, or other transfer of title to the Property in extinguishment in whole or in part of the Obligations, all right, title and interest of Borrower in and to all unearned insurance premiums and proceeds payable under such policies then in force concerning the Property shall thereupon vest in the purchaser at such foreclosure, or in Lender or other transferee in the event of such other transfer of title whether or not the damage to the Property occurred prior to such transfer of title. Approval of any insurance by Lender shall not be a representation of the solvency of any insurer or the sufficiency of any amount of insurance. In the event Borrower fails to, or fails to cause Tenant to, provide, maintain, keep in force or deliver and furnish to Lender the policies of insurance required by this Deed of Trust or evidence of their renewal as required herein, Lender may, but shall not be obligated to, procure such insurance and Borrower shall pay all amounts advanced by Lender therefor, together with interest thereon at the Default Interest Rate from and after the date advanced by Lender until actually repaid by Borrower, promptly upon demand by Lender. Lender shall not be responsible for nor incur any liability for the insolvency of the insurer or other failure of the insurer to perform, even though Lender has caused the insurance to be placed with the insurer after failure of Borrower to furnish (or cause to be furnished) such insurance. Borrower shall not obtain insurance for the Property in addition to that required by Lender without the prior written consent of Lender, which consent will not be unreasonably withheld provided that (i) Lender is a named insured on such insurance, (ii) Lender receives complete copies of all policies evidencing such insurance, and (iii) such insurance complies with all of the applicable requirements set forth herein. To the extent that at any time Lender agrees to accept insurance from an insurer that is rated less than the foregoing, Lender may terminate its waiver and reassert the aforesaid minimum rating requirements upon any renewal of any insurance coverage, or at any time if the rating of any insurer is reduced.           1.5 Payment of Taxes. Except to the extent funds are held in the Impound Account therefor pursuant to Section 1.6 of this Deed of Trust, Borrower shall (a) pay or cause to be paid all taxes, assessments, water rents, sewer rents, governmental impositions and other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Real Estate, now or hereafter levied or assessed or imposed against, or which are or may become a lien upon, the Property (“Taxes”), and all ground rents, maintenance charges and similar charges, now or hereafter levied or assessed or imposed against the Property or any part thereof (the “Other Charges”) when the same become due and payable, and (b) furnish Lender with receipts (or if receipts are not immediately available, with copies of canceled checks evidencing payment with receipts to follow promptly after they become available) showing payment of such Taxes and Other Charges at least fifteen (15) days prior to the applicable delinquency date therefor. Notwithstanding the foregoing, Borrower may in good faith, by appropriate proceedings and upon notice to Lender, contest the validity, applicability or amount of any asserted Taxes or Other Charges so long as (x) such contest is diligently pursued, (y) Lender determines, in its subjective opinion, that such contest suspends the obligation to pay the Taxes or Other Charges and that nonpayment of such Taxes or Other Charges will not result in the sale, loss, forfeiture or diminution of the Property or any part thereof or any interest of Lender therein, and (z) prior to the earlier of the commencement of such contest or the delinquency date of the asserted Taxes or Other Charges, Borrower deposits, or causes to be deposited, adequate security as determined by a court of competent jurisdiction, - 15 - --------------------------------------------------------------------------------   or if not required by such court, in the Impound Account an amount determined by Lender to be adequate to cover the payment of such Taxes or Other Charges and a reasonable additional sum to cover possible interest, costs and penalties; provided, however, that Borrower shall promptly cause to be paid any amount adjudged by a court of competent jurisdiction to be due, with all interest, costs and penalties thereon, promptly after such judgment becomes final; and provided, further, that in any event each such contest shall be concluded, the Taxes or Other Charges, as the case may be, together with any applicable interest, costs and penalties, shall be paid prior to the date any writ or order is issued under which the Property may be sold, lost or forfeited.           1.6 Tax and Insurance Impound Account. (a) Subject to Section 1.6(b) below, Borrower shall establish and maintain with Lender at all times while this Deed of Trust continues in effect an impound account (the “Impound Account”) for payment of Taxes and Other Charges and for the premiums on the insurance required to be maintained with respect to Borrower and the Property (“Insurance Premiums”) and as additional security for the Obligations. In addition to the initial deposit to the Impound Account required simultaneously with the execution hereof, commencing on the first Payment Date (as defined in the Note) and continuing thereafter on each Payment Date until the Note and all other Obligations are fully paid and performed, Borrower shall pay to Lender, or cause to be paid to Lender, for deposit to the Impound Account, an amount equal to one-twelfth (1/12) of the amount of the annual Taxes and Other Charges that will next become due and payable on the Property, plus one-twelfth (1/12) of the amount of the annual Insurance Premiums that will next become due and payable, each as estimated and determined by Lender. So long as no Event of Default (as defined in Section 2.1 hereunder) has occurred and is continuing, all sums in the Impound Account shall be held by Lender in the Impound Account to pay said Taxes and Other Charges, in periodic installments, and Insurance Premiums in one annual installment, in each case, before the same become delinquent. Borrower shall be responsible for ensuring the receipt by Lender, at least thirty (30) days prior to the respective due date for payment thereof, of all bills, invoices and statements for all Taxes and Other Charges, and all Insurance Premiums, and so long as no Event of Default has occurred and is continuing, Lender shall pay the governmental authority or other party entitled thereto directly to the extent funds are available for such purpose in the Impound Account. In making any payment from the Impound Account, Lender shall be entitled to rely on any bill, statement or estimate procured from the appropriate public office or insurance company or agent without any inquiry into the accuracy of such bill, statement or estimate and without any inquiry into the accuracy, validity, enforceability or contestability of any tax, assessment, valuation, sale, forfeiture, tax lien or title or claim thereof. The Impound Account shall not, unless otherwise explicitly required by applicable law, be or be deemed to be escrow or trust funds, but, at Lender’s option and in Lender’s discretion, may either be held in a separate account or be commingled by Lender with the general funds of Lender. No interest on the funds contained in the Impound Account shall be paid by Lender to Borrower. The Impound Account is solely for the protection of Lender and entails no responsibility on Lender’s part beyond the payment of Taxes and Other Charges, and of Insurance Premiums, following receipt of bills, invoices or statements therefor in accordance with the terms hereof and beyond the allowing of due credit for the sums actually received. Upon assignment of this Deed of Trust by Lender, any funds in the Impound Account shall be turned over to the assignee and any responsibility of Lender, as assignor, with respect to such funds shall terminate. If the total funds in the Impound Account are reasonably determined by Lender to be in excess of the amount of payments required by Lender for the purposes of the Impound Account, such excess may be credited by Lender on the subsequent payment to be made hereunder or, if such excess is greater than the amounts due from Borrower to Lender in the month following such determination (and if no Event of Default is then continuing and no event has occurred, and no state of facts exists, which in either case would, with the giving of notice and/or the passage of time, constitute an Event of Default (any such event or state of facts, a “Default”) is then continuing), refunded to Borrower. If at any time Lender determines that, with the making of all monthly deposits to the Impound Account when due, the Impound Account nonetheless would not contain sufficient funds to pay the next due periodic installments of all Taxes and Other - 16 - --------------------------------------------------------------------------------   Charges at least 30 days prior to the delinquency date thereof, or to pay the next due annual Insurance Premiums at least 30 days prior to the due date thereof, Borrower shall, within ten (10) days after receipt of written notice thereof, deposit with Lender the full amount of any such deficiency. If the Borrower shall fail to deposit with Lender the full amount of such deficiency as provided above, Lender shall have the option, but not the obligation, to make such deposit and all amounts so deposited by Lender, together with interest thereon at the Default Interest Rate from the date incurred by Lender until actually paid by Borrower, shall be immediately paid by Borrower on demand. At any time during the continuance of an Event of Default, Lender may, but shall not be obligated to, apply at any time the balance then remaining in the Impound Account against the Obligations in whatever order Lender shall subjectively determine. No such application of the Impound Account shall be deemed to cure any Default or Event of Default hereunder, and any such application shall not limit Borrower’s obligation to deposit any deficiency of which Lender gives notice. Upon full payment of the Obligations in accordance with its terms or at such earlier time as Lender may elect, the balance of the Impound Account then in Lender’s possession shall be paid over to Borrower and no other party shall have any right or claim thereto.      (b) Notwithstanding the provisions of Section 1.6(a) to the contrary, provided and on condition that each and all of the Tax and Insurance Conditions Precedent (as hereinafter defined) are satisfied and remain satisfied at all times, Borrower shall not be required to fund the Impound Account on account of Taxes and Other Charges and Insurance Premiums as provided herein. If at any time any or all of the Tax and Insurance Conditions Precedent are no longer met to the satisfaction of Lender, Borrower shall immediately begin and shall continue to fund the Impound Account on account of Taxes and Other Charges and Insurance Premiums as provided herein. The “Tax and Insurance Conditions Precedent” means the following conditions precedent: (i) no Event of Default exists, (ii) no default has occurred and is continuing under the Principal Lease, (iii) tenant under the Principal Lease is obligated to pay all Taxes and Other Charges and Insurance Premiums under the Principal Lease, (iv) Borrower shall pay or cause to be paid all Taxes and Other Charges and Insurance Premiums to be paid as required under Sections 1.4 and 1.5 of this Deed of Trust and (v) Borrower shall furnish Lender with receipts (or if receipts are not immediately available, with copies of canceled checks evidencing payment with receipts to follow promptly after they become available) showing payment of such Taxes and Other Charges and Insurance Premiums at least fifteen (15) days prior to the respective applicable delinquency date therefor.           1.7 Condemnation and Casualty. Borrower shall give Lender prompt written notice of the occurrence of any casualty (other than a de minimus casualty) affecting, or the institution of any proceedings for eminent domain or for the condemnation of, the Property or any portion thereof. All insurance proceeds on the Property, and all causes of action, claims, compensation, awards and recoveries for any damage, condemnation or taking of all or any part of the Property or for any damage or injury to it for any loss or diminution in value of the Property, are hereby assigned to and shall be paid to Lender. Lender may participate in any suits or proceedings relating to any such proceeds, causes of action, claims, compensation, awards or recoveries and Lender is hereby authorized, in its own name or in Borrower’s name, to adjust any loss covered by insurance or any condemnation claim or cause of action, and to settle or compromise any claim or cause of action in connection therewith, and Borrower shall from time to time deliver to Lender any instruments required to permit such participation; provided, however, that so long as no Event of Default is continuing, Lender shall not participate in the adjustment of, and Borrower shall have the right to directly receive proceeds with respect to, any loss which is not in excess of the lesser of (i) ten percent (10%) of the then outstanding principal balance of the Note and (ii) $500,000.00. Except as provided in the foregoing sentence, Lender may, at Lender’s option, (y) hold the balance of any of such proceeds to be used to reimburse Borrower for the cost of restoring and repairing the Property to the equivalent of its condition immediately prior to the casualty or, in the case of condemnation, to a condition approved by Lender (the “Restoration”), and require Borrower to restore the Property to the equivalent of its original condition or to a condition approved by Lender, or (z) apply the balance of such proceeds to the payment of the Obligations, whether or not then due. To the extent Lender, in accordance with the terms - 17 - --------------------------------------------------------------------------------   hereof, determines to apply insurance or condemnation proceeds to Restoration, Lender shall do so in accordance with Lender’s then-current policies relating to the, as applicable, restoration of casualty damage on similar properties or restoration or rebuilding of properties that have been the subject of a partial condemnation. Lender shall not exercise its option to apply insurance proceeds or condemnation proceeds to the payment of the Obligations if all of the following conditions are met: (1) no Default or Event of Default has occurred and is continuing; (2) in the case of casualty, less than forty percent (40%) of the Improvements have been damaged, or in the case of a taking, less than twenty-five percent (25%) of the Improvements have been taken; (3) Lender determines, in its discretion, that there will be sufficient funds to complete the Restoration (including, without limitation, by means of a deposit of any shortfall by Borrower with Lender prior to the commencement of the Restoration or promptly upon Lender’s determination that such a shortfall exists); (4) Lender determines, in its discretion, that the rental income from the Property after completion of the Restoration will be sufficient to meet all operating costs and other expenses, deposits to the Impound Account, deposits to reserves and loan repayment obligations relating to the Property and that the debt service coverage ratio for the Property after Restoration will be the same as on the closing date of the Loan and the ratio of the loan to value after Restoration will be the same as on the closing date of the Loan; (5) Lender determines, in its discretion, that (A) the Restoration will be completed before the earlier of (i) one year before the Anticipated Balloon Date of the Note or (ii) one year after the date of the loss or casualty and (B) the rent loss insurance or business interruption insurance referenced in Section 1.4(f) above will cover all payments due under the Loan during the completion of the Restoration; (6) upon Lender’s request, Borrower provides Lender evidence of the availability during and after the Restoration of the insurance required to be maintained by Borrower pursuant to Section 1.4; (7) Borrower provides Lender with written notice within five business (5) days after settlement of the aforesaid insurance or condemnation claim of its request to undertake a Restoration; and (8) the Principal Lease is in full force and effect, the tenant under the Principal Lease does not have the right to terminate the Principal Lease due to such casualty or taking (as the case may be), or the tenant under the Principal Lease affirms in writing that it has waived any right to terminate the Principal Lease as a result of such casualty or taking (as the case may be).      Except as provided in the Note any application of any awards or proceeds to the Obligations shall not extend or postpone the due date of any monthly installments referred to in the Note or the Loan Documents or change the amount of such installments. Borrower agrees to execute such further evidence of assignment of any awards or proceeds as Lender may require. Any reduction in the Obligations resulting from Lender’s application of any sums received by it hereunder shall take effect only when Lender actually receives such sums and elects to apply such sums to the Obligations and, in any event, the unpaid portion of the Obligations shall remain in full force and effect and Borrower shall not be excused in the payment thereof. Except as provided in the Note, partial payments received by Lender, as described in the preceding sentence, shall be applied first to the final payment due under the Note and thereafter to installments due under the Note in the inverse order of their due date. If Borrower elects to effect a Restoration, Borrower shall promptly and diligently, at Borrower’s sole cost and expense and regardless of whether the insurance proceeds or condemnation award, as appropriate, shall be sufficient for the purpose, restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to such casualty or partial taking in accordance with the foregoing provisions and Borrower shall pay to Lender all costs and expenses of Lender incurred in administering said rebuilding, restoration or repair, provided the Lender makes such proceeds or award available for such purpose. Borrower agrees to execute and deliver from time to time such further instruments as may be requested by Lender to confirm the foregoing assignment to Lender of any award, damage, insurance proceeds, payment or other compensation. Subject to the preceding provisions of this Section 1.7, Lender is hereby irrevocably constituted and appointed the attorney-in-fact of Borrower (which power of attorney shall be irrevocable so long as any Obligations is outstanding, shall be deemed coupled with an interest, shall survive the voluntary or involuntary dissolution of Borrower and shall not be affected by any disability or incapacity suffered by Borrower subsequent to the date hereof), with full - 18 - --------------------------------------------------------------------------------   power of substitution, subject to the terms of this section, to settle for, collect and receive any such awards, damages, insurance proceeds, payments or other compensation from the parties or authorities making the same, to appear in and prosecute any proceedings therefor and to give receipts and acquittances therefor.           1.8 Mechanics’ Liens. Borrower shall pay or cause to be paid when due all claims and demands of mechanics, materialmen, laborers and others for any work performed or materials delivered for the Real Estate or Improvements; provided, however, that, Borrower shall have the right to contest in good faith any such claim or demand, so long as it does so diligently, by appropriate proceedings and without prejudice to Lender, and provided that neither the Property nor any interest therein would be in any danger of sale, loss or forfeiture as a result of such proceeding or contest. In the event Borrower shall contest any such claim or demand, Borrower shall promptly notify Lender of such contest and thereafter shall, upon Lender’s request, promptly provide a bond, cash deposit or other security satisfactory to Lender to protect Lender’s interest and security should the contest be unsuccessful. If Borrower shall fail to immediately discharge or provide security against any such claim or demand as aforesaid, Lender may do so and any and all expenses incurred by Lender, together with interest thereon at the Default Interest Rate from the date incurred by Lender until actually paid by Borrower, shall be immediately paid by Borrower on demand.           1.9 Assignment of Leases and Rents and Profits. As additional and collateral security for the payment of the Obligations and cumulative of any and all rights and remedies herein provided for, Borrower hereby absolutely and presently assigns to Lender all existing and future Leases, and all existing and future Rents and Profits. Borrower hereby grants to Lender the sole, exclusive and immediate right, without taking possession of the Property, to demand, collect (by suit or otherwise), receive and give valid and sufficient receipts for any and all of said Rents and Profits, for which purpose Borrower does hereby irrevocably make, constitute and appoint Lender its attorney-in-fact with full power to appoint substitutes or a trustee to accomplish such purpose (which power of attorney shall be irrevocable so long as any Obligations is outstanding, shall be deemed to be coupled with an interest, shall survive the voluntary or involuntary dissolution of Borrower and shall not be affected by any disability or incapacity suffered by Borrower subsequent to the date hereof). Lender shall be without liability for any loss that may arise from a failure or inability to collect Rents and Profits, proceeds or other payments except for loss that arises solely and directly from Lender’s gross negligence or willful misconduct. However, so long as an Event of Default is not continuing under this Deed of Trust, Borrower shall have a license to collect and receive the Rents and Profits when due and prepayments thereof for not more than one month prior to due date thereof. During the continuance of an Event of Default, Borrower’s license shall automatically terminate without notice to Borrower and Lender may thereafter, without taking possession of the Property, collect the Rents and Profits itself or by an agent or receiver. From and after the termination of such license, Borrower shall be the agent of Lender in collection of the Rents and Profits and all of the Rents and Profits so collected by Borrower shall be held in trust by Borrower for the sole and exclusive benefit of Lender and Borrower shall, within one (1) business day after receipt of any Rents and Profits, pay the same to Lender to be applied by Lender as hereinafter set forth. Borrower hereby irrevocably agrees that any Tenant paying Rents and Profits as directed by Lender shall be deemed to have paid such amount in satisfaction of its obligation under such Tenant’s Lease, and each Tenant may rely on such agreement by Borrower. Neither the demand for or collection of Rents and Profits by Lender, nor the exercise of Lender’s rights as assignee of the Leases, shall constitute any assumption by Lender of any obligations under any Lease or other agreement relating thereto. Lender is obligated to account only for such Rents and Profits as are actually collected or received by Lender. Borrower irrevocably agrees and consents that the respective payors of the Rents and Profits shall, upon demand and notice from Lender of an Event of Default hereunder, pay said Rents and Profits to Lender without liability to determine the actual existence of any Event of Default claimed by Lender. Borrower hereby waives any right, claim or demand which Borrower may now or hereafter have - 19 - --------------------------------------------------------------------------------   against any such payor by reason of such payment of Rents and Profits to Lender, and any such payment shall discharge such payor’s obligation to make such payment to Borrower. All Rents and Profits collected or received by Lender shall be applied against all third party out of pocket expenses of collection, including, without limitation, reasonable attorneys’ fees, against third party out of pocket costs of operation and management of the Property and against the Obligations, in whatever order or priority as to any of the items so mentioned as Lender directs in its sole subjective discretion and without regard to the adequacy of its security. Neither the exercise by Lender of any rights under this Section nor the application of any Rents and Profits to the Obligations shall cure or be deemed a waiver of any Default or Event of Default hereunder. The assignment of Leases and of Rents and Profits hereinabove granted shall continue in full force and effect during any period of foreclosure or redemption with respect to the Property.           1.10 Leases.           (a) Entering Into Leases. Borrower will not enter into, modify, amend, consent to the cancellation of or terminate any Lease (including, without limitation, the Principal Lease), whether now existing or hereafter entered into, without the prior written consent of Lender which consent may be granted or withheld in Lender’s sole discretion.           (b) Covenants Regarding Leases. Borrower (i) shall observe and perform all the obligations imposed upon the lessor under each Lease in all material respects, and shall not do or permit to be done anything to impair the value of any Lease as security for the Obligations; (ii) upon request (which request is hereby deemed given with respect to any “Major Lease”, as defined below), shall promptly send copies to Lender of all notices of default which Borrower shall send or receive thereunder; (iii) shall enforce all of the material terms, covenants and conditions contained in each Lease upon the part of the Tenant thereunder to be observed or performed, (iv) shall not collect any of the Rents more than one (1) month in advance (it being acknowledged that security deposits shall not be deemed Rents collected in advance); (v) shall not execute any other assignment of the lessor’s interest in any of the Leases or the Rents and Profits (other than to Lender as security for the Obligations); and (vi) shall not consent to any assignment of or subletting under any Lease not in accordance with the terms of such Lease, in each case without the prior written consent of Lender. Within 30 days after Lender’s request therefor (which request shall not be made more than the lesser of twice in any calendar year absent an Event of Default) or the maximum number of estoppel certificates the Tenant under the Lease is required to provide, Borrower shall deliver to Lender an estoppel certificate from each Tenant.           (c) Amendments to Leases. Borrower shall not, without the consent of Lender, amend, modify or waive the provisions of any Lease or terminate, reduce rents under, accept a surrender of space under, or shorten the term of, any Lease, sublease or sub-sublease (including any guaranty, letter of credit or other credit support with respect thereto) (the foregoing, collectively, a “Lease Modification”).           (d) Security Deposits. All security deposits of tenants, whether held in cash or in any other form, shall be held in compliance with applicable law. None of such security deposits shall be commingled with any other funds of Borrower or any other person. Any bond or other instrument which Borrower is permitted to hold in lieu of cash security deposits under any applicable legal requirements shall be maintained in full force and effect in the full amount of such deposits unless replaced by cash deposits as hereinabove described; shall be issued by an institution reasonably satisfactory to Lender; shall, if permitted pursuant to any applicable legal requirements, name Lender as payee or mortgagee thereunder or, at Lender’s option, be assigned or fully assignable to Lender; and shall, in all respects, comply with any applicable legal requirements and otherwise be reasonably satisfactory to Lender. Borrower shall, upon request, provide Lender with evidence reasonably satisfactory to Lender of - 20 - --------------------------------------------------------------------------------   Borrower’s compliance with the foregoing. Upon an Event of Default under this Deed of Trust, Borrower shall, immediately upon Lender’s request (if permitted by applicable law), deliver to Lender the security deposits (and any interest previously earned thereon and not disbursed to the person(s) lawfully entitled to receive same) with respect to all or any portion of the Property, to be held by Lender subject to the terms of the Leases.           (e) Tenant Financial Information. Borrower shall cause each Lease entered into on or after the date hereof to require the Tenant under such Lease to deliver to Borrower periodic operating statements with respect to (i) such Tenant’s operations at the Property, and (ii) the operations of such Tenant and, if applicable, any parent or affiliated entity of such Tenant which operates, or has subsidiaries that operate, comparable businesses (collectively, “Tenant Financial Information”). Borrower shall, from time to time promptly upon request of Lender, to the extent permitted under the applicable Lease, request Tenant Financial Information from the Tenant and promptly upon receipt thereof, deliver such Tenant Financial Information to Lender, provided, however, that (1) prior to a Secondary Market Transaction consisting of a securitization, Lender shall not require Borrower to request Tenant Financial Information more than three (3) times, and (2) following a Secondary Market Transaction consisting of a securitization, provided no Event of Default is continuing, Lender shall not request such information without reasonable cause (which reasonable cause shall include, without limitation, the occurrence of any default by a Tenant or if such Tenant ceases to conduct its business in the premises demised by such Principal Lease).           1.11 Alienation and Further Encumbrances.           (a) Notwithstanding anything to the contrary contained in Section 5.6 hereof, neither the Property, nor any part thereof or interest therein (including without limitation, any fee, leasehold or subleasehold interest therein), shall be sold, conveyed, disposed of, alienated, hypothecated, leased (except to Tenants under Leases which are not in violation of Section 1.10 hereof), assigned, pledged, mortgaged, further encumbered or otherwise transferred, nor shall Borrower be divested of its title to the Property or any interest therein, in any manner or way, whether voluntarily or involuntarily (any of the foregoing, a “Transfer”), except as expressly set forth in this Section 1.11, in each case without the prior written consent of Lender being first obtained, which consent may be withheld in Lender’s sole discretion. For the purposes of this Section 1.11, a “Transfer” shall also include (i) transfers of direct or indirect ownership interests in Borrower, and the creation of new or additional ownership interests in Borrower, or in any Constituent Entity of Borrower, in each case except as set forth in Section 1.11(c) below, (ii) an installment sales agreement with respect to the Property or any portion thereof, (iii) a Lease of all or substantially all of the Property other than for actual occupancy by a space tenant thereunder, (iv) any sale or assignment of any of Borrower’s right, title and interest in, to and under any Leases or Rents and Profits, other than to Lender, (v) if Borrower or any Constituent Entity of Borrower is a partnership or joint venture, the addition, change, removal or resignation of any general partner, or the transfer or pledge of any interest (whether as a general partner or limited partner) of any general partner in such partnership, and (vi) if Borrower or any Constituent Entity of Borrower is a limited liability company, the addition, change, removal or resignation of any manager or managing member, or the transfer or pledge of any interest (whether as a managing member or otherwise) of such manager or managing member in such limited liability company, or the transfer of control (as defined in Section 1.27) of such manager or managing member.           (b) Notwithstanding the foregoing provisions of this Section, Lender shall not unreasonably withhold its consent to the sale of the Property in its entirety (hereinafter, “Sale”) to a single-purpose entity with organizational documents containing provisions substantially similar to those set forth in Section 1.27 and otherwise reasonably acceptable to Lender (hereinafter, “Buyer”) provided that such Sale occurs after the earlier to occur of a Secondary Market Transaction (as defined herein) and - 21 - --------------------------------------------------------------------------------   the second (2nd) anniversary of the date hereof, and each of the following terms and conditions are satisfied in connection with such Sale:                (1) No Default or Event of Default is then continuing;                (2) Borrower gives Lender written notice of the terms of such prospective Sale not less than thirty (30) days before the date on which such Sale is scheduled to close, accompanied by all information concerning the proposed Buyer as Lender would require in evaluating an initial extension of credit to a borrower and a non-refundable application fee in the amount of $2,500.00. Lender shall have the right to approve or disapprove the proposed Buyer in its reasonable discretion (it being acknowledged that Lender may, as a condition to approving any proposed Buyer, require confirmation in writing from each of the Rating Agencies (as defined herein) that such Sale will not result in a qualification, downgrade or withdrawal of any rating in effect immediately prior to such Sale for any securities issued in connection with a Secondary Market Transaction), and such approval, if given, may be given subject to such conditions as Lender may deem appropriate;                (3) Borrower pays Lender, concurrently with the closing of such Sale, a non-refundable assumption fee in an amount equal to all third party out-of-pocket costs and expenses, including, without limitation, reasonable attorneys’ fees, incurred by Lender in connection with the Sale plus an amount equal to one percent (1.0%) of the then outstanding principal balance of the Note;                (4) Buyer assumes and agrees to pay the Obligations (subject to the provisions of Section 5.25 hereof) and, prior to or concurrently with the closing of such Sale, the Buyer executes, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate said assumption and delivers such legal opinions as Lender may require;                (5) Borrower and the Buyer execute and cause to be filed in such public records as Lender deems appropriate, without any cost or expense to Lender, new financing statements or financing statement amendments and any additional documents reasonably requested by Lender;                (6) Borrower causes to be delivered to Lender, without any cost or expense to Lender, such endorsements to Lender’s title insurance policy, hazard insurance endorsements or certificates and other similar materials as Lender may deem necessary at the time of the Sale, all in form and substance satisfactory to Lender, including, without limitation, an endorsement or endorsements to Lender’s title insurance policy insuring the lien of this Deed of Trust, extending the effective date of such policy to the date of execution and delivery (or, if later, of recording) of the assumption agreement referenced above in subparagraph (4) of this Section, with no additional exceptions added to such policy and insuring that fee simple title to the Real Estate Property is vested in the Buyer (or a new mortgagee policy providing substantially similar coverage as the Lender’s title insurance policy endorsed pursuant to the foregoing provisions of this paragraph);                (7) Borrower executes and delivers to Lender, without any cost or expense to Lender, a release of Lender, its officers, directors, employees and agents, from all claims and liability relating to the transactions evidenced by the Loan Documents through and including the date of the closing of the Sale, which agreement shall be in form and substance satisfactory to Lender and shall be binding upon the Buyer;                (8) Subject to the provisions of Section 5.25 hereof, such Sale is not construed so as to relieve Borrower of any personal liability under the Note or any of the other Loan Documents for any acts or events occurring or obligations arising prior to or simultaneously with the - 22 - --------------------------------------------------------------------------------   closing of such Sale and Borrower executes, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate the ratification of said personal liability. Borrower shall be released from and relieved of any personal liability under the Note or any of the other Loan Documents for any acts or events occurring or obligations arising after the closing of such Sale; and                (9) Such Sale is not construed so as to relieve any Indemnitor of its obligations under any Loan Document, and a Constituent Entity of the Buyer approved by Lender in its sole discretion (a “Successor Indemnitor”) assumes the obligations of such Indemnitor and executes such documents as may be required by Lender to evidence such assumption. Each Indemnitor shall be released from and relieved of any of its obligations under any indemnity or guaranty executed in connection with the Loan for any acts or events occurring or obligations arising after the closing of such Sale;                (10) Buyer has furnished to Lender all appropriate papers evidencing the Buyer’s capacity and good standing, and the authority of the signers to execute the assumption of the Loan Documents and the Obligations, which papers shall include certified copies of all documents relating to the organization and formation of the Buyer and of the entities, if any, which are Constituent Entities of the Buyer, all of which shall be satisfactory to Lender;                (11) Buyer shall assume the obligations of Borrower under any management agreements pertaining to the Property, or shall cause the new manager and management agreement to satisfy the requirements of Section 1.24 hereof; and                (12) Buyer shall furnish an opinion of counsel satisfactory to Lender that the acquisition of the Property and the assumption of the Loan Documents and Obligations by Buyer and, to the extent applicable, Successor Indemnitor, was validly authorized, and duly executed and delivered, and constitutes the legal, valid and binding obligations of Buyer and Successor Indemnitor, enforceable against each of them in accordance with their respective terms, and with respect to such other matters as Lender may reasonably require.           (c) Subject to Section 1.11(c)(1)(b), provided no Default shall then be continuing, the following direct or indirect transfers of interests in Borrower, or any Constituent Entity of Borrower, shall be permitted without the prior written consent of Lender:                (1) If (a) Borrower (or any Constituent Entity of Borrower) is a corporation, any direct or indirect transfer of stock in such corporation, or the issuance of new stock in such corporation, which does not result in a change of control (as defined under Rule 405 under the Securities Act of 1933, as amended) of such corporation; or (b) Borrower (or any Constituent Entity of Borrower, or any general partner or managing member of Borrower) is a Publicly-Held Corporation (as defined below), any direct or indirect transfer of stock in such corporation, or the issuance of new stock in such corporation, regardless of whether a Default shall then be continuing. As used herein, the term “Publicly-Held Corporation” means a corporation the outstanding voting stock of which is registered under Section 12(b) or 12(g) of the Securities and Exchange Act of 1934, as amended;                (2) If Borrower (or any Constituent Entity of Borrower) is a limited partnership, any direct or indirect transfer of limited partnership interests in such limited partnership, or the issuance of new limited partnership interests which results in the dilution of the existing limited partners, so that after giving effect to such transfer or issuance, (x) not more than 49% of the equity interests in such partnership have been transferred or issued from and after the date hereof and (y) the persons responsible for the management of the Borrower and the Property remain unchanged; - 23 - --------------------------------------------------------------------------------                  (3) If Borrower (or any Constituent Entity of Borrower) is a limited liability company, any direct or indirect transfer of membership interests in Borrower, or the issuance of new membership interests which results in the dilution of the existing members, so that after giving effect to such transfer or issuance, (x) not more than 49% of the equity interests in such limited liability company have been transferred or issued from and after the date hereof and (y) the persons responsible for the management of the Borrower and the Property remain unchanged; and                (4) Either (a) any transfer for estate planning purposes by the Indemnitor, or (b) any involuntary transfer caused by the death of a holder of ownership interests in Borrower, or in any general partner or managing member of Borrower, in each case so long as (y) Borrower is reconstituted, if required, following any such death and (z) either (i) those persons responsible for the management of the Borrower and the Property remain unchanged as a result of such death or estate planning or (ii) the person(s) to become responsible for management of the Borrower and the Property are approved by Lender. Borrower shall give Lender (i) prior written notice of any event set forth in Subparagraphs (1)(a), (2) or (3) above, and (ii) prompt written notice after any event giving rise to a transfer set forth in Subparagraph (4) above, in each case together with copies of all documents, instruments and agreements effecting such transfer, all of which shall be certified by Borrower to be true, correct and complete.           1.12 Payment of Utilities, Assessments, Charges, Etc. Borrower shall pay, or cause to be paid, when due all utility charges (e.g., for gas, electricity, water and sewer services and similar charges) which are incurred by Borrower or its agents, and all other assessments or charges of a similar nature, or assessments payable pursuant to any restrictive covenants, whether public or private, affecting the Real Estate and/or the Improvements or any portion thereof, whether or not such assessments or charges are or may become liens thereon.           1.13 Access Privileges and Inspections. Lender and the agents, representatives and employees of Lender shall, subject to the rights of tenants, have full and free access to the Real Estate and the Improvements and any other location where books and records concerning the Property are kept at all reasonable times and on reasonable prior notice for the purposes of inspecting the Property and of examining, copying and making extracts from the books and records of Borrower relating to the Property. Borrower shall lend assistance to all such agents, representatives and employees of Lender.           1.14 Waste; Alteration of Improvements. Borrower shall not commit, suffer or permit any physical waste on the Property nor take any actions that might invalidate any insurance carried on the Property. Borrower shall maintain or cause to be maintained the Property in good condition and repair. No part of the Improvements may be removed, demolished or materially altered, in each case, without the prior written consent of Lender, except as required pursuant to Applicable Laws or the Leases. Without the prior written consent of Lender in each case (or as expressly required under the Leases), Borrower shall not commence construction of any improvements on the Real Estate other than improvements required for the maintenance or repair of the Property.           1.15 Zoning. Without the prior written consent of Lender in each case, Borrower shall not seek, make, suffer, consent to or acquiesce in any change in the zoning or conditions of use of the Real Estate or the Improvements. If, under applicable zoning provisions, the use of all or any part of the Real Estate or the Improvements is or becomes a nonconforming use, Borrower shall not cause or permit such use to be discontinued or abandoned without the prior written consent of Lender. Without Lender’s prior written consent, Borrower shall not file or subject any part of the Real Estate or the Improvements to any declaration of condominium or co-operative or convert any part of the Real Estate or the Improvements to a condominium, co-operative or other form of multiple ownership and governance. - 24 - --------------------------------------------------------------------------------             1.16 Financial Statements, Books and Records, and Informational Reporting. Borrower shall keep accurate books and records of account of the Property and its own financial affairs sufficient to permit the preparation of financial statements therefrom in accordance with generally accepted accounting principles. Lender and its duly authorized representatives shall have the right to examine, copy and audit Borrower’s records and books of account at all reasonable times upon reasonable prior written notice. So long as this Deed of Trust continues in effect, Borrower shall provide to Lender, in addition to any other financial statements required hereunder or under any of the other Loan Documents, the following financial statements and information, all of which must be certified to Lender as being true and correct by Borrower or the person or entity to which they pertain, as applicable, be prepared in accordance with generally accepted accounting principles consistently applied and be in form and substance reasonably acceptable to Lender:           (a) upon request by Lender, copies of all tax returns filed by Indemnitor (which tax return shall include Borrower) , within thirty (30) days after the date of filing;           (b) monthly operating statements for the Property (including a current Rent Roll containing the information set forth in Paragraph 1.1(ee) above), within fifteen (15) days after the end of each month during the first twelve (12) months of the term of the Loan or until the occurrence of a Secondary Market Transaction, whichever first occurs, and (ii) during any period when Borrower is required to make payments of net cash flow to any Reserve;           (c) quarterly operating statements for the Property, within thirty (30) days after the end of each calendar quarter;           (d) annual financial statements for Borrower (setting forth Borrower’s balance sheet and operating statements for the Property) and each Indemnitor, within ninety (90) days after the end of each calendar year;           (e) a current Rent Roll, containing the information set forth in Paragraph 1.1(ee) above, dated as of January 1 of each calendar year and certified by Borrower as being true, correct and complete, which shall be delivered to Lender on or before January 15 of each year; and           (f) such other information with respect to the Property, Borrower, the principals in Borrower, and each Indemnitor which may reasonably be requested from time to time by Lender, within a reasonable time after the applicable request. If any of the aforementioned materials are not furnished to Lender within the applicable time periods, in addition to any other rights and remedies of Lender contained herein, Lender shall have the right, but not the obligation, to obtain the same by means of an audit by an independent certified public accountant selected by Lender, in which event Borrower agrees to pay, or to reimburse Lender for, any expense of such audit and further agrees to provide all necessary information to said accountant and to otherwise cooperate in the making of such audit.           1.17 Further Documentation. Borrower shall, on the request of Lender and at the expense of Borrower, promptly: (a) correct any defect, error or omission which may be discovered in the contents of this Deed of Trust or in the contents of any of the other Loan Documents; (b) execute, acknowledge, deliver and record or file such further instruments (including, without limitation, further mortgages, deeds of trust, security deeds, security agreements, financing statements, continuation statements and assignments of rents or leases) and promptly do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Deed of Trust and the other Loan Documents and to subject to the liens and security interests hereof and thereof any property intended by - 25 - --------------------------------------------------------------------------------   the terms hereof and thereof to be covered hereby and thereby, including specifically, but without limitation, any renewals, additions, substitutions, replacements or appurtenances to the Property; (c) execute, acknowledge, deliver, procure and record or file any document or instrument (including specifically any financing statement) deemed advisable by Lender to protect, continue or perfect the liens or the security interests hereunder against the rights or interests of third persons; and (d) furnish to Lender, upon Lender’s request (not more than twice in a calendar year, provided no Event of Default has occurred), a duly acknowledged written statement and estoppel certificate addressed to such party or parties as directed by Lender and in form and substance supplied by Lender, setting forth all amounts due under the Note, stating whether any Default or Event of Default exists, stating whether any offsets or defenses exist against the Obligations, affirming that the Loan Documents are the legal, valid and binding obligations of Borrower, and containing such other matters as Lender may reasonably require.           1.18 Payment of Costs; Reimbursement to Lender. Borrower shall pay all costs and expenses of every character incurred in connection with the closing of the Loan or otherwise attributable or chargeable to Borrower as the owner of the Property, including, without limitation, appraisal fees, recording fees, documentary, stamp, mortgage or intangible taxes, brokerage fees and commissions, title policy premiums and title search fees, public records search fees, escrow fees and attorneys’ fees. Borrower shall pay to Lender any and all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) in connection with any matter for which the consent or approval of Lender is required (or which is required to be delivered to Lender for review and/or approval) pursuant to the Loan Documents. If Borrower defaults in any such payment, which default is not cured within any applicable grace or cure period, Lender may pay the same and Borrower shall reimburse Lender on demand for all such costs and expenses incurred or paid by Lender, together with such interest thereon at the Default Interest Rate from and after the date Lender makes demand for such payment until reimbursement thereof by Borrower. Further, Borrower shall promptly notify Lender in writing of any litigation or litigation threatened in writing affecting the Property, or any other demand or claim which, if enforced, could impair or threaten to impair Lender’s security hereunder. Without limiting or waiving any other rights and remedies of Lender hereunder, if any action or proceeding of any kind (including, but not limited to, any bankruptcy, insolvency, arrangement, reorganization or other debtor relief proceeding) is commenced which might affect Lender’s interest in the Property or Lender’s right to enforce its security, or upon the occurrence of any other Event of Default, then Lender may, at its option, with or without notice to Borrower, make any appearances, disburse any sums and take any actions as may be necessary or desirable to protect or enforce the security of this Deed of Trust or to remedy such Event of Default (without, however, waiving any Default). Borrower agrees to pay on demand all expenses of Lender incurred with respect to the foregoing (including, but not limited to, reasonable fees and disbursements of counsel), together with interest thereon at the Default Interest Rate from and after the date on which Lender incurs such expenses until reimbursement thereof by Borrower. The necessity for any such actions and of the amounts to be paid shall be determined by Lender in its discretion. Lender is hereby empowered to enter and to authorize others to enter upon the Property or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Borrower or any person in possession holding under Borrower. Borrower hereby acknowledges and agrees that the remedies set forth in this Section 1.18 shall be exercisable by Lender, and any and all payments made or costs or expenses incurred by Lender in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Borrower with interest thereon at the Default Interest Rate, notwithstanding the fact that such remedies were exercised and such payments made and costs incurred by Lender after the filing by Borrower of a voluntary case or the filing against Borrower of an involuntary case pursuant to or within the meaning of the Bankruptcy Reform Act of 1978, as amended, Title 11 U.S.C., or after any similar action pursuant to any other debtor relief law (whether statutory, common law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter, in effect, which may be or become applicable to Borrower, Lender, any Indemnitor, the Obligations or any of the Loan Documents. Borrower hereby indemnifies and holds Lender harmless from and against - 26 - --------------------------------------------------------------------------------   all loss, cost and expenses with respect to any Event of Default hereof, any liens (i.e., judgments, mechanics’ and materialmen’s liens, or otherwise), charges and encumbrances filed against the Property, and from any claims and demands for damages or injury, including claims for property damage, personal injury or wrongful death, arising out of or in connection with any accident or fire or other casualty on the Real Estate or the Improvements or any nuisance made or suffered thereon, including, in any case, reasonable attorneys’ fees, costs and expenses as aforesaid, excluding matters arising solely and directly out of the Lender’s gross negligence or willful misconduct, whether at pretrial, trial or appellate level, and such indemnity shall survive payment in full of the Obligations. This Section shall not be construed to require Lender to incur any expenses, make any appearances or take any actions.           1.19 Security Interest and Security Agreement. This Deed of Trust is also a security agreement under the Uniform Commercial Code for any of the Property which, under applicable law, may be subject to a security interest under the Uniform Commercial Code, whether acquired now or in the future, including, without limitation, the Reserves, all products, and cash and non-cash proceeds thereof (collectively, “UCC Collateral”). Borrower hereby grants to Lender a security interest in the UCC Collateral. Borrower hereby authorizes Lender to file such financing statements, continuation statements and amendments, in such form as Lender may require, to perfect or continue the perfection of this security interest. Borrower shall pay all third party out of pocket costs of preparing and filing such statements, and all costs and expenses of any record searches for financing statements that Lender may require. Without the prior written consent of Lender, Borrower shall not create or permit to exist any other lien or security interest in any of the UCC Collateral. The name and address of Borrower (as Debtor under any applicable Uniform Commercial Code) and Lender (as Secured Party under any applicable Uniform Commercial Code) are as set forth on Page 1 of this Deed of Trust.           1.20 Easements and Rights-of-Way. Borrower shall not grant any easement or right-of-way with respect to all or any portion of the Real Estate or the Improvements without the prior written consent of Lender, which consent shall not be unreasonably withheld. The purchaser at any foreclosure sale hereunder may, at its discretion, disaffirm any easement or right-of-way granted in violation of any of the provisions of this Deed of Trust and may take immediate possession of the Property free from, and despite the terms of, such grant of easement or right-of-way. If Lender consents to the grant of an easement or right-of-way, Lender agrees to grant such consent provided that Lender is paid a reasonable review fee together with all other expenses, including, without limitation, reasonable attorneys’ fees, incurred by Lender in the review of Borrower’s request and in the preparation of documents effecting the subordination. Borrower shall at all times comply with all easement agreements, reciprocal easement agreements, declarations, restrictive covenants and any other similar types of agreements now or hereafter affecting the Property (to the extent that any failure to comply with such documents, agreements or instruments shall endanger, cloud or adversely affect title to the Property in any manner, or adversely affect the Property in any manner, as determined by Lender in its discretion), and Borrower shall not amend, modify or terminate any such easement agreements, reciprocal easement agreements, declarations, restrictive covenants or any other similar types of agreements without Lender’s prior written consent.           1.21 Compliance with Laws. Borrower shall at all times comply with all Applicable Laws. Borrower may, upon providing Lender with security satisfactory to Lender, proceed diligently and in good faith to contest the validity or applicability of any Applicable Law so long as the Property shall not be subject to any lien, charge, fine or other liability, and shall not be in danger of being forfeited, lost or closed, during or as a result of such contest. Borrower shall not alter the Property in any manner that would materially increase Borrower’s responsibilities for compliance with Applicable Laws without the prior approval of Lender. Borrower shall not use or occupy, or allow the use or occupancy of, the Property in any manner which violates any Lease or any Applicable Law or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance - 27 - --------------------------------------------------------------------------------   then in force with respect thereto. Borrower shall, from time to time, upon Lender’s request, provide Lender with evidence reasonably satisfactory to Lender that the Property complies with all Applicable Laws. Notwithstanding the foregoing, if as a result of a change in Applicable Law material structural changes are required to be made to the Property, then Borrower shall have the right at any time during the Defeasance Period to partially defease the Loan and obtain a release of the Property from the lien of this Deed of Trust pursuant to Section 1.03(d)-(f) of the Note.           1.22 Additional Taxes. In the event of the enactment after this date of any law of the state where the Property is located or of any other governmental entity deducting from the value of the Property for the purpose of taxation any lien or security interest thereon, or imposing upon Lender the payment of the whole or any part of the Taxes or Other Charges herein required to be paid by Borrower, or changing in any way the laws relating to the taxation of mortgages or security agreements or debts secured by mortgages or security agreements or the interest of the Lender or secured party in the property covered thereby, or the manner of collection of such Taxes or Other Charges, so as to adversely affect this Deed of Trust or the Obligations or Lender, then, and in any such event, Borrower, upon demand by Lender, shall pay such Taxes or Other Charges, or reimburse Lender therefor; provided, however, that if in the opinion of counsel for Lender (a) it might be unlawful to require Borrower to make such payment, or (b) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in either such event, Lender may elect, by notice in writing given to Borrower, to declare all of the Obligations to be and become due and payable in full sixty (60) days from the giving of such notice.           1.23 Borrower’s Waivers. To the full extent permitted by law, Borrower shall not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, moratorium or extension, or any law now or hereafter in force providing for the reinstatement of the Obligations prior to any sale of the Property to be made pursuant to any provisions contained herein or prior to the entering of any decree, judgment or order of any court of competent jurisdiction, or any right under any statute to redeem all or any part of the Property so sold. Borrower, for Borrower and Borrower’s successors and assigns, and for any and all persons ever claiming any interest in the Property, to the full extent permitted by law, hereby knowingly, intentionally and voluntarily with and upon the advice of competent counsel: (a) waives, releases, relinquishes and forever forgoes all rights of valuation, appraisement, stay of execution, reinstatement and notice of election or intention to mature or declare due the Obligations (except such notices as are specifically provided for herein); (b) waives, releases, relinquishes and forever forgoes all right to a marshalling of the assets of Borrower, including the Property, to a sale in the inverse order of alienation, or to direct the order in which any of the Property shall be sold in the event of foreclosure of the liens and security interests hereby created and agrees that any court having jurisdiction to foreclose such liens and security interests may order the Property sold as an entirety; and (c) waives, releases, relinquishes and forever forgoes all rights and periods of redemption provided under applicable law. To the full extent permitted by law, Borrower shall not have or assert any right under any statute or rule of law pertaining to the exemption of homestead or other exemption under any federal, state or local law now or hereafter in effect, the administration of estates of decedents or other matters whatever to defeat, reduce or affect the right of Lender under the terms of this Deed of Trust to a sale of the Property, for the collection of the Obligations without any prior or different resort for collection, or the right of Lender under the terms of this Deed of Trust to the payment of the Obligations out of the proceeds of sale of the Property in preference to every other claimant whatever. Further, Borrower hereby knowingly, intentionally and voluntarily, with and upon the advice of competent counsel, waives, releases, relinquishes and forever forgoes all present and future statutes of limitations as a defense to any action to enforce the provisions of this Deed of Trust or to collect any of the Obligations the fullest extent permitted by law. Borrower covenants and agrees that upon the commencement of a voluntary or involuntary bankruptcy proceeding by or against Borrower, Borrower shall not seek a supplemental stay or otherwise shall not seek pursuant - 28 - --------------------------------------------------------------------------------   to 11 U.S.C. §105 or any other provision of the Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law (whether statutory, common law, case law, or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable, to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights of Lender against any Indemnitor of the secured obligations or any other party liable with respect thereto by virtue of any indemnity, guaranty or otherwise.           1.24 Management.           (a) The management of the Property shall be by either (1) Borrower or an entity affiliated with Borrower approved by Lender for so long as Borrower or said affiliated entity is managing the Property in a first class, commercially reasonable manner to upkeep the building in accordance with its condition as of the date hereof; or (2) a professional property management company approved by Lender, and in either case pursuant to a written agreement approved by Lender. In no event shall any manager be removed, replaced or retained, or any management agreement entered into, modified or amended, in each case without the prior written consent of Lender, which shall not unreasonably be withheld. After an Event of Default hereunder or a default under any management contract then in effect, which default is not cured within any applicable grace or cure period, Lender shall have the right to terminate, or to direct Borrower to terminate, such management contract upon thirty (30) days’ notice and to retain, or to direct Borrower to retain, a new management agent approved by Lender. It shall be a condition of Lender’s consent to any management agreement, whether with an affiliate of Borrower or a professional property management company, that such manager enter into an agreement with Lender whereby the manager acknowledges and agrees to the aforesaid rights of Lender, and as to such other matters as Lender may require.           (b) Without limiting the restrictions set forth in Section 1.24(a) pertaining to the management agreement for the Property, Borrower may not terminate any other Contract that is material to the operation of the Property, or enter into any amendment thereto that makes the terms thereof less favorable to Borrower, in each case without the prior written consent of Lender, which shall not unreasonably be withheld, provided, however, that if the other party to such Contract is in default thereunder, and Borrower can replace the goods or services provided on terms not materially disadvantageous to Borrower, then the prior written consent of Lender shall not be required to terminate such Contract. Borrower shall perform its obligations under each Contract and each of the General Intangibles, except where Borrower’s failure to do so would not have a material adverse effect on Borrower or the Property. Borrower represents that its interest under each Contract, and each General Intangible, is not subject to any claim, setoff, lien, deduction or encumbrance of any nature, other than that created by this Deed of Trust. At any time during the continuance of an Event of Default, Lender may (but shall not be obligated to) take such action as Lender may determine to be reasonably necessary to protect the rights of Borrower under any or all of the Contracts and/or the General Intangibles. Should Lender, or Lender’s designee, acquire the Property (whether pursuant to exercise of Lender’s remedies hereunder or by transfer in lieu thereof), Lender may elect to assume Borrower’s interests under any or all of the Contracts or General Intangibles as Lender shall determine, and Borrower shall cause to be terminated, without obligation to Lender or the successor owner of the Property, such other Contracts and/or General Intangibles as Lender may direct.           1.25 Hazardous Waste and Other Substances.           (a) Borrower hereby represents and warrants to Lender that, as of the date hereof, except as disclosed in writing to Lender: (i) to Borrower’s knowledge, obtained in Borrower’s ownership, possession and, to the extent applicable, occupancy of the Property, except as expressly set forth in the environmental reports prepared for Lender in connection with the Loan (collectively, the “Environmental - 29 - --------------------------------------------------------------------------------   Report”), the Property is not in direct or indirect violation of any local, state or federal law, rule or regulation pertaining to environmental regulation, contamination or clean-up (collectively, “Environmental Laws”), including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. §9601 et seq. and 40 CFR §302.1 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. §6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. §1251 et seq. and 40 CFR § 116.1 et seq.), those relating to lead based paint, and the Hazardous Materials Transportation Act (49 U.S.C. §1801 et seq.), and the regulations promulgated pursuant to said laws, all as amended; (ii) to Borrower’s knowledge, obtained in Borrower’s ownership, possession and, to the extent applicable, occupancy of the Property, except as expressly set forth in the Environmental Report, no hazardous, toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, lead based paint, polychlorinated biphenyls, petroleum products, flammable explosives, radioactive materials, infectious substances or raw materials which include hazardous constituents) or any other substances or materials which are included under or regulated by Environmental Laws, or any molds, spores or fungus or other harmful microbial matter (collectively, “Hazardous Substances”) are located on or have been handled, generated, stored, processed or disposed of on or released or discharged from the Property (including underground contamination) except for those substances used, stored or handled by Borrower or Tenants in the ordinary course of their respective business and in compliance with all Environmental Laws; (iii) to the best of Borrower’s knowledge, after due and diligent inquiry, the Property is not subject to any private or governmental lien or judicial or administrative notice or action relating to Hazardous Substances; (iv) to Borrower’s knowledge, obtained in Borrower’s ownership, possession and, to the extent applicable, occupancy of the Property, except as expressly set forth in the Environmental Report, there are no existing or closed underground storage tanks or other underground storage receptacles for Hazardous Substances on the Property; (v) Borrower has received no written notice of, and to the best of Borrower’s knowledge and belief, there exists no investigation, action, proceeding or claim by any agency, authority or unit of government or by any third party which could result in any liability, penalty, sanction or judgment under any Environmental Laws with respect to any condition, use or operation of the Property nor does Borrower know of any basis for such a claim; and (vi) Borrower has received no written notice of and, to the best of Borrower’s knowledge and belief, there has been no claim by any party that any use, operation or condition of the Property has caused any nuisance or any other liability or adverse condition on any other property nor does Borrower know of any basis for such a claim.           (b) Borrower shall keep or cause the Property to be kept free from Hazardous Substances (except those substances disclosed in the Environmental Report and used, stored or handled by Borrower and Tenants in the ordinary course of their respective business and, in each case, in compliance with all Environmental Laws) and in compliance with all Environmental Laws, shall not install or use any underground storage tanks, shall expressly prohibit the use, generation, handling, storage, production, processing and disposal of Hazardous Substances by all Tenants (except in the ordinary course of a business that is not a Prohibited Use and in each case in compliance with all Environmental Laws) and, without limiting the generality of the foregoing, during the term of this Deed of Trust, shall not install in the Improvements or permit to be installed in the Improvements asbestos-containing materials (“ACMs”) or any substance containing ACMs. Borrower shall, if required under applicable Environmental Laws, maintain all applicable Material Safety Data Sheets with respect to the Property, and make same available to Lender or Lender’s consultants upon reasonable notice.           (c) Borrower shall promptly notify Lender if Borrower shall become aware of the possible existence of any Hazardous Substances on the Property (except as disclosed in the Environmental Report, in the ordinary course of a business that is not a Prohibited Use and in each case in compliance with all Environmental Laws) or if Borrower shall become aware that the Property is or may be in violation of any Environmental Laws. Further, immediately upon receipt of the same, Borrower shall deliver to Lender copies of any and all orders, notices, permits, applications, reports, and other - 30 - --------------------------------------------------------------------------------   communications, documents and instruments received, communicated to or obtained by Borrower pertaining to the actual, alleged or potential presence or existence of any Hazardous Substances at, on, about, under, within, near or in connection with the Property. Borrower shall, promptly and when and as required by Lender, at Borrower’s sole cost and expense, take all actions as shall be necessary or advisable for the clean-up of any and all portions of the Property or other affected property which Lender reasonably determines to be migrating from the Property to such affected property, in accordance with, and to the extent required by, all applicable Environmental Laws, including, without limitation, all investigative, monitoring, removal, containment and remedial actions in accordance with and to the extent required by all applicable Environmental Laws, and shall further pay or cause to be paid, at no expense to Lender, all clean-up, administrative and enforcement costs of applicable governmental agencies which may be asserted against the Property; in the event Borrower fails to take such actions, (1) Lender may, but shall not be obligated to, cause the Property or other affected property to be freed from any Hazardous Substances (except for those Hazardous Substances disclosed in the Environmental Report, used in the ordinary course of a business that are not a Prohibited Use and in each case are in compliance with all Environmental Laws) or otherwise brought into compliance with Environmental Laws and any and all costs and expenses incurred by Lender in connection therewith, together with interest thereon at the Default Interest Rate from the date demand for payment is made by Lender until actually paid by Borrower, shall be immediately paid by Borrower on demand, and (2) Borrower hereby grants to Lender and its agents and employees access to the Property and a license to remove any Hazardous Substances (except for those Hazardous Substances disclosed in the Environmental Report, used in the ordinary course of business that are not a Prohibited Use and in each case are in compliance with all Environmental Laws) and to do all things Lender shall deem necessary to bring the Property in conformance with Environmental Laws. Borrower covenants and agrees, at Borrower’s sole cost and expense, to indemnify, defend (at trial and appellate levels, and with attorneys, consultants and experts acceptable to Lender), and hold Lender harmless from and against any and all liens, damages, losses, liabilities, obligations, settlement payments, penalties, assessments, citations, directives, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements or expenses of any kind or of any nature whatsoever (including, without limitation, reasonable attorneys’, consultants’ and experts’ fees and disbursements actually incurred in investigating, defending, settling or prosecuting any claim, litigation or proceeding) which may at any time be imposed upon, incurred by or asserted or awarded against Lender or the Property, and arising directly or indirectly from or out of: (i) the presence, release or threat of release of any Hazardous Substances on, in, under or affecting all or any portion of the Property regardless of whether or not caused by or within the control of Borrower; (ii) the violation of any Environmental Laws relating to or affecting the Property, whether or not caused by or within the control of Borrower; (iii) the failure by Borrower to comply fully with the terms and conditions of this Section 1.25; (iv) the breach of any representation or warranty contained in this Section 1.25; or (v) the enforcement of this Section 1.25, including, without limitation, the cost of assessment, containment and/or removal of any and all Hazardous Substances from all or any portion of the Property the cost of any actions taken in response to the presence, release or threat of release of any Hazardous Substances on, in, under or affecting any portion of the Property or (to the extent such Hazardous Substances were released from, or migrated from, the Property) any surrounding areas to prevent or minimize such release or threat of release so that it does not migrate or otherwise cause or threaten danger to present or future public health, safety, welfare or the environment, and costs incurred to comply with the Environmental Laws in connection with all or any portion of the Property or any such surrounding areas. The indemnity set forth in this Section 1.25(c) shall also include, when realized, any diminution in the value of the security afforded by the Property or any future reduction in the sales price of the Property by reason of any matter set forth in this Section 1.25(c). Lender’s rights under this Section shall survive payment in full of the Obligations and shall be in addition to all other rights of Lender under this Deed of Trust, the Note and the other Loan Documents. - 31 - --------------------------------------------------------------------------------             (d) Upon Lender’s request, at any time after the occurrence of an Event of Default hereunder and in connection with a potential sale of the Property pursuant to Lender’s exercise of its rights and remedies under this Deed of Trust, or at such other time as Lender has reasonable grounds to believe that Hazardous Substances (except for those Hazardous Substances disclosed in the Environmental Report, used in the ordinary course of a business that are not a Prohibited Use and in each case are in compliance with all Environmental Laws) are or have been released, stored or disposed of on or around the Property or that the Property may be in violation of the Environmental Laws (except for items disclosed in the environmental report delivered to Lender in connection herewith), Borrower shall provide, at Borrower’s sole cost and expense, an inspection or audit of the Property prepared by a hydrogeologist or environmental engineer or other appropriate consultant approved by Lender to determine the presence or absence of Hazardous Substances on the Property or an inspection or audit of the Improvements prepared by an engineering or consulting firm approved by Lender to determine the presence or absence of friable asbestos or substances containing asbestos on the Property. If Borrower fails to provide such inspection or audit within thirty (30) days after such request, Lender may order the same, and Borrower hereby grants to Lender and its employees and agents access to the Property and a license to undertake such inspection or audit. The cost of such inspection or audit shall be immediately due and payable to Lender by Borrower on demand, together with interest thereon at the Default Interest Rate from the date demand for payment is made by Lender until actually paid by Borrower.           (e) The obligations of Borrower under this Deed of Trust (including, without limitation, this Section 1.25) with respect to Hazardous Substances shall not in any way limit the obligations of any party under the Hazardous Substances Indemnity.           1.26 Brokerage Fees; Indemnification; Subrogation.           (a) Borrower shall indemnify, defend and hold Lender harmless against: (i) any and all claims for brokerage, leasing, finders or similar fees which may be made relating to the Property or the Obligations, and (ii) any and all liability, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses (including Lender’s reasonable attorneys’ fees, together with reasonable appellate counsel fees, if any) of whatever kind or nature which may be asserted against, imposed on or incurred by Lender in connection with the Obligations, this Deed of Trust, the Property, or any part thereof, or the exercise by Lender of any rights or remedies granted to it under this Deed of Trust; provided, however, that nothing herein shall be construed to obligate Borrower to indemnify, defend and hold harmless Lender from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses enacted against, imposed on or incurred by Lender by reason of Lender’s willful misconduct or gross negligence.           (b) If Lender is made a party defendant to any litigation or any claim is threatened or brought against Lender concerning the Obligations, this Deed of Trust, the Property, or any part thereof, or any interest therein, or the construction, maintenance, operation or occupancy or use thereof, then Borrower shall indemnify, defend and hold Lender harmless from and against all liability by reason of said litigation or claims, including reasonable attorneys’ fees (together with reasonable appellate counsel fees, if any) and expenses incurred by Lender in any such litigation or claim, whether or not any such litigation or claim is prosecuted to judgment. If Lender commences an action against Borrower to enforce any of the terms hereof or to prosecute any breach by Borrower of any of the terms hereof or of any of the other Loan Documents, or to recover any sum secured hereby, Borrower shall pay to Lender its reasonable attorneys’ fees (together with reasonable appellate counsel fees, if any) and expenses. The right to such attorneys’ fees (together with reasonable appellate counsel fees, if any) and expenses shall be deemed to have accrued on the commencement of such action, and shall be enforceable whether or not such action is prosecuted to judgment. If Borrower breaches any term of this Deed of Trust, Lender may engage the services of an attorney or attorneys to protect its rights hereunder, and in the event of such - 32 - --------------------------------------------------------------------------------   engagement following any breach by Borrower, Borrower shall pay Lender reasonable attorneys’ fees (together with reasonable appellate counsel fees, if any) and expenses incurred by Lender, whether or not an action is actually commenced against Borrower by reason of such breach. All references to “attorneys” in this Subsection and elsewhere in this Deed of Trust shall include without limitation any attorney or law firm engaged by Lender and Lender’s in-house counsel, and all references to “fees and expenses” in this Subsection and elsewhere in this Deed of Trust shall include without limitation any reasonable fees of such attorney or law firm and any reasonable allocation charges and reasonable allocation costs of Lender’s in-house counsel.           (c) A waiver of subrogation shall be obtained by Borrower from its insurance carrier and, consequently, Borrower waives any and all right to claim or recover against Lender, its officers, employees, agents and representatives, for loss of or damage to Borrower, the Property, Borrower’s property or the property of others under Borrower’s control from any cause insured against or required to be insured against by the provisions of this Deed of Trust.           1.27 Single-Purpose Entity Covenants. Borrower hereby represents, warrants and covenants, as of the date hereof and until such time as the Obligations are paid in full, that without, in each case, the prior written consent of Lender (which may be withheld or conditioned by Lender in its sole and absolute discretion for any reason or for no reason):           (a) The sole purpose of Borrower has been, is and will be, to acquire, own, hold, maintain, and operate the Property, together with such other activities as may be necessary or advisable in connection with the ownership of the Property. Borrower has not engaged, and does not and shall not engage, in any business, and it has and shall have no purpose, unrelated to ownership of the Property. Borrower has not owned, does not own and shall not acquire, any real property or own assets other than those related to the Property and/or otherwise in furtherance of the limited purposes of Borrower.           (b) Neither Borrower, nor any general partner, manager or managing member (a “Controlling Entity”) of Borrower, as applicable, shall have the authority to perform any act in respect of Borrower in violation of any (a) applicable laws or regulations or (b) any agreement between Borrower and Lender (including, without limitation, the Loan Documents).           (c) Borrower shall not:                (1) make any loans to the holder (directly or indirectly) of any equity interests in Borrower (collectively, the “Equity Holders”), any Affiliate (as defined below) of Borrower or of any Equity Holders;                (2) except as expressly permitted by the Lender in writing, sell, encumber (except with respect to the Lender) or otherwise transfer or dispose of all or substantially all of the properties of Borrower (a sale or disposition will be deemed to be “all or substantially all of the properties of Borrower” if the sale or disposition includes the Property or if the total value of the properties sold or disposed of in such transaction and during the twelve months preceding such transaction is sixty six and two thirds percent (66-2/3%) or more in value of Borrower’s total assets as of the end of the most recently completed fiscal year of Borrower);                (3) to the fullest extent permitted by law, dissolve, wind-up, or liquidate Borrower;                (4) merge, consolidate or acquire all or substantially all of the assets of an Affiliate of same or other person or entity; - 33 - --------------------------------------------------------------------------------                  (5) change the nature of the business conducted by Borrower; or                (6) except as permitted by the Lender in writing, amend, modify or otherwise change the Organizational Documents (as defined below) of Borrower (which approval, after a Secondary Market Transaction with respect to the Loan, may be conditioned upon Lender’s receipt of confirmation from each of the applicable Rating Agencies that such amendment, modification or change would not result in the qualification, withdrawal or downgrade of any securities rating).           (d) Borrower shall not, and no Equity Holder or other person or entity on behalf of Borrower shall, without the prior written affirmative vote of one hundred percent (100%) of the members, partners or stockholders of Borrower: (1) institute proceedings to be adjudicated bankrupt or insolvent; (2) consent to the institution of bankruptcy or insolvency proceedings against it; (3) file a petition seeking, or consenting to, reorganization or relief under any applicable federal or state law relating to bankruptcy (but the foregoing clause (2) shall not apply to Persons that own shares in a Publicly Traded Corporation); (4) consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of Borrower or a substantial part of its property; (5) make any assignment for the benefit of creditors; (6) admit in writing its inability to pay its debts generally as they become due or declare or effect a moratorium on its debts; or (7) take any action in furtherance of any such action ((1) through (7) above, with respect to any individual or entity, collectively, a “Bankruptcy Action”).           (e) Borrower shall have no indebtedness or incur any liability other than (1) unsecured debts and liabilities for trade payables and accrued expenses incurred in the ordinary course of its business of operating the Property, provided, however, that such unsecured indebtedness or liabilities (y) are in amounts that are normal and reasonable under the circumstances, but in no event to exceed three percent (3%) of the original principal amount of the Loan and (z) are not evidenced by a note and are paid when due, but in no event for more than sixty (60) days from the date that such indebtedness or liabilities are incurred and (2) the Obligations. No indebtedness other than the Loan shall be secured (senior, subordinated or pari passu) by the Property.           (f) The following provisions shall apply only when Borrower is a limited liability company or a partnership. A Bankruptcy Action by or against any partner or member of Borrower, as applicable, shall not cause such partner or member of Borrower, as applicable, to cease to be a partner or member of Borrower and upon the occurrence of a Bankruptcy Action, Borrower shall continue without dissolution. Additionally, to the fullest extent permitted by law, if any partner or member of Borrower, as applicable, ceases to be a partner or member of Borrower, as applicable, such event shall not terminate Borrower and Borrower shall continue without dissolution.           (g) Borrower shall at all times observe the applicable legal requirements for the recognition of Borrower as a legal entity separate from any Equity Holders or Affiliates of Borrower or of any Equity Holder, including, without limitation, as follows:                (1) Borrower shall either (a) maintain its principal executive office and telephone and facsimile numbers separate from that of any Affiliate of Borrower or of any Equity Holder and shall conspicuously identify such office and numbers as its own, or (b) shall allocate by written agreement fairly and reasonably any rent, overhead and expenses for shared office space. Additionally, Borrower shall use its own separate stationery, invoices and checks which reflects its name, address, telephone number and facsimile number.                (2) Borrower shall maintain correct and complete financial statements, accounts, books and records and other entity documents separate from those of any Affiliate of Borrower or of any Equity Holder or any other person or entity (except that Borrower Parties may have one bank - 34 - --------------------------------------------------------------------------------   account). Borrower shall prepare unaudited quarterly and annual financial statements, and Borrower’s financial statements shall substantially comply with generally accepted accounting principles.                (3) Borrower shall maintain its own separate bank accounts (except that Borrower Parties may have one bank account), payroll and correct, complete and separate books of account.                (4) Borrower shall file or cause to be filed its own separate tax returns, or may be consolidated with the tax returns of the Indemnitor, as the case may be.                (5) Borrower shall hold itself out to the public (including any of its Affiliates’ creditors) under Borrower’s own name and as a separate and distinct entity and not as a department, division or otherwise of any Affiliate of Borrower or of any Equity Holder.                (6) Borrower shall observe all customary formalities regarding the existence of Borrower, including holding meetings and maintaining current and accurate minute books separate from those of any Affiliate of Borrower or of any Equity Holder.                (7) Borrower shall hold title to its assets in its own name and act solely in its own name and through its own duly authorized officers and agents. No Affiliate of Borrower or of any Equity Holder other than Gladstone Limited Partnership shall be appointed or act as agent of Borrower, other than as a property manager or leasing agent with respect to the Property.                (8) Investments shall be made in the name of Borrower directly by Borrower or on its behalf by brokers engaged and paid by Borrower.                (9) Except as required by Lender, Borrower shall not guarantee, pledge or assume or hold itself out or permit itself to be held out as having guaranteed, pledged or assumed any liabilities or obligations of any Equity Holder or any Affiliate of Borrower, nor shall it make any loan, except as permitted in the Loan Documents.                (10) Reserved.                (11) Assets of Borrower shall be separately identified, maintained and segregated. Borrower’s assets shall at all times be held by or on behalf of Borrower and if held on behalf of Borrower by another entity, shall at all times be kept identifiable (in accordance with customary usages) as assets owned by Borrower. This restriction requires, among other things, that (i) funds of Borrower shall be deposited or invested in Borrower’s name (except that Borrower Parties may have one bank account), (ii) funds of Borrower shall not be commingled with the funds of any Affiliate of Borrower or of any Equity Holder, (iii) the Borrower Parties shall maintain all accounts in their collective name and with the same tax identification number, separate from those of any Affiliate of Borrower or of any Equity Holder, and (iv) funds of Borrower shall be used only for the business of Borrower.                (12) Borrower shall maintain its assets in such a manner that it is not costly or difficult to segregate, ascertain or identify its individual assets from those of any Affiliate of Borrower or of any Equity Holder.                (13) Borrower shall pay or cause to be paid its own liabilities and expenses of any kind, including but not limited to salaries of its employees, only out of its own separate funds and assets, except as required by the Loan Documents. - 35 - --------------------------------------------------------------------------------                  (14) Borrower is adequately capitalized as of the date hereof to engage in the transactions contemplated at the closing of the Loan.                (15) Borrower shall not do any act which would make it impossible to carry on the ordinary business of Borrower.                (16) All data and records (including computer records) used by Borrower or any Affiliate of Borrower in the collection and administration of any loan shall reflect Borrower’s ownership interest therein.                (17) No funds of Borrower shall be invested in securities issued by, nor shall Borrower acquire the indebtedness or obligation of, an Affiliate of Borrower or of an Equity Holder.                (18) Borrower shall maintain an arm’s length relationship with each of its Affiliates and may enter into contracts or transact business with its Affiliates only on commercially reasonable terms that are no less favorable to Borrower than is obtainable in the market from a person or entity that is not an Affiliate of Borrower or of any Equity Holder.                (19) Borrower shall correct any misunderstanding that is known by Borrower regarding its name or separate identity.           (h) Any indemnification obligation of Borrower to the holder of any equity interest in Borrower shall (1) be fully subordinated to the Loan and (2) not constitute a claim against Borrower or its assets until such time as the Loan has been indefeasibly paid in accordance with its terms and otherwise has been fully discharged (or has been defeased in accordance with the Note).           (i) The following shall only apply if and when Borrower is a limited partnership. Each general partner of Borrower may not be an individual. Each general partner of Borrower shall at all times have as its sole purpose to act as the general partner of Borrower, and shall be engaged in no other business or have any other purpose. Additionally, any additional or substitute general partner of Borrower shall have organizational documents that (1) include covenants substantially similar to the foregoing provisions of this Section 1.27, inclusive of all single purpose/bankruptcy remote provisions, and (2) are acceptable to the Lender.           (j) Borrower shall cause the Organizational Documents of Borrower to include, at all times, requirements substantially similar to the foregoing, in a manner reasonably satisfactory to Lender. At any time when Borrower is a limited partnership, the Organizational Documents of the general partner shall include provisions substantially similar to those set forth in Section 1.27(i) above.           (k) As used in this Deed of Trust:                (i) “Affiliate” means any person or entity which directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with a specified person or entity. For purposes of the definition of “Affiliate”, the terms “control”, “controlled”, or “controlling” with respect to a specified person or entity shall include, without limitation, (i) the ownership, control or power to vote ten percent (10%) or more of (x) the outstanding shares of any class of voting securities or (y) beneficial interests, of any such person or entity, as the case may be, directly or indirectly, or acting through one or more persons or entities, (ii) the control in any manner over the general partner(s) or the election of more than one director or trustee (or persons exercising similar functions) of such person or entity, or (iii) the power to exercise, directly or indirectly, control over the management or policies of such person or entity. - 36 - --------------------------------------------------------------------------------             (ii) “Constituent Entity” shall mean, with respect to any entity, (i) with respect to any limited partnership, (x) any general partner of such limited partnership and (y) any limited partner of such partnership which owns (or is owned by any person or entity owning, holding or controlling, directly or indirectly) the right to receive 50% or more of the income, distributable funds or losses of such partnership; (ii) with respect to any general partnership or joint venture, any partner or venturer in such general partnership or joint venturer; (iii) with respect to any corporation, any person or entity which owns or controls 50% or more of any class of stock of such corporation; (iv) with respect to any limited liability company, (x) any manager of such limited liability company, (y) any managing member of such limited liability company, or the sole member of any limited liability company having only one (1) member, and (z) any non-managing member of such limited liability company which owns (or is owned by any person or entity owning, holding or controlling, directly or indirectly) the right to receive 50% or more of the income, distributable funds or losses of such limited liability company; (v) any person or entity which controls any entity described in any of clauses (i) through (iv) of this definition (except any officers or directors of Gladstone Commercial Corporation so long as no such officers or directors own or control 50% or more of any class of stock of such corporation); and (vi) any entity which is a “Constituent Entity” with respect to an entity which is a “Constituent Entity” of the subject entity. For all purposes of this Deed of Trust unless expressly noted, “control” and “controlled by” shall have the meanings assigned to them in Rule 405 under the Securities Act of 1933, as amended. For the purposes of clause (vi) of the definition of Constituent Entity, if entity “B” is a Constituent Entity of entity “A”, then any Constituent Entity of “B” shall be deemed to be a Constituent Entity of any entity of which “A” is a Constituent Entity.           (iii) “Organizational Documents” shall mean, with respect to any entity, the documents customarily used to form an entity and provide for its governance, as the same may be amended from time to time, including, without limitation, (a) with respect to a corporation, the articles of incorporation or certificate of incorporation or charter, and the by-laws; (b) with respect to a limited liability company, the articles of organization and the operating agreement; (c) with respect to a limited partnership, the certificate of limited partnership and the limited partnership agreement; and (d) with respect to a general partnership, the agreement of partnership.      (l) In the event Borrower is a single-member Delaware limited liability company, the limited liability company agreement of Borrower (the “LLC Agreement”) shall provide that (i) upon the occurrence of any event that causes the sole member of Borrower (“Member”) to cease to be the member of Borrower (other than (A) upon an assignment by Member of all of its limited liability company interest in Borrower and the admission of the transferee, or (B) the resignation of Member and the admission of an additional member, in either case in accordance with the terms of the Loan Documents and the LLC Agreement), the person executing the LLC Agreement as a “Special Member Designee” (as such term is defined in the LLC Agreement) (“Special Member”) shall, without any action of any other Person and simultaneously with the Member ceasing to be the member of Borrower, automatically be admitted to Borrower as a special member and shall continue Borrower without dissolution and (ii) such Special Member may not resign from Borrower or transfer its rights as Special Member unless a successor Special Member has been admitted to Borrower as Special Member in accordance with requirements of Delaware law. The LLC Agreement shall further provide that (i) Special Member shall automatically cease to be a member of Borrower upon the admission to Borrower of a substitute Member, (ii) Special Member shall be a member of Borrower that has no interest in the profits, losses and capital of Borrower and has no right to receive any distributions of Borrower assets, (iii) pursuant to Section 18-301 of the Delaware Limited Liability Company Act (the “Act”), Special Member shall not be required to make any capital contributions to Borrower and shall not receive a limited liability company interest in Borrower, (iv) Special Member, in its capacity as Special Member, may not bind Borrower, and (v) except as required by any mandatory provision of the Act, Special Member, in its capacity as Special Member, shall have no right to vote on, approve or otherwise consent to any action -37- --------------------------------------------------------------------------------   by, or matter relating to, Borrower, including, without limitation, the merger, consolidation or conversion of Borrower.      1.28 Reserve Accounts and Disbursement Requests. At Lender’s option, as additional security for the indebtedness secured hereby, Borrower shall establish and maintain the reserve accounts required by this Section 1.28, subject to the security interest therein as more fully set forth in Section 1.19 hereof.      (a) Replacement Reserve. Borrower agrees that it will perform, or cause to be performed, all repairs and replacements necessary to maintain the Property in good working order, in accordance with its condition as of the date hereof. Simultaneously herewith, and on each Payment Date until the Note is paid in full, Borrower shall pay to Lender the sum of $502.08 to be held in a reserve fund (the “Replacement Reserve”) subject to this Deed of Trust, for payment of certain repairs and replacements at the Property which, under generally accepted accounting principles, are categorized as capital expenses and not as operating expenses (the “Repairs”). Notwithstanding the foregoing, Borrower shall not be required to make a deposit into the Replacement Reserve to the extent that any such deposit would increase the amount in the Replacement Reserve (after deducting any pending disbursement requests therefrom) above $12,050.00. Borrower shall perform, or cause Principal Tenant to perform, all Repairs in a good and workmanlike manner, in accordance with all applicable codes and regulations, and each case in a manner satisfactory to Lender and as necessary to maintain the Property in good condition and in compliance with all applicable laws, ordinances, rules and regulations. So long as no Default shall exist and be continuing, Lender shall, to the extent funds are available for such purpose in the Replacement Reserve, disburse to Borrower the amount paid or incurred by Borrower in performing the Repairs as required above upon satisfaction of the requirements set forth in Section 1.29 of this Deed of Trust. Lender may, at Borrower’s expense, make or cause to be made an inspection of the Property to determine the need, as determined by Lender in its reasonable judgment, for further Repairs of the Property. In the event that such inspection reveals that further Repairs are required, Lender shall provide Borrower with a written description of the required Repairs, and Borrower shall complete, or cause Principal Tenant to complete, such Repairs to Lender’s reasonable satisfaction within ninety (90) days after Lender’s notice, or such later date as may be approved by Lender in its discretion.      (b) Corinthian Colleges Excess Cash Flow Reserve. In the event Borrower has not delivered a Satisfactory Letter of Credit (as that term is defined in Section 5.31 hereof) to Lender on or before May 1, 2013, then commencing on May 1, 2013 (the “Corinthian College Sweep Period”), all Excess Cash Flow (as defined below) shall be deposited (the “Excess Cash Flow Sweep”) into a reserve account (the “Corinthian Colleges Excess Cash Flow Reserve”) to be held by Lender as additional collateral for the Loan, and for payment of Leasing Costs. Borrower shall be required to continue to make such deposits of Excess Cash Flow into the Corinthian Colleges Excess Cash Flow Reserve each month until the satisfaction of the Corinthian Colleges Tenant Conditions (as defined in that certain Cash Management Agreement of even date herewith between the Borrower Parties and Lender (the “CMA”)) or until the date that the sum in the Corinthian Colleges Excess Cash Flow Reserve is equal to $372,000.00. Upon the satisfaction of the Corinthian Colleges Tenant Conditions, provided no Default exists, Lender shall disburse funds in the Corinthian Colleges Excess Cash Flow Reserve for payment of Leasing Costs incurred by Borrower in connection with Borrower’s leasing of space at the Property, subject to and in accordance with Section 1.29 below. Lender may use funds in the Corinthian Colleges Excess Cash Flow Reserve to pay for Leasing Costs in connection with re-leasing the Property to a Corinthian Colleges Replacement Tenant pursuant to a lease approved by Lender in accordance with this Deed of Trust (“Approved Leasing Costs”). In the event Borrower has delivered a Satisfactory Letter of Credit to Lender, and Borrower has failed to pay the Leasing Costs for any Lease of space at the Property, then Lender may and is hereby authorized to draw upon the Letter of Credit, by sight draft on the Issuing Bank (as those terms are defined in Section 5.31 hereof), and deposit the cash proceeds thereof into the -38- --------------------------------------------------------------------------------   Corinthian Colleges Excess Cash Flow Reserve and to disburse funds in the Corinthian Colleges Excess Cash Flow Reserve for payment of Leasing Costs incurred by Borrower in connection with Borrower’s leasing of space at the Property, subject to and in accordance with Section 1.29 below. As used herein, the term “Excess Cash Flow” shall mean all cash flow generated by the Property and Properties after deducting the payments identified in Section 2(d)(ii)(a-e) of the CMA. Defined terms used herein and not defined shall have the meanings ascribed to them in the CMA.      (c) [RESERVED]      (d) Early Termination of Leases. If any Tenant (a “Terminating Tenant”) gives notice to Borrower that it is exercising an early termination option set forth in its Lease with Borrower, Borrower shall direct such Tenant to deliver the payment required pursuant to its Lease in connection with the exercise of the early termination option (the “Early Termination Payment”) to be remitted to Lender. Borrower agrees, furthermore, that if such Tenant remits the Early Termination Payment directly to Borrower, Borrower shall remit the Early Termination Payment to Lender. Any Early Termination Payment shall be deposited in a segregated sub-account of the Leasing Reserve (the “Early Termination Reserve”) to be held as additional security for the Obligations; a separate Early Termination Reserve shall be maintained with respect to each Lease so terminated. So long as no Default shall exist and be continuing, Lender shall, to the extent that funds are available for such purpose in the Early Termination Reserve, disburse to Borrower funds then on deposit in the Early Termination Reserve as follows:           (i) If Borrower enters into a Lease for the entire premises previously demised under the Lease so terminated (the “Vacated Space”) with a Tenant reasonably acceptable to Lender and such Lease satisfies all applicable requirements of Section 1.10 hereof, and the Tenant under such Lease accepts such demised premises, takes occupancy thereof and commences the payment of base rent under its Lease (any such Lease, a “Qualified Replacement Lease”), then all funds in the Early Termination Reserve shall be used first to pay Leasing Costs with respect to such Qualified Replacement Lease upon satisfaction of the conditions set forth in Section 1.29 hereof; any funds remaining in the Early Termination Reserve after payment of all Leasing Costs with respect thereto shall be disbursed to Borrower as follows: (x) if the monthly net rent payable under the Qualified Replacement Lease is greater than or equal to the monthly rent payable by the Terminating Tenant under its Lease as of the date of such termination, then provided no Default is then continuing, such funds remaining in the Early Termination Reserve shall be disbursed to Borrower; and (y) if the monthly net rent payable under the Qualified Replacement Lease is less than the monthly rent payable by the Terminating Tenant under its Lease as of the date of such termination, then provided no Default is then continuing all funds remaining in the Early Termination Reserve shall be disbursed to Borrower in equal monthly installments over the remaining term of the Qualified Replacement Lease, until such time as all funds have been disbursed from the Early Termination Reserve.           (ii) If Borrower enters into one or more Leases each for less than the entire Vacated Space, no disbursements shall be permitted from the Early Termination Reserve except as follows:           (i) until such time as the entire Vacated Space has been re-leased pursuant to one or more Qualified Replacement Leases, and the Tenant under each such Qualified Replacement Lease accepts such demised premises, takes occupancy thereof and commences the payment of base rent under its Lease, Lender shall from time to time make disbursements on account of Leasing Costs with respect to the Vacated Space, provided, however, that the disbursements with respect to any portion of the Vacated Space on a per-square foot basis shall not exceed the amount of the Early Termination Payment on a per-square-foot basis; and -39- --------------------------------------------------------------------------------             (ii) at such time as the entire Vacated Space has been re-leased pursuant to one or more Qualified Replacement Leases and the Tenant under each such Qualified Replacement Lease accepts such demised premises, takes occupancy thereof and commences the payment of base rent under its Lease, then after payment of all Leasing Costs with respect to the re-leasing of such Vacated Space, the funds remaining in the Early Termination Reserve shall be disbursed as follows: (i) first, to the extent that any disbursements were made from the Leasing Reserve with respect to such Vacated Space, an amount equal to the sum of all such disbursements will be transferred to the Leasing Reserve (notwithstanding any limit to the required deposits thereto); (ii) next, any funds remaining in the Early Termination Reserve shall be disbursed to Borrower as follows: (x) if the monthly aggregate net rents payable under all such Qualified Replacement Leases is greater than or equal to the monthly rent payable by the Terminating Tenant, and the term of all such Qualified Replacement Leases extends to or beyond the scheduled expiration date of the Lease with the Terminating Tenant, then provided no Default is then continuing such funds remaining in the Early Termination Reserve shall be disbursed to Borrower; and (y) if the conditions of clause (x) are not satisfied, then provided no Default is then continuing such funds remaining in the Early Termination Reserve shall be disbursed to Borrower in equal monthly installments over the period that would have been remaining in the term of the Lease with the Terminating Tenant. Leasing Costs with respect to any Qualified Replacement Lease shall be disbursed first out of the related Early Termination Reserve, if applicable, prior to using any funds in the Leasing Reserve with respect thereto.      (e) Payment Reserve. Contemporaneously with the execution hereof, Borrower has established with Lender a temporary reserve in the amount equal to one (1) regular monthly installment of principal, interest and all required reserves, deposits or impounds under the Loan Documents (the “Payment Reserve”). Borrower understands and agrees that, notwithstanding the establishment of the Payment Reserve as herein required, all of the proceeds of the Note have been, and shall be considered, fully disbursed and shall bear interest and be payable on the terms provided therein. So long as no Default has occurred hereunder, Lender shall on the first Payment Date under the Note, advance from the Payment Reserve to itself the amount due and payable by Borrower under the Note on such Payment Date and shall also advance from the Payment Reserve into the Impound Account the amount of any deposit for Taxes and Other Charges and Insurance Premiums and into each other Reserve the amount of any deposit required to be paid for such purpose by Borrower on such Payment Date pursuant to the terms hereof. Borrower shall not be obligated to make any further deposits into the Payment Reserve after the disbursement of the funds held therein as aforesaid, and the Payment Reserve shall terminate upon such disbursement. No interest on funds contained in the Payment Reserve shall be paid by Lender to Borrower. Nothing contained herein, including, without limitation, the existence of the Payment Reserve, shall release Borrower of any obligation to make payments under the Note, this Deed of Trust or the other Loan Documents strictly in accordance with the terms hereof or thereof and, in this regard, without limiting the generality of the foregoing, should the amounts contained in the Payment Reserve not be sufficient to pay in full the amount due under the Note and the Impound Account and other Reserve deposits referenced above in this subparagraph on such Payment Date, Borrower shall be responsible for paying such deficiency on the due date of any such payments.      1.29 Disbursements from the Property Reserve Accounts. So long as no Event of Default shall have occurred and be continuing under this Deed of Trust, all sums in each of the Excess Cash Flow Reserve and the Replacement Reserve (the foregoing, collectively, the “Property Reserve Accounts”) shall be held by Lender in the respective Property Reserve Account as set forth above for the -40- --------------------------------------------------------------------------------   purposes set forth in Section 1.28. So long as no Default has occurred and is continuing, Lender shall disburse to Borrower, from the appropriate Property Reserve Account for the purposes set forth in Section 1.28, an amount equal to the actual expenses incurred to date by Borrower, less any prior disbursements to Borrower from any of the Property Reserve Account for such expenditure, but only to the extent that such expense is one for which, pursuant to Section 1.28, the proceeds of a Property Reserve Account may be disbursed. Disbursements shall be made to Borrower within ten (10) days following Lender’s receipt of each of the following:      (a) a written request from Borrower for such disbursement, accompanied by a certification by Borrower, in the form therefor then utilized by Lender or Lender’s servicing agent;      (b) copies of invoices, receipts or other evidence satisfactory to Lender verifying the cost and expenses actually incurred by Borrower or the payment of the costs and expenses for which Borrower is requesting such disbursement;      (c) for disbursement requests in connection with a single project, or group of related projects, for which Borrower is seeking reimbursement of $20,000 or more, affidavits, lien waivers or other evidence reasonably satisfactory to Lender showing that all materialmen, laborers, contractors, suppliers and other parties who have or might claim statutory or common law liens, or who have furnished labor, materials or supplies to or in connection with the Property, have been paid all amounts due;      (d) for disbursement requests in connection with a single project, or group of related projects, for which Borrower is seeking reimbursement of $40,000 or more, excluding, however, Leasing Commissions, a certification from an inspecting architect or other third party reasonably acceptable to Lender, verifying that the any work for which Borrower is requesting a disbursement has been properly completed and that the cost of such work bears a reasonable relationship to the costs incurred therefor;      (e) a copy of the certificate of occupancy for the Improvements if, as a result of any work undertaken by Borrower, it was necessary to receive an amendment to the existing certificate of occupancy (or similar instrument) issued with respect to the Improvements, or to obtain a new certificate of occupancy for the Improvements, or a certification of Borrower that no such amended or new certificate of occupancy is required; and      (f) payment of an administrative fee of $150.00 per request. Lender shall not be required to make an advance from each Property Reserve Account more frequently than once in any thirty (30) day period. In making any disbursement from a Property Reserve Account, Lender shall be entitled to rely on the disbursement request from Borrower without any inquiry into the accuracy, validity or contestability of any amount set forth therein. All costs and expenses required to be incurred in connection with the review and approval of each request for a disbursement from a Property Reserve Account shall be paid by Borrower not later than concurrently with such disbursement. The Reserves shall not, unless otherwise explicitly required by applicable law, be or be deemed to be escrow or trust funds. Lender may, at its discretion, hold the Reserves either in a separate account or commingled by Lender with any other funds in the possession or control of Lender. The Reserves are solely for the protection of Lender, and entail no responsibility on Lender’s part beyond making disbursements upon strict satisfaction of the requirements of Section 1.28 and this Section 1.29 and beyond the allowing of due credit for the sums actually received. In the event that the amounts on deposit in any of the Property Reserve Account are insufficient to reimburse Borrower for amounts otherwise properly requested, Lender shall not be obligated or authorized to transfer funds from other Reserves, and Borrower shall pay the amount of such deficiency. Upon assignment of this Deed of Trust by Lender, any -41- --------------------------------------------------------------------------------   funds in the Reserves shall be turned over to the assignee, and any responsibility of the assignor with respect thereto shall terminate.      1.30 Interest-Bearing Reserves. Lender shall cause funds in the Leasing Reserve and the Replacement Reserve (referred to in this Section 1.30 as the “Interest-Bearing Reserve”) to be deposited into an interest bearing account of the type customarily maintained by Lender or its servicing agent for the investment of similar reserves, which account may not yield the highest interest rate then available. To the extent that any funds in any of the Reserves are invested in any investment suitable for the investment of escrows and reserves established under mortgage loans included in a Secondary Market Transaction in which some or all of the securities issued thereby are rated “AAA” (or the equivalent rating) by one or more Rating Agencies, as the standards therefor are established from time to time (or if Lender reasonably determines that no such standards exist, such investments as are otherwise acceptable to Lender, in the exercise of prudent lending standards), Borrower shall bear the risk of loss of such investments. Interest payable on such amounts shall be computed based on the daily outstanding balance in the Interest-Bearing Reserve. Such interest shall be calculated on a simple, non-compounded interest basis based solely on contributions made to the Interest-Bearing Reserve by Borrower. All interest earned on amounts contributed to the Interest-Bearing Reserve shall be retained by Lender and added to the balance in such Interest-Bearing Reserve and shall be disbursed for payment of the items for which other funds in such Interest-Bearing Reserve are to be disbursed. Borrower acknowledges that all Reserves other than the Interest-Bearing Reserves shall not accrue or bear interest for the benefit of Borrower, and no interest shall be payable thereon by Lender.      1.31 Principal Lease.      (a) Borrower will comply in all material respects with the terms and conditions of the Principal Lease, Borrower will not, without the prior consent of Lender, do or permit anything to be done, the doing of which, or refrain from doing anything, the omission of which, will impair or tend to impair the security of the Real Estate under the Principal Lease or will be grounds for declaring a forfeiture of the Principal Lease.      (b) Borrower shall enforce in all material respects the Principal Lease and will not, without the prior written consent of Lender, which consent shall not be unreasonably withheld, conditioned or delayed as to any matter other than a surrender or termination of the Principal Lease or the exercise of any option thereunder, terminate, modify, cancel, change, supplement, alter or amend any of the Principal Lease, or waive, excuse, condone or in any way release or discharge its interest under the Principal Lease, or from any of the material covenants and conditions to be performed or observed by Principal Tenant under the Principal Lease (Principal Tenant is hereinafter referred to in this Section 1.31 as the “Tenant”). Any such termination, cancellation, modification, change, supplement, alteration or amendment of the Principal Lease without the prior consent of Lender shall be void and of no force and effect.      (c) Borrower will give Lender prompt (and in all events within five (5) days) notice of the receipt by Borrower of any notice of default from the Tenant. Borrower will promptly (and in all events within five (5) days) furnish to Lender copies of all material information furnished to the Tenant by the terms of the Principal Lease. Borrower will deliver to Lender an exact copy of any material notice, communication, plan, specification or other instrument or document received or given by Borrower in any way relating to or affecting the Principal Lease which may concern or affect the estate of the Tenant or Borrower thereunder in or under the Principal Lease or in the real estate respectively thereby demised.      (d) Lender shall have the right, but not the obligation, to perform any obligations of Borrower under the terms of the Principal Lease during the continuance of a default thereunder, after notice, if applicable, and the expiration of any applicable grace or cure period, if any. All costs and -42- --------------------------------------------------------------------------------   expenses (including, without limitation, reasonable attorneys’ fees and expenses) so incurred, after such a default shall be treated as an advance secured by this Deed of Trust, shall bear interest thereon at the Default Interest Rate from the date of payment by Lender until paid in full and shall be paid by Borrower to Lender during the continuance of an Event of Default within five (5) days after demand. No performance by Lender of any obligations of Borrower shall constitute a waiver of any default arising by reason of Borrower’s failure to perform the same. If Lender shall make any payment or perform any act or take action in accordance with this Section 1.31(d), Lender will notify Borrower of the making of any such payment, the performance of any such act, or the taking of any such action. In any such event, subject to the rights of lessees, sublessees and other occupants under the Principal Lease, Lender and any person designated by Lender shall have, and are hereby granted, the right to enter upon the Property at any time and from time to time for the purpose of taking any such action.      (e) To the extent permitted by law, the price payable by Borrower or any other person or entity in the exercise of any right of redemption following foreclosure of the Property shall include all rents paid and other sums advanced by Lender, together with interest thereon at the Default Interest Rate as fee owner and as lessee under the Principal Lease, respectively, on behalf of Borrower on account of the Property.      (f) If either Borrower or the Tenant shall deliver to Lender a copy of any notice of default sent by such person to another party under the Principal Lease, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender in reliance thereon after notice, if applicable, and the expiration of any applicable cure period if any.      (g) Borrower hereby assigns, transfers and sets over to Lender all of Borrower’s claims and rights to the payment of damages arising from any rejection by Tenant of the Principal Lease under the Bankruptcy Code. Borrower shall notify Lender promptly (and in any event within ten (10) days) of any claim, suit action or proceeding relating to the rejection of any of the Principal Lease. Lender is hereby irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest, with exclusive power to file and prosecute, to the exclusion of Borrower, any proofs of claim, complaints, motions, applications, notices and other documents, in any case in respect of Tenant under the Bankruptcy Code during the continuance of any Event of Default. Borrower may make any compromise or settlement in connection with such proceedings (subject to Lender’s reasonable approval); provided, however, that Lender shall be authorized and entitled to compromise or settle any such proceeding if such compromise or settlement is made after the occurrence and during the continuance of any Event of Default. Borrower shall promptly execute and deliver to Lender any and all instruments reasonably required in connection with any such proceeding after request therefor by Lender. Except as set forth above, Borrower shall not adjust, compromise, settle or enter into any agreement with respect to such proceedings without the prior written consent of Lender.      (h) Borrower shall not, without Lender’s prior written consent, elect to treat any of the Principal Lease as terminated under Section 365(h)(l) of the Bankruptcy Code. Any such election made without Lender’s prior written consent shall be void.      (i) If pursuant to Section 365(h)(2) of the Bankruptcy Code, Borrower seeks to offset against the rent reserved in the Principal Lease the amount of any damages caused by the non-performance by the Tenant of any of the Tenant’s obligations under the Principal Lease after the rejection by the Tenant of the Principal Lease under the Bankruptcy Code, Borrower shall, prior to effecting such offset, notify Lender of its intention to do so, setting forth the amounts proposed to be so offset and the basis therefor. If Lender has failed to object as aforesaid within ten (10) days after notice from Borrower in accordance with the first sentence of this subsection (l), Borrower may proceed to effect such offset in the amounts set forth in Borrower’s notice. Neither Lender’s failure to object as aforesaid nor any -43- --------------------------------------------------------------------------------   objection or other communication between Lender and Borrower relating to such offset shall constitute an approval of any such offset by Lender. Borrower shall indemnify and save Lender harmless from and against any and all claims, demands, actions, suits, proceedings, damages, losses, costs and expenses of every nature whatsoever (including, without limitation, reasonable attorneys’ fees and disbursements) arising from or relating to any such offset by Borrower against the rent reserved in the respective Lease.      (j) If any action, proceeding, motion or notice shall be commenced or filed in respect of Borrower or, after the occurrence and during the continuance of any Event of Default, the Property in connection with any case under the Bankruptcy Code, Lender shall have the option, to the exclusion of Borrower, exercisable upon notice from Lender to Borrower, to conduct and control any such litigation with counsel of Lender’s choice. Lender may proceed in its own name or in the name of Borrower in connection with any such litigation, and Borrower agrees to execute any and all powers, authorizations, consents and other documents required by Lender in connection therewith. Borrower shall pay to Lender all costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements) paid or incurred by Lender in connection with the prosecution or conduct of any such proceedings within five (5) days after notice from Lender setting forth such costs and expenses in reasonable detail. Any such costs or expenses not paid by Borrower as aforesaid shall be secured by the lien of this Deed of Trust, shall be added to the principal amount of the Debt and shall bear interest at the Default Interest Rate. Borrower shall not commence any action, suit, proceeding or case, or file any application or make any motion, in respect of the Principal Lease in any such case under the Bankruptcy Code without the prior written consent of Lender.      (k) Borrower shall immediately, after obtaining knowledge thereof, notify Lender of any filing by or against the Tenant of a petition under the Bankruptcy Code. Borrower shall thereafter forthwith give written notice of such filing to Lender, setting forth any information available to Borrower as to the date of such filing, the court in which such petition was filed, and the relief sought therein. Borrower shall promptly deliver to Lender following receipt any and all notices, summonses, pleadings, applications and other documents received by Borrower in connection with any such petition and any proceedings relating thereto.      (l) Borrower hereby covenants and agrees to send to Lender copies of all material notices under the Principal Lease hereafter given or received by such person in connection therewith to Lender in accordance with Section 5.5 hereof.      (m) Effective upon the entry of an order for relief in respect of Borrower under the Bankruptcy Code, Borrower hereby assigns and transfers to Lender a non-exclusive right to apply to the Bankruptcy Court under Section 365(d)(4) of the Bankruptcy Code for an order extending the period during which the Principal Lease may be rejected or assumed. ARTICLE II EVENTS OF DEFAULT      2.1 Events of Default. The occurrence of any of the following shall be an “Event of Default” hereunder:      (a) Borrower or Borrower Parties fail to punctually perform any covenant, agreement, obligation, term or condition of the Note, this Deed of Trust or any other Loan Document which requires payment of any money to Lender, and (1) in the case of any Monthly Payment Amount due under the Note or any payment to any Reserve required under this Deed of Trust, such failure continues beyond the applicable grace period set forth in the Note with respect to the Monthly Payment -44- --------------------------------------------------------------------------------   Amount, (2) in the case of any other amount due from Borrower to Lender, such failure continues for the applicable period set forth therein or, if no period is set forth, for seven (7) days after such payment becomes due or, if due on demand, is demanded.      (b) Borrower (i) fails to provide insurance as required by Section 1.4 hereof or (ii) fails to perform any covenant, agreement, obligation, term or condition set forth in Section 1.5 hereof (except to the extent that such lapse is due solely to a failure by Lender to pay the insurance premiums after so requested by Borrower and sufficient funds are available therefore at such time in the Impound Account) or (iii) fails to comply with Section 1.31 hereof.      (c) Borrower fails to perform any other covenant, agreement, obligation, term or condition set forth herein other than those otherwise described in this Section 2.1 and, to the extent such failure or default is susceptible of being cured, the continuance of such failure or default for thirty (30) days after written notice thereof from Lender to Borrower; provided, however, that if such default is susceptible of cure but such cure cannot be accomplished with reasonable diligence within said period of time, and if Borrower commences to cure such default promptly after receipt of notice thereof from Lender, and thereafter prosecutes the curing of such default with reasonable diligence, such period of time shall be extended for such period of time as may be necessary to cure such default with reasonable diligence, but not to exceed an additional sixty (60) days.      (d) Any representation or warranty made herein, in or in connection with the Loan Application or any commitment relating to the Loan (not correctly stated in the Loan Documents), or in any of the other Loan Documents to Lender, by Borrower, by any Indemnitor or by any Constituent Entity of Borrower or any Indemnitor, is determined by Lender to have been false or misleading in any material respect at the time made.      (e) A Transfer, except as expressly permitted by Section 1.11 hereof.      (f) A default occurs under any of the other Loan Documents which has not been cured within any applicable grace or cure period therein provided.      (g) Borrower, any Indemnitor, the sole member of Borrower or the Tenant, or any guarantor of the Principal Lease becomes insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors, shall file a petition in bankruptcy, shall voluntarily be adjudicated insolvent or bankrupt or shall admit in writing the inability to pay debts as they mature, shall petition or apply to any tribunal for or shall consent to or shall not contest the appointment of a receiver, trustee, custodian or similar officer for Borrower, any Indemnitor or the sole member of Borrower, Principal Tenant and any guarantor of the Principal Lease, or for a substantial part of the assets of Borrower, the sole member of Borrower, or the Principal Tenant and any guarantor thereunder, Principal Lease or Borrower, any such Indemnitor the sole member of Borrower, or the Tenant under the Principal Lease or any guarantor thereunder, or shall commence any case, proceeding or other action under any bankruptcy, reorganization, arrangement, readjustment or debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect. Notwithstanding the foregoing to the contrary, Lender shall not deem the filing of a petition in bankruptcy by the Principal Tenant or any guarantor under the Principal Lease to be an Event of Default provided (i) all excess cash flow is deposited into the Excess Cash Flow Reserve (as that term is defined in Section 1.28 herein) until the petition for bankruptcy against the Principal Tenant or any guarantor under the Principal Lease is dismissed, or the reorganization plan proposed by the Principal Tenant or any guarantor under the Principal Lease is confirmed by the bankruptcy court and (ii) the Principal Tenant or any guarantor under the Principal Lease assumes the Principal Lease under the Bankruptcy Code and resumes making monthly payments of rent under the Principal Lease. -45- --------------------------------------------------------------------------------        (h) A petition is filed or any case, proceeding or other action is commenced against Borrower, against any Indemnitor or against the sole member of Borrower, or the Principal Tenant or any guarantor under the Principal Lease seeking to have an order for relief entered against it as debtor or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or other relief under any law relating to bankruptcy, insolvency, arrangement, reorganization, receivership or other debtor relief under any law or statute of any jurisdiction whether now or hereafter in effect or a court of competent jurisdiction enters an order for relief against Borrower, against any Indemnitor, against the sole member of Borrower, or against the Principal Tenant or any guarantor under the Principal Lease, as debtor, or an order, judgment or decree is entered appointing, with or without the consent of Borrower, of any Indemnitor, of the sole member of Borrower, a receiver, trustee, custodian or similar officer for Borrower, for any such Indemnitor or the sole member of Borrower, for the Principal Tenant or any guarantor under the Principal Lease, or for any substantial part of any of the properties of Borrower, any such Indemnitor, the sole member of Borrower, or the Principal Tenant or any guarantor thereunder, and if any such event shall occur, such petition, case, proceeding, action, order, judgment or decree shall not be dismissed within sixty (60) days after being commenced. Notwithstanding the foregoing to the contrary, Lender shall not deem the filing of a petition for bankruptcy against the Principal Tenant or any guarantor under the Principal Lease to be an Event of Default provided (i) all excess cash flow is deposited into the Excess Cash Flow Reserve (as that term is defined in Section 1.28 herein) until the petition for bankruptcy against the Principal Tenant or any guarantor under the Principal Lease is dismissed, or the reorganization plan proposed by the Principal Tenant or any guarantor under the Principal Lease is confirmed by the bankruptcy court and (ii) the Principal Tenant or any guarantor under the Principal Lease assumes the Principal Lease under the Bankruptcy Code and resumes making monthly payments of rent under the Principal Lease.      (i) The Property or any part thereof shall be taken on execution or other process of law (other than by eminent domain) in any action against Borrower.      (j) Borrower abandons all or a portion (other than a de minimis portion) of the Property less and except personalty in the ordinary course of business.      (k) The holder of any lien or security interest on the Property (without implying the consent of Lender to the existence or creation of any such lien or security interest), whether superior or subordinate to this Deed of Trust or any of the other Loan Documents, declares a default and such default is not cured within any applicable grace or cure period set forth in the applicable document or such holder institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.      (l) The Property, or any part thereof, is subjected to actual physical waste or to removal, demolition or material alteration so that the value of the Property is materially diminished thereby.      (m) Any dissolution, termination, partial or complete liquidation, merger or consolidation of Borrower, any Indemnitor or the sole member of Borrower or any Indemnitor, without the prior written consent of Lender.      (n) If any Lease, sublease or sub-sublease shall be terminated, modified or amended without the prior written consent of Lender, in violation of any of the Loan Documents.      (o) Borrower attempts to supplement, modify, terminate or exercise any purchase option, if any, under the Principal Lease without the prior written consent of Lender, or if any of the interests or estates under the Principal Lease shall be surrendered by a party thereto or the Principal Lease shall be terminated or cancelled for any reason or under any circumstances whatsoever, or any of the -46- --------------------------------------------------------------------------------   terms, covenants or conditions of the Principal Lease shall in any manner be modified, changed, supplemented, altered or amended without the consent of Lender, in violation of any of the Loan Documents. Notwithstanding the foregoing to the contrary, Lender shall not deem the termination or cancellation of the Principal Lease to be an Event of Default provided Borrower continues to make monthly payments of rent due under the Principal Lease to Lender, with the balance of any such funds, if any, being deposited by Lender into the Excess Cash Flow Reserve (as that term is defined in Section 1.28 herein) until a replacement tenant takes possession and occupancy of substantially all of the Principal Tenant Space pursuant to a lease approved by Lender in accordance with the terms of the Deed of Trust, which lease shall contain substantially the same term and base rent as the Principal Lease.      (p) A default beyond any applicable grace or cure period by Borrower in the observance or performance of any term covenant or condition of any of the Principal Lease.      (q) There shall occur an Event of Default under (i) that certain Deed of Trust, Assignment of Leases and Rents and Security Agreement given by SLEE Grand Prairie, L.P. (an affiliate of Borrower), to Lender dated of even date herewith and intended to be recorded in Tarrant County, Texas, and that certain Deed of Trust, Assignment of Leases and Rents and Security Agreement given by OB Midway NC Gladstone Commercial LLC (an affiliated of Borrower), to Lender dated of even date herewith and intended to be recorded in Davidson County, North Carolina. ARTICLE III REMEDIES      3.1 Remedies Available. If there shall occur an Event of Default under this Deed of Trust, then the Property shall be subject to sale and this Deed of Trust shall be subject to foreclosure, all as provided by law, and Lender may, at its option and by or through a trustee, nominee, assignee or otherwise, to the fullest extent permitted by law, exercise any or all of the following rights, remedies and recourses, either successively or concurrently:      (a) Acceleration. Accelerate the maturity date of the Note and declare any or all of the Obligations to be immediately due and payable without any presentment, demand, protest, notice, or action of any kind whatever (each of which is hereby expressly waived by Borrower), whereupon the same shall become immediately due and payable. Upon any such acceleration, payment of such accelerated amount shall constitute a prepayment of the principal balance of the Note and any applicable prepayment fee provided for in the Note shall then be immediately due and payable.      (b) Entry on the Property. Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court and without regard to the adequacy of its security, enter upon and take possession of the Property, or any part thereof, without force or with such force as is permitted by law and without notice or process or with such notice or process as is required by law unless such notice and process is waivable, in which case Borrower hereby waives such notice and process, and do any and all acts and perform any and all work which may be desirable or necessary in Lender’s judgment to complete any unfinished construction on the Real Estate, to preserve the value, marketability or rentability of the Property, to increase the income therefrom, to manage and operate the Property or to protect the security hereof and all sums expended by Lender therefor, together with interest thereon at the Default Interest Rate, shall be immediately due and payable to Lender by Borrower on demand.      (c) Collect Rents and Profits. With or without taking possession of the Property, sue or otherwise collect the Rents and Profits, including those past due and unpaid. -47- --------------------------------------------------------------------------------        (d) Appointment of Receiver. Upon, or at any time prior to or after, initiating the exercise of any power of sale, instituting any judicial foreclosure or instituting any other foreclosure of the liens and security interests provided for herein or any other legal proceedings hereunder, make application to a court of competent jurisdiction for appointment of a receiver for all or any part of the Property, as a matter of strict right and without notice to Borrower and without regard to the adequacy of the Property for the repayment of the Obligations or the solvency of Borrower or any person or persons liable for the payment of the Obligations, and Borrower hereby irrevocably consent to such appointment, waives any and all notices of and defenses to such appointment and agrees not to oppose any application therefor by Lender, but nothing herein is to be construed to deprive Lender of any other right, remedy or privilege Lender may now have under the law to have a receiver appointed, provided, however, that, the appointment of such receiver, trustee or other appointee by virtue of any court order, statute or regulation shall not impair or in any manner prejudice the rights of Lender to receive payment of the Rents and Profits pursuant to other terms and provisions hereof. Any such receiver shall have all of the usual powers and duties of receivers in similar cases, including, without limitation, the full power to hold, develop, rent, lease, manage, maintain, operate and otherwise use or permit the use of the Property upon such terms and conditions as said receiver may deem to be prudent and reasonable under the circumstances as more fully set forth in Section 3.3 below. Such receivership shall, at the option of Lender, continue until full payment of all of the Obligations or until title to the Property shall have passed by foreclosure sale under this Deed of Trust or deed in lieu of foreclosure.      (e) Foreclosure. Immediately commence an action to foreclose this Deed of Trust or to specifically enforce its provisions or any of the Obligations pursuant to the statutes in such case made and provided and sell the Property or cause the Property to be sold in accordance with the requirements and procedures provided by said statutes in a single parcel or in several parcels at the option of Lender.      (1) Should Lender have elected to accelerate the indebtedness secured hereby, Lender may initiate foreclosure of the Property by requesting the Trustee to effectuate a non-judicial foreclosure sale. The Trustee of this Deed of Trust shall then sell, or offer for sale, the Property at public sale to the highest bidder for cash during a three hour period between the hours of ten o’clock a.m. and four o’clock p.m. whose earliest point in time is specified, on the first Tuesday of any month, at the area officially designated for holding such sales at the courthouse of any county in the State in which any part of the Property is situated, after having given notice of the date, the time period, place and terms of said sale in accordance with the laws of the State where the Property is located then in force and governing said sales of real property and improvements under powers conferred by deeds of trust. The Property shall be sold by posting, or causing to be posted, at least twenty-one (21) consecutive days prior to the date of said sale, written or printed notice thereof at the courthouse door in each of the counties in which the Property is situated, designating the county where the Property will be sold and designating the date, the time period, the place and the terms of sale. A copy of such notice shall also be filed in the office of the County Clerk in each county of the State in which any part of the Property is situated at least twenty-one (21) consecutive days before the date of said sale of the Property. Lender shall have the right to become the purchaser at any sale held by any Trustee or substitute or successor Trustee, or by any receiver or public officer. Any Lender purchasing at any such sale shall have the right to credit the secured indebtedness owing to such Lender upon the amount of its bid entered at such sale to the extent necessary to satisfy such bid. Said Trustee may appoint an attorney-in-fact to act in its stead as Trustee to conduct sale as hereinbefore provided. Borrower authorizes and empowers the Trustee to sell the Property, in lots or parcels or as a whole, and to execute and deliver to the purchaser or purchasers thereof good and sufficient deeds of conveyance thereto of the estate of title then existing on the Property and bills of sale with covenants of general warranty. Borrower binds himself to warrant and forever defend the title of such purchaser or purchasers when so made by the Trustee, and agrees to accept proceeds of said sale, if any, which are payable to Borrower as provided herein. In addition to the posting and filing of notices hereinabove provided, and for so long as required by law, no foreclosure under the power of -48- --------------------------------------------------------------------------------   sale herein contained shall be held unless Lender, at least twenty-one (21) days preceding the date of sale and in the manner prescribed by law, shall have served written notice of the proposed sale which designates the county where the Property will be sold and designates the date, time period, the place and the terms of sale by certified mail on Borrower. Service of such a notice by certified mail shall be completed upon deposit of such notice, postage prepaid and properly addressed to each such person or entity at the address for Borrower indicated on the first page of this Deed of Trust, in a Post Office of the United States Postal Service or in an official depository under the care and custody of the United States Postal Service. The affidavit of a person knowledgeable of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service.      (2) Should Lender have not elected to accelerate the indebtedness secured hereby, Lender may nonetheless proceed with foreclosure in satisfaction of such default, either through the courts or by directing the Trustee to proceed as if under a full foreclosure, conducting sale as hereinbefore provided, but without declaring the entire indebtedness secured by this Deed of Trust due, and provided that if said sale is made because of such default, such sale may be made subject to the unmatured part of the secured indebtedness. Such sale, if so made, shall not in any manner affect the unmatured part of the debt secured by this Deed of Trust, but as to such unmatured part, this Deed of Trust shall remain in full force as though no sale had been made. Several sales may be made without exhausting the right of sale with respect to any unmatured part of the secured indebtedness, it being the purpose and intent hereof to provide for a foreclosure and the sale of the Property for any matured portion of said secured indebtedness without exhausting the power of foreclosure.      (3) In the event foreclosure proceedings are filed by Lender, all expenses incident to such proceeding, including, but not limited to, attorneys’ fees and costs, shall be paid by Borrower and secured by this Deed of Trust and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. The Obligations and all other obligations secured by this Deed of Trust, including, without limitation, interest at the Default Interest Rate (as defined in the Note), any prepayment charge, fee or premium required to be paid under the Note in order to prepay principal (to the extent permitted by applicable law), attorneys’ and trustee’s fees and any other amounts due and unpaid to Lender under the Loan Documents, may be bid by Lender in the event of a foreclosure sale hereunder.      (f) Rights under the Uniform Commercial Code. Exercise any or all of the remedies of a secured party under the Uniform Commercial Code against the UCC Collateral, either separately or together, and in any order, without in any way affecting the availability of Lender’s other remedies. Furthermore, to the extent permitted by law, in conjunction within, addition to or in substitution for the rights and remedies available to Lender pursuant to any applicable Uniform Commercial Code: in the event of a foreclosure sale with respect to the portions of the Property which are not UCC Collateral, the Property (including the UCC Collateral) may, at the option of Lender, be sold as a whole or in parts, as determined by Lender in its sole discretion; and (2) it shall not be necessary that (x) Lender take possession of the UCC Collateral, or any part thereof, prior to the time that any sale pursuant to the provisions of this Section is conducted, or (y) the UCC Collateral, or any part thereof, be present at the location of such sale; and (3) Lender may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Lender, including the sending of notices and the conduct of the sale, but in the name and on behalf of Lender.      (g) Judicial Remedies. Proceed by suit or suits, at law or in equity, instituted by Lender, or Trustee, upon written request of Lender, to enforce the payment of the indebtedness secured hereby or the other obligations of Borrower hereunder or pursuant to the Loan Documents, to foreclose the liens and security interests of this Deed of Trust as against all or any part of the Property, and to have all or any part of the Property sold under the judgment or decree of a court of competent jurisdiction. This remedy shall be cumulative of any other non-judicial remedies available to the Lender with respect -49- --------------------------------------------------------------------------------   to the Loan Documents. Proceeding with the request or receiving a judgment for legal relief shall not be or be deemed to be an election of remedies or bar any available non-judicial remedy of the Lender.      (h) Other. Exercise any other right or remedy available (i) hereunder, including, but not limited to, drawing upon the Letter of Credit, (ii) under any of the other Loan Documents, (iii) under any of the Other Deed of Trusts or (iv) at law or in equity.      3.2 Application of Proceeds. To the fullest extent permitted by law, the proceeds of any sale under this Deed of Trust shall be applied to the extent funds are so available to the following items in such order as Lender in its discretion may determine:      (a) To payment of the costs, expenses and fees of taking possession of the Property, and of holding, operating, maintaining, using, leasing, repairing, improving, marketing and selling the same and of otherwise enforcing Lender’s right and remedies hereunder and under the other Loan Documents, including, but not limited to, a reasonable fee to the Trustee, receivers’ fees, court costs, attorneys’, accountants’, appraisers’, managers’ and other professional fees, title charges and transfer taxes.      (b) To payment of all sums expended by Lender under the terms of any of the Loan Documents and not yet repaid, together with interest on such sums at the Default Interest Rate.      (c) To payment of the Obligations and all other obligations secured by this Deed of Trust, including, without limitation, interest at the Default Interest Rate and, to the extent permitted by applicable law, any prepayment fee, charge or premium required to be paid under the Note in order to prepay principal, in any order that Lender chooses in its sole discretion.      The remainder, if any, of such funds shall be disbursed to Borrower or to the person or persons legally entitled thereto.      3.3 Right and Authority of Receiver or Lender in the Event of Default; Power of Attorney. Upon the occurrence of an Event of Default hereunder, and entry upon the Property pursuant to Section 3.1(b) hereof or appointment of a receiver pursuant to Section 3.1(d) hereof, and under such terms and conditions as may be prudent and reasonable under the circumstances in Lender’s or the receiver’s sole discretion, all at Borrower’s expense, Lender or said receiver, or such other persons or entities as they shall hire, direct or engage, as the case may be, may do or permit one or more of the following, successively or concurrently: (a) enter upon and take possession and control of any and all of the Property; (b) take and maintain possession of all documents, books, records, papers and accounts relating to the Property; (c) exclude Borrower and its agents, servants and employees wholly from the Property; (d) manage and operate the Property; (e) preserve and maintain the Property; (f) make repairs and alterations to the Property; (g) complete any construction or repair of the Improvements, with such changes, additions or modifications of the plans and specifications or intended disposition and use of the Improvements as Lender may in its sole discretion deem appropriate or desirable to place the Property in such condition as will, in Lender’s sole discretion, make it or any part thereof readily marketable or rentable; (h) conduct a marketing or leasing program with respect to the Property, or employ a marketing or leasing agent or agents to do so, directed to the leasing or sale of the Property under such terms and conditions as Lender may in its sole discretion deem appropriate or desirable; (i) employ such contractors, subcontractors, materialmen, architects, engineers, consultants, managers, brokers, marketing agents, or other employees, agents, independent contractors or professionals, as Lender may in its sole discretion deem appropriate or desirable to implement and effectuate the rights and powers herein granted; (j) execute and deliver, in the name of Lender as attorney-in-fact and agent of Borrower or in its own name as Lender, such documents and instruments as are necessary or appropriate to consummate authorized -50- --------------------------------------------------------------------------------   transactions; (k) enter into such Leases, whether of real or personal property, under such terms and conditions as Lender may in its sole discretion deem appropriate or desirable; (l) collect and receive the Rents and Profits from the Property; (m) eject Tenants or repossess personal property, as provided by law, for breaches of the conditions of their Leases; (n) sue for unpaid Rents and Profits, payments, income or proceeds in the name of Borrower or Lender; (o) maintain actions in forcible entry and detainer, ejectment for possession and actions in distress for rent; (p) compromise or give acquittance for Rents and Profits, payments, income or proceeds that may become due; (q) delegate or assign any and all rights and powers given to Lender by this Deed of Trust; and (r) do any acts which Lender in its sole discretion deems appropriate or desirable to protect the security hereof and use such measures, legal or equitable, as Lender may in its sole discretion deem appropriate or desirable to implement and effectuate the provisions of this Deed of Trust. After an Event of Default has occurred this Deed of Trust shall constitute a direction to and full authority to any Tenant, lessee, or other third party who has heretofore dealt or contracted or may hereafter deal or contract with Borrower or Lender, at the request of Lender, to pay all amounts owing under any Lease, contract or other agreement to Lender without proof of the Event of Default relied upon. Any such Tenant, lessee or third party is hereby irrevocably authorized to rely upon and comply with (and shall be fully protected by Borrower in so doing) any request, notice or demand by Lender for the payment to Lender of any Rents and Profits or other sums which may be or thereafter become due under its Lease, contract or other agreement, or for the performance of any undertakings under any such Lease, contract or other agreement, and shall have no right or duty to inquire whether any Event of Default under this Deed of Trust, or any default under any of the other Loan Documents, has actually occurred or is then existing. Borrower hereby constitutes and appoints Lender, its assignees, successors, transferees and nominees, as Borrower’s true and lawful attorney-in-fact and agent, with full power of substitution in the Property, in Borrower’s name, place and stead, to do or permit any one or more of the foregoing described rights, remedies, powers and authorities, successively or concurrently, and said power of attorney shall be deemed a power coupled with an interest and irrevocable so long as any Obligations is outstanding. Any money advanced by Lender in connection with any action taken under this Section 3.3, together with interest thereon at the Default Interest Rate from the date of making such advancement by Lender until actually paid by Borrower, shall be a demand obligation owing by Borrower to Lender.      3.4 Occupancy After Foreclosure. In the event there is a foreclosure sale hereunder and at the time of such sale, Borrower or Borrower’s representatives, successors or assigns, or any other persons claiming any interest in the Property by, through or under Borrower (except tenants of space in the Improvements subject to Leases entered into prior to the date hereof), are occupying or using the Property, or any part thereof, then, to the extent not prohibited by applicable law, each and all shall, at the option of Lender or the purchaser at such sale, as the case may be, immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day-to-day, terminable at the will of either landlord or tenant, at a reasonable rental per day based upon the value of the Property occupied or used, such rental to be due daily to the purchaser. Further, to the extent permitted by applicable law, in the event the tenant fails to surrender possession of the Property upon the termination of such tenancy, the purchaser shall be entitled to institute and maintain an action for unlawful detainer of the Property in the appropriate court of the county in which the Real Estate is located.      3.5 Notice to Account Debtors. Lender may, at any time after an Event of Default hereunder, notify the account debtors and obligors of any accounts, chattel paper, negotiable instruments or other evidences of indebtedness, to Borrower included in the Property to pay Lender directly. Borrower shall at any time or from time to time upon the request of Lender provide to Lender a current list of all such account debtors and obligors and their addresses.      3.6 Cumulative Remedies. All remedies contained in this Deed of Trust are cumulative and Lender shall also have all other remedies provided at law and in equity or in any other -51- --------------------------------------------------------------------------------   Loan Documents. Such remedies may be pursued separately, successively or concurrently at the sole subjective direction of Lender and may be exercised in any order and as often as occasion therefor shall arise. No act of Lender shall be construed as an election to proceed under any particular provisions of this Deed of Trust to the exclusion of any other provision of this Deed of Trust or as an election of remedies to the exclusion of any other remedy which may then or thereafter be available to Lender. No delay or failure by Lender to exercise any right or remedy under this Deed of Trust shall be construed to be a waiver of that right or remedy or of any Event of Default hereunder. Lender may exercise any one or more of its rights and remedies at its option without regard to the adequacy of its security.      3.7 Payment of Expenses. Borrower shall pay on demand all of Lender’s third party out of pocket expenses incurred in any efforts to enforce any terms of this Deed of Trust, whether or not any lawsuit is filed and whether or not foreclosure is commenced but not completed, including, but not limited to, reasonable legal fees and disbursements, foreclosure costs and title charges, together with interest thereon from and after the date incurred by Lender until actually paid by Borrower at the Default Interest Rate. Furthermore, Borrower shall, and does hereby, indemnify Lender for, and hold Lender harmless from, any and all losses, costs, expenses, claims, actions, demands liabilities, loss or damage which may or might be incurred by Lender under this Deed of Trust or by the exercise of rights or remedies hereunder, and from any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligations or undertakings on Lender’s part with respect to the Property except as expressly set forth in the Loan Documents, other than those finally determined to have resulted solely from the gross negligence or willful misconduct of Lender. Borrower’s obligation pursuant to the previous sentence shall include, without limitation, payment to (or reimbursement of) any compensation payable by the holder of the Loan to any servicing agent under a Secondary Market Transaction pursuant to the Securitization Documents (as defined herein) if such payment becomes due solely by reason of the existence and continuance of any Event of Default. Should Lender incur any such liability, the amount thereof, including, without limitation, costs, expenses and attorneys’ fees, together with interest thereon at the Default Interest Rate from the date incurred by Lender until actually paid by Borrower, shall be immediately due and payable to Lender from Borrower on demand.      3.8 Fair Market Value. The “fair market value” of the Property shall be determined as of the foreclosure date in order to enforce a deficiency against Borrower or any other party liable for the repayment of the indebtedness secured hereby, the term “fair market value” shall include those matters required by law and shall also include the additional factors as follows:      (1) The Property is to be valued “AS IS, WHERE IS” and “WITH ALL FAULTS” and there shall be no assumption of restoration of or refurbishment of the Property after the date of foreclosure;      (2) There shall be an assumption of a prompt resale of the Property for an all cash sales price by the purchaser at the foreclosure so that no extensive holding period should be factored into the determination of “fair market value” of the Property;      (3) An offset to the fair market value of the Property, as determined hereunder, shall be made by deducting from such value the reasonable estimated closing costs relating to the sale of the Property, including, but not limited to, brokerage commissions, title policy expenses, tax prorations, escrow fees, and other common charges which are incurred by a seller of real property similar to the Property; and      (4) After consideration of the factors required by law and those required above, an additional discount factor shall be calculated based upon the estimated time it will take to effectuate a sale of the Property so that the “fair market value” as so determined is discounted to be as of the date of the foreclosure of the Property. -52- --------------------------------------------------------------------------------   ARTICLE IV CONCERNING THE TRUSTEE      4.1 No Required Action. Trustee shall not be required to take any action toward the execution and enforcement of the trust hereby created or to institute, appear in, or defend any action, suit, or other proceeding in connection therewith where, in his opinion, such action would be likely to involve him in expense or liability, unless requested so to do by a written instrument signed by Lender and, if Trustee so requests, unless Trustee is tendered security and indemnity satisfactory to Trustee against any and all cost, expense, and liability arising therefrom. Trustee shall not be responsible for the execution, acknowledgment, or validity of the Loan Documents, or for the proper authorization thereof, or for the sufficiency of the lien and security interest purported to be created hereby, and Trustee makes no representation in respect thereof or in respect of the rights, remedies, and recourse of Lender.      4.2 Certain Rights. With the approval of Lender, Trustee shall have the right to take any and all of the following actions: (i) to select, employ, and consult with counsel (who may be, but need not be, counsel for Lender) upon any matters arising hereunder, including the preparation, execution, and interpretation of the Loan Documents, and shall be fully protected in relying as to legal matters on the advice of counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through his agents or attorneys, (iii) to select and employ, in and about the execution of his duties hereunder, suitable accountants, engineers and other experts, agents and attorneys-in-fact, either corporate or individual, not regularly in the employ of Trustee (and Trustee shall not be answerable for any act, default, negligence, or misconduct of any such accountant, engineer or other expert, agent or attorney-in-fact, if selected with reasonable care, or for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee’s gross negligence or bad faith), and (iv) any and all other lawful action that Lender may instruct Trustee to take to protect or enforce Lender’s rights hereunder. Trustee shall not be personally liable in case of entry by Trustee, or anyone entering by virtue of the powers herein granted to Trustee, upon the Property for debts contracted for or liability or damages incurred in the management or operation of the Property. Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by Trustee hereunder, believed by Trustee in good faith to be genuine. Trustee shall be entitled to reimbursement for expenses incurred by Trustee in the performance of Trustee’s duties hereunder and to reasonable compensation for such of Trustee’s services hereunder as shall be rendered. Borrower will, from time to time, pay the compensation due to Trustee hereunder and reimburse Trustee for, and save Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of Trustee’s duties.      4.3 Retention of Money. All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by applicable law), and Trustee shall be under no liability for interest on any moneys received by Trustee hereunder.      4.4 Successor Trustees. Trustee may resign by the giving of notice of such resignation in writing or verbally to Lender. If Trustee shall die, resign, or become disqualified from acting in the execution of this trust, or if, for any reason, Lender shall prefer to appoint a substitute trustee or multiple substitute trustees, or successive substitute trustees or successive multiple substitute trustees, to act instead of the aforenamed Trustee, Lender shall have full power to appoint a substitute trustee (or, if preferred, multiple substitute trustees) in succession who shall succeed (and if multiple substitute trustees are appointed, each of such multiple substitute trustees shall succeed) to all the estates, rights, powers, and -53- --------------------------------------------------------------------------------   duties of the aforenamed Trustee. Such appointment may be executed by any authorized agent of Lender, and if such Lender be a corporation and such appointment be executed in its behalf by any officer of such corporation, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation. Borrower hereby ratifies and confirms any and all acts which the aforenamed Trustee, or his successor or successors in this trust, shall do lawfully by virtue hereof. If multiple substitute Trustees are appointed, each of such multiple substitute Trustees shall be empowered and authorized to act alone without the necessity of the joinder of the other multiple substitute trustees, whenever any action or undertaking of such substitute trustees is requested or required under or pursuant to this Deed of Trust or applicable law.      4.5 Perfection of Appointment. Should any deed, conveyance, or instrument of any nature be required from Borrower by any Trustee or substitute Trustee to more fully and certainly vest in and confirm to the Trustee or substitute Trustee such estates, rights, powers, and duties, then, upon request by the Trustee or substitute Trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be caused to be recorded and/or filed by Borrower.      4.6 Succession Instruments. Any substitute Trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed, or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its or his predecessor in the rights hereunder with like effect as if originally named as Trustee herein; but nevertheless, upon the written request of Lender or of the substitute Trustee, the Trustee ceasing to act shall execute and deliver any instrument transferring to such substitute Trustee, upon the trusts herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and moneys held by such Trustee to the substitute Trustee so appointed in the Trustee’s place.      4.7 No Representation by Trustee or Lender. By accepting or approving anything required to be observed, performed, or fulfilled or to be given to Trustee or Lender pursuant to the Loan Documents, including, without limitation, any officer’s certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, neither Trustee nor Lender shall be deemed to have warranted, consented to, or affirmed the sufficiency, legality, effectiveness, or legal effect of the same, or of any term, provision, or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or affirmation with respect thereto by Trustee or Lender. ARTICLE V MISCELLANEOUS TERMS AND CONDITIONS      5.1 Time of Essence. Time is of the essence with respect to all provisions of the Loan Documents.      5.2 Release of Deed of Trust. If all of the Obligations be paid and performed, then and in that event only, upon Borrower’s written request, Lender shall promptly execute and deliver to Borrower a written satisfaction of the Deed of Trust, and upon the recordation thereof, all rights under this Deed of Trust shall terminate except for those provisions hereof which by their terms survive, and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, which shall be released by Lender in due form at Borrower’s cost. No release of this Deed of Trust or the lien hereof shall be valid unless executed by Lender. -54- --------------------------------------------------------------------------------        5.3 Certain Rights of Lender. Without affecting Borrower’s liability for the payment of any of the Obligations, Lender may from time to time and without notice to Borrower: (a) release any person liable for the payment of the Obligations; (b) extend or modify the terms of payment of the Obligations; (c) accept additional real or personal property of any kind as security or alter, substitute or release any property securing the Obligations; (d) consent in writing to the making of any subdivision map or plat thereof; (e) join in granting any easement therein; or (f) join in any extension agreement of the Deed of Trust or any agreement subordinating the lien hereof.      5.4 Waiver of Certain Defenses. No action for the enforcement of the lien hereof or of any other provision hereof, shall be subject to any defense which would not be good and available to the party interposing such defense in an action at law upon the Note or any of the other Loan Documents, in each case to the greatest extent permitted by law.      5.5 Notices. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law shall be in writing and shall be deemed to have been validly given or served by delivery of the same in person to the intended addressee, or by depositing the same with Federal Express or another reputable private courier service for next business day delivery, with all charges prepaid, or by depositing the same in the United States mail, postage prepaid, certified mail, return receipt requested, in any event addressed to the intended addressee at its address set forth on the first page of this Deed of Trust or at such other address as may be designated by such party as herein provided. All notices, demands and requests shall be effective upon such personal delivery, or one (1) business day after being deposited with Federal Express or another reputable national private courier service, or three (3) business days after being deposited in the United States mail as required above. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given as herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to the other party hereto at least fifteen (15) days’ prior written notice thereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America.      5.6 Successors and Assigns. The terms, provisions, indemnities, covenants and conditions hereof shall be binding upon Borrower and the successors and assigns of Borrower, including all successors in interest of Borrower in and to all or any part of the Property, and shall inure to the benefit of Lender, its successors and assigns, and shall constitute covenants running with the land. All indemnities in this Deed of Trust for the benefit of Lender shall inure to the benefit of Lender and each of its directors, officers, shareholders, partners, members, managers, employees and agents (including, without limitation, any servicers retained by Lender with respect to the Loan), and pledgees and participants of the Obligations, and their respective successors and assigns. All references in this Deed of Trust to Borrower or Lender shall be deemed to include each such party’s successors and assigns. If Borrower consists of more than one person or entity, each will be jointly and severally liable to perform the obligations of Borrower.      5.7 Severability. A determination that any provision of this Deed of Trust is unenforceable or invalid shall not affect the enforceability or validity of any other provision, and any determination that the application of any provision of this Deed of Trust to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to any other persons or circumstances.      5.8 Interpretation. Within this Deed of Trust, words of any gender shall be held and construed to include any other gender, and words in the singular shall be held and construed to include the plural, and vice versa, unless the context otherwise requires. The headings of the sections and paragraphs -55- --------------------------------------------------------------------------------   of this Deed of Trust are for convenience of reference only, are not to be considered a part hereof and shall not limit or otherwise affect any of the terms hereof. In the event of any inconsistency between the provisions hereof and the provisions in any of the other Loan Documents, it is intended that the provisions of this Deed of Trust shall be controlling.      5.9 Waiver: Discontinuance of Proceedings. Lender may waive any single Event of Default by Borrower hereunder without waiving any other prior or subsequent Event of Default. Lender may remedy any Event of Default by Borrower hereunder without waiving the Event of Default remedied. Neither the failure by Lender to exercise, nor the delay by Lender in exercising, any right, power or remedy upon any Event of Default by Borrower hereunder shall be construed as a waiver of such Event of Default or as a waiver of the right to exercise any such right, power or remedy at a later date. No single or partial exercise by Lender of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time. No modification or waiver of any provision hereof nor consent to any departure by Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose given. No notice to nor demand on Borrower in any case shall of itself entitle Borrower to any other or further notice or demand in similar or other circumstances. Acceptance by Lender of any payment in an amount less than the amount then due on any of the Obligations shall be deemed an acceptance on account only and shall not in any way affect the existence of a Default or an Event of Default hereunder. In case Lender shall have proceeded to invoke any right, remedy or recourse permitted hereunder or under the other Loan Documents and shall thereafter elect to discontinue or abandon the same for any reason, Lender shall have the unqualified right to do so and, in such an event, Borrower and Lender shall be restored to their former positions with respect to the Obligations, the Loan Documents, the Property and otherwise, and the rights, remedies, recourses and powers of Lender shall continue as if the same had never been invoked.      5.10 Governing Law.      (A) THE LOAN, SECURED IN PART BY THIS DEED OF TRUST, WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY LENDER IN THE STATE OF NEW YORK. AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS DEED OF TRUST AND THE OBLIGATIONS ARISING HEREUNDER 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 (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIEN AND SECURITY INTEREST CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY -56- --------------------------------------------------------------------------------   CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS DEED OF TRUST AND THE NOTE, AND THIS DEED OF TRUST AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.      (B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS DEED OF TRUST MAY AT LENDER’S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND APPOINT: Corporation Service Company 1133 Avenue of the Americas, Suite 3100 New York, New York 10036 AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.      5.11 Counting of Days. The term “days” when used herein shall mean calendar days. If any time period ends on a Saturday, Sunday or holiday officially recognized by the state within which the Fee Real Estate is located, the period shall be deemed to end on the next succeeding business day. The term “business day” when used herein shall mean a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in the State in which the Fee Real Estate is located are authorized by law to be closed.      5.12 Relationship of the Parties. The relationship between Borrower and Lender is that of a borrower and a lender only and neither of those parties is, nor shall it hold itself out to be, the agent, employee, joint venturer or partner of the other party.      5.13 Application of the Proceeds of the Note. To the extent that proceeds of the Note are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Lender at Borrower’s request -57- --------------------------------------------------------------------------------   and Lender shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, irrespective of whether said liens, security interests, charges or encumbrances are released.      5.14 Unsecured Portion of Indebtedness. If any part of the Obligations cannot be lawfully secured by this Deed of Trust or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is unsecured by this Deed of Trust.      5.15 Cross Default. An Event of Default shall be a default under each of the other Loan Documents.      5.16 Interest After Sale. In the event the Property or any part thereof shall be sold upon foreclosure as provided hereunder, to the extent permitted by law, the sum for which the same shall have been sold shall, for purposes of redemption (pursuant to the laws of the state in which the Property is located), bear interest at the Default Interest Rate.      5.17 Construction of this Document. This document may be construed as a mortgage, security deed, deed of trust, chattel mortgage, conveyance, assignment, security agreement, pledge, financing statement, hypothecation or contract, or any one or more of the foregoing, as determined by Lender, in order to fully effectuate the liens and security interests created hereby and the purposes and agreements herein set forth.      5.18 No Merger. It is the desire and intention of the parties hereto that this Deed of Trust and the lien hereof do not merge in fee simple title to the Property. It is hereby understood and agreed that should Lender acquire any additional or other interests in or to the Property or the ownership thereof, then, unless a contrary intent is manifested by Lender as evidenced by an appropriate document duly recorded, this Deed of Trust and the lien hereof shall not merge in such other or additional interests in or to the Property, toward the end that this Deed of Trust may be foreclosed as if owned by a stranger to said other or additional interests.      5.19 Rights With Respect to Junior Liens. Any person or entity purporting to have or to take a junior mortgage or other lien upon the Property or any interest therein shall be subject to the rights of Lender to amend, modify, increase, vary, alter or supplement this Deed of Trust, the Note or any of the other Loan Documents and to extend the maturity date of the indebtedness secured hereby and to increase the amount of the indebtedness secured hereby and to waive or forebear the exercise of any of its rights and remedies hereunder or under any of the other Loan Documents and to release any collateral or security for the indebtedness secured hereby, in each and every case without obtaining the consent of the holder of such junior lien and without the lien or security interest of this Deed of Trust losing its priority over the rights of any such junior lien.      5.20 Lender May File Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Borrower or the principals or general partners or members in Borrower, or their respective creditors or property, Lender, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Lender allowed in such proceedings for the entire Obligations at the date of the institution of such proceedings and for any additional amount which may become due and payable by Borrower hereunder after such date. -58- --------------------------------------------------------------------------------        5.21 Fixture Filing. To the extent permitted under applicable law, this Deed of Trust shall be effective from the date of its recording as a financing statement filed as a fixture filing with respect to all goods constituting part of the Property which are or are to become fixtures. This Deed of Trust shall also be effective as a financing statement covering minerals or the like (including oil and gas) and is to be filed for record in the Real Estate Records of the county where the Property is situated. The mailing address of Borrower and the address of Lender from which information concerning the security interests may be obtained are set forth above. Borrower and Lender acknowledge that for purposes of Article 9 of the UCC the laws of the State of New York shall govern and control.      5.22 After-Acquired Property. All property acquired by Borrower after the date of this Deed of Trust which by the terms of this Deed of Trust shall be subject to the lien and the security interest created hereby, shall immediately upon the acquisition thereof by Borrower and without further mortgage, conveyance or assignment become subject to the lien and security interest created by this Deed of Trust. Nevertheless, Borrower (at the sole cost and expense of Borrower) shall execute, acknowledge, deliver and record or file, as appropriate, all and every such further mortgages, security agreements, financing statements, assignments and assurances, as Lender shall require for accomplishing the purposes of this Deed of Trust.      5.23 No Representation. By accepting delivery of any item required to be observed, performed or fulfilled or to be given to Lender pursuant to the Loan Documents, including, but not limited to, any officer’s certificates, balance sheet, statement of profit and loss or other financial statement, survey, appraisal or insurance policy, Lender shall not be deemed to have warranted, consented to, or affirmed the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance of delivery thereof shall not be or constitute any warranty, consent or affirmation with respect thereto by Lender.      5.24 Counterparts. This Deed of Trust may be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page. Any signature page of this Deed of Trust may be detached from any counterpart of this Deed of Trust without impairing the legal effect of any signatures thereon and may be attached to another counterpart of this Deed of Trust identical in form hereto but having attached to it one or more additional signature pages.      5.25 Exculpation. Notwithstanding anything to the contrary contained in this Deed of Trust, the liability of Borrower and its officers, directors, members and general partners for the Obligations and for the performance of the other agreements, covenants and obligations contained herein and in the other Loan Documents shall be limited as set forth in Section 1.05 of the Note.      5.26 Recording and Filing. Borrower (at the sole cost and expense of Borrower) will cause the Loan Documents and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re-recorded and re-filed in such manner and in such places as Lender shall reasonably request, and will pay on demand all such recording, filing, re-recording and re-filing taxes, fees and other charges. Borrower shall reimburse Lender, or its servicing agent, for the costs incurred in obtaining a tax service company to verify the status of payment of Taxes and Other Charges on the Property.      5.27 Entire Agreement and Modification. This Deed of Trust and the other Loan Documents contain the entire agreements between the parties relating to the subject matter hereof and thereof and all prior agreements relative hereto and thereto which are not contained herein or therein are terminated. This Deed of Trust and the other Loan Documents may not be amended, revised, waived, discharged, released or terminated orally but only by a written instrument or instruments executed by the -59- --------------------------------------------------------------------------------   party against which enforcement of the amendment, revision, waiver, discharge, release or termination is asserted. Any alleged amendment, revision, waiver, discharge, release or termination which is not so documented shall not be effective as to any party.      5.28 Maximum Interest. The provisions of Section 2.03 of the Note are incorporated in this Deed of Trust by reference as if more fully set forth herein.      5.29 Secondary Market Transaction.      (a) Cooperation. Borrower acknowledges that Lender may effectuate a Secondary Market Transaction. Borrower shall cooperate in good faith with Lender in effecting any such Secondary Market Transaction and shall cooperate in good faith to implement all requirements imposed by any Investor (as defined herein) or Rating Agency involved therein, including, without limitation, all structural or other changes to Borrower and/or the Obligations, and modifications to any Loan Documents; provided, however, that the Borrower shall not be required to modify any Loan Documents if such modification would (A) increase the interest rate payable under the Note, (B) shorten the period until the stated maturity of the Note, (C) modify the amortization of principal of the Note, or (D) modify any other material term of the Obligations. Borrower shall provide such information and documents relating to Borrower, any Indemnitor, the Property and any Tenants as Lender may reasonably request in connection with such Secondary Market Transaction. Borrower shall make available to Lender all information concerning its business and operations that Lender may reasonably request.      (b) Disclosure; Indemnification. Lender shall be permitted to share all information provided in connection with the Loan with the Investors, Rating Agencies, investment banking firms, accounting firms, law firms and other third-party advisory firms involved with the Loan Documents or the applicable Secondary Market Transaction. It is understood that the information provided to Lender in connection with the Loan may ultimately be incorporated into the offering documents for the Secondary Market Transaction and thus potential Investors may also see some or all of the information with respect to the Loan, the Property, Borrower and the holders of direct or indirect interests in Borrower. Borrower irrevocably waives any and all rights it may have under any applicable laws (including, without limitation, any right of privacy) to prohibit such disclosure. Lender and all of the aforesaid third-party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, Borrower. Borrower hereby indemnifies Lender as to any losses, claims, damages or liabilities that arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the information provided by or on behalf of Borrower, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated in such information, or necessary in order to make the statements in such information, or in light of the circumstances under which they were made, not misleading. Lender may publicize the existence of the Obligations in connection with its marketing for a Secondary Market Transaction or otherwise as part of its business development.      (c) Borrower acknowledges that, as part of the documents creating and governing any Secondary Market Transaction in which the Loan (or any portion of or interest in the Loan) may be included (the “Securitization Documents”), the parties to such Secondary Market Transaction may, in their sole discretion, elect to impose certain requirements as conditions precedent to certain actions by one or more of the servicing agents appointed with respect to the Loan (including, without limitation, that such servicing agent obtain written confirmation from each applicable Rating Agency that the proposed action will not result in a downgrade, qualification or withdrawal of any rating issued on securities evidencing an ownership interest in the Loan that was in effect immediately prior to such proposed action). No requirement or condition imposed upon such servicing agent pursuant to such Securitization Documents as a condition precedent to the granting or denying of any consent or approval, or the taking or refusal to take of any action, pursuant to this Deed of Trust (except only for any action required of -60- --------------------------------------------------------------------------------   Lender hereunder) shall give rise to any claim or cause of action by Borrower against Lender, or give Borrower any defense for failure to perform its obligations under the Loan Documents. Borrower further acknowledges that the cost of any such rating confirmation required by the Securitization Documents shall be payable by Borrower.      (d) Definitions: A “Secondary Market Transaction” shall be (1) any sale of the Deed of Trust, Note and other Loan Documents to one or more investors as a whole loan, (2) a participation of the Obligations to one or more investors, (3) a securitization of the Loan, (4) any other sale or transfer of the Obligations or any interest therein to one or more investors. “Rating Agency” shall mean any nationally-recognized statistical rating organization that has been designated by Lender to provide, or that provides, a rating on Borrower, the Loan or any securities evidencing an interest in, inter alia, a trust or other entity which is the holder of the Note. “Investor” shall mean any actual or potential purchaser, transferee, assignee, servicer, participant or investor in a Secondary Market Transaction.      5.30 WAIVER OF JURY TRIAL. LENDER AND BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVE, RELINQUISH AND FOREVER FORGO THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE OBLIGATIONS OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR BORROWER, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE      5.31 Letter of Credit      (a) Additional Definitions. The following capitalized terms shall have the respective meanings set forth below:           (i) “Letter of Credit” means a Satisfactory Letter of Credit in the amount of $372,000.00.           (ii) “Satisfactory Letter of Credit” shall mean, for purposes of this Deed of Trust, a clean, irrevocable and unconditional letter of credit that satisfies all of the provisions in this Section 5.31.      (b) The Letter of Credit shall be issued in favor of Lender, its successors and/or assigns as beneficiary by an issuer having a rating with respect thereto of “A“ or better by a Rating Agency or such other issuer as shall be approved by Lender in its sole and absolute discretion (the “Issuing Bank”).      (c) The Letter of Credit shall be drawable (with partial draws permitted) by Lender solely upon the presentment to the issuer of a sight draft, demanding such payment, and accompanying draw certificate, each in form and substance satisfactory to Lender in its sole and absolute discretion.      (d) The Letter of Credit shall have an initial expiration date of at least one (1) year from the date of delivery to Lender provided, however, that such Letter of Credit bear an “evergreen clause” whereby it shall be deemed automatically renewed, without amendment, for consecutive periods of one (1) year each thereafter during the term of the Loan through the date which is forty-five (45) days -61- --------------------------------------------------------------------------------   following the end of the term of the Loan, unless the Issuing Bank sends a notice (the “Non-Renewal Notice”) to Lender by certified mail, return receipt requested, not less than thirty (30) days nor more than sixty (60) days prior to the then-current expiration date of the Letter of Credit, stating that the Issuing Bank has elected not to renew such Letter of Credit. Lender shall have the right, at any time following the receipt of a Non-Renewal Notice, to draw the full amount of such Letter of Credit, by sight draft on the Issuing Bank, and shall thereafter maintain the cash proceeds of such Letter of Credit in the Excess Cash Flow Reserve for Leasing Costs (as further described in paragraph (e) below) pursuant to the applicable terms of the Deed of Trust. Upon presentation by Borrower to Lender of a replacement Letter of Credit meeting the requirements of Section 5.31, Lender shall refund such cash proceeds to Borrower. The Issuing Bank shall agree with all drawers, endorsers and bona fide holders that drafts drawn under and in compliance with the terms of the Letter of Credit will be duly honored upon presentation to the Issuing Bank (or its correspondent bank, on terms and conditions no less favorable to Lender than would apply to such a draft drawn on the Issuing Bank) at an office location in New York, New York. The Letter of Credit shall be issued subject to the International Standby Practices 1998 or the most recent revision thereof or successor thereto which shall be in effect from time to time (“ISP 1998”), and, as to matters not expressly covered by ISP 98, by the law of the State of New York (including, without limitation, Article 5 of the New York Uniform Commercial Code, but excluding Section 5-102(4) thereof).      (e) The Letter of Credit shall be in form and substance satisfactory to Lender in its sole and absolute discretion.      (f) Borrower hereby pledges to Lender the Letter of Credit and any proceeds thereof, as additional security for the payment of the indebtedness evidenced by the Note and secured, in part, by the Deed of Trust, including without limitation all expenses (including reasonable attorneys’ fees and costs), taxes, and all transfer, recordings, filing and other charges in connection with or incidental to the custody, care, transfer or administration of the Letter of Credit or in any way relating to the enforcement, protection or preservation of the rights of remedies of Lender pursuant to the Letter of Credit. Borrower shall, at its sole cost and expense, enter into any letter of credit agreements or letter of credit security agreements required by Lender in its sole and absolute discretion. Borrower hereby irrevocably authorizes Lender to file UCC Financing Statements, Financing Statement Amendments and/or Financing Statement Continuations that Lender deems necessary to perfect and/or continue the perfection of the pledge and security interest granted hereunder.      (g) Provided that no Event of Default then exists and that the Letter of Credit has been delivered to Lender, Lender shall return the Letter of Credit (or the then available proceeds thereof) to Borrower upon Lender’s determination, in its sole and absolute discretion, that the Corinthian College Replacement Tenant Conditions have been satisfied.      (h) Each Letter of Credit delivered under this Section 5.31 shall be additional security for the payment of the Obligations. Upon the occurrence of an Event of Default, Lender shall have the right, at its option, to draw on any Letter of Credit and to apply all or any part thereof to the payment of the items for which such Letter of Credit was established or to apply each such Letter of Credit to payment of the Obligations in such order, proportion or priority as Lender may determine. Any such application to the Obligations shall be subject to the Yield Maintenance Premium. On the Stated Maturity Date, any such Letter of Credit may be applied to reduce the Obligations.      (i) In addition to any other right Lender may have to draw upon a Letter of Credit pursuant to the terms and conditions of this Deed of Trust, Lender shall have the additional rights to draw in full any Letter of Credit: (i) with respect to any evergreen Letter of Credit, if Lender has received a notice from the issuing bank that the Letter of Credit will not be renewed and a substitute Letter of Credit is not provided at least thirty (30) days prior to the date on which the outstanding Letter of Credit is -62- --------------------------------------------------------------------------------   scheduled to expire; (ii) with respect to any Letter of Credit with a stated expiration date, if Lender has not received a notice from the issuing bank that it has renewed the Letter of Credit at least thirty (30) days prior to the date on which such Letter of Credit is scheduled to expire and a substitute Letter of Credit is not provided at least thirty (30) days prior to the date on which the outstanding Letter of Credit is scheduled to expire; (iii) upon receipt of notice from the issuing bank that the Letter of Credit will be terminated (except if the termination of such Letter of Credit is permitted pursuant to the terms and conditions of this Agreement or a substitute Letter of Credit is provided); or (iv) if Lender has received notice that the bank issuing the Letter of Credit shall cease to be an Eligible Institution. Notwithstanding anything to the contrary contained in the above, Lender is not obligated to draw any Letter of Credit upon the happening of an event specified in (i), (ii), (iii) or (iv) above and shall not be liable for any losses sustained by Borrower due to the insolvency of the bank issuing the Letter of Credit if Lender has not drawn the Letter of Credit.      5.32 State Specific Provisions. The following provisions shall govern and control in the event of a conflict with any other provision of this Deed of Trust:      (1) Warranties of Borrower. The following items are added to the end of Section 1.1 as a part thereof:   (pp)   No Leasing Commissions; No Management Fees Due. There are no brokerage fees or commissions payable by Borrower with respect to the leasing of space at the Property and there are no management fees payable by Borrower with respect to the management of the Property; and     (qq)   Security Deposits. To the extent required under applicable law, all security deposits are held in a segregated account and Borrower is in compliance with all legal requirements relating to such security deposits.      (b) Environmental Laws. The term “Environmental Laws” as used in this Deed of Trust shall include, without limitation, the Texas Solid Waste Disposal Act (V.T.C.A. Health and Safety Code §361.001 et. Seq.), the Texas Water Code (V.T.C.A. Water Code §§26.001-26.407) and Risk Reduction Standard No. 1 (30 Tex. Adm. Code §335.554).      (c) Acceleration. The following language shall be added to the end of Section 3.1(a) of this Deed of Trust as a part thereof:      “Without limiting the foregoing, Borrower hereby waives, relinquishes and agrees not to assert or take advantage of any requirement for notice of intent to accelerate and/or notice of acceleration, to the extent permitted under applicable law.”      (d) Fair Market Value. Section 3.8 of this Deed of Trust is hereby deleted in its entirety and is replaced by the following language:      “3.8 Fair Market Value. To the extent Section 51.003 of the Texas Property Code, or any amendment thereto or judicial interpretation thereof, requires that the “fair market value” of the Property shall be determined as of the foreclosure date in order to enforce a deficiency against Borrower or any other party liable for the repayment of the indebtedness secured hereby, the term “fair market value” shall include those matters required by law and shall also include the additional factors as follows: -63- --------------------------------------------------------------------------------        (a) The Property is to be valued “AS IS, WHERE IS” and “WITH ALL FAULTS” and there shall be no assumption of restoration of or refurbishment of the Property after the date of foreclosure;      (b) There shall be an assumption of a prompt resale of the Property for an all cash sales price by the purchaser at the foreclosure so that no extensive holding period should be factored into the determination of “fair market value” of the Property;      (c) An offset to the fair market value of the Property, as determined hereunder, shall be made by deducting from such value the reasonable estimated closing costs relating to the sale of the Property, including, but not limited to, brokerage commissions, title policy expenses, tax prorations, escrow fees, and other common charges which are incurred by a seller of real property similar to the Property; and      (d) After consideration of the factors required by law and those required above, an additional discount factor shall be calculated based upon the estimated time it will take to effectuate a sale of the property so that the “fair market value” as so determined is discounted to be as of the date of the foreclosure of the Property.”      (e) Counting of Days. The following language shall be added to the end of Section 5.11 of this Deed of Trust as a part thereof: “Nothing contained in this Section 5.11 shall be deemed to prohibit or impair the conduct of a non-judicial foreclosure sale on a legal holiday in accordance with the provisions of Article III hereof.”      (f) Fixture Filing. Without limiting any provision of Section 5.21 of this Deed of Trust, this Deed of Trust shall also constitute and be effective as a financing statement covering accounts subject to subsection (e) of Section 9.103 of the Texas Business and Commerce Code, as amended (or any successor statute thereof).      (g) Personal Liability. The following language shall be added to the end of Section 5.25 of this Deed of Trust as a part thereof: “ provided, however, that nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the indebtedness secured hereby or to require that all collateral shall continue to secure all indebtedness owing to Lender in accordance with the Note, this Deed of Trust and the other Loan Documents.”      (h) Maximum Interest. The following language shall be added to the end of Section 5.28 of this Deed of Trust as a part thereof: -64- --------------------------------------------------------------------------------   “To the extent that Lender is relying on Chapter 303, as amended, of the Texas Finance Code to determine the maximum amount of interest (as defined in the Note) permitted by applicable law on the principal of the Note, beneficiary will utilize the weekly rate ceiling from time to time in effect as provided in such Chapter 303, as amended. To the extent United States federal law permits a greater amount of Interest than is permitted under Texas law, Lender will rely on United States federal law instead of such Chapter 303, as amended, for the purpose of determining the maximum amount permitted by applicable law. Additionally, to the extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, implement any other method of computing the maximum lawful rate under such Chapter 303, as amended, or under other applicable law by giving notice, if required, to maker as provided by applicable law now or hereafter in effect. In no event shall the provisions of chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving triparty accounts) apply to the indebtedness evidenced by the Loan Documents.”      (i) SPECIFIC NOTICE. IT IS EXPRESSLY AGREED AND UNDERSTOOD THAT THIS DEED OF TRUST INCLUDES INDEMNIFICATION PROVISIONS (INCLUDING, WITHOUT LIMITATION, THE INDEMNIFICATION PROVISIONS CONTAINED IN SECTIONS 1.25 AND 1.26 HEREOF) WHICH, IN CERTAIN CIRCUMSTANCES, COULD INCLUDE AN INDEMNIFICATION BY BORROWER OF LENDER FROM CLAIMS OR LOSSES ARISING AS A RESULT OF LENDER’S OWN NEGLIGENCE. [NO FURTHER TEXT ON THIS PAGE] -65- --------------------------------------------------------------------------------        IN WITNESS WHEREOF, Borrower has executed this Deed of Trust as of the day and year first above written.                       BORROWER:                           FIRST PARK TEN COCO SAN ANTONIO, L.P., a   Delaware limited partnership                           By:   FIRST PARK TEN COCO SAN ANTONIO GP LLC, a   Delaware limited liability company,      its general partner                               By:                 Name:                 Title:           --------------------------------------------------------------------------------                 STATE OF     )             )     ss.: COUNTY OF     )            BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared ___, in his capacity as the ___of FIRST PARK TEN COCO SAN ANTONIO GP LLC, a Delaware limited liability company, GENERAL PARTNER of FIRST PARK TEN COCO SAN ANTONIO, L.P., a Delaware limited partnership, known to me to be the person whose name is subscribed to the foregoing instrument, and, being by me first duly sworn, declared and acknowledged to me under oath that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated, as the act and deed of said limited liability company, on behalf of the limited partnership. GIVEN UNDER MY HAND AND SEAL OF OFFICE this ___ day of November, 2006.                                 Notary Public in and for             County, State of                             --------------------------------------------------------------------------------   EXHIBIT A PROPERTY DESCRIPTION  

  Exhibit 10.3 EMPLOYMENT AGREEMENT      This Employment Agreement (“Agreement”) is entered into effective as of July 6, 2006 by and between The Shaw Group Inc., a Louisiana corporation (collectively with the affiliates and subsidiaries hereinafter referred to as “Company”), and G. Patrick Thompson (“Employee”).      WHEREAS, the Company employs Employee and desires to continue such employment relationship and Employee desires to continue such employment;      NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:      1. Employment. The Company continues to employ Employee, and Employee hereby accepts continued employment by the Company, on the terms and conditions set forth in this Agreement.      2. Term of Employment. Subject to the provisions for earlier termination provided in this Agreement, the term of this agreement (the “Term”) shall be two (2) years commencing on the date hereof, and shall be automatically renewed on each day following the date hereof so that on any given day the unexpired portion of the Term of this Agreement shall be two (2) years. Notwithstanding the foregoing provision, at any time after the date Page 1 of 22 --------------------------------------------------------------------------------   hereof the Company or Employee may give written notice to the other party that the Term of this Agreement shall not be further renewed from and after a subsequent date specified in such notice (the “fixed term date”), in which event the Term of this Agreement shall become fixed and this Agreement shall terminate on the third anniversary of the fixed term date.      3. Employee’s Duties. During the Term of this Agreement, Employee shall serve as Senior Vice President and Chief Administrative Officer of the Company, and with such duties and responsibilities as may from time to time be assigned to him by the Chief Executive Officer, President or Chief Financial Officer or the board of directors of the Company (the “Board”), provided that such duties are consistent with the customary duties of such position.      Employee agrees to devote his full attention and time during normal business hours to the business and affairs of the Company and to use reasonable best efforts to perform faithfully and efficiently his duties and responsibilities. Employee shall not, either directly or indirectly, enter into any business or employment with or for any person, firm, association or corporation other than the Company during the Term of this Agreement; provided, however, that Employee shall not be prohibited from making financial investments in any other company or business or from serving on the board of directors of any other company. Employee shall at all times observe and comply with all lawful directions and instructions of the Board. Page 2 of 22 --------------------------------------------------------------------------------        4. Base Compensation. For services rendered by Employee under this Agreement, the Company shall pay to Employee his current base salary as of the date of this Agreement (“Base Compensation”), per annum payable in accordance with the Company’s customary pay periods and subject to customary withholdings. The amount of Base Compensation may be reviewed by the Board on an annual basis as of the close of each fiscal year of the Company and may be increased as the Board may deem appropriate. In the event the Board deems it appropriate to increase Employee’s annual base salary, said increased amount shall thereafter be the “Base Compensation”. Employee’s Base Compensation, as increased from time to time, may not thereafter be decreased unless agreed to by Employee. Nothing contained herein shall prevent the Board from paying additional compensation to Employee in the form of bonuses or otherwise during the Term of this Agreement.      5. Additional Benefits. In addition to the Base Compensation provided for in Section 4 herein, Employee shall be entitled to the following:      (a) Expenses. The Company shall, in accordance with any rules and policies that it may establish from time to time for executive officers, reimburse Employee for business expenses reasonably incurred in the performance of his duties.      (b) Reserved. Page 3 of 22 --------------------------------------------------------------------------------        (c) Vacation. Employee shall be entitled to three (3) weeks of vacation per year, without any loss of compensation or benefits. Employee shall be entitled to carry forward any unused vacation time.      (d) General Benefits. Employee shall be entitled to participate in the various employee benefit plans or programs provided to the employees of the company in general, including but not limited to, health, dental, disability, 401K and life insurance plans, subject to the eligibility requirements with respect to each of such benefit plans or programs, and such other benefits or perquisites as may be approved by the Board during the Term of this Agreement. Nothing in this paragraph shall be deemed to prohibit the Company from making any changes in any of the plans, programs or benefits described in this Section 5, provided the change similarly affects all executive officers of the Company similarly situated.      (e) Options. Upon the resignation for Good Reason as defined in Section 7 (e), discharge as defined in Section 7 (c) (i), or disability as defined in Section 7 (d), Employee shall be considered as immediately and totally vested in any and all stock options, restricted stock and other similar awards previously made to Employee by the Company or its subsidiaries under a “Long Term Page 4 of 22 --------------------------------------------------------------------------------   Incentive Plan” duly adopted by the Board (such options or similar awards are hereinafter collectively referred to as “Options”). In the event that the Options become vested under this paragraph, employee will be allowed not less than one year from the date of such vesting in which to exercise such options.      6. Confidential Information. Employee, during the Term, may have access to and become familiar with confidential information, secrets and proprietary information concerning the business and affairs of the Company. As to such confidential information, Employee agrees as follows:      (a) During the employment of Employee with the Company and thereafter Employee will not, either directly or indirectly, disclose to any third party without the written permission of the Company, nor use in any way (except as required in the course of his employment with the Company) any confidential information, secret or proprietary information of the Company. In the event of a breach or threatened breach of the provisions of this Section 6 (a), the Company shall be entitled, in addition to any other remedies available to the Company, to an injunction restraining Employee from disclosing such confidential information.      (b) Upon termination of employment of Employee, for whatever reason, Employee shall surrender to the Company any Page 5 of 22 --------------------------------------------------------------------------------   and all documents, manuals, correspondence, reports, records and similar items then or thereafter coming into the possession of Employee which contain any confidential, secret or proprietary information of the Company.      7. Termination This Agreement may be terminated prior to the end of its Term as set forth below:      (a) Resignation (other than for Good Reason). Employee may resign, including by reason of retirement, his position at any time by providing written notice of resignation to the Company in accordance with Section 11 hereof. In the event of such resignation, except in the case of resignation for Good Reason (as defined below), this Agreement shall terminate and Employee shall not be entitled to further compensation pursuant to this Agreement other than the payment of any unpaid Base Compensation accrued hereunder as of the date of Employee’s resignation.      (b) Death. If Employee’s employment is terminated due to his death, one (1) year of Employee’s Base Compensation shall be paid by the Company in lump sum in cash within thirty (30) days after Employee’s death to Employee’s surviving spouse or estate, and one (1) year of paid group health and dental insurance benefits shall be provided by the Company to Employee’s surviving spouse Page 6 of 22 --------------------------------------------------------------------------------   and the minor children, and after said payments and provision of insurance benefits, this Agreement shall terminate and the Company shall have no obligations to Employee or his legal representatives with respect to this Agreement other than the payment of any unpaid Base Compensation previously accrued hereunder. In addition, Employee shall be considered as immediately and totally vested in any and all Options previously made to Employee by Company or its subsidiaries. This provision shall not be exclusive, and shall be in adddition to death benefits payable by the Company or Insurer under any plan.      (c) Discharge.      (i) The Company may terminate Employee’s employment for any reason at any time upon written notice thereof delivered to Employee in accordance with Section 11 hereof. In the event that Employee’s employment is terminated during the Term by the Company for any reason other than his Misconduct or Disability (both as defined below), then (A) the Company shall pay in lump sum in cash to Employee, within fifteen (15) days following the date of termination, an amount equal to the product of (i) Employee’s Base Compensation as in effect immediately prior to Employee’s termination, multiplied by (ii) the Page 7 of 22 --------------------------------------------------------------------------------   Remaining Term, (B) for the Remaining Term, the Company, at its cost, shall provide or arrange to provide Employee (and, as applicable, Employee’s dependents) with disability, accident and group health insurance benefits substantially similar to those which Employee (and Employee’s dependents) were receiving immediately prior to Employee’s termination; however, the welfare benefits otherwise receivable by Employee pursuant to this clause (B) shall be reduced to the extent comparable welfare benefits are actually received by Employee (and/or Employee’s dependents) during such period under any other employer’s welfare plan(s) or program(s) , with Employee being obligated to promptly disclose to the Company any such comparable welfare benefits, (C) in addition to the aforementioned compensation and benefits, the Company shall pay in lump sum in cash to Employee within fifteen (15) days following the date of termination an amount equal to the product of (i) Employee’s highest bonus paid by the Company during the most recent two (2) years immediately prior to the Date of Termination, multiplied by (ii) the Remaining Term, and (D) Employee shall be considered as immediately and totally Page 8 of 22 --------------------------------------------------------------------------------   vested in any and all Options previously made to Employee by Company or its subsidiaries.      (ii) Notwithstanding the foregoing provisions of this Section 7, in the event Employee is terminated because of Misconduct, the Company shall have no obligations pursuant to this Agreement after the Date of Termination other than the payment of any unpaid Base Compensation accrued through the Date of Termination. As used herein, “Misconduct” means (a) the continued failure by Employee to substantially perform his duties with the Company (other than any such failure resulting from Employee’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by Employee for Good Reason), after a written demand for substantial performance is delivered to Employee by the Board, which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed his duties, (b) the-engaging by Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise (other than such conduct resulting from Employee’s incapacity due to physical or mental illness or any such actual or Page 9 of 22 --------------------------------------------------------------------------------   anticipated conduct after the issuance of a Notice of Termination by Employee for Good Reason), or (c) Employee’s conviction for the commission of a felony. Anything contained in this Agreement to the contrary notwithstanding, the Chief Executive officer of the Company shall have the sole power and authority to terminate the employment of Employee on behalf of the Company.      (d) Disability. If Employee shall have been absent from the full-time performance of Employee’s duties with the Company for ninety (90) consecutive calendar days as a result of Employee’s incapacity due to physical or mental illness, Employee’s employment may be terminated by the Company for “Disability” and Employee shall not be entitled to further compensation pursuant to this Agreement, except that Employee shall (1) be paid monthly (but only for up to a twelve (12) month period beginning with the Date of Termination) the amount by which Employee’s monthly Base Compensation exceeds the monthly benefit received by Employee pursuant to any disability insurance covering Employee; (2) continue to receive paid group health and dental insurance benefits for Employee and his dependents for up to twelve (12) month period beginning with Date of Termination; and (3) be considered as immediately and totally vested in any and all Page 10 of 22 --------------------------------------------------------------------------------   Options previously granted to Employee by Company or its subsidiaries.      (e) Resignation for Good Reason. Employee shall be entitled to terminate his employment for Good Reason as defined herein. If Employee terminates his employment for Good Reason he shall be entitled to the compensation and benefits provided in Paragraph 7 (c) (i) hereof. “Good Reason” shall mean the occurrence of any of the following circumstances without Employee’s express written consent unless such breach or circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect hereof:      (1) the material breach of any of the Company’s obligations under this Agreement without Employee’s express written consent,      (2) the continued assignment to Employee of any duties inconsistent with his position;      (3) the failure by the Company to pay to Employee any portion of Employee’s compensation on the date such compensation is due;      (4) the failure by the Company to continue to provide Employee with benefits substantially similar to those enjoyed by other executive officers who have entered into similar Page 11 of 22 --------------------------------------------------------------------------------   employment agreements with Employer under any of the Company’s medical, health, accident, and/or disability plans in which Employee was participating immediately prior to such time; or      In addition, the occurrence of any Corporate Change (as defined below), shall constitute “Good Reason” hereunder, but only if Employee gives notice of his intent to terminates his employment within ninety (90) days following the effective date of such Corporate Change.      A “Corporate Change” shall occur if (i) the Company shall not be the surviving entity in any merger or consolidation (or survives only as a subsidiary of another entity), (ii) the Company sells all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary), and in either event Employee is not retained in his current or comparable position, (iii) the Company is to be dissolved and liquidated, (iv) when any “person” as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as used in Sections 13 (d) and 14 (d) thereof, including a “group” as defined in Section 13 (d) of the Exchange Act but excluding any 10% or larger shareholder of record of the Company as of January 10, 2004, directly or indirectly, becomes the “beneficial owner” (as defined in Page 12 of 22 --------------------------------------------------------------------------------   Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities which are entitled to vote with respect to the election of the directors of the Company; or (v) as a result of or in connection with a contested election the members of the Board as of the date of this Agreement shall cease to constitute a majority of the Board. “Contested” as used herein shall not include election by a majority of the current Board.      (f) Notice of Termination. Any purported termination of Employee’s employment by the Company under Sections 7(c)(ii) or 7(d), or by Employee under Section 7(e), shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 11 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which, if by the Company and is for Misconduct or Disability, shall set forth in reasonable detail the reason for such termination of Employee’s employment, or in the case of resignation by Employee for Good Reason, said notice must specify in reasonable detail the basis for such resignation. A Notice of Termination given by Employee pursuant to Section 7(e) shall be effective even if given after the receipt by Employee of notice that the Board has set a meeting to Page 13 of 22 --------------------------------------------------------------------------------   consider terminating Employee for Misconduct. Any purported termination for which a Notice of Termination is required which is not effected pursuant to this Section 7(f) shall not be effective.      (g) Date of Termination, Etc. “Date of Termination” shall mean the date specified in the Notice of Termination, provided that the Date of Termination shall be at least 15 days following the date the Notice of Termination is given. Notwithstanding the foregoing, in the event Employee is terminated for Misconduct, the Company may refuse to allow Employee access to the Company’s offices (other than to allow Employee to collect his personal belongings under the Company’s supervision) prior to the Date of Termination.      (h) Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 7 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Employee as a result of employment by another employer, except that any severance amounts payable to Employee pursuant to the Company’s severance plan or policy for employees in general shall reduce the amount otherwise payable pursuant to Sections 7(c)(i) or 7(e).      (i) Excess Parachute Payments. Notwithstanding anything in this Agreement to the contrary, to the extent that any Page 14 of 22 --------------------------------------------------------------------------------   payment or benefit received or to be received by Employee hereunder in connection with the termination of Employee’s employment would, as determined by tax counsel selected by the Company, constitute an “Excess Parachute Payment” (as defined in Section 280G of the Internal Revenue Code), the Company shall fully “gross-up” such payment so that Employee is in the same “net” after-tax position he would have been if such payment and gross-up payments had not constituted Excess Parachute Payments.      8. Non-Compete.      8.1 No Other Activities. Employee agrees that during the term of this Agreement, he shall not, directly or indirectly, represent or otherwise engage in or participate in, the business or ventures of any person, firm, partnership, association, or corporation other than the Company, without first obtaining the written consent of the Company. Employee further agrees that during the term of this Agreement, he shall not, directly or indirectly, solicit or attempt to solicit any products or agreements for the purpose of using the products or agreements in the formation of a business outside of the Company, regardless of whether any such products or the subject of such agreements are then being handled by the Company.      8.2 Non-Disclosure. Employee further agrees that he will not, during or after the term of his employment, disclose to any person, firm, partnership, Page 15 of 22 --------------------------------------------------------------------------------   association, or corporation, the names and addresses of any past or present customers, or prospective customers, of the Company, any of their methods or practices of obtaining business, their trade secrets, consultant contracts and the details thereof, their pricing policies, their operational methods, their marketing plans or strategies, their business acquisition plans and all other information pertaining to the business of the Company that is not publicly available. Employee agrees to keep all information gained as a result of his relationship with the Company on a confidential basis and shall not disclose that information to anyone not authorized by the Company to receive information. If Employee should cease, either voluntarily or involuntarily, to be an employee of the Company, he hereby expressly agrees that, for a period of two (2) years following termination of his employment, he shall not assist any competitor or prospective competitor located in the territories serviced by the Company (as set forth in Attachment 1 or otherwise) during his employment in any way detrimental to the Company through the use of any information gained as a result of his employment with the Company. Employee agrees that all computer programs, print-outs, customer lists, methods, forms, systems and procedures used by the Company constitute the exclusive property and will remain the exclusive property of the Company and agrees that he will not disclose any of these matters without the prior written permission of the Company. Page 16 of 22 --------------------------------------------------------------------------------        8.3 Non-Solicitation, etc. In further consideration of the other terms and provisions of this Agreement, and to protect the vital interests of the Company, upon termination of his employment for any reason, for a period of two (2) years after the termination of his employment, Employee agrees and binds himself that he shall not, directly or indirectly, or as a member, shareholder, officer, director, consultant or employee of any other person or entity, compete with the Company or own, manage, operate, join, control or participate in the ownership, management, operation, or control of, or become employed by, consult or advise, or be connected in any manner with any business or activity which is in actual, direct or indirect competition or anticipated competition with the Company, within those counties, parishes, municipalities or other places listed in Attachment 1 annexed hereto and made a part hereof, so long as the Company, or carries on the business presently conducted by the Company,. Not by way of limitation or exclusion, Employee shall not, within the aforesaid locations and during the aforesaid time period, call upon, solicit, advise or otherwise do, or attempt to do, business with any customers or distributors of the Company, with whom the Company had any dealings during the period of Employee’s employment hereunder or take away or interfere or attempt to interfere with any custom, trade, business or patronage of the Company, or interfere with or attempt to interfere with any officers, employees, distributors, representatives or agents of the Company, or employ or induce or attempt to induce any of them to leave the employ of the Page 17 of 22 --------------------------------------------------------------------------------   Company or violate the terms of their contracts, or any employment arrangements, with the Company. Employee acknowledges and agrees that any breach of the foregoing covenant not to compete would cause irreparable injury to the Company and that the amount of injury would be impossible or difficult to fully ascertain. Employee agrees that the Company shall, therefore, be entitled to obtain an injunction restraining any violation, further violation or threatened violation of the covenant not to compete hereinabove set forth, in addition to any other remedies that the Company may pursue.      8.4 Duration. If the two (2) year period referred to in any of this Article 8 shall be finally determined by a court to exceed the maximum period which is permissible by applicable law, the said period shall be reduced to the maximum period permitted by such law.      9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Employee’s continuing or future participation in any benefit, bonus, incentive, or other plan or program provided by the Company or any of its affiliated companies and for which Employee may qualify, nor shall anything herein limit or otherwise adversely affect such rights as Employee may have under any Options with the Company or any of its affiliated companies.      10. Assignability. The obligations of Employee hereunder are personal and may not be assigned or delegated by him or transferred in any manner whatsoever, nor are such obligations subject to involuntary alienation, assignment or transfer. The Company shall have the right to assign this Page 18 of 22 --------------------------------------------------------------------------------   Agreement and to delegate all rights, duties and obligations hereunder, either in whole or in part, to any parent, affiliate, successor or subsidiary organization or company of the Company, so long as the obligations of the Company under this Agreement remain the obligations of the Company.      11. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Company at its principal office address, directed to the attention of the Board with a copy to the Secretary of the Company, and to Employee at Employee’s residence address on the records of the Company or to such other address as either party may have furnished to the other in writing in accordance herewith except that notice of change of address shall be effective only upon receipt.      12. Validity. The invalidity or unenforcability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.      13. Successors; Binding Agreement.      (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Page 19 of 22 --------------------------------------------------------------------------------   Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used herein, the term “Company” shall include any successor to its business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 13 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law.      (b) This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee’s personal or legal representatives, executors, administrators, successors, heirs distributees, devisees and legatees. if Employee should die while any amounts would be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Page 20 of 22 --------------------------------------------------------------------------------   Agreement to Employee’s devisee, legatee, or other designee or, if there be no such designee, to Employee’s estate.      14. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and such officer as may be specifically authorized by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement is an integration of the parties agreement; no agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party, except those which are set forth expressly in this Agreement. THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF LOUISIANA.      15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to ‘be an original but all of which together will constitute one and the same instrument.      16. Arbitration. Either party may elect that any dispute or controversy arising under or in connection with this Agreement be settled by arbitration in Baton Rouge, Louisiana in accordance with the rules of the American Page 21 of 22 --------------------------------------------------------------------------------   Arbitration Association then in effect. If the parties cannot mutually agree on an arbitrator, then the arbitration shall be conducted by a three arbitrator panel, with each party selecting one arbitrator and the two arbitrators so selected selecting a third arbitrator. The findings of the arbitrator(s) shall be final and binding, and judgment may be entered thereon in any court having Jurisdiction. The findings of the arbitrator(s) shall not be subject to appeal to any court, except as otherwise provided by applicable law. The arbitrator(s) may, in his or her (or their) own discretion, award legal fees and costs to the prevailing party.      IN WITNESS WHEREOF, the parties have executed this Agreement on July 7, 2006, effective for all purposes as provided above.                   THE SHAW GROUP INC.                       By :   Gary P. Graphia         Name:   /s/ Gary P. Graphia                   EMPLOYEE:   Title:   Secretary and General Counsel     Name: /s/ G. Patrick Thompson            G. Patrick Thompson Page 22 of 22

Stock Purchase Agreement     THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made effective as of the 7th day of August, 2006, by and among Eric Lung (being herien referred to as the "Seller"), Paracap Corporation, a Nevada corporation ("Paracap") and Justin Laniec (being herein referred to as the "Purchaser"). Preliminary Statements     A.    Seller is an individual owning an aggregate of 5,000,000 shares of common stock of Paracap (the "Common Stock").     B.    Seller desire to sell the Common Stock to Purchaser, and Purchaser desires to purchase the Common Stock from Seller, on the terms, provisions and conditions set forth herein.            NOW,     THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller and Purchaser do hereby agree as follows:     ARTICLE I Purchase and Sale of the Common Stock     Section 1.01.    Purchase and Sale.    On the Closing Date and upon the terms and subject to the conditions set forth herein, the Seller shall deliver 5,000,000 shares of Paracap Common Stock to the Purchaser free and clear of all liens, and Purchaser shall purchase the Common Stock from the Seller in accordance with Section 1.02 below.     Section 1.02.    Purchase Price.    The purchase price (the "Purchase Price") for the Common Stock is $20,000.00     Section 1.03.    Time and Place of Closing.    Subject to the satisfaction or wavier of the conditions herein, the closing (the "Closing") of the transactions contemplated by this Agreement shall take place on or before August 7, 2006 or at such time, date or places as Seller and Purchaser may agree.     Section 1.04.    Delivery of the Common Stock;    Payment of Purchase Price. At Closing:    (a) the Seller shall deliver to the Purchaser the certificate(s) representing the Common Stock, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, with all taxes attributed to the transfer and sale of the Common Stock paid by the Seller;    and (b) the Purchaser shall deliver to the Seller Purchase Price in accordance with Selection 1.02. ARTICLE II Representations and Warranties of Seller and Brownsville     Subject to all of the terms, conditions and provisions of this Agreement, the Sellers and Brownsville hereby represent and warrant to Purchaser, as of the date hereof and as of the Closing, as follows:     Section 2.01.    Organization and Qualification. Paracap is a Nevada corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Paracap has all requisite power and authority, corporate or otherwise, to own, lease and operate its assets and properties and to carry on its business as now being conducted. Paracap does not have any subsidiaries or predecessor corporations.     Section 2.02.    Capitalization of Paracap;    Title to the Common Stock. There are 75,000,000 shares of common stock authorized of Paracap, of which approximately 13,470,000 shares of common stock are issued and outstanding, $0.001 par value per share. All of the outstanding shares of common stock have been duly authorized and validly issued, are fully paid and non assessable and are free of preemptive rights. The Common Stock transferred by the Seller to Purchaser will be free and clear of liens. There are no outstanding or authorized subscriptions, options, warrants, calls, rights or other similar contracts, including rights of conversions or exchange under any outstanding debt or equity security or other contract, to which any of the Common Stock will be subject or obligating the Seller and/or Paracap to issue, deliver or sell, or cause to be issued, delivered or sold, any other shares of capital stock of Paracap or any other debt or equity securities convertible into or evidencing the right to subscribe for any such shares of capital stock or obligations the Seller and/or Paracap to grant, extend or enter into any such contract. There are no voting, trusts, proxies or other contracts to which the Seller and/or Paracap are a party or are bound with respect to the voting of any shares of capital stock of Paracap. The Seller has full legal rights to sell, assign and transfer the Common Stock and delivery to Purchaser of a certificate or certificates representing the Common Stock, transfer good and indefeasible title to the Common Stock to purchaser, free and clear of liens.     Section 2.03.    Authority.    The Seller has all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. The Seller and Paracap have duly and validly executed and delivered this Agreement and will, on or prior to the Closing, execute, such other documents as may be required hereunder and, assuming the due authorization, execution and delivery of this Agreement by the parties hereto and thereto, this Agreement constitutes, the legal, valid and binding obligation of the Seller and Paracap, as applicable, enforceable against the Seller and Paracap, as applicable, in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and general equitable principles.     Section 2.04.    No Conflict.    The execution and delivery by the Seller and Paracap of this Agreement and the consummation of the transactions contemplated hereby and thereby, do not and will not, by the lapse of time, the giving of notice or otherwise:    (a) constitute a violation of any law;    (b) constitute a breach or violation of any provision contained in the Articles of Incorporation or Bylaws of Paracap;    (c) constitute a breach of any provision contained in, or a default under, any governmental approval, any writ, injunction, order, judgment or decree of any governmental authority or any contract to which the Seller and/or Paracap are a party;    or    (d) result in or require the creation of any lien upon the Common Stock.     Section 2.05.    Consents and Approvals.    No governmental approvals and no notifications, filings or registrations to or with any governmental authority or any other person is or will be necessary for the valid execution and delivery by the Seller and/or Paracap of this Agreement or the consummation of the enforceability hereof or thereof, other than those which have been obtained or made and are in full force and effect.     Section 2.06.    Litigation.    There are no claims pending or, to the knowledge of the Seller and Paracap, threatened against or affecting Paracap or any of its assets and properties before or by any governmental authority or any other person. The Seller and Paracap have no knowledge of the basis for any claim, which alone or in the aggregate:    (a) could reasonably be expected to result in any liability with respect to Paracap;    or    (b) seeks to restrain or enjoy the execution and delivery of this Agreement or the consummation of any of the transactions contemplated hereby or thereby. There are no stipulations or awards against Paracap or any of its assets and properties.     Section 2.07.    Brokers, Finders and Financial Advisors.    No broker, finder or financial advisor has acted for Seller in connection with this Agreement or the transactions contemplated hereby or thereby, and no broker, finder or financial advisor is entitled to any broker's, finder's or financial advisor's fee or other commission in respect thereof based in any war on any contract with Seller.      Section 2.08.    Disclosure.    The schedules, documents, exhibits, reports, certificates and other written statements and information furnished by or on behalf of the Seller and/or Paracap to the Purchaser do not contain any material misstatement of fact or, to the knowledge of Seller and Paracap, omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. Seller and Paracap have not withheld any fact known to them which has or is reasonably likely to have a material adverse effect with respect to Paracap.     Section 2.09.    Ownership.    The Seller represents and warrants that Seller owns 5,000,000 shares of common stock of Paracap that are subject to this Agreement. ARTICLE III         Representations and Warranties of Purchaser     Subject to all of the terms, conditions and provisions of this Agreement, Purchaser hereby represents and warrants to the Seller, as of the date hereof and as of the Closing, as follows:     Section 3.01.    Authority.    Purchaser has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. Purchaser has duly and validly executed and delivered this Agreement and, assuming the due authorization, execution and delivery of this Agreement by the other parties hereto and thereto, this Agreement constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser on accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and general equitable principles.     Section 3.02.    No Conflict.    The execution and delivery by Purchaser of this Agreement and the consummation of the transactions contemplated hereby and thereby do not and shall not, by the lapse of time, the giving of notice or otherwise:    (a) constitute a violation of any law;    or    (b) constitute a breach of any provision contained in, or a default under, any governmental approval, any writ, injunction, order, judgment or decree of any governmental authority or any contract to which Purchaser is a party or by which Purchaser is bound or affected.     Section 3.03.     Consents and Approvals.    No governmental approvals and no notifications, filings or registrations to or with any governmental authority or any other person is or will be necessary for the valid execution and delivery by Purchaser of this Agreement and the closing documents to which it is a party, or the consummation of the transactions contemplated hereby or thereby, or the enforceability hereof or thereof, other than those which have been obtained or made and are in full force and effect.     Section 3.04.    Litigation.    There are no claims pending or, to the knowledge of Purchaser, threatened, and Purchaser has no knowledge of the basis for any claim, which either alone or in the aggregate, seeks to restrain or enjoin the execution and delivery of this Agreement or the consummation of any of the transactions contemplated hereby or thereby. There are no judgments or outstanding orders, injunctions, decrees, stipulations or awards against Purchaser which prohibits or restricts, or could reasonably be expected to result in any delay of, the consummation of the transaction contemplated by this Agreement.      Section 3.05.    Brokers, Finders and Financial Advisors.    No broker, finder or financial advisor has acted for Purchaser in connection with this Agreement or the transactions contemplated hereby or thereby, and no broker, finder or financial advisor is entitled to any broker's, finder's or financial advisor's fee or other commission in respect thereof based in any way on any contract with Purchaser. ARTICLE IV Covenants     Section 4.01.    Further Assurances.    Seller, Paracap and Purchaser agree that, from time to time, whether before, at or after the Closing, each of them will take such other action and to execute, acknowledge and deliver such contracts, deeds, or other documents    (a) as may be reasonably requested and necessary or appropriate to carry out the purposes and intent of this Agreement;    or    (b) to effect or evidence the transfer to the Purchaser of the Common Stock held by or in the name of the Seller.     Section 4.02.    Conduct of Business.    Except as otherwise contemplated by this Agreement, after the date hereof and prior to the Closing or earlier termination of this Agreement, unless Purchaser shall otherwise agree in writing, Paracap shall                 (a)    not take or perform any act or refrain from taking or performing any act which would have resulted in a breach of the representations and warranties set forth in Article II;                 (b)    not enter into any agreement, or extend an existing agreement that will survive after the Closing;                 (c)    not sell, pledge, lease, license or otherwise transfer and of their assets or properties or make any payments or distributions to Paracap or any of its affiliates; and                 (d)    not make any payments or distributions of assets or properties to Paracap or its shareholders. Prior to the Closing, Paracap shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision of its operations.     Section 4.03.    Public Announcements.    Except as required by law, without the prior written approval of the other party, neither Seller, Paracap nor Purchaser will issue, or permit any agent or affiliate thereof to issue, any press release or any public statement or announcement with respect to this Agreement or the transactions contemplated hereby and thereby.     ARTICLE V Conditions     Section 5.01.    Conditions to Obligations of each of the Parties.    The respective obligations of each party to consummate the transactions contemplated hereby shall be subject to the fulfillment at or prior to the Closing of the following conditions:    (a) no preliminary or permanent injunction or other order, decree or ruling which prevents the consummation of the transactions contemplated by this Agreement shall have been issued and remain in effect;    (b) no claim shall have been asserted, threatened or commenced and no law shall have been  enacted, promulgated or issued which would reasonably be expected to    (i) prohibit the Purchaser of, payment for or retention of the Common Stock by Purchaser or the consummation of the transactions contemplated by this Agreement or    (ii) make the consummation of any such transactions illegal; and    (c) all approvals legally required for the consummation of the transactions contemplated by this Agreement shall have been obtained and be in full force and effect at the Closing.     Section 5.02.    Conditions to Obligations of Seller.    The obligations of Seller to consummate the transactions contemplated hereby shall be subject to the fulfillment at or prior to the Closing Date of the following additional conditions, except as Seller may waive in writing:    (a) Purchaser shall have complied with and performed in all material respects all of the terms, covenants, agreements and conditions contained in this Agreement which are required to be compiled with and performed on or prior to Closing;    and    (b) the representations and warranties of Purchaser in this Agreement shall have been true and correct on the date hereof or hereof, as applicable, and such representations and warranties shall be true and correct on and at the Closing (except those, if any, expressly stated to be true and correct at an earlier date), with the same force and effect as though such representations and warranties had been made on and at the Closing.     Section 5.03.    Conditions to Obligations of Purchaser.    The obligations of Purchasers to consummate the transactions contemplated hereby shall be subject to the fulfillment at or prior to Closing of the following additional conditions, except as Purchaser may waive in writing:    (a) the Seller and Paracap shall have complied with and preformed in all material respects all of the terms, covenants, agreements and conditions contained in this Agreement which are required to be complied with and preformed on or prior to Closing;    and (b) the representations and warranties of Seller and Paracap in this Agreement shall have been true and correct on the date hereof or thereof, as applicable, and such representations and warranties shall be true and correct on and at the Closing (except those, if any, expressly stated to be true and correct at an earlier date), with the came force and effects as though such representations and warranties had been made on and at the Closing. ARTICLE VI Indemnification     Section 6.01.    Indemnification of Seller.    Subject to the terms and conditions of this Article VI, Purchaser agrees to indemnify, defend and hold harmless Seller, from and against any and all claims, liabilities and losses which may be imposed on, incurred by or asserted against, arising out of or resulting from, directly or indirectly:                 (a)    the inaccuracy of any representations or breach of any warranty of Purchaser contained in or made pursuant to this Agreement which was not disclosed to Seller in writing prior to the Closing; provided that no such notification shall be deemed to waive or abrogate any right of Seller with respect to conditions to Closing in Section 5.02;                 (b)    the breach of any covenant or agreement of Purchaser contained in this Agreement;    or                 (c)    any claim to fees or costs for alleged services by a broker, agent, finder or other person claiming to act in a similar capacity at the request of Purchaser in connection with this Agreement; provided, however, that Purchaser shall not be liable for any portion of any claims, liabilities or losses resulting from a material breach by Seller, of any of its obligations under this Agreement or from Seller's gross negligence, fraud or willful misconduct.     Section 6.02.    Indemnification of Purchaser.    Subject to the terms and conditions of this Article VI, from and after the Closing, Seller, agrees to indemnify, defend and hold harmless the Purchaser, its respective affiliates, its respective present and former directors, officers, shareholders, employees and agents and its respective heirs, executors, administrators, successors and assigns (the "Purchaser Indemnified Persons"), from and against any and all claims, liabilities and losses which may be imposed on, incurred by or asserted against any Purchaser Indemnified Person, arising out of or resulting from, directly or indirectly:                 (a)    the inaccuracy of any representations or breach of any warranty of the Seller or Paracap contained in or made pursuant to this Agreement which was not disclosure to Purchaser in writing prior to the Closing; provided that no such notification shall be deemed to waive or abrogate any right of Purchaser with respect to conditions to Closing in Section 5.03;                 (b)    the breach of any covenant or agreement of Seller or Paracap contained in this Agreement;                 (c)    the conduct of the business of Paracap prior to the Closing; or                 (d)    any claim to fees or costs for alleged services rendered by a broker, agent, finder or other person claiming to act in a similar capacity at the request of the Seller in connection with this Agreement; provided, however, that Seller and Paracap shall not be liable for any portion of any claims, liabilities or losses resulting from a material breach by Purchaser of its obligations under this Agreement or from a Purchaser Indemnified Person's grass negligence, fraud or willful misconduct. ARTICLE VII Miscellaneous     Section 7.01.    Notices.    Any and all notices, requests or other communications hereunder shall be given in writing and delivered by:    (a) regular, overnight or registered or certified mail (return receipt requested), with first class postage prepaid;    (b) hand delivery;    (c) facsimile transmission;    or    (d) overnight courier service, to the parties at the following address or facsimile numbers:                 (i)    if to Seller, to:            Eric Lung                                                         5525 West Boulevard                                                         Suite #443                                                         Vancouver, B.C.                 (ii)    if to Purchaser, to :    Justin Laniec                                                         3042 Euclid Avenue                                                         Vancouver, B.C. or at such other address or number as shall be designated by either of the parties in a notice to the other party given in accordance with this Section 7.01. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given:    (A) in the case of a notice sent by regular or registered or certified mail, three business days after it is duly deposited in the mails;    (B) in the case of a notice sent by facsimile, upon transmission subject to telephone confirmation of receipt;    and (D) in the case of a notice sent by overnight mail or overnight courier service, the next business day after such notice is mailed or delivered to such courier, in each given or addressed as aforesaid.     Section 7.02.    Benefit and Burden.    This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their successors and permitted assigns.     Section 7.03.    No Third Party Rights.    Nothing in this Agreement shall be deemed to create any right in any creditor or other person not a party hereto (other than the Purchaser Indemnified Persons) and this Agreement shall not be construed in any respect to be a contract in whole or in part for the benefit of any third party (other than the Purchaser Indemnified Persons).     Section 7.04.    Amendments and Waiver.    No amendment, modification, restatement or supplement of this Agreement shall be valid unless the same is in writing and signed by the parties hereto. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the party against whom that waiver is sought to be enforced.     Section 7.05.    Assignments.    Purchaser cannot assign any of its rights, interests and obligations under this Agreement.     Section 7.06.    Counterparts.    This Agreement may be executed in counterparts and by the different parties in separate counterparts, each of which when so executed shall be deemed an original and all of which taken together shall constitute one and the same agreement.     Section 7.07.    Captions and Headings.    The captions and headings contained in this Agreement are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof if any question of intent should arise.      Section 7.08.    Construction.    The parties acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by the parties hereto.     Section 7.09.    Severability.    Should any clause, sentence paragraph, subsection, Section or Article of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the parties agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom by the parties, and the remainder will have the same force and effectiveness as of such stricken part or parts had never been included herein.     Section 7.10.    Remedies.    The parties agree that the covenants and obligations contained in this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms hereof or thereof would cause irreparable injury in an amount which would be impossible to estimate or determine and for which any remedy at law would be inadequate. As such, the parties agree that if either party fails or refuses to fulfill any of its obligations under this Agreement or to make any payment or deliver any instrument required hereunder or thereunder, then the other  party shall have the remedy of specific performance, which remedy shall be cumulative and nonexclusive and shall be in addition to any other rights and remedies otherwise available under any other contract or at law or in equity and to which such party might be entitled.     Section 7.11.    Applicable Law.    THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.     Section 7.12.    Submission to Jurisdiction.    Each of the parties hereby:    (a) irrevocably submits to the non-exclusive personal jurisdiction of any Ontario court, over any claim arising out of or relating to this Agreement and irrevocably agrees that all such claims may be heard and determined in such Ontario court;    and (b) irrevocably waives, to the fullest extent permitted by applicable law, any objection it may now or hereafter have to the laying of venue in any proceeding brought in a Ontario court.     Section 7.13.    Expenses;    Prevailing Party Costs.    The Seller, Paracap, and Purchaser shall pay their own expenses incident to this Agreement and the transactions contemplated hereby and thereby, including all legal and accounting fees and disbursements, and Seller shall be solely liable for any and all expenses of the Seller and/or Paracap which are incident to this Agreement and the transactions contemplated hereby and thereby (other than customary general, administrative and overhead expenses incurred in the ordinary course of business). Notwithstanding anything contained herein or therein to the contrary, if any party commences an action against another party to enforce any of the terms, covenants, conditions or provisions of this Agreement, or because of a breach by a party of its obligation under this Agreement, the prevailing party in any such action shall be entitled to recover its losses, including reasonable attorneys' fees, incurred in connection with the prosecution or defense of such action, form the losing party.     Section 7.14.    Entire Agreement.    This Agreement sets forth all of the promises, agreements, conditions, understandings, warranties and representations among the parties with respect to the transactions contemplated hereby and thereby, and supersede all prior agreements, arrangements and understandings between the parties, whether written, oral or otherwise.     Section 7.15.    Faxed Signatures. For purposes of this Agreement, a faxed signature shall constitute an original signature.     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. "SELLER"        /s/ Eric Lung Eric Lung                                  Number of shares:    5,000,000   "PURCHASER"           /s/ Justin Laniec           Justin Laniec                       

Exhibit 10.2 VERTEX PHARMACEUTICALS INCORPORATED 2006 STOCK AND OPTION PLAN Form of Stock Option Grant This Agreement sets forth the terms and conditions of an Option granted pursuant to the provisions of the 2006 Stock and Option Plan (the “Plan”) of Vertex Pharmaceuticals Incorporated (the “Company”) to the Participant whose name appears below, covering the number of Shares of Common Stock of the Company set forth below, pursuant to the provisions of the Plan and on the following express terms and conditions. Capitalized terms not otherwise defined herein shall have the same meanings as set forth in the Plan. 1.             Name and address of Participant to whom this Option is granted: [name and address] 2.             Number of Shares of Common Stock subject to this Option: [        ] Shares 3.             Purchase price of Shares subject to this Option: [        ] per Share 4.             Date of grant of this Option: [        ] 5.             Expiration date of this Option: [        ], subject to earlier termination in the event of any Termination of Service of the Participant or otherwise in accordance with the provisions of the Plan. This Option may not be exercised later than three (3) months after the Participant’s termination of employment with the Company and its Affiliates except as provided in the Plan in the event of death of the Participant. 6.             Vesting. 6.1          Vesting Schedule. This Option shall vest and become exercisable, so long as the Participant continues to serve as an Employee, Non-Employee Director, consulant or advisor of the Company or an Affiliate, in sixteen (16) equal quarterly installments, with the first such installment vesting three (3) months after the date of grant and subsequent installments vesting every three months thereafter until fully vested, except as otherwise provided in paragraphs 6.2 and 6.3 below. 6.2          Absence. This Option shall not vest during any period of long-term disability or personal leave of absence of the Participant from the Company or an Affiliate (as determined under applicable Company policies). If the Participant resumes employment with the Company after a personal leave of absence or long-term disability in accordance with applicable Company policies, vesting shall resume upon the resumption of eligibility, and the Option will continue vesting at the rate provided in paragraph 6.1 above until the Option is fully exercisable. -------------------------------------------------------------------------------- Notwithstanding the foregoing, in no event shall the term of the Option be extended beyond the date set forth in Section 5 above. 6.3          Death of the Participant. In the event of the death of the Participant while serving as an Employee, Non-Employee Director, consultant or advisor of the Company or an Affiliate, the vesting of those installments of this Option that would otherwise vest during the one-year period following the date of death shall be accelerated, and the Option shall be exercisable as to such installments, together with any previously vested but unexercised portion of the Option, effective as of the date of death for the period set forth in the Plan. 7.            [Option type]. This Option is [NOT] designated as an incentive stock option within the meaning of Section 422(b) of the Internal Revenue Code of 1986. 8.             Plan. The Participant hereby acknowledges receipt of a copy of the Plan as presently in effect. The text and all of the terms and provisions of the Plan are incorporated herein by reference, and this Agreement is subject to these terms and provisions in all respects. 9.             Exercise. The Participant may exercise this Option in the manner set forth in Section 9 of the Plan. VERTEX PHARMACEUTICALS INCORPORATED               By:           Name:           Title:     2 --------------------------------------------------------------------------------

Exhibit 10.3 AMENDMENT NO. 3, dated as of May 5, 2006 (this “Amendment No. 3”), among RURAL/METRO OPERATING COMPANY, LLC, a Delaware limited liability company (“Borrower”), CITICORP NORTH AMERICA, INC., as Administrative Agent, the Requisite Lenders, the Term Lenders, the LC Facility Lenders, the Additional Term 1 Lenders (as defined below) and the Additional LC Facility 1 Lenders (as defined below), in each case listed on the signature pages hereto, to the Credit Agreement dated as of March 4, 2005, (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Borrower; the Lenders; CITIBANK, N.A., as LC Facility issuing bank (in such capacity, the “LC Facility Issuing Bank”); CITICORP NORTH AMERICA, INC., as administrative agent (in such capacity, the “Administrative Agent”) for the Lenders; JPMORGAN CHASE BANK, N.A. (“JPMCB”), as syndication agent (in such capacity, the “Syndication Agent”); and CITIGROUP GLOBAL MARKETS INC. (“CGMI”) and J.P. MORGAN SECURITIES INC. (“JPMSI”), as joint lead arrangers and joint lead bookrunners (in such capacities, the “Joint Lead Arrangers”). Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. WHEREAS, Borrower desires to create (i) a new Class of Term 1 Loans under the Credit Agreement having identical terms with, having the same rights and obligations under the Loan Documents as and in the same aggregate principal amount as the Term Loans, as set forth in the Credit Agreement and Loan Documents, except as such terms are amended hereby and (ii) a new Class of LC Facility 1 Deposits under the Credit Agreement having identical terms with, having the same rights and obligations under the Loan Documents as and in the same amount as the LC Facility Deposits, as set forth in the Credit Agreement and Loan Documents, except as such terms are amended hereby; WHEREAS, each Term Lender who executes and delivers a Consent shall be deemed, upon effectiveness of this Amendment No. 3, to have exchanged its Term Loans for Term 1 Loans in the same aggregate principal amount as such Lender’s Term Loans, and such Lender shall thereafter become a Term 1 Lender; WHEREAS, each LC Facility Lender who executes and delivers a Consent shall be deemed, upon effectiveness of this Amendment No. 3, to have exchanged its LC Facility Deposits for LC Facility 1 Deposits in the same amount as such Lender’s LC Facility Deposits, and such Lender shall thereafter become a LC Facility 1 Lender; WHEREAS, each Person who executes and delivers a Consent as an Additional Term 1 Lender or LC Facility 1 Lender will make Term 1 Loans or LC Facility 1 Deposits, as applicable, on the effective date of this Amendment No. 3, the proceeds of which will be used to repay in full the outstanding principal amount of Term Loans and LC Facility Deposits of Non-Consenting Term Lenders and Non-Consenting LC Facility Lenders; -------------------------------------------------------------------------------- NOW, THEREFORE, in consideration of the premises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: Section 1. Amendments Relating to Term 1 Loans. (a) The following defined terms shall be added to Section 1.01 of the Credit Agreement in alphabetical order: “Additional LC Facility 1 Deposit” means a deposit that is funded pursuant to Section 2.01(e)(ii) of the Credit Agreement on the Amendment No. 3 Effective Date. “Additional LC Facility 1 Lender” means a Person with an Additional LC Facility 1 Participation to make Additional LC Facility 1 Deposits to Borrower on the Amendment No. 3 Effective Date, which for the avoidance of doubt may be an existing LC Facility Lender. “Additional LC Facility 1 Participation” means, with respect to an Additional LC Facility 1 Lender, the commitment of such Additional LC Facility 1 Lender to fund an Additional LC Facility 1 Deposit on the Amendment No. 3 Effective Date, in the amount set forth next to the signature of such Additional LC Facility 1 Lender on a consent to Amendment No. 3. The aggregate amount of the Additional LC Facility 1 Participations of all Additional LC Facility 1 Lenders shall equal the outstanding amount of LC Facility Deposits of Non-Consenting LC Facility Lenders. “Additional Term 1 Commitment” means, with respect to an Additional Term 1 Lender, the commitment of such Additional Term 1 Lender to make an Additional Term 1 Loan on the Amendment No. 3 Effective Date, in the amount set forth next to the signature of such Additional Term 1 Lender on a consent to Amendment No. 3. The aggregate amount of the Additional Term 1 Commitments of all Additional Term 1 Lenders shall equal the outstanding principal amount of Term Loans of Non-Consenting Term Lenders. “Additional Term 1 Lender” means a Person with an Additional Term 1 Commitment to make Additional Term 1 Loans to Borrower on the Amendment No. 3 Effective Date, which for the avoidance of doubt may be an existing Term Lender. “Additional Term 1 Loan” means a Loan that is made pursuant to Section 2.01(d)(ii) of the Credit Agreement on the Amendment No. 3 Effective Date. “Amendment No. 3” means Amendment No. 3 to this Agreement dated as of May 5, 2006. “Amendment No. 3 Effective Date” means May 5, 2006, the date on which all conditions precedent set forth in Section 3 of Amendment No. 3 are satisfied. “LC Facility 1 Deposit” means an Additional LC Facility 1 Deposit or an LC Deposit that is deemed made pursuant to Section 2.01(e)(i). “LC Facility 1 Lender” means a Lender with outstanding LC Facility 1 Deposits.   -2- -------------------------------------------------------------------------------- “LC Facility 1 Participations” means, with respect to a LC Facility Lender, the agreement of such LC Facility Lender to exchange its LC Facility Deposits for an equal amount of LC Facility 1 Deposits on the Amendment No. 3 Effective Date, as evidenced by such LC Facility Lender executing and delivering a consent to Amendment No. 3. “LC Facility Participation Fee” has the meaning assigned thereto in Section 2.10(c). “Non-Consenting LC Facility Lender” means each LC Facility Lender that has not executed and delivered a consent to Amendment No. 3 on or prior to the Amendment No. 3 Effective Date. “Non-Consenting Term Lender” means each Term Lender that has not executed and delivered a consent to Amendment No. 3 on or prior to the Amendment No. 3 Effective Date. “Term 1 Commitment” means, with respect to a Term Lender, the agreement of such Term Lender to exchange its Term Loans for an equal aggregate principal amount of Term 1 Loans on the Amendment No. 3 Effective Date, as evidenced by such Term Lender executing and delivering a consent to Amendment No. 3. “Term 1 Lender” means a Lender with outstanding Term 1 Loans. “Term 1 Loan” means an Additional Term 1 Loan or a Loan that is deemed made pursuant to Section 2.01(d)(i). (b) All references to “LC Facility Deposits,” “LC Facility Lender,” “LC Facility Participations,” “Term Loan,” “Term Loan Borrowing,” “Term Loan Commitment,” “Term Loan Lender,” “Term Loan Maturity Date,” “Term Loan Note” and “Total LC Facility Deposit” in the Credit Agreement and the Loan Documents shall be deemed to be references to “LC Facility 1 Deposits,” “LC Facility 1 Lender,” “LC Facility 1 Participations,” “Term 1 Loan,” “Term 1 Borrowing,” “Term 1 Commitment,” “Term 1 Lender,” “Term 1 Loan Maturity Date,” “Term 1 Note” and “Total LC Facility 1 Deposit” respectively (unless the context otherwise requires). (c) The definition of “Applicable Margin” in Section 1.01 of the Credit Agreement is hereby amended in its entirety by replacing it with the following: “Applicable Margin” means (i) with respect to Revolving Loans (x) that are Eurodollar Loans, 325 basis points and (y) that are ABR Loans, 225 basis points, (ii) with respect to Term Loans (x) that are Eurodollar Loans, 225 basis points and (y) that are ABR Loans, 125 basis points, and (iii) with respect to LC Facility Deposits, 225 basis points.   -3- -------------------------------------------------------------------------------- (d) Section 2.01 is hereby amended by adding the following paragraphs (d) and (e) to such Section: “(d) (i) Subject to the terms and conditions hereof and of Amendment No. 3, each Term Lender with a Term 1 Commitment severally agrees to exchange its Term Loans for a like principal amount of Term 1 Loans on the Amendment No. 3 Effective Date. Notwithstanding anything to the contrary contained herein, the Interest Period then in effect (and the Adjusted LIBO Rate thereunder) prior to any exchange of Term Loans for Term 1 Loans shall remain in effect following any such exchange. (ii) Subject to the terms and conditions hereof and of Amendment No. 3, each Additional Term 1 Lender severally agrees to make an Additional Term 1 Loan to Borrower on the Amendment No. 3 Effective Date in the principal amount equal to its Additional Term 1 Commitment on the Amendment No. 3 Effective Date. Borrower shall prepay all Term Loans of Non-Consenting Term Lenders with the gross proceeds of the Additional Term 1 Loans, concurrently with the receipt thereof. (iii) Borrower shall pay (x) to the Term Lenders all accrued and unpaid interest on the Term Loans to, but not including, the Amendment No. 3 Effective Date on such Amendment No. 3 Effective Date and (y) to the Non-Consenting Term Lenders any breakage loss or expense under Section 2.17. (iv) The Administrative Agent shall make any necessary adjustments so that each Term 1 Lender (including each Additional Term 1 Lender) shall receive at the end of the Interest Period then in effect, an interest payment equal to interest accrued from and including the Amendment No. 3 Effective Date. (v) The Term 1 Loans shall have the same terms as the Term Loans as set forth in the Credit Agreement and Loan Documents, except as modified by Amendment No. 3. For the avoidance of doubt, the Term 1 Loans (and all principal, interest and other amounts in respect thereof) will constitute “Obligations” under the Credit Agreement and the other Loan Documents and shall have the same rights and obligations under the Credit Agreement and Loan Documents as the Term Loans prior to the Amendment No. 3 Effective Date. (e) (i) Subject to the terms and conditions hereof and of Amendment No. 3, each LC Facility Lender with a LC Facility 1 Commitment severally agrees to exchange its LC Facility Deposits for a like amount of LC Facility 1 Deposits on the Amendment No. 3 Effective Date. Notwithstanding anything to the contrary contained herein, the Interest   -4- -------------------------------------------------------------------------------- Period then in effect prior to any exchange of LC Facility Deposits for LC Facility 1 Deposits shall remain in effect following any such exchange. (ii) Subject to the terms and conditions hereof and of Amendment No. 3, each Additional LC Facility 1 Lender severally agrees to make an Additional LC Facility 1 Deposit on the Amendment No. 3 Effective Date in the amount equal to its Additional LC Facility 1 Participation on the Amendment No. 3 Effective Date. The Administrative Agent shall return all LC Facility Deposits of Non-Consenting LC Facility Lenders with the gross proceeds of the Additional LC Facility 1 Deposits, concurrently with the receipt thereof. (iii) Borrower shall pay to the LC Facility Lenders all accrued and unpaid LC Facility Participation Fees and Cost Amount to, but not including, the Amendment No. 3 Effective Date on such Amendment No. 3 Effective Date, and the Administrative Agent shall pay to each LC Facility Lender the accrued and unpaid interest referred to in Section 2.21(b) to, but not including, the Amendment No. 3 Effective Date on such Amendment No. 3 Effective Date. (iv) The Administrative Agent shall make any necessary adjustments so that each LC Facility 1 Lender (including each Additional LC Facility 1 Lender) shall receive at the end of the applicable period then in effect, the LC Facility Participation Fee, Cost Amount and interest referred to in Section 2.21(b) accrued from and including the Amendment No. 3 Effective Date. (v) The LC Facility 1 Deposits shall have the same terms as the LC Facility Deposits as set forth in the Credit Agreement and Loan Documents, except as modified by Amendment No. 3. For the avoidance of doubt, the LC Facility 1 Deposits (and all fees and other amounts in respect thereof) will constitute “Obligations” under the Credit Agreement and the other Loan Documents and shall have the same rights and obligations under the Credit Agreement and Loan Documents as the LC Facility Deposits prior to the Amendment No. 3 Effective Date.” (e) Section 2.10(c) of the Credit Agreement is hereby amended by adding to clause (i) of such Section after the words “a participation fee” the following: “(an “LC Facility Participation Fee”)”.   -5- -------------------------------------------------------------------------------- (f) Section 2.11(a) of the Credit Agreement is hereby amended by adding to the end of such Section a new sentence as follows: “The Term 1 Commitment of each Additional Term 1 Lender shall be automatically terminated on the Amendment No. 3 Effective Date upon the borrowing of the Term 1 Loans on such date.” (g) Section 2.21(a) of the Credit Agreement is hereby amended by adding to the end of such Section the following: “The funding obligation of each Additional LC Facility 1 Lender in respect of its LC Facility Participations shall be shall be satisfied in full on the Amendment No. 3 Effective Date upon the funding of the LC Facility 1 Deposits on such date.” (h) Section 5.13 of the Credit Agreement is hereby amended by adding to the end of such Section a new sentence as follows: “Borrower further covenants and agrees that the proceeds of all Term 1 Loans hereunder will be used to refinance Term Loans. Borrower further acknowledges that the proceeds of all LC Facility 1 Deposits hereunder will be used by the Administrative Agent to replace LC Facility Deposits.” (i) Article IX of the Credit Agreement is hereby amended by adding immediately following the end of Section 9.19 a new section as follows: “SECTION 9.20. Indenture Trustee. In the event that the Citicorp North America, Inc. (“Citibank”) or any of its Affiliates shall be or become an indenture trustee under the Trust Indenture Act of 1939 (as amended, the “Trust Indenture Act”) in respect of any securities issued or guaranteed by any Loan Party, the parties hereto acknowledge and agree that any payment or property received in satisfaction of or in respect of any Secured Obligation of such Loan Party hereunder or under any other Loan Document by or on behalf of Citibank in its capacity as the Administrative Agent or the Collateral Agent for the benefit of any Lender under any Loan Document (other than Citibank or an Affiliate of Citibank) and which is applied in accordance with the Loan Documents shall be deemed to be exempt from the requirements of Section 311 of the Trust Indenture Act pursuant to Section 311(b)(3) of the Trust Indenture Act.” Section 2. Representations and Warranties. The Borrower hereby represents and warrants that, as of the date hereof and as of the Effective Date, the conditions set forth   -6- -------------------------------------------------------------------------------- in Section 4.02(b) and 4.02(c) of the Credit Agreement are satisfied. For purposes of this Section 2, this Amendment No. 3 shall be deemed to be a Loan Document. Section 3. Conditions to Effectiveness. This Amendment No. 3 shall become effective on the date on which each of the following conditions is satisfied: (a) (x) The Administrative Agent shall have received counterparts of this Amendment executed by the Borrower and the Administrative Agent, and (y) the Administrative Agent shall have received executed consents (each, a “Consent”) to this Amendment from the (i) Lenders constituting (A) the Requisite Lenders, (B) each Term Lender, or in lieu of one or more Term Lenders, one or more Additional Term 1 Lenders and (C) each LC Facility Lender, or in lieu of one or more LC Facility Lenders, one or more Additional LC Facility 1 Lenders. (b) Borrower shall have provided the Administrative Agent with a Borrowing Request with respect to the borrowing of Term 1 Loans on the Amendment No. 3 Effective Date, which notice shall meet the requirements of Section 2.02. (c) The Administrative Agent shall have received, on behalf of itself, the other Agents, the Lenders and the LC Issuing Bank, such certificates of resolutions or other action, incumbency certificates and/or other certificates of the officers of each applicable Loan Party as the Administrative Agent may reasonably require. (d) The Administrative Agent shall have received, on behalf of itself, the other Agents, the Lenders and the LC Issuing Bank, (i) an opinion of Weil, Gotshal & Manges LLP, counsel to Borrower, addressed to each of the Agents, the Lenders and the LC Issuing Bank and dated the Amendment No. 3 Effective Date, (ii) Mortgage amendments for each Mortgaged Property located in the State of Arizona and (iii) an opinion of Arizona counsel to Borrower, addressed to each of the Agents, the Lenders and the LC Issuing Bank and dated the Amendment No. 3 Effective Date, in each case, in form and substance reasonably satisfactory to the Administrative Agent; provided that, at the Administrative Agent’s discretion, the conditions set forth in clauses (ii) and (iii) need not be satisfied as a condition to effectiveness, in which event they shall be satisfied within 10 days of the Amendment No. 3 Effectiveness Date. (e) The Collateral Agent shall have received copies of UCC, judgment, tax lien and litigation search reports for Holdings and Borrower, each of a recent date in each of the jurisdictions set forth in Schedule 1 attached to this Amendment No. 3, the results of which shall not reveal any Liens on the Collateral covered or intended to be covered by the Security Documents (other than Permitted Liens or any other Liens reasonably acceptable to the Collateral Agent). (f) Each Term 1 Lender shall have received, if requested, one or more Notes payable to the order of such Lender duly executed by Borrower in substantially the form of Exhibit E-1 to the Credit Agreement, as modified by this Amendment No. 3, evidencing its Term 1 Loans.   -7- -------------------------------------------------------------------------------- (g) Borrower shall have paid to all Term Lenders simultaneously with the making of Term 1 Loans hereunder all accrued and unpaid interest on the Term Loans of such Term Lenders to, but not including, the Amendment No. 3 Effective Date on the Amendment No. 3 Effective Date. (h) Borrower shall have paid to all LC Facility Lenders simultaneously with the making of the LC Facility 1 Deposits all accrued and unpaid LC Facility Participation Fees and Cost Amount to, but not including, the Amendment No. 3 Effective Date on such Amendment No. 3 Effective Date and the Administrative Agent shall have paid to each LC Facility Lender all accrued and unpaid interest to, but not including, the Amendment No. 3 Effective Date on such Amendment No. 3 Effective Date. (i) All corporate and other proceedings taken or to be taken in connection with this Amendment No. 3 and all documents incidental thereto, whether or not referred to herein, shall be reasonably satisfactory in form and substance to the Administrative Agent. (j) The representations and warranties in Section 2 of this Amendment No. 3 shall be true and correct. Section 4. Reference to and Effect on the Credit Agreement. On and after the Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring the Credit Agreement, and each reference in each of the 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 amended by this Amendment No. 3. The Credit Agreement and each of the other Loan Documents, as specifically amended by this Amendment No. 3, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Amendment No. 3 shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or any Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. Section 5. Costs and Expenses. Borrower agrees to pay all reasonable costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment No. 3 and the other instruments and documents to be delivered hereunder. Section 6. Execution in Counterparts. This Amendment No. 3 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment No. 3 by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment No. 3.   -8- -------------------------------------------------------------------------------- Section 7. Governing Law. THIS AMENDMENT NO. 3 SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.   -9- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to be duly executed as of the date first above written.   RURAL/METRO OPERATING COMPANY, LLC By:   /s/ Kristi Ponczak   Name:   Kristi Ponczak   Title:   VP & Treasurer -------------------------------------------------------------------------------- CITICORP NORTH AMERICA, INC., as Administrative Agent By:   /s/ Ross MacIntyre   Name:   Ross MacIntyre   Title:   Managing Director

Exhibit 10.4                TRANSATLANTIC HOLDINGS, INC. PARTNERS PLAN PERFORMANCE RSU AWARD AGREEMENT This award agreement (this “Award Agreement”) sets forth the terms and conditions of an award (this “Award”) of performance-based restricted stock units (“Performance RSUs”) awarded to you pursuant to the Transatlantic Holdings, Inc. Partners Plan (the “Partners Plan”) and issued to you under the Transatlantic Holdings, Inc. Amended and Restated 2003 Stock Incentive Plan (the “SIP”).           1. The SIP. This Award is issued under the SIP, the terms of which are incorporated in this Award Agreement. Capitalized terms used in this Award Agreement that are not defined in this Award Agreement, or in the attached Glossary of Terms, have the meanings as used or defined in the SIP.           2.          Award.           (a)        Award of Performance RSUs. The number of Performance RSUs initially subject to this Award, the Date of Grant and the Performance Period are set forth at the end of this Award Agreement. At the end of the Performance Period, the Committee will determine and certify in writing the number of Performance RSUs earned under this Award in accordance with the terms of the Partners Plan and will advise you of the number (such earned Performance RSUs, the “Earned RSUs”). The number of Earned RSUs may range from 0% to 150% of the Performance RSUs initially subject to this Award.           (b)        Status of Earned RSUs. Each Earned RSU constitutes an unfunded and unsecured promise of Transatlantic Holdings, Inc. (“TRH” or the “Company”) to deliver (or cause to be delivered) to you, subject to the terms of this Award Agreement, one share of Common Stock (the “Share” or the “Shares” as the context requires) on the Scheduled Vesting Date as provided herein. Until such delivery, you have only the rights of a general unsecured creditor and no rights as a shareholder, of TRH. THIS AWARD IS SUBJECT TO ALL TERMS, CONDITIONS AND PROVISIONS OF THE PARTNERS PLAN, THE SIP AND THIS AWARD AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE ARBITRATION AND CHOICE OF FORUM PROVISIONS SET FORTH IN PARAGRAPH 15.           3.          Vesting and Delivery.           (a)        Vesting. Except as provided in this Paragraph 3 and in Paragraphs 4 and 6, you shall become vested in the Earned RSUs, and the Shares underlying the Earned RSUs shall be delivered, in two equal installments promptly after the fourth and sixth anniversaries of the first day of the Performance Period for this Award (each, a “Scheduled Vesting Date” for this Award). Unless the Committee determines otherwise, and except as provided in Paragraph 6, if your Employment terminates for any reason prior to a Scheduled Vesting Date, your rights in respect of all of your unvested Performance RSUs shall be forfeited and terminate, and no Shares shall be delivered in respect of such Performance RSUs.           (b)        Delivery. Except as provided in this Paragraph 3 and in Paragraphs 4, 6, 8 and 9, the Shares underlying the vested Earned RSUs shall be delivered on the respective Scheduled Vesting Date. You shall be deemed the beneficial owner of the Shares at the close of business on the Scheduled Vesting Date and shall be entitled to any dividend or distribution that has not already been made with respect to such Shares if the record date for such dividend or distribution is after the close of business on the Scheduled Vesting Date.           (c)        Death. Notwithstanding any other provision of this Award Agreement, if you die:         (i) during the Performance Period, and provided your rights in respect of your Performance RSUs have not yet terminated, (A) the Earned RSUs in respect of your Performance RSUs will be determined on a pro-rata basis (based upon the number of whole or partial months you were employed during the Performance Period relative to 24) and the performance of the Company during the entire Performance Period and (B) when the Earned RSUs have been determined, the Shares corresponding to such Earned RSUs shall be delivered to the representative of your estate as soon as practicable after the date of such determination and after such documentation as may be requested by the Committee is provided to the Committee; or --------------------------------------------------------------------------------         (ii) at any time prior to a Scheduled Vesting Date but after completion of the Performance Period, and provided your rights in respect of your Earned RSUs have not yet terminated, the Shares corresponding to your outstanding Earned RSUs shall be delivered to the representative of your estate as soon as practicable after the date of death and after such documentation as may be requested by the Committee is provided to the Committee.            4.        Termination of Performance RSUs and Earned RSUs; Non-Delivery of Shares.           (a)        Termination on Separation from Service. Except as provided in Paragraphs 3(c) and 6, if your Employment with the Company terminates for any reason or you are otherwise no longer actively employed by the Company:         (i) during the Performance Period, your rights in respect of your outstanding Performance RSUs shall immediately terminate, there will be no Earned RSUs with respect thereto and no Shares shall be delivered in respect thereof; or         (ii) at any time prior to a Scheduled Vesting Date but after the completion of the Performance Period, unless the Committee determines otherwise, your rights in respect of your outstanding unvested Earned RSUs shall immediately terminate, and no Shares shall be delivered in respect of such unvested Earned RSUs.            (b)       Termination on Other Events. Except as provided in Paragraph 6, your rights in respect of all of your Performance RSUs or Earned RSUs (whether or not vested) shall immediately terminate, and no Shares shall be delivered in respect of Performance RSUs or Earned RSUs, if at any time prior to the Scheduled Vesting Date:         (i) you attempt to have any dispute under this Award Agreement, the Partners Plan or the SIP resolved in any manner that is not provided for by Paragraph 15; or         (ii) any event that constitutes Cause has occurred; or         (iii) you in any manner, directly or indirectly, (A) Solicit any Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Company or (B) interfere with or damage (or attempt to interfere with or damage) any relationship between the Company and any such Client or (C) Solicit any person who is an employee of the Company to resign from the Company or to apply for or accept employment with any Competitive Enterprise; or         (iv) you fail to certify to TRH, in accordance with procedures established by the Committee, with respect to a Scheduled Vesting Date that you have complied, or the Committee determines that you have failed as of a Scheduled Vesting Date to comply, with all of the terms and conditions of this Award Agreement. By accepting the delivery of Shares under this Award Agreement, you shall be deemed to have represented and certified at such time that you have complied with all the terms and conditions of this Award Agreement.            (c)       Termination on Failure to Certify. Unless the Committee determines otherwise, if a Scheduled Vesting Date in respect of any of your outstanding Earned RSUs occurs, and Shares with respect to such outstanding Earned RSUs would be deliverable under the terms and conditions of this Award Agreement, except that you have not complied with the conditions or your obligations under Paragraph 4(b)(iv), all of your rights with respect to your outstanding Earned RSUs shall terminate no later than the Scheduled Vesting Date for such Shares.             5.        Repayment. If, following the delivery of Shares, the Committee determines that all terms and conditions of this Award Agreement in respect of such delivery were not satisfied, the Company shall be entitled to receive, and you shall be obligated to pay the Company immediately upon demand therefore, the Fair Market Value of the Shares (determined as of the Scheduled Vesting Date) delivered with respect to the Scheduled Vesting Date, without reduction for any Shares applied to satisfy withholding tax or other obligations in respect of such Shares. --------------------------------------------------------------------------------           6.          Disability and Retirement.           (a)        During the Performance Period. Notwithstanding any other provision of this Award Agreement, but subject to Paragraph 6(c), if your employment with the Company is terminated by reason of Disability or Retirement during the Performance Period, (i) the Earned RSUs in respect of your Performance RSUs will be determined on a pro-rata basis (based upon the number of whole or partial months you were employed during the Performance Period relative to 24) and the performance of the Company during the entire Performance Period and (ii)when the Earned RSUs have been determined in accordance with Paragraph 6(a)(i) and Paragraph 2(b), the condition set forth in Paragraph 4(a) shall be waived with respect to any such Earned RSUs (as a result of which any such Earned RSUs shall vest and shares corresponding to the Earned RSUs shall be delivered to you as soon as practicable after the date of termination and after such documentation as may be requested by the Committee is provided to the Committee), but all other conditions of this Award Agreement shall continue to apply.           (b)        After the End of the Performance Period. Notwithstanding any other provision of this Award Agreement, but subject to Paragraph 6(c), if your employment with the Company is terminated by reason of Disability or Retirement after the completion of the Performance Period, the condition set forth in Paragraph 4(a) shall be waived with respect to your then outstanding unvested Earned RSUs (as a result of which any such then unvested outstanding Earned RSUs shall vest and shares corresponding to the Earned RSUs shall be delivered to you as soon as practicable after the date of termination and after such documentation as may be requested by the Committee is provided to the Committee), but all other conditions of this Award Agreement shall continue to apply.           (c)        Termination of Rights Following Disability or Retirement. Without limiting the application of Paragraph 4(b) or Paragraph 4(c), your rights in respect of any outstanding Earned RSUs that become vested solely by reason of Paragraph 6(a) immediately shall terminate, and no Shares shall be delivered in respect of such outstanding Earned RSUs if, following the termination of your Employment with the Company by reason of Disability or Retirement and prior to the Scheduled Vesting Date, you (i) form, or acquire a 5% or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise or (ii) associate in any capacity (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise.           7.          Non-transferability. Except as otherwise may be provided by the Committee, the limitations set forth in Section 8L of the Partners Plan shall apply. Any assignment in violation of the provisions of this Paragraph 7 shall be null and void.           8.          Withholding, Consents and Legends.           (a)         The delivery of Shares is conditioned on your satisfaction of any applicable withholding taxes (in accordance with Section 3.2 of the SIP).           (b)         Your rights in respect of your Performance RSUs and Earned RSUs are conditioned on the receipt to the full satisfaction of the Committee of any required consents (as defined in Section 8N of the Partners Plan) that the Committee may determine to be necessary or advisable (including, without limitation, your consenting to deductions from your wages, or another arrangement satisfactory to the Committee, to reimburse the Company for advances made on your behalf to satisfy withholding and other tax obligations in connection with this Award).           (c)         TRH may affix to Certificates representing Shares issued pursuant to this Award Agreement any legend that the Committee determines to be necessary or advisable (including to reflect any restrictions to which you may be subject under a separate agreement with TRH). TRH may advise the transfer agent to place a stop transfer order against any legend Shares.           9.          Right of Offset. The Company shall have the right to offset against the obligation to deliver Shares under this Award Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, or amounts repayable to the Company pursuant to tax equalization, housing, automobile or other employee programs) you then owe to the Company and any amounts the Committee otherwise deems appropriate.           10.        No Rights to Continued Employment. Nothing in this Award Agreement, the Partners Plan or the SIP shall be construed as giving you any right to continued Employment by the Company or affect any right that the Company may have to terminate or alter the terms and conditions of your Employment or to be included in any future plans of similar nature. --------------------------------------------------------------------------------           11.         Successors and Assigns of TRH. The terms and conditions of this Award Agreement shall be binding upon, and shall inure to the benefit of, TRH and its successor entities (as defined in Section 3.5 of the SIP).           12.         Committee Discretion. The Committee shall have full discretion with respect to any actions to be taken or determinations to be made in connection with this Award Agreement, and its determinations shall be final, binding and conclusive.           13.         Amendment. The Committee reserves the right at any time and in any manner to amend the terms and conditions set forth in this Award Agreement and the Partners Plan, including in a manner adverse to your rights.           14.         Adjustment. The Committee shall adjust equitably outstanding and/or earned Performance RSUs to preserve the benefits or potential benefits intended to be made available to Participants for any change in the TRH common stock resulting from a recapitalization, combination or exchange of shares of TRH common stock, merger, consolidation, rights offering, separation, reorganization or liquidation, or any other change in the corporate structure or shares of TRH. In addition, the Committee shall recompute the BVPS or other Performance Objective in connection with any restatement of TRH’s financial statements.           15.         Arbitration; Choice of Forum.           (a)         Any dispute, controversy or claim between the Company and you, arising out of or relating to or concerning the SIP or this Award Agreement, shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. (the “NYSE”) or, if the NYSE declines to arbitrate the matter (or if the matter otherwise is not arbitrable by it), the American Arbitration Association (the “AAA”) in accordance with the commercial arbitration rules of the AAA. Prior to arbitration, all claims maintained by you must first be submitted to the Committee in accordance with claims procedures determined by the Committee. This Paragraph is subject to the provisions of Paragraphs 15(b) and (c) below.           (b)         THE COMPANY AND YOU HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THE SIP OR THIS AWARD AGREEMENT THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO PARAGRAPH 15(a) OF THIS AWARD AGREEMENT. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The Company and you acknowledge that the forum designated by this Paragraph 15(b) has a reasonable relation to the SIP, this Award Agreement, and to your relationship with the Company. Notwithstanding the foregoing, nothing herein shall preclude the Company from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of this Paragraph 15.           (c)         The agreement by you and the Company as to forum is independent of the law that may be applied in the action, and you and the Company agree to such forum even if the forum may under applicable law choose to apply non-forum law. You and the Company hereby waive, to the fullest extent permitted by applicable law, any objection which you or the Company now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in Paragraph 15(b). You and the Company undertake not to commence any action, suit or proceeding arising out of or relating to or concerning this Award Agreement in any forum other than a forum described in this Paragraph 15. You and (subject to the last sentence of Paragraph 15(a)) the Company agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon you and the Company.           (d)         You irrevocably appoint the Secretary of TRH as your agent for service of process in connection with any action, suit or proceeding arising out of or relating to or concerning the Partners Plan or the Award Agreement which is not arbitrated pursuant to the provisions of Paragraph 15(a), who shall promptly advise you of any such service of process. --------------------------------------------------------------------------------           (e)         You hereby agree to keep confidential the existence of, and any information concerning any grant made under the Partners Plan and any dispute, controversy or claim relating to the Partners Plan or this Award Agreement, except that you may disclose information concerning such dispute or claim to the arbitrator or court that is considering such dispute or to your legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute).           (f)          You recognize and agree that prior to the grant of this Award you have no right to any benefits hereunder. Accordingly, in consideration of the receipt of this Award, you expressly waive any right to contest the amount of this Award, terms of this Award Agreement and the Partners Plan, any determination, action or omission hereunder or under the SIP by the Committee or member of the Board, or any amendment to the Partners Plan or this Award Agreement and you expressly waive any claim related in any way to the Award including any claim based on any promissory estoppel or other theory in connection with this Award and your Employment with the Company.           16.        Section 409A Payment Delay. Notwithstanding any provision to the contrary herein, to the extent any payment to be made to you in connection with the termination of your Employment would be subject to the additional tax of Section 409A of the Internal Revenue Code (the “Code”), the payment will be delayed until six months after your termination (or earlier death or disability (within the meaning of Section 409A of the Code)).           17.        Governing Law. THIS AWARD SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.           18.        Headings. The headings in this Award Agreement are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof.           IN WITNESS WHEREOF, TRANSATLANTIC HOLDINGS, INC. has caused this Award Agreement to be duly executed and delivered as of the Date of Grant. TRANSATLANTIC HOLDINGS, INC. By: President By: Attest Recipient: Number of Performance RSUs: Max. Earned RSUs Target Earned RSUs Threshold Earned RSUs Performance Period: Date of Grant: Receipt Acknowledged: Address: Street City, State Zip Social Security No./Local 1.0. No. -------------------------------------------------------------------------------- Glossary of Terms Solely for purposes of this award of Performance RSUs, the following terms shall have the meanings set forth below. Capitalized terms not defined in this Glossary of Terms shall have the meanings as used or defined in the applicable Award Agreement or the SIP. “Cause” means (i) your conviction, whether following trial or by plea of guilty or nolo contendere (or similar plea), in a criminal proceeding (A) on a misdemeanor charge involving fraud, false statements or misleading omissions, wrongful taking, embezzlement, bribery, forgery, counterfeiting or extortion, or (B) on a felony charge or (C) on an equivalent charge to those in clauses (A) and (B) in jurisdictions which do not use those designations; (ii) your engaging in any conduct which constitutes an employment disqualification under applicable law (including statutory disqualification as defined under the Securities Exchange Act of 1934); (iii) your failure to perform your duties to the Company; (iv) your violation of any securities or commodities laws, any rules or regulations issued pursuant to such laws, or the rules and regulations of any securities or commodities exchange or association of which TRH or any of its subsidiaries or affiliates is a member; (v) your violation of any Company policy concerning hedging or confidential or proprietary information, or your material violation of any other Company policy as in effect from time to time; (vi) your engaging in any act or making any statement which impairs, impugns, denigrates, disparages or negatively reflects upon the name, reputation or business interests of the Company; or (vii) your engaging in any conduct detrimental to the Company. The determination as to whether “Cause” has occurred shall be made by the Committee in its sole discretion. The Committee shall also have the authority in its sole discretion to waive the consequences under the Partners Plan, SIP or any Award Agreement of the existence or occurrence of any of the events, acts or omissions constituting “Cause.” “Client” means any client or prospective client of the Company to whom you provided services, or for whom you transacted business, or whose identity became known to you in connection with your relationship with or Employment by the Company. “Competitive Enterprise” means a business enterprise that (i) engages in any activity, or (ii) owns or controls a significant interest in any entity that engages in any activity that, in either case, competes anywhere with any activity in which the Company is engaged. The activities covered by the previous sentence include, without limitation, all insurance and re-insurance and insurance and re-insurance-related activities, asset management, financial product activities (including, without limitation, derivative activities) and financial services in the United States and abroad. “Disability” means “permanent disability” as defined in the American International Group Long - Term Insurance Policy (in which Transatlantic Holdings, Inc. & its subsidiaries participate) as in effect on the Date of Grant. “Retirement” means voluntary retirement at or after age 65. “Solicit” means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action. --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.16 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT         This Second Amendment to Employment Agreement (this "Agreement") is entered into this 5th day of April, 2006 between Key Energy Services, Inc., a Maryland corporation (the "Company") and Kim B. Clarke (the "Executive"). Capitalized terms not otherwise defined herein shall have the meanings given them in the Employment Agreement dated effective as of November 22, 2004 between the Company and the Executive (the "Employment Agreement"). RECITALS         WHEREAS, in order to ensure that its compensation practices are competitive with the compensation practices of its peer group of companies, and that its compensation is equitable among its senior executives, the Board of Directors of the Company (the "Board") determined that it is in the best interest of the Company to increase the level of health care benefits provided to the Executive and to make such amendment to the Employment Agreement.         NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements herein contained, the parties agree as follows: 1.Paragraph 3 of the Employment Agreement is hereby deleted in its entirety and replaced with the following: Vacations; Benefits.    You will be entitled during the Employment Period to (i) not less than 15 vacation days per calendar year (prorated for any partial year of service), and (ii) such other fringe benefits, including, without limitation, group medical and dental, life, accident and disability insurance, retirement plans and supplemental and excess retirement benefits as the Company may provide from time to time for its employees generally.    You will also be entitled to participate in the Exec-U-Care benefit plan, or other like plan provided to the Company's senior management, pursuant to which out of pocket health care expenses shall be reimbursed in accordance with the plan. 2.The effective date of this amendment to Employment Agreement shall be April 1, 2006. 3.Except as set forth in this Agreement, all provisions, terms and conditions in the Employment Agreement remain unmodified and in full force and effect, and the Employment Agreement is hereby in all respects ratified and confirmed. 4.This Agreement may be executed in duplicate counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one agreement. --------------------------------------------------------------------------------         IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first written above.   KEY ENERGY SERVICES, INC.       By:   /s/  RICHARD J. ALARIO       -------------------------------------------------------------------------------- Richard J. Alario President, Chairman and Chief Executive Officer       Executive:       /s/  KIM B. CLARKE       -------------------------------------------------------------------------------- Kim B. Clarke     2 -------------------------------------------------------------------------------- QuickLinks SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

Exhibit 10.1   -------------------------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF OCTOBER 30, 2006, AMONG NOBEL LEARNING COMMUNITIES, INC., THE GUARANTORS FROM TIME TO TIME PARTIES HERETO, THE LENDERS FROM TIME TO TIME PARTIES HERETO, AND HARRIS N.A., as Administrative Agent   -------------------------------------------------------------------------------- BMO CAPITAL MARKETS, AS SOLE LEAD ARRANGER AND SOLE BOOK RUNNER CITIZENS BANK OF PENNSYLVANIA, AS SYNDICATION AGENT MANUFACTURERS AND TRADERS TRUST COMPANY, AS DOCUMENTATION AGENT   -------------------------------------------------------------------------------- TABLE OF CONTENTS   SECTION      HEADING    PAGE SECTION 1.      THE CREDIT FACILITIES    1 Section 1.1.      Revolving Credit Commitments    1 Section 1.2.      Letters of Credit    1 Section 1.3.      Applicable Interest Rates    4 Section 1.4.      Minimum Borrowing Amounts; Maximum Eurodollar Loans    6 Section 1.5.      Manner of Borrowing Loans and Designating Applicable Interest Rates    6 Section 1.6.      Interest Periods    8 Section 1.7.      Maturity of Revolving Loans and Swing Loans    9 Section 1.8.      Prepayments    9 Section 1.9.      Default Rate    11 Section 1.10.      Evidence of Indebtedness    11 Section 1.11.      Funding Indemnity    12 Section 1.12.      Commitment Terminations    13 Section 1.13.      Substitution of Lenders    13 Section 1.14.      Swing Loans    14 SECTION 2.      FEES    15 Section 2.1.      Fees    15 SECTION 3.      PLACE AND APPLICATION OF PAYMENTS    16 Section 3.1.      Place and Application of Payments    16 Section 3.2.      Account Debit    18 SECTION 4.      GUARANTIES AND COLLATERAL    18 Section 4.1.      Guaranties    18 Section 4.2.      Collateral    18 Section 4.3.      Liens on Real Property    19 Section 4.4.      Further Assurances    19 Section 4.5.      Collections    19 SECTION 5.      DEFINITIONS; INTERPRETATION    20 Section 5.1.      Definitions    20 Section 5.2.      Interpretation    36 Section 5.3.      Change in Accounting Principles    36 SECTION 6.      REPRESENTATIONS AND WARRANTIES    36 Section 6.1.      Organization and Qualification    36 Section 6.2.      Subsidiaries    37 -------------------------------------------------------------------------------- Section 6.3.      Authority and Validity of Obligations    37 Section 6.4.      Use of Proceeds; Margin Stock    38 Section 6.5.      Financial Reports    38 Section 6.6.      No Material Adverse Change    38 Section 6.7.      Full Disclosure    38 Section 6.8.      Trademarks, Franchises, and Licenses    39 Section 6.9.      Governmental Authority and Licensing    39 Section 6.10.      Good Title    39 Section 6.11.      Litigation and Other Controversies    39 Section 6.12.      Taxes    39 Section 6.13.      Approvals    40 Section 6.14.      Affiliate Transactions    40 Section 6.15.      Investment Company    40 Section 6.16.      ERISA    40 Section 6.17.      Compliance with Laws    40 Section 6.18.      Other Agreements    41 Section 6.19.      Solvency    41 Section 6.20.      No Broker Fees.    41 Section 6.21.      No Default    41 SECTION 7.      CONDITIONS PRECEDENT    42 Section 7.1.      All Credit Events    42 Section 7.2.      Initial Credit Event    42 Section 7.3.      Real Property Matters    44 SECTION 8.      COVENANTS    44 Section 8.1.      Maintenance of Business    45 Section 8.2.      Maintenance of Properties    45 Section 8.3.      Taxes and Assessments    45 Section 8.4.      Insurance    45 Section 8.5.      Financial Reports    45 Section 8.6.      Inspection    47 Section 8.7.      Borrowings and Guaranties    48 Section 8.8.      Liens    49 Section 8.9.      Investments, Acquisitions, Loans and Advances    50 Section 8.10.      Mergers, Consolidations and Sales    51 Section 8.11.      Maintenance of Subsidiaries    52 Section 8.12.      Dividends and Certain Other Restricted Payments    52 Section 8.13.      ERISA    53 Section 8.14.      Compliance with Laws    53 Section 8.15.      Burdensome Contracts With Affiliates    54 Section 8.16.      No Changes in Fiscal Year    54 Section 8.17.      Formation of Subsidiaries    54 Section 8.18.      Change in the Nature of Business    55 Section 8.19.      Use of Proceeds    55   -ii- -------------------------------------------------------------------------------- Section 8.20.      No Restrictions    55 Section 8.21.      Financial Covenants    56 SECTION 9.      EVENTS OF DEFAULT AND REMEDIES    57 Section 9.1.      Events of Default    57 Section 9.2.      Non-Bankruptcy Defaults    59 Section 9.3.      Bankruptcy Defaults    59 Section 9.4.      Collateral for Undrawn Letters of Credit    59 Section 9.5.      Notice of Default    60 Section 9.6.      Expenses    60 SECTION 10.      CHANGE IN CIRCUMSTANCES    60 Section 10.1.      Change of Law    60 Section 10.2.      Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR    61 Section 10.3.      Increased Cost and Reduced Return    61 Section 10.4.      Lending Offices    63 Section 10.5.      Discretion of Lender as to Manner of Funding    63 SECTION 11.      THE ADMINISTRATIVE AGENT    63 Section 11.1.      Appointment and Authorization of Administrative Agent    63 Section 11.2.      Administrative Agent and its Affiliates    63 Section 11.3.      Action by Administrative Agent    64 Section 11.4.      Consultation with Experts    64 Section 11.5.      Liability of Administrative Agent; Credit Decision    64 Section 11.6.      Indemnity    65 Section 11.7.      Resignation of Administrative Agent and Successor Administrative Agent    65 Section 11.8.      L/C Issuer.    66 Section 11.9.      Hedging Liability and Funds Transfer and Deposit Account Liability Arrangements    66 Section 11.10.      Designation of Additional Agents    66 Section 11.11.      Authorization to Release or Subordinate or Limit Liens    67 Section 11.12.      Authorization to Enter into, and Enforcement of, the Collateral Documents    67 SECTION 12.      THE GUARANTEES    67 Section 12.1.      The Guarantees    67 Section 12.2.      Guarantee Unconditional    68 Section 12.3.      Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances    69 Section 12.4.      Subrogation    69 Section 12.5.      Waivers    70 Section 12.6.      Limit on Recovery    70   -iii- -------------------------------------------------------------------------------- Section 12.7.      Stay of Acceleration    70 Section 12.8.      Benefit to Guarantors    70 Section 12.9.      Guarantor Covenants    70 SECTION 13.      MISCELLANEOUS    70 Section 13.1.      Withholding Taxes    70 Section 13.2.      No Waiver, Cumulative Remedies    72 Section 13.3.      Non-Business Days    72 Section 13.4.      Documentary Taxes    72 Section 13.5.      Survival of Representations    72 Section 13.6.      Survival of Indemnities    72 Section 13.7.      Sharing of Set-Off    72 Section 13.8.      Notices    73 Section 13.9.      Counterparts    73 Section 13.10.      Successors and Assigns    74 Section 13.11.      Participants    74 Section 13.12.      Assignments    74 Section 13.13.      Amendments    76 Section 13.14.      Headings    77 Section 13.15.      Costs and Expenses; Indemnification    77 Section 13.16.      Set-off    78 Section 13.17.      Entire Agreement    79 Section 13.18.      Governing Law    79 Section 13.19.      Severability of Provisions    79 Section 13.20.      Excess Interest    79 Section 13.21.      Construction    80 Section 13.22.      Lender’s Obligations Several    80 Section 13.23.      Submission to Jurisdiction; Waiver of Jury Trial    80 Section 13.24.      USA Patriot Act    81 Section 13.25.      Confidentiality    81 Signature Page    S-1   -iv- -------------------------------------------------------------------------------- EXHIBIT A    —        Notice of Payment Request EXHIBIT B    —        Notice of Borrowing EXHIBIT C    —        Notice of Continuation/Conversion EXHIBIT D-1    —        Revolving Note EXHIBIT D-2    —        Swing Note EXHIBIT E    —        Compliance Certificate EXHIBIT F    —        Additional Guarantor Supplement EXHIBIT G    —        Assignment and Acceptance SCHEDULE 1    —        Commitments SCHEDULE 1.3    —        Existing Letters of Credit SCHEDULE 5.1    —        Scheduled EBITDA Adjustments SCHEDULE 6.2    —        Subsidiaries SCHEDULE 6.5    —        Financial Reports SCHEDULE 6.6    —        No Material Adverse Change SCHEDULE 6.8    —        Trademarks, Franchises and Licenses SCHEDULE 6.12    —        Taxes SCHEDULE 6.16    —        ERISA SCHEDULE 6.20    —        No Broker Fees SCHEDULE 8.7    —        Borrowings and Guaranties SCHEDULE 8.10    —        Mergers, Consolidations and Sales   -v- -------------------------------------------------------------------------------- CREDIT AGREEMENT This Amended and Restated Credit Agreement is entered into as of October 30, 2006, by and among NOBEL LEARNING COMMUNITIES, INC., a Delaware corporation (the “Borrower”), the direct and indirect Subsidiaries of the Borrower from time to time party to this Agreement, as Guarantors, the several financial institutions from time to time party to this Agreement, as Lenders, and HARRIS N.A., as Administrative Agent as provided herein. All capitalized terms used herein without definition shall have the same meanings herein as such terms are defined in Section 5.1 hereof. PRELIMINARY STATEMENT The parties hereto have previously entered into that certain Credit Agreement dated as of February 20, 2004 (as amended, modified or supplemented prior to the date hereof, the “Original Agreement”). The Borrower has requested, and the Lenders have agreed to amend and restate the Original Agreement in its entirety, and to extend certain credit facilities on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. THE CREDIT FACILITIES. Section 1.1. Revolving Credit Commitments. Subject to the terms and conditions hereof, each Lender, by its acceptance hereof, severally agrees to make a loan or loans (individually a “Revolving Loan” and collectively the “Revolving Loans”) in U.S. Dollars to the Borrower from time to time on a revolving basis up to the amount of such Lender’s Revolving Credit Commitment, subject to any reductions thereof pursuant to the terms hereof, before the Revolving Credit Termination Date. The sum of the aggregate principal amount of Revolving Loans, Swing Loans and L/C Obligations at any time outstanding shall not exceed the Revolving Credit Commitments in effect at such time. Each Borrowing of Revolving Loans shall be made ratably by the Lenders in proportion to their respective Revolver Percentages. As provided in Section 1.5(a) hereof, the Borrower may elect that each Borrowing of Revolving Loans be either Base Rate Loans or Eurodollar Loans. Revolving Loans may be repaid and the principal amount thereof reborrowed before the Revolving Credit Termination Date, subject to the terms and conditions hereof. Section 1.2. Letters of Credit. (a) General Terms. Subject to the terms and conditions hereof, as part of the Revolving Credit, the L/C Issuer shall issue standby letters of credit (each a “Letter of Credit”) for the account of Borrower or for the account of the Borrower and one or more of the Guarantors in an aggregate undrawn face amount up to the L/C Sublimit. Each Letter of Credit shall be issued by the L/C Issuer, but each Lender shall be obligated to reimburse -------------------------------------------------------------------------------- the L/C Issuer for such Lender’s Revolver Percentage of the amount of each drawing thereunder and, accordingly, each Letter of Credit shall constitute usage of the Revolving Credit Commitment of each Lender pro rata in an amount equal to its Revolver Percentage of the L/C Obligations then outstanding. The parties hereto hereby acknowledge and agree that each of the letters of credit set forth on Schedule 1.3 hereto shall constitute Letters of Credit for all purposes of this Agreement. (b) Applications. At any time before the Revolving Credit Termination Date, the L/C Issuer shall, at the request of the Borrower, issue one or more Letters of Credit in U.S. Dollars, in a form satisfactory to the L/C Issuer, with expiration dates no later than the earlier of 12 months from the date of issuance (or which are cancelable not later than 12 months from the date of issuance and each renewal) or 10 days prior to the Revolving Credit Termination Date, in an aggregate face amount as set forth above, upon the receipt of an application duly executed by the Borrower and, if such Letter of Credit is for the account of one of the Guarantors, such Guarantor for the relevant Letter of Credit in the form then customarily prescribed by the L/C Issuer for the Letter of Credit requested (each an “Application”). Notwithstanding anything contained in any Application to the contrary: (i) the Borrower shall pay fees in connection with each Letter of Credit as set forth in Section 2.1 hereof, (ii) except as otherwise provided in Section 1.8 hereof, unless an Event of Default exists, the L/C Issuer will not call for the funding by the Borrower of any amount under a Letter of Credit before being presented with a drawing thereunder, and (iii) if the L/C Issuer is not timely reimbursed for the amount of any drawing under a Letter of Credit on the date such drawing is paid, the Borrower’s obligation to reimburse the L/C Issuer for the amount of such drawing shall bear interest (which the Borrower hereby promises to pay) from and after the date such drawing is paid at a rate per annum equal to the sum of the Applicable Margin plus the Base Rate from time to time in effect (computed on the basis of a year of 365 or 366 days, as the case may be, and the actual number of days elapsed). If the L/C Issuer issues any Evergreen Letter of Credit, unless the Required Lenders instruct the L/C Issuer otherwise, the L/C Issuer will give notice of non-renewal before the time necessary to prevent an automatic extension of such Evergreen Letter of Credit if before such required notice date: (i) the expiration date of such Letter of Credit if so extended would be after the Revolving Credit Termination Date, (ii) the Revolving Credit Commitments have been terminated, or (iii) a Default or an Event of Default exists and the Administrative Agent, at the request or with the consent of the Required Lenders, has given the L/C Issuer instructions not to so permit the extension of the expiration date of such Letter of Credit. The L/C Issuer agrees to issue amendments to the Letter(s) of Credit increasing the amount, or extending the expiration date, thereof at the request of the Borrower subject to the conditions of Section 7 hereof and the other terms of this Section 1.2. (c) The Reimbursement Obligations. Subject to Section 1.2(b) hereof, the obligation of the Borrower to reimburse the L/C Issuer for all drawings under a Letter of Credit (a “Reimbursement Obligation”) shall be governed by the Application related to such Letter of Credit, except that reimbursement shall be made by no later than 12:00 Noon (Chicago time) on the date when each drawing is to be paid if the Borrower has been informed of such drawing by the L/C Issuer on or before 11:30 a.m. (Chicago time) on the date when such drawing is to be paid or, if notice of such drawing is given to the Borrower after 11:30 a.m. (Chicago time) on the date when such drawing is to be paid, by the end of such day, in immediately available funds at   -2- -------------------------------------------------------------------------------- the Administrative Agent’s principal office in Chicago, Illinois or such other office as the Administrative Agent may designate in writing to the Borrower (who shall thereafter cause to be distributed to the L/C Issuer such amount(s) in like funds). If the Borrower does not make any such reimbursement payment on the date due and the Participating Lenders fund their participations therein in the manner set forth in Section 1.2(d) below, then all payments thereafter received by the Administrative Agent in discharge of any of the relevant Reimbursement Obligations shall be distributed in accordance with Section 1.2(d) below. (d) The Participating Interests. Each Lender (other than the Lender acting as L/C Issuer in issuing the relevant Letter of Credit), by its acceptance hereof, severally agrees to purchase from the L/C Issuer, and the L/C Issuer hereby agrees to sell to each such Lender (a “Participating Lender”), an undivided percentage participating interest (a “Participating Interest”), to the extent of its Revolver Percentage, in each Letter of Credit issued by, and each Reimbursement Obligation owed to, the L/C Issuer. Upon any failure by the Borrower to pay any Reimbursement Obligation at the time required on the date the related drawing is to be paid, as set forth in Section 1.2(c) above, or if the L/C Issuer is required at any time to return to the Borrower or to a trustee, receiver, liquidator, custodian or other Person any portion of any payment of any Reimbursement Obligation, each Participating Lender shall, not later than the Business Day it receives a certificate in the form of Exhibit A hereto from the L/C Issuer (with a copy to the Administrative Agent) to such effect, if such certificate is received before 1:00 p.m. (Chicago time), or not later than 1:00 p.m. (Chicago time) the following Business Day, if such certificate is received after such time, pay to the Administrative Agent for the account of the L/C Issuer an amount equal to such Participating Lender’s Revolver Percentage of such unpaid or recaptured Reimbursement Obligation together with interest on such amount accrued from the date the related payment was made by the L/C Issuer to the date of such payment by such Participating Lender at a rate per annum equal to: (i) from the date the related payment was made by the L/C Issuer to the date 2 Business Days after payment by such Participating Lender is due hereunder, the Federal Funds Rate for each such day and (ii) from the date 2 Business Days after the date such payment is due from such Participating Lender to the date such payment is made by such Participating Lender, the Base Rate in effect for each such day. Each such Participating Lender shall thereafter be entitled to receive its Revolver Percentage of each payment received in respect of the relevant Reimbursement Obligation and of interest paid thereon, with the L/C Issuer retaining its Revolver Percentage thereof as a Lender hereunder. The several obligations of the Participating Lenders to the L/C Issuer under this Section 1.2 shall be absolute, irrevocable, and unconditional under any and all circumstances whatsoever and shall not be subject to any set-off, counterclaim or defense to payment which any Participating Lender may have or have had against the Borrower, the L/C Issuer, the Administrative Agent, any Lender or any other Person whatsoever. Without limiting the generality of the foregoing, such obligations shall not be affected by any Default or Event of Default or by any reduction or termination of the Revolving Credit Commitment of any Lender, and each payment by a Participating Lender under this Section 1.2 shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Indemnification. The Participating Lenders shall, to the extent of their respective Revolver Percentages, indemnify the L/C Issuer (to the extent not reimbursed by the Borrower) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand,   -3- -------------------------------------------------------------------------------- action, loss or liability (except where arising from the L/C Issuer’s gross negligence or willful misconduct) that the L/C Issuer may suffer or incur in connection with any Letter of Credit issued by it. The obligations of the Participating Lenders under this Section 1.2(e) and all other parts of this Section 1.2 shall survive termination of this Agreement and of all Applications, Letters of Credit, and all drafts and other documents presented in connection with drawings thereunder. (f) Manner of Requesting a Letter of Credit. The Borrower shall provide at least five (5) Business Days’ (or such shorter period of time then agreed to in writing by the Administrative Agent) advance written notice to the Administrative Agent of each request for the issuance of a Letter of Credit, such notice in each case to be accompanied by an Application for such Letter of Credit properly completed and executed by the Borrower and, in the case of an extension or an increase in the amount of a Letter of Credit, a written request therefor, in a form acceptable to the Administrative Agent and the L/C Issuer, in each case, together with the fees called for by this Agreement. The Administrative Agent shall promptly notify the L/C Issuer of the Administrative Agent’s receipt of each such notice and the L/C Issuer shall promptly notify the Administrative Agent and the Lenders of the issuance of the Letter of Credit so requested. Section 1.3. Applicable Interest Rates. (a) Base Rate Loans. Each Base Rate Loan made or maintained by a Lender shall bear interest during each Interest Period it is outstanding (computed on the basis of a year of 365 or 366 days, as the case may be, and the actual days elapsed) on the unpaid principal amount thereof from the date such Loan is advanced or continued, or created by conversion from a Eurodollar Loan, until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the Applicable Margin plus the Base Rate from time to time in effect, payable on the last day of its Interest Period and at maturity (whether by acceleration or otherwise). “Base Rate” means for any day the greater of: (i) the rate of interest announced or otherwise established by the Administrative Agent from time to time as its prime commercial rate as in effect on such day, with any change in the Base Rate resulting from a change in said prime commercial rate to be effective as of the date of the relevant change in said prime commercial rate (it being acknowledged and agreed that such rate may not be the Administrative Agent’s best or lowest rate) and (ii) the sum of (x) the rate determined by the Administrative Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the rates per annum quoted to the Administrative Agent at approximately 10:00 a.m. (Chicago time) (or as soon thereafter as is practicable) on such day (or, if such day is not a Business Day, on the immediately preceding Business Day) by two or more Federal funds brokers selected by the Administrative Agent for sale to the Administrative Agent at face value of Federal funds in the secondary market in an amount equal or comparable to the principal amount owed to the Administrative Agent for which such rate is being determined, plus (y) 1/2 of 1%. (b) Eurodollar Loans. Each Eurodollar Loan made or maintained by a Lender shall bear interest during each Interest Period it is outstanding (computed on the basis of a year of 360 days and actual days elapsed) on the unpaid principal amount thereof from the date such Loan is advanced or continued, or created by conversion from a Base Rate Loan, until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the Applicable   -4- -------------------------------------------------------------------------------- Margin plus the Adjusted LIBOR applicable for such Interest Period, payable on the last day of the Interest Period and at maturity (whether by acceleration or otherwise), and, if the applicable Interest Period is longer than three months, on each day occurring every three months after the commencement of such Interest Period. “Adjusted LIBOR” means, for any Borrowing of Eurodollar Loans, a rate per annum determined in accordance with the following formula:   Adjusted LIBOR    =    LIBOR          1 - Eurodollar Reserve Percentage    “Eurodollar Reserve Percentage” means, for any Borrowing of Eurodollar Loans, the daily average for the applicable Interest Period of the maximum rate, expressed as a decimal, at which reserves (including, without limitation, any supplemental, marginal, and emergency reserves) are imposed during such Interest Period by the Board of Governors of the Federal Reserve System (or any successor) on “eurocurrency liabilities”, as defined in such Board’s Regulation D (or in respect of any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Loans is determined or any category of extensions of credit or other assets that include loans by non-United States offices of any Lender to United States residents), subject to any amendments of such reserve requirement by such Board or its successor, taking into account any transitional adjustments thereto. For purposes of this definition, the Eurodollar Loans shall be deemed to be “eurocurrency liabilities” as defined in Regulation D without benefit or credit for any prorations, exemptions or offsets under Regulation D. “LIBOR” means, for an Interest Period for a Borrowing of Eurodollar Loans, (a) the LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate cannot be determined, the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which deposits in U.S. Dollars in immediately available funds are offered to the Administrative Agent at 11:00 a.m. (London, England time) 2 Business Days before the beginning of such Interest Period by 3 or more major banks in the interbank eurodollar market selected by the Administrative Agent for delivery on the first day of and for a period equal to such Interest Period and in an amount equal or comparable to the principal amount of the Eurodollar Loan scheduled to be made by the Administrative Agent as part of such Borrowing. “LIBOR Index Rate” means, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the next higher one hundred-thousandth of a percentage point) for deposits in U.S. Dollars for a period equal to such Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day 2 Business Days before the commencement of such Interest Period. “Telerate Page 3750” means the display designated as “Page 3750” on the Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying British Bankers’ Association Interest Settlement Rates for U.S. Dollar deposits).   -5- -------------------------------------------------------------------------------- (c) Rate Determinations. The Administrative Agent shall determine each interest rate applicable to the Loans and the Reimbursement Obligations hereunder, and its determination thereof shall be conclusive and binding except in the case of manifest error. Section 1.4. Minimum Borrowing Amounts; Maximum Eurodollar Loans. Each Borrowing of Base Rate Loans advanced under a Credit shall be in an amount not less than $100,000. Each Borrowing of Eurodollar Loans advanced, continued or converted under a Credit shall be in an amount equal to $500,000 or such greater amount which is an integral multiple of $500,000. Without the Administrative Agent’s consent, there shall not be more than seven (7) Borrowings of Eurodollar Loans outstanding hereunder at any one time. Section 1.5. Manner of Borrowing Loans and Designating Applicable Interest Rates. (a) Notice to the Administrative Agent. The Borrower shall give notice to the Administrative Agent by no later than 10:00 a.m. (Chicago time): (i) at least 3 Business Days (or such shorter period of time then agreed to in writing by the Administrative Agent) before the date on which the Borrower requests the Lenders to advance a Borrowing of Eurodollar Loans and (ii) on the date the Borrower requests the Lenders to advance a Borrowing of Base Rate Loans. The Loans included in each Borrowing shall bear interest initially at the type of rate specified in such notice of a new Borrowing. Thereafter, subject to the terms and conditions hereof, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Borrowing or, subject to the minimum amount requirement for each outstanding Borrowing set forth in Section 1.4 hereof, a portion thereof, as follows: (i) if such Borrowing is of Eurodollar Loans, on the last day of the Interest Period applicable thereto, the Borrower may continue part or all of such Borrowing as Eurodollar Loans or convert part or all of such Borrowing into Base Rate Loans or (ii) if such Borrowing is of Base Rate Loans, on any Business Day, the Borrower may convert all or part of such Borrowing into Eurodollar Loans for an Interest Period or Interest Periods specified by the Borrower. The Borrower shall give all such notices requesting the advance, continuation or conversion of a Borrowing to the Administrative Agent by telephone or telecopy (which notice shall be irrevocable once given and, if by telephone, shall be promptly confirmed in writing), substantially in the form attached hereto as Exhibit B (Notice of Borrowing) or Exhibit C (Notice of Continuation/Conversion), as applicable, or in such other form acceptable to the Administrative Agent. Notice of the continuation of a Borrowing of Eurodollar Loans for an additional Interest Period or of the conversion of part or all of a Borrowing of Base Rate Loans into Eurodollar Loans must be given by no later than 10:00 a.m. (Chicago time) at least 3 Business Days (or such shorter period of time then agreed to in writing by the Administrative Agent) before the date of the requested continuation or conversion. All such notices concerning the advance, continuation or conversion of a Borrowing shall specify the date of the requested advance, continuation or conversion of a Borrowing (which shall be a Business Day), the amount of the requested Borrowing to be advanced, continued or converted, the type of Loans to comprise such new, continued or converted Borrowing and, if such Borrowing is to be comprised of Eurodollar Loans, the Interest Period applicable thereto. The Borrower agrees that the Administrative Agent may rely on any such telephonic or telecopy notice given by any person the Administrative Agent in good faith believes is an Authorized Representative without the necessity of independent investigation, and in the event any such notice by telephone conflicts with any written confirmation such telephonic notice shall govern if the Administrative Agent has acted in reliance thereon.   -6- -------------------------------------------------------------------------------- (b) Notice to the Lenders. The Administrative Agent shall give prompt telephonic or telecopy notice to each Lender of any notice from the Borrower received pursuant to Section 1.5(a) above and, if such notice requests the Lenders to make Eurodollar Loans, the Administrative Agent shall give notice to the Borrower and each Lender by like means of the interest rate applicable thereto promptly after the Administrative Agent has made such determination. (c) Borrower’s Failure to Notify; Automatic Continuations and Conversions. Any outstanding Borrowing of Base Rate Loans shall automatically be continued for an additional Interest Period on the last day of its then current Interest Period unless the Borrower has notified the Administrative Agent within the period required by Section 1.5(a) that the Borrower intends to convert such Borrowing, subject to Section 7.1 hereof, into a Borrowing of Eurodollar Loans or such Borrowing is prepaid in accordance with Section 1.8(a). If the Borrower fails to give notice pursuant to Section 1.5(a) above of the continuation or conversion of any outstanding principal amount of a Borrowing of Eurodollar Loans before the last day of its then current Interest Period within the period required by Section 1.5(a) or, whether or not such notice has been given, one or more of the conditions set forth in Section 7.1 for the continuation or conversion of a Borrowing of Eurodollar Loans would not be satisfied, and such Borrowing is not prepaid in accordance with Section 1.8(a), such Borrowing shall automatically be converted into a Borrowing of Base Rate Loans at the end of its then current Interest Period. Notwithstanding anything to the contrary in Section 1.2(b) hereof, in the event the Borrower fails to give notice pursuant to Section 1.5(a) above of a Borrowing equal to the amount of a Reimbursement Obligation and has not notified the Administrative Agent by 12:00 noon (Chicago time) on the day such Reimbursement Obligation becomes due that it intends to repay such Reimbursement Obligation through funds not borrowed under this Agreement, the Borrower shall be deemed to have requested a Borrowing of Base Rate Loans under the Revolving Credit (or, at the option of the Administrative Agent, under the Swing Line) on such day in the amount of the Reimbursement Obligation then due, which Borrowing shall be applied to pay the Reimbursement Obligation then due. (d) Disbursement of Loans. Not later than 1:00 p.m. (Chicago time) on the date of any requested advance of a new Borrowing, subject to Section 7 hereof, each Lender shall make available its Loan comprising part of such Borrowing in funds immediately available at the principal office of the Administrative Agent in Chicago, Illinois. The Administrative Agent shall make the proceeds of each new Borrowing available to the Borrower at the Administrative Agent’s principal office in Chicago, Illinois, by depositing such proceeds to the credit of the Borrower’s principal operating account maintained with the Administrative Agent or as the Borrower and the Administrative Agent may otherwise agree. (e) Administrative Agent Reliance on Lender Funding. Unless the Administrative Agent shall have been notified by a Lender prior to (or, in the case of a Borrowing of Base Rate Loans, by 1:00 p.m. (Chicago time) on) the date on which such Lender is scheduled to make payment to the Administrative Agent of the proceeds of a Loan (which notice shall be effective upon receipt) that such Lender does not intend to make such payment, the Administrative Agent may assume that such Lender has made such payment when due and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to the   -7- -------------------------------------------------------------------------------- Borrower the proceeds of the Loan to be made by such Lender and, if any Lender has not in fact made such payment to the Administrative Agent, such Lender shall, on demand, pay to the Administrative Agent the amount made available to the Borrower attributable to such Lender together with interest thereon in respect of each day during the period commencing on the date such amount was made available to the Borrower and ending on (but excluding) the date such Lender pays such amount to the Administrative Agent at a rate per annum equal to: (i) from the date the related advance was made by the Administrative Agent to the date 2 Business Days after payment by such Lender is due hereunder, the Federal Funds Rate for each such day and (ii) from the date 2 Business Days after the date such payment is due from such Lender to the date such payment is made by such Lender, the Base Rate in effect for each such day. If such amount is not received from such Lender by the Administrative Agent immediately upon demand, the Borrower will, on demand, repay to the Administrative Agent the proceeds of the Loan attributable to such Lender with interest thereon at a rate per annum equal to the interest rate applicable to the relevant Loan, but without such payment being considered a payment or prepayment of a Loan under Section 1.11 hereof so that the Borrower will have no liability under such Section with respect to such payment. Section 1.6. Interest Periods. As provided in Section 1.5(a) and 1.14 hereof, at the time of each request to advance, continue or create by conversion a Borrowing of Eurodollar Loans or Swing Loans, the Borrower shall select an Interest Period applicable to such Loans from among the available options. The term “Interest Period” means the period commencing on the date a Borrowing of Loans is advanced, continued or created by conversion and ending: (a) in the case of Base Rate Loans, on the last day of the calendar quarter (i.e., the last day of March, June, September or December, as applicable) in which such Borrowing is advanced, continued or created by conversion (or on the last day of the following calendar quarter if such Loan is advanced, continued or created by conversion on the last day of a calendar quarter), (b) in the case of a Eurodollar Loan, 1, 2, 3 or 6 months thereafter, and (c) in the case of a Swing Loan, on the date 1 to 5 Business Days thereafter as mutually agreed to by the Borrower and the Administrative Agent; provided, however, that: (i) any Interest Period for a Borrowing of Revolving Loans consisting of Base Rate Loans that otherwise would end after the Revolving Credit Termination Date shall end on the Revolving Credit Termination Date; (ii) no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Credit Termination Date; (iii) whenever the last day of any Interest Period would otherwise be a day that is not a Business Day, the last day of such Interest Period shall be extended to the next succeeding Business Day, provided that, if such extension would cause the last day of an Interest Period for a Borrowing of Eurodollar Loans to occur in the following calendar month, the last day of such Interest Period shall be the immediately preceding Business Day; and (iv) for purposes of determining an Interest Period for a Borrowing of Eurodollar Loans, a month means a period starting on one day in a calendar month and   -8- -------------------------------------------------------------------------------- ending on the numerically corresponding day in the next calendar month; provided, however, that if there is no numerically corresponding day in the month in which such an Interest Period is to end or if such an Interest Period begins on the last Business Day of a calendar month, then such Interest Period shall end on the last Business Day of the calendar month in which such Interest Period is to end. Section 1.7. Maturity of Revolving Loans and Swing Loans. Each Revolving Loan and Swing Loan, both for principal and interest not sooner paid, shall mature and be due and payable by the Borrower on the Revolving Credit Termination Date. Section 1.8. Prepayments. (a) Optional. The Borrower may prepay in whole or in part (but, if in part, then: (i) if such Borrowing is of Base Rate Loans (other than a Swing Loan), in an amount not less than $100,000, (ii) if such Borrowing is of Swing Loans, in an amount not less than $50,000, (iii) if such Borrowing is of Eurodollar Loans, in an amount not less than $500,000, and (iv) in each case, in an amount such that the minimum amount required for a Borrowing pursuant to Section 1.4 and 1.14 hereof remains outstanding) any Borrowing of Eurodollar Loans at any time upon 3 Business Days prior notice by the Borrower to the Administrative Agent or, in the case of a Borrowing of Base Rate Loans, notice delivered by the Borrower to the Administrative Agent no later than 10:00 a.m. (Chicago time) on the date of prepayment (or, in any case, such shorter period of time then agreed to by the Administrative Agent), such prepayment to be made by the payment of the principal amount to be prepaid and, in the case of any Eurodollar Loans or Swing Loans, accrued interest thereon to the date fixed for prepayment plus any amounts due the Lenders under Section 1.11 hereof. (b) Mandatory. (i) If the Borrower or any Subsidiary shall at any time or from time to time make or agree to make a Disposition or shall suffer an Event of Loss with respect to any Property, then the Borrower shall promptly notify the Administrative Agent of such proposed Disposition or Event of Loss (including the amount of the estimated Net Cash Proceeds to be received by the Borrower or such Subsidiary in respect thereof) and, promptly upon receipt by the Borrower or such Subsidiary of the Net Cash Proceeds of such Disposition or Event of Loss, the Borrower shall prepay the Obligations in an aggregate amount equal to 100% of the amount of all such Net Cash Proceeds; provided that (x) so long as no Default or Event of Default then exists, this subsection shall not require any such prepayment with respect to Net Cash Proceeds received on account of an Event of Loss so long as such Net Cash Proceeds are applied to replace or restore the relevant Property in accordance with the relevant Collateral Documents within six months following receipt of such Net Cash Proceeds, and (y) this subsection shall not require any such prepayment with respect to Net Cash Proceeds received on account of Dispositions during any fiscal year of the Borrower not exceeding $500,000 in the aggregate so long as no Default or Event of Default then exists. The amount of each such prepayment shall be applied to the Revolving Loans until paid in full and then, to the extent that an Event of Default then exists, applied to cash collateralize the Letters of Credit. The amount of each such prepayment shall be applied on a ratable basis among the outstanding Loans of the several Lenders based on the principal amounts thereof. (ii) If after the Closing Date the Borrower or any Subsidiary shall issue new equity securities (whether common or preferred stock or otherwise), other than equity securities issued   -9- -------------------------------------------------------------------------------- to officers, directors or employees of the Borrower as compensation for bona fide services provided or to be provided to the Borrower by such persons and approved by the Borrower’s Board of Directors or the Compensation Committee of the Borrower’s Board of Directors, as the case may be or in connection with the exercise of employee stock options and capital stock of the Borrower issued to the seller of an Acquired Business in connection with a Permitted Acquisition, the Borrower shall promptly notify the Administrative Agent of the estimated Net Cash Proceeds of such issuance to be received by or for the account of the Borrower or such Subsidiary in respect thereof. Promptly upon receipt by the Borrower or such Subsidiary of Net Cash Proceeds of such issuance, the Borrower shall prepay the outstanding Revolving Loans until paid in full, in an aggregate amount equal to 50% of the amount of such Net Cash Proceeds and then, to the extent that an Event of Default then exists, applied to cash collateralize the Letters of Credit. The amount of each such prepayment shall be applied on a ratable basis among the outstanding Loans of the several Lenders based on the principal amounts thereof. The Borrower acknowledges that its performance hereunder shall not limit the rights and remedies of the Lenders for any breach of Section 8.11 (Maintenance of Subsidiaries) or Section 9.1(i) (Change of Control) hereof or any other terms of the Loan Documents. (iii) If after the Closing Date the Borrower or any Subsidiary shall issue any Indebtedness for Borrowed Money, other than Indebtedness for Borrowed Money permitted by Section 8.7(a)-(h) hereof, the Borrower shall promptly notify the Administrative Agent of the estimated Net Cash Proceeds of such issuance to be received by or for the account of the Borrower or such Subsidiary in respect thereof. Promptly upon receipt by the Borrower or such Subsidiary of Net Cash Proceeds of such issuance, the Borrower shall prepay the outstanding Revolving Loans until paid in full in an aggregate amount equal to 100% of the amount of such Net Cash Proceeds and then, to the extent that an Event of Default then exists, applied to cash collateralize the Letters of Credit. The amount of each such prepayment shall be applied on a ratable basis among the outstanding Loans of the several Lenders based on the principal amounts thereof. The Borrower acknowledges that its performance hereunder shall not limit the rights and remedies of the Lenders for any breach of Section 8.7 hereof or any other terms of the Loan Documents. (iv) The Borrower shall, on each date the Revolving Credit Commitments are reduced pursuant to Section 1.12 hereof, prepay the Revolving Loans, Swing Loans and, if necessary, prefund the L/C Obligations by the amount, if any, necessary to reduce the sum of the aggregate principal amount of Revolving Loans, Swing Loans and L/C Obligations then outstanding to the amount to which the Revolving Credit Commitments have been so reduced. (v) The Borrower shall, promptly upon receipt of any proceeds from any repayment of the Philadelphia School Loan, prepay first the outstanding Revolving Loans until paid in full and then, to the extent that an Event of Default then exists, applied to cash collateralize the Letters of Credit, in an aggregate amount equal to 100% of the amount of such proceeds. The amount of each such prepayment shall be applied on a ratable basis among the outstanding Loans of the several Lenders based on the principal amounts thereof. (vi) Unless the Borrower otherwise directs, prepayments of Loans under this Section 1.8(b) shall be applied first to Borrowings of Base Rate Loans until payment in full   -10- -------------------------------------------------------------------------------- thereof with any balance applied to Borrowings of Eurodollar Loans in the order in which their Interest Periods expire. Each prepayment of Loans under this Section 1.8(b) shall be made by the payment of the principal amount to be prepaid and, in the case of Eurodollar Loans or Swing Loans, accrued interest thereon to the date of prepayment together with any amounts due the Lenders under Section 1.11 hereof. Each prefunding of L/C Obligations shall be made in accordance with Section 9.4 hereof. (vii) For the avoidance of doubt, any prepayment of Loans or any cash collateralization of Letters of Credit under this Section 1.8(b) shall not reduce the Revolving Credit Commitments. (c) Any amount of Revolving Loans or Swing Loans paid or prepaid before the Revolving Credit Termination Date may, subject to the terms and conditions of this Agreement, be borrowed, repaid and borrowed again. Section 1.9. Default Rate. Notwithstanding anything to the contrary contained herein, while any Event of Default exists or after acceleration, the Borrower shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all Loans and Reimbursement Obligations, and letter of credit fees at a rate per annum equal to: (a) for any Base Rate Loan or any Swing Loan bearing interest based on the Base Rate, the sum of 2.0% plus the Applicable Margin plus the Base Rate from time to time in effect; (b) for any Eurodollar Loan or any Swing Loan bearing interest at the Administrative Agent’s Quoted Rate, the sum of 2.0% plus the rate of interest in effect thereon at the time of such default until the end of the Interest Period applicable thereto, at which time such loans shall automatically convert to Base Rate Loans; (c) for any Reimbursement Obligation, the sum of 2.0% plus the amounts due under Section 1.2 with respect to such Reimbursement Obligation; and (d) for any Letter of Credit, the sum of 2.0% plus the letter of credit fee due under Section 2.1 with respect to such Letter of Credit; provided, however, that in the absence of acceleration, any adjustments pursuant to this Section shall be made at the election of the Administrative Agent, acting at the request or with the consent of the Required Lenders, with prior written notice to the Borrower. While any Event of Default exists or after acceleration, interest shall be paid on written demand of the Administrative Agent at the request or with the consent of the Required Lenders. Section 1.10. Evidence of Indebtedness. (a) 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.   -11- -------------------------------------------------------------------------------- (b) The Administrative Agent shall also maintain accounts in which it will record (i) the amount of each Loan made hereunder, the type thereof and the Interest Period with respect thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender’s share thereof. (c) The entries maintained in the accounts maintained pursuant to paragraphs (a) and (b) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, 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. (d) Any Lender may request that its Loans be evidenced by a promissory note or notes in the forms of Exhibit D-1 (in the case of its Revolving Loans and referred to herein as a “Revolving Note”) or D-2 (in the case of its Swing Loans and referred to herein as a “Swing Note”), as applicable (the Revolving Notes and Swing Note being hereinafter referred to collectively as the “Notes” and individually as a “Note”). In such event, the Borrower shall execute and deliver to such Lender a Note payable to the order of such Lender in the amount of the relevant Revolving Credit Commitment or Swing Line Sublimit, as applicable. Thereafter, the Loans evidenced by such Note or Notes and interest thereon shall at all times (including after any assignment pursuant to Section 13.12) be represented by one or more Notes payable to the order of the payee named therein or any assignee pursuant to Section 13.12, 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 subsections (a) and (b) above. Section 1.11. Funding Indemnity. If any Lender shall incur any loss of profit, and any loss, cost or reasonable expense (including, without limitation, any loss, cost or expense incurred by reason of the liquidation or re-employment of deposits or other funds acquired by such Lender to fund or maintain any Eurodollar Loan or Swing Loan or the relending or reinvesting of such deposits or amounts paid or prepaid to such Lender) as a result of: (a) any payment, prepayment or conversion of a Eurodollar Loan or Swing Loan on a date other than the last day of its Interest Period, (b) any failure (because of a failure to meet the conditions of Section 7 or otherwise) by the Borrower to borrow or continue a Eurodollar Loan or Swing Loan, or to convert a Base Rate Loan into a Eurodollar Loan or Swing Loan, on the date specified in a notice given pursuant to Section 1.5(a) or 1.14 hereof, (c) any failure by the Borrower to make any payment of principal on any Eurodollar Loan or Swing Loan when due (whether by acceleration or otherwise), or (d) any acceleration of the maturity of a Eurodollar Loan or Swing Loan as a result of the occurrence of any Event of Default hereunder,   -12- -------------------------------------------------------------------------------- then, upon the written demand of such Lender, the Borrower shall pay to such Lender such amount as will reimburse such Lender for such loss, cost or reasonable expense. If any Lender makes such a claim for compensation, it shall provide to the Borrower, with a copy to the Administrative Agent, a certificate setting forth the amount of such loss, cost or expense in reasonable detail (including an explanation of the basis for and the computation of such loss, cost or expense) and the amounts shown on such certificate shall be conclusive if reasonably determined. Section 1.12. Commitment Terminations. (a) Optional Revolving Credit Terminations. The Borrower shall have the right at any time and from time to time, upon 5 Business Days prior written notice to the Administrative Agent (or such shorter period of time agreed to by the Administrative Agent), to terminate the Revolving Credit Commitments without premium or penalty and in whole or in part, any partial termination to be (i) in an amount not less than $500,000 or integral multiples of $500,000 in excess thereof and (ii) allocated ratably among the Lenders in proportion to their respective Revolver Percentages, provided that the Revolving Credit Commitments may not be reduced to an amount less than the sum of the aggregate principal amount of Revolving Loans, Swing Loans and L/C Obligations then outstanding. Any termination of the Revolving Credit Commitments below the L/C Sublimit or Swing Line Sublimit then in effect shall reduce the L/C Sublimit and Swing Line Sublimit, as applicable, by a like amount. The Administrative Agent shall give prompt notice to each Lender of any such termination of the Revolving Credit Commitments. (b) Any termination of the Commitments pursuant to this Section 1.12 may not be reinstated. Section 1.13. Substitution of Lenders. In the event (a) the Borrower receives a claim from any Lender for compensation under Section 10.3 or 13.1 hereof, (b) the Borrower receives notice from any Lender of any illegality pursuant to Section 10.1 hereof, (c) any Lender is in default in any material respect with respect to its obligations under the Loan Documents, or (d) a Lender fails to consent to an amendment or waiver requested under Section 13.13 hereof at a time when the Required Lenders have approved such amendment or waiver (any such Lender referred to in clause (a), (b), (c), or (d) above being hereinafter referred to as an “Affected Lender”), the Borrower may, in addition to any other rights the Borrower may have hereunder or under applicable law, require, at its expense, any such Affected Lender to assign, at par plus accrued interest and fees, without recourse, all of its interest, rights, and obligations hereunder (including all of its Revolving Credit Commitments and the Loans and participation interests in Letters of Credit and other amounts at any time owing to it hereunder and the other Loan Documents) to a commercial bank or other financial institution specified by the Borrower, provided that (i) such assignment shall not conflict with or violate any law, rule or regulation or order of any court or other governmental authority, (ii) the Borrower shall have received the written consent of the Administrative Agent, which consent shall not be unreasonably withheld, conditioned or delayed to such assignment, (iii) the Borrower shall have paid to the Affected Lender all monies (together with amounts due such Affected Lender under Section 1.11 hereof as if the Loans owing to it were prepaid rather than assigned) other than such principal owing to it hereunder, and (iv) the assignment is entered into in accordance with the other requirements of Section 13.12 hereof (provided any assignment fees and reimbursable expenses due thereunder shall be paid by the Borrower).   -13- -------------------------------------------------------------------------------- Section 1.14. Swing Loans. (a) Generally. Subject to the terms and conditions hereof, as part of the Revolving Credit, the Swing Line Lender agrees to make loans in U.S. Dollars to the Borrower under the Swing Line (individually a “Swing Loan” and collectively the “Swing Loans”) which shall not in the aggregate at any time outstanding exceed the Swing Line Sublimit. The Swing Loans may be availed of the Borrower from time to time and borrowings thereunder may be repaid and used again during the period ending on the Revolving Credit Termination Date; provided that each Swing Loan must be repaid on the last day of the Interest Period applicable thereto. Each Swing Loan shall be in a minimum amount of $50,000. (b) Interest on Swing Loans. Each Swing Loan shall bear interest until maturity (whether by acceleration or otherwise) at a rate per annum equal to (i) the sum of the Base Rate plus the Applicable Margin for Base Rate Loans under the Revolving Credit as from time to time in effect (computed on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days elapsed) or (ii) the Administrative Agent’s Quoted Rate (computed on the basis of a year of 360 days for the actual number of days elapsed). Interest on each Swing Loan shall be due and payable on the last day of its Interest Period and at maturity (whether by acceleration or otherwise). (c) Requests for Swing Loans. The Borrower shall give the Administrative Agent prior notice (which may be written or oral) no later than 12:00 Noon (Chicago time) on the date upon which the Borrower requests that any Swing Loan be made, of the amount and date of such Swing Loan, and the Interest Period requested therefor. The Administrative Agent shall promptly notify the Swing Line Lender of any such request. Within 30 minutes after receiving such notice, the Administrative Agent shall in its discretion quote an interest rate to the Borrower at which the Swing Line Lender would be willing to make such Swing Loan available to the Borrower for the Interest Period so requested (the rate so quoted for a given Interest Period being herein referred to as “Administrative Agent’s Quoted Rate”). The Borrower acknowledges and agrees that the interest rate quote is given for immediate and irrevocable acceptance. If the Borrower does not so immediately accept the Administrative Agent’s Quoted Rate for the full amount requested by the Borrower for such Swing Loan, the Administrative Agent’s Quoted Rate shall be deemed immediately withdrawn and such Swing Loan shall bear interest at the rate per annum determined by adding the Applicable Margin for Base Rate Loans under the Revolving Credit to the Base Rate as from time to time in effect. Subject to the terms and conditions hereof, the proceeds of such Swing Loan shall be made available by the Swing Line Lender to the Borrower on the date so requested at the offices of the Administrative Agent in Chicago, Illinois, by depositing such proceeds to the credit of the Borrower’s operating account maintained with the Administrative Agent or as the Borrower and the Administrative Agent may otherwise agree. Anything contained in the foregoing to the contrary notwithstanding, (i) the obligation of the Swing Line Lender to make Swing Loans shall be subject to all of the terms and conditions of this Agreement and (ii) the Swing Line Lender shall not be obligated to make more than one Swing Loan during any one day.   -14- -------------------------------------------------------------------------------- (d) Refunding Loans. In its sole and absolute discretion, the Swing Line Lender may at any time direct the Administrative Agent to, on behalf of the Borrower (which hereby irrevocably authorizes the Administrative Agent to act on its behalf for such purpose) and with notice to the Borrower, request each Lender to make a Revolving Loan in the form of a Base Rate Loan in an amount equal to such Lender’s Revolver Percentage of the amount of the Swing Loans outstanding on the date such notice is given. Unless an Event of Default described in Section 9.1(j) or 9.1(k) exists with respect to the Borrower, regardless of the existence of any other Event of Default, each Lender shall make the proceeds of its requested Revolving Loan available to the Administrative Agent, in immediately available funds, at the Administrative Agent’s principal office in Chicago, Illinois, before 12:00 Noon (Chicago time) on the Business Day following the day such notice is given. The proceeds of such Borrowing of Revolving Loans shall be immediately applied to repay the outstanding Swing Loans. (e) Participations. If any Lender refuses or otherwise fails to make a Revolving Loan when requested by the Administrative Agent at the direction of the Swing Line Lender pursuant to Section 1.14(d) above (because an Event of Default described in Section 9.1(j) or 9.1(k) exists with respect to the Borrower or otherwise), such Lender will, by the time and in the manner such Revolving Loan was to have been funded to the Swing Line Lender, purchase from the Administrative Agent an undivided participating interest in the outstanding Swing Loans in an amount equal to its Revolver Percentage of the aggregate principal amount of Swing Loans that were to have been repaid with such Revolving Loans. Each Lender that so purchases a participation in a Swing Loan shall thereafter be entitled to receive its Revolver Percentage of each payment of principal received on the Swing Loan and of interest received thereon accruing from the date such Lender funded to the Administrative Agent its participation in such Loan. The several obligations of the Lenders under this Section shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever and shall not be subject to any set-off, counterclaim or defense to payment which any Lender may have or have had against the Borrower, any other Lender or any other Person whatsoever. Without limiting the generality of the foregoing, such obligations shall not be affected by any Default or Event of Default or by any reduction or termination of the Revolving Credit Commitments of any Lender, and each payment made by a Lender under this Section shall be made without any offset, abatement, withholding or reduction whatsoever. SECTION 2. FEES. Section 2.1. Fees. (a) Revolving Credit Commitment Fee. The Borrower shall pay to the Administrative Agent for the ratable account of the Lenders in accordance with their Revolver Percentages a quarterly commitment fee at the rate per annum equal to the Applicable Margin (computed on the basis of a year of 360 days and the actual number of days elapsed) on the average daily Unused Revolving Credit Commitments for the preceding quarter (or shorter period commencing on the Closing Date or ending on the Revolving Credit Termination Date). Such commitment fee shall be payable quarterly in arrears on the last day of each March, June, September, and December in each year (commencing on the first such date occurring after the date hereof) and on the Revolving Credit Termination Date, unless the Revolving Credit Commitments are terminated in whole on an earlier date, in which event the commitment fee for the period to the date of such termination in whole shall be paid on the date of such termination.   -15- -------------------------------------------------------------------------------- (b) Letter of Credit Fees. On the date of issuance or extension, or increase in the amount, of any Letter of Credit pursuant to Section 1.2 hereof, the Borrower shall pay to the L/C Issuer for its own account an issuance fee equal to 0.125% of the face amount of (or of the increase in the face amount of) such Letter of Credit. Quarterly in arrears, on the last day of each March, June, September, and December, commencing on the first such date occurring after the date hereof, the Borrower shall pay to the Administrative Agent, for the ratable benefit of the Lenders in accordance with their Revolver Percentages, a letter of credit fee at a rate per annum equal to the Applicable Margin (computed on the basis of a year of 360 days and the actual number of days elapsed) in effect during each day of such quarter applied to the daily average face amount of Letters of Credit expected to be outstanding during such quarter (or shorter period commencing on the Closing Date or ending on the Revolving Credit Termination Date). In addition, the Borrower shall pay to the L/C Issuer for its own account the L/C Issuer’s standard issuance, drawing, negotiation, amendment, assignment and other administrative fees for each Letter of Credit as established by the L/C Issuer from time to time. (c) Administrative Agent Fees. The Borrower shall pay to the Administrative Agent, for its own use and benefit, the fees agreed to between the Administrative Agent and the Borrower in a commitment letter dated September 29, 2006 or as otherwise agreed to in writing between them. (d) Audit Fees. The Borrower shall pay to the Administrative Agent for its own use and benefit charges for audits of the Collateral performed by the Administrative Agent or its agents or representatives in such amounts as the Administrative Agent may from time to time request (the Administrative Agent acknowledging and agreeing that such charges shall be computed in the same manner as it at the time customarily uses for the assessment of charges for similar collateral audits); provided, however, that in the absence of any Default and Event of Default, the Borrower shall not be required to pay the Administrative Agent for more than one such audit per calendar year. SECTION 3. PLACE AND APPLICATION OF PAYMENTS. Section 3.1. Place and Application of Payments. All payments of principal of and interest on the Loans and the Reimbursement Obligations, and of all other Obligations payable by the Borrower under this Agreement and the other Loan Documents, shall be made by the Borrower to the Administrative Agent by no later than 12:00 Noon (Chicago time) on the due date thereof at the office of the Administrative Agent in Chicago, Illinois (or such other location as the Administrative Agent may designate to the Borrower) for the benefit of the Lender or Lenders entitled thereto. Any payments received after such time shall be deemed to have been received by the Administrative Agent on the next Business Day. All such payments shall be made in U.S. Dollars, in immediately available funds at the place of payment, in each case without set-off or counterclaim. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest on Loans and on Reimbursement Obligations in which the Lenders have purchased Participating Interests ratably to the Lenders and like funds relating to the payment of any other amount payable to any Lender to such Lender, in each case to be applied in accordance with the terms of this Agreement. If the Administrative Agent causes amounts to be distributed to the Lenders in reliance upon the   -16- -------------------------------------------------------------------------------- assumption that the Borrower will make a scheduled payment and such scheduled payment is not so made, each Lender shall, on demand, repay to the Administrative Agent the amount distributed to such Lender together with interest thereon in respect of each day during the period commencing on the date such amount was distributed to such Lender and ending on (but excluding) the date such Lender repays such amount to the Administrative Agent, at a rate per annum equal to: (i) from the date the distribution was made to the date 2 Business Days after payment by such Lender is due hereunder, the Federal Funds Rate for each such day and (ii) from the date 2 Business Days after the date such payment is due from such Lender to the date such payment is made by such Lender, the Base Rate in effect for each such day. Anything contained herein to the contrary notwithstanding (including, without limitation, Section 1.8(b) hereof), all payments and collections received in respect of the Obligations and all proceeds of the Collateral received, in each instance, by the Administrative Agent or any of the Lenders after acceleration or the final maturity of the Obligations or termination of the Revolving Credit Commitments as a result of an Event of Default shall be remitted to the Administrative Agent and distributed as follows: (a) first, to the payment of any outstanding costs and expenses incurred by the Administrative Agent, and any security trustee therefor, in monitoring, verifying, protecting, preserving or enforcing the Liens on the Collateral, in protecting, preserving or enforcing rights under the Loan Documents, and in any event including all costs and expenses of a character which the Borrower has agreed to pay the Administrative Agent under Section 13.15 hereof (such funds to be retained by the Administrative Agent for its own account unless it has previously been reimbursed for such costs and expenses by the Lenders, in which event such amounts shall be remitted to the Lenders to reimburse them for payments theretofore made to the Administrative Agent); (b) second, to the payment of any outstanding interest and fees due under the Loan Documents to be allocated pro rata in accordance with the aggregate unpaid amounts owing to each holder thereof; (c) third, to the payment of principal on the Loans, unpaid Reimbursement Obligations, together with amounts to be held by the Administrative Agent as collateral security for any outstanding L/C Obligations pursuant to Section 9.4 hereof (until the Administrative Agent is holding an amount of cash equal to the then outstanding amount of all such L/C Obligations), and any Hedging Liability, the aggregate amount paid to, or held as collateral security for, the Lenders and, in the case of Hedging Liability, their Affiliates to be allocated pro rata in accordance with the aggregate unpaid amounts owing to each holder thereof; (d) fourth, to the payment of all other unpaid Obligations and all other indebtedness, obligations, and liabilities of the Borrower and the Guarantors secured by the Loan Documents (including, without limitation, Funds Transfer and Deposit Account Liability) to be allocated pro rata in accordance with the aggregate unpaid amounts owing to each holder thereof; and   -17- -------------------------------------------------------------------------------- (e) finally, to the Borrower or whoever else may be lawfully entitled thereto. Section 3.2. Account Debit. The Borrower hereby irrevocably authorizes the Administrative Agent to charge any of the Borrower’s deposit accounts maintained with the Administrative Agent for the amounts from time to time necessary to pay any then due Obligations; provided that the Borrower acknowledges and agrees that the Administrative Agent shall not be under an obligation to do so and the Administrative Agent shall not incur any liability to the Borrower or any other Person for the Administrative Agent’s failure to do so. SECTION 4. GUARANTIES AND COLLATERAL. Section 4.1. Guaranties. The payment and performance of the Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability shall at all times be guaranteed by each Guarantor pursuant to Section 12 hereof or pursuant to one or more guaranty agreements in form and substance acceptable to the Administrative Agent, as the same may be amended, modified or supplemented from time to time (individually a “Guaranty” and collectively the “Guaranties”); provided, however, that unless otherwise required by the Administrative Agent or the Required Lenders during the existence of any Event of Default, a Foreign Subsidiary shall not be required to be a Guarantor hereunder if providing such Guaranty would cause an adverse effect on the Borrower’s federal income tax liability. Section 4.2. Collateral. The Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability shall be secured by valid, perfected, and enforceable Liens on all right, title, and interest of the Borrower and each Guarantor in all of their accounts, chattel paper, instruments, documents, general intangibles, letter-of-credit rights, supporting obligations, deposit accounts, investment property, inventory, equipment, fixtures, commercial tort claims, real estate and certain other Property, whether now owned or hereafter acquired or arising, and all proceeds thereof; provided, however, that: (i) unless otherwise required by the Administrative Agent or the Required Lenders during the existence of any Default or Event of Default, (x) Liens on demand deposit accounts other than payroll accounts maintained by the Borrower and the Guarantors in proximity to their operations need not be perfected (unless such perfection is required pursuant to the terms of Section 8.23(a) hereof) provided that the amount on deposit in any such individual account for any period in excess of five (5) consecutive calendar days not so perfected shall not exceed $1,000,000 (or such other amount as is determined by the Administrative Agent in its reasonable credit judgment), (y) Liens on payroll accounts maintained by the Borrower and the Guarantors need not be perfected provided the total amount on deposit at any time does not exceed the current amount of their payroll obligations and (z) Liens on vehicles which are subject to a certificate of title law need not be perfected provided that the total value of such property at any one time not so perfected shall not exceed $75,000 in the aggregate, (ii) unless otherwise required by the Administrative Agent or the Required Lenders during the existence of any Event of Default, Liens on the Voting Stock of a Foreign Subsidiary which, if granted, would cause an adverse effect on the Borrower’s federal income tax liability shall be limited to 66% of the total outstanding Voting Stock of such Foreign Subsidiary, and (iii) unless otherwise required by the Administrative Agent or the Required Lenders during the existence of any Event of Default, Liens need not be granted on the assets of a Foreign Subsidiary which, if granted, would cause an adverse effect on the Borrower’s federal   -18- -------------------------------------------------------------------------------- income tax liability. The Borrower acknowledges and agrees that the Liens on the Collateral shall be granted to the Administrative Agent for the benefit of the holders of the Obligations, the Hedging Liability, and the Funds Transfer and Deposit Account Liability and shall be valid and perfected first priority Liens subject, however, to the proviso appearing at the end of the preceding sentence and to Liens permitted by Section 8.8 hereof, in each case pursuant to one or more Collateral Documents from such Persons, each in form and substance satisfactory to the Administrative Agent. Section 4.3. Liens on Real Property. In the event that the Borrower or any Guarantor owns or hereafter acquires any real property (except in the case where such real property is acquired after the Closing Date which the Borrower or such Guarantor intends to dispose of in a sale and leaseback transaction permitted by Section 8.10(h) provided that (i) the Borrower delivers to the Administrative Agent not later than the date of such acquisition an executed copy of the transaction document(s) pursuant to which such sale and leaseback transaction is to occur and (ii) such sale and leaseback transaction is completed within five (5) business days following the acquisition of such real property) , the Borrower shall, or shall cause such Guarantor to, execute and deliver to the Administrative Agent a mortgage or deed of trust acceptable in form and substance to the Administrative Agent for the purpose of granting to the Administrative Agent (or a security trustee therefor) a Lien on such real property to secure the Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability, shall pay all taxes, costs, and expenses incurred by the Administrative Agent in recording such mortgage or deed of trust, and shall supply to the Administrative Agent, to the extent required by the Administrative Agent in its reasonable discretion, at the Borrower’s cost and expense a survey, environmental report, hazard insurance policy, appraisal report, and a mortgagee’s policy of title insurance from a title insurer acceptable to the Administrative Agent insuring the validity of such mortgage or deed of trust and its status as a first Lien (subject to Liens permitted by this Agreement) on the real property encumbered thereby and such other instrument, documents, certificates, and opinions reasonably required by the Administrative Agent in connection therewith. Section 4.4. Further Assurances. The Borrower agrees that it shall, and shall cause each Guarantor to, from time to time at the request of the Administrative Agent or the Required Lenders, execute and deliver such documents and do such acts and things as the Administrative Agent or the Required Lenders may reasonably request in order to provide for or perfect or protect such Liens on the Collateral. In the event the Borrower or any Guarantor forms or acquires any other Subsidiary after the date hereof, except as otherwise provided in Sections 4.1 and 4.2 above, the Borrower shall promptly upon such formation or acquisition cause such newly formed or acquired Subsidiary to execute a Guaranty and such Collateral Documents as the Administrative Agent may then require, and the Borrower shall also deliver to the Administrative Agent, or cause such Subsidiary to deliver to the Administrative Agent, at the Borrower’s cost and expense, such other instruments, documents, certificates, and opinions reasonably required by the Administrative Agent in connection therewith. Section 4.5. Collections. The Borrower shall cause all cash proceeds of the Collateral of the Borrower and each Subsidiary in any deposit account maintained by the Borrower and each Subsidiary in an amount in excess of $20,000 per account to be deposited on a daily basis into a central collection account maintained by the Borrower with the Administrative Agent or with   -19- -------------------------------------------------------------------------------- other financial institutions selected by the Borrower and acceptable to the Administrative Agent, pursuant to arrangements acceptable to the Administrative Agent under which the balance of collected funds standing on deposit in such accounts maintained with such other financial institutions are transmitted to one or more collections accounts at the Administrative Agent, except to the extent agreed by the Borrower and the Administrative Agent with respect to certain payroll and demand deposit accounts of the Borrower and its Subsidiaries. SECTION 5. DEFINITIONS; INTERPRETATION. Section 5.1. Definitions. The following terms when used herein shall have the following meanings: “Acquired Business” means the entity or assets acquired by the Borrower or a Subsidiary in an Acquisition, whether before or after the date hereof. “Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any Person (other than a Person that is a Subsidiary), or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that the Borrower or the Subsidiary is the surviving entity. “Adjusted LIBOR” is defined in Section 1.3(b) hereof. “Administrative Agent” means Harris N.A. and any successor pursuant to Section 11.7 hereof. “Administrative Agent’s Quoted Rate” is defined in Section 1.14(c) hereof. “Administrative Questionnaire” means the Administrative Questionnaire in form supplied by the Administrative Agent. “Affiliate” means any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, another Person. A Person shall be deemed to control another Person for purposes of this definition if such Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of the other Person, whether through the ownership of voting securities, common directors, trustees or officers, by contract or otherwise; provided that, in any event for purposes of this definition, any Person that owns, directly or indirectly, 10% or more of the securities having the ordinary voting power for the election of directors or governing body of a corporation or 10% or more of the partnership or other ownership interest of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. “Agreement” means this Credit Agreement, as the same may be amended, modified, restated or supplemented from time to time pursuant to the terms hereof.   -20- -------------------------------------------------------------------------------- “Applicable Margin” means, with respect to Loans, Reimbursement Obligations, and the commitment fees and letter of credit fees payable under Section 2.1 hereof, until the first Pricing Date, the rates per annum shown opposite Level II below, and thereafter from one Pricing Date to the next the Applicable Margin means the rates per annum determined in accordance with the following schedule:   LEVEL    TOTAL FUNDED DEBT/EBITDA RATIO FOR SUCH PRICING DATE    APPLICABLE MARGIN FOR BASE RATE LOANS AND REIMBURSEMENT OBLIGATIONS SHALL BE:     APPLICABLE MARGIN FOR EURODOLLAR LOANS AND LETTER OF CREDIT FEE SHALL BE:     APPLICABLE MARGIN FOR REVOLVING CREDIT COMMITMENT FEE SHALL BE:   IV    Greater than or equal to 2.00 to 1.0    0.50 %   2.00 %   0.40 % III    Less than 2.00 to 1.0, but greater than or equal to 1.50 to 1.00    0.00 %   1.50 %   0.30 % II    Less than 1.50 to 1.00, but greater than or equal to 1.00 to 1.00    0.00 %   1.25 %   0.25 % I    Less than 1.00 to 1.0    0.0 %   1.00 %   0.20 % For purposes hereof, the term “Pricing Date” means, for any fiscal quarter of the Borrower ending on or after December 31, 2006, the date on which the Administrative Agent is in receipt of the Borrower’s most recent financial statements (and, in the case of the year-end financial statements, audit report) for the fiscal quarter then ended, pursuant to Section 8.5 hereof. The Applicable Margin shall be established based on the Total Funded Debt/EBITDA Ratio for the most recently completed fiscal quarter and the Applicable Margin established on a Pricing Date shall remain in effect until the next Pricing Date. If the Borrower has not delivered its financial statements by the date such financial statements (and, in the case of the year-end financial statements, audit report) are required to be delivered under Section 8.5 hereof, until such financial statements and audit report are delivered, the Applicable Margin shall be the highest Applicable Margin (i.e., Level IV shall apply). If the Borrower subsequently delivers such financial statements before the next Pricing Date, the Applicable Margin established by such late delivered financial statements shall take effect from the date of delivery until the next Pricing Date. In all other circumstances, the Applicable Margin established by such financial statements shall be in effect from the Pricing Date that occurs immediately after the end of the fiscal quarter covered by such financial statements until the next Pricing Date. Each determination of the Applicable Margin made by the Administrative Agent in accordance with the foregoing shall be conclusive and binding on the Borrower and the Lenders if reasonably determined. “Application” is defined in Section 1.2(b) hereof. “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.   -21- -------------------------------------------------------------------------------- “Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 13.12 hereof), and accepted by the Administrative Agent, in substantially the form of Exhibit H or any other form approved by the Administrative Agent. “Assignment of Leases” means, collectively, each Assignment of Leases and Rents between the Borrower or the relevant Guarantor and the Administrative Agent relating to real property leased by the Borrower or the relevant Guarantor as lessor (or sublessor) to a third party, as the same may be amended, modified, supplemented or restated from time to time. “Authorized Representative” means those persons shown on the list of officers provided by the Borrower pursuant to Section 7.2 hereof or on any update of any such list provided by the Borrower to the Administrative Agent, or any further or different officers of the Borrower so named by any Authorized Representative of the Borrower in a written notice to the Administrative Agent. “Base Rate” is defined in Section 1.3(a) hereof. “Base Rate Loan” means a Loan bearing interest at a rate specified in Section 1.3(a) hereof. “Borrower” is defined in the introductory paragraph of this Agreement. “Borrowing” means the total of Loans of a single type advanced, continued for an additional Interest Period, or converted from a different type into such type by the Lenders under a Credit on a single date and, in the case of Eurodollar Loans, for a single Interest Period. Borrowings of Loans are made and maintained ratably from each of the Lenders under a Credit according to their Percentages of such Credit. A Borrowing is “advanced” on the day Lenders advance funds comprising such Borrowing to the Borrower, is “continued” on the date a new Interest Period for the same type of Loans commences for such Borrowing, and is “converted” when such Borrowing is changed from one type of Loans to the other, all as determined pursuant to Section 1.5 hereof. Borrowings of Swing Loans are made by the Administrative Agent in accordance with the Procedures set forth in Section 1.14 hereof. “Business Day” means any day (other than a Saturday or Sunday) on which banks are not authorized or required to close in Chicago, Illinois and, if the applicable Business Day relates to the advance or continuation of, or conversion into, or payment of a Eurodollar Loan, on which banks are dealing in U.S. Dollar deposits in the interbank eurodollar market in London, England. “Capital Expenditures” means, with respect to any Person for any period, the aggregate amount of all expenditures (whether paid in cash or accrued as a liability) by such Person during that period for the acquisition or leasing (pursuant to a Capital Lease) of fixed or capital assets or additions to property, plant, or equipment (including replacements, capitalized repairs, and improvements) which should be capitalized on the balance sheet of such Person in accordance with GAAP.   -22- -------------------------------------------------------------------------------- “Capital Lease” means any lease of Property which in accordance with GAAP is required to be capitalized on the balance sheet of the lessee. “Capitalized Lease Obligation” means, for any Person, the amount of the liability shown on the balance sheet of such Person in respect of a Capital Lease determined in accordance with GAAP. “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§9601 et seq., and any future amendments. “Change of Control” means any of (a) the acquisition by any “person” or “group” (as such terms are used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) at any time of beneficial ownership of 25% or more of the outstanding Voting Stock of the Borrower on a fully-diluted basis or (b) the failure within any period of twelve (12) consecutive calendar months of individuals who are members of the board of directors (or similar governing body) of the Borrower on the first day of such period (together with any new or replacement directors whose initial nomination for election was approved by a majority of the directors who were either directors on the first day of such period or previously so approved) to constitute a majority of the board of directors (or similar governing body) of the Borrower. For purposes of the foregoing clause (a) a “Change of Control” shall not be deemed to have occurred with respect to (i) KU Learning, L.L.C. or its Affiliates (or their successors or assigns), or (ii) Camden Partners Strategic II, L.L.C. or its Affiliates (or their successors or assigns) (each such group specified in the foregoing clauses (i) and (ii), an “Existing Group”), solely as a result of any of the following: (v) such Existing Group being the beneficial owner of shares of the Borrower’s common stock or preferred stock held by it on the Closing Date; (w) the conversion of any shares of the Borrower’s Series E Preferred Stock or Series F Preferred Stock held by such Existing Group; (x) the exercise by such Existing Group of any pre-emptive rights described in Section 4.6 of the Series E Preferred Stock Purchase Agreement or Section 4.4 of the Series F Preferred Stock Purchase Agreement; (y) the issuance to such Existing Group and conversion by such Existing Group of any additional shares of Series E Preferred Stock or Series F Preferred Stock received as a dividend pursuant to the Certificate of Designation for such series of Preferred Stock; or (z) the issuance by the Borrower, to any board representative of such Existing Group (solely in such person or persons’ capacity as a director of the Borrower), of grants of common stock of the Borrower, options to purchase common stock of the Borrower or the exercise of such options issued to such person or persons. “Closing Date” means the date of this Agreement or such later Business Day upon which each condition described in Section 7.2 shall be satisfied or waived in a manner acceptable to the Administrative Agent in its discretion. “Code” means the Internal Revenue Code of 1986, as amended, and any successor statute thereto.   -23- -------------------------------------------------------------------------------- “Collateral” means all properties, rights, interests, and privileges from time to time subject to the Liens granted to the Administrative Agent, or any security trustee therefor, by the Collateral Documents. “Collateral Account” is defined in Section 9.4 hereof. “Collateral Documents” means the Mortgages, the First Supplements, the Security Agreement, and all other mortgages, deeds of trust, security agreements, pledge agreements, assignments, financing statements and other documents as shall from time to time secure or relate to the Obligations, the Hedging Liability, and the Funds Transfer and Deposit Account Liability or any part thereof. “Compliance Certificate” is defined in Section 8.5(i) hereof. “Controlled Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. “Credit” means either of the Revolving Credit or the Swing Line. “Credit Event” means the advancing of any Loan, the continuation of or conversion into a Eurodollar Loan, or the issuance of, or extension of the expiration date or increase in the amount of, any Letter of Credit. “Default” means any event or condition the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default. “Discovery Acquisition” means the purchase by the Borrower of all of the outstanding capital stock of Discovery Isle Child Development Center, Inc. pursuant to the Discovery Purchase Agreement. “Discovery Purchase Agreement” means that certain Stock Purchase Agreement dated on or about October 21, 2006, by and among the Borrower, Discovery Isle Child Development Center, Inc. and Cindy W. Bornemann. “Disposition” means the sale, lease, conveyance or other disposition of Property, other than sales or other dispositions expressly permitted under Sections 8.10(i), 8.10(ii)(a), (b), (c) or (d) hereof. “Domestic Subsidiary” means a Subsidiary that is not a Foreign Subsidiary. “EBITDA” means, with reference to any period (each, a “Test Period”), Net Income for such period plus the sum of all amounts deducted in arriving at such Net Income amount in respect of (a) Interest Expense for such period, (b) federal, state, and local income taxes for the Borrower and its Subsidiaries for such period, (c) depreciation of fixed assets and amortization of intangible assets for the Borrower and its Subsidiaries for such period, (d) non-cash   -24- -------------------------------------------------------------------------------- compensation granted during such period, including any such charges resulting from stock options, restricted stock grants or other equity incentive programs and (e) for any fiscal quarter, non-cash losses in an amount reasonably acceptable to the Administrative Agent resulting from impairment charges arising from the application of SFAS No. 142 or SFAS No. 144, less (f) interest income and extraordinary gains for such period, (g) any cash lease expenses incurred by the Borrower and its Subsidiaries during such Test Period and charged against the lease expense reserve as set forth on Schedule 5.1 hereof for such Test Period, less (h) cash severance expenses incurred by the Borrower and its Subsidiaries for such Test Period and charged against the severance expense reserve as set forth on Schedule 5.1 hereto for such Test Period. EBITDA shall be calculated on a pro forma basis to give effect to any Permitted Acquisition consummated at any time on or after the first day of the Test Period thereof as if each such Permitted Acquisition had been effect on the first day of such Test Period, and EBITDA shall be calculated to include (i) the historical EBITDA of the Acquired Business as evidenced by the financial statements or financial due diligence analysis delivered to the Administrative Agent pursuant to clauses (c), (f) and, to the extent required, (g) of the definition of Permitted Acquisition for the period from the first day of such Test Period to, but not including, the date of the consummation of such Permitted Acquisition (the “Consummation Date”), subject to any cash or non-cash adjustments consented to by the Required Lenders and (ii) the actual EBITDA of the Acquired Business for the period from the Consummation Date to, and including, the last day of the Test Period. The historical EBITDA of the Acquired Business acquired in connection with the Discovery Acquisition to be included in the calculation of EBITDA shall be set forth in Schedule 5.1 hereto. The Borrower may adjust the items referred to in clause (g) above appearing on Schedule 5.1 hereto from time to time by delivering an amended Schedule 5.1 with any Compliance Certificate required to be delivered pursuant to Section 8.5 hereof, subject to the review and approval of such amended Schedule by the Administrative Agent which approval shall not be unreasonably withheld. “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, (ii) in the case of any assignment of a Revolving Credit Commitment, the L/C Issuer and the Swing Line Lender, and (iii) unless an Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include the Borrower or any Guarantor or any of the Borrower’s or such Guarantor’s Affiliates or Subsidiaries. “Eligible Line of Business” means any business engaged in as of the date of this Agreement by the Borrower or any of its Subsidiaries (or as may otherwise be agreed to from time to time by the Administrative Agent in writing). “Environmental Claim” means any investigation, notice, violation, demand, allegation, action, suit, injunction, judgment, order, consent decree, penalty, fine, lien, proceeding or claim (whether administrative, judicial or private in nature) arising (a) pursuant to, or in connection with an actual or alleged violation of, any Environmental Law, (b) in connection with any Hazardous Material, (c) from any abatement, removal, remedial, corrective or response action in connection with a Hazardous Material, Environmental Law or order of a governmental authority or (d) from any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment.   -25- -------------------------------------------------------------------------------- “Environmental Law” means any current or future Legal Requirement pertaining to (a) the protection of health, safety and the indoor or outdoor environment, (b) the conservation, management or use of natural resources and wildlife, (c) the protection or use of surface water or groundwater, (d) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, Release, threatened Release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Material or (e) pollution (including any Release to air, land, surface water or groundwater), and any amendment, rule, regulation, order or directive issued thereunder. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute thereto. “Eurodollar Loan” means a Loan bearing interest at the rate specified in Section 1.3(b) hereof. “Eurodollar Reserve Percentage” is defined in Section 1.3(b) hereof. “Event of Default” means any event or condition identified as such in Section 9.1 hereof. “Event of Loss” means, with respect to any Property, any of the following: (a) any loss, destruction or damage of such Property or (b) any condemnation, seizure, or taking, by exercise of the power of eminent domain or otherwise, of such Property, or confiscation of such Property or the requisition of the use of such Property. “Evergreen Letter of Credit” means a Letter of Credit with an expiration date that is automatically extended unless the L/C Issuer gives notice that the expiration date will not so extend beyond its then scheduled expiration date. “Federal Funds Rate” means the fluctuating interest rate per annum described in part (x) of clause (ii) of the definition of Base Rate appearing in Section 1.3(a) hereof. “First Supplements” means and includes each of the First Supplements to each of the Mortgages in effect on the Closing Date. “Fixed Charges” means, with reference to any period (each, a “Test Period”), the sum of (a) all cash payments of principal made or required to be made during such period with respect to Indebtedness for Borrowed Money of the Borrower and its Subsidiaries, other than those payments made on account of term debt under the Original Agreement and those payments made or required to be made pursuant to Section 1.8 hereof, (b) cash Interest Expense for such period, (c) cash dividends paid during such period, and (d) federal, state, and local income taxes paid in cash by the Borrower and its Subsidiaries during such period. With respect to any Test Period during which a Permitted Acquisition is consummated, cash Interest Expense for such Test Period shall be calculated on a pro forma basis in accordance with GAAP and in a manner   -26- -------------------------------------------------------------------------------- acceptable to the Required Lenders to the extent that any portion of the Total Consideration for such Permitted Acquisition is financed with the proceeds of Loans hereunder as if each such Permitted Acquisition and such Loans had been effected on the first day of such Test Period and remained outstanding for the duration of such Test Period. For the avoidance of doubt, no Fixed Charges attributable to the Acquired Business prior to the consummation of the Permitted Acquisition shall be included in the calculation of Fixed Charges to the Borrower and its Subsidiaries (except with respect to Interest Expense as described in the immediately preceding sentence). “Fixed Charge Coverage Ratio” is defined in Section 8.23(c) hereof. “Foreign Subsidiary” means each Subsidiary which (a) is organized under the laws of a jurisdiction other than the United States of America or any state thereof or the District of Columbia, (b) conducts substantially all of its business outside of the United States of America, and (c) has substantially all of its assets outside of the United States of America. “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. “Funds Transfer and Deposit Account Liability” means the liability of the Borrower or any Subsidiary owing to any of the Lenders, or any Affiliates of such Lenders, arising out of (a) the execution or processing of electronic transfers of funds by automatic clearing house transfer, wire transfer or otherwise to or from deposit accounts of the Borrower and/or any Subsidiary now or hereafter maintained with any of the Lenders or their Affiliates, (b) the acceptance for deposit or the honoring for payment of any check, draft or other item with respect to any such deposit accounts, and (c) any other deposit, disbursement, and cash management services afforded to the Borrower or any Subsidiary by any of such Lenders or their Affiliates. “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 and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. “Guarantor” and “Guarantors” mean each direct and indirect Subsidiary of the Borrower, other than each Immaterial Subsidiary, which entities are specifically exempted from such definition. “Guaranty” and “Guaranties” each is defined in Section 4.1 hereof. “Hazardous Material” means any substance, chemical, compound, product, solid, gas, liquid, waste, byproduct, pollutant, contaminant or material which is hazardous or toxic, and includes, without limitation, (a) asbestos, polychlorinated biphenyls and petroleum (including crude oil or any fraction thereof) and (b) any material classified or regulated as “hazardous” or “toxic” or words of like import pursuant to an Environmental Law applicable to any of the Borrower or any Subsidiary.   -27- -------------------------------------------------------------------------------- “Hazardous Material Activity” means any activity, event or occurrence involving a Hazardous Material, including, without limitation, the manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, Release, threatened Release, abatement, removal, remediation, handling of or corrective or response action to any Hazardous Material. “Hedging Liability” means the liability of the Borrower or any Subsidiary to any of the Lenders, or any Affiliates of such Lenders, in respect of any interest rate, foreign currency, and/or commodity swap, exchange, cap, collar, floor, forward, future or option agreement, or any other similar interest rate, currency or commodity hedging arrangement, as the Borrower or such Subsidiary, as the case may be, may from time to time enter into with any one or more of the Lenders party to this Agreement or their Affiliates. “Hostile Acquisition” means the acquisition of the capital stock or other equity interests of a Person through a tender offer or similar solicitation of the owners of such capital stock or other equity interests which has not been approved (prior to such acquisition) by resolutions of the Board of Directors of such Person or by similar action if such Person is not a corporation, and as to which such approval has not been withdrawn. “Immaterial Subsidiary” means and includes, at any time, each of Houston Learning Academy—San Antonio, Inc., a Texas corporation, Spyros, Inc., a Texas corporation, Othoni, Inc., a Texas corporation, Marian Catechis, Inc., a Texas corporation, Sance, Inc., a Texas corporation and Malona, Inc., a Texas corporation: provided, however, that the foregoing Subsidiaries shall constitute Immaterial Subsidiaries for the purposes of this Agreement only if and so long as (i) such Subsidiaries have total assets (determined on a consolidating basis in accordance with GAAP) as of such date with a fair market value in an aggregate amount not in excess of $100,000 and (ii) as of the last day of the most recently completed calendar month, the aggregate EBITDA of such Subsidiaries for the twelve calendar month period ended on such date shall be less than or equal to 2% of the EBITDA of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP. The Borrower hereby covenants that if at any time the conditions set forth in clauses (i) and (ii) of the proviso to the immediately preceding sentence shall fail to be true, the Subsidiaries identified above shall cease to constitute Immaterial Subsidiaries and the Borrower shall cause each of such Subsidiaries to comply with the terms of Section 4 hereof. “Indebtedness for Borrowed Money” means for any Person (without duplication) (a) all indebtedness created, assumed or incurred in any manner by such Person representing money borrowed (including by the issuance of debt securities), (b) all indebtedness for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business which are not more than sixty (60) days past due), (c) all indebtedness secured by any Lien upon Property of such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness, (d) all Capitalized Lease Obligations of such Person, and (e) all obligations of such Person on or with respect to letters of credit, bankers’ acceptances and other extensions of credit whether or not representing obligations for borrowed money.   -28- -------------------------------------------------------------------------------- “Interest Expense” means, with reference to any period, the sum of all interest charges (including imputed interest charges with respect to Capitalized Lease Obligations and all amortization of debt discount and expense) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. “Interest Period” is defined in Section 1.6 hereof. “L/C Issuer” means the Administrative Agent, or any other Lender requested by the Borrower and approved by the Administrative Agent in its sole discretion with respect to any Letter of Credit. “L/C Obligations” means the aggregate undrawn face amounts of all outstanding Letters of Credit and all unpaid Reimbursement Obligations. “L/C Sublimit” means $3,500,000 as reduced pursuant to the terms hereof. “Legal Requirement” means any treaty, convention, statute, law, regulation, ordinance, license, permit, governmental approval, injunction, judgment, order, consent decree or other requirement of any governmental authority, whether federal, state, or local. “Lenders” means and includes BMO Capital Markets Financing, Inc. and the other financial institutions from time to time party to this Agreement, including each assignee Lender pursuant to Section 13.12 hereof. “Lending Office” is defined in Section 10.4 hereof. “Letter of Credit” is defined in Section 1.2(a) hereof. “LIBOR” is defined in Section 1.2(b) hereof. “Lien” means any mortgage, lien, security interest, pledge, charge or encumbrance of any kind in respect of any Property, including the interests of a vendor or lessor under any conditional sale, Capital Lease or other title retention arrangement. “Loan” means any Revolving Loan or Swing Loan, whether outstanding as a Base Rate Loan or Eurodollar Loan or otherwise, each of which is a “type” of Loan hereunder. “Loan Documents” means this Agreement, the Notes (if any), the Applications, the Collateral Documents, the Guaranties, and each other instrument or document to be delivered hereunder or thereunder or otherwise in connection therewith. “Material Adverse Effect” means (a) a material adverse change in, or material adverse effect upon, the operations, business, Property or condition (financial or otherwise) of the Borrower or of the Borrower and its Subsidiaries taken as a whole, (b) a material impairment of the ability of the Borrower to perform its material obligations under any Loan Document or of the Borrower and its Subsidiaries taken as a whole to perform their material obligations under   -29- -------------------------------------------------------------------------------- any Loan Documents or (c) a material adverse effect upon (i) the legality, validity, binding effect or enforceability against the Borrower or any Guarantor of any Loan Document or the rights and remedies of the Administrative Agent and the Lenders thereunder or (ii) the perfection or priority of any Lien granted under any Collateral Document. “Material Written Audit” means a written audit of such significance that such audit and the legal, regulatory and financial impacts of such audit and the legal and regulatory actions likely to result therefrom are reasonably likely to have a material adverse effect upon the operations, business, Property or condition (financial or otherwise) of the Borrower or any Subsidiary. “Moody’s” means Moody’s Investors Service, Inc. “Mortgages” means, collectively, each Mortgage and Security Agreement with Assignment of Rents and each Deed of Trust and Security Agreement with Assignment of Rents between the Borrower or the relevant Guarantor and the Administrative Agent relating to such Person’s real property owned as of the Closing Date and located in the States of New Jersey, Pennsylvania, Illinois, North Carolina, California and Georgia and any other mortgages or deeds of trust delivered to the Administrative Agent pursuant to Section 4.3 hereof, as the same may be amended, modified, supplemented or restated from time to time. “Net Capital Expenditures” means, for any period, Capital Expenditures for such period less that portion of Capital Expenditures incurred during such period which is financed through Capital Leases. “Net Cash Proceeds” means, as applicable, (a) with respect to any Disposition by a Person, cash and cash equivalent proceeds received by or for such Person’s account, net of (i) reasonable direct costs relating to such Disposition and (ii) sale, use or other transactional taxes paid or payable by such Person as a direct result of such Disposition, (b) with respect to any Event of Loss of a Person, cash and cash equivalent proceeds received by or for such Person’s account (whether as a result of payments made under any applicable insurance policy therefor or in connection with condemnation proceedings or otherwise), net of reasonable direct costs incurred in connection with the collection of such proceeds, awards or other payments, and (c) with respect to any offering of equity securities of a Person or the issuance of any Indebtedness for Borrowed Money by a Person, cash and cash equivalent proceeds received by or for such Person’s account, net of reasonable legal, underwriting, and other fees, commissions and expenses incurred as a direct result thereof. “Net Income” means, with reference to any period, the net income (or net loss) of the Borrower and its Subsidiaries for such period computed on a consolidated basis in accordance with GAAP; provided that there shall be excluded from Net Income the net income (or net loss) of any Person (other than a Subsidiary) in which the Borrower or any of its Subsidiaries has a equity interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of its Subsidiaries during such period. “Note” and “Notes” means and includes the Revolving Note and the Swing Note.   -30- -------------------------------------------------------------------------------- “Obligations” means all obligations of the Borrower to pay principal and interest on the Loans, all Reimbursement Obligations owing under the Applications, all fees and charges payable hereunder, and all other payment obligations of the Borrower or any of its Subsidiaries arising under or in relation to any Loan Document, in each case whether now existing or hereafter arising, due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired. “Participating Interest” is defined in Section 1.2(d) hereof. “Participating Lender” is defined in Section 1.2(d) hereof. “PBGC” means the Pension Benefit Guaranty Corporation or any Person succeeding to any or all of its functions under ERISA. “Percentage” means for any Lender its Revolver Percentage, as applicable; and where the term “Percentage” is applied on an aggregate basis (including, without limitation, Section 11.6 hereof), such aggregate percentage shall be calculated by aggregating the separate components of the Revolver Percentage, and expressing such components on a single percentage basis. “Permitted Acquisition” means any Acquisition with respect to which all of the following conditions shall have been satisfied: (a) the Acquired Business is in an Eligible Line of Business and has its primary operations within the United States of America; (b) the Acquisition shall not be a Hostile Acquisition; (c) the financial statements of the Acquired Business shall have been audited by an independent accounting firm reasonably satisfactory to the Administrative Agent, or if such financial statements have not been audited by such an accounting firm, (i) such financial statements shall have been approved by the Required Lenders and (ii) the Acquired Business has undergone a review, compilation or financial analysis by an independent accounting firm reasonably satisfactory to the Administrative Agent as part of the applicable Borrower’s due diligence on the Acquisition; (d) the financial statements provided pursuant to clause (c) above shall evidence that the EBITDA of the Acquired Business for the twelve most recently completed calendar months is not less than $0; (e) the aggregate Total Consideration for all Acquired Businesses acquired in any fiscal year of the Borrower shall not exceed (i) $18,000,000 during the Borrower’s fiscal year ending on or about June 30, 2007 and (ii) $15,000,000 during any fiscal year of the Borrower ending thereafter;   -31- -------------------------------------------------------------------------------- (f) the Borrower shall have notified the Administrative Agent and Lenders not less than 20 days prior to the consummation of any such Acquisition and furnished to the Administrative Agent and Lenders at such time reasonable details as to such Acquisition (including sources and uses of funds therefor), and 3-year historical financial information and 3-year pro forma financial forecasts of the Acquired Business on a stand alone basis as well as of the Borrower on a consolidated basis after giving effect to the Acquisition and covenant compliance calculations reasonably satisfactory to the Administrative Agent demonstrating satisfaction of the condition described in clause (i) below; (g) if the Total Consideration for the Acquired Business exceeds $5,000,000, the Borrower shall supply to the Administrative Agent and Lenders a third party quality of earnings report completed by a firm that is satisfactory to the Administrative Agent in its reasonable discretion. (h) if a new Subsidiary is formed or acquired as a result of or in connection with the Acquisition, the Borrower shall have complied with the requirements of Section 4 hereof in connection therewith; (i) the Administrative Agent shall have received a Compliance Certificate evidencing, to the satisfaction of the Administrative Agent, that (i) the Total Funded Debt/EBITDA Ratio, calculated on a pro forma basis after giving effect to such Acquisition is not greater than (x) the then applicable ratio set forth in Section 8.21(a) hereof minus (y) 0.25 to 1.0, and (ii) the Fixed Charge Coverage Ratio, calculated on a pro forma basis after giving effect to such Acquisition shall not be less than 1.30 to 1.00; (j) after giving effect to the Acquisition and any Credit Event in connection therewith, no Default or Event of Default shall exist, including with respect to the financial covenants contained in Section 8.21 hereof on a pro forma basis; and (k) after giving effect to the Acquisition and any Credit Event in connection therewith, the Borrower shall have not less than $5,000,000 of Unused Revolving Credit Commitments. For the avoidance of doubt, the Discovery Acquisition shall constitute a Permitted Acquisition provided that such Acquisition complies with each of clauses (a) through (k) above (other than the 20-day notice provision set forth in clause (f) above). “Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization or any other entity or organization, including a government or agency or political subdivision thereof. “Philadelphia School Loan” means the amounts paid by the Borrower for leasehold improvements at premises leased under a certain Lease Agreement dated May 2, 2000 (as amended by that certain Addendum #1 dated May 2, 2000) between Arsenal Associates and the Borrower, and subleased by the Borrower to Franklin Towne Charter High School, Inc.   -32- -------------------------------------------------------------------------------- “Plan” means any employee pension benefit plan covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code that either (a) is maintained by a member of the Controlled Group for employees of a member of the Controlled Group or (b) is maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. “Premises” means the real property owned or leased by the Borrower or any Subsidiary, including without limitation the real property and improvements thereon owned by the Borrower or any Subsidiary subject to the Lien of the Mortgages or any other Collateral Documents. “Property” means, as to any Person, all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent balance sheet of such Person and its subsidiaries under GAAP. “RCRA” means the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§6901 et seq., and any future amendments. “Reimbursement Obligation” is defined in Section 1.2(c) hereof. “Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, migration, dumping, or disposing into the indoor or outdoor environment, including, without limitation, the abandonment or discarding of barrels, drums, containers, tanks or other receptacles containing or previously containing any Hazardous Material. “Required Lenders” means, as of the date of determination thereof, Lenders whose outstanding Loans, interests in Letters of Credit, interests in Swing Loans and Unused Revolving Credit Commitments constitute more than 50% of the sum of the total outstanding Loans, interests in Letters of Credit, interests in Swing Loans and Unused Revolving Credit Commitments of the Lenders, provided that, at any time when there are fewer than three Lenders, “Required Lenders” shall mean all of the Lenders. “Responsible Officer” means the chief executive officer, chief financial officer, chief operating officer, president or general counsel of the Borrower or any Guarantor. “Revolver Percentage” means, for each Lender, the percentage of the Revolving Credit Commitments represented by such Lender’s Revolving Credit Commitment or, if the Revolving Credit Commitments have been terminated, the percentage held by such Lender (including through participation interests in Reimbursement Obligations and participation interests in Swing Loans) of the aggregate principal amount of all Loans and L/C Obligations then outstanding. “Revolving Credit” means the credit facility for making Revolving Loans and Swing Loans and issuing Letters of Credit described in Sections 1.1 and 1.2 hereof.   -33- -------------------------------------------------------------------------------- “Revolving Credit Commitment” means, as to any Lender, the obligation of such Lender to make Revolving Loans and to participate in Swing Loans and Letters of Credit issued for the account of the Borrower hereunder in an aggregate principal or face amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 1 attached hereto and made a part hereof, as the same may be reduced or modified at any time or from time to time pursuant to the terms hereof. The Borrower and the Lenders acknowledge and agree that the Revolving Credit Commitments of the Lenders aggregate $50,000,000 on the date hereof. “Revolving Credit Termination Date” means October 30, 2011, or such earlier date on which the Revolving Credit Commitments are terminated in whole pursuant to Section 1.12, 9.2 or 9.3 hereof. “Revolving Loan” is defined in Section 1.1 hereof and, as so defined, includes a Base Rate Loan or a Eurodollar Loan, each of which is a “type” of Revolving Loan hereunder. “Revolving Note” is defined in Section 1.10 hereof. “S&P” means Standard & Poor’s Ratings Services Group, a division of The McGraw-Hill Companies, Inc. “Security Agreement” means that certain Amended and Restated Security Agreement dated the date of this Agreement among the Borrower and the Guarantors and the Administrative Agent, as the same may be amended, modified, supplemented or restated from time to time. “Subordinated Debt” means Indebtedness for Borrowed Money which is subordinated in right of payment to the prior payment of the Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability pursuant to subordination provisions approved in writing by the Administrative Agent and the Required Lenders and is otherwise pursuant to documentation that is, which is in an amount that is, and which contains interest rates, payment terms, maturities, amortization schedules, covenants, defaults, remedies and other material terms that are in form and substance, in each case satisfactory to the Administrative Agent and the Required Lenders. “Subsidiary” means, as to any particular parent corporation or organization, any other corporation or organization more than 50% of the outstanding Voting Stock of which is at the time directly or indirectly owned by such parent corporation or organization or by any one or more other entities which are themselves subsidiaries of such parent corporation or organization. Unless otherwise expressly noted herein, the term “Subsidiary” means a Subsidiary of the Borrower or of any of its direct or indirect Subsidiaries. “Swing Line” means the credit facility for making one or more Swing Loans described in Section 1.14 hereof. “Swing Line Lender” means BMO Capital Markets Financing, Inc. “Swing Line Sublimit” means $2,000,000, as reduced pursuant to the terms hereof.   -34- -------------------------------------------------------------------------------- “Swing Loan” and “Swing Loans” each is defined in Section 1.14 hereof. “Swing Note” is defined in Section 1.10 hereof. “Total Consideration” means, with respect to an Acquisition, the sum (but without duplication) of (a) cash paid in connection with any Acquisition, (b) indebtedness payable to the seller in connection with such Acquisition, (c) the fair market value of any equity securities, including any warrants or options therefor, delivered in connection with any Acquisition, (d) the present value of future payments which are required to be made over a period of time and are not contingent upon the Borrower or its Subsidiary meeting financial performance objectives (exclusive of salaries paid in the ordinary course of business) (discounted at the Base Rate), but only to the extent not included in clause (a), (b) or (c) above, and (e) the amount of indebtedness assumed in connection with such Acquisition. “Total Funded Debt” means, at any time the same is to be determined, the sum (but without duplication) of (a) all Indebtedness for Borrowed Money of the Borrower and its Subsidiaries at such time, and (b) all Indebtedness for Borrowed Money of any other Person which is directly or indirectly guaranteed by the Borrower or any of its Subsidiaries or which the Borrower or any of its Subsidiaries has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which the Borrower or any of its Subsidiaries has otherwise assured a creditor against loss. “Total Funded Debt/EBITDA Ratio” means, as of the last day of any fiscal quarter of the Borrower, the ratio of Total Funded Debt of the Borrower and its Subsidiaries as of the last day of such fiscal quarter to EBITDA of the Borrower and its Subsidiaries for the period of four fiscal quarters then ended. “Unfunded Vested Liabilities” means, for any Plan at any time, the amount (if any) by which the present value of all vested nonforfeitable accrued benefits under such Plan exceeds the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. “Unused Revolving Credit Commitments” means, at any time, the difference between the Revolving Credit Commitments then in effect and the aggregate outstanding principal amount of Revolving Loans and L/C Obligations, provided that Swing Loans outstanding from time to time shall be deemed to reduce the Unused Revolving Credit Commitment of the Swing Line Lender for purposes of computing the commitment fee under Section 2.1(c) hereof. “U.S. Dollars” and “$” each means the lawful currency of the United States of America. “Voting Stock” of any Person means capital stock or other equity interests of any class or classes (however designated) having ordinary power for the election of directors or other similar governing body of such Person, other than stock or other equity interests having such power only by reason of the happening of a contingency.   -35- -------------------------------------------------------------------------------- “Welfare Plan” means a “welfare plan” as defined in Section 3(1) of ERISA. “Wholly-owned Subsidiary” means a Subsidiary of which all of the issued and outstanding shares of capital stock (other than directors’ qualifying shares as required by law) or other equity interests are owned by the Borrower and/or one or more Wholly-owned Subsidiaries within the meaning of this definition. Section 5.2. Interpretation. The foregoing definitions are equally applicable to both the singular and plural forms of the terms defined. The words “hereof”, “herein”, and “hereunder” and words of like import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All references to time of day herein are references to Chicago, Illinois, time unless otherwise specifically provided. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, it shall be done in accordance with GAAP except where such principles are inconsistent with the specific provisions of this Agreement. Section 5.3. Change in Accounting Principles. If, after the date of this Agreement, there shall occur any change in GAAP from those used in the preparation of the financial statements referred to in Section 6.5 hereof and such change shall result in a change in the method of calculation of any financial covenant, standard or term found in this Agreement, either the Borrower or the Required Lenders may by notice to the Lenders and the Borrower, respectively, require that the Lenders and the Borrower negotiate in good faith to amend such covenants, standards, and terms so as equitably to reflect such change in accounting principles, with the desired result being that the criteria for evaluating the financial condition of the Borrower and its Subsidiaries shall be the same as if such change had not been made. No delay by the Borrower or the Required Lenders in requiring such negotiation shall limit their right to so require such a negotiation at any time after such a change in accounting principles. Until any such covenant, standard, or term is amended in accordance with this Section 5.3, financial covenants shall be computed and determined in accordance with GAAP in effect prior to such change in accounting principles. Without limiting the generality of the foregoing, the Borrower shall neither be deemed to be in compliance with any financial covenant hereunder nor out of compliance with any financial covenant hereunder if such state of compliance or noncompliance, as the case may be, would not exist but for the occurrence of a change in accounting principles after the date hereof. SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Administrative Agent and the Lenders as follows: Section 6.1. Organization and Qualification. The Borrower is duly organized, validly existing, and in good standing as a corporation under the laws of the State of Delaware, has full and adequate power to own its Property and conduct its business as now conducted, and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business conducted by it or the nature of the Property owned or leased by it requires such licensing or qualifying, except where the failure to do so would not have a Material Adverse Effect.   -36- -------------------------------------------------------------------------------- Section 6.2. Subsidiaries. Each Subsidiary is duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is organized, has full and adequate power to own its Property and conduct its business as now conducted, and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business conducted by it or the nature of the Property owned or leased by it requires such licensing or qualifying, except where the failure to do so would not have a Material Adverse Effect. Schedule 6.2 hereto identifies each Subsidiary, the jurisdiction of its organization, the percentage of issued and outstanding shares of each class of its capital stock or other equity interests owned by the Borrower and the other Subsidiaries and, if such percentage is not 100% (excluding directors’ qualifying shares as required by law), a description of each class of its authorized capital stock and other equity interests and the number of shares of each class issued and outstanding. All of the outstanding shares of capital stock and other equity interests of each Subsidiary are validly issued and outstanding and fully paid and nonassessable and all such shares and other equity interests indicated on Schedule 6.2 hereto as owned by the Borrower or another Subsidiary are owned, beneficially and of record, by the Borrower or such Subsidiary free and clear of all Liens other than the Liens granted in favor of the Administrative Agent pursuant to the Collateral Documents. Except as set forth on Schedule 6.2 hereto, there are no outstanding commitments or other obligations of any Subsidiary to issue, and no options, warrants or other rights of any Person to acquire, any shares of any class of capital stock or other equity interests of any Subsidiary. Section 6.3. Authority and Validity of Obligations. The Borrower has full right and authority to enter into this Agreement and the other Loan Documents executed by it, to make the borrowings herein provided for, to issue its Notes in evidence thereof, to grant to the Administrative Agent the Liens described in the Collateral Documents executed by the Borrower, and to perform all of its obligations hereunder and under the other Loan Documents executed by it. Each Guarantor has full right and authority to enter into the Loan Documents executed by it, to guarantee the Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability, to grant to the Administrative Agent the Liens described in the Collateral Documents executed by such Person, and to perform all of its obligations under the Loan Documents executed by it. The Loan Documents delivered by the Borrower and the Guarantors have been duly authorized, executed, and delivered by such Persons and constitute valid and binding obligations of the Borrower and the Guarantors enforceable against them in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law); and this Agreement and the other Loan Documents do not, nor does the performance or observance by the Borrower or any Guarantor of any of the matters and things herein or therein provided for, (a) contravene or constitute a default under any provision of law or any judgment, injunction, order or decree binding upon the Borrower or any Guarantor or any provision of the organizational documents (e.g., charter, certificate or articles of incorporation and by-laws, certificate or articles of association and operating agreement, partnership agreement, or other similar organizational documents) of the Borrower or any Guarantor,   -37- -------------------------------------------------------------------------------- (b) contravene or constitute a default under any covenant, indenture or agreement of or affecting the Borrower or any Guarantor or any of their Property, in each case where such contravention or default, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (c) result in the creation or imposition of any Lien on any Property of the Borrower or any Guarantor other than the Liens granted in favor of the Administrative Agent pursuant to the Collateral Documents. Section 6.4. Use of Proceeds; Margin Stock. The Borrower shall use the proceeds of the Revolving Credit to refinance existing Indebtedness for Borrowed Money of the Borrower, to finance Capital Expenditures for the Borrower’s and, subject to the terms thereof, its Subsidiaries general working capital purposes, to finance Permitted Acquisitions, and for such other legal and proper purposes as are consistent with all applicable laws. Neither the Borrower nor any Subsidiary is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan or any other extension of credit made hereunder will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock. Margin stock (as hereinabove defined) constitutes less than 25% of the assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge or other restriction hereunder. Section 6.5. Financial Reports. The consolidated balance sheet of the Borrower and its Subsidiaries as at July 1, 2006 and the related consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, and accompanying notes thereto, which financial statements are accompanied by the audit report of BDO Seidman LLP, independent public accountants, heretofore furnished to the Administrative Agent and the Lenders, fairly present in all material respects the consolidated financial condition of the Borrower and its Subsidiaries as at said dates and the consolidated results of their operations and cash flows for the periods then ended in conformity with GAAP applied on a consistent basis (subject, in the case of the unaudited statements, to normal year-end adjustments that are not expected to be material). Except as set forth on Schedule 6.5 hereto, neither the Borrower nor any Subsidiary had, as of the respective ending dates of the financial statements referred to above, contingent liabilities which were material to it other than as indicated on such financial statements. Section 6.6. No Material Adverse Change. Except as set forth on Schedule 6.6 hereto, since July 1, 2006, there has been no change in the condition (financial or otherwise) of the Borrower or any Subsidiary except those occurring in the ordinary course of business, none of which individually or in the aggregate would reasonably be expected to have a Material Adverse Effect. Section 6.7. Full Disclosure. The statements and information furnished to the Administrative Agent and the Lenders in connection with the negotiation of this Agreement and the other Loan Documents and the commitments by the Lenders to provide all or part of the financing contemplated hereby do not contain any untrue statements of a material fact or omit a material fact necessary to make the material statements contained herein or therein not misleading, the Administrative Agent and the Lenders acknowledging that as to any projections   -38- -------------------------------------------------------------------------------- furnished to the Administrative Agent and the Lenders, the Borrower only represents that the same were prepared on the basis of information and estimates the Borrower believed to be reasonable at the time of such projection. Section 6.8. Trademarks, Franchises, and Licenses. Except as set forth on Schedule 6.8 hereto, the Borrower and its Subsidiaries own, possess, or have the right to use all necessary patents, licenses, franchises, trademarks, trade names, trade styles, copyrights, trade secrets, know how, and confidential commercial and proprietary information to conduct their businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade name, trade style, copyright or other proprietary right of any other Person. Section 6.9. Governmental Authority and Licensing. Except as disclosed in the Borrower’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006, the Borrower and its Subsidiaries have received all licenses, permits, and approvals of all federal, state, and local governmental authorities, if any, necessary to conduct their businesses, in each case where the failure to obtain or maintain the same would reasonably be expected to have a Material Adverse Effect. No investigation or proceeding which, if adversely determined, could reasonably be expected to result in revocation or denial of any license, permit or approval is pending or, to the knowledge of the Borrower, threatened, except for any such revocation or denial which would not reasonably be expected to have a Material Adverse Effect. Section 6.10. Good Title. The Borrower and its Subsidiaries have good and defensible title (or valid leasehold interests and licenses) to their assets as reflected on the most recent consolidated balance sheet of the Borrower and its Subsidiaries furnished to the Administrative Agent and the Lenders (except for sales of assets in the ordinary course of business), subject to no Liens other than such thereof as are permitted by Section 8.8 hereof. Section 6.11. Litigation and Other Controversies. Except as disclosed in the Borrower’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006, there is no litigation or governmental or arbitration proceeding or labor controversy pending, nor to the knowledge of any Responsible Officer of the Borrower threatened, against the Borrower or any Subsidiary or any of their Property which if adversely determined, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. Section 6.12. Taxes. Except as set forth on Schedule 6.12 hereto, all tax returns required to be filed by the Borrower or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees, and other governmental charges upon the Borrower or any Subsidiary or upon any of its Property, income or franchises, which are shown to be due and payable in such returns, have been paid, except such taxes, assessments, fees and governmental charges, if any, as are being contested in good faith and by appropriate proceedings which prevent enforcement of the matter under contest and as to which adequate reserves established in accordance with GAAP have been provided. The Borrower does not know of any proposed additional tax assessment against it or its Subsidiaries for which adequate provisions in accordance with GAAP have not been made on their accounts. Adequate provisions in accordance with GAAP for taxes on the books of the Borrower and each Subsidiary have been made for all open years, and for its current fiscal period.   -39- -------------------------------------------------------------------------------- Section 6.13. Approvals. No authorization, consent, license or exemption from, or filing or registration with, any court or governmental department, agency or instrumentality, nor any approval or consent of any other Person, is or will be necessary to the valid execution, delivery or performance by the Borrower or any Subsidiary of any Loan Document, except for such approvals which have been obtained on or prior to the Closing Date and remain in full force and effect. Section 6.14. Affiliate Transactions. Except as disclosed in the Borrower’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006, neither the Borrower nor any Subsidiary is a party to any contracts or agreements with any of its Affiliates (other than with Wholly-owned Subsidiaries) on terms and conditions which are less favorable to the Borrower or such Subsidiary than would be usual and customary in similar contracts or agreements between Persons not affiliated with each other, except for compensation agreements with officers and directors approved by the compensation committee of the Borrower’s board of directors. Section 6.15. Investment Company. Neither the Borrower nor any Subsidiary is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended. Section 6.16. ERISA. The Borrower and each other member of its Controlled Group has fulfilled its obligations under the minimum funding standards of and is, along with each of their Employee Benefit Plans (and each related trust, insurance contract or fund), in compliance in all material respects with ERISA and the Code to the extent applicable to it and has not incurred any liability to the PBGC or a Plan under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. Except as set forth on Schedule 6.16 hereto, neither the Borrower nor any Subsidiary has any contingent liabilities with respect to any post-retirement benefits under a Welfare Plan, other than liability for continuation coverage described in article 6 of Title I of ERISA. Section 6.17. Compliance with Laws. (a) Except as disclosed in the Borrower’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006, the Borrower and its Subsidiaries are in compliance with the requirements of all federal, state and local laws, rules and regulations applicable to or pertaining to their Property or business operations (including, without limitation, the Occupational Safety and Health Act of 1970, the Americans with Disabilities Act of 1990, and laws and regulations establishing quality criteria and standards for air, water, land and toxic or hazardous wastes and substances), where any such non-compliance, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. (b) Without limiting the representations and warranties set forth in Section 6.17(a) above, except (A) as disclosed in the Borrower’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006 and (B) for such other matters, individually or in the aggregate, which could not reasonably be expected to result in a Material Adverse Effect, the Borrower represents and warrants that: (i) the Borrower and its Subsidiaries, and each of the Premises, comply in all material respects with all applicable Environmental Laws; (ii) the Borrower and its Subsidiaries have obtained all governmental approvals required for their operations and each of the Premises by any applicable Environmental Law; (iii) the Borrower and its Subsidiaries have not, and the   -40- -------------------------------------------------------------------------------- Borrower has no knowledge of any other Person who has, caused any Release, threatened Release or disposal of any Hazardous Material at, on, about, or off any of the Premises in any material quantity and, to the knowledge of the Borrower, none of the Premises are adversely affected by any Release, threatened Release or disposal of a Hazardous Material originating or emanating from any other property; (iv) to Borrower’s knowledge, none of the Premises contain and have contained any: (1) underground storage tank, (2) material amounts of asbestos containing building material, (3) landfills or dumps, (4) hazardous waste management facility as defined pursuant to RCRA or any comparable state law, or (5) site on or nominated for the National Priority List promulgated pursuant to CERCLA or any state remedial priority list promulgated or published pursuant to any comparable state law; (v) the Borrower and its Subsidiaries have not used a material quantity of any Hazardous Material and have conducted no Hazardous Material Activity at any of the Premises; (vi) the Borrower and its Subsidiaries have no material liability for response or corrective action, natural resource damage or other harm pursuant to CERCLA, RCRA or any comparable state law; (vii) the Borrower and its Subsidiaries are not subject to, have no notice or knowledge of and are not required to give any notice of any Environmental Claim involving the Borrower or any Subsidiary or any of the Premises, and there are no conditions or occurrences at any of the Premises which could reasonably be anticipated to form the basis for an Environmental Claim against the Borrower or any Subsidiary or such Premises; (viii) none of the Premises are subject to any, and the Borrower has no knowledge of any imminent restriction on the ownership, occupancy, use or transferability of the Premises in connection with any (1) Environmental Law or (2) Release, threatened Release or disposal of a Hazardous Material; and (ix) there are no conditions or circumstances at any of the Premises which pose an unreasonable risk to the environment or the health or safety of Persons. Section 6.18. Other Agreements. Neither the Borrower nor any Subsidiary is in default under the terms of any covenant, indenture or agreement of or affecting such Person or any of its Property, which default if uncured would reasonably be expected to have a Material Adverse Effect. Section 6.19. Solvency. The Borrower and each Guarantor are solvent, able to pay their debts as they become due, and have sufficient capital to carry on their business and all businesses in which they are about to engage. Section 6.20. No Broker Fees. Except as set forth on Schedule 6.20 hereto, no broker’s or finder’s fee or commission will be payable with respect hereto or any of the transactions contemplated thereby; and the Borrower hereby agrees to indemnify the Administrative Agent and the Lenders against, and agree that they will hold the Administrative Agent and the Lenders harmless from, any claim, demand, or liability for any such broker’s or finder’s fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable attorneys’ fees) arising in connection with any such claim, demand, or liability. Section 6.21. No Default. No Default or Event of Default has occurred and is continuing.   -41- -------------------------------------------------------------------------------- SECTION 7. CONDITIONS PRECEDENT. The obligation of each Lender to advance, continue or convert any Loan (other than the continuation of, or conversion into, a Base Rate Loan) or of the L/C Issuer to issue, extend the expiration date (including by not giving notice of non-renewal) of or increase the amount of any Letter of Credit under this Agreement, shall be subject to the following conditions precedent: Section 7.1. All Credit Events. At the time of each Credit Event hereunder: (a) each of the representations and warranties set forth herein and in the other Loan Documents shall be and remain true and correct in all material respects as of said time, except to the extent the same expressly relate to an earlier date; (b) no Default or Event of Default shall have occurred and be continuing or would occur as a result of such Credit Event; (c) in the case of a Borrowing the Administrative Agent shall have received the notice required by Section 1.5 hereof, in the case of the issuance of any Letter of Credit the L/C Issuer shall have received a duly completed Application for such Letter of Credit together with any fees called for by Section 2.1 hereof, and, in the case of an extension or increase in the amount of a Letter of Credit, a written request therefor in a form acceptable to the L/C Issuer together with fees called for by Section 2.1 hereof; and (d) such Credit Event shall not violate any order, judgment or decree of any court or other authority or any provision of law or regulation applicable to the Administrative Agent, the L/C Issuer, or any Lender (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System) as then in effect. Each request for a Borrowing hereunder and each request for the issuance of, increase in the amount of, or extension of the expiration date of, a Letter of Credit shall be deemed to be a representation and warranty by the Borrower on the date on such Credit Event as to the facts specified in subsections (a) through (c), both inclusive, of this Section. Section 7.2. Initial Credit Event. Before or concurrently with the initial Credit Event: (a) the Administrative Agent shall have received for each Lender this Agreement duly executed by the Borrower and the Guarantors, and the Lenders; (b) the Administrative Agent shall have received for each Lender such Lender’s duly executed Notes of the Borrower dated the date hereof and otherwise in compliance with the provisions of Section 1.10 hereof; (c) the Administrative Agent shall have received the First Supplements, and Security Agreement duly executed by the Borrower and the Guarantors, as appropriate, together with, to the extent not previously delivered, (i) original stock certificates or other similar instruments or securities representing all of the issued and outstanding shares of   -42- -------------------------------------------------------------------------------- capital stock or other equity interests in each Subsidiary (66% of such capital stock in the case of any Foreign Subsidiary as provided in Section 4.2 hereof) as of the Closing Date, (ii) stock powers for the Collateral consisting of the stock or other equity interest in each Subsidiary executed in blank and undated, (iii) UCC financing statements to be filed against the Borrower and each Guarantor, as debtor, in favor of the Administrative Agent, as secured party, (iv) patent, trademark, and copyright collateral agreements to the extent requested by the Administrative Agent, and (v) deposit account, securities account, and commodity account control agreements to the extent requested by the Administrative Agent; (d) the Administrative Agent shall have received evidence of insurance required to be maintained under the Loan Documents, naming the Administrative Agent, in such capacity, as mortgagee and loss payee; (e) the Administrative Agent shall have received for each Lender copies of the Borrower’s and each Guarantor’s articles of incorporation and bylaws (or comparable organizational documents) and any amendments thereto, certified in each instance by its Secretary or Assistant Secretary; (f) the Administrative Agent shall have received for each Lender copies of resolutions of the Borrower’s and each Guarantor’s Board of Directors (or similar governing body) authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, together with specimen signatures of the persons authorized to execute such documents on the Borrower’s and each Guarantor’s behalf, all certified in each instance by its Secretary or Assistant Secretary; (g) the Administrative Agent shall have received for each Lender copies of the certificates of good standing for the Borrower and each Guarantor (dated no earlier than 30 days prior to the date hereof) from the office of the secretary of the state of its incorporation or organization and of each state in which it is qualified to do business as a foreign corporation or organization; (h) the Administrative Agent shall have received for each Lender a list of the Borrower’s Authorized Representatives; (i) the Administrative Agent shall have received the initial fees called for by Section 2.1(c) hereof; (j) each Lender shall have received such evaluations and certifications as it may reasonably require in order to satisfy itself as to the value of the Collateral, the financial condition of the Borrower and the Guarantors, and the lack of material contingent liabilities of the Borrower and the Guarantors; (k) the Administrative Agent shall have received financing statement, tax, and judgment lien search results against the Property of the Borrower and each Guarantor evidencing the absence of Liens on its Property except as permitted by Section 8.8 hereof;   -43- -------------------------------------------------------------------------------- (l) the Administrative Agent shall have received for each Lender the favorable written opinion of counsel to the Borrower and each Guarantor, in form and substance satisfactory to the Administrative Agent; (m) the Administrative Agent and its counsel shall have reviewed and shall be satisfied with all pending and threatened litigation involving the Borrower and the Guarantors; (n) the Administrative Agent shall have received a Compliance Certificate duly executed by an Authorized Officer of the Borrower demonstrating that (i) EBITDA for the twelve months ending on September 28, 2006, was not less than $13,000,000; and (ii) the Total Funded Debt/EBITDA Ratio, measured based on Total Funded Debt projected to be outstanding after giving effect to the initial Credit Extension and EBITDA for the four fiscal quarters ended on September 28, 2006, is less than 1.25 to 1.0; and (o) the Administrative Agent shall have received for the account of the Lenders such other agreements, instruments, documents, certificates, and opinions as the Administrative Agent may reasonably request. Section 7.3. Real Property Matters. On or prior to the date fifteen (15) days following the Closing Date: (a) the Administrative Agent shall have received date down endorsements to mortgagee’s title insurance policies (or prepaid binding commitments therefor) in form and substance acceptable to the Administrative Agent from a title insurance company or companies acceptable to the Administrative Agent in an aggregate amount acceptable to the Administrative Agent insuring the Liens of the Mortgages (other than with respect to the real property located in New Jersey and Pennsylvania) to be valid first priority Liens subject to no defects or objections which are unacceptable to the Administrative Agent, together with such endorsements as the Administrative Agent may require; and (b) the Administrative Agent shall have received a record owner and lien certificate or similar document issued by the title insurance company that issued the mortgagee’s title insurance policy with respect to the real property located in New Jersey and Pennsylvania, which certificate or document shall evidence no liens, defects or encumbrances which are unacceptable to the Administrative Agent. SECTION 8. COVENANTS. The Borrower agrees that, so long as any credit is available to or in use by the Borrower hereunder, except to the extent compliance in any case or cases is waived in writing pursuant to the terms of Section 13.13 hereof:   -44- -------------------------------------------------------------------------------- Section 8.1. Maintenance of Business. The Borrower shall, and shall cause each Subsidiary to, preserve and maintain its existence, except as otherwise provided in Section 8.10(ii)(b) hereof. The Borrower shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other proprietary rights necessary to the proper conduct of its business where the failure to do so would reasonably be expected to have a Material Adverse Effect. Section 8.2. Maintenance of Properties. The Borrower shall, and shall cause each Subsidiary to, maintain, preserve, and keep its property, plant, and equipment in good repair, working order and condition (ordinary wear and tear excepted), and shall from time to time make all needful and proper repairs, renewals, replacements, additions, and betterments thereto so that at all times the efficiency thereof shall be fully preserved and maintained, except to the extent that, in the reasonable business judgment of such Person, any such Property is no longer necessary for the proper conduct of the business of such Person. Section 8.3. Taxes and Assessments. The Borrower shall duly pay and discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes, rates, assessments, fees, and governmental charges upon or against it or its Property, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith and by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves are provided therefor. Section 8.4. Insurance. The Borrower shall insure and keep insured, and shall cause each Subsidiary to insure and keep insured, with good and responsible insurance companies, all insurable Property owned by it which is of a character usually insured by Persons similarly situated and operating like Properties against loss or damage from such hazards and risks, and in such amounts, as are insured by Persons similarly situated and operating like Properties; and the Borrower shall insure, and shall cause each Subsidiary to insure, such other hazards and risks (including, without limitation, business interruption, and employers’ and public liability risks) with good and responsible insurance companies as and to the extent usually insured by Persons similarly situated and conducting similar businesses. The Borrower shall in any event maintain, and cause each Subsidiary to maintain, insurance on the Collateral to the extent required by the Collateral Documents. The Borrower shall, upon the request of the Administrative Agent, furnish to the Administrative Agent and the Lenders a certificate setting forth in summary form the nature and extent of the insurance maintained pursuant to this Section. Section 8.5. Financial Reports. The Borrower shall, and shall cause each Subsidiary to, maintain a standard system of accounting in accordance with GAAP and shall furnish to the Administrative Agent, each Lender and each of their duly authorized representatives such information respecting the business and financial condition of the Borrower and each Subsidiary as the Administrative Agent or such Lender may reasonably request; and without any request, shall furnish to the Administrative Agent and the Lenders: (a) as soon as available, and in any event no later than 45 days after the last day of each fiscal quarter (other than the last fiscal quarter occurring in each fiscal year),   -45- -------------------------------------------------------------------------------- a copy of the consolidated balance sheet of the Borrower and its Subsidiaries as of the last day of such fiscal quarter and the consolidated statements of income, retained earnings, and cash flows of the Borrower and its Subsidiaries for the fiscal quarter then ended and for the fiscal year-to-date period then ended, each in reasonable detail showing in comparative form the figures for the corresponding date and period in the previous fiscal year and a comparison to budget, prepared by the Borrower in accordance with GAAP (subject to the absence of footnote disclosures and year-end audit adjustments) and certified to by its chief financial officer or another officer of the Borrower acceptable to the Administrative Agent; (b) as soon as available, and in any event no later than 90 days after the last day of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and its Subsidiaries as of the last day of the fiscal year then ended and the consolidated statements of income, retained earnings, and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, and accompanying notes thereto, each in reasonable detail showing in comparative form the figures for the previous fiscal year and a comparison to budget, accompanied in the case of the consolidated financial statements by an unqualified opinion of BDO Seidman LLP or another firm of independent public accountants of recognized national standing, selected by the Borrower and reasonably satisfactory to the Administrative Agent and the Required Lenders, to the effect that the consolidated financial statements have been prepared in accordance with GAAP and present fairly in accordance with GAAP the consolidated financial condition of the Borrower and its Subsidiaries as of the close of such fiscal year and the results of their operations and cash flows for the fiscal year then ended and that an examination of such accounts in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, such examination included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; (c) promptly after receipt thereof, any additional written reports, management letters or other detailed information contained in writing concerning significant aspects of the Borrower’s or any Subsidiary’s operations and financial affairs given to it by its independent public accountants; (d) promptly after the sending or filing thereof, copies of each financial statement, report, notice or proxy statement sent by the Borrower or any Subsidiary to its stockholders or other equity holders, and copies of each regular, periodic or special report, registration statement or prospectus (including all Form 10-K, Form 10-Q and Form 8-K reports) filed by the Borrower or any Subsidiary with any securities exchange or the Securities and Exchange Commission or any successor agency; (e) promptly after receipt thereof, a copy of each Material Written Audit made by any regulatory agency of the books and records of the Borrower or any Subsidiary or of notice of any material noncompliance with any applicable material law, regulation or guideline relating to the Borrower or any Subsidiary, or its business;   -46- -------------------------------------------------------------------------------- (f) as soon as available, and in any event no later than 30 days after the start of each fiscal year of the Borrower, a copy of the Borrower’s consolidated business plan for such fiscal year, such business plan to show the Borrower’s projected consolidated revenues, expenses and balance sheet on a month-by-month basis, such business plan to be in reasonable detail prepared by the Borrower and in form satisfactory to the Administrative Agent and the Required Lenders (which shall include a summary of all assumptions made in preparing such business plan); (g) notice of any Change of Control; (h) promptly after knowledge thereof shall have come to the attention of any Responsible Officer of the Borrower, written notice of (i) any threatened or pending litigation or governmental or arbitration proceeding or labor controversy against the Borrower or any Subsidiary or any of their Property which, if adversely determined, could reasonably be expected to have a Material Adverse Effect or (ii) the occurrence of any Default or Event of Default hereunder; and (i) with each of the financial statements furnished to the Lenders pursuant to subsections (a) and (b) above, a written certificate in the form attached hereto as Exhibit E (a “Compliance Certificate”) signed by the chief financial officer of the Borrower or another officer of the Borrower acceptable to the Administrative Agent to the effect that to the best of such officer’s knowledge and belief no Default or Event of Default has occurred during the period covered by such statements or, if any such Default or Event of Default has occurred during such period, setting forth a description of such Default or Event of Default and specifying the action, if any, taken by the Borrower or any Subsidiary to remedy the same. Such certificate shall also set forth the calculations supporting such statements in respect of Section 8.21 hereof. The financial statements delivered pursuant to subsections (a) and (b) above shall, among other things, reflect all contingent liabilities of the Borrower or any Subsidiary existing at the end of the relevant period covered thereby which are material to the Borrower or any Subsidiary. Section 8.6. Inspection. The Borrower shall, and shall cause each Subsidiary to, permit the Administrative Agent, each Lender, and each of their duly authorized representatives and agents to visit and inspect any of its Property, corporate books, and financial records, to examine and make copies of its books of accounts and other financial records, and to discuss its affairs, finances, and accounts with, and to be advised as to the same by, its officers, employees and independent public accountants (and by this provision the Borrower hereby authorizes such accountants to discuss with the Administrative Agent and such Lenders the finances and affairs of the Borrower and its Subsidiaries) at such reasonable times and intervals as the Administrative Agent or any such Lender may designate provided that such inspections shall not unreasonably interfere with the conduct of the Borrower’s or any Subsidiary’s business and, so long as no Default or Event of Default exists, with reasonable prior notice to the Borrower. The Borrower shall be required to reimburse the Administrative Agent and each Lender for out-of-pocket costs incurred in connection with each such inspection; provided, however, that prior to the occurrence of an Event of Default hereunder, the Borrower shall only be required to reimburse the Administrative Agent and the Lenders for two (2) such inspections per calendar year.   -47- -------------------------------------------------------------------------------- Section 8.7. Borrowings and Guaranties. The Borrower shall not, nor shall it permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness for Borrowed Money, or be or become liable as endorser, guarantor, surety or otherwise for any debt, obligation or undertaking of any other Person, or otherwise agree to provide funds for payment of the obligations of another, or supply funds thereto or invest therein or otherwise assure a creditor of another against loss, or apply for or become liable to the issuer of a letter of credit which supports an obligation of another, or subordinate any claim or demand it may have to the claim or demand of any other Person; provided, however, that the foregoing shall not restrict nor operate to prevent: (a) the Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability of the Borrower and its Subsidiaries owing to the Administrative Agent and the Lenders (and their Affiliates); (b) purchase money indebtedness and Capitalized Lease Obligations of the Borrower and its Subsidiaries in an amount not to exceed $5,000,000 in the aggregate at any one time outstanding; (c) endorsement of items for deposit or collection of commercial paper received in the ordinary course of business; (d) intercompany advances from time to time owing by any Subsidiary which is a Guarantor to the Borrower or another Subsidiary which is a Guarantor or by the Borrower to a Subsidiary which is a Guarantor in the ordinary course of business; (e) the guaranties described in Schedule 8.7 and outstanding on the Closing Date, together with additional guaranties entered into for similar purposes and reasonably acceptable in form, substance and amount to the Administrative Agent; and (f) unsecured indebtedness of the Borrower and its Subsidiaries not otherwise permitted by this Section in an amount not to exceed $1,000,000 in the aggregate at any one time outstanding. (g) indebtedness on account of earnout payments or seller notes incurred in connection with a Permitted Acquisition, provided that such indebtedness is unsecured and the aggregate outstanding amount of such indebtedness shall not exceed $2,000,000 at any time; and (h) guaranty obligations incurred in the ordinary course of business by the Borrower or any of its Subsidiaries of (i) obligations of the Borrower or any Subsidiary or (ii) any Indebtedness for Borrowed Money of the Borrower or any of its Subsidiaries permitted under this Section 8.7.   -48- -------------------------------------------------------------------------------- Section 8.8. Liens . The Borrower shall not, nor shall it permit any Subsidiary to, create, incur or permit to exist any Lien of any kind on any Property owned by any such Person; provided, however, that the foregoing shall not apply to nor operate to prevent: (a) Liens arising by statute in connection with worker’s compensation, unemployment insurance, old age benefits, social security obligations, taxes, assessments, statutory obligations or other similar charges (other than Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Borrower or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided in each case that the obligation is not for borrowed money and that the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves have been established therefor; (b) mechanics’, workmen’s, materialmen’s, landlords’, carriers’ or other similar Liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest; (c) judgment liens and judicial attachment liens not constituting an Event of Default under Section 9.1(g) hereof and the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of such judgment liens and attachments and liabilities of the Borrower and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (d) Liens on equipment of the Borrower or any Subsidiary created solely for the purpose of securing indebtedness permitted by Section 8.7(b) hereof, representing or incurred to finance the purchase price of such Property, provided that no such Lien shall extend to or cover other Property of the Borrower or such Subsidiary other than the respective Property so acquired, and the principal amount of indebtedness secured by any such Lien shall at no time exceed the purchase price of such Property, as reduced by repayments of principal thereon; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions, and other similar encumbrances against real property incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any Subsidiary and all encumbrances reflected on Schedule B of those policies of title insurance provided to the Administrative Agent in connection with the Mortgages;   -49- -------------------------------------------------------------------------------- (g) Liens granted in favor of Kings Grant Shops, LLC in certain Property of the Borrower and its Subsidiaries listed on Exhibit “A” to a UCC-1 filing dated June 20, 2001 with the County Clerk of Burlington County, New Jersey; (h) Liens granted in favor of the Administrative Agent pursuant to the Collateral Documents; and (i) liens for taxes not yet due or which are being contested in compliance with Section 6.12. Section 8.9. Investments, Acquisitions, Loans and Advances. The Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly, make, retain or have outstanding any investments (whether through purchase of stock or obligations or otherwise) in, or loans or advances to (other than for travel advances and other similar cash advances made to employees in the ordinary course of business), any other Person, or acquire all or any substantial part of the assets or business of any other Person or division thereof; provided, however, that the foregoing shall not apply to nor operate to prevent: (a) investments in direct obligations of the United States of America or of any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States of America, provided that any such obligations shall mature within one year of the date of issuance thereof; (b) investments in commercial paper rated at least P-1 by Moody’s and at least A-1 by S&P maturing within one year of the date of issuance thereof; (c) investments in certificates of deposit issued by any Lender or by any United States commercial bank having capital and surplus of not less than $100,000,000 which have a maturity of one year or less; (d) investments in repurchase obligations with a term of not more than 7 days for underlying securities of the types described in subsection (a) above entered into with any bank meeting the qualifications specified in subsection (c) above, provided all such agreements require physical delivery of the securities securing such repurchase agreement, except those delivered through the Federal Reserve Book Entry System; (e) investments in money market funds that invest solely, and which are restricted by their respective charters to invest solely, in investments of the type described in the immediately preceding subsections (a), (b), (c), and (d) above; (f) the Borrower’s and its Subsidiaries’ investments existing on the Closing Date in their Subsidiaries which are not Guarantors, and the Borrower’s investments from time to time in its Subsidiaries which are Guarantors, and investments made from time to time by a Subsidiary in or more of its Subsidiaries which are Guarantors;   -50- -------------------------------------------------------------------------------- (g) intercompany advances made from time to time by the Borrower or a Subsidiary to another Subsidiary which is a Guarantor or by a Subsidiary to the Borrower in the ordinary course of business; (h) the Borrower’s existing investment on the Closing Date in (x) convertible debt of Total Education Solutions, Inc. (“TES”) in an original aggregate principal amount of $2,500,000, together with an equity investment arising from the exercise of warrants currently held by the Borrower for the issuance of 10,000 shares of common stock of TES, provided that the consideration tendered by the Borrower for the exercise of such warrants shall not exceed $100 in the aggregate; (y) warrants purchased by the Borrower for $75,000 to purchase 0.9% of common stock of TES and (z) the Borrower’s purchase of outstanding indebtedness owing by TES in the outstanding principal amount of $1,000,000 pursuant to that certain Promissory Note dated as of January 17, 2003 for total consideration not in excess of $200,000; (i) Permitted Acquisitions; (j) investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case, in the ordinary course of business; (k) investments by the Borrower or any Subsidiary made in connection with any cash management agreement with any Lender or Affiliate thereof; (l) trade credit extended by the Borrower or any Subsidiary on usual and customary terms in the ordinary course of business; (m) the Philadelphia School Loan in an aggregate principal amount not to exceed $1,200,000; and (n) other investments, loans, and advances in addition to those otherwise permitted by this Section in an amount not to exceed $200,000 in the aggregate at any one time outstanding. In determining the amount of investments, acquisitions, loans, and advances permitted under this Section, investments and acquisitions shall always be taken at the original cost thereof (regardless of any subsequent appreciation or depreciation therein), and loans and advances shall be taken at the principal amount thereof then remaining unpaid. Section 8.10. Mergers, Consolidations and Sales. The Borrower shall not, nor shall it permit any Subsidiary to, be a party to any merger or consolidation, or sell, transfer, lease or otherwise dispose of all or any part of its Property, including any disposition of Property as part of a sale and leaseback transaction, or in any event sell or discount (with or without recourse) any of its notes or accounts receivable; provided, however, that (i) this Section shall not apply to nor operate to prevent the sale or lease of inventory in the ordinary course of business, and (ii) so   -51- -------------------------------------------------------------------------------- long as no Default or Event of Default exists (except as otherwise permitted by the Security Agreement) this Section shall not apply to nor operate to prevent: (a) the sale, transfer, lease or other disposition of Property of the Borrower and its Subsidiaries which are Guarantors to one another in the ordinary course of its business; (b) the merger of any Subsidiary with and into the Borrower or any other Subsidiary which is a Guarantor, provided that, (i) in the case of any merger involving the Borrower, the Borrower is the corporation surviving the merger, and (ii) no Subsidiary may merge into a Subsidiary which is not a Wholly-owned Subsidiary; (c) the sale of delinquent notes or accounts receivable in the ordinary course of business for purposes of collection only (and not for the purpose of any bulk sale or securitization transaction); (d) the sale, transfer or other disposition of any tangible personal property that, in the reasonable business judgment of the Borrower or its Subsidiary, has become obsolete or worn out, and which is disposed of in the ordinary course of business; (e) Permitted Acquisitions; (f) the sale, transfer or other disposition of any real property that is listed on Schedule 8.10 hereto; (g) the sale, transfer, lease or other disposition of Property of the Borrower or any Subsidiary (excluding any disposition of Property as part of a sale and leaseback transaction) aggregating for the Borrower and its Subsidiaries not more than $500,000 during any fiscal year of the Borrower; and (h) dispositions of Property constituting real estate as part of a sale and leaseback transaction aggregating for the Borrower and its Subsidiaries not in excess of (i) $3,000,000 during any fiscal year and (ii) $6,000,000 during the term of this Agreement. Section 8.11. Maintenance of Subsidiaries. The Borrower shall not assign, sell or transfer, nor shall it permit any Subsidiary to issue, assign, sell or transfer, any shares of capital stock or other equity interests of a Subsidiary; provided, however, that the foregoing shall not operate to prevent (a) Liens on the capital stock or other equity interests of Subsidiaries granted to the Administrative Agent pursuant to the Collateral Documents, (b) the issuance, sale, and transfer to any person of any shares of capital stock of a Subsidiary solely for the purpose of qualifying, and to the extent legally necessary to qualify, such person as a director of such Subsidiary, and (c) any transaction permitted by Section 8.10(ii)(b) above. Section 8.12. Dividends and Certain Other Restricted Payments. The Borrower shall not, nor shall it permit any Subsidiary to, (a) declare or pay any dividends on or make any other   -52- -------------------------------------------------------------------------------- distributions in respect of any class or series of its capital stock or other equity interests or (b) directly or indirectly purchase, redeem, or otherwise acquire or retire any of its capital stock or other equity interests or any warrants (including, without limitation, those Warrants issued pursuant to, and as defined in, that Investment Agreement dated as of June 30, 1998, as amended by a First Amendment thereto dated as of May 24, 2001), options, or similar instruments to acquire the same; provided, however, that the foregoing shall not operate to prevent (i) the making of dividends or distributions by any Subsidiary to the Borrower or any Subsidiary, (ii) provided that (x) no Default or Event of Default exists before or after giving effect thereto, and (y) the Borrower’s Fixed Charge Coverage Ratio would have been 1.30 to 1.0 or greater as of the end of its most recently ended fiscal quarter if such dividend had been made on the last day of such fiscal quarter, the payment of cash dividends on the Borrower’s Series E and F Preferred Stock at a rate not exceeding the rate in effect on the Closing Date, and in any event not to exceed $550,000 in the aggregate during any fiscal year, (iii) the making of dividends or distributions by the Borrower on any series of its preferred stock solely in the form of the issuance of additional shares of such series of preferred stock, or (iv) the acceptance by the Borrower of shares of its capital stock (or all or any portion off a warrant to purchase shares of its capital stock) in satisfaction of the exercise price of any warrant to acquire its shares. Section 8.13. ERISA. The Borrower shall, and shall cause each Subsidiary to, promptly pay and discharge all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed could reasonably be expected to result in the imposition of a Lien against any of its Property. The Borrower shall, and shall cause each Subsidiary to, promptly notify the Administrative Agent and each Lender of: (a) the occurrence of any reportable event (as defined in ERISA) with respect to a Plan, (b) receipt of any notice from the PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor, (c) its intention to terminate or withdraw from any Plan, and (d) the occurrence of any event with respect to any Plan which would result in the incurrence by the Borrower or any Subsidiary of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower or any Subsidiary with respect to any post-retirement Welfare Plan benefit. Section 8.14. Compliance with Laws. (a) The Borrower shall, and shall cause each Subsidiary to, comply in all respects with the requirements of all federal, state, and local laws, rules, regulations, ordinances and orders applicable to or pertaining to its Property or business operations, where any such non-compliance, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect or result in a Lien upon any of its Property. (b) Without limiting the agreements set forth in Section 8.14(a) above, the Borrower shall, and shall cause each Subsidiary to, at all times, do the following to the extent the failure to do so, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect: (i) comply in all material respects with, and maintain each of the Premises in compliance in all material respects with, all applicable Environmental Laws; (ii) require that each tenant and subtenant, if any, of any of the Premises or any part thereof comply in all material respects with all Environmental Laws applicable to such Premises or part thereof; (iii) obtain and maintain in full force and effect all material governmental approvals required by any applicable Environmental Law for operations at each of the Premises; (iv) cure any material violation by it or at any of the Premises of Environmental Laws applicable to such Premises or any part thereof;   -53- -------------------------------------------------------------------------------- (v) not allow the presence or operation at any of the Premises of any (1) landfill or dump or (2) hazardous waste management facility or solid waste disposal facility as defined pursuant to RCRA or any comparable state law; (vi) not manufacture, use, generate, transport, treat, store, release, dispose or handle any Hazardous Material at any of the Premises except in the ordinary course of its business and in de minimis amounts; (vii) within 10 Business Days notify the Administrative Agent in writing of and provide any reasonably requested documents upon learning of any of the following in connection with the Borrower or any Subsidiary or any of the Premises: (1) any material liability for response or corrective action, natural resource damage or other harm pursuant to CERCLA, RCRA or any comparable state law; (2) any material Environmental Claim; (3) any material violation of an Environmental Law or material Release, threatened Release or disposal of a Hazardous Material; (4) any restriction on the ownership, occupancy, use or transferability arising pursuant to any (x) Release, threatened Release or disposal of a Hazardous Material or (y) Environmental Law; or (5) any environmental, natural resource, health or safety condition, which could reasonably be expected to have a Material Adverse Effect; (viii) conduct at its expense any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any material Release, threatened Release or disposal of a Hazardous Material as required by any applicable Environmental Law, (ix) abide by and observe any restrictions on the use of the Premises imposed by any governmental authority as set forth in a deed or other instrument affecting the Borrower’s or any Subsidiary’s interest therein; (x) promptly provide or otherwise make available to the Administrative Agent any reasonably requested environmental record concerning the Premises which the Borrower or any Subsidiary possesses or can reasonably obtain; and (xi) perform, satisfy, and implement any operation or maintenance actions required by any governmental authority or Environmental Law, or included in any no further action letter or covenant not to sue issued by any governmental authority under any Environmental Law. Section 8.15. Burdensome Contracts With Affiliates. Except for the contracts, agreements or arrangements described on Schedule 6.14 hereto, the Borrower shall not, nor shall it permit any Subsidiary to, enter into any contract, agreement or business arrangement with any of its Affiliates (other than with the Borrower or a Wholly-owned Subsidiaries) on terms and conditions which are less favorable to the Borrower or such Subsidiary than would be usual and customary in similar contracts, agreements or business arrangements between Persons not affiliated with each other, except for compensation agreements with officers and directors approved by the compensation committee or audit committee of the Borrower’s board of directors (or any other committee of the Borrower’s board of directors comprised entirely of independent directors). Section 8.16. No Changes in Fiscal Year. The fiscal year of the Borrower and its Subsidiaries ends on or about June 30 of each year; and the Borrower shall not, nor shall it permit any Subsidiary to, change its fiscal year or the corresponding fiscal quarters from their present basis. Section 8.17. Formation of Subsidiaries. Promptly upon the formation or acquisition of any Subsidiary, the Borrower shall provide the Administrative Agent and the Lenders notice thereof and timely comply with the requirements of Section 4 hereof (at which time Schedule 6.2   -54- -------------------------------------------------------------------------------- shall be deemed amended to include reference to such Subsidiary). Except for Foreign Subsidiaries existing on the Closing Date and identified on Schedule 6.2 hereof, the Borrower shall not, nor shall it permit any Subsidiary to, form or acquire any Foreign Subsidiary. Section 8.18. Change in the Nature of Business. The Borrower shall not, nor shall it permit any Subsidiary to, engage in any business or activity if as a result the general nature of the business of the Borrower or any Subsidiary would be changed in any material respect from the general nature of the business engaged in by it as of the Closing Date provided, however, that the Borrower may engage in any business or activity conducted by a Subsidiary as of the Closing Date following any merger of such Subsidiary into the Borrower pursuant to Section 8.10(b)). Section 8.19. Use of Proceeds. The Borrower shall use the credit extended under this Agreement solely for the purposes set forth in, or otherwise permitted by, Section 6.4 hereof. Section 8.20. No Restrictions. Except as provided herein, the Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of the Borrower or any Subsidiary to: (a) pay dividends or make any other distribution on any Subsidiary’s capital stock or other equity interests owned by the Borrower or any other Subsidiary, (b) pay any indebtedness owed to the Borrower or any other Subsidiary, (c) make loans or advances to the Borrower or any other Subsidiary, (d) transfer any of its Property to the Borrower or any other Subsidiary (other than any such restriction in a Capital Lease restricting the transfer of the property leased by the Borrower or such Subsidiary thereunder) or (e) guarantee the Obligations and/or grant Liens on its assets to the Administrative Agent as required by the Loan Documents.   -55- -------------------------------------------------------------------------------- Section 8.21. Financial Covenants. (a) Total Funded Debt/EBITDA Ratio. The Borrower shall not, as of the last day of each fiscal quarter of the Borrower ending during the periods set forth below, permit the Total Funded Debt/EBITDA Ratio to be greater than the corresponding ratio set forth opposite such period:   FOUR FISCAL QUARTER PERIODS ENDING ON OR ABOUT    TOTAL FUNDED DEBT/EBITDA RATIO SHALL NOT BE GREATER THAN: Closing Date through December 31, 2008    3.00 to 1.0 January 1, 2009 through December 31, 2009    2.75 to 1.0 January 1, 2010 and at all times thereafter    2.50 to 1.0 (b) Minimum EBITDA. The Borrower shall not, as of the last day of each fiscal quarter of the Borrower ending during the periods set forth below, permit EBITDA for the four fiscal quarters of the Borrower ending on such day to be less than the corresponding amount set forth opposite such day:   FOUR FISCAL QUARTER PERIODS ENDING ON OR ABOUT    MINIMUM FOUR FISCAL QUARTER EBITDA October 1, 2006 through March 31, 2007    $ 13,000,000 April 1, 2007 through March 31, 2008    $ 14,000,000 April 1, 2008 through March 31, 2009    $ 15,500,000 April 1, 2009 and at all times thereafter    $ 17,000,000 provided, however, that the minimum EBITDA requirements set forth above for each period ending on or after the date of a Permitted Acquisition (excluding the Discovery Acquisition) shall increase by an amount equal to 75% of the historical EBITDA of the Acquired Business for the most recent four fiscal quarter period of the Acquired Business ended on or prior to the date of such Permitted Acquisition to the extent such historical EBITDA is included in the calculation of EBITDA to give effect to such Permitted Acquisition including after giving effect to any cash or non-cash adjustments thereto consented to by the Required Lenders. (c) Fixed Charge Coverage Ratio. As of the last day of each fiscal quarter of the Borrower, the Borrower shall maintain a ratio of (a) EBITDA for the four fiscal quarters of the Borrower then ended, less Net Capital Expenditures for such four fiscal quarters, to (b) Fixed Charges for the same four fiscal quarters then ended of not less than 1.25 to 1.0.   -56- -------------------------------------------------------------------------------- (d) Capital Expenditures. The Borrower shall not, nor shall it permit any of its Subsidiaries to, incur Capital Expenditures (net of any such Capital Expenditures to the extent financed from the Net Cash Proceeds of an Event of Loss) in an amount in excess, during any fiscal year of the Borrower, of $8,000,000. Notwithstanding the foregoing, up to 50% of the unused portion of the Capital Expenditures allowance for any fiscal year may be carried over to the immediately succeeding fiscal year only to be used in such succeeding fiscal year after all of the Capital Expenditures allowance for that fiscal year has been used. SECTION 9. EVENTS OF DEFAULT AND REMEDIES. Section 9.1. Events of Default. Any one or more of the following shall constitute an “Event of Default” hereunder: (a) default in the payment when due of all or any part of the principal of any Loan (whether at the stated maturity thereof or at any other time provided for in this Agreement) or of any Reimbursement Obligation or default for a period of 5 Business Days in the payment when due of any interest, fee, or other Obligation payable hereunder or under any other Loan Document; (b) default in the observance or performance of any covenant set forth in Section 8.1, 8.5, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.16, 8.19, 8.20 or 8.21 hereof or of any provision in any Loan Document dealing with the use, disposition or remittance of the proceeds of Collateral or requiring the maintenance of insurance thereon; (c) default in the observance or performance of any other provision hereof or of any other Loan Document which is not remedied within 30 days after the earlier of (i) the date on which such failure shall first become known to any Responsible Officer of the Borrower or (ii) written notice thereof is given to the Borrower by the Administrative Agent; (d) any representation or warranty made herein or in any other Loan Document or in any certificate furnished to the Administrative Agent or the Lenders pursuant hereto or thereto or in connection with any transaction contemplated hereby or thereby proves untrue in any material respect as of the date of the issuance or making or deemed making thereof; (e) any event occurs or condition exists (other than those described in subsections (a) through (d) above) which is specified as an event of default under any of the other Loan Documents, or any of the Loan Documents shall for any reason not be or shall cease to be in full force and effect or is declared to be null and void, or any of the Collateral Documents shall for any reason fail to create a valid and perfected first priority Lien in favor of the Administrative Agent in any Collateral purported to be covered thereby except as expressly permitted by the terms thereof, or any Guarantor takes any action for the purpose of terminating, repudiating or rescinding any Loan Document executed by it or any of its obligations thereunder;   -57- -------------------------------------------------------------------------------- (f) any default shall occur under any Indebtedness for Borrowed Money issued, assumed or guaranteed by the Borrower or any Subsidiary aggregating in excess of $500,000, or under any indenture, agreement or other instrument under which the same may be issued, and such default or change in control shall continue for a period of time sufficient to permit the acceleration of the maturity of, or to allow the holder thereof to require the Borrower to repay or repurchase, any such Indebtedness for Borrowed Money (whether or not such maturity is in fact accelerated), or any such Indebtedness for Borrowed Money shall not be paid when due (whether by demand, lapse of time, acceleration or otherwise) and any applicable grace periods for such nonpayment provided for in such documents shall have expired; (g) any money judgment or judgments (other than a money judgment covered by insurance as to which the insurance company has not disclaimed or reserved the right to disclaim coverage), writ or writs or warrant or warrants of attachment, or any similar process or processes, shall be entered or filed against the Borrower or any Guarantor, or against any of its Property, in an aggregate amount in excess of $500,000, and which remains undischarged, unvacated, unbonded or unstayed for a period of 30 days; (h) the Borrower or any Subsidiary, or any member of its Controlled Group, shall fail to pay when due an amount or amounts aggregating in excess of $500,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in excess of $500,000 (collectively, a “Material Plan”) shall be filed under Title IV of ERISA by the Borrower or any Subsidiary, or any other member of its Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against the Borrower or any Subsidiary, or any member of its Controlled Group, to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; (i) any Change of Control shall have occurred; (j) the Borrower or any Guarantor shall (i) have entered involuntarily against it an order for relief under the United States Bankruptcy Code, as amended, (ii) not pay, or admit in writing its inability to pay, its debts generally as they become due, (iii) make an assignment for the benefit of creditors, (iv) 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 part of its Property, (v) institute any proceeding seeking to have entered against it an order for relief under the United States Bankruptcy Code, as amended, to adjudicate it 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   -58- -------------------------------------------------------------------------------- against it, (vi) take any corporate action in furtherance of any matter described in parts (i) through (v) above, or (vii) fail to contest in good faith any appointment or proceeding described in Section 9.1(k) hereof; or (k) a custodian, receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any Guarantor, or any substantial part of any of its Property, or a proceeding described in Section 9.1(j)(v) shall be instituted against the Borrower or any Guarantor, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 days. Section 9.2. Non-Bankruptcy Defaults. When any Event of Default other than those described in subsection (j) or (k) of Section 9.1 hereof has occurred and is continuing, the Administrative Agent shall, by written notice to the Borrower: (a) if so directed by the Required Lenders, terminate the remaining Revolving Credit Commitments and all other obligations of the Lenders hereunder on the date stated in such notice (which may be the date thereof); (b) if so directed by the Required Lenders, declare the principal of and the accrued interest on all outstanding Loans to be forthwith due and payable and thereupon all outstanding Loans, including both principal and interest thereon, shall be and become immediately due and payable together with all other amounts payable under the Loan Documents without further demand, presentment, protest or notice of any kind; and (c) if so directed by the Required Lenders, demand that the Borrower immediately prepay to the Administrative Agent the full amount then available for drawing under each or any Letter of Credit, and the Borrower agrees to immediately make such payment and acknowledges and agrees that the Lenders would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Administrative Agent, for the benefit of the Lenders, shall have the right to require the Borrower to specifically perform such undertaking whether or not any drawings or other demands for payment have been made under any Letter of Credit. The Administrative Agent, after giving notice to the Borrower pursuant to Section 9.1(c) or this Section 9.2, shall also promptly send a copy of such notice to the other Lenders, but the failure to do so shall not impair or annul the effect of such notice. Section 9.3. Bankruptcy Defaults. When any Event of Default described in subsections (j) or (k) of Section 9.1 hereof has occurred and is continuing, then all outstanding Loans shall immediately become due and payable together with all other amounts payable under the Loan Documents without presentment, demand, protest or notice of any kind, the obligation of the Lenders to extend further credit pursuant to any of the terms hereof shall immediately terminate and the Borrower shall immediately prepay to the Administrative Agent the full amount then available for drawing under all outstanding Letters of Credit, the Borrower acknowledging and agreeing that the Lenders would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Lenders, and the Administrative Agent on their behalf, shall have the right to require the Borrower to specifically perform such undertaking whether or not any draws or other demands for payment have been made under any of the Letters of Credit. Section 9.4. Collateral for Undrawn Letters of Credit. (a) If the prepayment of the amount available for drawing under any or all outstanding Letters of Credit is required under Section 1.8(b) or under Section 9.2 or 9.3 above, the Borrower shall forthwith pay the amount required to be so prepaid, to be held by the Administrative Agent as provided in subsection (b) below.   -59- -------------------------------------------------------------------------------- (b) All amounts prepaid pursuant to subsection (a) above shall be held by the Administrative Agent in one or more separate collateral accounts (each such account, and the credit balances, properties, and any investments from time to time held therein, and any substitutions for such account, any certificate of deposit or other instrument evidencing any of the foregoing and all proceeds of and earnings on any of the foregoing being collectively called the “Collateral Account”) as security for, and for application by the Administrative Agent (to the extent available) to, the reimbursement of any payment under any Letter of Credit then or thereafter made by the Administrative Agent, and to the payment of the unpaid balance of all other Obligations (and to all Hedging Liability and Funds Transfer and Deposit Account Liability). The Collateral Account shall be held in the name of and subject to the exclusive dominion and control of the Administrative Agent for the benefit of the Administrative Agent, the Lenders, and the L/C Issuer. If and when requested by the Borrower, the Administrative Agent shall invest funds held in the Collateral Account from time to time in direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America with a remaining maturity of one year or less, provided that the Administrative Agent is irrevocably authorized to sell investments held in the Collateral Account when and as required to make payments out of the Collateral Account for application to amounts due and owing from the Borrower to the L/C Issuer, the Administrative Agent or the Lenders; provided, however, that if (i) the Borrower shall have made payment of all such obligations referred to in subsection (a) above, (ii) no other Obligations remain due and unpaid hereunder and (iii) any Letter of Credit with respect to which the Borrower has prepaid or cash collateralized its obligations with respect thereto shall terminate or the stated amount thereof shall be reduced, then the Administrative Agent shall release to the Borrower from the Collateral Account that amount of the funds contained therein which exceeds the aggregate stated amount of all Letters of Credit remaining outstanding after giving effect to such termination or reduction. Section 9.5. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 9.1(c) hereof promptly upon being requested to do so by any Lender and shall thereupon notify all the Lenders thereof. Section 9.6. Expenses. The Borrower agrees to pay to the Administrative Agent and each Lender, and any other holder of any Note outstanding hereunder, all costs and expenses reasonably incurred or paid by the Administrative Agent and such Lender or any such holder, including reasonable attorneys’ fees and court costs, in connection with any Default or Event of Default hereunder or in connection with the enforcement of any of the Loan Documents (including all such costs and expenses incurred in connection with any proceeding under the United States Bankruptcy Code involving the Borrower or any Subsidiary as a debtor thereunder). SECTION 10. CHANGE IN CIRCUMSTANCES. Section 10.1. Change of Law. Notwithstanding any other provisions of this Agreement or any other Loan Document, if at any time any change in applicable law or regulation or in the   -60- -------------------------------------------------------------------------------- interpretation thereof makes it unlawful for any Lender to make or continue to maintain any Eurodollar Loans or to perform its obligations as contemplated hereby, such Lender shall promptly give notice thereof to the Borrower and such Lender’s obligations to make or maintain Eurodollar Loans under this Agreement shall be suspended until it is no longer unlawful for such Lender to make or maintain Eurodollar Loans. The Borrower shall prepay on demand the outstanding principal amount of any such affected Eurodollar Loans, together with all interest accrued thereon and all other amounts then due and payable to such Lender under this Agreement; provided, however, subject to all of the terms and conditions of this Agreement, the Borrower may then elect to borrow the principal amount of the affected Eurodollar Loans from such Lender by means of Base Rate Loans from such Lender, which Base Rate Loans shall not be made ratably by the Lenders but only from such affected Lender. Section 10.2. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR. If on or prior to the first day of any Interest Period for any Borrowing of Eurodollar Loans: (a) the Administrative Agent determines that deposits in U.S. Dollars (in the applicable amounts) are not being offered to it in the interbank eurodollar market for such Interest Period, or that by reason of circumstances affecting the interbank eurodollar market adequate and reasonable means do not exist for ascertaining the applicable LIBOR, or (b) the Required Lenders advise the Administrative Agent that (i) LIBOR as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Lenders of funding their Eurodollar Loans for such Interest Period or (ii) that the making or funding of Eurodollar Loans become impracticable, then the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Lenders to make Eurodollar Loans shall be suspended. Section 10.3. Increased Cost and Reduced Return. (a) If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) shall subject any Lender (or its Lending Office) to any tax, duty or other charge with respect to its Eurodollar Loans, its Notes, its Letter(s) of Credit, or its participation in any thereof, any Reimbursement Obligations owed to it or its obligation to make Eurodollar Loans, issue a Letter of Credit, or to participate therein, or shall change the basis of taxation of payments to any Lender (or its Lending Office) of the principal of or interest on its Eurodollar Loans, Letter(s) of Credit, or participations therein or any other amounts due under this Agreement or any other Loan Document in   -61- -------------------------------------------------------------------------------- respect of its Eurodollar Loans, Letter(s) of Credit, any participation therein, any Reimbursement Obligations owed to it, or its obligation to make Eurodollar Loans, or issue a Letter of Credit, or acquire participations therein (except for changes in the rate of tax on the overall net income of such Lender or its Lending Office imposed by the jurisdiction in which such Lender’s principal executive office or Lending Office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Eurodollar Loans any such requirement included in an applicable Eurodollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Lender (or its Lending Office) or shall impose on any Lender (or its Lending Office) or on the interbank market any other condition affecting its Eurodollar Loans, its Notes, its Letter(s) of Credit, or its participation in any thereof, any Reimbursement Obligation owed to it, or its obligation to make Eurodollar Loans, or to issue a Letter of Credit, or to participate therein; and the result of any of the foregoing is to increase the cost to such Lender (or its Lending Office) of making or maintaining any Eurodollar Loan, issuing or maintaining a Letter of Credit, or participating therein, or to reduce the amount of any sum received or receivable by such Lender (or its Lending Office) under this Agreement or under any other Loan Document with respect thereto, by an amount deemed by such Lender to be material, then, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction. (b) If, after the date hereof, any Lender or the Administrative Agent shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Lending Office) or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has had the effect of reducing the rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or such corporation’s policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) A certificate of a Lender claiming compensation under this Section 10.3 and setting forth the additional amount or amounts to be paid to it hereunder and the calculation thereof shall be conclusive if reasonably made and determined. In determining such amount, such Lender may use any reasonable averaging and attribution methods.   -62- -------------------------------------------------------------------------------- Section 10.4. Lending Offices. Each Lender may, at its option, elect to make its Loans hereunder at the branch, office or affiliate specified on the appropriate signature page hereof (each a “Lending Office”) for each type of Loan available hereunder or at such other of its branches, offices or affiliates as it may from time to time elect and designate in a written notice to the Borrower and the Administrative Agent. To the extent reasonably possible, a Lender shall designate an alternative branch or funding office with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Section 10.3 hereof or to avoid the unavailability of Eurodollar Loans under Section 10.2 hereof, so long as such designation is not otherwise disadvantageous to the Lender. Section 10.5. Discretion of Lender as to Manner of Funding. Notwithstanding any other provision of this Agreement, each Lender shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder with respect to Eurodollar Loans shall be made as if each Lender had actually funded and maintained each Eurodollar Loan through the purchase of deposits in the interbank eurodollar market having a maturity corresponding to such Loan’s Interest Period, and bearing an interest rate equal to LIBOR for such Interest Period. SECTION 11. THE ADMINISTRATIVE AGENT. Section 11.1. Appointment and Authorization of Administrative Agent. Each Lender hereby appoints Harris N.A. as the Administrative Agent under the Loan Documents and hereby authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto. The Lenders expressly agree that the Administrative Agent is not acting as a fiduciary of the Lenders in respect of the Loan Documents, the Borrower or otherwise, and nothing herein or in any of the other Loan Documents shall result in any duties or obligations on the Administrative Agent or any of the Lenders except as expressly set forth herein. Section 11.2. Administrative Agent and its Affiliates. To the extent that the Administrative Agent is also a Lender hereunder, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise or refrain from exercising such rights and power as though it were not the Administrative Agent, and the Administrative Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Affiliate of the Borrower as if it were not the Administrative Agent under the Loan Documents. To the extent that the Administrative Agent is also a Lender hereunder, the term “Lender” as used herein and in all other Loan Documents, unless the context otherwise clearly requires, shall include the Administrative Agent in its individual capacity as a Lender. To the extent that the Administrative Agent is also a Lender hereunder, references in Section 1 hereof to the Administrative Agent’s Loans, or to the amount owing to the Administrative Agent for which an interest rate is being determined, refer to the Administrative Agent in its individual capacity as a Lender.   -63- -------------------------------------------------------------------------------- Section 11.3. Action by Administrative Agent. If the Administrative Agent receives from the Borrower a written notice of an Event of Default pursuant to Section 8.5 hereof, the Administrative Agent shall promptly give each of the Lenders written notice thereof. The obligations of the Administrative Agent under the Loan Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action hereunder with respect to any Default or Event of Default, except as expressly provided in Sections 9.2 and 9.5. Upon the occurrence of an Event of Default, the Administrative Agent shall take such action to enforce its Lien on the Collateral and to preserve and protect the Collateral as may be directed by the Required Lenders. Unless and until the Required Lenders give such direction, the Administrative Agent may (but shall not be obligated to) take or refrain from taking such actions as it deems appropriate and in the best interest of all the Lenders. In no event, however, shall the Administrative Agent be required to take any action in violation of applicable law or of any provision of any Loan Document, and the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder or under any other Loan Document unless it first receives any further assurances of its indemnification from the Lenders that it may require, including prepayment of any related expenses and any other protection it requires against any and all costs, expense, and liability which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall be entitled to assume that no Default or Event of Default exists unless notified in writing to the contrary by a Lender or the Borrower. In all cases in which the Loan Documents do not require the Administrative Agent to take specific action, the Administrative Agent shall be fully justified in using its discretion in failing to take or in taking any action thereunder. Any instructions of the Required Lenders, or of any other group of Lenders called for under the specific provisions of the Loan Documents, shall be binding upon all the Lenders and the holders of the Obligations. Section 11.4. Consultation with Experts. The Administrative 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. Section 11.5. Liability of Administrative Agent; Credit Decision. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection with the Loan Documents: (i) with the consent or at the request of the Required Lenders or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify: (i) any statement, warranty or representation made in connection with this Agreement, any other Loan Document or any Credit Event; (ii) the performance or observance of any of the covenants or agreements of the Borrower or any Guarantor contained herein or in any other Loan Document; (iii) the satisfaction of any condition specified in Section 7 hereof, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness, genuineness, enforceability, perfection, value, worth or collectibility hereof or of any other Loan   -64- -------------------------------------------------------------------------------- Document or of any other documents or writing furnished in connection with any Loan Document or of any Collateral; and the Administrative Agent makes no representation of any kind or character with respect to any such matter mentioned in this sentence. The Administrative Agent may execute any of its duties under any of the Loan Documents by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, the Borrower, or any other Person for the default or misconduct of any such agents or attorneys-in-fact selected with reasonable care. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, other document or statement (whether written or oral) believed by it to be genuine or to be sent by the proper party or parties. In particular and without limiting any of the foregoing, the Administrative Agent shall have no responsibility for confirming the accuracy of any compliance certificate or other document or instrument received by it under the Loan Documents. The Administrative Agent may treat the payee of any Obligation as the holder thereof until written notice of transfer shall have been filed with the Administrative Agent signed by such payee in form satisfactory to the Administrative Agent. Each Lender acknowledges that it has independently and without reliance on the Administrative Agent or any other Lender, and based upon such information, investigations and inquiries as it deems appropriate, made its own credit analysis and decision to extend credit to the Borrower in the manner set forth in the Loan Documents. It shall be the responsibility of each Lender to keep itself informed as to the creditworthiness of the Borrower and the Guarantors, and the Administrative Agent shall have no liability to any Lender with respect thereto. Section 11.6. Indemnity. The Lenders shall ratably, in accordance with their respective Percentages, indemnify and hold the Administrative Agent, and its directors, officers, employees, agents, and representatives harmless from and against any liabilities, losses, costs or expenses suffered or incurred by it under any Loan Document or in connection with the transactions contemplated thereby, regardless of when asserted or arising, except to the extent they are promptly reimbursed for the same by the Borrower and except to the extent that any event giving rise to a claim was caused by the gross negligence or willful misconduct of the party seeking to be indemnified. The obligations of the Lenders under this Section shall survive termination of this Agreement. The Administrative Agent shall be entitled to offset amounts received for the account of a Lender under this Agreement against unpaid amounts due from such Lender to the Administrative Agent hereunder (whether as fundings of participations, indemnities or otherwise), but shall not be entitled to offset against amounts owed to the Administrative Agent by any Lender arising outside of this Agreement and the other Loan Documents. Section 11.7. Resignation of Administrative Agent and Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower. Upon any such resignation of the Administrative Agent, the Required Lenders shall have the right to appoint a successor Administrative Agent subject, if no Default or Event of Default then exists, to the reasonable consent of the Borrower. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent (subject to, if not Default or Event of Default then exists, the reasonable consent of the Borrower), which may be any Lender hereunder or any commercial bank organized under the laws of the United States of America or of any State   -65- -------------------------------------------------------------------------------- thereof and having a combined capital and surplus of at least $200,000,000. Upon the acceptance of its appointment as the Administrative Agent hereunder, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent under the Loan Documents, and the retiring Administrative Agent shall be discharged from its duties and obligations thereunder. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Section 11 and all protective provisions of the other Loan Documents shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent, but no successor Administrative Agent shall in any event be liable or responsible for any actions of its predecessor. If the Administrative Agent resigns and no successor shall have been appointed (and consented to by the Borrower, if such consent is required hereby), the rights and obligations of such Administrative Agent shall be automatically assumed by the Required Lenders and (i) the Borrower shall be directed to make all payments due each Lender hereunder directly to such Lender and (ii) the Administrative Agent’s rights in the Collateral Documents shall be assigned without representation, recourse or warranty to the Lenders as their interests may appear. Section 11.8. L/C Issuer. The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith. The L/C Issuer shall have all of the benefits and immunities (i) provided to the Administrative Agent in this Section 11 with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and the Applications pertaining to such Letters of Credit as fully as if the term “Administrative Agent”, as used in this Section 11, included the L/C Issuer with respect to such acts or omissions and (ii) as additionally provided in this Agreement with respect to such L/C Issuer. Section 11.9. Hedging Liability and Funds Transfer and Deposit Account Liability Arrangements. By virtue of a Lender’s execution of this Agreement or an assignment agreement pursuant to Section 13.12 hereof, as the case may be, any Affiliate of such Lender with whom the Borrower or any Subsidiary has entered into an agreement creating Hedging Liability or Funds Transfer and Deposit Account Liability shall be deemed a Lender party hereto for purposes of any reference in a Loan Document to the parties for whom the Administrative Agent is acting, it being understood and agreed that the rights and benefits of such Affiliate under the Loan Documents consist exclusively of such Affiliate’s right to share in payments and collections out of the Collateral and the Guaranties as more fully set forth in Section 3.1 hereof. In connection with any such distribution of payments and collections, the Administrative Agent shall be entitled to assume no amounts are due to any Lender or its Affiliate with respect to Hedging Liability or Funds Transfer and Deposit Account Liability unless such Lender has notified the Administrative Agent in writing of the amount of any such liability owed to it or its Affiliate prior to such distribution. Section 11.10. Designation of Additional Agents. The Administrative Agent shall have the continuing right, for purposes hereof, at any time and from time to time to designate one or more of the Lenders (and/or its or their Affiliates) as “syndication agents,” “documentation agents,” “book runners,” “lead arrangers,” “arrangers,” or other designations for purposes hereto, but such designation shall have no substantive effect, and such Lenders and their Affiliates shall have no additional powers, duties or responsibilities as a result thereof.   -66- -------------------------------------------------------------------------------- Section 11.11. Authorization to Release or Subordinate or Limit Liens. The Administrative Agent is hereby irrevocably authorized by each of the Lenders to (a) release any Lien covering any Collateral that is sold, transferred, or otherwise disposed of in accordance with the terms and conditions of this Agreement and the relevant Collateral Documents (including a sale, transfer, or disposition permitted by the terms of Section 8.10 hereof or which has otherwise been consented to in accordance with Section 13.13 hereof), (b) release or subordinate any Lien on Collateral consisting of goods financed with purchase money indebtedness or under a Capital Lease to the extent such purchase money indebtedness or Capitalized Lease Obligation, and the Lien securing the same, are permitted by Sections 8.7 and 8.8 hereof, and (c) reduce or limit the amount of the indebtedness secured by any particular item of Collateral to an amount not less than the estimated value thereof to the extent necessary to reduce mortgage registry, filing and similar tax and (d) release Liens on Collateral following termination or expiration of the Revolving Credit Commitments and payment in full of the Obligations and, if then due, Hedging Liability and Funds Transfer and Deposit Account Liability. Section 11.12. Authorization to Enter into, and Enforcement of, the Collateral Documents. The Administrative Agent is hereby irrevocably authorized by each of the Lenders to execute and deliver the Collateral Documents on behalf of each of the Lenders and their Affiliates and to take such action and exercise such powers under the Collateral Documents as the Administrative Agent considers appropriate, provided the Administrative Agent shall not amend the Collateral Documents unless such amendment is agreed to in writing by the Required Lenders. Each Lender acknowledges and agrees that it will be bound by the terms and conditions of the Collateral Documents upon the execution and delivery thereof by the Administrative Agent. Except as otherwise specifically provided for herein, no Lender (or its Affiliates) other than the Administrative Agent shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure or other realization upon any Collateral or for the execution of any trust or power in respect of the Collateral or for the appointment of a receiver or for the enforcement of any other remedy under the Collateral Documents; it being understood and intended that no one or more of the Lenders (or their Affiliates) shall have any right in any manner whatsoever to affect, disturb or prejudice the Lien of the Administrative Agent (or any security trustee therefor) under the Collateral Documents by its or their action or to enforce any right thereunder, and that all proceedings at law or in equity shall be instituted, had, and maintained by the Administrative Agent (or its security trustee) in the manner provided for in the relevant Collateral Documents for the benefit of the Lenders and their Affiliates. SECTION 12. THE GUARANTEES. Section 12.1. The Guarantees. To induce the Lenders to provide the credits described herein and in consideration of benefits expected to accrue to the Borrower by reason of the Commitments and for other good and valuable consideration, receipt of which is hereby acknowledged, each Guarantor (including any Subsidiary formed or acquired after the Closing Date executing an Additional Guarantor Supplement in the form attached hereto as Exhibit F or such other form acceptable to the Administrative Agent) hereby unconditionally and irrevocably   -67- -------------------------------------------------------------------------------- guarantees jointly and severally to the Administrative Agent, the Lenders, and their Affiliates, the due and punctual payment of all present and future Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability, including, but not limited to, the due and punctual payment of principal of and interest on the Notes, the Reimbursement Obligations, and the due and punctual payment of all other Obligations now or hereafter owed by the Borrower under the Loan Documents and the due and punctual payment of all Hedging Liability and Funds Transfer and Deposit Account Liability, in each case as and when the same shall become due and payable, whether at stated maturity, by acceleration, or otherwise, according to the terms hereof and thereof (including all interest, costs, fees and charges after the entry of an order for relief against Borrower or such other obligor in a case under the United States Bankruptcy Code or any similar proceeding, whether or not such interest costs, fees and charges would an allowed claim against the Borrower or any such obligor in such proceeding). In case of failure by the Borrower or other obligor punctually to pay any Obligations, Hedging Liability, or Funds Transfer and Deposit Account Liability guaranteed hereby, each Guarantor hereby unconditionally agrees to make such payment or to cause such payment to be made punctually as and when the same shall become due and payable, whether at stated maturity, by acceleration, or otherwise, and as if such payment were made by the Borrower or such obligor. Section 12.2. Guarantee Unconditional. The obligations of each Guarantor under this Section 12 shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged, or otherwise affected by: (a) any extension, renewal, settlement, compromise, waiver, or release in respect of any obligation of the Borrower or other obligor or of any other guarantor under this Agreement or any other Loan Document or by operation of law or otherwise; (b) any modification or amendment of or supplement to this Agreement or any other Loan Document or any agreement relating to Hedging Liability or Funds Transfer and Deposit Account Liability; (c) any change in the corporate existence, structure, or ownership of, or any insolvency, bankruptcy, reorganization, or other similar proceeding affecting, the Borrower or other obligor, any other Guarantor, or any of their respective assets, or any resulting release or discharge of any obligation of the Borrower or other obligor or of any other Guarantor contained in any Loan Document; (d) the existence of any claim, set-off, or other rights which the Borrower or other obligor or any other Guarantor may have at any time against the Administrative Agent, any Lender, or any other Person, whether or not arising in connection herewith; (e) any failure to assert, or any assertion of, any claim or demand or any exercise of, or failure to exercise, any rights or remedies against the Borrower or other obligor, any other Guarantor, or any other Person or Property;   -68- -------------------------------------------------------------------------------- (f) any application of any sums by whomsoever paid or howsoever realized to any obligation of the Borrower or other obligor, regardless of what obligations of the Borrower or other obligor remain unpaid; (g) any invalidity or unenforceability relating to or against the Borrower or other obligor or any other guarantor for any reason of this Agreement or of any other Loan Document or any agreement relating to Hedging Liability or Funds Transfer and Deposit Account Liability or any provision of applicable law or regulation purporting to prohibit the payment by the Borrower or other obligor or any other guarantor of the principal of or interest on any Note or any Reimbursement Obligation or any other amount payable under the Loan Documents or any agreement relating to Hedging Liability or Funds Transfer and Deposit Account Liability; or (h) any other act or omission to act or delay of any kind by the Administrative Agent, any Lender, or any other Person or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of any Guarantor under this Section 12. Section 12.3. Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances. Each Guarantor’s obligations under this Section 12 shall remain in full force and effect until the Revolving Credit Commitments are terminated, all Letters of Credit have expired, and the principal of and interest on the Notes and all other amounts payable by the Borrower and the Guarantors under this Agreement and all other Loan Documents and, if then outstanding and unpaid, all Hedging Liability and Funds Transfer and Deposit Account Liability shall have been paid in full. If at any time any payment of the principal of or interest on any Note or any Reimbursement Obligation or any other amount payable by the Borrower or other obligor or any Guarantor under the Loan Documents or any agreement relating to Hedging Liability or Funds Transfer and Deposit Account Liability is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy, or reorganization of the Borrower or other obligor or of any Guarantor, or otherwise, each Guarantor’s obligations under this Section 12 with respect to such payment shall be reinstated at such time as though such payment had become due but had not been made at such time. Section 12.4. Subrogation. Each Guarantor agrees it will not exercise any rights which it may acquire by way of subrogation by any payment made hereunder, or otherwise, until all the Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability shall have been paid in full subsequent to the termination of all the Revolving Credit Commitments and expiration of all Letters of Credit. If any amount shall be paid to a Guarantor on account of such subrogation rights at any time prior to the later of (x) the payment in full of the Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability and all other amounts payable by the Borrower hereunder and the other Loan Documents and (y) the termination of the Revolving Credit Commitments and expiration of all Letters of Credit, such amount shall be held in trust for the benefit of the Administrative Agent and the Lenders (and their Affiliates) and shall forthwith be paid to the Administrative Agent for the benefit of the Lenders (and their Affiliates) or be credited and applied upon the Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability, whether matured or unmatured, in accordance with the terms of this Agreement.   -69- -------------------------------------------------------------------------------- Section 12.5. Waivers. Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest, and any notice not provided for herein, as well as any requirement that at any time any action be taken by the Administrative Agent, any Lender, or any other Person against the Borrower or other obligor, another Guarantor, or any other Person. Section 12.6. Limit on Recovery. Notwithstanding any other provision hereof, the right of recovery against each Guarantor under this Section 12 shall not exceed $1.00 less than the lowest amount which would render such Guarantor’s obligations under this Section 12 void or voidable under applicable law, including, without limitation, fraudulent conveyance law. Section 12.7. Stay of Acceleration. If acceleration of the time for payment of any amount payable by the Borrower or other obligor under this Agreement or any other Loan Document, or under any agreement relating to Hedging Liability or Funds Transfer and Deposit Account Liability, is stayed upon the insolvency, bankruptcy or reorganization of the Borrower or such obligor, all such amounts otherwise subject to acceleration under the terms of this Agreement or the other Loan Documents, or under any agreement relating to Hedging Liability or Funds Transfer and Deposit Account Liability, shall nonetheless be payable by the Guarantors hereunder forthwith on demand by the Administrative Agent made at the request of the Required Lenders. Section 12.8. Benefit to Guarantors. The Borrower and the Guarantors are engaged in related businesses and integrated to such an extent that the financial strength and flexibility of the Borrower has a direct impact on the success of each Guarantor. Each Guarantor will derive substantial direct and indirect benefit from the extensions of credit hereunder. Section 12.9. Guarantor Covenants. Each Guarantor shall take such action as the Borrower is required by this Agreement to cause such Guarantor to take, and shall refrain from taking such action as the Borrower is required by this Agreement to prohibit such Guarantor from taking. SECTION 13. MISCELLANEOUS. Section 13.1. Withholding Taxes. (a) Payments Free of Withholding. Except as otherwise required by law and subject to Section 13.1(b) hereof, each payment by the Borrower and the Guarantors under this Agreement or the other Loan Documents shall be made without withholding for or on account of any present or future taxes (other than overall net income taxes on the recipient) imposed by or within the jurisdiction in which the Borrower or such Guarantor is domiciled, any jurisdiction from which the Borrower or such Guarantor makes any payment, or (in each case) any political subdivision or taxing authority thereof or therein. If any such withholding is so required, the Borrower or such Guarantor shall make the withholding, pay the amount withheld to the appropriate governmental authority before penalties attach thereto or interest accrues thereon, and forthwith pay such additional amount as may be necessary to ensure that the net amount actually received by each Lender and the Administrative Agent free and clear   -70- -------------------------------------------------------------------------------- of such taxes (including such taxes on such additional amount) is equal to the amount which that Lender or the Administrative Agent (as the case may be) would have received had such withholding not been made. If the Administrative Agent or any Lender pays any amount in respect of any such taxes, penalties or interest, the Borrower or such Guarantor shall reimburse the Administrative Agent or such Lender for that payment on demand in the currency in which such payment was made. If the Borrower or such Guarantor pays any such taxes, penalties or interest, it shall deliver official tax receipts evidencing that payment or certified copies thereof to the Lender or Administrative Agent on whose account such withholding was made (with a copy to the Administrative Agent if not the recipient of the original) on or before the thirtieth day after payment. (b) U.S. Withholding Tax Exemptions. Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower and the Administrative Agent on or before the date the initial Credit Event is made hereunder or, if later, the date such financial institution becomes a Lender hereunder, two duly completed and signed copies of (i) either Form W-8 BEN (relating to such Lender and entitling it to a complete exemption from withholding under the Code on all amounts to be received by such Lender, including fees, pursuant to the Loan Documents and the Obligations) or Form W-8 ECI (relating to all amounts to be received by such Lender, including fees, pursuant to the Loan Documents and the Obligations) of the United States Internal Revenue Service or (ii) solely if such Lender is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, and a certificate representing that such Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code). Thereafter and from time to time, each Lender shall submit to the Borrower and the Administrative Agent such additional duly completed and signed copies of one or the other of such Forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) and such other certificates as may be (i) requested by the Borrower in a written notice, directly or through the Administrative Agent, to such Lender and (ii) required under then-current United States law or regulations to avoid or reduce United States withholding taxes on payments in respect of all amounts to be received by such Lender, including fees, pursuant to the Loan Documents or the Obligations. Upon the request of the Borrower or the Administrative Agent, each Lender that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower and the Administrative Agent a certificate to the effect that it is such a United States person. (c) Inability of Lender to Submit Forms. If any Lender determines, as a result of any change in applicable law, regulation or treaty, or in any official application or interpretation thereof, that it is unable to submit to the Borrower or the Administrative Agent any form or certificate that such Lender is obligated to submit pursuant to subsection (b) of this Section 13.1 or that such Lender is required to withdraw or cancel any such form or certificate previously submitted or any such form or certificate otherwise becomes ineffective or inaccurate, such Lender shall promptly notify the Borrower and Administrative Agent of such fact in writing and the Lender shall to that extent not be obligated to provide any such form or certificate and will be entitled to withdraw or cancel any affected form or certificate, as applicable.   -71- -------------------------------------------------------------------------------- Section 13.2. No Waiver, Cumulative Remedies. No delay or failure on the part of the Administrative Agent or any Lender or on the part of the holder or holders of any of the Obligations in the exercise of any power or right under any Loan Document shall operate as a waiver thereof or as an acquiescence in any default, nor shall any single or partial exercise of any power or right preclude any other or further exercise thereof or the exercise of any other power or right. The rights and remedies hereunder of the Administrative Agent, the Lenders and of the holder or holders of any of the Obligations are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have. Section 13.3. Non-Business Days. If any payment hereunder becomes due and payable on a day which is not a Business Day, the due date of such payment shall be extended to the next succeeding Business Day on which date such payment shall be due and payable. In the case of any payment of principal falling due on a day which is not a Business Day, interest on such principal amount shall continue to accrue during such extension at the rate per annum then in effect, which accrued amount shall be due and payable on the next scheduled date for the payment of interest. Section 13.4. Documentary Taxes. The Borrower agrees to pay on demand any documentary, stamp or similar taxes payable in respect of this Agreement or any other Loan Document, including interest and penalties (to the extent such interest or penalties arise from any act or omission by the Borrower), in the event any such taxes are assessed, irrespective of when such assessment is made and whether or not any credit is then in use or available hereunder. Section 13.5. Survival of Representations. All representations and warranties made herein or in any other Loan Document or in certificates given pursuant hereto or thereto shall survive the execution and delivery of this Agreement and the other Loan Documents, and shall continue in full force and effect with respect to the date as of which they were made as long as any credit is in use or available hereunder. Section 13.6. Survival of Indemnities. All indemnities and other provisions relative to reimbursement to the Lenders of amounts sufficient to protect the yield of the Lenders with respect to the Loans and Letters of Credit, including, but not limited to, Sections 1.11, 10.3, and 13.15 hereof, shall survive the termination of this Agreement and the other Loan Documents and the payment of the Obligations. Section 13.7. Sharing of Set-Off. Each Lender agrees with each other Lender a party hereto that if such Lender shall receive and retain any payment, whether by set-off or application of deposit balances or otherwise, on any of the Loans or Reimbursement Obligations in excess of its ratable share of payments on all such Obligations then outstanding to the Lenders, then such Lender shall purchase for cash at face value, but without recourse, ratably from each of the other Lenders such amount of the Loans or Reimbursement Obligations, or participations therein, held by each such other Lenders (or interest therein) as shall be necessary to cause such Lender to share such excess payment ratably with all the other Lenders; provided, however, that if any such   -72- -------------------------------------------------------------------------------- purchase is made by any Lender, and if such excess payment or part thereof is thereafter recovered from such purchasing Lender, the related purchases from the other Lenders shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest. For purposes of this Section, amounts owed to or recovered by the L/C Issuer in connection with Reimbursement Obligations in which Lenders have been required to fund their Participating Interest shall be treated as amounts owed to or recovered by the L/C Issuer as a Lender hereunder. Section 13.8. Notices. Except as otherwise specified herein, all notices hereunder and under the other Loan Documents shall be in writing (including, without limitation, notice by telecopy) and shall be given to the relevant party at its address or telecopier number set forth below, or such other address or telecopier number as such party may hereafter specify by notice to the Administrative Agent and the Borrower given by courier, by United States certified or registered mail, by telecopy or by other telecommunication device capable of creating a written record of such notice and its receipt. Notices under the Loan Documents to the Lenders and the Administrative Agent shall be addressed to their respective addresses or telecopier numbers set forth on the signature pages hereof, and to the Borrower or any Guarantor to:   Nobel Learning Communities, Inc. 1615 West Chester Pike West Chester, Pennsylvania 19382 Attention:         Chief Financial Officer Telecopy:         (484) 947-2003 With a copy (not constituting notice) to: Nobel Learning Communities, Inc. 1615 West Chester Pike West Chester, Pennsylvania 19382 Attention:         General Counsel Telecopy:         (484) 947-2003 Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section or on the signature pages hereof, in either case during normal business hours, and a confirmation of such telecopy has been received by the sender, (ii) if given by mail, 5 days after such communication is deposited in the mail, certified or registered with return receipt requested, addressed as aforesaid or (iii) if given by any other means, when delivered at the addresses specified in this Section or on the signature pages hereof; provided that any notice given pursuant to Section 1 hereof shall be effective only upon receipt. Section 13.9. Counterparts. This Agreement may be executed in any number of counterparts, and by the different parties hereto on separate counterpart signature pages, and all such counterparts taken together shall be deemed to constitute one and the same instrument.   -73- -------------------------------------------------------------------------------- Section 13.10. Successors and Assigns. This Agreement shall be binding upon the Borrower and the Guarantors and their successors and assigns, and shall inure to the benefit of the Administrative Agent and each of the Lenders and the benefit of their respective successors and assigns, including any subsequent holder of any of the Obligations. The Borrower and the Guarantors may not assign any of their rights or obligations under any Loan Document without the written consent of all of the Lenders. Section 13.11. Participants. Each Lender shall have the right at its own cost to grant participations (to be evidenced by one or more agreements or certificates of participation) in the Loans made and Reimbursement Obligations and/or Commitments held by such Lender at any time and from time to time to one or more other Persons; provided that no such participation shall relieve any Lender of any of its obligations under this Agreement, and, provided, further that no such participant shall have any rights under this Agreement except as provided in this Section, and the Administrative Agent shall have no obligation or responsibility to such participant. Any agreement pursuant to which such participation is granted shall provide that the granting Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower under this Agreement and the other Loan Documents including, without limitation, the right to approve any amendment, modification or waiver of any provision of the Loan Documents, except that such agreement may provide that such Lender will not agree to any modification, amendment or waiver of the Loan Documents that would reduce the amount of or postpone any fixed date for payment of any Obligation in which such participant has an interest. Any party to which such a participation has been granted shall have the benefits of Section 1.11 and Section 10.3 hereof, but only to the extent such Sections would require payment to the Lender granting such participation if such participation had not occurred. The Borrower authorizes each Lender to disclose to any participant or prospective participant under this Section any financial or other information pertaining to the Borrower or any Subsidiary, provided that such participant or prospective participant shall agree in writing to hold such information in confidence pursuant to the provisions of Section 13.24 hereof. Section 13.12. Assignments. (a) Any Lender may at any time assign to one or more Eligible Assignees all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Revolving Credit Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions: (i) Minimum Amounts. (A) In the case of an assignment of the entire remaining amount of the assigning Lender’s Revolving Credit Commitment and the Loans, participation interest in L/C Obligations and participation interest in Swing Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and (B) in any case not described in subsection (a)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans, participation interest in Swing Loans and Participating Interest in L/C Obligations outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans, participation interest in Swing Loans and Participating Interest in L/C Obligations of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent or, if “Effective Date” is specified in the Assignment and Acceptance, as   -74- -------------------------------------------------------------------------------- of the Effective Date) shall not be less than $5,000,000, in the case of any assignment in respect of the Revolving Credit, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); (ii) Proportionate Amounts. 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 Loan or the Revolving Credit Commitment assigned, except that this clause (ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Credits on a non-pro rata basis. Notwithstanding the foregoing, any assignment by the Swing Line Lender of the Swing Line Commitment must assign the entire Swing Line Commitment. (iii) Required Consents. No consent shall be required for any assignment except to the extent required by Section 13.12(a)(i)(B) and, in addition: (a) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; (b) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of the Revolving Credit if such assignment is to a Person that is not a Lender with a Commitment in respect of such facility, an Affiliate of such Lender or an Approved Fund with respect to such Lender; (c) the consent of the L/C Issuer (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding); and (d) the consent of the Swing Line Lender (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Swing Loans (whether or not then outstanding). (iv) Assignment and Acceptance. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. (v) No Assignment to Borrower or Parent. No such assignment shall be made to the Borrower or any of its Affiliates or Subsidiaries.   -75- -------------------------------------------------------------------------------- (vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person. Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 13.12(b) hereof, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Acceptance, 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 Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 1.11, 10.3, 13.6 and 13.15 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 13.11 hereof. (b) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in Chicago, Illinois, a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Revolving Credit Commitments of, and principal amounts of the Loans 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 the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (c) Any Lender may at any time pledge or grant a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or grant to a Federal Reserve Bank, and this Section shall not apply to any such pledge or grant of a security interest; provided that no such pledge or grant of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or secured party for such Lender as a party hereto; provided further, however, the right of any such pledgee or grantee (other than any Federal Reserve Bank) to further transfer all or any portion of the rights pledged or granted to it, whether by means of foreclosure or otherwise, shall be at all times subject to the terms of this Agreement. Section 13.13. Amendments. Any provision of this Agreement or the other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) the Borrower, (b) the Required Lenders, and (c) if the rights or duties of the Administrative Agent, the Swing Line Lender or the L/C Issuer are affected thereby, the Administrative Agent, the Swing Line Lender or such L/C Issuer, as applicable; provided that: (i) no amendment or waiver pursuant to this Section 13.13 shall (A) increase any Revolving Credit Commitment of any Lender without the consent of such Lender or   -76- -------------------------------------------------------------------------------- (B) reduce the amount of or postpone the date for any scheduled payment of any principal of or interest on any Loan or of any Reimbursement Obligation or of any fee payable hereunder without the consent of the Lender to which such payment is owing or which has committed to make such Loan or Letter of Credit (or participate therein) hereunder; (ii) no amendment or waiver pursuant to this Section 13.13 shall, unless signed by each Lender, change the definitions of Revolving Credit Termination Date or Required Lenders, change the provisions of this Section 13.13, release any material Guarantor or any substantial part of the Collateral (except as otherwise provided for in the Loan Documents), or affect the number of Lenders required to take any action hereunder or under any other Loan Document; and (iii) no amendment to Section 12 hereof shall be made without the consent of the Guarantor(s) affected thereby. Section 13.14. Headings. Section headings used in this Agreement are for reference only and shall not affect the construction of this Agreement. Section 13.15. Costs and Expenses; Indemnification. (a) The Borrower agrees to pay all reasonable costs and expenses of the Administrative Agent in connection with the preparation, negotiation, syndication, and administration of the Loan Documents, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent, in connection with the preparation and execution of the Loan Documents, and any amendment, waiver or consent related thereto, whether or not the transactions contemplated herein are consummated, together with any fees and charges suffered or incurred by the Administrative Agent in connection with periodic environmental audits, fixed asset appraisals, title insurance policies, collateral filing fees and lien searches. The Borrower agrees to pay to the Administrative Agent and each Lender, and any other holder of any Loan outstanding hereunder, all costs and expenses reasonably incurred or paid by the Administrative Agent and such Lender or any such holder, including reasonable attorneys’ fees and disbursements and court costs, in connection with any Default or Event of Default hereunder or in connection with the enforcement of any of the Loan Documents (including all such costs and expenses incurred in connection with any proceeding under the United States Bankruptcy Code involving the Borrower or any Subsidiary as a debtor thereunder). The Borrower further agrees to indemnify the Administrative Agent, each Lender, and any security trustee therefor, and their respective directors, officers, employees, agents, financial advisors, and consultants (each such Person being called an “Indemnitee”) against all losses, claims, damages, penalties, judgments, liabilities and reasonable expenses (including, without limitation, all reasonable fees and disbursements of counsel for any such Indemnitee and all reasonable expenses of litigation or preparation therefor, whether or not the Indemnitee is a party thereto, or any settlement arrangement arising from or relating to any such litigation) which any of them may pay or incur arising out of or relating to any Loan Document or any of the transactions contemplated thereby or the direct or indirect application or proposed application of the proceeds of any Loan or Letter of Credit, other than those which arise from the gross negligence or willful misconduct of the party claiming indemnification. The Borrower, upon demand by the Administrative Agent or a   -77- -------------------------------------------------------------------------------- Lender at any time, shall reimburse the Administrative Agent or such Lender for any reasonable legal or other expenses (including, without limitation, all reasonable fees and disbursements of counsel for any such Indemnitee) incurred in connection with investigating or defending against any of the foregoing (including any settlement costs relating to the foregoing) except if the same is directly due to the gross negligence or willful misconduct of the party to be indemnified. To the extent permitted by applicable law, neither the Borrower nor any Guarantor shall assert, and each such Person 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 the other Loan Documents or any agreement or instrument contemplated hereby or thereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. The obligations of the Borrower under this Section shall survive the termination of this Agreement. (b) The Borrower unconditionally agrees to forever indemnify, defend and hold harmless, and covenants not to sue for any claim for contribution against, the Administrative Agent and the Lenders for any damages, costs, loss or expense, including without limitation, response, remedial or removal costs and all reasonable fees and disbursements of counsel to any such party, arising out of any of the following: (i) any presence, release, threatened release or disposal of any hazardous or toxic substance or petroleum by the Borrower or any Guarantor or otherwise occurring on or with respect to its Property (whether owned or leased), (ii) the operation or violation of any environmental law, whether federal, state, or local, and any regulations promulgated thereunder, by the Borrower or any Guarantor or otherwise occurring on or with respect to its Property (whether owned or leased), (iii) any claim for personal injury or property damage in connection with the Borrower or any Guarantor or otherwise occurring on or with respect to its Property (whether owned or leased), and (iv) the inaccuracy or breach of any environmental representation, warranty or covenant by the Borrower or any Guarantor made herein or in any other Loan Document evidencing or securing any Obligations or setting forth terms and conditions applicable thereto or otherwise relating thereto, except for damages arising from the willful misconduct or gross negligence of the party claiming indemnification. This indemnification shall survive the payment and satisfaction of all Obligations and the termination of this Agreement, and shall remain in force beyond the expiration of any applicable statute of limitations and payment or satisfaction in full of any single claim under this indemnification. This indemnification shall be binding upon the successors and assigns of the Borrower and shall inure to the benefit of Administrative Agent and the Lenders directors, officers, employees, agents, and collateral trustees, and their successors and assigns. Section 13.16. Set-off. (a) In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, during any Event of Default, each Lender and each subsequent holder of any Obligation is hereby authorized by the Borrower and each Guarantor at any time or from time to time, without notice to the Borrower or such Guarantor or to any other Person, any such notice being hereby expressly waived, to set-off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts, and in whatever currency denominated) and any other indebtedness at any time held or owing by that Lender or that subsequent holder to or for the credit or the account of the Borrower or such Guarantor, whether or not matured, against and on account of   -78- -------------------------------------------------------------------------------- the Obligations of the Borrower or such Guarantor to that Lender or that subsequent holder under the Loan Documents, including, but not limited to, all claims of any nature or description arising out of or connected with the Loan Documents, irrespective of whether or not (a) that Lender or that subsequent holder shall have made any demand hereunder or (b) the principal of or the interest on the Loans or Notes and other amounts due hereunder shall have become due and payable pursuant to Section 9 and although said obligations and liabilities, or any of them, may be contingent or unmatured. (b) NOTWITHSTANDING THE FOREGOING SUBSECTION (a), AT ANY TIME THAT THE LOANS OR ANY OTHER OBLIGATION OR HEDGING LIABILITY OR FUNDS TRANSFER AND DEPOSIT ACCOUNT LIABILITY SHALL BE SECURED BY REAL PROPERTY LOCATED IN CALIFORNIA, NO LENDER SHALL EXERCISE A RIGHT OF SETOFF, BANKER’S LIEN OR COUNTERCLAIM OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR INSTITUTE ANY PROCEEDING TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ANY NOTE THAT IS NOT TAKEN BY THE ADMINISTRATIVE AGENT OR REQUIRED LENDERS OR APPROVED IN WRITING BY THE ADMINISTRATIVE AGENT AND REQUIRED LENDERS IF SUCH SETOFF OR ACTION OR PROCEEDING WOULD OR MIGHT (PURSUANT TO SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR SECTION 2924 OF THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR OTHERWISE) AFFECT OR IMPAIR THE VALIDITY, PRIORITY OR ENFORCEABILITY OF THE LIENS GRANTED TO THE ADMINISTRATIVE AGENT PURSUANT TO THE COLLATERAL DOCUMENTS OR THE ENFORCEABILITY OF THE NOTES AND OTHER OBLIGATIONS AND HEDGING LIABILITY AND FUNDS TRANSFER AND DEPOSIT ACCOUNT LIABILITY, AND ANY ATTEMPTED EXERCISE BY ANY LENDER OF ANY SUCH RIGHT WITHOUT OBTAINING SUCH CONSENT OF THE ADMINISTRATIVE AGENT SHALL BE NULL AND VOID. THIS SUBSECTION (b) SHALL BE SOLELY FOR THE BENEFIT OF EACH OF THE LENDERS HEREUNDER. Section 13.17. Entire Agreement. The Loan Documents constitute the entire understanding of the parties thereto with respect to the subject matter thereof and any prior agreements, whether written or oral, with respect thereto are superseded hereby. Section 13.18. Governing Law. This Agreement and the other Loan Documents (except as otherwise specified therein), and the rights and duties of the parties hereto, shall be construed and determined in accordance with the internal laws of the State of Illinois. Section 13.19. Severability of Provisions. Any provision of any Loan Document which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. All rights, remedies and powers provided in this Agreement and the other Loan Documents may be exercised only to the extent that the exercise thereof does not violate any applicable mandatory provisions of law, and all the provisions of this Agreement and other Loan Documents are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement or the other Loan Documents invalid or unenforceable. Section 13.20. Excess Interest . Notwithstanding any provision to the contrary contained herein or in any other Loan Document, no such provision shall require the payment or permit the   -79- -------------------------------------------------------------------------------- collection of any amount of interest in excess of the maximum amount of interest permitted by applicable law to be charged for the use or detention, or the forbearance in the collection, of all or any portion of the Loans or other obligations outstanding under this Agreement or any other Loan Document (“Excess Interest”). If any Excess Interest is provided for, or is adjudicated to be provided for, herein or in any other Loan Document, then in such event (a) the provisions of this Section shall govern and control, (b) neither the Borrower nor any Guarantor or endorser shall be obligated to pay any Excess Interest, (c) any Excess Interest that the Administrative Agent or any Lender may have received hereunder shall, at the option of the Administrative Agent, be (i) applied as a credit against the then outstanding principal amount of Obligations hereunder and accrued and unpaid interest thereon (not to exceed the maximum amount permitted by applicable law), (ii) refunded to the Borrower, or (iii) any combination of the foregoing, (d) the interest rate payable hereunder or under any other Loan Document shall be automatically subject to reduction to the maximum lawful contract rate allowed under applicable usury laws (the “Maximum Rate”), and this Agreement and the other Loan Documents shall be deemed to have been, and shall be, reformed and modified to reflect such reduction in the relevant interest rate, and (e) neither the Borrower nor any guarantor or endorser shall have any action against the Administrative Agent or any Lender for any damages whatsoever arising out of the payment or collection of any Excess Interest. Notwithstanding the foregoing, if for any period of time interest on any of Borrower’s Obligations is calculated at the Maximum Rate rather than the applicable rate under this Agreement, and thereafter such applicable rate becomes less than the Maximum Rate, the rate of interest payable on the Borrower’s Obligations shall remain at the Maximum Rate until the Lenders have received the amount of interest which such Lenders would have received during such period on the Borrower’s Obligations had the rate of interest not been limited to the Maximum Rate during such period. Section 13.21. Construction. The parties acknowledge and agree that the Loan Documents shall not be construed more favorably in favor of any party hereto based upon which party drafted the same, it being acknowledged that all parties hereto contributed substantially to the negotiation of the Loan Documents. The provisions of this Agreement relating to Subsidiaries shall only apply during such times as the Borrower has one or more Subsidiaries. NOTHING CONTAINED HEREIN SHALL BE DEEMED OR CONSTRUED TO PERMIT ANY ACT OR OMISSION WHICH IS PROHIBITED BY THE TERMS OF ANY COLLATERAL DOCUMENT, THE COVENANTS AND AGREEMENTS CONTAINED HEREIN BEING IN ADDITION TO AND NOT IN SUBSTITUTION FOR THE COVENANTS AND AGREEMENTS CONTAINED IN THE COLLATERAL DOCUMENTS. Section 13.22. Lender’s Obligations Several. The obligations of the Lenders hereunder are several and not joint. Nothing contained in this Agreement and no action taken by the Lenders pursuant hereto shall be deemed to constitute the Lenders a partnership, association, joint venture or other entity. Section 13.23. Submission to Jurisdiction; Waiver of Jury Trial. The Borrower and the Guarantors hereby submit to the nonexclusive jurisdiction of the United States District Court for the Northern District of Illinois and of any Illinois State court sitting in the City of Chicago for purposes of all legal proceedings arising out of or relating to this Agreement, the other Loan Documents or the transactions contemplated hereby or thereby. The Borrower and the Guarantors irrevocably waive, to the fullest extent permitted by law, any objection which they   -80- -------------------------------------------------------------------------------- may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. THE BORROWER, THE GUARANTORS, THE ADMINISTRATIVE AGENT, AND THE LENDERS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. Section 13.24. USA Patriot Act. Each Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) hereby notifies the Borrower that pursuant to the requirements of the Act, it is required to obtain, verify, and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act. Section 13.25. Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors to the extent any such Person has a need to know such Information (it being understood that the Persons to whom such disclosure is made will first be informed of the confidential nature of such Information and instructed to keep such Information confidential, and the Administrative Agent or Lender disclosing such Information remains responsible for any breach of this Section 13.24 by any such parties to whom such Information is disclosed), (b) to the extent requested by any regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 13.24, 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, (g) with the prior written consent of the Borrower, (h) to the extent such Information (A) becomes publicly available other than as a result of a breach of this Section 13.24 or (B) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower or any Subsidiary or any of their directors, officers, employees or agents, including accountants, legal counsel and other advisors, provided that such source is not known by the Person to whom such source provides such Information to be bound to the Borrower or any Subsidiary or its representatives by agreement, fiduciary duty or otherwise not to disclose such Information, (i) to rating agencies if requested or required by such agencies in connection with a rating relating to the Loans or Commitments hereunder, or (j) to entities which compile and publish information about the syndicated loan market, provided that only basic information about the pricing and structure of the transaction evidenced hereby may be disclosed pursuant to this clause (j). In addition to the foregoing provisions of this Section 13.24, each of the Administrative Agent, the Lenders and any other Person which becomes subject to the provisions of this Section agrees that, to the extent it receives Information prior to public disclosure of the same, it will not trade in securities of the Borrower prior to 48 hours following public disclosure of such Information. For purposes of this Section, “Information” means all information received from the Borrower or any of its Subsidiaries or from any other Person on behalf of the Borrower or any of its Subsidiaries relating to the Borrower or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries or from any other Person on behalf of the Borrower or any of its Subsidiaries. [SIGNATURE PAGES TO FOLLOW]   -81- -------------------------------------------------------------------------------- This Credit Agreement is entered into between us for the uses and purposes hereinabove set forth as of the date first above written.   “BORROWER” NOBEL LEARNING COMMUNITIES, INC. By   /s/ Thomas Frank Name   Thomas Frank Title   Chief Financial Officer “GUARANTORS” MERRYHILL SCHOOLS NEVADA, INC. By   /s/ Thomas Frank Name   Thomas Frank Title   President, Assistant Secretary, Treasurer NEDI, INC. By   /s/ Thomas Frank Name   Thomas Frank Title   Assistant Treasurer THE HOUSTON LEARNING ACADEMY, INC. By   /s/ Thomas Frank Name   Thomas Frank Title   Vice President, Assistant Secretary NOBEL LEARNING TECHNOLOGIES, INC. By   /s/ George Bernstein Name   George Bernstein Title   President   S-1 -------------------------------------------------------------------------------- NOBEL SCHOOL MANAGEMENT SERVICES, INC. By   /s/ Thomas Frank Name   Thomas Frank Title   Vice President, Assistant Secretary PALADIN ACADEMY, L.L.C. By:   Nobel Learning Communities Inc., its sole member By   /s/ Thomas Frank Name   Thomas Frank Title   Chief Financial Officer THE ACTIVITIES CLUB, INC. By   /s/ Thomas Frank Name   Thomas Frank Title   Secretary, Treasurer   S-2 -------------------------------------------------------------------------------- “ADMINISTRATIVE AGENT” HARRIS N.A., as L/C Issuer, and as Administrative Agent By   /s/ Mark W. Piekos Name:   Mark W. Piekos Title:   Managing Director   S-3 -------------------------------------------------------------------------------- “LENDERS” BMO CAPITAL MARKETS FINANCING, INC. By   /s/ Mark W. Piekos Name   Mark W. Piekos Title   Managing Director Address: 111 West Monroe Street, 20th Floor East Chicago, Illinois 60603 Attention:   Stephanie Petti Telecopy:   (312) 293-5041 Telephone:   (312) 461-7790   S-4 -------------------------------------------------------------------------------- CITIZENS BANK OF PENNSYLVANIA By   /s/ Timothy A. Merriman Name   Timothy A. Merriman Title   Senior Vice President Address: 3025 Chemical Road, Suite 300 Plymouth Meeting, Pennsylvania 19462 Attention:   Timothy A. Merriman Telecopy:   (610) 941-4136 Telephone:   (610) 941-5328   S-5 -------------------------------------------------------------------------------- MANUFACTURERS AND TRADERS TRUST COMPANY By   /s/ David Mills Name   David Mills Title   Vice President Address: 601 Dresher Road Horsham, Pennsylvania 19044 Attention:   David Mills Telecopy:   (215) 956-7074 Telephone:   (215) 956-7020   S-6 -------------------------------------------------------------------------------- EXHIBIT A NOTICE OF PAYMENT REQUEST [Date] [Name of Lender] [Address] Attention: Reference is made to the Amended and Restated Credit Agreement, dated as of October 30, 2006, among Nobel Learning Communities, Inc., the Guarantors party thereto, the Lenders party thereto, and Harris N.A., as Administrative Agent (as extended, renewed, amended or restated from time to time, the “Credit Agreement”). Capitalized terms used herein and not defined herein have the meanings assigned to them in the Credit Agreement. [The Borrower has failed to pay its Reimbursement Obligation in the amount of $            . Your Revolver Percentage of the unpaid Reimbursement Obligation is $            ] or [                     has been required to return a payment by the Borrower of a Reimbursement Obligation in the amount of $            . Your Revolver Percentage of the returned Reimbursement Obligation is $            .]   Very truly yours, HARRIS N.A., as L/C Issuer By     Name     Title     -------------------------------------------------------------------------------- EXHIBIT B NOTICE OF BORROWING Date: ,                 ,            To: Harris N.A., as Administrative Agent for the Lenders parties to the Amended and Restated Credit Agreement dated as of October 30, 2006 (as extended, renewed, amended or restated from time to time, the “Credit Agreement”), among Nobel Learning Communities, Inc., the Guarantor’s party thereto, certain Lenders which are signatories thereto, and Harris N.A., as Administrative Agent Ladies and Gentlemen: The undersigned, Nobel Learning Communities, Inc., (the “Borrower”), refers to the Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section 1.5 of the Credit Agreement, of the Borrowing specified below: 1. The Business Day of the proposed Borrowing is                 ,         . 2. The aggregate amount of the proposed Borrowing is $            . 3. The Borrowing is being advanced under the Revolving Credit. 4. The Borrowing is to be comprised of $             of [Base Rate] [Eurodollar] Loans. [5. The duration of the Interest Period for the Eurodollar Loans included in the Borrowing shall be                  months.] The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the Borrower contained in Section 6 of the Credit Agreement are true and correct as though made on and as of such date (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date); and (b) no Default or Event of Default has occurred and is continuing or would result from such proposed Borrowing.   NOBEL LEARNING COMMUNITIES, INC. By     Name     Title     -------------------------------------------------------------------------------- EXHIBIT C NOTICE OF CONTINUATION/CONVERSION Date:                 ,            To: Harris N.A., as Administrative Agent for the Lenders parties to the Amended and Restated Credit Agreement dated as of October 30, 2006 (as extended, renewed, amended or restated from time to time, the “Credit Agreement”), among Nobel Learning Communities, Inc., the Guarantors party thereto, certain Lenders which are signatories thereto, and Harris N.A., as Administrative Agent Ladies and Gentlemen: The undersigned, Nobel Learning Communities, Inc. (the “Borrower”), refers to the Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section 1.5 of the Credit Agreement, of the [conversion] [continuation] of the Loans specified herein, that: 1. The conversion/continuation Date is                 ,         . 2. The aggregate amount of the Revolving Loans to be [converted] [continued] is $            . 3. The Loans are to be [converted into] [continued as] [Eurodollar] [Base Rate] Loans. 4. [If applicable:] The duration of the Interest Period for the Revolving Loans included in the [conversion] [continuation] shall be                 months. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the proposed conversion/continuation date, before and after giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the Borrower contained in Section 6 of the Credit Agreement are true and correct as though made on and as of such date (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date); provided, however, that this condition shall not apply to the conversion of an outstanding Eurodollar Loan to a Base Rate Loan; and (b) no Default or Event of Default has occurred and is continuing, or would result from such proposed [conversion] [continuation].   NOBEL LEARNING COMMUNITIES, INC. By     Name     Title     -------------------------------------------------------------------------------- EXHIBIT D-1 REVOLVING NOTE   U.S. $                                    , 2006 FOR VALUE RECEIVED, the undersigned, NOBEL LEARNING COMMUNITIES, INC., a Delaware corporation (the “Borrower”), hereby promises to pay to the order of                  (the “Lender”) on the Revolving Credit Termination Date of the hereinafter defined Credit Agreement, at the principal office of Harris N.A., as Administrative Agent, in Chicago, Illinois, in immediately available funds, the principal sum of              Dollars ($            ) or, if less, the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to the Credit Agreement, together with interest on the principal amount of each Revolving Loan from time to time outstanding hereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement. This Note is one of the Revolving Notes referred to in the Amended and Restated Credit Agreement dated as of October 30, 2006, among the Borrower, the Guarantors party thereto, the Lenders party thereto, and Harris N.A., as Administrative Agent for the Lenders (as extended, renewed, amended or restated from time to time, the “Credit Agreement”), and this Note and the holder hereof are entitled to all the benefits and security provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement. This Note shall be governed by and construed in accordance with the internal laws of the State of Illinois. Voluntary prepayments may be made hereon, certain prepayments are required to be made hereon, and this Note may be declared due prior to the expressed maturity hereof, all in the events, on the terms and in the manner as provided for in the Credit Agreement. The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder.   NOBEL LEARNING COMMUNITIES, INC. By     Name     Title     -------------------------------------------------------------------------------- EXHIBIT D-2 SWING NOTE   U.S. $                                    , 2006 FOR VALUE RECEIVED, the undersigned, NOBEL LEARNING COMMUNITIES, INC., a Delaware corporation (the “Borrower”), hereby promises to pay to the order of              (the “Lender”) on the Revolving Credit Termination Date of the hereinafter defined Credit Agreement, at the principal office of Harris N.A., as Administrative Agent, in Chicago, Illinois, in immediately available funds, the principal sum of              Dollars ($            ) or, if less, the aggregate unpaid principal amount of all Swing Loans made by the Lender to the Borrower pursuant to the Credit Agreement, together with interest on the principal amount of each Swing Loan from time to time outstanding hereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement. This Note is the Swing Note referred to in the Amended and Restated Credit Agreement dated as of October 30, 2006, among the Borrower, the Guarantors party thereto, the Lenders party thereto, and Harris N.A., as Administrative Agent for the Lenders (as extended, renewed, amended or restated from time to time, the “Credit Agreement”), and this Note and the holder hereof are entitled to all the benefits and security provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement. This Note shall be governed by and construed in accordance with the internal laws of the State of Illinois. Voluntary prepayments may be made hereon, certain prepayments are required to be made hereon, and this Note may be declared due prior to the expressed maturity hereof, all in the events, on the terms and in the manner as provided for in the Credit Agreement. The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder.   NOBEL LEARNING COMMUNITIES, INC. By     Name     Title     -------------------------------------------------------------------------------- EXHIBIT E NOBEL LEARNING COMMUNITIES, INC. COMPLIANCE CERTIFICATE   To: Harris N.A., as Administrative Agent under, and the Lenders party to, the Amended and Restated Credit Agreement described below This Compliance Certificate is furnished to the Administrative Agent and the Lenders pursuant to that certain Amended and Restated Credit Agreement dated as of October 30, 2006, among us and the Guarantors party thereto (as extended, renewed, amended or restated from time to time, the “Credit Agreement”). Unless otherwise defined herein, the terms used in this Compliance Certificate have the meanings ascribed thereto in the Credit Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected                      of Nobel Learning Communities, Inc.; 2. I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or the occurrence of any event which constitutes a Default or Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Compliance Certificate, except as set forth below; 4. The financial statements required by Section 8.5 of the Credit Agreement and being furnished to you concurrently with this Compliance Certificate are true, correct and complete as of the date and for the periods covered thereby; and 5. The Schedule I hereto sets forth financial data and computations evidencing the Borrower’s compliance with certain covenants of the Credit Agreement, all of which data and computations are, to the best of my knowledge, true, complete and correct and have been made in accordance with the relevant Sections of the Credit Agreement. -------------------------------------------------------------------------------- Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event:       The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this      day of                  20    .   NOBEL LEARNING COMMUNITIES, INC. By     Name     Title       -2- -------------------------------------------------------------------------------- SCHEDULE I TO COMPLIANCE CERTIFICATE NOBEL LEARNING COMMUNITIES, INC. COMPLIANCE CALCULATIONS FOR CREDIT AGREEMENT DATED AS OF OCTOBER 30, 2006 CALCULATIONS AS OF                 ,            A.     Total Funded Debt/EBITDA Ratio (Section 8.21(a))    1.      Total Funded Debt    $             2.      Net Income for past 4 quarters    $             3.      Interest Expense for past 4 quarters    $             4.      Income taxes for past 4 quarters    $             5.      Depreciation and Amortization Expense for past 4 quarters    $             6.      Non-cash compensation expense    $             7.      Scheduled EBITDA Adjustment    $             8.      Interest income and extraordinary gains for past 4 quarters    $             9.      Sum of Lines A2, A3, A4, A5, A6 and A7, minus Line A8 (“EBITDA”)    $             10.    Ratio of Line A1 to A9            :1.0 11.    Line A10 ratio must not exceed            :1.0 12.    The Borrower is in compliance (circle yes or no)    yes/no B,     Minimum EBITDA (Section 8.21(b))    1.      EBITDA for past 4 quarters (from Line A9)    $             2.      Minimum Required EBITDA per Section 8.21(b)    $             3.      75% of EBITDA of each Permitted Acquisition1    $             4.      EBITDA shall not be less than (sum of Line B2 and B3)    $             5.      The Borrower is in compliance (circle yes or no)    yes/no -------------------------------------------------------------------------------- 1 Excluding the Discovery Acquisition. -------------------------------------------------------------------------------- C.     Fixed Charge Coverage Ratio (Section 8.21(c))    1.      EBITDA for past 4 quarters (from Line A9)    $             2.      Net Capital Expenditures for past 4 quarters    $             3.      Difference of Line C1 minus Line C2    $             4.      Cash Principal payments for past 4 quarters    $             5.      Cash Interest Expense for past 4 quarters    $             6.      Cash Dividends for past 4 quarters    $             7.      Cash Income taxes for past 4 quarters    $             8.      Sum of Lines C4, C5, C6, and C7    $             9.      Ratio of Line C3 to Line C8            :1.0 10.    Line C9 ratio must not be less than            :1.0 11.    The Borrower is in compliance (circle yes or no)    yes/no D.     Capital Expenditures (Section 8.21(d))    1.      Year-to-date Capital Expenditures    $             2.      Year-to-date Capital Expenditures financed with proceeds of an Event of Loss    $             3.      Difference of Line D1 minus Line D2    $             4.      Maximum permitted amount2    $             5.      The Borrower is in compliance (circle yes or no)    yes/no -------------------------------------------------------------------------------- 2 Increased by up to 50% of unused CapEx from previous fiscal year.   -2- -------------------------------------------------------------------------------- EXHIBIT F ADDITIONAL GUARANTOR SUPPLEMENT                 ,          Harris N.A., as Administrative Agent for the Lenders named in the Amended and Restated Credit Agreement dated as of October 30, 2006, among Nobel Learning Communities, Inc., as Borrower, the Guarantors referred to therein, the Lenders from time to time party thereto, and the Administrative Agent (as extended, renewed, amended or restated from time to time, the “Credit Agreement”) Ladies and Gentlemen: Reference is made to the Credit Agreement described above. Terms not defined herein which are defined in the Credit Agreement shall have for the purposes hereof the meaning provided therein. The undersigned, [name of Subsidiary Guarantor], a [jurisdiction of incorporation or organization] hereby elects to be a “Guarantor” for all purposes of the Credit Agreement, effective from the date hereof. The undersigned confirms that the representations and warranties set forth in Section 6 of the Credit Agreement are true and correct as to the undersigned as of the date hereof and the undersigned shall comply with each of the covenants set forth in Section 8 of the Credit Agreement applicable to it. Without limiting the generality of the foregoing, the undersigned hereby agrees to perform all the obligations of a Guarantor under, and to be bound in all respects by the terms of, the Credit Agreement, including without limitation Section 12 thereof, to the same extent and with the same force and effect as if the undersigned were a signatory party thereto. The undersigned acknowledges that this Agreement shall be effective upon its execution and delivery o by the undersigned to the Administrative Agent, and it shall not be necessary for the Administrative Agent or any Lender, or any of their Affiliates entitled to the benefits hereof, to execute this Agreement or any other acceptance hereof. This Agreement shall be construed in accordance with and governed by the internal laws of the State of Illinois.   Very truly yours, [NAME OF SUBSIDIARY GUARANTOR] By     Name     Title     -------------------------------------------------------------------------------- EXHIBIT G ASSIGNMENT AND ACCEPTANCE DATED                 ,          Reference is made to the Amended and Restated Credit Agreement dated as of October 30, 2006 (as extended, renewed, amended or restated from time to time, the “Credit Agreement”) among Nobel Learning Communities, Inc., the Guarantors party thereto, the Lenders party thereto, and Harris N.A., as Administrative Agent for the Lenders (the “Administrative Agent”). Terms defined in the Credit Agreement are used herein with the same meaning.                          (the “Assignor”) and                          (the “Assignee”) agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, the amount and specified percentage interest shown on Annex I hereto of the Assignor’s rights and obligations under the Credit Agreement as of the Effective Date (as defined below), including, without limitation, the Assignor’s Commitments as in effect on the Effective Date and the Loans, if any, owing to the Assignor on the Effective Date and the Assignor’s Revolver Percentage of any outstanding L/C Obligations. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim, lien, or encumbrance of any kind; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of their respective obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered to the Lenders pursuant to Section 8.5(a) and (b) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under the Credit -------------------------------------------------------------------------------- Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; and (v) specifies as its lending office (and address for notices) the offices set forth on its Administrative Questionnaire. 4. As consideration for the assignment and sale contemplated in Annex I hereof, the Assignee shall pay to the Assignor on the Effective Date in Federal funds the amount agreed upon between them. It is understood that commitment and/or letter of credit fees accrued to the Effective Date with respect to the interest assigned hereby are for the account of the Assignor and such fees accruing from and including the Effective Date are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party’s interest therein and shall promptly pay the same to such other party. 5. The effective date for this Assignment and Acceptance shall be                  (the “Effective Date”). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance and recording by the Administrative Agent and, if required, the Borrower. 6. Upon such acceptance and recording, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 7. Upon such acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves.   -2- -------------------------------------------------------------------------------- 8. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of Illinois.   [ASSIGNOR LENDER] By     Name     Title     [ASSIGNEE LENDER] By     Name     Title     Accepted and consented this      day of                        NOBEL LEARNING COMMUNITIES, INC. By     Name     Title     Accepted and consented to by the Administrative Agent and L/C Issuer this      day of              HARRIS N.A., as Administrative Agent and L/C Issuer By     Name     Title       -3- -------------------------------------------------------------------------------- ANNEX I TO ASSIGNMENT AND ACCEPTANCE The assignee hereby purchases and assumes from the assignor the following interest in and to all of the Assignor’s rights and obligations under the Credit Agreement as of the effective date.   FACILITY ASSIGNED    AGGREGATE COMMITMENT/LOANS FOR ALL LENDERS    AMOUNT OF COMMITMENT/LOANS ASSIGNED    PERCENTAGE ASSIGNED OF COMMITMENT/LOANS   Revolving Credit    $                 $                              %

Exhibit 10.4 Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omissions have been indicated by asterisks (“*****”), and the omitted text has been filed separately with the Securities and Exchange Commission. LOGO [g76596image002.jpg] September 28, 2006 Via Facsimile Robert Shakotko Managing Director Standard & Poor’s Index Services 55 Water Street, 42nd Floor New York, New York 10041     Re: Third Amendment to the S&P-CME 2005 License Agreement Dear Mr. Shakotko: S&P and CME have agreed to amend our License Agreement to (i) allow S&P to grant licenses to Merrill Lynch to create Composite TRAKRs for trading at CME and (ii) facilitate the drafting of future amendments in respect of TRAKRS Contracts and Composite TRAKRS Contracts for trading at CME. This Letter Amendment embodies our agreement. Pursuant to Section 2(e) of the License Agreement (“Agreement”) between the Chicago Mercantile Exchange (“CME”) and Standard & Poor’s (“S&P”), dated September 20, 2005, as amended, CME requests that the Agreement be updated as specified below. Unless otherwise specifically provided in the Agreement, references in the Agreement to “TRAKRS Contracts” shall be deemed to include both “TRAKRS Contracts” and “Composite TRAKRs Contracts.” Section 1 of the Agreement shall be amended by adding Section 1 (dd) at the end of the section, which shall read as follows: (dd) “Composite TRAKRs Contracts” means a TRAKRs Contract that meets all of the conditions set out in paragraph 1(bb), but the final settlement price of which is calculated using (a) the level of an S&P Stock Index and (b) the returns of an actively managed portfolio. -------------------------------------------------------------------------------- Section 3(d) shall be deleted and replaced with the following: Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omissions have been indicated by asterisks (“*****”), and the omitted text has been filed separately with the Securities and Exchange Commission. Amendment 3 - TRAKRS Page 2 of 2 (d) TRAKRS Contracts. The term of TRAKRs Contracts shall be five (5) years from the date such contract is listed. There shall be no ADV requirement for a TRAKRS Contract. Further, the TRAKRS Contract volume shall not be included in the ADV calculations described elsewhere in this Section 3. Section 3 shall be further amended by adding Section 3(e) as follows: (e) Notwithstanding the exclusivity provisions of this Section 3, S&P shall have the right to license Merrill Lynch to create Composite TRAKRs based on S&P Stock Indices for trading at CME. Section 5(f) of the Agreement shall be deleted and replaced with the following: (f) Mini Contracts. For each Indexed Contract (excluding S&P ETF Contracts and TRAKRS Contracts), regardless of the date when it was first listed, and with an initial Notional Value of less than or equal to $100,000, CME shall pay S&P a per-Contract license fee equal to $*****. CME shall pay S&P $***** for each TRAKRS Contract traded, where such TRAKRS Contract has an initial Notional Value of less than $50 when first listed. Except as modified hereby, all of the terms and conditions of the Agreement shall remain in full force and effect. Please acknowledge your receipt and acceptance of this amendment by signing below and returning this letter to us at your earliest convenience. If you have any questions or comments, please do not hesitate to call me.   Sincerely, /s/ Matthew J. Kelly Matthew J. Kelly Agreed and Accepted:   By:   /s/ Robert Shakotko   Robert Shakotko   Managing Director   Standard & Poor’s cc:   Steve Rive   Robert Benjamin

  Exhibit 10.3 T-3 ENERGY SERVICES, INC. NON-STATUTORY STOCK OPTION AGREEMENT Optionee: Keith Klopfenstein      1. Grant of Stock Option. As of the Grant Date (identified in Section 18 below), T-3 Energy Services, Inc., a Delaware corporation (the “Company”), hereby grants a Nonstatutory Stock Option (the “Option”) to the Optionee (identified above), an employee of the Company, to purchase the number of shares of the Company’s common stock, $.001 par value per share (the “Common Stock”) identified in Section 18 below (the “Shares”), subject to the terms and conditions of this agreement (the “Agreement”) and the T-3 Energy Services 2002 Stock Incentive Plan (the “Plan”). The Plan is hereby incorporated herein in its entirety by reference. The Shares, when issued to Optionee upon the exercise of the Option, shall be fully paid and nonassessable. The Option is not an “incentive stock option” as defined in Section 422 of the Internal Revenue Code.      2. Definitions. All capitalized terms used herein shall have the meanings set forth in the Plan unless otherwise provided herein. Section 18 sets forth meanings for certain of the capitalized terms used in this Agreement.      3. Option Term. The Option shall commence on the Grant Date (identified in Section 18 below) and terminate on the tenth (10th) anniversary of the Grant Date as specified in Section 18. The period during which the Option is in effect and may be exercised is referred to herein as the “Option Period”.      4. Option Price. The Option Price per Share is identified in Section 18.      5. Vesting. The total number of Shares subject to this Option shall vest in accordance with the Vesting Schedule (described in Section 18). The Shares may be purchased at any time after they become vested, in whole or in part, during the Option Period; provided, however, the Option may only be exercisable to acquire whole Shares. The right of exercise provided herein shall be cumulative so that if the Option is not exercised to the maximum extent permissible after vesting, the vested portion of the Option shall be exercisable, in whole or in part, at any time during the Option Period.      6. Method of Exercise. The Option is exercisable by delivery of a written notice to the Secretary of the Company, signed by the Optionee, specifying the number of Shares to be acquired on, and the effective date of, such exercise. The Optionee may withdraw notice of exercise of this Option, in writing, at any time prior to the close of business on the business day preceding the proposed exercise date.      7. Method of Payment. Subject to applicable provisions of the Plan, the Option Price upon exercise of the Option shall be payable to the Company in full either: (i) in cash or its equivalent; (ii) subject to prior approval by the Committee in its discretion, by tendering previously acquired Shares having an aggregate Fair Market Value (as defined in the Plan) at the time of exercise equal to the total Option Price (provided that the Shares must have been held by the   --------------------------------------------------------------------------------   Optionee for at least six (6) months prior to their tender to satisfy the Option Price); (iii) subject to prior approval by the Committee in its discretion, by withholding Shares which otherwise would be acquired on exercise having an aggregate Fair Market Value at the time of exercise equal to the total Option Price; or (iv) any other permitted method pursuant to the applicable terms and conditions of the Plan.      As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to or on behalf of the Optionee, in the name of the Optionee or other appropriate recipient, Share certificates or other evidence of ownership for the number of Shares purchased under the Option.      8. Restrictions on Exercise. The Option may not be exercised if the issuance of such Shares or the method of payment of the consideration for such Shares would constitute a violation of any applicable federal or state securities or other laws or regulations, or any rules or regulations of any stock exchange on which the Common Stock may be listed. In addition, Optionee understands and agrees that the Option cannot be exercised if the Company determines that such exercise, at the time of such exercise, will be in violation of the Company’s insider trading policy.      9. Termination of Employment. Voluntary or involuntary termination of Employment shall affect Optionee’s rights under the Option as follows:      (a) Termination for Cause. The entire Option, including any vested portion thereof, shall expire on 12:01 a.m. (CST) on the date of termination of Employment and shall not be exercisable to any extent if Optionee’s Employment is terminated for Cause (as defined in the Plan at the time of such termination of Employment).      (b) Retirement. If Optionee’s Employment is terminated for Retirement on or after Optionee attains the age of 65, then (i) the non-vested portion of the Option shall immediately expire on the termination date and (ii) the vested portion of the Option shall expire to the extent not exercised before the six (6) month anniversary of the date of such termination of Employment. In no event may the Option be exercised after the earlier of (i) the expiration of the Option Period or (ii) six months from the date of termination of Employment due to Retirement even if Optionee becomes deceased during such period.      (c) Death or Disability. If Optionee’s Employment is terminated by death or Disability (as defined in the Plan at the time of such termination of Employment), then (i) the non-vested portion of the Option shall immediately expire on the date of termination of Employment and (ii) the vested portion of the Option shall expire on the one year anniversary date of the termination of Employment date (to the extent not exercised by Optionee) or, in the case of death, by the person or persons to whom Optionee’s rights under the Option have passed by will or by the laws of descent and distribution or, in the case of Disability, by Optionee or Optionee’s legal representative. In no event may the Option be exercised by anyone on or after the earlier of (i) the expiration of the Option Period or (ii) one year after the date of Optionee’s death or termination of Employment due to Disability. 2 --------------------------------------------------------------------------------        (d) Other Involuntary Termination or Voluntary Termination. If Optionee’s Employment is terminated for any reason other than for Cause, Retirement, death or Disability, then (i) the non-vested portion of the Option shall immediately expire on the termination of Employment date and (ii) the vested portion of the Option shall expire to the extent not exercised within 90 calendar days after such termination date. In no event may the Option be exercised by anyone after the earlier of (i) the expiration of the Option Period or (ii) 90 calendar days after the termination of Employment date even if Optionee becomes deceased during such period.      10. Independent Legal and Tax Advice. Optionee acknowledges that the Company has advised Optionee to obtain independent legal and tax advice regarding the grant and exercise of the Option and the disposition of any Shares acquired thereby.      11. Reorganization of Company. The existence of the Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Shares or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.      12. Adjustment of Shares. In the event of stock dividends, spin-offs of assets or other extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers, consolidations, reorganizations, liquidations, issuances of rights or warrants and similar transactions or events involving Company, appropriate adjustments shall be made to the terms and provisions of the Option as provided in the Plan.      13. No Rights in Shares. Optionee shall have no rights as a stockholder in respect of the Shares until the Optionee becomes the record holder of such Shares.      14. Investment Representation. Optionee will enter into such written representations, warranties and agreements as Company may reasonably request in order to comply with any federal or state securities law. Moreover, any stock certificate for any Shares issued to Optionee hereunder may contain a legend restricting their transferability as determined by the Company in its discretion. Optionee agrees that Company shall not be obligated to take any affirmative action in order to cause the issuance or transfer of Shares hereunder to comply with any law, rule or regulation that applies to the Shares subject to the Option.      15. No Guarantee of Employment. The Option shall not confer upon Optionee any right to continued employment with the Company or any affiliate thereof.      16. Withholding of Taxes. The Company shall have the right to (a) make deductions from the number of Shares otherwise deliverable upon exercise of the Option in an amount sufficient to satisfy withholding of any federal, state or local taxes required by law, or (b) take such other action as may be necessary or appropriate to satisfy any such tax withholding obligations. 3 --------------------------------------------------------------------------------        17. General.      (a) Notices. All notices under this Agreement shall be mailed or delivered by hand to the parties at their respective addresses set forth beneath their signatures below or at such other address as may be designated in writing by either of the parties to one another, or to their permitted transferees if applicable. Notices shall be effective upon receipt.      (b) Shares Reserved. The Company shall at all times during the Option Period reserve and keep available under the Plan such number of Shares as shall be sufficient to satisfy the requirements of this Option.      (c) Transferability of Option. The Option is transferable only to the extent permitted under the Plan at the time of transfer (i) by will or by the laws of descent and distribution, (ii) by a qualified domestic relations order (as defined in Section 414(p) of the Internal Revenue Code), or (iii) to Optionee’s Immediate Family. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities, obligations or torts of Optionee or any permitted transferee thereof.      (d) Amendment and Termination. No amendment, modification or termination of this Agreement shall be made at any time without the written consent of Optionee and Company.      (e) No Guarantee of Tax Consequences. The Company makes no commitment or guarantee that any tax treatment will apply or be available to Optionee or any other person. The Optionee has been advised, and provided with the opportunity, to obtain independent legal and tax advice regarding the grant and exercise of the Option and the disposition of any Shares acquired thereby.      (f) Severability. In the event that any provision of this Agreement shall be held illegal, invalid, or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal, invalid, or unenforceable provision had not been included herein.      (g) Supersedes Prior Agreements. This Agreement shall supersede and replace all prior agreements and understandings, oral or written, between the Company and the Optionee regarding the grant of the Options covered hereby.      (h) Governing Law. The Option shall be construed in accordance with the laws of the State of Delaware, without regard to its conflict of law provisions, to the extent federal law does not supersede and preempt Delaware law. 4 --------------------------------------------------------------------------------        18. Definitions and Other Terms. The following capitalized terms shall have those meanings set forth opposite them:                   (a)   Optionee:   Keith Klopfenstein                   (b)   Grant Date:   January 12, 2006                   (c)   Shares:   Twenty Five Thousand (25,000) Shares of the Company's Common Stock.                   (d)   Option Price:    $12.31                    (e)   Option Period:   January 12, 2006 through January 12, 2016 (until 5:00 p.m. CST).                   (f)   Vesting Schedule: Options for 33% of the Shares covered by this Option shall vest on the first anniversary of the Grant Date, and Options for the remaining Shares shall vest on each subsequent anniversary of the Grant Date until fully vested, as follows:                   Date           Options Vesting January 12, 2007             33 %                   January 12, 2008             33 %                   January 12, 2009             34 %                                     Total             100 %                        In the event of a “Change in Control” of the Company (as defined in the Plan at the time of such event), the non-vested portion of the Option shall become immediately 100% vested as of the Change in Control date. [Signature page follows.] 5 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the Company, as of the Grant Date, has caused this Agreement to be executed on its behalf by its duly authorized officer and Optionee has hereunto executed this Agreement as of the same date.               T-3 ENERGY SERVICES, INC.               By:  /s/ Gus D. Halas               Name: Gus D. Halas     Title: President & CEO               Address for Notices:               T-3 Energy Services, Inc.     13111 Northwest Freeway, Suite 500     Houston, TX 77040               Attn: Corporate Secretary               OPTIONEE               /s/ Keith Klopfenstein           Keith Klopfenstein               Address for Notices:               T-3 Energy Services, Inc.     13111 Northwest Freeway, Suite 500     Houston, TX 77040 6

December 19, 2005   Mr. R. Reid French, Jr. 3095 Dale Drive Atlanta, Georgia 30305 Re: Offer of Employment Dear Mr. French: Intergraph Corporation is pleased to enter into an amended employment agreement with you for the position of Executive Vice President and Chief Operating Officer of Intergraph Corporation.  The terms of the Company's agreement ("Agreement") with you are as follows: 1.         Position and Title             a.        Executive Vice President and Chief Operating Officer, reporting directly to the Chief Executive Officer of the Company.             b.         Full Time, Exempt Employee (FLSA status). 2.          Cash Compensation a. Annual Base Salary - $400,000.  Base salary shall be reviewed no less than annually and the independent members of the Board of Directors (or a committee of the Board comprised solely of independent directors) may increase such amount as it may deem advisable.  The first salary review shall be in January 2007.  The base salary shall be payable to the Employee in substantially equal installments in accordance with the Company's normal payroll practices.   b. Targeted and Management by Objective ("MBO") Bonuses.  Employee shall receive an annual MBO target cash bonus opportunity in an amount not less than 75% of annual salary each calendar year during the term of this Agreement.  The actual cash bonus, if any, shall be determined by the independent members of the Board of Directors (or a committee of the Board comprised solely of independent directors) and shall be based upon achievement of objectives, the success of the Company or such other factors as such independent directors may, in their sole discretion, determine.   c.          Stay Bonus.  If Employee shall remain employed by the Company (or any successor entity) for six months following the date of a Change in Control (as defined in the Company's employment agreement with R. Halsey Wise), the Company shall pay Employee a stay bonus in an amount equal to one (1) times his then-current annual base salary for the year in which the Change in Control occurs, as well as an amount equal to one half of the Employee's then-current target bonus for such year (collectively, the "Stay Bonus").  If the Company (or any successor entity) terminates Employee following a Change in Control, but prior to the date that is six months following such Change in Control, Employee shall receive a pro rata portion of the Stay Bonus; provided, however, so long as Employee's date of termination occurs more than 5 business days following a Change in Control, the pro rata portion of the Stay Bonus shall not be less than an amount equal to one third (1/3) of the Stay Bonus.   3.           Stock Grants -- During the term of this Agreement, the independent members of the Board of Directors (or a committee of the Board comprised solely of independent directors) will consider on an annual basis long-term incentive awards to Employee pursuant to the Company's equity incentive plans. 4.           Benefits -- The Employee shall be entitled to participate in all applicable Company employee benefits as may be in effect from time to time.  A copy of the Employee Benefits Plan Summary has been separately provided for your review.   5.           Vacation -- The Employee shall be entitled to the greater of three (3) weeks paid vacation per year, or as otherwise provided for by the Company's vacation accrual policy.   6.           Term of Agreement -- The term of employment under this offer shall be for one (1) year from the date of this Agreement.  The terms of this offer shall be extended after the first anniversary date, on a year-to-year basis, unless otherwise terminated in writing by the Company or the Employee not later than 90 days prior to the next anniversary date of the date of this Agreement. However, with varying consequences described in Section 7 below, employment under this offer is subject to early termination under the following circumstances:   a.          Employee may resign with or without Good Reason at any time during the term of this Agreement.  "Good Reason" for resignation will include (i) a material reduction in Employee's position, authority, duties or responsibilities, (ii) a reduction in base salary or targeted bonus payable pursuant to Section 2(c) above, (iii) a failure by the Company to require a successor corporation of the Company to honor the terms of this Agreement, (iv) a change in reporting structure whereby Employee no longer reports directly to the Company's Chief Executive Officer, or (v) a resignation by R. Halsey Wise for "Good Reason" as such term is defined in Mr. Wise's employment agreement with the Company.  In no event shall Good Reason include death or Disability.    b.          The Company may terminate Employee with or without Cause.  "Cause" means (i) the willful and continued failure by Employee to substantially perform his duties after a written demand for substantial performance is delivered by the Company to the Employee that specifically identifies the manner in which the Company believes he has not substantially performed his duties, or (ii) the willful engaging in misconduct which is materially injurious to the Company, monetarily or otherwise.    c.          The term of employment will terminate upon Employee's death or Disability. "Disability" means a physical or mental disability entitling Employee to long-term disability benefits under the Company's long-term disability plan, if any.  Absent such a plan, Disability shall mean the inability of Employee, as determined by the CEO or Board, to perform the essential functions of his regular duties and responsibilities, with reasonable accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of 180 consecutive days.   7. Separation Payments --   a.          Should the Employee be terminated by the Company other than for Cause or Disability, or should the Employee resign for Good Reason, during the term of employment under this Agreement (as such term may be extended in accordance with Section 6 above), the Employee shall receive the following separation benefits:   (i) The Employee shall be paid accrued base salary through the date of termination plus a separation payment of one (1) times his then-current annual base salary for the year in which the termination occurs, as well as an amount equal to a pro rata portion of the Employee's then-current target bonus for the year in which the date of termination occurs, and any other unpaid benefits to which Employee is otherwise entitled.  The Employee shall also receive fully paid-up medical, dental and prescription drug health insurance benefits commensurate with the Company's standard health insurance benefits for one year after the Employee's last date of employment.  All Restricted Stock awards pursuant to the Intergraph Corporation 2002 Stock Option Plan and 2004 Equity Incentive Plan shall be treated according to the terms of the applicable Plan and the applicable award agreement.   (ii) Termination for cause -- No separation payment is due or payable should the Employee be terminated for Cause or Employee resigns without Good Reason.  In that event, all Restricted Stock awards pursuant to the Intergraph Corporation 2002 Stock Option Plan and 2004 Equity Incentive Plan shall be treated according to the terms of the applicable Plan and the applicable award agreement.    (iii) Death or Disability -- Should the Employee die or become Disabled, Employee or Employee's spouse or heirs shall be entitled to receive all base salary and benefits to be paid or provided to the Employee under this Agreement through the date of termination.  All awards pursuant to the Intergraph Corporation 2002 Stock Option Plan and 2004 Equity Incentive Plan shall be treated according to the terms of the applicable Plan and the applicable award agreement.   b. All amounts payable under this Section 7 shall be paid to Employee in a lump sum within sixty (60) days from the date of termination; provided, however, in the event the receipt by Employee of amounts payable pursuant to this Agreement within six months of the date of Employee's termination of employment with the Company would cause Employee to incur any penalty under Section 409A of the Internal Revenue Code of 1986, as amended, then such payment of such amounts shall not be due until the date that is six months following Employee's date of termination of employment with the Company.   8. Release of Claims -- As a condition to receiving the severance payment and post-employment health insurance benefits, Employee agrees to sign a release of any employment-law related claims.  The release would be signed at the time of termination of employment.   The Proprietary Rights Agreement previously executed by you remains in full force and effect.   9.   Business Expenses -- The Employee shall be reimbursed for all reasonable and necessary business expenses incurred by him in connection with his employment (including, without limitation, expenses for travel and entertainment incurred in conducting or promoting business for the Company, which shall include reimbursement for regular travel to and from Huntsville, Alabama and Atlanta, Georgia, and any incremental income taxes incurred by the Employee relating to such travel reimbursement) upon timely submission by the Employee of receipts and other documentation in accordance with the Company's normal expense reimbursement policies. This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama, without regard to its conflicts of laws provisions; with exclusive venue and jurisdiction within the Circuit Court for Madison County, Alabama or the US District Court for the Northern District of Alabama, Northeastern Division, for any claims arising under this Agreement. Please keep this original letter for your records, and return the signed copy in the enclosed prepaid envelope as an expression of your intent to accept the terms of this Agreement. If you have any questions or desire additional information regarding this offer of employment, please contact me at (256) 730-8993, or Ed Porter at (256) 730-2350. Sincerely, /s/ David Vance Lucas______ David Vance Lucas Vice President, General Counsel Amended Offer of Employment to R. Reid French I accept this Agreement as stated above.  /s/ R. Reid French                            Signature December 22, 2005 Date

Exhibit 10.11   AGREEMENT   This Agreement, dated                         , 200     (the “Effective Date”), is made by and between Charles River Laboratories, Inc., a Delaware corporation (the “Company”) and                                     (the “Executive”).   WHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel;   WHEREAS, the Board of Directors of the Company (the “Board”) recognizes that, as is the case with many publicly-held corporations, the possibility of a Change in Control (as defined below) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders;   WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company’s management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; and   NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:   1.                                       Defined Terms. Capitalized terms, not elsewhere defined in this Agreement, are defined in Section 16 hereof.   2.                                       Terms of Agreement. (a) This Agreement shall commence as of the Effective Date and shall continue in effect while the Executive is employed by the Company for a period of three years; provided, however, that commencing on the third anniversary of the Effective Date and on each anniversary thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than 90-days prior to any such anniversary date either party shall have given notice that it does not wish to extend this Agreement. Notwithstanding the foregoing, if a Change in Control shall have occurred during the original or extended term of this Agreement, (i) this Agreement shall continue in effect for a period of 36 months beyond the month in which such Change in Control occurred and (ii) any notice of nonrenewal given by the Company during the twelve months prior to such Change in Control shall be deemed revoked and this Agreement shall be reinstated as if never terminated in accordance with such notice.   (b)                                 It is intended, and the parties hereto agree, that (i) the benefit, if any, payable to the Executive under any other severance or termination pay plan, arrangement or agreement of or with the Company shall be reduced by the amount of any payment actually provided under Section 6.1 hereof, (ii) any option to acquire shares of the Company’s common stock awarded to the Executive under any stock option or other long-term incentive plan of the Company shall become fully exercisable upon the   --------------------------------------------------------------------------------   occurrence of a Change in Control during the term of the Agreement, and (iii) and restrictions on any shares of restricted stock held by the Executive shall fully lapse upon the occurrence of a Change in Control during the term of this Agreement, provided that nothing herein shall otherwise affect or modify the terms of any such option or restricted stock or the Executive’s right or obligations with respect thereof.   3.                                       Company’s Covenants Summarized. In order to induce the Executive to remain in the employ of the Company, and in consideration of the Executive’s covenant set forth in Section 4 hereof, the Company agrees to compensate the Executive as set forth herein, upon the terms and under the conditions described herein, in the event the Executive’s employment with the Company is terminated under the circumstances described below following a Change in Control and during the term of this Agreement. No amount or benefit shall be payable under this Agreement unless there shall have been (or under the terms hereof, there shall be deemed to have been) a termination of the Executive’s employment with the Company following a Change in Control.   4.                                       The Executive’s Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Change in Control during the term of this Agreement, the Executive will remain in the employ of the Company until the earliest of (a) a date which is six (6) months after the date of such Change in Control, (b) the date, after such Change in Control, of termination by the Executive of the Executive’s employment for Good Reason, or termination of Executive’s employment by reason of Death, Disability or Retirement, or (c) the termination by the Company, after such Change in Control, of the Executive’s employment for any reason.   5.                                       Compensation Other Than Severance Payment.   5.1.                              Disability. Following a Change in Control during the term of this Agreement, during any period that the Executive fails to perform the Executive’s full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall continue to pay the Executive’s full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive’s employment is terminated by the Company for Disability.   5.2.                              Salary Continuation. If the Executive’s employment shall be terminated for any reason following a Change in Control and during the term of this Agreement, the Company shall pay the Executive’s full salary to the Executive through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period.   5.3.                              Other Post-Termination Compensation. If the Executive’s employment shall be terminated for any reason following a Change in Control and during the term of this Agreement, the Company shall, except as provided in Section 2 above,   2 --------------------------------------------------------------------------------   pay the Executive’s normal post-termination compensation and benefits to the Executive as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company’s retirement, insurance, deferred compensation and other compensation or benefit plans, programs, agreements or arrangements.   6.                                       Company Obligations upon Termination. If, during the term of this Agreement and on or before the first anniversary of a Change in Control, (i) the Company shall terminate the Executive’s employment other than for Cause, Death or Disability or (ii) the Executive shall terminate her employment for Good Reason, then the Company shall pay to the Executive the payments set forth in Sections 6.1, 6.2, if applicable, 6.3 and 6.4 hereof (collectively, the “Severance Payments”) in addition to the payments and benefits described in Sections 5 and 6.6 hereof. The Executive’s employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason if the Executive’s employment is terminated without Cause prior to a Change in Control at the direction of a Person who has entered into or has proposed to enter into an agreement with the Company the consummation of which will constitute a Change in Control, or if the Executive terminates her employment with Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Persons; provided in either case that a Change in Control involving such other Person is consummated within 12 months after any such direction.   6.1.                              Severance Payment. In lieu of any further salary payments to the Executive for periods subsequent to the date of Termination, the Company shall pay the Executive a lump sum severance payment, in cash, equal to           times (i.e.,          of) the sum of the Executive’s then base salary plus the target bonus contained in the Executive Bonus Plan for the fiscal year in which the Date of Termination occurs.   6.2.                              Golden Parachute Excise Tax. The Company intends that the Executive shall generally not bear the economic effect of the excise tax imposed by Section 4999 of the Internal Revenue Code on so-called golden parachute payments. This provision shall be implemented in accordance with the provisions of Annex 1. However, if a small (up to 15%) reduction in the Executive’s entitlements would greatly minimize the Company’s costs in providing the excise tax protection, the Company will reduce the amounts paid to the Executive hereunder to that small extent.   6.3.                              Retirement Plan Payments. In the event the Executive was a participant in the Charles River Laboratories, Inc. Pension Plan (or any successor plan thereto) (the “Pension Plan”) on or prior to the Date of Termination, the Company shall pay to the Executive a separate lump-sum supplemental retirement benefit (the “Supplemental Retirement Amount”) equal to the difference between (1) the actuarial equivalent of the benefit payable under the Pension Plan which the Executive would receive if the Executive’s employment continued for the        years following the Date of Termination and if her compensation during such number of years increased at a rate of 4% per year from the level in effect on the Date of Termination, and (2) the actuarial equivalent of the Executive’s actual benefit (paid or payable), if any, under the Pension   3 --------------------------------------------------------------------------------   Plan. The amounts to be paid to the Executive under this Section shall be paid out of the Pension Plan trust, to the extent permissible under applicable law. For purposes of calculating the actuarial equivalents referred to in (1) and (2) above, the Company shall use the actuarial assumptions utilized with respect to the Pension Plan during the 90-day period immediately preceding the Change in Control Date and shall assume that all accrued benefits are fully vested and that benefit accrual formulas in effect during any years after the Date of Termination are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Change in Control Date.   6.4.                              ESLIRP Payment. In the event that (x) the Executive is a participant in the Charles River Laboratories, Inc. Executive Supplemental Life Insurance Retirement Plan (the “ESLIRP”) on or prior to the Date of Termination, and (y) the ESLIRP shall not then have been replaced by the Charles River Laboratories Deferred Compensation Plan (the “DCP”), the Company shall pay to the Executive a separate lump-sum supplemental retirement benefit (the “ESLIRP Payment”) in discharge of the Company’s obligations under the ESLIRP equal to the actuarial equivalent of the Executive’s benefit accrued through the Date of Termination under the ESLIRP. The ESLIRP Payment shall be calculated (i) utilizing the actuarial assumptions specified by Section 417(e)(3)(A) of the Internal Revenue Code, and in the case of the interest rate specified under subparagraph (ii)(II) of such section, using such rate established for the month of November of the year preceding the year in which the payment occurs; (ii) assuming that the Executive’s employment continued for        years following the Date of Termination, and (iii) assuming that the Executive’s compensation during such number of years referred to in (ii) increased at a rate of 4% per year from the level in effect on the Date of Termination. Notwithstanding the foregoing, however, to the extent the ESLIRP Payment is funded through a trust of which the Executive is a beneficiary, such amount to the extent so funded shall be paid from such trust. In the event that the provisions of this subsection are in conflict with provisions of the ESLIRP, the provisions of this Agreement shall prevail if the provisions of this Agreement are more favorable to the Executive. No payment shall be made under this Section 6.4 if the DCP shall have been adopted and implemented prior to the Change in Control.   6.5.                              Timing of Payment. The payment provided for in Section 6.1 hereof shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amount of such payment, and the limitation on such payment set forth in Section 6.2 hereof, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payment to which the Executive is clearly entitled and shall pay the remainder of such payment (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 but in no event later than the 30th day after the Date of Termination. In the event that the amount of the estimated payment exceeds the amount subsequently determined to have been due, such excess shall be paid back to the Company within five business days after demand by the Company and such payment shall not be considered a loan, therefore no interest shall be due or payable. At the time that payments are made under this Section 6 the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such   4 --------------------------------------------------------------------------------   calculation including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).   6.6.                              Payment of Legal Fees and Expense. The Company shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of or in connection with a termination of employment (other than any such termination by the Company for Cause) following a Change in Control and during the term of the Agreement (including all such fees and expenses, if any, incurred in good faith in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by the Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made within five business days after delivery of the Executive’s written request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.   6.7.                              Continuation of Benefits. If the Executive’s employment terminates as provided in Section 6, (a) the Company shall, for          years following the Date of Termination, or such longer period as any plan, program, practice or policy may provide, continue benefits to the Executive and/or the Executive’s family at least equal to those which would have been provided had the Executive’s employment not been terminated, in accordance with the plans, programs, practices and policies in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Date that provided for group health, dental and life insurance and other welfare-type plans, or if more favorable to the Executive, in accordance with such plan, program, practice or policy as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes employed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the        year period following the Date of Termination and to have retired on the last day of such period.   (b)                 Executive shall be permitted to purchase her then currently Company-leased vehicle in accordance with the most attractive terms available under such lease.   (c)                  The Company shall provide (or reimburse) Executive with 26 weeks of fully paid outplacement services, up to a maximum of $                .   7.                                       Termination Procedures and Compensation During Dispute.   7.1.                              Notice of Termination. After a Change in Control and during the term of this Agreement, any purported termination of the Executive’s employment (other than by reason of Death) shall be communicated by written Notice of Termination from one   5 --------------------------------------------------------------------------------   party hereto to the other party in accordance with Section 10 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with her counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in the definition of Cause herein, and specifying the particulars thereof in detail.   7.2.                              Date of Termination. “Date of Termination” with respect to any termination of the Executive’s employment after a Change in Control and during the term of this Agreement, shall mean (a) if the Executive’s employment is terminated for Disability, 30 days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive’s duties during such 30-day period), and (b) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of termination by the Company, shall not be less than 30 days (except in the case of a termination for Cause), and, in the case of a termination by the Executive, shall not be less than 15 days nor more than 60 days, respectively, from the date of such Notice of Termination is given).   7.3.                              Dispute Concerning Termination. Notwithstanding any provision of Section 7.2 hereof to the contrary, if within 15 days after Notice of Termination is received, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party in writing that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. For the purposes of the preceding sentence, a dispute concerning termination shall be deemed finally resolved if, within 30 days of an arbitration award concerning such dispute, neither party commences an action in any court seeking the modification of or other relief from such award.   7.4.                              Compensation During Dispute. If a proposed termination occurs following a Change in Control and during the term of this Agreement, and such termination is disputed in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is   6 --------------------------------------------------------------------------------   finally resolved in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof).   8.                                       No Mitigation; Set-Off. The Company agrees that, if the Executive’s employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to this Agreement. Further, except as provided in Section 6.7, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. The Company’s obligation to make the payments provided in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive.   9.                                       Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, unless such obligations are binding upon such successor by operation of law. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive’s employment for Good Reason after a Change in Control, except that for purposes of implementing the foregoing the date on which any such succession becomes effective shall be deemed the Date of Termination.   10.                                 Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by the US registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:   To the Company:   Charles River Laboratories, Inc. 251 Ballardvale St. Wilmington, MA 01887 Attention: Chief Executive Officer Copy to: General Counsel   7 --------------------------------------------------------------------------------   To the Executive:   At the address then appearing on the employment records of the Company.   11.                                 Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under Sections 5, 6 and 7 shall survive the expiration of this Agreement.   12.                                 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.   13.                                 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.   14.                                 Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration conducted before a single arbitrator in Boston, Massachusetts in accordance with the commercial rules of the American Arbitration Association (“AAA”) then in effect. Unless a mutually acceptable arbitrator shall have been selected by the parties within 30 days of the initiation of arbitration proceedings, then upon application of either party to the Boston office of the AAA, the AAA shall designate such arbitrator. Judgment may be entered on the arbitrator’s award in any court having jurisdiction, provided, however, that the Executive shall be entitled to seek specific performance of her right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.   15.                                 Confidentiality. The Executive shall keep secret and confidential and shall not disclose to any third party in any fashion or for any purpose whatsoever, any information regarding this Agreement which is (i) not available to the general public, and/or (ii) not generally known outside the Company. Notwithstanding the foregoing   8 --------------------------------------------------------------------------------   provisions of this Section 15, the Executive may discuss this Agreement with the members of her immediate family and with her personal legal and tax advisors, provided that prior to disclosing any term or condition of this Agreement to any person, the Executive shall obtain from such person for the benefit of the Company his or her agreement to observe the foregoing confidentiality provisions.   16.                                 Definitions. For purposes of this Agreement, the following shall have the meanings indicated below:   16.1.                        “Beneficial Owner” and “Beneficial Ownership” shall have the meaning defined in, and shall be determined pursuant to, Rule l3d-3 under the Securities Exchange Act of 1934, as amended.   16.2.                        “Board” shall mean the Board of Directors of the Company.   16.3.                        “Cause” for termination by the Company of the Executive’s employment, after any Change in Control, shall mean (a) the willful and continued failure by the Executive to perform the Executive’s duties with the Company, (b) a substantial and not de minimis violation of the Company’s Code of Business Conduct and Ethics (and any successor policy), as the same are in effect from time to time, (c) the Executive’s conviction of a felony, or (d) engaging in conduct that constitutes a violation of Section 15 hereof.   16.4.                        “Change in Control” means any one of the following: (i) the closing of the sale of all or substantially all of the Company’s assets as an entirety to any person or related group of persons; (ii) the merger or consolidation of the Company with or into another corporation or the merger or consolidation of another corporation with or into the Company or a subsidiary of the Company, in either case with the effect that immediately after such transaction the outstanding voting securities of the Company immediately prior to such transaction represent less than a majority in interest of the total voting power of the outstanding voting securities of the entity surviving such merger or consolidation; or (iii) the closing of a transaction pursuant to which Beneficial Ownership of more than 50% of the Company’s outstanding Common Stock (assuming the issuance of Common Stock upon conversion or exercise of all then exercisable conversion or purchase rights of holders of outstanding convertible securities, options, warrants, exchange rights and other rights to acquire Common Stock) is transferred to a single person or entity, or a “group” (within the meaning of Rule l3d-5(b)(l) under the Securities Exchange Act of 1934) of persons or entities, in a single transaction or a series or related transactions. It shall also be treated as a Change in Control hereunder if any of the events described in clauses (i), (ii) or (iii) occur to Charles River Laboratories International, Inc., or any other company directly or indirectly controlling the Company at the time of any such transaction.   16.5.                        “Change in Control Date.”  The effective date of the Change in Control.   9 --------------------------------------------------------------------------------   16.6.                        “Code” shall mean the Internal Revenue Code of 1986, as amended. All references to the Code shall be deemed also to refer to any successor provisions of such sections.   16.7.                        “Company” shall mean Charles River Laboratories, Inc. and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise (except in determining, under Section 16.4 hereof, whether or not a Change in Control of the Company has occurred in connection with such succession).   16.8.                        “Date of Termination” shall have the meaning stated in Sections 7.2 and 7.3 hereof.   16.9.                        “Disability” shall be deemed the reason for termination by the Company of the Executive’s employment if, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive’s duties with the Company for a period of [six (6)] consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and within 30 days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of her duties.   16.10.                  “Executive” shall mean the individual named in the first paragraph of this Agreement.   16.11.                  “Good Reason” for termination by the Executive of the Executive’s employment shall mean the occurrence after a Change in Control (without the Executive’s express written consent) of any one of the following acts by the Company, or failures by the Company to act, unless in the case of any act or failure to act described in paragraph (i), (iv), (v), (vi) or (vii) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:   (i)                                     the assignment to the Executive of any duties inconsistent with the Executive’s position and responsibilities as in effect immediately prior to the Change in Control;   (ii)                                  a reduction by the Company in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company;   (iii)                               the failure by the Company to pay to the Executive any portion of the Executive’s current compensation except pursuant to an across- the-board salary reduction similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company, or to pay to the Executive any portion of an installment of deferred compensation under any deferred   10 --------------------------------------------------------------------------------   compensation program of the Company, within 14 days of the date such compensation is due;   (iv)                              the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive’s participation therein (or in a substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive’s participation relative to other participants, as existed at the time of the Change in Control;   (v)                                 the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company’s pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company’s normal vacation policy in effect at the time of the Change in Control;   (vi)                              any proposed termination of the Executive’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1, for purposes of this Agreement, no such purported termination shall be effective;   (vii)                           the failure by the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement as contemplated in Section 9 hereof; or   (viii)                        the Company’s requiring the Executive to relocate to an office or location more than 50 miles distant from the office or location at which the Executive was based immediately prior to the Date of Termination.   16.12.                  “Notice of Termination” shall have the meaning stated in Section 7.1 hereof.   11 --------------------------------------------------------------------------------   16.13.                  “Person” shall have the meaning defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended.   16.14.                  “Retirement” shall mean retirement after attaining “normal retirement age” under any pension or retirement plan maintained by the Company in which the Executive participates.   16.15.                  “Severance Payments” shall mean the payment(s) described in Section 6 hereof.       CHARLES RIVER LABORATORIES, INC.           By:       Name:     Title:   12 --------------------------------------------------------------------------------   Agreed and Accepted:               13 --------------------------------------------------------------------------------   Annex 1   (a)                                  Anything in the Agreement to the contrary notwithstanding but subject to paragraph (b) of this Annex, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code or similar section or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in lump sum in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.   (b)                                 Notwithstanding paragraph (a) of this Annex, if the aggregate value of the Payment is less than 315% of the Executive’s “base amount” (as defined in Section 280G(b)(3) of the Code), then the Executive shall not be entitled to any Gross-Up Payment and, instead, the Payment shall be reduced to an amount equal to $1.00 less than 300% of the “base amount”.   (c)                                  Subject to the provisions of paragraph (d) of this Annex, all determinations required to be made under this Annex, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made at the Company’s expense by an accounting firm selected by the Company and acceptable to the Executive which is designated as one of the four (4) largest accounting firms in the United States (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of termination of employment under the Agreement, if applicable, or such earlier time as is requested by the Executive or the Company. When calculating the amount of the Gross-Up Payment, the Executive shall be deemed to pay:   (i)                                     federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, and   (ii)                                  any applicable state and local income taxes at the highest applicable 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.   If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall state in writing to Executive that Executive has substantial authority not to report any Excise Tax on Executive’s federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the   A-1 --------------------------------------------------------------------------------   uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (d) of this Annex, and Executive is thereafter required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.   (d)                                 The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after Executive knows of such claim and shall notify the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:   (iii)                               give the Company any information reasonably requested by the Company relating to such claim,   (iv)                              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,   (v)                                 cooperate with the Company in good faith in order effectively to contest such claim, and   (vi)                              permit the Company to participate in any proceedings relating to such claim;   provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses.   Without limitation on the foregoing provisions of this paragraph (d), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a   A-2 --------------------------------------------------------------------------------   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 Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for Executive’s taxable year with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.   (e)                                  If after the receipt by Executive of an amount advanced by the Company pursuant to paragraph (d) of this Annex, Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company’s complying with the requirements of paragraph (d) of this Annex) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon by the taxing authority after deducting any taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to paragraph (d) of this Annex, a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30-days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid under paragraph (d) of this Annex. The forgiveness of such advance shall be considered part of the Gross-Up Payment and subject to gross-up for any taxes (including interest or penalties) associated therewith.   A-3 --------------------------------------------------------------------------------

Exhibit 10.21 FORM OF RESTRICTED STOCK AWARD AGREEMENT UNDER SYMMETRICOM 1999 EMPLOYEE STOCK OPTION PLAN This RESTRICTED STOCK AWARD AGREEMENT (the “Agreement”) is entered into effective as of the              day of             , 2005 (the “Effective Date”) between Symmetricom, Inc. (the “Company”) and                                          (the “Participant”).  Any term capitalized but not defined in this Agreement will have the meaning set forth in the Symmetricom 1999 Employee Stock Option Plan, as amended from time to time (the “Plan”). The Plan provides for the grant of Restricted Stock to certain eligible individuals, as approved by the Committee. In the exercise of its discretion under the Plan, the Committee has determined that the Participant should receive a Restricted Stock award under the Plan and, accordingly, the Company and the Participant hereby agree as follows: 1.  Grant.    The Company hereby grants to the Participant a Restricted Stock award (the “Award”) of shares of Restricted Stock. The Award will be subject to the terms and conditions of the Plan and this Agreement. The Award constitutes the right, subject to the terms and conditions of the Plan and this Agreement, to shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) upon vesting of the Restricted Stock. 2.  Restricted Stock and Stock Certificates.    The Company will cause its transfer agent to maintain a book entry account (a “BEA”) reflecting the issuance of the Restricted Stock in the Participant’s name. The Company’s transfer agent will cause the Restricted Stock to be maintained as restricted stock in a BEA, until the Restricted Stock is either: (a) forfeited; or (b) vested. This Agreement will be evidence of the Participant’s Restricted Stock and no certificate will be issued to Participant upon grant. The Company, or its agent or delegate, will distribute to the Participant (or, if applicable, the Participant’s designated beneficiary or other appropriate recipient in accordance with Section 5 hereof) certificates evidencing ownership of shares of Common Stock as and when provided in this Agreement. 3.  Rights as Stockholder.    On and after the Effective Date, and except to the extent specifically provided herein, the Participant will be entitled to all the rights of a stockholder with respect to the Restricted Stock, including the right to vote the shares of Restricted Stock, the right to receive dividends and other distributions payable with respect to the shares of Restricted Stock, and the right to participate in any capital adjustment applicable to all holders of Common Stock. Notwithstanding the foregoing, a distribution with respect to shares of Common Stock, other than a regular cash dividend, will be deposited with the Company and will be subject to the same restrictions as the Restricted Stock. If the Participant forfeits any rights he or she may have under this Award, the Participant will, on the day following the event of forfeiture, no longer have any rights as a stockholder with respect to the forfeited portion of the Restricted Stock or any interest therein (or with respect to any shares of Restricted Stock not then vested), and the Participant will no longer be entitled to receive dividends with respect to the Restricted Stock or vote the Restricted Stock as of any record date occurring thereafter. 4.  Vesting; Effect of Termination of Employment.    The Participant’s Restricted Stock will become vested as described in the following paragraphs. (a)  25% of the Award shall vest on each of the twelve and twenty-four month anniversaries of the Effective Date, and the remaining 50% of the Award shall vest on the thirty-six month anniversary of the Effective Date, assuming the Participant’s continued employment with the Company through each such date, such that 100% of the Award shall be vested on the three-year anniversary of the Effective Date. (b)  If the Participant’s employment with the Company and any of its Affiliates terminates before all of the Award has vested (other than as described in subsection (c) below), he or she will forfeit to the Company for no consideration any portion of the Award that has not yet then vested as of the date of the -------------------------------------------------------------------------------- termination. The Company will not have any further obligations to the Participant under this Agreement as to shares of Restricted Stock that are forfeited as provided herein. (c)  Notwithstanding subsection 4(b) above, upon the Participant’s death or Disability, the Award will immediately become vested on a pro-rata basis from the date hereof through the date of death or Disability. 5.  Terms and Conditions of Distribution.    As soon as practicable upon the execution of this Agreement, the Company will cause its transfer agent to make a BEA reflecting the issuance of the Restricted Stock to the Participant. As soon as practicable upon the vesting of the Award, and assuming the Participant has satisfied or made arrangements satisfactory to the Company to satisfy his or her state and federal tax withholding obligations in accordance with Section 8 hereof with respect to the vested shares, the Company will cause its transfer agent to make a BEA reflecting the removal of the restrictions on the portion of the Award that has vested. The Company or its transfer agent will distribute to the Participant certificates for shares of Common Stock underlying the vested portion of the Award after they vest only if the Participant has satisfied or made arrangements satisfactory to the Company to satisfy his or her state and federal tax withholding obligations in accordance with Section 8 hereof with respect to the vested shares, and only if the Participant requests a certificate. If the Participant dies or becomes subject to a Disability before the Company has made the BEA or distributed certificates for any shares of Common Stock, the Company will make the BEA or distribute certificates for those shares of Common Stock and, pursuant to Section 4(c) hereof, shares of Common Stock with respect to the balance of the Award which the Committee has determined will become vested upon the Participant’s death or Disability, to the Participant or, in the event of his or her death, to the beneficiary designated by the Participant on a form provided by the Company for this purpose; provided the Participant or beneficiary has satisfied or made arrangements satisfactory to the Company to satisfy any state and federal tax withholding obligations in accordance with Section 8 hereof with respect to the vested shares. If the Participant failed to designate a beneficiary, the Company will make the BEA or distribute certificates for those shares of Common Stock in accordance with the Participant’s will or, if the Participant did not have a will, in accordance with the laws of descent and distribution. The Company will make the BEA or distribute certificates for any undistributed vested shares of Common Stock to the appropriate recipient no later than six months after the Participant’s death or Disability. Notwithstanding the foregoing, the Company will not make any BEA or distribute any shares of Common Stock under this Section 5 before the first date that those shares may be distributed to the Participant without penalty or forfeiture under federal or state laws or regulations governing short swing trading of securities. In determining whether a distribution would result in such a penalty or forfeiture, the Company and the Committee may rely upon information reasonably available to them or upon representations of the Participant’s legal or personal representative. 6.  Transfer Restrictions; Legend on Stock Certificates. (a)  Notwithstanding anything to the contrary contained in this Agreement, pursuant to the terms of the Plan, no shares of Restricted Stock may be transferred by the Participant (by assignment, sale, pledge, hypothecation or otherwise) before they have vested. (b)  Participant is familiar with the provisions of Rule 144, promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and Section 16 promulgated under the Securities Exchange Act of 1934. Rule 144 permits the resale of securities by an “affiliate” (as defined in the Securities Act), subject to the satisfaction of certain of conditions, including: (1) the resale being made through a broker in an unsolicited “broker’s transaction” or in transactions directly with a “market maker” (as defined under the Exchange Act), (2) the availability of certain public information about the Company, (3) the amount of securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. Section 16 short-swing trading restrictions prohibit the purchase and sale of securities of the Company by directors, executive officers 2 -------------------------------------------------------------------------------- and greater than 10% stockholders of the Company, within the same six month-period and mandate public reporting regarding ownership of the Company’s securities and changes thereunder. (c)  While the Restricted Stock is maintained by the Company’s transfer agent in uncertificated form in a book entry account, the account will bear an appropriate notation to the effect that the Restricted Stock included in it is subject to the restrictions of this Agreement and Rule 144. The Company may instruct its transfer agent to impose stop transfer instructions with respect to any unvested portion of this Award, or with respect to any vested shares of Common Stock that cannot be distributed to the Participant, his or her beneficiary, or his or her estate because the withholding tax obligations have not been paid to the Company or because distributing the shares would violate Rule 144 or federal or state laws or regulations regarding short swing profits in trading of securities. (d)  The foregoing notation and stop transfer instructions will be removed from the account maintained for all or any portion of this Award after the conditions set forth in Sections 4 and 5 of this Agreement and this Section 6 have been satisfied. 7.  Delivery of Certificates.     Despite the provisions of Sections 4 and 5 of this Agreement, the Company is not required to issue or deliver any certificates for shares of Common Stock underlying any vested portion of this Award if at any time the Company determines that the listing, registration or qualification of such shares of Common Stock upon any securities exchange or under any law, or the consent and approval of any governmental body, or the taking of any other action is necessary or desirable as condition of, or in connection with, the delivery of the shares of Common Stock hereunder, unless listing, registration, qualification, consent, approval or other action has been effected or obtained, free of any conditions not acceptable to the Company. 8.  Withholding Tax.    Participant (or his or her beneficiary upon the Participant’s death, as applicable) agrees to satisfy any withholding taxes, whether federal or state, triggered by the vesting of the Restricted Stock granted pursuant to this Award or, if the Participant has executed an election under Section 83(b) of the Code, by the grant of this Award. The Participant may satisfy the withholding obligation by rendering cash payment to the Company or, unless prohibited by the Company, by surrendering to the Company shares of Common Stock subject to the Award having an aggregate Fair Market Value equal to the statutory minimum withholding obligation arising as a result of the vesting of the Award. 9.  No Right to Employment or Service.    Nothing in the Plan or this Agreement will be construed as creating any right in the Participant to continued employment with the Company, or as altering or amending the existing terms and conditions of the Participant’s employment. 10.  Breach of Restrictive Covenant.    The Participant agrees and acknowledges that if the Participant breaches any non-compete, non-solicitation or non-disclosure provision of any agreement between the Participant and the Company, including any restrictive covenant contained in the Participant’s employment agreement, the breach will result in the immediate termination of this Award and the forfeiture of the Restricted Stock granted to him or her under this Award Agreement, even if and to the extent it may already have vested. 11.  Nontransferability.    Neither any unvested shares of Common Stock under this Award nor any interest of the Participant or any designated beneficiary in or under this Agreement may be assigned or transferred by voluntary or involuntary act or by operation of law without the Company’s written consent. Distribution of shares underlying any vested portion of this Award will be made only to the Participant; or, if the Committee has been provided with evidence acceptable to it that the Participant is legally incompetent, the Participant’s personal representative; or, if the Participant is deceased, to the designated beneficiary or other appropriate recipient in accordance with Section 5 of this Agreement. The Committee may require personal receipts or endorsements of a Participant’s personal representative, designated beneficiary or alternate recipient. Any effort to otherwise assign or transfer unvested shares of Common Stock under this Award or any of the rights under this Agreement will be wholly ineffective, and will be grounds for termination by the Committee of all rights of the Participant and his or her beneficiary in and under this Agreement. 3 -------------------------------------------------------------------------------- 12.  Administration; Plan Document Controls.    The Committee has the authority to manage and supervise the administration of the Plan. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement will be subject to the terms of the Plan to the same extent and with the same effect as if set forth fully herein. If the terms of this Agreement conflict with the terms of the Plan, the Plan will control. The Committee has the right to resolve all questions which may arise in connection with this Agreement. This Agreement is subject to all interpretations, determinations, or other actions made or taken by the Committee regarding the Plan or this Agreement, which interpretations, determinations or other actions will be final, binding and conclusive. 13.  Entire Agreement; Governing Law; Review by Counsel.    The Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and any and all prior oral or written representations are merged into this Agreement. This Agreement and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the Code or the laws of the United States, will be governed by the laws of the State of California, without giving effect to the principles of conflicts of law. The Participant acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Award subject to all of the terms and provisions of the Plan effective as of the Effective Date. The Participant has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of the Plan and this Agreement. 14.  Severability.    If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Agreement, and the Agreement will be construed and enforced as if the illegal or invalid provision had not been included. 15.  Binding Effect.    This Agreement will be binding upon and will inure to the benefit of the Company and the Participant and, as and to the extent provided herein, their respective heirs, executors, administrators, legal representatives and assigns. 16.  Amendment and Waiver.    The provisions of this Agreement may be amended or waived only by written agreement between the Company and the Participant, and no course of conduct or failure or delay in enforcing the provisions of this Agreement will affect the validity, binding effect or enforceability of this Agreement. * * * * * 4 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Company and the Participant have duly executed this Agreement as of the day and year described in the first paragraph above.     SYMMETRICOM, INC.                   By:                     Its:                               PARTICIPANT:                             (Participant’s Signature)                             Name Printed                   Dated:                               Residence Address:                                               5 --------------------------------------------------------------------------------

  Exhibit 10.122   (DAIMLERCHRYSLER Letterhead)       DaimlerChrysler September 5, 2006 Motors Company LLC   Steven J. Landry Mr. Gary Paxton Vice President Dollar Thrifty Automotive Group, Inc. Sales and Field Operations 5330 East 31st Street Tulsa, OK 74135   Dear Gary,   This letter is to confirm our agreement to extend the current Vehicle Supply Agreement (dated October 31, 2002) through the 2011 Model Year.   Per the terms of the Vehicle Supply Agreement (“VSA”), section 5.1, it can be extended only by mutual agreement. With your concurrence, we will amend the termination date of the Vehicle Supply Agreement. The amended Agreement will terminate at the conclusion of the 2011 Model Year or unless earlier terminated by any other conditions. The original terms and conditions of the VSA remain in effect.   DCX Vehicles purchased by the Dollar Thrifty Automotive Group in excess of the volume made available per sections 2.1 and 2.2 of the VSA will qualify for payment under section 4.3 of the VSA. This provision will terminate concurrently with the Vehicle Supply Agreement.   Sincerely,   /s/ Steven J. Landry Steven J. Landry       Concur: /s/ Gary Paxton                                         9/8/06             Gary Paxton Date   President & Chief Executive Officer   Dollar Thrifty Automotive Group, Inc.     CC/: D. L. Campau   P. W. Dougherty   E J. Walters L. E. Wilson   F. E. Dankovich      

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

Exhibit 10.2 LEAPFROG ENTERPRISES, INC. 2002 EQUITY INCENTIVE PLAN ADOPTED: MAY 24, 2002 APPROVED BY STOCKHOLDERS: JULY 19, 2002 AMENDED AND RESTATED: APRIL 20, 2004 AMENDMENT AND RESTATEMENT APPROVED BY STOCKHOLDERS: JUNE 10, 2004 AMENDED AND RESTATED: MARCH 27, 2006 AMENDMENT AND RESTATEMENT APPROVED BY STOCKHOLDERS: JUNE 16, 2006 TERMINATION DATE: MAY 23, 2012   1. PURPOSES. (a) Eligible Stock Award Recipients.    The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of the Company and its Affiliates; provided, however, that notwithstanding the foregoing, the Employees, Directors and Consultants of a Parent shall not be eligible to receive any Stock Awards under the Plan. (b) Available Stock Awards.    The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Class A Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to acquire restricted stock, (v) Restricted Stock Unit Awards, and (vi) Stock Appreciation Rights. (c) General Purpose.    The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (d) Establishment.    This Plan is a complete amendment and restatement of the Company’s Stock Option Plan that was previously adopted effective September 25, 1997. Any Stock Awards granted prior to the effective date of this amended and restated Plan shall be governed by the terms of the Plan as in effect at the time such Stock Awards were granted. The Company shall submit this amended and restated Plan for stockholder approval and shall also seek stockholder approval to extend the term of the Plan to the day before the tenth (10th) anniversary of the date the amended and restated Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier, unless sooner terminated by the Board.   2. DEFINITIONS. (a) “Affiliate” means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (b) “Board” means the Board of Directors of the Company. (c) “Capitalization Adjustment” has the meaning ascribed to that term in Section 11(a). (d) “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events after the date the Company’s Class A Common Stock is first offered to the public under a registration statement declared effective under the Securities Act: (i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction;   1 -------------------------------------------------------------------------------- (ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction; (iii) the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur, and as a result of which the operations of the Company are no longer being conducted; or (iv) there is consummated a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) 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, lease, license or other disposition. Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Stock Awards subject to such agreement (it being understood, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply). (e) “Class A Common Stock” means the Class A common stock of the Company. (f) “Code” means the Internal Revenue Code of 1986, as amended. (g) “Committee” means a committee of one or more members of the Board appointed by the Board in accordance with Section 3(c). (h) “Company” means LeapFrog Enterprises, Inc., a Delaware corporation. (i) “Consultant” means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) serving as a member of the Board of Directors of an Affiliate and who is compensated for such services. However, the term “Consultant” shall not include Directors who are not compensated by the Company for their services as Directors, and the payment of a director’s fee by the Company for services as a Director shall not cause a Director to be considered a “Consultant” for purposes of the Plan. (j) “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, shall not terminate a Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director shall not constitute an interruption of Continuous Service. Notwithstanding the foregoing or anything in the Plan to the contrary, unless (i) otherwise provided in a Stock Award Agreement or (ii) following the date of grant of a Stock Award, determined otherwise by the Board with respect to any Participant who is then an officer of the Company within the meaning of Section 16 of the Exchange Act or by the chief executive officer of the Company with respect to any other Participant, in the event that a Participant terminates his or her service with the Company or an Affiliate as an Employee, the Participant shall cease vesting in any of his or her Stock   2 -------------------------------------------------------------------------------- Awards as of such date of termination, regardless of whether the Participant continues his or her service in the capacity of a Director or Consultant without interruption or termination. The Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Company’s leave of absence policy or in the written terms of the Participant’s leave of absence. (k) “Corporate Transaction” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events: (i) a sale or other disposition of all or substantially all, as determined by the Board in its discretion, of the consolidated assets of the Company and its Subsidiaries; (ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company; (iii) a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or (iv) a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Class A Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise. (l) “Covered Employee” means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (m) “Director” means a member of the Board of Directors of the Company. (n) “Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. (o) “Employee” means any person employed by the Company or an Affiliate. Service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate. (p) “Entity” means a corporation, partnership or other entity. (q) “Exchange Act” means the Securities Exchange Act of 1934, as amended. (r) “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” shall not include (A) the Company or any Subsidiary of the Company, (B) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company. (s) “Fair Market Value” means, as of any date, the value of the Class A Common Stock determined as follows: (i) If the Class A Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Class A Common   3 -------------------------------------------------------------------------------- Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Class A Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. (ii) In the absence of such markets for the Class A Common Stock, the Fair Market Value shall be determined by the Board based upon an independent appraisal in compliance with Section 409A of the Code or, in the case of an Incentive Stock Option, in compliance with Section 422 of the Code. (t) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (u) “Non-Employee Director” means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3. (v) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option. (w) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (x) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan. (y) “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (z) “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (aa) “Outside Director” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” receiving compensation for prior services (other than benefits under a tax-qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other than as a Director or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code. (bb) “Own,” “Owned,” “Owner,” “Ownership” A person or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities. (cc) “Parent” means any parent corporation of the Company, whether now or hereafter existing, as such term is defined in Section 424(e) of the Code. (dd) “Participant” means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.   4 -------------------------------------------------------------------------------- (ee) “Performance Criteria” means the one or more criteria that the Committee shall select for purposes of establishing the Performance Goal(s) for a Performance Period. The Performance Criteria that will be used to establish such Performance Goal(s) may be based on any one of, or combination of, the following: (i) earnings per share; (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization (EBITDA); (iv) net earnings; (v) total shareholder return; (vi) return on equity; (vii) return on assets; (viii) return on investment; (ix) return on capital employed; (x) operating margin (xi) gross margin; (xii) operating income; (xiii) net income; (xiv) net operating income; (xv) net operating income after tax; (xvi) pre- and after-tax income; (xvii) pre-tax profit; (xviii) operating cash flow; (xix) revenue; (xx) revenue growth; (xxi) expenses; (xxii) improvement in or attainment of expense levels; (xxiii) improvement in or attainment of working capital levels; (xxiv) economic value added; (xxv) market share; (xxvi) cash flow; (xxvii) cash flow per share; (xxviii) economic value added (or an equivalent metric); (xxix) share price performance; (xxx) debt reduction; and (xxxi) other measures of performance selected by the Committee. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Award Agreement. The Committee shall, within the time period required by Section 162(m) of the Code (generally, the first 90 days of the Performance Period), define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period. (ff) “Performance Goals” means, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria. The Committee is authorized at any time during the time period permitted by Section 162(m) of the Code (generally, prior to the 90th day of a Performance Period), or at any time thereafter, in its sole and absolute discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants, (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; or (c) in view of the Committee’s assessment of the business strategy of the Company, performance of comparable organizations, economic and business conditions, and any other circumstances deemed relevant. Specifically, the Committee is authorized to make adjustment in the method of calculating attainment of Performance Goals and objectives for a Performance Period as follows: (i) to exclude the dilutive effects of acquisitions or joint ventures; (ii) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a Performance Period following such divestiture; and (iii) to exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common shareholders other than regular cash dividends. In addition, with respect to Performance Goals established for Participants who are not Covered Employees, and who will not be Covered Employees at the time the compensation will be paid, the Committee is authorized to make adjustment in the method of calculating attainment of Performance Goals and objectives for a Performance Period as follows: (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude change rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects to any statutory adjustments to corporate tax rates; (v) to exclude the impact of any “extraordinary items” as determined under generally accepted accounting principles; and (vi) to exclude any other unusual, non-recurring gain or loss or other extraordinary item. (gg) “Performance Period” means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Performance Award. (hh) “Plan” means this amended and restated LeapFrog Enterprises, Inc. 2002 Equity Incentive Plan.   5 -------------------------------------------------------------------------------- (ii) “Restricted Stock Unit Award” means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(c). (jj) “Restricted Stock Unit Award Agreement” means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement shall be subject to the terms and conditions of the Plan. (kk) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (ll) “Securities Act” means the Securities Act of 1933, as amended. (mm) “Stock Appreciation Right” means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 7(d). (nn) “Stock Appreciation Right Agreement” means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions of the Plan. (oo) “Stock Award” means any right granted under the Plan, including an Option, a stock bonus, a right to acquire restricted stock, a Restricted Stock Unit Award, and a Stock Appreciation Right. (pp) “Stock Award Agreement” means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (qq) “Subsidiary” means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%). (rr) “Ten Percent Stockholder” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.   3. ADMINISTRATION. (a) Administration by Board.    The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in Section 3(c). (b) Powers of Board.    The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Class A Common Stock pursuant to a Stock Award; and the number of shares of Class A Common Stock with respect to which a Stock Award shall be granted to each such person.   6 -------------------------------------------------------------------------------- (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iii) To amend the Plan or a Stock Award as provided in Section 12. (iv) To terminate or suspend the Plan as provided in Section 13. (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan. (c) Delegation to Committee. (i) General.    The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. (ii) Section 162(m) and Rule 16b-3 Compliance.    In the discretion of the Board, the Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. (d) Effect of Board’s Decision.    All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.   4. SHARES SUBJECT TO THE PLAN. (a) Share Reserve.    Subject to the provisions of Section 11(a) relating to Capitalization Adjustments, the number of shares of Class A Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate Twenty-One Million (21,000,000) shares of Class A Common Stock. Effective as of June 16, 2006, subject to Section 4(b), the number of shares available for issuance under the Plan shall be reduced by: (i) one (1) share for each share of Class A Common Stock issued pursuant to an Option granted under Section 6 or a Stock Appreciation Right granted under Section 7(d); and (ii) two (2) shares for each share of Class A Common Stock issued pursuant to a stock bonus award under Section 7(a), a restricted stock award under Section 7(b), or a Restricted Stock Unit Award under Section 7(c). Shares may be issued in connection with a merger or acquisition as permitted by NYSE Listed Company Manual Section 303A.08 or, if applicable, NASD Rule 4350(i)(1)(A)(iii) or AMEX Company Guide Section 711 and such issuance shall not reduce the number of shares available for issuance under the Plan.   7 -------------------------------------------------------------------------------- (b) Reversion of Shares to the Share Reserve. (i) Shares Available For Subsequent Issuance.    If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, or if any shares of Class A Common Stock issued to a Participant pursuant to a Stock Award are forfeited back to or repurchased by the Company because of or in connection with the failure to meet a contingency or condition required to vest such shares in the Participant, the shares of Class A Common Stock not acquired, forfeited or repurchased under such Stock Award shall revert to and again become available for issuance under the Plan; provided, however, that subject to the provisions of Section 11(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Class A Common Stock that may be issued as Incentive Stock Options shall be Twenty-One Million (21,000,000) shares of Class A Common Stock. (ii) Other Shares Available for Subsequent Issuance.    If any shares subject to a Stock Award are not delivered to a Participant because the Stock Award is exercised through a reduction of shares subject to the Stock Award (i.e., “net exercised”) or an appreciation distribution in respect of a Stock Appreciation Right is paid in shares of Class A Common Stock, the number of shares subject to the Stock Award that are not delivered to the Participant shall remain available for subsequent issuance under the Plan. If any shares subject to a Stock Award are not delivered to a Participant because such shares are withheld in satisfaction of the withholding of taxes incurred in connection with the exercise of an Option, Stock Appreciation Right, or the issuance of shares under a restricted stock award or Restricted Stock Unit Award, the number of shares that are not delivered to the Participant shall remain available for subsequent issuance under the Plan. If the exercise price of any Stock Award is satisfied by tendering shares of Class A Common Stock held by the Participant (either by actual delivery or attestation), then the number of shares so tendered shall remain available for subsequent issuance under the Plan. To the extent there is issued a share of Class A Common Stock pursuant to a Stock Award that counted as two (2) shares against the number of shares available for issuance under the Plan pursuant to Section 4(a) and such share of Common Stock again becomes available for issuance under the Plan pursuant to this Section 4(b), then the number of shares of Class A Common Stock available for issuance under the Plan shall increase by two (2) shares. (c) Source of Shares.    The shares of Class A Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.   5. ELIGIBILITY. (a) Eligibility for Specific Stock Awards.    Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. Notwithstanding the foregoing or any provision in the Plan to the contrary, Employees, Directors and Consultants of a Parent shall not be eligible to receive any Stock Awards under the Plan. (b) Ten Percent Stockholders.    A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Class A Common Stock on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (c) Section 162(m) Limitation on Annual Grants.    Subject to the provisions of Section 11(a) relating to Capitalization Adjustments, no Employee shall be eligible to be granted Stock Awards covering more than Two Million (2,000,000) shares of Class A Common Stock during any calendar year. (d) Consultants.    A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, because the Consultant is not a natural person, or because of any other rule governing the use of Form S-8.   8 -------------------------------------------------------------------------------- 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Class A Common Stock purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) Term.    Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date on which it was granted. (b) Exercise Price of an Incentive Stock Option.    Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Class A Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) Exercise Price of a Nonstatutory Stock Option.    The exercise price of each Nonstatutory Stock Option shall be not less than fifty percent (50%) of the Fair Market Value of the Class A Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (d) Consideration.    The purchase price of Class A Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board shall have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to utilize a particular method of payment. The methods of payment permitted by this Section 6(d) are: (i) by cash, check, bank draft or money order payable to the Company; (ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds; (iii) by delivery to the Company (either by actual delivery or attestation) of shares of Class A Common Stock; (iv) according to a deferred payment or other similar arrangement with the Optionholder; (v) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Class A Common Stock issued upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company shall accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued; provided, further, that shares of Class A Common Stock will no longer be outstanding under an Option and will not be exercisable thereafter to the extent that (A) shares are used to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or (vi) in any other form of legal consideration that may be acceptable to the Board.   9 -------------------------------------------------------------------------------- Unless otherwise specifically provided in the Option, the purchase price of Class A Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Class A Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Class A Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Class A Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid (1) the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement and (2) the treatment of the Option as a variable award for financial accounting purposes. (e) Transferability of an Incentive Stock Option.    An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (f) Transferability of a Nonstatutory Stock Option.    A Nonstatutory Stock Option shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (g) Vesting Generally.    The total number of shares of Class A Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this Section 6(g) are subject to any Option provisions governing the minimum number of shares of Class A Common Stock as to which an Option may be exercised. (h) Termination of Continuous Service.    In the event that an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder’s Continuous Service (or such longer or shorter period specified in the Option Agreement or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. (i) Extension of Termination Date.    An Optionholder’s Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares of Class A Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in Section 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (j) Disability of Optionholder.    In the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the   10 -------------------------------------------------------------------------------- Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date six (6) months following such termination (or such longer or shorter period specified in the Option Agreement or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (k) Death of Optionholder.    In the event that (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder’s Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder’s death pursuant to Section 6(e) or 6(f), but only within the period ending on the earlier of (1) the date six (6) months following the date of death (or such longer or shorter period specified in the Option Agreement or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. (l) Early Exercise.    The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares of Class A Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Class A Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. The Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option.   7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS. (a) Stock Bonus Awards.    Each stock bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate stock bonus agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: (i) Consideration.    A stock bonus may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit. (ii) Vesting.    Shares of Class A Common Stock awarded under the stock bonus agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. (iii) Performance Grants.    A stock bonus may be granted or may vest based upon service conditions, upon the attainment during a Performance Period of certain Performance Goals, or both. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained shall be conclusively determined by the Committee in the exercise of its absolute discretion. (iv) Termination of Participant’s Continuous Service.    In the event that a Participant’s Continuous Service terminates, the Company may reacquire any or all of the shares of Class A Common Stock held by the Participant that have not vested as of the date of termination under the terms of the stock bonus agreement. (v) Transferability.    Rights to acquire shares of Class A Common Stock under the stock bonus agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the stock bonus agreement, as the Board shall determine in its discretion, so long as Class A Common Stock awarded under the stock bonus agreement remains subject to the terms of the stock bonus agreement.   11 -------------------------------------------------------------------------------- (b) Restricted Stock Awards.    Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: (i) Purchase Price.    The purchase price of restricted stock awards shall not be less than fifty percent (50%) of the Class A Common Stock’s Fair Market Value on the date such award is made or at the time the purchase is consummated. (ii) Consideration.    The purchase price of Class A Common Stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in Delaware, then payment of the Class A Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment. (iii) Vesting.    Shares of Class A Common Stock acquired under the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. (iv) Termination of Participant’s Continuous Service.    In the event that a Participant’s Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Class A Common Stock held by the Participant that have not vested as of the date of termination under the terms of the restricted stock purchase agreement. (v) Transferability.    Rights to acquire shares of Class A Common Stock under the restricted stock purchase agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the restricted stock purchase agreement, as the Board shall determine in its discretion, so long as Class A Common Stock awarded under the restricted stock purchase agreement remains subject to the terms of the restricted stock purchase agreement. (c) Restricted Stock Unit Awards.    Each Restricted Stock Unit Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical, provided, however, that each Restricted Stock Unit Award Agreement shall include (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions: (i) Consideration.    At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Class A Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Class A Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board in its sole discretion and permissible under applicable law. (ii) Vesting.    At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate. (iii) Payment.    A Restricted Stock Unit Award may be settled by the delivery of shares of Class A Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.   12 -------------------------------------------------------------------------------- (iv) Additional Restrictions.    At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Class A Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award. (v) Dividend Equivalents.    Dividend equivalents may be credited in respect of shares of Class A Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Class A Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all the terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate. (vi) Termination of Participant’s Continuous Service.    Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service. (vii) Compliance with Section 409A of the Code.    Notwithstanding anything to the contrary set forth herein, any Restricted Stock Unit Award granted under the Plan that is not exempt from the requirements of Section 409A of the Code shall contain such provisions so that such Restricted Stock Unit Award will comply with the requirements of Section 409A of the Code. Such restrictions, if any, shall be determined by the Board and contained in the Restricted Stock Unit Award Agreement evidencing such Restricted Stock Unit Award. For example, such restrictions may include, without limitation, a requirement that any Class A Common Stock that is to be issued in a year following the year in which the Restricted Stock Unit Award vests must be issued in accordance with a fixed pre-determined schedule. (d) Stock Appreciation Rights.    Each Stock Appreciation Right Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. Stock Appreciation Rights may be granted as stand-alone Stock Awards or in tandem with other Stock Awards. The terms and conditions of Stock Appreciation Right Agreements may change from time to time, and the terms and conditions of separate Stock Appreciation Right Agreements need not be identical; provided, however, that each Stock Appreciation Right Agreement shall include (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions: (i) Term.    No Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Stock Appreciation Right Agreement. (ii) Strike Price.    Each Stock Appreciation Right will be denominated in shares of Class A Common Stock equivalents. The strike price of each Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market Value of the Class A Common Stock equivalents subject to the Stock Appreciation Right on the date of grant. (iii) Calculation of Appreciation.    The appreciation distribution payable on the exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of Class A Common Stock equal to the number of shares of Class A Common Stock equivalents in which the Participant is vested under such Stock Appreciation Right, and with respect to which the Participant is exercising the Stock Appreciation Right on such date, over (B) the strike price that will be determined by the Board at the time of grant of the Stock Appreciation Right. (iv) Vesting.    At the time of the grant of a Stock Appreciation Right, the Board may impose such restrictions or conditions to the vesting of such Stock Appreciation Right as it, in its sole discretion, deems appropriate. (v) Exercise.    To exercise any outstanding Stock Appreciation Right, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.   13 -------------------------------------------------------------------------------- (vi) Payment.    The appreciation distribution in respect of a Stock Appreciation Right may be paid in Class A Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right. (vii) Termination of Continuous Service.    In the event that a Participant’s Continuous Service terminates, the Participant may exercise his or her Stock Appreciation Right (to the extent that the Participant was entitled to exercise such Stock Appreciation Right as of the date of termination) but only within such period of time ending on the earlier of (A) the date three (3) months following the termination of the Participant’s Continuous Service (or such longer or shorter period specified in the Stock Appreciation Right Agreement), or (B) the expiration of the term of the Stock Appreciation Right as set forth in the Stock Appreciation Right Agreement. If, after termination, the Participant does not exercise his or her Stock Appreciation Right within the time specified herein or in the Stock Appreciation Right Agreement (as applicable), the Stock Appreciation Right shall terminate. (viii) Compliance with Section 409A of the Code.    Notwithstanding anything to the contrary set forth herein, any Stock Appreciation Rights granted under the Plan that are not exempt from the requirements of Section 409A of the Code shall contain such provisions so that such Stock Appreciation Rights will comply with the requirements of Section 409A of the Code. Such restrictions, if any, shall be determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right. For example, such restrictions may include, without limitation, a requirement that a Stock Appreciation Right that is to be paid wholly or partly in cash must be exercised and paid in accordance with a fixed pre-determined schedule.   8. COVENANTS OF THE COMPANY. (a) Availability of Shares.    During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Class A Common Stock required to satisfy such Stock Awards. (b) Securities Law Compliance.    The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Class A Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Class A Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Class A Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Class A Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.   9. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of Class A Common Stock pursuant to Stock Awards shall constitute general funds of the Company.   10. MISCELLANEOUS. (a) Acceleration of Exercisability and Vesting.    The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Stockholder Rights.    No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Class A Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms.   14 -------------------------------------------------------------------------------- (c) No Employment or Other Service Rights.    Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. (d) Incentive Stock Option $100,000 Limitation.    To the extent that the aggregate Fair Market Value (determined at the time of grant) of Class A Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of any Stock Award Agreement. (e) Investment Assurances.    The Company may require a Participant, as a condition of exercising or acquiring Class A Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Class A Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Class A Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Class A Common Stock upon the exercise or acquisition of Class A Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Class A Common Stock. (f) Withholding Obligations.    To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Class A Common Stock under a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Class A Common Stock from the shares of Class A Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Class A Common Stock under the Stock Award; provided, however, that no shares of Class A Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such lesser amount as may be necessary to avoid variable award accounting); or (iii) delivering to the Company owned and unencumbered shares of Class A Common Stock. (g) Lock-Up Period.    Upon exercise of any Stock Award, a Participant may not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Class A Common Stock or other securities of the Company held by the Participant, for a period of time specified by the managing underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of a registration statement of the Company filed under the Securities Act, other than a Form S-8 registration statement, (the “Lock Up Period”); provided, however, that nothing contained in this section shall prevent the exercise of a repurchase option, if any, in favor of the Company during the Lock Up Period. A Participant may be required to execute and deliver such other   15 -------------------------------------------------------------------------------- agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing, the Company may impose stop-transfer instructions with respect to such shares of Class A Common Stock until the end of such period. The underwriters of the Company’s stock are intended third party beneficiaries of this Section 10(g) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.   11. ADJUSTMENTS UPON CHANGES IN STOCK. (a) Capitalization Adjustments.    If any change is made in, or other event occurs with respect to, the Class A Common Stock subject to the Plan or subject to any Stock Award without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company (each a “Capitalization Adjustment”), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to Sections 4(a) and 4(b) and the maximum number of securities subject to award to any person pursuant to Section 5(c), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Class A Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.) (b) Dissolution or Liquidation.    In the event of a dissolution or liquidation of the Company, then all outstanding Stock Awards shall terminate immediately prior to the completion of such dissolution or liquidation. (c) Corporate Transaction.    In the event of a Corporate Transaction, any surviving corporation or acquiring corporation may assume any or all Stock Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan (it being understood that similar stock awards include, but are not limited to, awards to acquire the same consideration paid to the stockholders or the Company, as the case may be, pursuant to the Corporate Transaction). A surviving corporation or acquiring corporation (or its parent) may choose to assume or continue only a portion of a Stock Award or substitute a similar stock award for only a portion of a Stock Award. In the event that any surviving corporation or acquiring corporation does not assume any or all such outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then unless otherwise provided by the Board, any outstanding Stock Awards that have been neither assumed nor substituted may be exercised (to the extent vested) prior to the effective time of the Corporate Transaction, and any such Stock Awards shall terminate if not exercised prior to the effective time of the Corporate Transaction. (d) Change in Control.    A Stock Award held by any Participant whose Continuous Service has not terminated prior to the effective time of a Change in Control may be subject to additional acceleration of vesting and exercisability upon or after such event as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration shall occur.   12. AMENDMENT OF THE PLAN AND STOCK AWARDS. (a) Amendment of Plan.    The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11(a) relating to Capitalization Adjustments, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code. (b) Stockholder Approval.    The Board, in its sole discretion, may submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the   16 -------------------------------------------------------------------------------- requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees. (c) Contemplated Amendments.    It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) No Impairment of Rights.    Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. (e) Amendment of Stock Awards.    The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.   13. TERMINATION OR SUSPENSION OF THE PLAN. (a) Plan Term.    The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) No Impairment of Rights.    Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant.   14. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Stock Award shall be exercised (or, in the case of a stock bonus, shall be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.   15. CHOICE OF LAW. The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.   17

Exhibit 10.1 Third Addendum to Employment Agreement      This Third Addendum amends that certain Employment Agreement dated September 2, 1996 by and between MICHAEL BARRIST and NCO FINANCIAL SYSTEMS, INC., a Pennsylvania corporation (the "Agreement"), as amended effective January 1, 1999 and July 1, 2003, and this Addendum shall be effective as of June 30, 2006 (the "Effective Date").      For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:      1.      Section 2 of the Agreement shall be amended by deleting the text of such Section and replacing it with the following:        "2.      Term. The term of this agreement shall be for a period beginning on the Effective Date and expiring on the earlier of: (a) June 30, 2007, (b) 90 days after a Change in Control (as defined in NCO Group, Inc.'s 2004 Equity Incentive Plan, as in effect on the date hereof) and (c) December 31, 2006 (unless on such date the Company is a party to a definitive agreement for a Change in Control, then the earlier of (i) 90 days after the date of the Change in Control pursuant to such agreement or (ii) the date of the termination of such agreement) (the "Term"), subject, in any case, to any early termination provisions set forth in the Agreement."      2.      Section 3 of the Agreement is amended by deleting the first sentence of such Section and replacing it with the following:        "3. Duties. The Executive is engaged hereunder as the Company's Chairman of the Board, President and Chief Executive Officer."      3.      Section 10 of the Agreement is amended by adding the following paragraph at the end of such Section:           "Anything in this Agreement to the contrary notwithstanding, the parties understand and agree that if Executive's employment terminates and (i) either (x) Executive is not entitled to continuation of his compensation pursuant to Section 8 of the Agreement or (y) Executive is entitled to the continuation of his compensation pursuant to Section 8 and Executive irrevocably waives his right to such further compensation pursuant to Section 8 after the termination of his employment (other than for such amounts as shall have accrued as of the date of termination for services rendered on or prior to such date), then the two year non-competition period provided for in this Section shall begin on the date of the termination of Executive's employment or (ii) Executive is entitled to the continuation of his compensation pursuant to Section 8 and Executive does not waive his right to such further compensation as per subsection (y) above, then the non-competition period provided for in this Section shall continue until the end of the Term and for two years thereafter."   --------------------------------------------------------------------------------      4.      In the event any term or condition of this Addendum is inconsistent with any term or condition of the Agreement, the terms of this Addendum will control. Except as stated above, all the terms and conditions of the Agreement, including all restrictions and covenants, shall remain in full force and effect and are incorporated herein by reference as though set forth at length.      IN WITNESS WHEREOF, the parties have executed this Addendum to become effective on the Effective Date. NCO FINANCIAL SYSTEMS, INC. By: /s/ Steven L. Winokur___________                     /s/ Michael J. Barrist                        Print name: Steven L. Winokur  Michael J. Barrist Print title: EVP and COO of Shared Services                         --------------------------------------------------------------------------------

SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this “Agreement”) is dated as of June 5, 2006 among Gabriel Technologies Corporation, a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”). WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows: ARTICLE I. DEFINITIONS 1.1 Definitions.  In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated in this Section 1.1: “Action” shall have the meaning ascribed to such term in Section 3.1(j). “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act.  With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. “Business Day” means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. “Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1. “Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.  “Commission” means the Securities and Exchange Commission. “Common Stock” means the common stock of the Company, par value $.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into. “Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock. “Company Counsel” means John Heskett, Esq., with the office located at 501 South Bartlesville, OK 74003. “Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1. “Effective Date” means the date that the initial Registration Statement filed by the Company pursuant to the Registration Rights Agreement is first declared effective by the Commission. “Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r). “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, and provided further, that the valuation per share of Common Stock issued in such transaction on the financial statements filed by the Company with the SEC Reports shall be no less than the Exercise Price then in effect, and (d) for purposes of Section 4.14 only, up to $4,000,000 of Common Stock and warrants to be placed to “accredited investors” on substantially the same terms and conditions as the Common Stock and Warrants issued hereunder, which investors shall execute definitive agreements for the purchase of such securities and such transactions shall have closed before the earlier of (i) the 45th calendar day following the date hereof or (ii) the date the Registration Statement is initially filed with the Commission.  “FW” means Feldman Weinstein LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002. “GAAP” shall have the meaning ascribed to such term in Section 3.1(h). “Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o). “Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c). “Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction. “Lock-Up Agreements” shall mean the Lock-Up Agreements in the form of Exhibit D hereto. “Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b). “Material Permits” shall have the meaning ascribed to such term in Section 3.1(m). “Participation Maximum” shall have the meaning ascribed to such term in Section 4.13. “Per Share Purchase Price” equals $1.00, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.  “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. “Pre-Notice” shall have the meaning ascribed to such term in Section 4.13. “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. “Purchaser Party” shall have the meaning ascribed to such term in Section 4.11. “Registration Rights Agreement” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit A attached hereto. “Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Shares and the Warrant Shares by each Purchaser as provided for in the Registration Rights Agreement. “Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e). “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h). “Securities” means the Shares, the Warrants and the Warrant Shares. “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Shares” means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement.  “Short Sales” shall include all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).   “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount”, in United States Dollars and in immediately available funds. “Subsequent Financing” shall have the meaning ascribed to such term in Section 4.13. “Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.13. “Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a). “Trading Day” means a day on which the Common Stock is traded on a Trading Market. “Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq Capital Market, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board “Transaction Documents” means this Agreement, the Warrants, the Registration Rights Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder. “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers and reasonably acceptable to the Company. “Warrants” means collectively the Common Stock purchase warrants, in the form of Exhibit C delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to 5 years. “Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants. ARTICLE II. PURCHASE AND SALE 2.1 Closing.  On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and each Purchaser agrees to purchase in the aggregate, severally and not jointly, up to $1,000,000 of Shares and Warrants.  Each Purchaser shall deliver to the Company via wire transfer or a certified check immediately available funds equal to their Subscription Amount and the Company shall deliver to each Purchaser their respective Shares and Warrants as determined pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable at the Closing.  Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FW or such other location as the parties shall mutually agree. 2.2 Deliveries . (a) On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following: (i) this Agreement duly executed by the Company; (ii) a legal opinion of Company Counsel, in the form of Exhibit B attached hereto; (iii) a certificate evidencing a number of Shares equal to such Purchaser’s Subscription Amount divided by the Per Share Purchase Price, registered in the name of such Purchaser; (iv) a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 50% of such Purchaser’s Subscription Amount divided by $1.00, with an exercise price equal to $1.00, subject to adjustment therein; (v) the Lock-Up Agreements executed by each officer and director of the Company; and (vi) the Registration Rights Agreement duly executed by the Company. (b) On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following: (i) this Agreement duly executed by such Purchaser; (ii) such Purchaser’s Subscription Amount by wire transfer to the account as specified in writing by the Company; and (iii) the Registration Rights Agreement duly executed by such Purchaser. 1.2 Closing Conditions. (a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met: (i) the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Purchasers contained herein; (ii) all obligations, covenants and agreements of the Purchasers required to be performed at or prior to the Closing Date shall have been performed; and (iii) the delivery by the Purchasers of the items set forth in Section 2.2(b) of this Agreement. (a) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met: (i) the accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained herein; (ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed; (iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement; (iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and (v) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission  or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Shares at the Closing. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of the Company.  Except as set forth under the corresponding section of the disclosure schedules delivered to the Purchasers concurrently herewith (the “Disclosure Schedules”) which Disclosure Schedules shall be deemed a part hereof and to qualify any representation or warranty otherwise made herein to the extent of such disclosure, the Company hereby makes the representations and warranties set forth below to each Purchaser. (a) Subsidiaries.  All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.  If the Company has no subsidiaries, then all other references in the Transaction Documents to the Subsidiaries or any of them will be disregarded. (b) Organization and Qualification.  The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. (c) Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in connection therewith other than in connection with the Required Approvals.  Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. (d) No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect. (e) Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.6, (ii) the filing with the Commission of the Registration Statement, (iii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Shares and Warrant Shares for trading thereon in the time and manner required thereby and (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”). (f) Issuance of the Securities.  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  The Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company.  The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants.   (g) Capitalization.  The capitalization of the Company is as set forth on Schedule 3.1(g).  The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plan and pursuant to the conversion or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act.  No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders. (h) SEC Reports; Financial Statements.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. (i) Material Changes.  Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information.  Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made that has not been publicly disclosed at least one Trading Day prior to the date that this representation is made. (j) Litigation.  There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.   (k) Labor Relations.  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.  None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company, and neither the Company or any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good.  No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (l) Compliance.  Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect. (m) Regulatory Permits.  The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. (n) Title to Assets.  The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance. (o) Patents and Trademarks.  The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  Neither the Company nor any Subsidiary has received a notice (written or otherwise) that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (p) Insurance.  The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount.  Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost. (q) Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company. (r) Sarbanes-Oxley; Internal Accounting Controls.  The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date.  The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. (s) Certain Fees.  No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.  The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.   (t) Private Placement.  Assuming the accuracy of the Purchasers representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market. (u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act. (v) Registration Rights.  Other than each of the Purchasers, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company. (w) Listing and Maintenance Requirements.  The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.  The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. (x) Application of Takeover Protections.  The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities. (y) Disclosure.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, nonpublic information.  The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.  All disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, with respect to the representations and warranties made herein are true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof. (z) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provision of any Trading Market on which any of the securities of the Company are listed or designated. (aa) Solvency.  Based on the financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.  Schedule 3.1(aa) sets forth as of the dates thereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments.  For the purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness. (bb) Tax Status.  Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary. (cc) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising.  The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act. (dd) Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended. (ee) Accountants.  The Company’s accountants are set forth on Schedule 3.1(ee) of the Disclosure Schedule.  To the knowledge of the Company, such accountants, who the Company expects will express their opinion with respect to the financial statements to be included in the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2006 are a registered public accounting firm as required by the Securities Act. (ff) [RESERVED]. (gg) No Disagreements with Accountants and Lawyers.  There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers. (hh) Acknowledgment Regarding Purchasers’ Purchase of Securities.  The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby.  The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities.  The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives. (ii) Acknowledgement Regarding Purchasers’ Trading Activity.  Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged by the Company (i) that none of the Purchasers have been asked to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) that past or future open market or other transactions by any Purchaser, including Short Sales, and specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) that any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the Common Stock, and (iv) that each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.  The Company further understands and acknowledges that (a) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares deliverable with respect to Securities are being determined and (b) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents. (jj) Manipulation of Price.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the securities of the Company or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities. 2.2 Representations and Warranties of the Purchasers.    Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of the date hereof and as of the Closing Date to the Company as follows: (a) Organization; Authority.  Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of such Purchaser.  Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. (b) Own Account.  Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law.  Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. (c) Purchaser Status.  At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises any Warrants it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.  Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act. (d) Experience of Such Purchaser.  Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. (e) General Solicitation.  Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (f) Short Sales and Confidentiality Prior To The Date Hereof.  Other than the transaction contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any disposition, including Short Sales, in the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”).  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser's assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.  Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). ARTICLE III. OTHER AGREEMENTS OF THE PARTIES 3.1 Transfer Restrictions. (a) The Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement. (b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form: [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [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.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON [EXERCISE] OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder. (c) Certificates evidencing the Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the Effective Date if required by the Company’s transfer agent to effect the removal of the legend hereunder.  If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Warrant Shares, or if such Warrant Shares may be sold under Rule 144(k) or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Warrant Shares shall be issued free of all legends.  The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Company’s transfer agent of a certificate representing Shares or Warrant Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section.  Certificates for Shares and Warrant Shares subject to legend removal hereunder shall be transmitted by the transfer agent of the Company to the Purchasers by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System. (d) In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Shares or Warrant Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Company’s transfer agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend.  Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. (e) Each Purchaser, severally and not jointly with the other Purchasers, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein. 3.2 Acknowledgment of Dilution.  The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions.  The Company further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Shares and Warrant Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company. 3.3 Furnishing of Information.  As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.  As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144.  The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144. 3.4 Integration.  The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market. 3.5 Exercise Procedures.  The form of Notice of Exercise included in the Warrants set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants.  No additional legal opinion or other information or instructions shall be required of the Purchasers to exercise their Warrants.  The Company shall honor exercises of the Warrants and shall deliver Warrant Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents. 3.6 Securities Laws Disclosure; Publicity.  The Company shall, by 8:30 a.m. New York City time on the third Trading Day following the date hereof, issue a Current Report on Form 8-K disclosing the material terms of the transactions contemplated hereby and shall attach the Transaction Documents thereto.  The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (i) as required by federal securities law in connection with (A) any registration statement contemplated by the Registration Rights Agreement and (B) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (ii) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this subclause (ii). 3.7 Shareholder Rights Plan.  No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers. 3.8 Non-Public Information.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information.  The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company. 3.9 Use of Proceeds.  Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), to redeem any Common Stock or Common Stock Equivalents or to settle any outstanding litigation. 3.10 Reimbursement.  If any Purchaser becomes involved in any capacity in any Proceeding by or against any Person who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by such Purchaser to or with any other stockholder), solely as a result of such Purchaser’s acquisition of the Securities under this Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred.  The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person.  The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement. 3.11 Indemnification of Purchasers.   Subject to the provisions of this Section 4.11, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party.  Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel.  The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. 3.12 Reservation and Listing of Securities. (a) The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents. (b) If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Warrant Shares on such date, then the Board of Directors of the Company shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the 110% of the Warrant Shares at such time, as soon as possible and in any event not later than the 75th day after such date. (c) The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering the Shares and the Warrant Shares on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing, and (iv) maintain the listing of such Common Stock on any date on such Trading Market or another Trading Market. 3.13 Participation in Future Financing. (a) From the date hereof until the date that is the 12 month anniversary of the Effective Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.   (b) At least 10 Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).  Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than 1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.  The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the Person or Persons through or with whom such Subsequent Financing is proposed to be effected, and attached to which shall be a term sheet or similar document relating thereto.     (c) Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the 10th Trading Day after all of the Purchasers have received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice.  If the Company receives no notice from a Purchaser as of such 10th Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.   (d) If by 5:30 p.m. (New York City time) on the 10th Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.   (e) If by 5:30 p.m. (New York City time) on the 10th Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase the greater of (a) their Pro Rata Portion (as defined below) of the Participation Maximum and (b) the difference between the Participation Maximum and the aggregate amount of participation by all other Purchasers.  “Pro Rata Portion” is the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.13 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.13. (f) The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.13, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 60 Trading Days after the date of the initial Subsequent Financing Notice. (g) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of (i) an Exempt Issuance or (ii) an underwritten public offering of Common Stock. 3.14 Subsequent Equity Sales.   (a) From the date hereof until the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents. (b) From the date hereof until such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent Financing involving a “Variable Rate Transaction”.  The term “Variable Rate Transaction” shall mean a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price.     (c) Notwithstanding the foregoing, this Section 4.14 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance. 3.15 Equal Treatment of Purchasers.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents.  For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise. 3.16 Short Sales and Confidentiality After The Date Hereof. Each Purchaser severally and not jointly with the other Purchasers covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any Short Sales during the period commencing at the Discussion Time and ending at the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6.  Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.6, such Purchaser will maintain the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).  Each Purchaser understands and acknowledges, severally and not jointly with any other Purchaser, that the Commission currently takes the position that coverage of short sales of shares of the Common Stock “against the box” prior to the Effective Date of the Registration Statement with the Securities is a violation of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the Manual of Publicly Available Telephone Interpretations, dated July 1997, compiled by the Office of Chief Counsel, Division of Corporation Finance.  Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser's assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. 3.17 Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser. 3.18 Capital Changes.  Until the one year anniversary of the Effective Date, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority of the Shares then outstanding. 4.19 Most Favored Nation Provision.  From the date hereof until the earlier of (i) the second anniversary of the Effective Date and (ii) the date on which no Securities are held by any Purchaser, if the Company effects a Subsequent Financing, each Purchaser may elect, in its sole discretion, to exchange all or some of the Shares then held by such Purchaser for any securities issued in a Subsequent Financing based on the aggregate Per Share Purchase Price of the such Shares, along with any liquidated damages and other amounts owing thereon, and the effective price at which such securities were sold in such Subsequent Financing; provided, however, that this Section 4.19 shall not apply with respect to (i) an Exempt Issuance or (ii) an underwritten public offering of Common Stock. ARTICLE IV. MISCELLANEOUS 4.1 Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before June 7, 2006; provided, however, that no such termination will affect the right of any party to sue for any breach by the other party (or parties). 4.2 Fees and Expenses.  At the Closing, the Company has agreed to reimburse Empire Financial Group (“Empire”) the non-accountable sum of $15,000, for its legal fees and expenses, none of which has been paid prior to the Closing.  The Company shall deliver, prior to the Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex A.  Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers. 4.3 Entire Agreement.  The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 4.4 Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages attached hereto. 4.5 Amendments; Waivers.  No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and each Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. 4.6 Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 4.7 Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger).  Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers”. 4.8 No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.11. 4.9 Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.  The parties hereby waive all rights to a trial by jury.  If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 4.10 Survival.  The representations, warranties, covenants and other agreements contained herein shall survive the Closing and the delivery and exercise of the Securities, as applicable for the applicable statue of limitations. 4.11 Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. 4.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 4.13 Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, in the case of a rescission of an exercise of a Warrant, the Purchaser shall be required to return any shares of Common Stock subject to any such rescinded exercise notice. 4.14 Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities. 4.15 Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.   4.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 4.17 Independent Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents.  For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FW.  FW does not represent all of the Purchasers but only Empire, the placement agent for the transaction.  The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. 4.18 Liquidated Damages.  The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled. 4.19 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. (Signature Pages Follow) IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. GABRIEL TECHNOLOGIES CORPORATION Address for Notice: By:__________________________________________      Name: Keith Feilmeier      Title: CEO and President 4538 South 140th Street Omaha, Nebraska 68137 With a copy to (which shall not constitute notice):   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOR PURCHASER FOLLOWS] [PURCHASER SIGNATURE PAGES TO GWLK SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. Name of Purchaser: ________________________________________________________ Signature of Authorized Signatory of Purchaser: __________________________________ Name of Authorized Signatory: ____________________________________________________ Title of Authorized Signatory: _____________________________________________________ Email Address of Purchaser: ________________________________________________ Facsimile Number of Purchaser: ________________________________________________ Address for Notice of Purchaser: Address for Delivery of Securities for Purchaser (if not same as above): Subscription Amount: Warrant Shares: EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER] [SIGNATURE PAGES CONTINUE] Annex A CLOSING STATEMENT Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the purchasers shall purchase up to $1,000,000 of Shares and Warrants from Gabriel Technologies Corporation (the “Company”).  All funds will be wired into a trust account maintained by Heskett & Heskett, counsel to the Company.  All funds will be disbursed in accordance with this Closing Statement.   Disbursement Date: June __, 2006 I.   PURCHASE PRICE     Gross Proceeds to be Received in Trust $    II. DISBURSEMENTS       $     $   Feldman Weinstein LLP $15,000    $    $    Total Amount Disbursed: $          WIRE INSTRUCTIONS:   To: _____________________________________   To: _____________________________________  

RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC., Company, RESIDENTIAL FUNDING CORPORATION, Master Servicer, and U.S. BANK NATIONAL ASSOCIATION, Trustee SERIES SUPPLEMENT, DATED AS OF FEBRUARY 1, 2006 TO STANDARD TERMS OF POOLING AND SERVICING AGREEMENT DATED AS OF JANUARY 1, 2006 Mortgage Pass-Through Certificates Series 2006-S2 -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS...............................................................4 Section 1.01 Definitions.......................................................4 Section 1.02 Use of Words and Phrases.........................................14 ARTICLE II ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES15 Section 2.01 Conveyance of Mortgage Loans.....................................15 Section 2.02 Acceptance by Trustee. (See Section 2.02 of the Standard Terms).15 Section 2.03 Representations, Warranties and Covenants of the Master Servicer and the Company..........................................................15 Section 2.04 Representations and Warranties of Residential Funding. (See Section 2.04 of the Standard Terms)..............................................18 Section 2.05 Execution and Authentication of Class R Certificates.............18 Section 2.06 [RESERVED].......................................................18 Section 2.07 [RESERVED].......................................................18 Section 2.08 Purposes and Powers of the Trust. (See Section 2.08 of the Standard Terms). 18 Section 2.09 Agreement Regarding Ability to Disclose..........................18 ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS...........................19 Section 3.01 Master Servicer to Act as Servicer. (See Section 3.01 of the Standard Terms) 19 Section 3.02 Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' and Sellers' Obligations........................19 Section 3.03 Successor Subservicers. (See Section 3.03 of the Standard Terms)20 Section 3.04 Liability of the Master Servicer. (See Section 3.04 of the Standard Terms)20 Section 3.05 No Contractual Relationship Between Subservicer and Trustee or Certificateholders. (See Section 3.05 of the Standard Terms)....20 Section 3.06 Assumption or Termination of Subservicing Agreements by Trustee. (See Section 3.06 of the Standard Terms)..............................20 Section 3.07 Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account. (See Section 3.07 of the Standard Terms).........................20 Section 3.08 Subservicing Accounts; Servicing Accounts. (See Section 3.08 of the Standard Terms)...........................................................20 Section 3.09 Access to Certain Documentation and Information Regarding the Mortgage Loans. (See Section 3.09 of the Standard Terms).................20 Section 3.10 Permitted Withdrawals from the Custodial Account. (See Section 3.10 of the Standard Terms)..................................................20 Section 3.11 Maintenance of the Primary Insurance Policies; Collections Thereunder. (See Section 3.11 of the Standard Terms)..............................20 Section 3.12 Maintenance of Fire Insurance and Omissions and Fidelity Coverage. (See Section 3.12 of the Standard Terms)..............................20 Section 3.13 Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments. (See Section 3.13 of the Standard Terms)...20 Section 3.14 Realization Upon Defaulted Mortgage Loans. (See Section 3.14 of the Standard Terms)...........................................................20 Section 3.15 Trustee to Cooperate; Release of Mortgage Files. (See Section 3.15 of the Standard Terms)..................................................20 Section 3.16 Servicing and Other Compensation; Compensating Interest. (See Section 3.16 of the Standard Terms)...........................................20 Section 3.17 Reports to the Trustee and the Company. (See Section 3.17 of the Standard Terms)...........................................................20 Section 3.18 Annual Statement as to Compliance. (See Section 3.18 of the Standard Terms) 21 Section 3.19 Annual Independent Public Accountants' Servicing Report. (See Section 3.19 of the Standard Terms)...........................................21 Section 3.20 Rights of the Company in Respect of the Master Servicer. (See Section 3.20 of the Standard Terms)...........................................21 Section 3.21 Administration of Buydown Funds. (See Section 3.21 of the Standard Terms) 21 Section 3.22 Advance Facility. (See Section 3.22 of the Standard Terms)......21 ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS...........................................22 Section 4.01 Certificate Account. (See Section 4.01 of the Standard Terms)...22 Section 4.02 Distributions....................................................22 Section 4.03 Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting. (See Section 4.03 of the Standard Terms) and Exhibit Three hereto) 31 Section 4.04 Distribution of Reports to the Trustee and the Company; Advances by the Master Servicer. (See Section 4.04 of the Standard Terms).......31 Section 4.05 Allocation of Realized Losses....................................31 Section 4.06 Reports of Foreclosures and Abandonment of Mortgaged Property. (See Section 4.06 of the Standard Terms)......................................33 Section 4.07 Optional Purchase of Defaulted Mortgage Loans. (See Section 4.07 of the Standard Terms)..................................................33 Section 4.08 Surety Bond. (See Section 4.08 of the Standard Terms)...........33 ARTICLE V THE CERTIFICATES (SEE ARTICLE V OF THE STANDARD TERMS)...................34 ARTICLE VI THE COMPANY AND THE MASTER SERVICER (SEE ARTICLE VI OF THE STANDARD TERMS)35 ARTICLE VII DEFAULT (SEE ARTICLE VII OF THE STANDARD TERMS)..........................36 ARTICLE VIII CONCERNING THE TRUSTEE (SEE ARTICLE VIII OF THE STANDARD TERMS)..........37 ARTICLE IX TERMINATION (SEE ARTICLE IX OF THE STANDARD TERMS).......................38 ARTICLE X REMIC PROVISIONS.........................................................39 Section 10.01 REMIC Administration. (See Section 10.01 of the Standard Terms).39 Section 10.02 Master Servicer; REMIC Administrator and Trustee Indemnification. (See Section 10.02 of the Standard Terms).............................39 Section 10.03 Designation of REMIC(s)..........................................39 Section 10.04 Distributions on the Uncertificated Class A-V REMIC Regular Interests. ......................................................39 Section 10.05 Compliance with Withholding Requirements.........................40 ARTICLE XI MISCELLANEOUS PROVISIONS.................................................41 Section 11.01 Amendment. (See Section 11.01 of the Standard Terms)............41 Section 11.02 Recordation of Agreement, Counterparts. (See Section 11.02 of the Standard Terms)...........................................................41 Section 11.03 Limitation on Rights of Certificateholders. (See Section 11.03 of the Standard Terms)..................................................41 Section 11.04 Governing Laws. (See Section 11.04 of the Standard Terms).......41 Section 11.05 Notices. .......................................................41 Section 11.06 Required Notices to Rating Agency and Subservicer. (See Section 11.06 of the Standard Terms)..................................................42 Section 11.07 Severability of Provisions. (See Section 11.07 of the Standard Terms) 42 Section 11.08 Supplemental Provisions for Resecuritization. (See Section 11.08 of the Standard Terms)..................................................42 Section 11.09 Allocation of Voting Rights......................................42 Section 11.10 No Petition. (See Section 11.10 of the Standard Terms)..........42 ARTICLE XII COMPLIANCE WITH REGULATION AB (SEE ARTICLE XII OF THE STANDARD TERMS)....43 -------------------------------------------------------------------------------- EXHIBITS Exhibit One: Mortgage Loan Schedule (Available from the Company upon request.) Exhibit Two: Schedule of Discount Fractions (Available from the Company upon request.) Exhibit Three: Information to be Included in Monthly Distribution Date Statement Exhibit Four: Standard Terms of Pooling and Servicing Agreement dated as of January 1, 2006 SCHEDULES Schedule A:....Schedule of Aggregate Planned Principal Balances -------------------------------------------------------------------------------- This is a Series Supplement, dated as of February 1, 2006 (the "Series Supplement"), to the Standard Terms of Pooling and Servicing Agreement, dated as of January 1, 2006 and attached as Exhibit Four hereto (the "Standard Terms" and, together with this Series Supplement, the "Pooling and Servicing Agreement" or "Agreement"), among RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC., as the company (together with its permitted successors and assigns, the "Company"), RESIDENTIAL FUNDING CORPORATION, as master servicer (together with its permitted successors and assigns, the "Master Servicer"), and U.S. BANK NATIONAL ASSOCIATION, as Trustee (together with its permitted successors and assigns, the "Trustee"). PRELIMINARY STATEMENT The Company intends to sell Mortgage Pass-Through Certificates (collectively, the "Certificates"), to be issued hereunder in multiple classes, which in the aggregate will evidence the entire beneficial ownership interest in the Trust Fund. As provided herein, the REMIC Administrator will make an election to treat the entire segregated pool of assets described in the definition of Trust Fund, and subject to this Agreement (including the Mortgage Loans but excluding the Initial Monthly Payment Fund), as a real estate mortgage investment conduit (the "REMIC") for federal income tax purposes. The terms and provisions of the Standard Terms are hereby incorporated by reference herein as though set forth in full herein. If any term or provision contained herein shall conflict with or be inconsistent with any provision contained in the Standard Terms, the terms and provisions of this Series Supplement shall govern. Any cross-reference to a section of the Pooling and Servicing Agreement, to the extent the terms of the Standard Terms and Series Supplement conflict with respect to that section, shall be a cross-reference to the related section of the Series Supplement. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Standard Terms. The Pooling and Servicing Agreement shall be dated as of the date of the Series Supplement. The following table sets forth the designation, type, Pass-Through Rate, aggregate Initial Certificate Principal Balance, Maturity Date, initial ratings and certain features for each Class of Certificates comprising the interests in the Trust Fund created hereunder. AGGREGATE INITIAL CERTIFICATE DESIGNATION RATE BALANCE FEATURES(1) DATE S&P/FITCH DENOMINATIONS(2) Class A-1 5.75% Super Senior/PAC/Accretion February 2036 AAA/AAA $100,000.00 $113,005,000 Directed//Fixed Rate Class A-2 5.75% Senior February 2036 AAA/AAA $100,000.00 Support/PAC/Accretion $4,403,000 Directed/Fixed Rate Class A-3 5.75% Senior/Companion/Accretion February 2036 AAA/AAA $100,000.00 $70,828,000 Directed/ Fixed Rate Class A-4 5.75% $14,000,000 Super Senior/Accrual/Fixed February 2036 AAA/AAA $100,000.00 Rate Class A-5 5.75% $1,000,000 Senior February 2036 AAA/AAA $100,000.00 Support/Accrual/Fixed Rate Class A-6 5.75% $45,141,000 Super Senior/Lockout/Fixed February 2036 AAA/AAA $100,000.00 Rate Class A-7 5.75% $1,760,000 Senior February 2036 AAA/AAA $100,000.00 Support/Lockout/Fixed Rate Class A-P 0.00% $658,812 Senior/Principal Only February 2036 AAA/AAA $100,000.00 Class A-V Variable Notional Senior/Interest February 2036 AAA/AAA $2,000,000.00 Rate(3) Only/Variable Rate Class R 5.75% $100.00 Senior/Residual/Fixed Rate February 2036 AAA/AAA (4) Class M-1 5.75% $5,602,300 Mezzanine/Fixed Rate February 2036 NA/AA $100,000.00 Class M-2 5.75% $1,563,500 Mezzanine/Fixed Rate February 2036 NA/A $250,000.00 Class M-3 5.75% $1,042,300 Mezzanine/Fixed Rate February 2036 NA/BBB $250,000.00 Class B-1 5.75% $521,200 Subordinate/Fixed Rate February 2036 NA/BB $250,000.00 Class B-2 5.75% $521,200 Subordinate/Fixed Rate February 2036 NA/B $250,000.00 Class B-3 5.75% $521,535 Subordinate/Fixed Rate February 2036 NA/NA $250,000.00 ____________ (1) The Certificates, other than the Class B and Class R Certificates shall be Book-Entry Certificates. The Class B Certificates and the Class R Certificates shall be delivered to the holders thereof in physical form. (2) The Certificates, other than the Class R Certificates, shall be issuable in minimum dollar denominations as indicated above (by Certificate Principal Balance or Notional Amount, as applicable) and integral multiples of $1 (or $1,000 in the case of the Class B-1, Class B-2 and Class B-3 Certificates) in excess thereof, except that one Certificate of any of the Class B-1, Class B-2 and Class B-3 Certificates that contain an uneven multiple of $1,000 shall be issued in a denomination equal to the sum of the related minimum denomination set forth above and such uneven multiple for such Class or the sum of such denomination and an integral multiple of $1,000. (3) The initial Pass-Through Rate on the Class A-V Certificates is 0.3044%. (4) The Class R Certificates shall be issuable in minimum denominations of not less than a 20% Percentage Interest; provided, however, that one Class R Certificate will be issuable to Residential Funding as "tax matters person" pursuant to Section 10.01(c) and (e) in a minimum denomination representing a Percentage Interest of not less than 0.01%. The Mortgage Loans have an aggregate principal balance as of the Cut-off Date of $260,567,947.60. In consideration of the mutual agreements herein contained, the Company, the Master Servicer and the Trustee agree as follows: -------------------------------------------------------------------------------- ARTICLE I DEFINITIONS Section 1.01...Definitions. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article. Accretion Directed Certificates: The Class A-1 Certificates, Class A-2 Certificates and Class A-3 Certificates. Accretion Termination Date: The earlier of (a) the Distribution Date on which the aggregate Certificate Principal Balance of the Accretion Directed Certificates is reduced to zero and (b) the Credit Support Depletion Date. Accrual Certificates: The Class A-4 Certificates and Class A-5 Certificates. Accrual Distribution Amount: With respect to each Distribution Date preceding the Accretion Termination Date, an amount equal to the sum of the Accrued Certificate Interest on each of the Class A-4 and Class A-5 Certificates for that date, which amount for each class will be added to the Certificate Principal Balance thereof, and distributed pursuant to Section 4.02(a)(ii)(Y)(1) to the holders of the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates, as principal in reduction of the Certificate Principal Balances thereof. Any distributions of the Accrual Distribution Amount to the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates will reduce the Certificate Principal Balances of those classes by that amount. The amount that is added to the Certificate Principal Balances of the Class A-4 and Class A-5 Certificates will accrue interest at a rate of 5.75% per annum. On each Distribution Date on or after the Accretion Termination Date, the entire Accrued Certificate Interest on the Class A-4 and Class A-5 Certificates for that date will be payable to the holders of related class of certificates, as interest. Aggregate Planned Principal Balance: With respect to each Distribution Date, the aggregate planned principal balance set forth for that Distribution Date for the Class A-1 and Class A-2 Certificates in Schedule A hereto. Bankruptcy Amount: As of any date of determination prior to the first anniversary of the Cut-off Date, an amount equal to the excess, if any, of (A) $100,000 over (B) the aggregate amount of Bankruptcy Losses allocated solely to one or more specific Classes of Certificates in accordance with Section 4.05 of this Series Supplement. As of any date of determination on or after the first anniversary of the Cut-off Date, an amount equal to the excess, if any, of (1) the lesser of (a) the Bankruptcy Amount calculated as of the close of business on the Business Day immediately preceding the most recent anniversary of the Cut-off Date coinciding with or preceding such date of determination (or, if such date of determination is an anniversary of the Cut-off Date, the Business Day immediately preceding such date of determination) (for purposes of this definition, the "Relevant Anniversary") and (b) the greater of (A) the greater of (i) 0.0006 times the aggregate principal balance of all the Mortgage Loans in the Mortgage Pool as of the Relevant Anniversary (other than Additional Collateral Loans, if any) having a Loan-to-Value Ratio at origination which exceeds 75% and (ii) $100,000; and (B) the greater of (i) the product of (x) an amount equal to the largest difference in the related Monthly Payment for any Non-Primary Residence Loan remaining in the Mortgage Pool (other than Additional Collateral Loans, if any) which had an original Loan-to-Value Ratio of 80% or greater that would result if the Net Mortgage Rate thereof was equal to the weighted average (based on the principal balance of the Mortgage Loans as of the Relevant Anniversary) of the Net Mortgage Rates of all Mortgage Loans as of the Relevant Anniversary less 1.25% per annum, (y) a number equal to the weighted average remaining term to maturity, in months, of all Non-Primary Residence Loans remaining in the Mortgage Pool as of the Relevant Anniversary, and (z) one plus the quotient of the number of all Non-Primary Residence Loans remaining in the Mortgage Pool divided by the total number of Outstanding Mortgage Loans in the Mortgage Pool as of the Relevant Anniversary, and (ii) $100,000, over (2) the aggregate amount of Bankruptcy Losses allocated solely to one or more specific Classes of Certificates in accordance with Section 4.05 since the Relevant Anniversary. The Bankruptcy Amount may be further reduced by the Master Servicer (including accelerating the manner in which such coverage is reduced) provided that prior to any such reduction, the Master Servicer shall (i) obtain written confirmation from each Rating Agency that such reduction shall not reduce the rating assigned to any Class of Certificates by such Rating Agency below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency and (ii) provide a copy of such written confirmation to the Trustee. Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the State of New York, the State of Michigan, the State of California, the State of Illinois or the City of St. Paul, Minnesota (and such other state or states in which the Custodial Account or the Certificate Account are at the time located) are required or authorized by law or executive order to be closed. Certificate: Any Class A, Class M, Class B or Class R Certificate. Certificate Account: The separate account or accounts created and maintained pursuant to Section 4.01 of the Standard Terms, which shall be entitled "U.S. Bank National Association, as trustee, in trust for the registered holders of Residential Funding Mortgage Securities I, Inc., Mortgage Pass-Through Certificates, Series 2006-S2" and which must be an Eligible Account. Class A Certificate: Any one of the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-P or Class A-V Certificates, executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed to the Standard Terms as Exhibit A. Class A-P Principal Distribution Amount: As defined in Section 4.02(b)(i). Class A-1 Optimal Percentage: As to any Distribution Date on or after the Credit Support Depletion Date, a fraction expressed as a percentage, the numerator of which is the Certificate Principal Balance of the Class A-1 Certificates immediately prior to that Distribution Date and the denominator of which is the aggregate Certificate Principal Balance of the Senior Certificates (other than the Class A-P Certificates) immediately prior to that Distribution Date. Class A-1 Optimal Principal Distribution Amount: As to any Distribution Date on or after the Credit Support Depletion Date, an amount equal to the product of (a) the then applicable Class A-1 Optimal Percentage and (b) the amounts described in clause (b) of the definition of Senior Principal Distribution Amount. Class A-4 Optimal Percentage: As to any Distribution Date on or after the Credit Support Depletion Date, a fraction expressed as a percentage, the numerator of which is the Certificate Principal Balance of the Class A-4 Certificates immediately prior to that Distribution Date and the denominator of which is the aggregate Certificate Principal Balance of the Senior Certificates (other than the Class A-P Certificates) immediately prior to that Distribution Date. Class A-4 Optimal Principal Distribution Amount: As to any Distribution Date on or after the Credit Support Depletion Date, an amount equal to the product of (a) the then applicable Class A-4 Optimal Percentage and (b) the amounts described in clause (b) of the definition of Senior Principal Distribution Amount. Class A-6 Optimal Percentage: As to any Distribution Date on or after the Credit Support Depletion Date, a fraction expressed as a percentage, the numerator of which is the Certificate Principal Balance of the Class A-6 Certificates immediately prior to that Distribution Date and the denominator of which is the aggregate Certificate Principal Balance of the Senior Certificates (other than the Class A-P Certificates) immediately prior to that Distribution Date. Class A-6 Optimal Principal Distribution Amount: As to any Distribution Date on or after the Credit Support Depletion Date, an amount equal to the product of (a) the then applicable Class A-6 Optimal Percentage and (b) the amounts described in clause (b) of the definition of Senior Principal Distribution Amount. Class R Certificate: Any one of the Class R Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed to the Standard Terms as Exhibit D and evidencing an interest designated as a "residual interest" in the related REMIC for purposes of the REMIC Provisions. Closing Date: February 27, 2006. Corporate Trust Office: The principal office of the Trustee at which at any particular time its corporate trust business with respect to this Agreement shall be administered, which office at the date of the execution of this Agreement is located at U.S. Bank National Association, U.S. Bank Corporate Trust Services, EP-MN-WS3D, 60 Livingston Avenue, St. Paul, Minnesota 55107, Attention: Structured Finance/RFMSI 2006-S2. Cut-off Date: February 1, 2006. Determination Date: With respect to any Distribution Date, the second Business Day prior to such Distribution Date. Discount Net Mortgage Rate: 5.75% per annum. Due Period: With respect to each Distribution Date and any Mortgage Loan, the calendar month of such Distribution Date. Eligible Funds: On any Distribution Date, the portion, if any, of the Available Distribution Amount remaining after reduction by the sum of (i) the aggregate amount of Accrued Certificate Interest on the Senior Certificates, (ii) the Senior Principal Distribution Amount (determined without regard to Section 4.02(a)(ii)(Y)(2)(D) of this Series Supplement), (iii) the Class A-P Principal Distribution Amount (determined without regard to Section 4.02(b)(i)(E) of this Series Supplement) and (iv) the aggregate amount of Accrued Certificate Interest on the Class M, Class B-1 and Class B-2 Certificates. Fraud Loss Amount: As of any date of determination after the Cut-off Date, an amount equal to: (X) prior to the first anniversary of the Cut-off Date, an amount equal to 3.00% of the aggregate outstanding principal balance of all of the Mortgage Loans as of the Cut-off Date minus the aggregate amount of Fraud Losses allocated solely to one or more specific Classes of Certificates in accordance with Section 4.05 of this Series Supplement since the Cut-off Date up to such date of determination, (Y) prior to the second anniversary of the Cut-off Date, an amount equal to 2.00% of the aggregate outstanding principal balance of all of the Mortgage Loans as of the Cut-off Date minus the aggregate amount of Fraud Losses allocated solely to one or more specific Classes of Certificates in accordance with Section 4.05 of this Series Supplement since the Cut-off Date up to such date of determination and (Z) from the third to the fifth anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and (b) 1.00% of the aggregate outstanding principal balance of all of the Mortgage Loans as of the most recent anniversary of the Cut-off Date minus (2) the aggregate amount of Fraud Losses allocated solely to one or more specific Classes of Certificates in accordance with Section 4.05 of this Series Supplement since the most recent anniversary of the Cut-off Date up to such date of determination. On and after the fifth anniversary of the Cut-off Date, the Fraud Loss Amount shall be zero. The Fraud Loss Amount may be further reduced by the Master Servicer (including accelerating the manner in which such coverage is reduced) provided that prior to any such reduction, the Master Servicer shall (i) obtain written confirmation from each Rating Agency that such reduction shall not reduce the rating assigned to any Class of Certificates by such Rating Agency below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency and (ii) provide a copy of such written confirmation to the Trustee. Initial Monthly Payment Fund: $4,010.36 representing scheduled principal amortization and interest at the Net Mortgage Rate during the month of February 2006, for those Mortgage Loans for which the Trustee will not be entitled to receive such payment in accordance with the definition of "Trust Fund". The Initial Monthly Payment Fund will not be part of any REMIC. Initial Notional Amount: With respect to any Class A-V Certificates or Subclass thereof issued pursuant to Section 5.01(c), the aggregate Cut-off Date Principal Balance of the Mortgage Loans corresponding to the Uncertificated Class A-V REMIC Regular Interests represented by such Class or Subclass on such date. Interest Accrual Period: With respect to any Certificates and any Distribution Date, the calendar month preceding the month in which such Distribution Date occurs. Interest Only Certificates: Any one of the Class A-V Certificates. The Interest Only Certificates will have no Certificate Principal Balance. Lockout Amount: With respect to any Distribution Date, an amount equal to the lesser of: (a) the sum of the following: (x) the product of (i) the Lockout Percentage for such Distribution Date, and (ii) the aggregate collections described in clauses (A), (B) and (E), to the extent clause (E) relates to clause (A) or (B), of Section 4.02(a)(ii)(Y)(2) on such Distribution Date, plus (y) the product of (i) the Lockout Percentage for that Distribution Date, (ii) the Lockout Prepayment Percentage for such Distribution Date, and (iii) the aggregate collections described in clauses (C) and (E), to the extent clause (E) relates to clause (C), of Section 4.02(a)(ii)(Y)(2) on such Distribution Date; and (b) the product of (i) 98% and (ii) the portion of the remaining Senior Principal Distribution Amount for that Distribution Date available for distribution to the Senior Certificates, other than the Class A-P, Class A-V and Class R Certificates, following the distribution, if any, of principal to the Class R Certificates pursuant to Section 4.02(a)(ii)(Y)(2) on that Distribution Date. Lockout Certificates: The Class A-6 Certificates and Class A-7 Certificates. Lockout Percentage: With respect to any Distribution Date prior to the Distribution Date in March 2011, zero, and with respect to such Distribution Date and any Distribution Date thereafter, a fraction, expressed as a percentage, (i) the numerator of which is the sum of (x) the aggregate Certificate Principal Balances of the Lockout Certificates and (y) $18,240,000 and (ii) the denominator of which is the aggregate Certificate Principal Balance of the Senior Certificates other than the Class A-P, Class A-V and Class R Certificates. Lockout Prepayment Percentage: For any Distribution Date occurring prior to the Distribution Date in March 2011, 0%. For any Distribution Date occurring after the first five years following the Closing Date, a percentage determined as follows: (i) for any Distribution Date during the sixth year after the Closing Date, 30%; (ii) for any Distribution Date during the seventh year after the Closing Date, 40%; (iii) for any Distribution Date during the eighth year after the Closing Date, 60%; (iv) for any Distribution Date during the ninth year after the Closing Date, 80%; and (v) for any Distribution Date thereafter, 100%. Maturity Date: With respect to each Class of Certificates, the Distribution Date in February, 2036, which is the Distribution Date in the month immediately following the latest scheduled maturity date of any Mortgage Loan. Mortgage Loan Schedule: The list or lists of the Mortgage Loans attached hereto as Exhibit One (as amended from time to time to reflect the addition of Qualified Substitute Mortgage Loans), which list or lists shall set forth the following information as to each Mortgage Loan: (a) the Mortgage Loan identifying number ("RFC LOAN #"); (b) the maturity of the Mortgage Note ("MATURITY DATE"); (c) the Mortgage Rate ("ORIG RATE"); (d) the Subservicer pass-through rate ("CURR NET"); (e) the Net Mortgage Rate ("NET MTG RT"); (f) the Pool Strip Rate ("STRIP"); (g) the initial scheduled monthly payment of principal, if any, and interest ("ORIGINAL P & I"); (h) the Cut-off Date Principal Balance ("PRINCIPAL BAL"); (i) the Loan-to-Value Ratio at origination ("LTV"); (j) the rate at which the Subservicing Fee accrues ("SUBSERV FEE") and at which the Servicing Fee accrues ("MSTR SERV FEE"); (k) a code "T," "BT" or "CT" under the column "LN FEATURE," indicating that the Mortgage Loan is secured by a second or vacation residence; and (l) a code "N" under the column "OCCP CODE," indicating that the Mortgage Loan is secured by a non-owner occupied residence. Such schedule may consist of multiple reports that collectively set forth all of the information required. Non-Discount Mortgage Loan: The mortgage loans other than the Discount Mortgage Loans. Notional Amount: As of any Distribution Date with respect to any Class A-V Certificates, an amount equal to the aggregate Stated Principal Balance of the Mortgage Loans as of the day immediately preceding such Distribution Date (or, with respect to the initial Distribution Date, at the close of business on the Cut-off Date). For federal income tax purposes, as of any Distribution Date, with respect to any Class A-V Certificates or Subclass thereof issued pursuant to Section 5.01(c), the aggregate Stated Principal Balance of the Mortgage Loans corresponding to the Uncertificated Class A-V REMIC Regular Interests represented by such Class or Subclass as of the day immediately preceding such Distribution Date (or, with respect to the initial Distribution Date, at the close of business on the Cut-off Date). Pass-Through Rate: With respect to the Class A Certificates (other than the Class A-V Certificates and Principal Only Certificates), Class M Certificates, Class B Certificates and Class R Certificates and any Distribution Date, the per annum rates set forth in the Preliminary Statement hereto. With respect to the Class A-V Certificates (other than any Subclass thereof) and any Distribution Date, a rate equal to the weighted average, expressed as a percentage, of the Pool Strip Rates of all Mortgage Loans as of the Due Date in the related Due Period, weighted on the basis of the respective Stated Principal Balances of such Mortgage Loans as of the day immediately preceding such Distribution Date (or, with respect to the initial Distribution Date, at the close of business on the Cut-Off Date). With respect to the Class A-V Certificates and the initial Distribution Date, the Pass-Through Rate is equal to 0.3044% per annum. With respect to any Subclass of Class A-V Certificates and any Distribution Date, a rate equal to the weighted average, expressed as a percentage, of the Pool Strip Rates of all Mortgage Loans corresponding to the Uncertificated Class A-V REMIC Regular Interests represented by such Subclass as of the Due Date in the related Due Period, weighted on the basis of the respective Stated Principal Balances of such Mortgage Loans as of the day immediately preceding such Distribution Date (or with respect to the initial Distribution Date, at the close of business on the Cut-Off Date). The Principal Only Certificates have no Pass-Through Rate and are not entitled to Accrued Certificate Interest. Pool Strip Rate: With respect to each Mortgage Loan, a per annum rate equal to the excess of (a) the Net Mortgage Rate of such Mortgage Loan over (b) the Discount Net Mortgage Rate (but not less than 0.00%) per annum. Prepayment Assumption: A prepayment assumption of 300% of the prepayment speed assumption, used for determining the accrual of original issue discount and market discount and premium on the Certificates for federal income tax purposes. The prepayment speed assumption assumes a constant rate of prepayment of Mortgage Loans of 0.2% per annum of the then outstanding principal balance of such Mortgage Loans in the first month of the life of the Mortgage Loans, increasing by an additional 0.2% per annum in each succeeding month until the thirtieth month, and a constant 6% per annum rate of prepayment thereafter for the life of the Mortgage Loans. Prepayment Distribution Percentage: With respect to any Distribution Date and each Class of Subordinate Certificates, under the applicable circumstances set forth below, the respective percentages set forth below: (i) For any Distribution Date prior to the Distribution Date in March 2011 (unless the Certificate Principal Balances of the Senior Certificates (other than the Class A-P Certificates) have been reduced to zero), 0%. (ii) For any Distribution Date for which clause (i) above does not apply, and on which any Class of Subordinate Certificates is outstanding with a Certificate Principal Balance greater than zero: (a) in the case of the Class of Subordinate Certificates then outstanding with the Highest Priority and each other Class of Subordinate Certificates for which the related Prepayment Distribution Trigger has been satisfied, a fraction, expressed as a percentage, the numerator of which is the Certificate Principal Balance of such Class immediately prior to such date and the denominator of which is the sum of the Certificate Principal Balances immediately prior to such date of (1) the Class of Subordinate Certificates then outstanding with the Highest Priority and (2) all other Classes of Subordinate Certificates for which the respective Prepayment Distribution Triggers have been satisfied; and (b) in the case of each other Class of Subordinate Certificates for which the Prepayment Distribution Triggers have not been satisfied, 0%; and (iii) Notwithstanding the foregoing, if the application of the foregoing percentages on any Distribution Date as provided in Section 4.02 of this Series Supplement (determined without regard to the proviso to the definition of "Subordinate Principal Distribution Amount") would result in a distribution in respect of principal of any Class or Classes of Subordinate Certificates in an amount greater than the remaining Certificate Principal Balance thereof (any such class, a "Maturing Class"), then: (a) the Prepayment Distribution Percentage of each Maturing Class shall be reduced to a level that, when applied as described above, would exactly reduce the Certificate Principal Balance of such Class to zero; (b) the Prepayment Distribution Percentage of each other Class of Subordinate Certificates (any such Class, a "Non-Maturing Class") shall be recalculated in accordance with the provisions in paragraph (ii) above, as if the Certificate Principal Balance of each Maturing Class had been reduced to zero (such percentage as recalculated, the "Recalculated Percentage"); (c) the total amount of the reductions in the Prepayment Distribution Percentages of the Maturing Class or Classes pursuant to clause (a) of this sentence, expressed as an aggregate percentage, shall be allocated among the Non-Maturing Classes in proportion to their respective Recalculated Percentages (the portion of such aggregate reduction so allocated to any Non-Maturing Class, the "Adjustment Percentage"); and (d) for purposes of such Distribution Date, the Prepayment Distribution Percentage of each Non-Maturing Class shall be equal to the sum of (1) the Prepayment Distribution Percentage thereof, calculated in accordance with the provisions in paragraph (ii) above as if the Certificate Principal Balance of each Maturing Class had not been reduced to zero, plus (2) the related Adjustment Percentage. Principal Only Certificates: Any one of the Class A-P Certificates. Record Date: With respect to each Distribution Date and each Class of Certificates, the close of business on the last Business Day of the month next preceding the month in which the related Distribution Date occurs. Senior Certificate: Any one of the Class A Certificates or Class R Certificates, executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed to the Standard Terms as Exhibit A and Exhibit D, respectively. Senior Percentage: As of any Distribution Date, the lesser of 100% and a fraction, expressed as a percentage, the numerator of which is the aggregate Certificate Principal Balance of the Senior Certificates (other than the Class A-P Certificates) immediately prior to such Distribution Date and the denominator of which is the aggregate Stated Principal Balance of all of the Mortgage Loans (or related REO Properties) (other than the related Discount Fraction of each Discount Mortgage Loan) immediately prior to such Distribution Date. Senior Principal Distribution Amount: As to any Distribution Date, the lesser of (a) the balance of the Available Distribution Amount remaining after the distribution of all amounts required to be distributed pursuant to Section 4.02(a)(i), Section 4.02(a)(ii)(X) (excluding any amount distributable pursuant to Section 4.02(b)(i)(E)) (or, on or after the Credit Support Depletion Date, the amount required to be distributed to the Class A-P Certificateholders pursuant to Section 4.02(c)) and Section 4.02(a)(ii)(Y)(1) and (b) the sum of the amounts required to be distributed to the Senior Certificateholders on such Distribution Date pursuant to Section 4.02(a)(ii)(Y)(2). Senior Support Certificates: The Class A-2 Certificates, A-5 and A-7. Special Hazard Amount: As of any Distribution Date, an amount equal to $2,605,679 minus the sum of (i) the aggregate amount of Special Hazard Losses allocated solely to one or more specific Classes of Certificates in accordance with Section 4.05 of this Series Supplement and (ii) the Adjustment Amount (as defined below) as most recently calculated. For each anniversary of the Cut-off Date, the Adjustment Amount shall be equal to the amount, if any, by which the amount calculated in accordance with the preceding sentence (without giving effect to the deduction of the Adjustment Amount for such anniversary) exceeds the greater of (A) the greatest of (i) twice the outstanding principal balance of the Mortgage Loan in the Trust Fund which has the largest outstanding principal balance on the Distribution Date immediately preceding such anniversary, (ii) the product of 1.00% multiplied by the outstanding principal balance of all Mortgage Loans on the Distribution Date immediately preceding such anniversary and (iii) the aggregate outstanding principal balance (as of the immediately preceding Distribution Date) of the Mortgage Loans in any single five-digit California zip code area with the largest amount of Mortgage Loans by aggregate principal balance as of such anniversary and (B) the greater of (i) the product of 0.50% multiplied by the outstanding principal balance of all Mortgage Loans on the Distribution Date immediately preceding such anniversary multiplied by a fraction, the numerator of which is equal to the aggregate outstanding principal balance (as of the immediately preceding Distribution Date) of all of the Mortgage Loans secured by Mortgaged Properties located in the State of California divided by the aggregate outstanding principal balance (as of the immediately preceding Distribution Date) of all of the Mortgage Loans, expressed as a percentage, and the denominator of which is equal to 38.05% (which percentage is equal to the percentage of Mortgage Loans initially secured by Mortgaged Properties located in the State of California) and (ii) the aggregate outstanding principal balance (as of the immediately preceding Distribution Date) of the largest Mortgage Loan secured by a Mortgaged Property located in the State of California. The Special Hazard Amount may be further reduced by the Master Servicer (including accelerating the manner in which coverage is reduced) provided that prior to any such reduction, the Master Servicer shall (i) obtain written confirmation from each Rating Agency that such reduction shall not reduce the rating assigned to any Class of Certificates by such Rating Agency below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency and (ii) provide a copy of such written confirmation to the Trustee. Subordinate Principal Distribution Amount: With respect to any Distribution Date and each Class of Subordinate Certificates, (a) the sum of (i) the product of (x) the related Subordinate Class Percentage for such Class and (y) the aggregate of the amounts calculated for such Distribution Date under clauses (1), (2) and (3) of Section 4.02(a)(ii)(Y)(2)(A) of this Series Supplement (without giving effect to the Senior Percentage) to the extent not payable to the Senior Certificates; (ii) such Class's pro rata share, based on the Certificate Principal Balance of each Class of Subordinate Certificates then outstanding, of the principal collections described in Section 4.02(a)(ii)(Y)(2)(B)(b) of this Series Supplement (without giving effect to the Senior Accelerated Distribution Percentage) to the extent such collections are not otherwise distributed to the Senior Certificates; (iii) the product of (x) the related Prepayment Distribution Percentage and (y) the aggregate of all Principal Prepayments in Full received in the related Prepayment Period and Curtailments received in the preceding calendar month (other than the related Discount Fraction of such Principal Prepayments in Full and Curtailments with respect to a Discount Mortgage Loan) to the extent not payable to the Senior Certificates; (iv) if such Class is the Class of Subordinate Certificates with the Highest Priority, any Excess Subordinate Principal Amount for such Distribution Date; and (v) any amounts described in clauses (i), (ii) and (iii) as determined for any previous Distribution Date, that remain undistributed to the extent that such amounts are not attributable to Realized Losses which have been allocated to a Class of Subordinate Certificates minus (b) the sum of (i) with respect to the Class of Subordinate Certificates with the Lowest Priority, any Excess Subordinate Principal Amount for such Distribution Date; and (ii) the Capitalization Reimbursement Amount for such Distribution Date, other than the related Discount Fraction of any portion of that amount related to each Discount Mortgage Loan, multiplied by a fraction, the numerator of which is the Subordinate Principal Distribution Amount for such Class of Subordinate Certificates, without giving effect to this clause (b)(ii), and the denominator of which is the sum of the principal distribution amounts for all Classes of Certificates other than the Class A-P Certificates, without giving effect to any reductions for the Capitalization Reimbursement Amount. Super Senior Certificates: The Class A-1, Class A-4 and the Class A-6 Certificates. Trust Fund: The segregated pool of assets consisting of: (i) the Mortgage Loans and the related Mortgage Files and collateral securing such Mortgage Loans, (ii) all payments on and collections in respect of the Mortgage Loans due after the Cut-off Date (other than Monthly Payments due in the month of the Cut-off Date) as shall be on deposit in the Custodial Account or in the Certificate Account and identified as belonging to the Trust Fund but not including amounts on deposit in the Initial Monthly Payment Fund, (iii) property that secured a Mortgage Loan and that has been acquired for the benefit of the Certificateholders by foreclosure or deed in lieu of foreclosure, (iv) the hazard insurance policies and Primary Insurance Policies, if any, (v) the Initial Monthly Payment Fund, and (vi) all proceeds of clauses (i) through (v) above. Uncertificated Accrued Interest: With respect to each Distribution Date, as to each Uncertificated Class A-V REMIC Regular Interest an amount equal to the aggregate amount of Accrued Certificate Interest that would result under the terms of the definition thereof on each such uncertificated interest, if the Pass-Through Rate on such uncertificated interest were equal to the related Uncertificated Class A-V REMIC Pass-Through Rate and the notional amount of such uncertificated interest were equal to the related Uncertificated Class A-V REMIC Notional Amount, and any reduction in the amount of Accrued Certificate Interest resulting from the allocation of Prepayment Interest Shortfalls, Realized Losses or other amounts to the Class A-V Certificateholders pursuant to Section 4.05 hereof shall be allocated to the Uncertificated Class A-V REMIC Regular Interests pro rata in accordance with the amount of interest accrued with respect to each related Uncertificated REMIC Notional Amount and such Distribution Date. Uncertificated Class A-V REMIC Notional Amount: With respect to each Uncertificated Class A-V REMIC Regular Interest, the Stated Principal Balance of the related Mortgage Loan. Uncertificated Class A-V REMIC Pass-Through Rate: With respect to each Uncertificated Class A-V REMIC Regular Interest, a per annum rate equal to the Pool Strip Rate with respect to the related Mortgage Loan. Uncertificated Class A-V REMIC Regular Interest Distribution Amounts: With respect to any Distribution Date, the sum of the amounts deemed to be distributed on the Uncertificated Class A-V REMIC Regular Interests for such Distribution Date pursuant to Section 4.08(a). Uncertificated Class A-V REMIC Regular Interests: The 499 uncertificated partial undivided beneficial ownership interests in the Trust Fund, numbered sequentially from 1 to 499, each relating to the particular Non-Discount Mortgage Loan identified by sequential number on the Mortgage Loan Schedule, each having no principal balance, and each bearing interest at the respective Pool Strip Rate on the Stated Principal Balance of the related Mortgage Loan. Section 1.02 Use of Words and Phrases. "Herein," "hereby," "hereunder," "hereof," "hereinbefore," "hereinafter" and other equivalent words refer to the Pooling and Servicing Agreement as a whole. All references herein to Articles, Sections or Subsections shall mean the corresponding Articles, Sections and Subsections in the Pooling and Servicing Agreement. The definitions set forth herein include both the singular and the plural. -------------------------------------------------------------------------------- ARTICLE II ARTICLE II CONVEYANCE OF MORTGAGE LOANS; -------------------------------------------------------------------------------- ORIGINAL ISSUANCE OF CERTIFICATES Section 2.01 Conveyance of Mortgage Loans. (a) The Company, concurrently with the execution and delivery hereof, does hereby assign to the Trustee without recourse all the right, title and interest of the Company in and to the Mortgage Loans, including all interest and principal received on or with respect to the Mortgage Loans after the Cut-off Date (other than payments of principal and interest due on the Mortgage Loans in the month of the Cut-off Date). In connection and contemporaneously with such transfer and assignment, the Company will deposit or cause to be deposited an amount equal to $32,714.18 into the Custodial Account, and on the first Certificate Account Deposit Date following the Closing Date, the Master Servicer on behalf of the Trustee shall deposit or cause to be deposited such amount into the Certificate Account as part of the Available Distribution Amount that is to be distributed pursuant to Section 4.02 on the Distribution Date occurring in March 2006. The Company, the Master Servicer and the Trustee agree that it is not intended that any mortgage loan be included in the Trust that is (i) a "High-Cost Home Loan" as defined in the New Jersey Home Ownership Act effective November 27, 2003, (ii) a "High-Cost Home Loan" as defined in the New Mexico Home Loan Protection Act effective January 1, 2004, (iii) a "High Cost Home Mortgage Loan" as defined in the Massachusetts Predatory Home Practices Act effective November 7, 2004 or (iv) a "High-Cost Home Loan" as defined in the Indiana House Enrolled Act No. 1229, effective as of January 1, 2005. (b)- (h) (See Section 2.01(b) - (h) of the Standard Terms) Section 2.02 Acceptance by Trustee. (See Section 2.02 of the Standard Terms) Section 2.03 Representations, Warranties and Covenants of the Master Servicer and the Company. (a) For representations, warranties and covenants of the Master Servicer, see Section 2.03(a) of the Standard Terms. (b) The Company hereby represents and warrants to the Trustee for the benefit of Certificateholders that as of the Closing Date (or, if otherwise specified below, as of the date so specified): (i) No Mortgage Loan is 30 or more days Delinquent in payment of principal and interest as of the Cut-off Date and no Mortgage Loan has been so Delinquent more than once in the 12-month period prior to the Cut-off Date; (ii) The information set forth in Exhibit One hereto with respect to each Mortgage Loan or the Mortgage Loans, as the case may be, is true and correct in all material respects at the date or dates respecting which such information is furnished; (iii) The Mortgage Loans are fully-amortizing (subject to interest only periods, if applicable), fixed-rate mortgage loans with level Monthly Payments due, with respect to a majority of the Mortgage Loans, on the first day of each month and terms to maturity at origination or modification of not more than 30 years; (iv) To the best of the Company's knowledge, if a Mortgage Loan is secured by a Mortgaged Property with a Loan-to-Value Ratio at origination in excess of 80%, such Mortgage Loan is the subject of a Primary Insurance Policy that insures that (a) at least 30% of the Stated Principal Balance of the Mortgage Loan at origination if the Loan-to-Value Ratio is between 95.00% and 90.01%, (b) at least 25% of such balance if the Loan-to-Value Ratio is between 90.00% and 85.01%, and (c) at least 12% of such balance if the Loan-to-Value Ratio is between 85.00% and 80.01%. To the best of the Company's knowledge, each such Primary Insurance Policy is in full force and effect and the Trustee is entitled to the benefits thereunder; (v) The issuers of the Primary Insurance Policies are insurance companies whose claims-paying abilities are currently acceptable to each Rating Agency; (vi) No more than 1.2% of the Mortgage Loans by aggregate Cut-off Date Principal Balance are secured by Mortgaged Properties located in any one zip code area in the State of Virginia and no more than 0.7% of the Mortgage Loans by aggregate Cut-off Date Principal Balance are secured by Mortgaged Properties located in any one zip code area outside the State of Virginia; (vii) The improvements upon the Mortgaged Properties are insured against loss by fire and other hazards as required by the Program Guide, including flood insurance if required under the National Flood Insurance Act of 1968, as amended. The Mortgage requires the Mortgagor to maintain such casualty insurance at the Mortgagor's expense, and on the Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor's expense and to seek reimbursement therefor from the Mortgagor; (viii) Immediately prior to the assignment of the Mortgage Loans to the Trustee, the Company had good title to, and was the sole owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest (other than rights to servicing and related compensation) and such assignment validly transfers ownership of the Mortgage Loans to the Trustee free and clear of any pledge, lien, encumbrance or security interest; (ix) No more than 40.48% of the Mortgage Loans by aggregate Cut-off Date Principal Balance were underwritten under a reduced loan documentation program; (x) Each Mortgagor represented in its loan application with respect to the related Mortgage Loan that the Mortgaged Property would be owner-occupied and therefore would not be an investor property as of the date of origination of such Mortgage Loan. No Mortgagor is a corporation or a partnership; (xi) None of the Mortgage Loans is a Buydown Mortgage Loan; (xii) Each Mortgage Loan constitutes a qualified mortgage under Section 860G(a)(3)(A) of the Code and Treasury Regulations Section 1.860G-2(a)(1); (xiii) A policy of title insurance was effective as of the closing of each Mortgage Loan and is valid and binding and remains in full force and effect, unless the Mortgaged Properties are located in the State of Iowa and an attorney's certificate has been provided as described in the Program Guide; (xiv) None of the Mortgage Loans is a Cooperative Loan; (xv) With respect to each Mortgage Loan originated under a "streamlined" Mortgage Loan program (through which no new or updated appraisals of Mortgaged Properties are obtained in connection with the refinancing thereof), the related Seller has represented that either (a) the value of the related Mortgaged Property as of the date the Mortgage Loan was originated was not less than the appraised value of such property at the time of origination of the refinanced Mortgage Loan or (b) the Loan-to-Value Ratio of the Mortgage Loan as of the date of origination of the Mortgage Loan generally meets the Company's underwriting guidelines; (xvi) Interest on each Mortgage Loan is calculated on the basis of a 360-day year consisting of twelve 30-day months; (xvii) None of the Mortgage Loans contains in the related Mortgage File a Destroyed Mortgage Note; and (xviii) None of the Mortgage Loans are Pledged Asset Loans or Additional Collateral Loans. It is understood and agreed that the representations and warranties set forth in this Section 2.03(b) shall survive delivery of the respective Mortgage Files to the Trustee or any Custodian. Upon discovery by any of the Company, the Master Servicer, the Trustee, or any Custodian of a breach of any of the representations and warranties set forth in this Section 2.03(b) that materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement); provided, however, that in the event of a breach of the representation and warranty set forth in Section 2.03(b)(xii), the party discovering such breach shall give such notice within five days of discovery. Within 90 days of its discovery or its receipt of notice of breach, the Company shall either (i) cure such breach in all material respects or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that the Company shall have the option to substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution occurs within two years following the Closing Date; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. Any such substitution shall be effected by the Company under the same terms and conditions as provided in Section 2.04 for substitutions by Residential Funding. It is understood and agreed that the obligation of the Company to cure such breach or to so purchase or substitute for any Mortgage Loan as to which such a breach has occurred and is continuing shall constitute the sole remedy respecting such breach available to the Certificateholders or the Trustee on behalf of the Certificateholders. Notwithstanding the foregoing, the Company shall not be required to cure breaches or purchase or substitute for Mortgage Loans as provided in this Section 2.03(b) if the substance of the breach of a representation set forth above also constitutes fraud in the origination of the Mortgage Loan. Section 2.04 Representations and Warranties of Residential Funding. (See Section 2.04 of the Standard Terms) Section 2.05 Execution and Authentication of Class R Certificates. The Trustee acknowledges the assignment to it of the Mortgage Loans and the delivery of the Mortgage Files to it, or any Custodian on its behalf, subject to any exceptions noted, together with the assignment to it of all other assets included in the Trust Fund, receipt of which is hereby acknowledged. Concurrently with such delivery and in exchange therefor, the Trustee, pursuant to the written request of the Company executed by an officer of the Company has executed and caused to be authenticated and delivered to or upon the order of the Company the Class R Certificates in authorized denominations which evidence ownership of the entire Trust Fund. Section 2.06 [RESERVED] Section 2.07 [RESERVED] Section 2.08 Purposes and Powers of the Trust. (See Section 2.08 of the Standard Terms). Section 2.09 Agreement Regarding Ability to Disclose. The Company, the Master Servicer and the Trustee hereby agree, notwithstanding any other express or implied agreement to the contrary, that any and all Persons, and any of their respective employees, representatives, and other agents may disclose, immediately upon commencement of discussions, to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to any of them relating to such tax treatment and tax structure. For purposes of this paragraph, the terms "tax treatment" and "tax structure" are defined under Treasury Regulationss.1.6011-4(c). -------------------------------------------------------------------------------- ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS Section 3.01 Master Servicer to Act as Servicer. (See Section 3.01 of the Standard Terms) Section 3.02 Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' and Sellers' Obligations. (a) The Master Servicer may continue in effect Subservicing Agreements entered into by Residential Funding and Subservicers prior to the execution and delivery of this Agreement, and may enter into new Subservicing Agreements with Subservicers, for the servicing and administration of all or some of the Mortgage Loans. Each Subservicer shall be either (i) an institution the accounts of which are insured by the FDIC or (ii) another entity that engages in the business of originating or servicing mortgage loans, and in either case shall be authorized to transact business in the state or states in which the related Mortgaged Properties it is to service are situated, if and to the extent required by applicable law to enable the Subservicer to perform its obligations hereunder and under the Subservicing Agreement, and in either case shall be a Freddie Mac, Fannie Mae or HUD approved mortgage servicer. In addition, any Subservicer of a Mortgage Loan insured by the FHA must be an FHA-approved servicer, and any Subservicer of a Mortgage Loan guaranteed by the VA must be a VA-approved servicer. Each Subservicer of a Mortgage Loan shall be entitled to receive and retain, as provided in the related Subservicing Agreement and in Section 3.07, the related Subservicing Fee from payments of interest received on such Mortgage Loan after payment of all amounts required to be remitted to the Master Servicer in respect of such Mortgage Loan. For any Mortgage Loan that is a Nonsubserviced Mortgage Loan, the Master Servicer shall be entitled to receive and retain an amount equal to the Subservicing Fee from payments of interest. Unless the context otherwise requires, references in this Agreement to actions taken or to be taken by the Master Servicer in servicing the Mortgage Loans include actions taken or to be taken by a Subservicer on behalf of the Master Servicer. Each Subservicing Agreement will be upon such terms and conditions as are generally required by, permitted by or consistent with the Program Guide and are not inconsistent with this Agreement and as the Master Servicer and the Subservicer have agreed; provided that, the Subservicing Agreement between the Master Servicer and Wells Fargo, if any, will be upon such terms and conditions as are consistent with this Agreement and as the Master Servicer and the Subservicer have agreed, which may not be consistent with the Program Guide. With the approval of the Master Servicer, a Subservicer may delegate its servicing obligations to third-party servicers, but such Subservicer will remain obligated under the related Subservicing Agreement. The Master Servicer and a Subservicer may enter into amendments thereto or a different form of Subservicing Agreement, and the form referred to or included in the Program Guide is merely provided for information and shall not be deemed to limit in any respect the discretion of the Master Servicer to modify or enter into different Subservicing Agreements; provided, however, that any such amendments or different forms shall be consistent with and not violate the provisions of either this Agreement or the Program Guide in a manner which would materially and adversely affect the interests of the Certificateholders. The Program Guide and any other Subservicing Agreement entered into between the Master Servicer and any Subservicer shall require the Subservicer to accurately and fully report its borrower credit files to each of the Credit Repositories in a timely manner. (b) (See Section 3.02(b) of the Standard Terms) Section 3.03 Successor Subservicers. (See Section 3.03 of the Standard Terms) Section 3.04 Liability of the Master Servicer. (See Section 3.04 of the Standard Terms) Section 3.05 No Contractual Relationship Between Subservicer and Trustee or Certificateholders. (See Section 3.05 of the Standard Terms) Section 3.06 Assumption or Termination of Subservicing Agreements by Trustee. (See Section 3.06 of the Standard Terms) Section 3.07 Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account. (See Section 3.07 of the Standard Terms) Section 3.08 Subservicing Accounts; Servicing Accounts. (See Section 3.08 of the Standard Terms) Section 3.09 Access to Certain Documentation and Information Regarding the Mortgage Loans. (See Section 3.09 of the Standard Terms) Section 3.10 Permitted Withdrawals from the Custodial Account. (See Section 3.10 of the Standard Terms) Section 3.11 Maintenance of the Primary Insurance Policies; Collections Thereunder. (See Section 3.11 of the Standard Terms) Section 3.12 Maintenance of Fire Insurance and Omissions and Fidelity Coverage. (See Section 3.12 of the Standard Terms) Section 3.13 Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments. (See Section 3.13 of the Standard Terms) Section 3.14 Realization Upon Defaulted Mortgage Loans. (See Section 3.14 of the Standard Terms) Section 3.15 Trustee to Cooperate; Release of Mortgage Files. (See Section 3.15 of the Standard Terms) Section 3.16 Servicing and Other Compensation; Compensating Interest. (See Section 3.16 of the Standard Terms) Section 3.17 Reports to the Trustee and the Company. (See Section 3.17 of the Standard Terms) Section 3.18 Annual Statement as to Compliance. (See Section 3.18 of the Standard Terms) Section 3.19 Annual Independent Public Accountants' Servicing Report. (See Section 3.19 of the Standard Terms) Section 3.20 Rights of the Company in Respect of the Master Servicer. (See Section 3.20 of the Standard Terms) Section 3.21 Administration of Buydown Funds. (See Section 3.21 of the Standard Terms) Section 3.22 Advance Facility. (See Section 3.22 of the Standard Terms) -------------------------------------------------------------------------------- ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS Section 4.01 Certificate Account. (See Section 4.01 of the Standard Terms) Section 4.02 Distributions. (a) On each Distribution Date, (x) the Master Servicer on behalf of the Trustee or (y) the Paying Agent appointed by the Trustee, shall distribute (I) to the Master Servicer or a sub-servicer, in the case of a distribution pursuant to Section 4.02(a)(iii) below, the amount required to be distributed to the Master Servicer or a sub-servicer pursuant to Section 4.02(a)(iii) below, and (II) to each Certificateholder of record on the next preceding Record Date (other than as provided in Section 9.01 respecting the final distribution), either (1) in immediately available funds (by wire transfer or otherwise) to the account of such Certificateholder at a bank or other entity having appropriate facilities therefor, if such Certificateholder has so notified the Master Servicer or the Paying Agent, as the case may be, or (2) if such Certificateholder has not so notified the Master Servicer or the Paying Agent by the Record Date, by check mailed to such Certificateholder at the address of such Holder appearing in the Certificate Register, such Certificateholder's share (which share (A) with respect to each Class of Certificates (other than any Subclass of the Class A-V Certificates), shall be based on the aggregate of the Percentage Interests represented by Certificates of the applicable Class held by such Holder or (B) with respect to any Subclass of the Class A-V Certificates, shall be equal to the amount (if any) distributed pursuant to Section 4.02(a)(i) below to each Holder of a Subclass thereof) of the following amounts, in the following order of priority (subject to the provisions of Section 4.02(b) below), in each case to the extent of the Available Distribution Amount: (i) to the Senior Certificates (other than the Principal Only Certificates and, prior to the Accretion Termination Date, the Accrual Certificates) on a pro rata basis based on the Accrued Certificate Interest payable on such Certificates with respect to such Distribution Date, Accrued Certificate Interest on such Classes of Certificates (or Subclasses, if any, with respect to the Class A-V Certificates) for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date except as provided in the last paragraph of this Section 4.02(a); and (ii) (X) to the Class A-P Certificates, the Class A-P Principal Distribution Amount (as defined in Section 4.02(b)(i) herein); and (Y) (1) to the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates in reduction of the Certificate Principal Balance thereof, the Accrual Distribution Amount in the manner and priority set forth in Sections 4.02(b)(ii)(c) through 4.02(b)(ii)(f), and (2) to the Senior Certificates (other than the Class A-P Certificates), in the priorities and amounts set forth in Sections 4.02(b)(ii) through 4.02(d), the sum of the following (applied to reduce the Certificate Principal Balances of such Senior Certificates, as applicable): (A) the Senior Percentage for such Distribution Date times the sum of the following: (1) the principal portion of each Monthly Payment due during the related Due Period on each Outstanding Mortgage Loan (other than the related Discount Fraction of the principal portion of such payment with respect to a Discount Mortgage Loan), whether or not received on or prior to the related Determination Date, minus the principal portion of any Debt Service Reduction (other than the related Discount Fraction of the principal portion of such Debt Service Reductions with respect to each Discount Mortgage Loan) which together with other Bankruptcy Losses exceeds the Bankruptcy Amount; (2) the Stated Principal Balance of any Mortgage Loan repurchased during the preceding calendar month (or deemed to have been so repurchased in accordance with Section 3.07(b) of the Standard Terms) pursuant to Sections 2.02, 2.03, 2.04 or 4.07 and the amount of any shortfall deposited in the Custodial Account in connection with the substitution of a Deleted Mortgage Loan pursuant to Section 2.03 or 2.04 during the preceding calendar month (other than the related Discount Fraction of such Stated Principal Balance or shortfall with respect to each Discount Mortgage Loan); and (3) the principal portion of all other unscheduled collections (other than Principal Prepayments in Full and Curtailments and amounts received in connection with a Cash Liquidation or REO Disposition of a Mortgage Loan described in Section 4.02(a)(ii)(Y)(2)(B) of this Series Supplement, including without limitation Insurance Proceeds, Liquidation Proceeds and REO Proceeds) including Subsequent Recoveries received during the preceding calendar month (or deemed to have been so received in accordance with Section 3.07(b) of the Standard Terms) to the extent applied by the Master Servicer as recoveries of principal of the related Mortgage Loan pursuant to Section 3.14 of the Standard Terms (other than the related Discount Fraction of the principal portion of such unscheduled collections, with respect to each Discount Mortgage Loan); (B) with respect to each Mortgage Loan for which a Cash Liquidation or a REO Disposition occurred during the preceding calendar month (or was deemed to have occurred during such period in accordance with Section 3.07(b) of the Standard Terms) and did not result in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, an amount equal to the lesser of (a) the Senior Percentage for such Distribution Date times the Stated Principal Balance of such Mortgage Loan (other than the related Discount Fraction of such Stated Principal Balance, with respect to each Discount Mortgage Loan) and (b) the Senior Accelerated Distribution Percentage for such Distribution Date times the related unscheduled collections (including without limitation Insurance Proceeds, Liquidation Proceeds and REO Proceeds) to the extent applied by the Master Servicer as recoveries of principal of the related Mortgage Loan pursuant to Section 3.14 of the Standard Terms (in each case other than the portion of such unscheduled collections, with respect to a Discount Mortgage Loan, included in Section 4.02(b)(i)(C) of this Series Supplement); (C) the Senior Accelerated Distribution Percentage for such Distribution Date times the aggregate of all Principal Prepayments in Full received in the related Prepayment Period and Curtailments received in the preceding calendar month (other than the related Discount Fraction of such Principal Prepayments in Full and Curtailments, with respect to each Discount Mortgage Loan); (D) any Excess Subordinate Principal Amount for such Distribution Date; (E) any amounts described in subsection (ii)(Y), clauses (A), (B) and (C) of this Section 4.02(a), as determined for any previous Distribution Date, which remain unpaid after application of amounts previously distributed pursuant to this clause (E) to the extent that such amounts are not attributable to Realized Losses which have been allocated to the Subordinate Certificates; minus (F) the Capitalization Reimbursement Amount for such Distribution Date, other than the related Discount Fraction of any portion of that amount related to each Discount Mortgage Loan, multiplied by a fraction, the numerator of which is the Senior Principal Distribution Amount, without giving effect to this clause (F), and the denominator of which is the sum of the principal distribution amounts for all Classes of Certificates other than the Class A-P Certificates, without giving effect to any reductions for the Capitalization Reimbursement Amount; (iii) if the Certificate Principal Balances of the Subordinate Certificates have not been reduced to zero, to the Master Servicer or a Sub-Servicer, by remitting for deposit to the Custodial Account, to the extent of and in reimbursement for any Advances or Sub-Servicer Advances previously made with respect to any Mortgage Loan or REO Property which remain unreimbursed in whole or in part following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property, minus any such Advances that were made with respect to delinquencies that ultimately constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses; (iv) to the Holders of the Class M-1 Certificates, the Accrued Certificate Interest thereon for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date, except as provided below; (v) to the Holders of the Class M-1 Certificates, an amount equal to (x) the Subordinate Principal Distribution Amount for such Class of Certificates for such Distribution Date, minus (y) the amount of any Class A-P Collection Shortfalls for such Distribution Date or remaining unpaid for all previous Distribution Dates, to the extent the amounts available pursuant to clause (x) of Sections 4.02(a)(vii), (ix), (xi), (xiii), (xiv) and (xv) of this Series Supplement are insufficient therefor, applied in reduction of the Certificate Principal Balance of the Class M-1 Certificates; (vi) to the Holders of the Class M-2 Certificates, the Accrued Certificate Interest thereon for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date, except as provided below; (vii) to the Holders of the Class M-2 Certificates, an amount equal to (x) the Subordinate Principal Distribution Amount for such Class of Certificates for such Distribution Date, minus (y) the amount of any Class A-P Collection Shortfalls for such Distribution Date or remaining unpaid for all previous Distribution Dates, to the extent the amounts available pursuant to clause (x) of Sections 4.02(a)(ix), (xi), (xiii), (xiv) and (xv) of this Series Supplement are insufficient therefor, applied in reduction of the Certificate Principal Balance of the Class M-2 Certificates; (viii) to the Holders of the Class M-3 Certificates, the Accrued Certificate Interest thereon for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date, except as provided below; (ix) to the Holders of the Class M-3 Certificates, an amount equal to (x) the Subordinate Principal Distribution Amount for such Class of Certificates for such Distribution Date minus (y) the amount of any Class A-P Collection Shortfalls for such Distribution Date or remaining unpaid for all previous Distribution Dates, to the extent the amounts available pursuant to clause (x) of Sections 4.02(a)(xi), (xiii), (xiv) and (xv) of this Series Supplement are insufficient therefor, applied in reduction of the Certificate Principal Balance of the Class M-3 Certificates; (x) to the Holders of the Class B-1 Certificates, the Accrued Certificate Interest thereon for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date, except as provided below; (xi) to the Holders of the Class B-1 Certificates, an amount equal to (x) the Subordinate Principal Distribution Amount for such Class of Certificates for such Distribution Date minus (y) the amount of any Class A-P Collection Shortfalls for such Distribution Date or remaining unpaid for all previous Distribution Dates, to the extent the amounts available pursuant to clause (x) of Sections 4.02(a)(xiii), (xiv) and (xv) of this Series Supplement are insufficient therefor, applied in reduction of the Certificate Principal Balance of the Class B-1 Certificates; (xii) to the Holders of the Class B-2 Certificates, the Accrued Certificate Interest thereon for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date, except as provided below; (xiii) to the Holders of the Class B-2 Certificates, an amount equal to (x) the Subordinate Principal Distribution Amount for such Class of Certificates for such Distribution Date minus (y) the amount of any Class A-P Collection Shortfalls for such Distribution Date or remaining unpaid for all previous Distribution Dates, to the extent the amounts available pursuant to clause (x) of Sections 4.02(a)(xiv) and (xv) of this Series Supplement are insufficient therefor, applied in reduction of the Certificate Principal Balance of the Class B-2 Certificates; (xiv) to the Holders of the Class B-3 Certificates, an amount equal to (x) the Accrued Certificate Interest thereon for such Distribution Date, plus any Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date, except as provided below, minus (y) the amount of any Class A-P Collection Shortfalls for such Distribution Date or remaining unpaid for all previous Distribution Dates, to the extent the amounts available pursuant to clause (x) of Section 4.02(a)(xv) of this Series Supplement are insufficient therefor; (xv) to the Holders of the Class B-3 Certificates, an amount equal to (x) the Subordinate Principal Distribution Amount for such Class of Certificates for such Distribution Date minus (y) the amount of any Class A-P Collection Shortfalls for such Distribution Date or remaining unpaid for all previous Distribution Dates, applied in reduction of the Certificate Principal Balance of the Class B-3 Certificates; (xvi) to the Senior Certificates, in the priority set forth in Section 4.02(b) of this Series Supplement, the portion, if any, of the Available Distribution Amount remaining after the foregoing distributions, applied to reduce the Certificate Principal Balances of such Senior Certificates, but in no event more than the aggregate of the outstanding Certificate Principal Balances of each such Class of Senior Certificates, and thereafter, to each Class of Subordinate Certificates then outstanding beginning with such Class with the Highest Priority, any portion of the Available Distribution Amount remaining after the Senior Certificates have been retired, applied to reduce the Certificate Principal Balance of each such Class of Subordinate Certificates, but in no event more than the outstanding Certificate Principal Balance of each such Class of Subordinate Certificates; and (xvii) to the Class R Certificates, the balance, if any, of the Available Distribution Amount. Notwithstanding the foregoing, on any Distribution Date, with respect to the Class of Subordinate Certificates outstanding on such Distribution Date with the Lowest Priority, or in the event the Subordinate Certificates are no longer outstanding, the Senior Certificates, Accrued Certificate Interest thereon remaining unpaid from any previous Distribution Date will be distributable only to the extent that (1) a shortfall in the amounts available to pay Accrued Certificate Interest on any Class of Certificates results from an interest rate reduction in connection with a Servicing Modification, or (2) such unpaid Accrued Certificate Interest was attributable to interest shortfalls relating to the failure of the Master Servicer to make any required Advance, or the determination by the Master Servicer that any proposed Advance would be a Nonrecoverable Advance with respect to the related Mortgage Loan where such Mortgage Loan has not yet been the subject of a Cash Liquidation or REO Disposition or the related Liquidation Proceeds, Insurance Proceeds and REO Proceeds have not yet been distributed to the Certificateholders. (b) Distributions of principal on the Senior Certificates on each Distribution Date occurring prior to the Credit Support Depletion Date will be made as follows: (i) to the Class A-P Certificates, until the Certificate Principal Balance thereof is reduced to zero, an amount (the "Class A-P Principal Distribution Amount") equal to the aggregate of: (A) the related Discount Fraction of the principal portion of each Monthly Payment on each Discount Mortgage Loan due during the related Due Period, whether or not received on or prior to the related Determination Date, minus the Discount Fraction of the principal portion of any related Debt Service Reduction which together with other Bankruptcy Losses exceeds the Bankruptcy Amount; (B) the related Discount Fraction of the principal portion of all unscheduled collections on each Discount Mortgage Loan received during the preceding calendar month or, in the case of Principal Prepayments in Full, during the related Prepayment Period (other than amounts received in connection with a Cash Liquidation or REO Disposition of a Discount Mortgage Loan described in clause (C) below), including Principal Prepayments in Full, Curtailments, Subsequent Recoveries and repurchases (including deemed repurchases under Section 3.07(b) of the Standard Terms) of Discount Mortgage Loans (or, in the case of a substitution of a Deleted Mortgage Loan, the Discount Fraction of the amount of any shortfall deposited in the Custodial Account in connection with such substitution); (C) in connection with the Cash Liquidation or REO Disposition of a Discount Mortgage Loan that did not result in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, an amount equal to the lesser of (1) the applicable Discount Fraction of the Stated Principal Balance of such Discount Mortgage Loan immediately prior to such Distribution Date and (2) the aggregate amount of the collections on such Discount Mortgage Loan to the extent applied as recoveries of principal; (D) any amounts allocable to principal for any previous Distribution Date (calculated pursuant to clauses (A) through (C) above) that remain undistributed; and (E) the amount of any Class A-P Collection Shortfalls for such Distribution Date and the amount of any Class A-P Collection Shortfalls remaining unpaid for all previous Distribution Dates, but only to the extent of the Eligible Funds for such Distribution Date; minus (F) the related Discount Fraction of the portion of the Capitalization Reimbursement Amount for such Distribution Date, if any, related to each Discount Mortgage Loan; and (ii) the Senior Principal Distribution Amount shall be distributed in the following order of priority: (a) first, to the Class R Certificates, until the Certificate Principal Balance thereof has been reduced to zero; (b) second, from the balance of the Senior Principal Distribution Amount remaining after the distribution, if any, described in Section 4.02(b)(ii)(a), an amount up to the Lockout Amount for that Distribution Date to the Class A-6 and Class A-7 Certificates, pro rata, in accordance with their respective Certificate Principal Balances, until the Certificate Principal Balances thereof have been reduced to zero; (c) third, from the balance of the Senior Principal Distribution Amount remaining after the distribution, if any, described in Section 4.02(b)(ii)(b), to the Class A-1 and Class A-2 Certificates, pro rata, in accordance with their respective Certificate Principal Balances, an amount up to the amount necessary to cause the aggregate Certificate Principal Balance thereof to equal their Aggregate Planned Principal Balance for the Distribution Date, until the Certificate Principal Balances thereof have been reduced to zero; (d) fourth, from the balance of the Senior Principal Distribution Amount remaining after the distribution, if any, described in Section 4.02(b)(ii)(c), to the Class A-3 Certificates, until the Certificate Principal Balance thereof has been reduced to zero; (e) fifth, from the balance of the Senior Principal Distribution Amount remaining after the distribution, if any, described in Section 4.02(b)(ii)(d), to the Class A-1 and Class A-2 Certificates, pro rata, in accordance with their respective Certificate Principal Balances, but without regard to their Aggregate Planned Principal Balance for such Distribution Date, until the Certificate Principal Balances thereof have been reduced to zero; (f) sixth, from the balance of the Senior Principal Distribution Amount remaining after the distribution, if any, described in Section 4.02(b)(ii)(e), to the Class A-4 and Class A-5 Certificates, pro rata, in accordance with their respective Certificate Principal Balances, until the Certificate Principal Balances thereof have been reduced to zero; and (g) seventh, from the balance of the Senior Principal Distribution Amount remaining after the distribution, if any, described in Section 4.02(b)(ii)(f), to the Class A-6 and Class A-7 Certificates, pro rata, in accordance with their respective Certificate Principal Balances and without regard to the Lockout Amount for that Distribution Date. (c) On or after the occurrence of the Credit Support Depletion Date, all priorities relating to distributions as described in Section 4.02(b) of this Series Supplement in respect of principal among the Senior Certificates (other than the Class A-P Certificates) will be disregarded, and (i) an amount equal to the Discount Fraction of the principal portion of scheduled payments and unscheduled collections received or advanced in respect of the Discount Mortgage Loans minus the Discount Fraction of the portion of the Capitalization Reimbursement Amount for such Distribution Date will be distributed to the Class A-P Certificates, (ii) the Senior Principal Distribution Amount will be distributed to the remaining Senior Certificates (other than the Class A-P Certificates) pro rata in accordance with their respective outstanding Certificate Principal Balances and (iii) the amount set forth in Section 4.02(a)(i) herein will be distributed as set forth therein; provided, however, that (i) until reduction of the Certificate Principal Balance of the Class A-1 Certificates to zero, the aggregate amount distributable to the Class A-1 Certificates and Class A-2 Certificates in respect of the aggregate Accrued Certificate Interest thereon and in respect of their aggregate pro rata portion of the Senior Principal Distribution Amount will be distributed among the Class A-1 and Class A-2 Certificates in the following priority: first, to the Class A-1 Certificates, up to an amount equal to the Accrued Certificate Interest on the Class A-1 Certificates; second, to the Class A-1 Certificates, up to an amount equal to the Class A-1 Optimal Principal Distribution Amount, in reduction of the Certificate Principal Balance thereof, until the Certificate Principal Balance thereof has been reduced to zero; third, to the Class A-2 Certificates, up to an amount equal to the Accrued Certificate Interest thereon; and fourth, to the Class A-2 Certificates, the remainder, until the Certificate Principal Balance thereof has been reduced to zero, (ii) until reduction of the Certificate Principal Balance of the Class A-4 Certificates to zero, the aggregate amount distributable to the Class A-4 Certificates and Class A-5 Certificates in respect of the aggregate Accrued Certificate Interest thereon and in respect of their aggregate pro rata portion of the Senior Principal Distribution Amount will be distributed among the Class A-4 and Class A-5 Certificates in the following priority: first, to the Class A-4 Certificates, up to an amount equal to the Accrued Certificate Interest on the Class A-4 Certificates; second, to the Class A-4 Certificates, up to an amount equal to the Class A-4 Optimal Principal Distribution Amount, in reduction of the Certificate Principal Balance thereof, until the Certificate Principal Balance thereof has been reduced to zero; third, to the Class A-5 Certificates, up to an amount equal to the Accrued Certificate Interest thereon; and fourth, to the Class A-5 Certificates, the remainder, until the Certificate Principal Balance thereof has been reduced to zero and (iii) until reduction of the Certificate Principal Balance of the Class A-6 Certificates to zero, the aggregate amount distributable to the Class A-6 Certificates and Class A-7 Certificates in respect of the aggregate Accrued Certificate Interest thereon and in respect of their aggregate pro rata portion of the Senior Principal Distribution Amount will be distributed among the Class A-6 and Class A-7 Certificates in the following priority: first, to the Class A-6 Certificates, up to an amount equal to the Accrued Certificate Interest on the Class A-6 Certificates; second, to the Class A-6 Certificates, up to an amount equal to the Class A-6 Optimal Principal Distribution Amount, in reduction of the Certificate Principal Balance thereof, until the Certificate Principal Balance thereof has been reduced to zero; third, to the Class A-7 Certificates, up to an amount equal to the Accrued Certificate Interest thereon; and fourth, to the Class A-7 Certificates, the remainder, until the Certificate Principal Balance thereof has been reduced to zero. (d) After the reduction of the Certificate Principal Balances of the Senior Certificates (other than the Class A-P Certificates) to zero but prior to the Credit Support Depletion Date, the Senior Certificates (other than the Class A-P Certificates) will be entitled to no further distributions of principal thereon and the Available Distribution Amount will be paid solely to the holders of the Class A-P Certificates, Class A-V Certificates, Class M Certificates and Class B Certificates, in each case as described herein. (e) In addition to the foregoing distributions, with respect to any Subsequent Recoveries, the Master Servicer shall deposit such funds into the Custodial Account pursuant to Section 3.07(b)(iii). If, after taking into account such Subsequent Recoveries, the amount of a Realized Loss is reduced, the amount of such Subsequent Recoveries will be applied to increase the Certificate Principal Balance of the Class of Subordinate Certificates with the Highest Priority to which Realized Losses, other than Excess Bankruptcy Losses, Excess Fraud Losses, Excess Special Hazard Losses and Extraordinary Losses, have been allocated, but not by more than the amount of Realized Losses previously allocated to that Class of Certificates pursuant to Section 4.05. The amount of any remaining Subsequent Recoveries will be applied to increase the Certificate Principal Balance of the Class of Certificates with the next Lower Priority, up to the amount of such Realized Losses previously allocated to that Class of Certificates pursuant to Section 4.05. Any remaining Subsequent Recoveries will in turn be applied to increase the Certificate Principal Balance of the Class of Certificates with the next Lower Priority up to the amount of such Realized Losses previously allocated to that Class of Certificates pursuant to Section 4.05, and so on. Holders of such Certificates will not be entitled to any payment in respect of Accrued Certificate Interest on the amount of such increases for any Interest Accrual Period preceding the Distribution Date on which such increase occurs. Any such increases shall be applied to the Certificate Principal Balance of each Certificate of such Class in accordance with its respective Percentage Interest. (f) Each distribution with respect to a Book-Entry Certificate shall be paid to the Depository, as Holder thereof, and the Depository shall be solely responsible for crediting the amount of such distribution to the accounts of its Depository Participants in accordance with its normal procedures. Each Depository Participant shall be responsible for disbursing such distribution to the Certificate Owners that it represents and to each indirect participating brokerage firm (a "brokerage firm" or "indirect participating firm") for which it acts as agent. Each brokerage firm shall be responsible for disbursing funds to the Certificate Owners that it represents. None of the Trustee, the Certificate Registrar, the Company or the Master Servicer shall have any responsibility therefor except as otherwise provided by this Series Supplement or applicable law. (g) Except as otherwise provided in Section 9.01, if the Master Servicer anticipates that a final distribution with respect to any Class of Certificates will be made on a future Distribution Date, the Master Servicer shall, no later than 40 days prior to such final distribution, notify the Trustee and the Trustee shall, not earlier than the 15th day and not later than the 25th day of the month next preceding the month of such final distribution, distribute, or cause to be distributed to each Holder of such Class of Certificates a notice to the effect that: (i) the Trustee anticipates that the final distribution with respect to such Class of Certificates will be made on such Distribution Date but only upon presentation and surrender of such Certificates at the office of the Trustee or as otherwise specified therein, and (ii) no interest shall accrue on such Certificates from and after the end of the related Interest Accrual Period. In the event that Certificateholders required to surrender their Certificates pursuant to Section 9.01(c) do not surrender their Certificates for final cancellation, the Trustee shall cause funds distributable with respect to such Certificates to be withdrawn from the Certificate Account and credited to a separate escrow account for the benefit of such Certificateholders as provided in Section 9.01(d). (h) On each Distribution Date preceding the Accretion Termination Date, an amount equal to the sum of the Accrued Certificate Interest that would otherwise be distributed to the Class A-4 and Class A-5 Certificates will be added to the Certificate Principal Balances thereof and will be distributed to the holders of the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates as distributions of principal pursuant to Section 4.02(a)(ii)(Y)(1) in reduction of the Certificate Principal Balance of the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates. Any distributions of the Accrual Distribution Amount to the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates will reduce the Certificate Principal Balance of each such Class by such amount. The amount that is added to the Certificate Principal Balances of the Class A-4 and Class A-5 Certificates will accrue interest at a rate of 5.75% per annum. On each Distribution Date on or after the Accretion Termination Date, the entire Accrued Certificate Interest on the Class A-4 and Class A-5 Certificates for such date will be payable to the holders of the Class A-4 and Class A-5 Certificates, as interest. Section 4.03 Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting. (See Section 4.03 of the Standard Terms) and Exhibit Three hereto) Section 4.04 Distribution of Reports to the Trustee and the Company; Advances by the Master Servicer. (See Section 4.04 of the Standard Terms) Section 4.05 Allocation of Realized Losses. Prior to each Distribution Date, the Master Servicer shall determine the total amount of Realized Losses, if any, that resulted from any Cash Liquidation, Servicing Modification, Debt Service Reduction, Deficient Valuation or REO Disposition that occurred during the related Prepayment Period or, in the case of a Servicing Modification that constitutes a reduction of the interest rate on a Mortgage Loan, the amount of the reduction in the interest portion of the Monthly Payment due during the related Due Period. The amount of each Realized Loss shall be evidenced by an Officers' Certificate. All Realized Losses, other than Excess Special Hazard Losses, Extraordinary Losses, Excess Bankruptcy Losses or Excess Fraud Losses, shall be allocated as follows: first, to the Class B-3 Certificates until the Certificate Principal Balance thereof has been reduced to zero; second, to the Class B-2 Certificates until the Certificate Principal Balance thereof has been reduced to zero; third, to the Class B-1 Certificates until the Certificate Principal Balance thereof has been reduced to zero; fourth, to the Class M-3 Certificates until the Certificate Principal Balance thereof has been reduced to zero; fifth, to the Class M-2 Certificates until the Certificate Principal Balance thereof has been reduced to zero; sixth, to the Class M-1 Certificates until the Certificate Principal Balance thereof has been reduced to zero; and, thereafter, if any such Realized Losses are on a Discount Mortgage Loan, to the Class A-P Certificates in an amount equal to the Discount Fraction of the principal portion thereof, and the remainder of such Realized Losses on the Discount Mortgage Loans and the entire amount of such Realized Losses on Non-Discount Mortgage Loans will be allocated among all the Senior Certificates (other than the Class A-V Certificates and Class A-P Certificates) in the case of the principal portion of such loss on a pro rata basis and among all of the Senior Certificates (other than the Class A-P Certificates) in the case of the interest portion of such loss on a pro rata basis, as described below; provided, however, that (i) such Realized Losses otherwise allocable to the Class A-1 Certificates will be allocated to the A-2 Certificates until the Certificate Principal Balance of the Class A-2 Certificates is reduced to zero, (ii) such Realized Losses otherwise allocable to the Class A-4 Certificates will be allocated to the A-5 Certificates until the Certificate Principal Balance of the Class A-5 Certificates is reduced to zero and (iii) such Realized Losses otherwise allocable to the Class A-6 Certificates will be allocated to the A-7 Certificates until the Certificate Principal Balance of the Class A-7 Certificates is reduced to zero. Any Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess Fraud Losses or Extraordinary Losses on Non-Discount Mortgage Loans will be allocated among the Senior Certificates (other than the Class A-P Certificates) and Subordinate Certificates, on a pro rata basis, as described below. The principal portion of such Realized Losses on the Discount Mortgage Loans will be allocated to the Class A-P Certificates in an amount equal to the Discount Fraction thereof and the remainder of such Realized Losses on the Discount Mortgage Loans and the entire amount of such Realized Losses on Non-Discount Mortgage Loans will be allocated among the Senior Certificates (other than the Class A-P Certificates) and Subordinate Certificates, on a pro rata basis, as described below; provided, however, that (i) such Realized Losses otherwise allocable to the Class A-1 Certificates will be allocated to the A-2 Certificates until the Certificate Principal Balance of the Class A-2 Certificates is reduced to zero, (ii) such Realized Losses otherwise allocable to the Class A-4 Certificates will be allocated to the A-5 Certificates until the Certificate Principal Balance of the Class A-5 Certificates is reduced to zero and (iii) such Realized Losses otherwise allocable to the Class A-6 Certificates will be allocated to the A-7 Certificates until the Certificate Principal Balance of the Class A-7 Certificates is reduced to zero. On any Distribution Date, Realized Losses will be allocated as set forth herein after distributions of principal on the Certificates as set forth herein. As used herein, an allocation of a Realized Loss on a "pro rata basis" among two or more specified Classes of Certificates means an allocation on a pro rata basis, among the various Classes so specified, to each such Class of Certificates on the basis of their then outstanding Certificate Principal Balances prior to giving effect to distributions to be made on such Distribution Date in the case of the principal portion of a Realized Loss or based on the Accrued Certificate Interest thereon payable on such Distribution Date (without regard to any Compensating Interest for such Distribution Date) in the case of an interest portion of a Realized Loss; provided that for the purposes of determining "pro rata", the Certificate Principal Balance of each class of the Accrual Certificates shall be deemed to be the lesser of (a) the related Certificate Principal Balance thereof as of the Closing Date or (b) the related Certificate Principal Balance thereof as of such date of determination. Except as provided in the following sentence, any allocation of the principal portion of Realized Losses (other than Debt Service Reductions) to a Class of Certificates shall be made by reducing the Certificate Principal Balance thereof by the amount so allocated, which allocation shall be deemed to have occurred on such Distribution Date; provided that no such reduction shall reduce the aggregate Certificate Principal Balance of the Certificates below the aggregate Stated Principal Balance of the Mortgage Loans. Any allocation of the principal portion of Realized Losses (other than Debt Service Reductions) to the Subordinate Certificates then outstanding with the Lowest Priority shall be made by operation of the definition of "Certificate Principal Balance" and by operation of the provisions of Section 4.02(a). Allocations of the interest portions of Realized Losses (other than any interest rate reduction resulting from a Servicing Modification) shall be made in proportion to the amount of Accrued Certificate Interest and by operation of the definition of "Accrued Certificate Interest" and by operation of the provisions of Section 4.02(a). Allocations of the interest portion of a Realized Loss resulting from an interest rate reduction in connection with a Servicing Modification shall be made by operation of the provisions of Section 4.02(a). Allocations of the principal portion of Debt Service Reductions shall be made by operation of the provisions of Section 4.02(a). All Realized Losses and all other losses allocated to a Class of Certificates hereunder will be allocated among the Certificates of such Class in proportion to the Percentage Interests evidenced thereby; provided that if any Subclasses of the Class A-V Certificates have been issued pursuant to Section 5.01(c), such Realized Losses and other losses allocated to the Class A-V Certificates shall be allocated among such Subclasses in proportion to the respective amounts of Accrued Certificate Interest payable on such Distribution Date that would have resulted absent such reductions. Section 4.06 Reports of Foreclosures and Abandonment of Mortgaged Property. (See Section 4.06 of the Standard Terms) Section 4.07 Optional Purchase of Defaulted Mortgage Loans. (See Section 4.07 of the Standard Terms) Section 4.08 Surety Bond. (See Section 4.08 of the Standard Terms) -------------------------------------------------------------------------------- ARTICLE V THE CERTIFICATES (SEE ARTICLE V OF THE STANDARD TERMS) -------------------------------------------------------------------------------- ARTICLE VI THE COMPANY AND THE MASTER SERVICER (SEE ARTICLE VI OF THE STANDARD TERMS) -------------------------------------------------------------------------------- ARTICLE VII DEFAULT (SEE ARTICLE VII OF THE STANDARD TERMS) -------------------------------------------------------------------------------- ARTICLE VIII CONCERNING THE TRUSTEE (SEE ARTICLE VIII OF THE STANDARD TERMS) -------------------------------------------------------------------------------- ARTICLE IX TERMINATION (SEE ARTICLE IX OF THE STANDARD TERMS) -------------------------------------------------------------------------------- ARTICLE X REMIC PROVISIONS Section 10.01 REMIC Administration. (See Section 10.01 of the Standard Terms) Section 10.02 Master Servicer; REMIC Administrator and Trustee Indemnification. (See Section 10.02 of the Standard Terms) Section 10.03 Designation of REMIC(s). The REMIC Administrator will make an election to treat the entire segregated pool of assets (including the Mortgage Loans but excluding the Initial Monthly Payment Fund) described in the definition of Trust Fund, and subject to this Agreement, as a REMIC for federal income tax purposes. The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-P, Class M-1, Class M-2, Class M-3, Class B-1, Class B-2 and Class B-3 Certificates and the Uncertificated Class A-V REMIC Regular Interests, the rights in and to which will be represented by the Class A-V Certificates, will be "regular interests" in the REMIC, and the Class R Certificates will be the sole class of "residual interests" therein for purposes of the REMIC Provisions (as defined in the Standard Terms) under federal income tax law. On and after the date of issuance of any Subclass of Class A-V Certificates pursuant to Section 5.01(c) of the Standard Terms, any such Subclass will represent the Uncertificated Class A-V REMIC Regular Interest or Interests specified by the initial Holder of the Class A-V Certificates pursuant to said Section. Section 10.04 Distributions on the Uncertificated Class A-V REMIC Regular Interests. (a) On each Distribution Date the Trustee shall be deemed to distribute to itself, as the holder of the Uncertificated Class A-V REMIC Regular Interests, Uncertificated Accrued Interest on the Uncertificated Class A-V REMIC Regular Interests for such Distribution Date, plus any Uncertificated Accrued Interest thereon remaining unpaid from any previous Distribution Date. (b) In determining from time to time the Uncertificated Class A-V REMIC Regular Interest Distribution Amounts, Realized Losses allocated to the Class A-V Certificates under Section 4.05 shall be deemed allocated to Uncertificated Class A-V REMIC Regular Interests on a pro rata basis based on the Uncertificated Class A-V REMIC Accrued Interest for the related Distribution Date. (c) On each Distribution Date, the Trustee shall be deemed to distribute from the Trust Fund, in the priority set forth in Section 4.02(a), to the Class A-V Certificates, the amounts distributable thereon from the Uncertificated Class A-V REMIC Regular Interest Distribution Amounts deemed to have been received by the Trustee from the Trust Fund under this Section 10.04. The amount deemed distributable hereunder with respect to the Class A-V Certificates shall equal 100% of the amounts payable with respect to the Uncertificated Class A-V REMIC Regular Interests. (d) Notwithstanding the deemed distributions on the Uncertificated Class A-V REMIC Regular Interests described in this Section 10.04, distributions of funds from the Certificate Account shall be made only in accordance with Section 4.02. Section 10.05 Compliance with Withholding Requirements. Notwithstanding any other provision of this Agreement, the Trustee or any Paying Agent, as applicable, shall comply with all federal withholding requirements respecting payments to Certificateholders, including interest or original issue discount payments or advances thereof that the Trustee or any Paying Agent, as applicable, reasonably believes are applicable under the Code. The consent of Certificateholders shall not be required for such withholding. In the event the Trustee or any Paying Agent, as applicable, does withhold any amount from interest or original issue discount payments or advances thereof to any Certificateholder pursuant to federal withholding requirements, the Trustee or any Paying Agent, as applicable, shall indicate the amount withheld to such Certificateholder pursuant to the terms of such requirements. -------------------------------------------------------------------------------- ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01 Amendment. (See Section 11.01 of the Standard Terms) Section 11.02 Recordation of Agreement, Counterparts. (See Section 11.02 of the Standard Terms) Section 11.03 Limitation on Rights of Certificateholders. (See Section 11.03 of the Standard Terms) Section 11.04 Governing Laws. (See Section 11.04 of the Standard Terms) Section 11.05 Notices. All demands and notices hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, postage prepaid (except for notices to the Trustee which shall be deemed to have been duly given only when received), to the appropriate address for each recipient listed in the table below or, in each case, such other address as may hereafter be furnished in writing to the Master Servicer, the Trustee and the Company, as applicable: Recipient Address Company 8400 Normandale Lake Boulevard Suite 250, Minneapolis, Minnesota 55437, Attention: President Master Servicer 2255 N. Ontario Street, Suite 400 Burbank, California 91504-2130, Attention: Managing Director/Master Servicing Trustee The Corporate Trust Office: U.S. Bank National Association U.S. Bank Corporate Trust Services EP-MN-WS3D 60 Livingston Avenue St. Paul, Minnesota 55107-2292 Attention: RFMSI 2006-S2 Fitch Ratings One State Street Plaza New York, New York 10004 Moody's Investors Service, Inc. 99 Church Street, 4th Floor New York, New York 10007 Standard & Poor's 55 Water Street New York, New York 10041 Any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at the address of such Holder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Section 11.06 Required Notices to Rating Agency and Subservicer. (See Section 11.06 of the Standard Terms) Section 11.07 Severability of Provisions. (See Section 11.07 of the Standard Terms) Section 11.08 Supplemental Provisions for Resecuritization. (See Section 11.08 of the Standard Terms) Section 11.09 Allocation of Voting Rights. 98.0% of all Voting Rights shall be allocated among Holders of Certificates, other than the Interest Only Certificates and the Class R Certificates, in proportion to the outstanding Certificate Principal Balances of their respective Certificates, 1.0% of all Voting Rights shall be allocated among the Holders of the Class A-V Certificates in accordance with their respective Percentage Interests and 1.0% of all Voting Rights shall be allocated among the Holders of the Class R Certificates in accordance with their respective Percentage Interests. Section 11.10 No Petition. (See Section 11.10 of the Standard Terms). -------------------------------------------------------------------------------- ARTICLE XII COMPLIANCE WITH REGULATION AB (SEE ARTICLE XII OF THE STANDARD TERMS) -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Company, the Master Servicer and the Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized and their respective seals, duly attested, to be hereunto affixed, all as of the day and year first above written. [Seal] RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC. Attest: By: Name: Mark White Name: Heather Anderson Title: Vice President Title: Vice President [Seal] RESIDENTIAL FUNDING CORPORATION Attest: By: Name: Heather Anderson Name: Mark White Title: Associate Title: Associate [Seal] U.S. BANK NATIONAL ASSOCIATION as Trustee Attest: By: Name: Name: Title: Title: -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF HENNEPIN ) On the ___ day of February, 2006 before me, a notary public in and for said State, personally appeared Heather Anderson, known to me to be a Vice President of Residential Funding Mortgage Securities I, Inc., one of the corporations that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public ____________________________________ [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF HENNEPIN ) On the ____ day of February, 2006 before me, a notary public in and for said State, personally appeared Mark White, known to me to be an Associate of Residential Funding Corporation, one of the corporations that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public ______________________________ [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF RAMSEY ) On the ___ day of February, 2006 before me, a notary public in and for said State, personally appeared ____________________, known to me to be a(n) __________________ of U.S. Bank National Association, a national banking association that executed the within instrument, and also known to me to be the person who executed it on behalf of said national banking association and acknowledged to me that such national banking association executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public _____________________________ [Notarial Seal] -------------------------------------------------------------------------------- EXHIBIT ONE MORTGAGE LOAN SCHEDULE (SEE EXHIBIT 99.1 ATTAHCED) -------------------------------------------------------------------------------- EXHIBIT TWO SCHEDULE OF DISCOUNT FRACTIONS (AVAILABLE FROM THE COMPANY UPON REQUEST) -------------------------------------------------------------------------------- EXHIBIT THREE INFORMATION TO BE INCLUDED IN MONTHLY DISTRIBUTION DATE STATEMENT (i) the applicable Record Date, Determination Date and Distribution Date; (ii) the aggregate amount of payments received with respect to the Mortgage Loans, including prepayment amounts; (iii) the Servicing Fee and Subservicing Fee payable to the Master Servicer and the Subservicer; (iv) the amount of any other fees or expenses paid; (v) (a) the amount of such distribution to the Certificateholders of such Class applied to reduce the Certificate Principal Balance thereof, and (b) the aggregate amount included therein representing Principal Prepayments; (vi) the amount of such distribution to Holders of such Class of Certificates allocable to interest; (vii) if the distribution to the Holders of such Class of Certificates is less than the full amount that would be distributable to such Holders if there were sufficient funds available therefor, the amount of the shortfall; (viii) the aggregate Certificate Principal Balance of each Class of Certificates and the Senior Percentage, before and after giving effect to the amounts distributed on such Distribution Date, separately identifying any reduction thereof due to Realized Losses other than pursuant to an actual distribution of principal; (ix) the weighted average remaining term to maturity of the Mortgage Loans after giving effect to the amounts distributed on such Distribution Date; (x) the weighted average Mortgage Rates of the Mortgage Loans after giving effect to the amounts distributed on such Distribution Date; (xi) if applicable, the Special Hazard Amount, Fraud Loss Amount and Bankruptcy Amount as of the close of business on the applicable Distribution Date; (xii) the number and Stated Principal Balance of the Mortgage Loans after giving effect to the distribution of principal on such Distribution Date and the number of Mortgage Loans at the beginning and end of the preceding Due Period; (xiii) on the basis of the most recent reports furnished to it by Sub-Servicers, the number and Stated Principal Balances of Mortgage Loans that are Delinquent (A) 30-59 days, (B) 60-89 days and (C) 90 or more days and the number and Stated Principal Balance of Mortgage Loans that are in foreclosure; (xiv) the aggregate amount of Realized Losses for such Distribution Date; (xv) the amount, terms and general purpose of any Advance by the Master Servicer pursuant to Section 4.04; (xvi) any material modifications, extensions or waivers to the terms of the Mortgage Loans during the Due Period or that have cumulatively become material over time; (xvii) any material breaches of Mortgage Loan representations or warranties or covenants in the Agreement. (xviii)the related Subordinate Principal Distribution Amount; (xix) the number, Stated Principal Balance and actual principal balance of REO Properties; (xx) the aggregate Accrued Certificate Interest remaining unpaid, if any, for each Class of Certificates, after giving effect to the distribution made on such Distribution Date; (xxi) the Pass-Through Rate with respect to the Class A-V Certificates; (xxii) the Notional Amount with respect to each class of Interest Only Certificates; (xxiii)the occurrence of the Credit Support Depletion Date; (xxiv) the Senior Accelerated Distribution Percentage for applicable to such distribution; (xxv) the Senior Percentage for such Distribution Date; and (xxvi) the aggregate amount of any recoveries on previously foreclosed loans from Sellers. In the case of information furnished pursuant to clauses (i) and (ii) above, the amounts shall be expressed as a dollar amount per Certificate with a $1,000 denomination. The Trustee's internet website will initially be located at http://www.usbank.com/mbs. To receive this statement via first class mail, telephone the Trustee at 1 (800) 934-6802. -------------------------------------------------------------------------------- EXHIBIT FOUR STANDARD TERMS OF POOLING AND SERVICING AGREEMENT Dated as of January 1, 2006 Residential Funding Mortgage Securities I, Inc. Mortgage Pass-Through Certificates ============================================================================================== -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS..................................................................1 Section 1.01. Definitions.......................................................1 Section 1.02. Use of Words and Phrases.........................................31 ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES............31 Section 2.01. Conveyance of Mortgage Loans.....................................32 Section 2.02. Acceptance by Trustee............................................38 Section 2.03. Representations, Warranties and Covenants of the Master Servicer and the Company.........................................39 Section 2.04. Representations and Warranties of Residential Funding............41 Section 2.05. Execution and Authentication of Certificates/Issuance of Certificates Evidencing Interests in REMIC I.....................43 Section 2.06. Conveyance of Uncertificated REMIC I and REMIC II Regular Interests; Acceptance by the Trustee.............................43 Section 2.07. Issuance of Certificates Evidencing Interests in REMIC II........43 Section 2.08. Purposes and Powers of the Trust.................................43 ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS..............................43 Section 3.01. Master Servicer to Act as Servicer...............................43 Section 3.02. Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' and Sellers' Obligations......................................................45 Section 3.03. Successor Subservicers...........................................46 Section 3.04. Liability of the Master Servicer.................................47 Section 3.05. No Contractual Relationship Between Subservicer and Trustee or Certificateholders............................................47 Section 3.06. Assumption or Termination of Subservicing Agreements by Trustee..........................................................47 Section 3.07. Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account................................................48 Section 3.08. Subservicing Accounts; Servicing Accounts........................50 Section 3.09. Access to Certain Documentation and Information Regarding the Mortgage Loans...............................................52 Section 3.10. Permitted Withdrawals from the Custodial Account.................52 Section 3.11. Maintenance of the Primary Insurance Policies; Collections Thereunder.......................................................54 Section 3.12. Maintenance of Fire Insurance and Omissions and Fidelity Coverage.........................................................55 Section 3.13. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments.....................56 Section 3.14. Realization Upon Defaulted Mortgage Loans........................58 Section 3.15. Trustee to Cooperate; Release of Mortgage Files..................62 Section 3.16. Servicing and Other Compensation; Compensating Interest..........63 Section 3.17. Reports to the Trustee and the Company...........................64 Section 3.18. Annual Statement as to Compliance................................64 Section 3.19. Annual Independent Public Accountants' Servicing Report..........65 Section 3.20. Rights of the Company in Respect of the Master Servicer..........65 Section 3.21. Administration of Buydown Funds..................................66 Section 3.22. Advance Facility.................................................66 ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS..............................................70 Section 4.01. Certificate Account..............................................70 Section 4.02. Distributions....................................................71 Section 4.03. Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting.................................71 Section 4.04. Distribution of Reports to the Trustee and the Company; Advances by the Master Servicer..................................73 Section 4.05. Allocation of Realized Losses....................................74 Section 4.06. Reports of Foreclosures and Abandonment of Mortgaged Property....75 Section 4.07. Optional Purchase of Defaulted Mortgage Loans....................75 Section 4.08. Surety Bond......................................................75 ARTICLE V THE CERTIFICATES............................................................76 Section 5.01. The Certificates.................................................76 Section 5.02. Registration of Transfer and Exchange of Certificates............78 Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates................84 Section 5.04. Persons Deemed Owners............................................84 Section 5.05. Appointment of Paying Agent......................................85 ARTICLE VI THE COMPANY AND THE MASTER SERVICER.........................................85 Section 6.01. Respective Liabilities of the Company and the Master Servicer....85 Section 6.02. Merger or Consolidation of the Company or the Master Servicer; Assignment of Rights and Delegation of Duties by Master Servicer..................................................85 Section 6.03. Limitation on Liability of the Company, the Master Servicer and Others.......................................................86 Section 6.04. Company and Master Servicer Not to Resign........................87 ARTICLE VII DEFAULT.....................................................................87 Section 7.01. Events of Default................................................87 Section 7.02. Trustee or Company to Act; Appointment of Successor..............89 Section 7.03. Notification to Certificateholders...............................90 Section 7.04. Waiver of Events of Default......................................91 ARTICLE VIII CONCERNING THE TRUSTEE......................................................91 Section 8.01. Duties of Trustee................................................91 Section 8.02. Certain Matters Affecting the Trustee............................93 Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans............94 Section 8.04. Trustee May Own Certificates.....................................95 Section 8.05. Master Servicer to Pay Trustee's Fees and Expenses; Indemnification..................................................95 Section 8.06. Eligibility Requirements for Trustee.............................96 Section 8.07. Resignation and Removal of the Trustee...........................96 Section 8.08. Successor Trustee................................................97 Section 8.09. Merger or Consolidation of Trustee...............................98 Section 8.10. Appointment of Co-Trustee or Separate Trustee....................98 Section 8.11. Appointment of Custodians........................................99 Section 8.12. Appointment of Office or Agency..................................99 ARTICLE IX TERMINATION OR OPTIONAL PURCHASE OF ALL CERTIFICATES........................99 Section 9.01. Optional Purchase by the Master Servicer of All Certificates; Termination Upon Purchase by the Master Servicer or Liquidation of All Mortgage Loans....................99 Section 9.02. Additional Termination Requirements.............................103 Section 9.03. Termination of Multiple REMICs..................................104 ARTICLE X REMIC PROVISIONS...........................................................104 Section 10.01. REMIC Administration............................................104 Section 10.02. Master Servicer, REMIC Administrator and Trustee Indemnification.................................................107 Section 10.03. Designation of REMIC(s).........................................108 ARTICLE XI MISCELLANEOUS PROVISIONS...................................................108 Section 11.01. Amendment.......................................................108 Section 11.02. Recordation of Agreement; Counterparts..........................111 Section 11.03. Limitation on Rights of Certificateholders......................111 Section 11.04. Governing Law...................................................112 Section 11.05. Notices.........................................................112 Section 11.06. Required Notices to Rating Agency and Subservicer...............112 Section 11.07. Severability of Provisions......................................113 Section 11.08. Supplemental Provisions for Resecuritization....................113 Section 11.09. Allocation of Voting Rights.....................................114 ARTICLE XII COMPLIANCE WITH REGULATION AB..............................................114 Section 12.01. Intent of Parties; Reasonableness...............................114 Section 12.02. Additional Representations and Warranties of the Trustee........114 Section 12.03. Information to be Provided by the Trustee.......................115 Section 12.04. Report on Assessment of Compliance and Attestation..............115 Section 12.05. Indemnification; Remedies.......................................116 -------------------------------------------------------------------------------- EXHIBITS Exhibit A: Form of Class A Certificate Exhibit B: Form of Class M Certificate Exhibit C: Form of Class B Certificate Exhibit D: Form of Class R Certificate Exhibit E: Form of Seller/Servicer Contract Exhibit F: Forms of Request for Release Exhibit G-1: Form of Transfer Affidavit and Agreement Exhibit G-2: Form of Transferor Certificate Exhibit H: Form of Investor Representation Letter Exhibit I: Form of Transferor Representation Letter Exhibit J: Form of Rule 144A Investment Representation Letter Exhibit K: Text of Amendment to Pooling and Servicing Agreement Pursuant to Section 11.01(e) for a Limited Guaranty Exhibit L: Form of Limited Guaranty Exhibit M: Form of Lender Certification for Assignment of Mortgage Loan Exhibit N: Request for Exchange Form Exhibit O: Form of Form 10-K Certification Exhibit P: Form of Back-Up Certification to Form 10-K Certificate Exhibit Q: Information to be Provided by the Master Servicer to the Rating Agencies Relating to Reportable Modified Mortgage Loans Exhibit R: Servicing Criteria -------------------------------------------------------------------------------- This is the Standard Terms of Pooling and Servicing Agreement, dated as of January 1, 2006 (the "Standard Terms", and as incorporated by reference into a Series Supplement dated as of the Cut-off Date, the "Pooling and Servicing Agreement" or "Agreement"), among RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC., as the company (together with its permitted successors and assigns, the "Company"), RESIDENTIAL FUNDING CORPORATION, as master servicer (together with its permitted successors and assigns, the "Master Servicer"), and the trustee named in the applicable Series Supplement (together with its permitted successors and assigns, the "Trustee"). PRELIMINARY STATEMENT: The Company intends to sell certain mortgage pass-through certificates (collectively, the "Certificates"), to be issued under each Agreement in multiple classes, which in the aggregate will evidence the entire beneficial ownership interest in the Mortgage Loans. In consideration of the mutual agreements herein contained, the Company, the Master Servicer and the Trustee agree as follows: ARTICLE I DEFINITIONS Section 1.01...Definitions. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article. Accretion Termination Date: As defined in the Series Supplement. Accrual Certificates: As defined in the Series Supplement. Accrued Certificate Interest: With respect to each Distribution Date, as to any Class or Subclass of Certificates (other than any Principal Only Certificates), interest accrued during the related Interest Accrual Period at the related Pass-Through Rate on the Certificate Principal Balance or Notional Amount thereof immediately prior to such Distribution Date. Accrued Certificate Interest will be calculated on the basis of a 360-day year, consisting of twelve 30-day months. In each case Accrued Certificate Interest on any Class or Subclass of Certificates will be reduced by the amount of: (i) Prepayment Interest Shortfalls on all Mortgage Loans or, if the Mortgage Pool is comprised of two or more Loan Groups, on the Mortgage Loans in the related Loan Group (to the extent not offset by the Master Servicer with a payment of Compensating Interest as provided in Section 4.01), (ii) the interest portion (adjusted to the Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan)) of Realized Losses on all Mortgage Loans or, if the Mortgage Pool is comprised of two or more Loan Groups, on the Mortgage Loans in the related Loan Group (including Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses) not allocated solely to one or more specific Classes of Certificates pursuant to Section 4.05, (iii) the interest portion of Advances that were (A) previously made with respect to a Mortgage Loan or REO Property on all Mortgage Loans or, if the Mortgage Pool is comprised of two or more Loan Groups, on the Mortgage Loans in the related Loan Group, which remained unreimbursed following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property or (B) made with respect to delinquencies that were ultimately determined to be Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, and (iv) any other interest shortfalls not covered by the subordination provided by the Class M Certificates and Class B Certificates, including interest that is not collectible from the Mortgagor pursuant to the Relief Act, with all such reductions allocated (A) among all of the Certificates in proportion to their respective amounts of Accrued Certificate Interest payable on such Distribution Date absent such reductions or (B) if the Mortgage Pool is comprised of two or more Loan Groups, the related Senior Percentage of such reductions among the related Senior Certificates in proportion to the amounts of Accrued Certificate Interest payable from the related Loan Group on such Distribution Date absent such reductions, with the remainder of such reductions allocated among the holders of the Class M Certificates and Class B Certificates in proportion to their respective amounts of Accrued Certificate Interest payable on such Distribution Date absent such reductions. In addition to that portion of the reductions described in the preceding sentence that are allocated to any Class of Class B Certificates or any Class of Class M Certificates, Accrued Certificate Interest on such Class of Class B Certificates or such Class of Class M Certificates will be reduced by the interest portion (adjusted to the Net Mortgage Rate) of Realized Losses that are allocated solely to such Class of Class B Certificates or such Class of Class M Certificates pursuant to Section 4.05. Addendum and Assignment Agreement: The Addendum and Assignment Agreement, dated as of January 31, 1995, between MLCC and the Master Servicer. Additional Collateral: Any of the following held, in addition to the related Mortgaged Property, as security for a Mortgage Loan: (i) all money, securities, security entitlements, accounts, general intangibles, payment rights, instruments, documents, deposit accounts, certificates of deposit, commodities contracts and other investment property and other property of whatever kind or description now existing or hereafter acquired which is pledged as security for the repayment of such Mortgage Loan, (ii) third-party guarantees, and (A) all money, securities, security entitlements, accounts, general intangibles, payment rights, instruments, documents, deposit accounts, certificates of deposit, commodities contracts and other investment property and other property of whatever kind or description now existing or hereafter acquired which is pledged as collateral for such guarantee or (B) any mortgaged property securing the performance of such guarantee, or (iii) such other collateral as may be set forth in the Series Supplement. Additional Collateral Loan: Each Mortgage Loan that is supported by Additional Collateral. Adjusted Mortgage Rate: With respect to any Mortgage Loan and any date of determination, the Mortgage Rate borne by the related Mortgage Note, less the rate at which the related Subservicing Fee accrues. Advance: As to any Mortgage Loan, any advance made by the Master Servicer, pursuant to Section 4.04. Affiliate: With respect to any Person, any other Person controlling, controlled by or under common control with such first Person. For the purposes of this definition, "control" means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Ambac: Ambac Assurance Corporation (formerly known as AMBAC Indemnity Corporation). Amount Held for Future Distribution: As to any Distribution Date and, with respect to any Mortgage Pool that is comprised of two or more Loan Groups, each Loan Group, the total of the amounts held in the Custodial Account at the close of business on the preceding Determination Date on account of (i) Liquidation Proceeds, Subsequent Recoveries, Insurance Proceeds, Curtailments, Mortgage Loan purchases made pursuant to Section 2.02, 2.03, 2.04 or 4.07 and Mortgage Loan substitutions made pursuant to Section 2.03 or 2.04 received or made in the month of such Distribution Date (other than such Liquidation Proceeds, Insurance Proceeds and purchases of Mortgage Loans that the Master Servicer has deemed to have been received in the preceding month in accordance with Section 3.07(b)), and Principal Prepayments in Full made after the related Prepayment Period, and (ii) payments which represent early receipt of scheduled payments of principal and interest due on a date or dates subsequent to the related Due Date. Appraised Value: As to any Mortgaged Property, the lesser of (i) the appraised value of such Mortgaged Property based upon the appraisal made at the time of the origination of the related Mortgage Loan, and (ii) the sales price of the Mortgaged Property at such time of origination, except in the case of a Mortgaged Property securing a refinanced or modified Mortgage Loan as to which it is either the appraised value determined above or the appraised value determined in an appraisal at the time of refinancing or modification, as the case may be. Assigned Contracts: With respect to any Pledged Asset Loan: the Credit Support Pledge Agreement; the Funding and Pledge Agreement, among GMAC Mortgage Corporation, National Financial Services Corporation and the Mortgagor or other person pledging the related Pledged Assets; the Additional Collateral Agreement, between GMAC Mortgage Corporation and the Mortgagor or other person pledging the related Pledged Assets; or such other contracts as may be set forth in the Series Supplement. Assignment: An assignment of the Mortgage, notice of transfer or equivalent instrument, in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of the Mortgage Loan to the Trustee for the benefit of Certificateholders, which assignment, notice of transfer or equivalent instrument may be in the form of one or more blanket assignments covering Mortgages secured by Mortgaged Properties located in the same county, if permitted by law and accompanied by an Opinion of Counsel to that effect. Assignment Agreement: The Assignment and Assumption Agreement, dated the Closing Date, between Residential Funding and the Company relating to the transfer and assignment of the Mortgage Loans. Assignment of Proprietary Lease: With respect to a Cooperative Loan, the assignment of the related Cooperative Lease from the Mortgagor to the originator of the Cooperative Loan. Available Distribution Amount: As to any Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, each Loan Group, an amount equal to (a) the sum of (i) the amount relating to the Mortgage Loans on deposit in the Custodial Account as of the close of business on the immediately preceding Determination Date, including any Subsequent Recoveries, and amounts deposited in the Custodial Account in connection with the substitution of Qualified Substitute Mortgage Loans, (ii) the amount of any Advance made on the immediately preceding Certificate Account Deposit Date, (iii) any amount deposited in the Certificate Account on the related Certificate Account Deposit Date pursuant to the second paragraph of Section 3.12(a), (iv) any amount deposited in the Certificate Account pursuant to Section 4.07 and any amounts deposited in the Custodial Account pursuant to Section 9.01, (v) any amount that the Master Servicer is not permitted to withdraw from the Custodial Account or the Certificate Account pursuant to Section 3.16(e), (vi) any amount received by the Trustee pursuant to the Surety Bond in respect of such Distribution Date and (vii) the proceeds of any Pledged Assets received by the Master Servicer, reduced by (b) the sum as of the close of business on the immediately preceding Determination Date of (x) the Amount Held for Future Distribution, and (y) amounts permitted to be withdrawn by the Master Servicer from the Custodial Account in respect of the Mortgage Loans pursuant to clauses (ii)-(x), inclusive, of Section 3.10(a). Such amount shall be determined separately for each Loan Group. Additionally, with respect to any Mortgage Pool that is comprised of two or more Loan Groups, if on any Distribution Date Compensating Interest provided pursuant to Section 3.16(e) is less than Prepayment Interest Shortfalls incurred on the Mortgage Loans in connection with Principal Prepayments in Full received during the related Prepayment Period and Curtailments made in the prior calendar month, such Compensating Interest shall be allocated on such Distribution Date to the Available Distribution Amount for each Loan Group on a pro rata basis in accordance with the respective amounts of such Prepayment Interest Shortfalls incurred on the Mortgage Loans in such Loan Group in respect of such Distribution Date. Bankruptcy Code: The Bankruptcy Code of 1978, as amended. Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient Valuation or Debt Service Reduction; provided, however, that neither a Deficient Valuation nor a Debt Service Reduction shall be deemed a Bankruptcy Loss hereunder so long as the Master Servicer has notified the Trustee in writing that the Master Servicer is diligently pursuing any remedies that may exist in connection with the representations and warranties made regarding the related Mortgage Loan and either (A) the related Mortgage Loan is not in default with regard to payments due thereunder or (B) delinquent payments of principal and interest under the related Mortgage Loan and any premiums on any applicable primary hazard insurance policy and any related escrow payments in respect of such Mortgage Loan are being advanced on a current basis by the Master Servicer or a Subservicer, in either case without giving effect to any Debt Service Reduction. Book-Entry Certificate: Any Certificate registered in the name of the Depository or its nominee, and designated as such in the Preliminary Statement to the Series Supplement. Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the State of New York, the State of Michigan, the State of California , the State of Illinois or the City of St. Paul, Minnesota (and such other state or states in which the Custodial Account or the Certificate Account are at the time located) are required or authorized by law or executive order to be closed. Buydown Funds: Any amount contributed by the seller of a Mortgaged Property, the Company or other source in order to enable the Mortgagor to reduce the payments required to be made from the Mortgagor's funds in the early years of a Mortgage Loan. Buydown Funds are not part of the Trust Fund prior to deposit into the Custodial or Certificate Account. Buydown Mortgage Loan: Any Mortgage Loan as to which a specified amount of interest is paid out of related Buydown Funds in accordance with a related buydown agreement. Capitalization Reimbursement Amount: As to any Distribution Date, the amount of Advances or Servicing Advances that were added to the Stated Principal Balance of the related Mortgage Loans during the prior calendar month and reimbursed to the Master Servicer or Subservicer on or prior to such Distribution Date pursuant to Section 3.10(a)(vii), plus the Capitalization Reimbursement Shortfall Amount remaining unreimbursed from any prior Distribution Date and reimbursed to the Master Servicer or Subservicer on or prior to such Distribution Date. Capitalization Reimbursement Shortfall Amount: As to any Distribution Date, the amount, if any, by which the amount of Advances or Servicing Advances that were added to the Stated Principal Balance of the Mortgage Loans during the preceding calendar month exceeds the amount of principal payments on the Mortgage Loans included in the Available Distribution Amount for that Distribution Date. Call Rights: As defined in Section 9.01(f). Cash Liquidation: As to any defaulted Mortgage Loan other than a Mortgage Loan as to which an REO Acquisition occurred, a determination by the Master Servicer that it has received all Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries which the Master Servicer reasonably and in good faith expects to be finally recoverable with respect to such Mortgage Loan. Certificate Account Deposit Date: As to any Distribution Date, the Business Day prior thereto. Certificateholder or Holder: The Person in whose name a Certificate is registered in the Certificate Register, and, in respect of any Insured Certificates, the Certificate Insurer to the extent of Cumulative Insurance Payments, except that neither a Disqualified Organization nor a Non-United States Person shall be a holder of a Class R Certificate for purposes hereof and, solely for the purpose of giving any consent or direction pursuant to this Agreement, any Certificate, other than a Class R Certificate, registered in the name of the Company, the Master Servicer or any Subservicer or any Affiliate thereof shall be deemed not to be outstanding and the Percentage Interest or Voting Rights evidenced thereby shall not be taken into account in determining whether the requisite amount of Percentage Interests or Voting Rights necessary to effect any such consent or direction has been obtained. All references herein to "Holders" or "Certificateholders" shall reflect the rights of Certificate Owners as they may indirectly exercise such rights through the Depository and participating members thereof, except as otherwise specified herein; provided, however, that the Trustee shall be required to recognize as a "Holder" or "Certificateholder" only the Person in whose name a Certificate is registered in the Certificate Register. Certificate Insurer: As defined in the Series Supplement. Certificate Owner: With respect to a Book-Entry Certificate, the Person who is the beneficial owner of such Certificate, as reflected on the books of an indirect participating brokerage firm for which a Depository Participant acts as agent, if any, and otherwise on the books of a Depository Participant, if any, and otherwise on the books of the Depository. Certificate Principal Balance: With respect to each Certificate (other than any Interest Only Certificate), on any date of determination, an amount equal to: (i) the Initial Certificate Principal Balance of such Certificate as specified on the face thereof, plus (ii) any Subsequent Recoveries added to the Certificate Principal Balance of such Certificate pursuant to Section 4.02, plus (iii) in the case of each Accrual Certificate, an amount equal to the aggregate Accrued Certificate Interest added to the Certificate Principal Balance thereof prior to such date of determination, minus (iv) the sum of (x) the aggregate of all amounts previously distributed with respect to such Certificate (or any predecessor Certificate) and applied to reduce the Certificate Principal Balance thereof pursuant to Section 4.02(a) and (y) the aggregate of all reductions in Certificate Principal Balance deemed to have occurred in connection with Realized Losses which were previously allocated to such Certificate (or any predecessor Certificate) pursuant to Section 4.05; provided, that the Certificate Principal Balance of the Class of Subordinate Certificates with the Lowest Priority at any given time shall be further reduced by an amount equal to the Percentage Interest evidenced by such Certificate multiplied by the excess, if any, of (A) the then aggregate Certificate Principal Balance of all Classes of Certificates then outstanding over (B) the then aggregate Stated Principal Balance of the Mortgage Loans. Certificate Register and Certificate Registrar: The register maintained and the registrar appointed pursuant to Section 5.02. Class: Collectively, all of the Certificates bearing the same designation. The initial Class A-V Certificates and any Subclass thereof issued pursuant to Section 5.01(c) shall be a single Class for purposes of this Agreement. Class A-P Certificate: Any one of the Certificates designated as a Class A-P Certificate. Class A-P Collection Shortfall: With respect to the Cash Liquidation or REO Disposition of a Discount Mortgage Loan and any Distribution Date, the excess of the amount described in Section 4.02(b)(i)(C)(1) over the amount described in Section 4.02(b)(i)(C)(2). Class A-P Principal Distribution Amount: As defined in Section 4.02. Class A-V Certificate: Any one of the Certificates designated as a Class A-V Certificate, including any Subclass thereof. Class B Certificate: Any one of the Certificates designated as a Class B-1 Certificate, Class B-2 Certificate or Class B-3 Certificate. Class M Certificate: Any one of the Certificates designated as a Class M-1 Certificate, Class M-2 Certificate or Class M-3 Certificate. Closing Date: As defined in the Series Supplement. Code: The Internal Revenue Code of 1986. Combined Collateral LLC: Combined Collateral LLC, a Delaware limited liability company. Commission: The Securities and Exchange Commission. Compensating Interest: With respect to any Distribution Date, an amount equal to Prepayment Interest Shortfalls resulting from Principal Prepayments in Full during the related Prepayment Period and Curtailments during the prior calendar month and included in the Available Distribution Amount for such Distribution Date, but not more than the lesser of (a) one-twelfth of 0.125% of the Stated Principal Balance of the Mortgage Loans immediately preceding such Distribution Date and (b) the sum of the Servicing Fee and all income and gain on amounts held in the Custodial Account and the Certificate Account and payable to the Certificateholders with respect to such Distribution Date; provided that for purposes of this definition the amount of the Servicing Fee will not be reduced pursuant to Section 7.02(a) except as may be required pursuant to the last sentence of such paragraph. Cooperative: A private, cooperative housing corporation which owns or leases land and all or part of a building or buildings, including apartments, spaces used for commercial purposes and common areas therein and whose board of directors authorizes, among other things, the sale of Cooperative Stock. Cooperative Apartment: A dwelling unit in a multi-dwelling building owned or leased by a Cooperative, which unit the Mortgagor has an exclusive right to occupy pursuant to the terms of a proprietary lease or occupancy agreement. Cooperative Lease: With respect to a Cooperative Loan, the proprietary lease or occupancy agreement with respect to the Cooperative Apartment occupied by the Mortgagor and relating to the related Cooperative Stock, which lease or agreement confers an exclusive right to the holder of such Cooperative Stock to occupy such apartment. Cooperative Loans: Any of the Mortgage Loans made in respect of a Cooperative Apartment, evidenced by a Mortgage Note and secured by (i) a Security Agreement, (ii) the related Cooperative Stock Certificate, (iii) an assignment of the Cooperative Lease, (iv) financing statements and (v) a stock power (or other similar instrument), and ancillary thereto, a recognition agreement between the Cooperative and the originator of the Cooperative Loan, each of which was transferred and assigned to the Trustee pursuant to Section 2.01 and are from time to time held as part of the Trust Fund. Cooperative Stock: With respect to a Cooperative Loan, the single outstanding class of stock, partnership interest or other ownership instrument in the related Cooperative. Cooperative Stock Certificate: With respect to a Cooperative Loan, the stock certificate or other instrument evidencing the related Cooperative Stock. Credit Repository: Equifax, Transunion and Experian, or their successors in interest. Credit Support Depletion Date: The first Distribution Date on which the Certificate Principal Balances of the Subordinate Certificates have been reduced to zero. Credit Support Pledge Agreement: The Credit Support Pledge Agreement, dated as of November 24, 1998, among the Master Servicer, GMAC Mortgage Corporation, Combined Collateral LLC and The First National Bank of Chicago (now known as Bank One, National Association), as custodian. Cumulative Insurance Payments: As defined in the Series Supplement. Curtailment: Any Principal Prepayment made by a Mortgagor which is not a Principal Prepayment in Full. Custodial Account: The custodial account or accounts created and maintained pursuant to Section 3.07 in the name of a depository institution, as custodian for the holders of the Certificates, for the holders of certain other interests in mortgage loans serviced or sold by the Master Servicer and for the Master Servicer, into which the amounts set forth in Section 3.07 shall be deposited directly. Any such account or accounts shall be an Eligible Account. Custodial Agreement: An agreement that may be entered into among the Company, the Master Servicer, the Trustee and a Custodian pursuant to which the Custodian will hold certain documents relating to the Mortgage Loans on behalf of the Trustee. Custodian: A custodian appointed pursuant to a Custodial Agreement. Cut-off Date Principal Balance: As to any Mortgage Loan, the unpaid principal balance thereof at the Cut-off Date after giving effect to all installments of principal due on or prior thereto (or due during the month of the Cut-Off Date), whether or not received. Debt Service Reduction: With respect to any Mortgage Loan, a reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of competent jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction constituting a Deficient Valuation or any reduction that results in a permanent forgiveness of principal. Deficient Valuation: With respect to any Mortgage Loan, a valuation by a court of competent jurisdiction of the Mortgaged Property in an amount less than the then outstanding indebtedness under the Mortgage Loan, or any reduction in the amount of principal to be paid in connection with any scheduled Monthly Payment that constitutes a permanent forgiveness of principal, which valuation or reduction results from a proceeding under the Bankruptcy Code. Definitive Certificate: Any Certificate other than a Book-Entry Certificate. Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced with a Qualified Substitute Mortgage Loan. Delinquent: As used herein, a Mortgage Loan is considered to be: "30 to 59 days" or "30 or more days" delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the last business day immediately prior to the next following monthly scheduled due date; "60 to 89 days" or "60 or more days" delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the last business day immediately prior to the second following monthly scheduled due date; and so on. The determination as to whether a Mortgage Loan falls into these categories is made as of the close of business on the last business day of each month. For example, a Mortgage Loan with a payment due on July 1 that remained unpaid as of the close of business on July 31 would then be considered to be 30 to 59 days delinquent. Delinquency information as of the Cut-off Date is determined and prepared as of the close of business on the last business day immediately prior to the Cut-off Date. Depository: The Depository Trust Company, or any successor Depository hereafter named. The nominee of the initial Depository for purposes of registering those Certificates that are to be Book-Entry Certificates is Cede & Co. The Depository shall at all times be a "clearing corporation" as defined in Section 8-102(a)(5) of the Uniform Commercial Code of the State of New York and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. Depository Participant: A broker, dealer, bank or other financial institution or other Person for whom from time to time a Depository effects book-entry transfers and pledges of securities deposited with the Depository. Destroyed Mortgage Note: A Mortgage Note the original of which was permanently lost or destroyed and has not been replaced. Determination Date: As defined in the Series Supplement. Discount Fraction: With respect to each Discount Mortgage Loan, the fraction expressed as a percentage, the numerator of which is the Discount Net Mortgage Rate minus the Net Mortgage Rate (or the initial Net Mortgage Rate with respect to any Discount Mortgage Loans as to which the Mortgage Rate is modified pursuant to 3.07(a)) for such Mortgage Loan and the denominator of which is the Discount Net Mortgage Rate. The Discount Fraction with respect to each Discount Mortgage Loan is set forth as an exhibit attached to the Series Supplement. Discount Mortgage Loan: Any Mortgage Loan having a Net Mortgage Rate (or the initial Net Mortgage Rate) of less than the Discount Net Mortgage Rate per annum and any Mortgage Loan deemed to be a Discount Mortgage Loan pursuant to the definition of Qualified Substitute Mortgage Loan. Discount Net Mortgage Rate: As defined in the Series Supplement. Disqualified Organization: Any organization defined as a "disqualified organization" under Section 860E(e)(5) of the Code, and if not otherwise included, any of the following: (i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing (other than an instrumentality which is a corporation if all of its activities are subject to tax and, except for Freddie Mac, a majority of its board of directors is not selected by such governmental unit), (ii) a foreign government, any international organization, or any agency or instrumentality of any of the foregoing, (iii) any organization (other than certain farmers' cooperatives described in Section 521 of the Code) which is exempt from the tax imposed by Chapter 1 of the Code (including the tax imposed by Section 511 of the Code on unrelated business taxable income), (iv) rural electric and telephone cooperatives described in Section 1381(a)(2)(C) of the Code, (v) any "electing large partnership," as defined in Section 775(a) of the Code and (vi) any other Person so designated by the Trustee based upon an Opinion of Counsel that the holding of an Ownership Interest in a Class R Certificate by such Person may cause the Trust Fund or any Person having an Ownership Interest in any Class of Certificates (other than such Person) to incur a liability for any federal tax imposed under the Code that would not otherwise be imposed but for the Transfer of an Ownership Interest in a Class R Certificate to such Person. The terms "United States", "State" and "international organization" shall have the meanings set forth in Section 7701 of the Code or successor provisions. Distribution Date: The 25th day of any month beginning in the month immediately following the month of the initial issuance of the Certificates or, if such 25th day is not a Business Day, the Business Day immediately following such 25th day. Due Date: With respect to any Distribution Date and any Mortgage Loan, the day during the related Due Period on which the Monthly Payment is due. Due Period: With respect to any Distribution Date, the one-month period set forth in the Series Supplement. Eligible Account: An account that is any of the following: (i) maintained with a depository institution the debt obligations of which have been rated by each Rating Agency in its highest rating available, or (ii) an account or accounts in a depository institution in which such accounts are fully insured to the limits established by the FDIC, provided that any deposits not so insured shall, to the extent acceptable to each Rating Agency, as evidenced in writing, be maintained such that (as evidenced by an Opinion of Counsel delivered to the Trustee and each Rating Agency) the registered Holders of Certificates have a claim with respect to the funds in such account or a perfected first security interest against any collateral (which shall be limited to Permitted Investments) securing such funds that is superior to claims of any other depositors or creditors of the depository institution with which such account is maintained, or (iii) in the case of the Custodial Account, a trust account or accounts maintained in the corporate trust department of the Trustee, or (iv) in the case of the Certificate Account, a trust account or accounts maintained in the corporate trust department of the Trustee, or (v) an account or accounts of a depository institution acceptable to each Rating Agency (as evidenced in writing by each Rating Agency that use of any such account as the Custodial Account or the Certificate Account will not reduce the rating assigned to any Class of Certificates by such Rating Agency below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency). Event of Default: As defined in Section 7.01. Excess Bankruptcy Loss: Any Bankruptcy Loss, or portion thereof, which exceeds the then applicable Bankruptcy Amount. Excess Fraud Loss: Any Fraud Loss, or portion thereof, which exceeds the then applicable Fraud Loss Amount. Excess Special Hazard Loss: Any Special Hazard Loss, or portion thereof, that exceeds the then applicable Special Hazard Amount. Excess Subordinate Principal Amount: With respect to any Distribution Date on which the aggregate Certificate Principal Balance of the Class of Subordinate Certificates then outstanding with the Lowest Priority is to be reduced to zero and on which Realized Losses are to be allocated to such class or classes, the excess, if any, of (i) the amount that would otherwise be distributable in respect of principal on such class or classes of Certificates on such Distribution Date over (ii) the excess, if any, of the aggregate Certificate Principal Balance of such class or classes of Certificates immediately prior to such Distribution Date over the aggregate amount of Realized Losses to be allocated to such classes of Certificates on such Distribution Date as reduced by any amount calculated pursuant to Section 4.02(b)(i)(E). With respect to any Mortgage Pool that is comprised of two or more Loan Groups, the Excess Subordinate Principal Amount will be allocated between each Loan Group on a pro rata basis in accordance with the amount of Realized Losses attributable to each Loan Group and allocated to the Certificates on such Distribution Date. Exchange Act: The Securities and Exchange Act of 1934, as amended. Extraordinary Events: Any of the following conditions with respect to a Mortgaged Property (or, with respect to a Cooperative Loan, the Cooperative Apartment) or Mortgage Loan causing or resulting in a loss which causes the liquidation of such Mortgage Loan: (a)....losses that are of the type that would be covered by the fidelity bond and the errors and omissions insurance policy required to be maintained pursuant to Section 3.12(b) but are in excess of the coverage maintained thereunder; (b)....nuclear reaction or nuclear radiation or radioactive contamination, all whether controlled or uncontrolled, and whether such loss be direct or indirect, proximate or remote or be in whole or in part caused by, contributed to or aggravated by a peril covered by the definition of the term "Special Hazard Loss"; (c)....hostile or warlike action in time of peace or war, including action in hindering, combating or defending against an actual, impending or expected attack: 1. by any government or sovereign power, de jure or de facto, or by any authority maintaining or using military, naval or air forces; or 2. by military, naval or air forces; or 3. by an agent of any such government, power, authority or forces; (d)....any weapon of war employing atomic fission or radioactive force whether in time of peace or war; or (e)....insurrection, rebellion, revolution, civil war, usurped power or action taken by governmental authority in hindering, combating or defending against such an occurrence, seizure or destruction under quarantine or customs regulations, confiscation by order of any government or public authority; or risks of contraband or illegal transportation or trade. Extraordinary Losses: Any loss incurred on a Mortgage Loan caused by or resulting from an Extraordinary Event. Fannie Mae: Federal National Mortgage Association, a federally chartered and privately owned corporation organized and existing under the Federal National Mortgage Association Charter Act, or any successor thereto. FDIC: Federal Deposit Insurance Corporation or any successor thereto. Final Distribution Date: The Distribution Date on which the final distribution in respect of the Certificates will be made pursuant to Section 9.01, which Final Distribution Date shall in no event be later than the end of the 90-day liquidation period described in Section 9.02. Fitch: Fitch, Inc. or its successor in interest. Form 10-K Certification: As defined in Section 4.03(e). Foreclosure Profits: As to any Distribution Date or related Determination Date and any Mortgage Loan, the excess, if any, of Liquidation Proceeds, Insurance Proceeds and REO Proceeds (net of all amounts reimbursable therefrom pursuant to Section 3.10(a)(ii)) in respect of each Mortgage Loan or REO Property for which a Cash Liquidation or REO Disposition occurred in the related Prepayment Period over the sum of the unpaid principal balance of such Mortgage Loan or REO Property (determined, in the case of an REO Disposition, in accordance with Section 3.14) plus accrued and unpaid interest at the Mortgage Rate on such unpaid principal balance from the Due Date to which interest was last paid by the Mortgagor to the first day of the month following the month in which such Cash Liquidation or REO Disposition occurred. Fraud Losses: Losses on Mortgage Loans as to which there was fraud in the origination of such Mortgage Loan. Freddie Mac: Federal Home Loan Mortgage Corporation, a corporate instrumentality of the United States created and existing under Title III of the Emergency Home Finance Act of 1970, as amended, or any successor thereto. Highest Priority: As of any date of determination, the Class of Subordinate Certificates then outstanding with a Certificate Principal Balance greater than zero, with the earliest priority for payments pursuant to Section 4.02(a), in the following order: Class M-1, Class M-2, Class M-3, Class B-1, Class B-2 and Class B-3 Certificates. Independent: When used with respect to any specified Person, means such a Person who (i) is in fact independent of the Company, the Master Servicer and the Trustee, or any Affiliate thereof, (ii) does not have any direct financial interest or any material indirect financial interest in the Company, the Master Servicer or the Trustee or in an Affiliate thereof, and (iii) is not connected with the Company, the Master Servicer or the Trustee as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Initial Certificate Principal Balance: With respect to each Class of Certificates, the Certificate Principal Balance of such Class of Certificates as of the Cut-off Date, as set forth in the Series Supplement. Initial Monthly Payment Fund: An amount representing scheduled principal amortization and interest at the Net Mortgage Rate for the Due Date in the first Due Period commencing subsequent to the Cut-off Date for those Mortgage Loans for which the Trustee will not be entitled to receive such payment, and as more specifically defined in the Series Supplement. Initial Notional Amount: With respect to any Class or Subclass of Interest Only Certificates, the amount initially used as the principal basis for the calculation of any interest payment amount, as more specifically defined in the Series Supplement. Initial Subordinate Class Percentage: As defined in the Series Supplement. Insurance Proceeds: Proceeds paid in respect of the Mortgage Loans pursuant to any Primary Insurance Policy or any other related insurance policy covering a Mortgage Loan (excluding any Certificate Policy (as defined in the Series Supplement)), to the extent such proceeds are payable to the mortgagee under the Mortgage, any Subservicer, the Master Servicer or the Trustee and are not applied to the restoration of the related Mortgaged Property (or, with respect to a Cooperative Loan, the related Cooperative Apartment) or released to the Mortgagor in accordance with the procedures that the Master Servicer would follow in servicing mortgage loans held for its own account. Insurer: Any named insurer under any Primary Insurance Policy or any successor thereto or the named insurer in any replacement policy. Interest Accrual Period: As defined in the Series Supplement. Interest Only Certificates: A Class or Subclass of Certificates not entitled to payments of principal, and designated as such in the Series Supplement. The Interest Only Certificates will have no Certificate Principal Balance. Interim Certification: As defined in Section 2.02. Junior Certificateholder: The Holder of not less than 95% of the Percentage Interests of the Junior Class of Certificates. Junior Class of Certificates: The Class of Subordinate Certificates outstanding as of the date of the repurchase of a Mortgage Loan pursuant to Section 4.07 herein that has the Lowest Priority. Late Collections: With respect to any Mortgage Loan, all amounts received during any Due Period, whether as late payments of Monthly Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late payments or collections of Monthly Payments due but delinquent for a previous Due Period and not previously recovered. Liquidation Proceeds: Amounts (other than Insurance Proceeds) received by the Master Servicer in connection with the taking of an entire Mortgaged Property by exercise of the power of eminent domain or condemnation or in connection with the liquidation of a defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise, other than REO Proceeds. Loan Group: Any group of Mortgage Loans designated as a separate loan group in the Series Supplement. The Certificates relating to each Loan Group will be designated in the Series Supplement. Loan-to-Value Ratio: As of any date, the fraction, expressed as a percentage, the numerator of which is the current principal balance of the related Mortgage Loan at the date of determination and the denominator of which is the Appraised Value of the related Mortgaged Property. Lower Priority: As of any date of determination and any Class of Subordinate Certificates, any other Class of Subordinate Certificates then outstanding with a Certificate Principal Balance greater than zero, with later priority for payments pursuant to Section 4.02(a). Lowest Priority: As of any date of determination, the Class of Subordinate Certificates then outstanding with the latest priority for payments pursuant to Section 4.02(a), in the following order: Class B-3, Class B-2, Class B-1, Class M-3, Class M-2 and Class M-1 Certificates. Maturity Date: The latest possible maturity date, solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury regulations, by which the Certificate Principal Balance of each Class of Certificates (other than the Interest Only Certificates which have no Certificate Principal Balance) and each Uncertificated REMIC Regular Interest would be reduced to zero, as designated in the Series Supplement. MERS: Mortgage Electronic Registration Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, or any successor thereto. MERS(R)System: The system of recording transfers of Mortgages electronically maintained by MERS. MIN: The Mortgage Identification Number for Mortgage Loans registered with MERS on the MERS(R)System. MLCC: Merrill Lynch Credit Corporation, or its successor in interest. Modified Mortgage Loan: Any Mortgage Loan that has been the subject of a Servicing Modification. Modified Mortgage Rate: As to any Mortgage Loan that is the subject of a Servicing Modification, the Mortgage Rate minus the rate per annum by which the Mortgage Rate on such Mortgage Loan was reduced. Modified Net Mortgage Rate: As to any Mortgage Loan that is the subject of a Servicing Modification, the Net Mortgage Rate minus the rate per annum by which the Mortgage Rate on such Mortgage Loan was reduced. MOM Loan: With respect to any Mortgage Loan, MERS acting as the mortgagee of such Mortgage Loan, solely as nominee for the originator of such Mortgage Loan and its successors and assigns, at the origination thereof. Monthly Payment: With respect to any Mortgage Loan (including any REO Property) and any Due Date, the payment of principal and interest due thereon in accordance with the amortization schedule at the time applicable thereto (after adjustment, if any, for Curtailments and for Deficient Valuations occurring prior to such Due Date but before any adjustment to such amortization schedule by reason of any bankruptcy, other than a Deficient Valuation, or similar proceeding or any moratorium or similar waiver or grace period and before any Servicing Modification that constitutes a reduction of the interest rate on such Mortgage Loan). Moody's: Moody's Investors Service, Inc., or its successor in interest. Mortgage: With respect to each Mortgage Note related to a Mortgage Loan which is not a Cooperative Loan, the mortgage, deed of trust or other comparable instrument creating a first lien on an estate in fee simple or leasehold interest in real property securing a Mortgage Note. Mortgage File: The mortgage documents listed in Section 2.01 pertaining to a particular Mortgage Loan and any additional documents required to be added to the Mortgage File pursuant to this Agreement. Mortgage Loans: Such of the mortgage loans transferred and assigned to the Trustee pursuant to Section 2.01 as from time to time are held or deemed to be held as a part of the Trust Fund, the Mortgage Loans originally so held being identified in the initial Mortgage Loan Schedule, and Qualified Substitute Mortgage Loans held or deemed held as part of the Trust Fund including, without limitation, (i) with respect to each Cooperative Loan, the related Mortgage Note, Security Agreement, Assignment of Proprietary Lease, Cooperative Stock Certificate, Cooperative Lease and Mortgage File and all rights appertaining thereto, and (ii) with respect to each Mortgage Loan other than a Cooperative Loan, each related Mortgage Note, Mortgage and Mortgage File and all rights appertaining thereto. Mortgage Loan Schedule: As defined in the Series Supplement. Mortgage Note: The originally executed note or other evidence of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan, together with any modification thereto. Mortgage Pool: The pool of mortgage loans, including all Loan Groups, if any, consisting of the Mortgage Loans. Mortgage Rate: As to any Mortgage Loan, the interest rate borne by the related Mortgage Note, or any modification thereto other than a Servicing Modification. Mortgaged Property: The underlying real property securing a Mortgage Loan or, with respect to a Cooperative Loan, the related Cooperative Lease and Cooperative Stock. Mortgagor: The obligor on a Mortgage Note. Net Mortgage Rate: As to each Mortgage Loan, a per annum rate of interest equal to the Adjusted Mortgage Rate less the per annum rate at which the Servicing Fee is calculated. Non-Discount Mortgage Loan: A Mortgage Loan that is not a Discount Mortgage Loan. Non-Primary Residence Loans: The Mortgage Loans designated as secured by second or vacation residences, or by non-owner occupied residences, on the Mortgage Loan Schedule. Non-United States Person: Any Person other than a United States Person. Nonrecoverable Advance: Any Advance previously made or proposed to be made by the Master Servicer or Subservicer in respect of a Mortgage Loan (other than a Deleted Mortgage Loan) which, in the good faith judgment of the Master Servicer, will not, or, in the case of a proposed Advance, would not, be ultimately recoverable by the Master Servicer from related Late Collections, Insurance Proceeds, Liquidation Proceeds, REO Proceeds or amounts reimbursable to the Master Servicer pursuant to Section 4.02(a) hereof. To the extent that any Mortgagor is not obligated under the related Mortgage documents to pay or reimburse any portion of any Servicing Advances that are outstanding with respect to the related Mortgage Loan as a result of a modification of such Mortgage Loan by the Master Servicer, which forgives amounts which the Master Servicer or Subservicer had previously advanced, and the Master Servicer determines that no other source of payment or reimbursement for such advances is available to it, such Servicing Advances shall be deemed to be Nonrecoverable Advances. The determination by the Master Servicer that it has made a Nonrecoverable Advance or that any proposed Advance would constitute a Nonrecoverable Advance, shall be evidenced by an Officers' Certificate delivered to the Company, the Trustee and any Certificate Insurer. Nonsubserviced Mortgage Loan: Any Mortgage Loan that, at the time of reference thereto, is not subject to a Subservicing Agreement. Notional Amount: With respect to any Class or Subclass of Interest Only Certificates, an amount used as the principal basis for the calculation of any interest payment amount, as more specifically defined in the Series Supplement. Officers' Certificate: A certificate signed by the Chairman of the Board, the President or a Vice President or Assistant Vice President, or a Director or Managing Director, and by the Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant Secretaries of the Company or the Master Servicer, as the case may be, and delivered to the Trustee, as required by this Agreement. Opinion of Counsel: A written opinion of counsel acceptable to the Trustee and the Master Servicer, who may be counsel for the Company or the Master Servicer, provided that any opinion of counsel (i) referred to in the definition of "Disqualified Organization" or (ii) relating to the qualification of any REMIC formed under the Series Supplement or compliance with the REMIC Provisions must, unless otherwise specified, be an opinion of Independent counsel. Outstanding Mortgage Loan: As to any Due Date, a Mortgage Loan (including an REO Property) which was not the subject of a Principal Prepayment in Full, Cash Liquidation or REO Disposition and which was not purchased, deleted or substituted for prior to such Due Date pursuant to Section 2.02, 2.03, 2.04 or 4.07. Ownership Interest: As to any Certificate, any ownership or security interest in such Certificate, including any interest in such Certificate as the Holder thereof and any other interest therein, whether direct or indirect, legal or beneficial, as owner or as pledgee. Pass-Through Rate: As defined in the Series Supplement. Paying Agent: The Trustee or any successor Paying Agent appointed by the Trustee. Percentage Interest: With respect to any Certificate (other than a Class R Certificate), the undivided percentage ownership interest in the related Class evidenced by such Certificate, which percentage ownership interest shall be equal to the Initial Certificate Principal Balance thereof or Initial Notional Amount (in the case of any Interest Only Certificate) thereof divided by the aggregate Initial Certificate Principal Balance or the aggregate of the Initial Notional Amounts, as applicable, of all the Certificates of the same Class. With respect to a Class R Certificate, the interest in distributions to be made with respect to such Class evidenced thereby, expressed as a percentage, as stated on the face of each such Certificate. Permitted Investments: One or more of the following: (i) obligations of or guaranteed as to principal and interest by the United States or any agency or instrumentality thereof when such obligations are backed by the full faith and credit of the United States; (ii) repurchase agreements on obligations specified in clause (i) maturing not more than one month from the date of acquisition thereof, provided that the unsecured obligations of the party agreeing to repurchase such obligations are at the time rated by each Rating Agency in its highest short-term rating available; (iii) federal funds, certificates of deposit, demand deposits, time deposits and bankers' acceptances (which shall each have an original maturity of not more than 90 days and, in the case of bankers' acceptances, shall in no event have an original maturity of more than 365 days or a remaining maturity of more than 30 days) denominated in United States dollars of any U.S. depository institution or trust company incorporated under the laws of the United States or any state thereof or of any domestic branch of a foreign depository institution or trust company; provided that the debt obligations of such depository institution or trust company (or, if the only Rating Agency is Standard & Poor's, in the case of the principal depository institution in a depository institution holding company, debt obligations of the depository institution holding company) at the date of acquisition thereof have been rated by each Rating Agency in its highest short-term rating available; and provided further that, if the only Rating Agency is Standard & Poor's and if the depository or trust company is a principal subsidiary of a bank holding company and the debt obligations of such subsidiary are not separately rated, the applicable rating shall be that of the bank holding company; and, provided further that, if the original maturity of such short-term obligations of a domestic branch of a foreign depository institution or trust company shall exceed 30 days, the short-term rating of such institution shall be A-1+ in the case of Standard & Poor's if Standard & Poor's is the Rating Agency; (iv) commercial paper and demand notes (having original maturities of not more than 365 days) of any corporation incorporated under the laws of the United States or any state thereof which on the date of acquisition has been rated by each Rating Agency in its highest short-term rating available; provided that such commercial paper shall have a remaining maturity of not more than 30 days; (v) a money market fund or a qualified investment fund rated by each Rating Agency in its highest long-term rating available; and (vi) other obligations or securities that are acceptable to each Rating Agency as a Permitted Investment hereunder and will not reduce the rating assigned to any Class of Certificates by such Rating Agency below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency, as evidenced in writing; provided, however, no instrument shall be a Permitted Investment if it represents, either (1) the right to receive only interest payments with respect to the underlying debt instrument or (2) the right to receive both principal and interest payments derived from obligations underlying such instrument and the principal and interest payments with respect to such instrument provide a yield to maturity greater than 120% of the yield to maturity at par of such underlying obligations. References herein to the highest rating available on unsecured long-term debt shall mean AAA in the case of Standard & Poor's and Fitch and Aaa in the case of Moody's, and references herein to the highest rating available on unsecured commercial paper and short-term debt obligations shall mean A-1 in the case of Standard & Poor's, P-1 in the case of Moody's and either A-1 by Standard & Poor's, P-1 by Moody's or F-1 by Fitch in the case of Fitch; provided, however, that any Permitted Investment that is a short-term debt obligation rated A-1 by Standard & Poor's must satisfy the following additional conditions: (i) the total amount of debt from A-1 issuers must be limited to the investment of monthly principal and interest payments (assuming fully amortizing collateral); (ii) the total amount of A-1 investments must not represent more than 20% of the aggregate outstanding Certificate Principal Balance of the Certificates and each investment must not mature beyond 30 days; (iii) investments in A-1 rated securities are not eligible for the Reserve Fund; (iv) the terms of the debt must have a predetermined fixed dollar amount of principal due at maturity that cannot vary; and (v) if the investments may be liquidated prior to their maturity or are being relied on to meet a certain yield, interest must be tied to a single interest rate index plus a single fixed spread (if any) and must move proportionately with that index. Permitted Transferee: Any Transferee of a Class R Certificate, other than a Disqualified Organization or Non-United States Person. Person: Any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Pledged Amount: With respect to any Pledged Asset Loan, the amount of money remitted to Combined Collateral LLC, at the direction of or for the benefit of the related Mortgagor. Pledged Asset Loan: Any Mortgage Loan supported by Pledged Assets or such other collateral, other than the related Mortgaged Property, set forth in the Series Supplement. Pledged Assets: With respect to any Mortgage Loan, all money, securities, security entitlements, accounts, general intangibles, instruments, documents, certificates of deposit, commodities contracts and other investment property and other property of whatever kind or description pledged by Combined Collateral LLC as security in respect of any Realized Losses in connection with such Mortgage Loan up to the Pledged Amount for such Mortgage Loan, and any related collateral, or such other collateral as may be set forth in the Series Supplement. Pledged Asset Mortgage Servicing Agreement: The Pledged Asset Mortgage Servicing Agreement, dated as of February 28, 1996 between MLCC and the Master Servicer. Pooling and Servicing Agreement or Agreement: With respect to any Series, this Standard Terms together with the related Series Supplement. Pool Stated Principal Balance: As to any Distribution Date, the aggregate of the Stated Principal Balances of each Mortgage Loan. Pool Strip Rate: With respect to each Mortgage Loan, a per annum rate equal to the excess of (a) the Net Mortgage Rate of such Mortgage Loan over (b) the Discount Net Mortgage Rate (but not less than 0.00%) per annum. Prepayment Distribution Trigger: With respect to any Distribution Date and any Class of Subordinate Certificates (other than the Class M-1 Certificates), a test that shall be satisfied if the fraction (expressed as a percentage) equal to the sum of the Certificate Principal Balances of such Class and each Class of Subordinate Certificates with a Lower Priority than such Class immediately prior to such Distribution Date divided by the aggregate Stated Principal Balance of all of the Mortgage Loans (or related REO Properties) immediately prior to such Distribution Date is greater than or equal to the sum of the related Initial Subordinate Class Percentages of such Classes of Subordinate Certificates. Prepayment Interest Shortfall: As to any Distribution Date and any Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was the subject of (a) a Principal Prepayment in Full during the portion of the related Prepayment Period that falls during the prior calendar month, an amount equal to the excess of one month's interest at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the Stated Principal Balance of such Mortgage Loan over the amount of interest (adjusted to the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan)) paid by the Mortgagor for such month to the date of such Principal Prepayment in Full or (b) a Curtailment during the prior calendar month, an amount equal to one month's interest at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the amount of such Curtailment. Prepayment Period: As to any Distribution Date and Principal Prepayment in Full, the period commencing on the 16th day of the month prior to the month prior to the month in which that Distribution Date occurs and ending on the 15th day of the month in which such Distribution Date occurs. Primary Insurance Policy: Each primary policy of mortgage guaranty insurance or any replacement policy therefor referred to in Section 2.03(b)(iv) and (v). Principal Only Certificates: A Class of Certificates not entitled to payments of interest, and more specifically designated as such in the Series Supplement. Principal Prepayment: Any payment of principal or other recovery on a Mortgage Loan, including a recovery that takes the form of Liquidation Proceeds or Insurance Proceeds, which is received in advance of its scheduled Due Date and is not accompanied by an amount as to interest representing scheduled interest on such payment due on any date or dates in any month or months subsequent to the month of prepayment. Principal Prepayment in Full: Any Principal Prepayment of the entire principal balance of a Mortgage Loan that is made by the Mortgagor. Program Guide: Collectively, the Client Guide and the Servicer Guide for Residential Funding's mortgage loan purchase and conduit servicing program and all supplements and amendments thereto published by Residential Funding from time to time. Purchase Price: With respect to any Mortgage Loan (or REO Property) required to be or otherwise purchased on any date pursuant to Section 2.02, 2.03, 2.04 or 4.07, an amount equal to the sum of (i) 100% of the Stated Principal Balance thereof plus the principal portion of any related unreimbursed Advances and (ii) unpaid accrued interest at the Adjusted Mortgage Rate (or Modified Net Mortgage Rate plus the rate per annum at which the Servicing Fee is calculated in the case of a Modified Mortgage Loan) (or at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) in the case of a purchase made by the Master Servicer) on the Stated Principal Balance thereof to the Due Date in the Due Period related to the Distribution Date occurring in the month following the month of purchase from the Due Date to which interest was last paid by the Mortgagor. Qualified Substitute Mortgage Loan: A Mortgage Loan substituted by Residential Funding or the Company for a Deleted Mortgage Loan which must, on the date of such substitution, as confirmed in an Officers' Certificate delivered to the Trustee, with a copy to the Custodian, (i) have an outstanding principal balance, after deduction of the principal portion of the monthly payment due in the month of substitution (or in the case of a substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an aggregate outstanding principal balance, after such deduction), not in excess of the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall to be deposited by Residential Funding in the Custodial Account in the month of substitution); (ii) have a Mortgage Rate and a Net Mortgage Rate no lower than and not more than 1% per annum higher than the Mortgage Rate and Net Mortgage Rate, respectively, of the Deleted Mortgage Loan as of the date of substitution; (iii) have a Loan-to-Value Ratio at the time of substitution no higher than that of the Deleted Mortgage Loan at the time of substitution; (iv) have a remaining term to stated maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan; (v) comply with each representation and warranty set forth in Sections 2.03 and 2.04 hereof and Section 4 of the Assignment Agreement; and (vi) have a Pool Strip Rate equal to or greater than that of the Deleted Mortgage Loan. Notwithstanding any other provisions herein, (x) with respect to any Qualified Substitute Mortgage Loan substituted for a Deleted Mortgage Loan which was a Discount Mortgage Loan, such Qualified Substitute Mortgage Loan shall be deemed to be a Discount Mortgage Loan and to have a Discount Fraction equal to the Discount Fraction of the Deleted Mortgage Loan and (y) in the event that the "Pool Strip Rate" of any Qualified Substitute Mortgage Loan as calculated pursuant to the definition of "Pool Strip Rate" is greater than the Pool Strip Rate of the related Deleted Mortgage Loan (i) the Pool Strip Rate of such Qualified Substitute Mortgage Loan shall be equal to the Pool Strip Rate of the related Deleted Mortgage Loan for purposes of calculating the Pass-Through Rate on the Class A-V Certificates and (ii) the excess of the Pool Strip Rate on such Qualified Substitute Mortgage Loan as calculated pursuant to the definition of "Pool Strip Rate" over the Pool Strip Rate on the related Deleted Mortgage Loan shall be payable to the Class R Certificates pursuant to Section 4.02 hereof. Rating Agency: Each of the statistical credit rating agencies specified in the Preliminary Statement of the Series Supplement. If any agency or a successor is no longer in existence, "Rating Agency" shall be such statistical credit rating agency, or other comparable Person, designated by the Company, notice of which designation shall be given to the Trustee and the Master Servicer. Realized Loss: With respect to each Mortgage Loan (or REO Property): (a)....as to which a Cash Liquidation or REO Disposition has occurred, an amount (not less than zero) equal to (i) the Stated Principal Balance of the Mortgage Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition, plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate from the Due Date as to which interest was last paid or advanced to Certificateholders up to the Due Date in the Due Period related to the Distribution Date on which such Realized Loss will be allocated pursuant to Section 4.05 on the Stated Principal Balance of such Mortgage Loan (or REO Property) outstanding during each Due Period that such interest was not paid or advanced, minus (iii) the proceeds, if any, received during the month in which such Cash Liquidation (or REO Disposition) occurred, to the extent applied as recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof reimbursable to the Master Servicer or any Subservicer with respect to related Advances, Servicing Advances or other expenses as to which the Master Servicer or Subservicer is entitled to reimbursement thereunder but which have not been previously reimbursed, (b)....which is the subject of a Servicing Modification, (i) (1) the amount by which the interest portion of a Monthly Payment or the principal balance of such Mortgage Loan was reduced or (2) the sum of any other amounts owing under the Mortgage Loan that were forgiven and that constitute Servicing Advances that are reimbursable to the Master Servicer or a Subservicer, and (ii) any such amount with respect to a Monthly Payment that was or would have been due in the month immediately following the month in which a Principal Prepayment or the Purchase Price of such Mortgage Loan is received or is deemed to have been received, (c)....which has become the subject of a Deficient Valuation, the difference between the principal balance of the Mortgage Loan outstanding immediately prior to such Deficient Valuation and the principal balance of the Mortgage Loan as reduced by the Deficient Valuation, or (d)....which has become the object of a Debt Service Reduction, the amount of such Debt Service Reduction. Notwithstanding the above, neither a Deficient Valuation nor a Debt Service Reduction shall be deemed a Realized Loss hereunder so long as the Master Servicer has notified the Trustee in writing that the Master Servicer is diligently pursuing any remedies that may exist in connection with the representations and warranties made regarding the related Mortgage Loan and either (A) the related Mortgage Loan is not in default with regard to payments due thereunder or (B) delinquent payments of principal and interest under the related Mortgage Loan and any premiums on any applicable primary hazard insurance policy and any related escrow payments in respect of such Mortgage Loan are being advanced on a current basis by the Master Servicer or a Subservicer, in either case without giving effect to any Debt Service Reduction. To the extent the Master Servicer receives Subsequent Recoveries with respect to any Mortgage Loan, the amount of the Realized Loss with respect to that Mortgage Loan will be reduced to the extent such recoveries are applied to reduce the Certificate Principal Balance of any Class of Certificates on any Distribution Date. Record Date: With respect to each Distribution Date, the close of business on the last Business Day of the month next preceding the month in which the related Distribution Date occurs. Regular Certificate: Any of the Certificates other than a Class R Certificate. Regulation AB: Subpart 229.1100 - Asset Backed Securities (Regulation AB), 17 C.F.R. ss.ss.229.1100-229.1123, as such may be amended from time to time, and subject to such clarification and interpretation as have been provided by the Commission in the adopting release (Asset-Backed Securities, Securities Act Release No. 33-8518, 70 Fed. Reg. 1,506, 1,531 (January 7, 2005)) or by the staff of the Commission, or as may be provided by the Commission or its staff from time to time. Relief Act: The Servicemembers Civil Relief Act or similar legislation or regulations as in effect from time to time. Relief Act Shortfalls: Shortfalls in interest payable by a Mortgagor that are not collectible from the Mortgagor pursuant to the Relief Act. REMIC: A "real estate mortgage investment conduit" within the meaning of Section 860D of the Code. REMIC Administrator: Residential Funding Corporation. If Residential Funding Corporation is found by a court of competent jurisdiction to no longer be able to fulfill its obligations as REMIC Administrator under this Agreement the Master Servicer or Trustee acting as Master Servicer shall appoint a successor REMIC Administrator, subject to assumption of the REMIC Administrator obligations under this Agreement. REMIC Provisions: Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Sections 860A through 860G of Subchapter M of Chapter 1 of the Code, and related provisions, and temporary and final regulations (or, to the extent not inconsistent with such temporary or final regulations, proposed regulations) and published rulings, notices and announcements promulgated thereunder, as the foregoing may be in effect from time to time. REO Acquisition: The acquisition by the Master Servicer on behalf of the Trustee for the benefit of the Certificateholders of any REO Property pursuant to Section 3.14. REO Disposition: As to any REO Property, a determination by the Master Servicer that it has received all Insurance Proceeds, Liquidation Proceeds, REO Proceeds and other payments and recoveries (including proceeds of a final sale) which the Master Servicer expects to be finally recoverable from the sale or other disposition of the REO Property. REO Imputed Interest: As to any REO Property, for any period, an amount equivalent to interest (at the Net Mortgage Rate that would have been applicable to the related Mortgage Loan had it been outstanding) on the unpaid principal balance of the Mortgage Loan as of the date of acquisition thereof for such period. REO Proceeds: Proceeds, net of expenses, received in respect of any REO Property (including, without limitation, proceeds from the rental of the related Mortgaged Property or, with respect to a Cooperative Loan, the related Cooperative Apartment) which proceeds are required to be deposited into the Custodial Account only upon the related REO Disposition. REO Property: A Mortgaged Property acquired by the Master Servicer through foreclosure or deed in lieu of foreclosure in connection with a defaulted Mortgage Loan. Reportable Modified Mortgage Loan: Any Mortgage Loan that (i) has been subject to an interest rate reduction, (ii) has been subject to a term extension or (iii) has had amounts owing on such Mortgage Loan capitalized by adding such amount to the Stated Principal Balance of such Mortgage Loan; provided, however, that a Mortgage Loan modified in accordance with clause (i) above for a temporary period shall not be a Reportable Modified Mortgage Loan if such Mortgage Loan has not been delinquent in payments of principal and interest for six months since the date of such modification if that interest rate reduction is not made permanent thereafter. Request for Release: A request for release, the forms of which are attached as Exhibit F hereto, or an electronic request in a form acceptable to the Custodian. Required Insurance Policy: With respect to any Mortgage Loan, any insurance policy which is required to be maintained from time to time under this Agreement, the Program Guide or the related Subservicing Agreement in respect of such Mortgage Loan. Required Surety Payment: With respect to any Additional Collateral Loan that becomes a Liquidated Mortgage Loan, the lesser of (i) the principal portion of the Realized Loss with respect to such Mortgage Loan and (ii) the excess, if any, of (a) the amount of Additional Collateral required at origination with respect to such Mortgage Loan over (b) the net proceeds realized by the Subservicer from the related Additional Collateral. Residential Funding: Residential Funding Corporation, a Delaware corporation, in its capacity as seller of the Mortgage Loans to the Company and not in its capacity as Master Servicer, and any successor thereto. Responsible Officer: When used with respect to the Trustee, any officer of the Corporate Trust Department of the Trustee, including any Senior Vice President, any Vice President, any Assistant Vice President, any Assistant Secretary, any Trust Officer or Assistant Trust Officer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers to whom, with respect to a particular matter, such matter is referred, in each case with direct responsibility for the administration of the Agreements. Retail Certificates: A Senior Certificate, if any, offered in smaller minimum denominations than other Senior Certificates, and designated as such in the Series Supplement. Schedule of Discount Fractions: The schedule setting forth the Discount Fractions with respect to the Discount Mortgage Loans, attached as an exhibit to the Series Supplement. Securitization Transaction: Any transaction involving a sale or other transfer of mortgage loans directly or indirectly to an issuing in connection with an issuance of publicly offered or privately placed, rated or unrated mortgage-backed securities. Security Agreement: With respect to a Cooperative Loan, the agreement creating a security interest in favor of the originator in the related Cooperative Stock. Seller: As to any Mortgage Loan, a Person, including any Subservicer, that executed a Seller's Agreement applicable to such Mortgage Loan. Seller's Agreement: An agreement for the origination and sale of Mortgage Loans generally in the form of the Seller Contract referred to or contained in the Program Guide, or in such other form as has been approved by the Master Servicer and the Company, each containing representations and warranties in respect of one or more Mortgage Loans consistent in all material respects with those set forth in the Program Guide. Senior Accelerated Distribution Percentage: With respect to any Distribution Date occurring on or prior to the 60th Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, any Loan Group, 100%. With respect to any Distribution Date thereafter and any such Loan Group, if applicable, as follows: (i) for any Distribution Date after the 60th Distribution Date but on or prior to the 72nd Distribution Date, the related Senior Percentage for such Distribution Date plus 70% of the related Subordinate Percentage for such Distribution Date; (ii) for any Distribution Date after the 72nd Distribution Date but on or prior to the 84th Distribution Date, the related Senior Percentage for such Distribution Date plus 60% of the related Subordinate Percentage for such Distribution Date; (iii) for any Distribution Date after the 84th Distribution Date but on or prior to the 96th Distribution Date, the related Senior Percentage for such Distribution Date plus 40% of the related Subordinate Percentage for such Distribution Date; (iv) for any Distribution Date after the 96th Distribution Date but on or prior to the 108th Distribution Date, the related Senior Percentage for such Distribution Date plus 20% of the related Subordinate Percentage for such Distribution Date; and (v) for any Distribution Date thereafter, the Senior Percentage for such Distribution Date; provided, however, (i) that any scheduled reduction to the Senior Accelerated Distribution Percentage described above shall not occur as of any Distribution Date unless either (a)(1)(X) the outstanding principal balance of the Mortgage Loans delinquent 60 days or more averaged over the last six months, as a percentage of the aggregate outstanding Certificate Principal Balance of the Subordinate Certificates, is less than 50% or (Y) the outstanding principal balance of Mortgage Loans delinquent 60 days or more averaged over the last six months, as a percentage of the aggregate outstanding principal balance of all Mortgage Loans averaged over the last six months, does not exceed 2% and (2) Realized Losses on the Mortgage Loans to date for such Distribution Date if occurring during the sixth, seventh, eighth, ninth or tenth year (or any year thereafter) after the Closing Date are less than 30%, 35%, 40%, 45% or 50%, respectively, of the sum of the Initial Certificate Principal Balances of the Subordinate Certificates or (b)(1) the outstanding principal balance of Mortgage Loans delinquent 60 days or more averaged over the last six months, as a percentage of the aggregate outstanding principal balance of all Mortgage Loans averaged over the last six months, does not exceed 4% and (2) Realized Losses on the Mortgage Loans to date for such Distribution Date, if occurring during the sixth, seventh, eighth, ninth or tenth year (or any year thereafter) after the Closing Date are less than 10%, 15%, 20%, 25% or 30%, respectively, of the sum of the Initial Certificate Principal Balances of the Subordinate Certificates, and (ii) that for any Distribution Date on which the Senior Percentage is greater than the Percentage as of the Closing Date, the Senior Accelerated Distribution Percentage for such Distribution Date shall be 100%, or, if the Mortgage Pool is comprised of two or more Loan Groups, for any Distribution Date on which the weighted average of the Senior Percentages for each Loan Group, weighted on the basis of the Stated Principal Balances of the Mortgage Loans in the related Loan Group, exceeds the weighted average of the initial Senior Percentages (calculated on such basis) for each Loan Group, each of the Senior Accelerated Distribution Percentages for such Distribution Date will equal 100%. Notwithstanding the foregoing, upon the reduction of the Certificate Principal Balances of the related Senior Certificates (other than the Class A-P Certificates, if any) to zero, the related Senior Accelerated Distribution Percentage shall thereafter be 0%. Senior Certificate: As defined in the Series Supplement. Senior Percentage: As defined in the Series Supplement. Senior Support Certificate: A Senior Certificate that provides additional credit enhancement to certain other classes of Senior Certificates and designated as such in the Preliminary Statement of the Series Supplement. Series: All of the Certificates issued pursuant to a Pooling and Servicing Agreement and bearing the same series designation. Series Supplement: The agreement into which this Standard Terms is incorporated and pursuant to which, together with this Standard Terms, a Series of Certificates is issued. Servicing Accounts: The account or accounts created and maintained pursuant to Section 3.08. Servicing Advances: All customary, reasonable and necessary "out of pocket" costs and expenses incurred in connection with a default, delinquency or other unanticipated event by the Master Servicer or a Subservicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) the preservation, restoration and protection of a Mortgaged Property or, with respect to a Cooperative Loan, the related Cooperative Apartment, (ii) any enforcement or judicial proceedings, including foreclosures, including any expenses incurred in relation to any such proceedings that result from the Mortgage Loan being registered on the MERS System, (iii) the management and liquidation of any REO Property, (iv) any mitigation procedures implemented in accordance with Section 3.07, and (v) compliance with the obligations under Sections 3.01, 3.08, 3.12(a) and 3.14, including, if the Master Servicer or any Affiliate of the Master Servicer provides services such as appraisals and brokerage services that are customarily provided by Persons other than servicers of mortgage loans, reasonable compensation for such services. Servicing Criteria: The "servicing criteria" set forth in Item 1122(d) of Regulation AB, as such may be amended from time to time. Servicing Fee: With respect to any Mortgage Loan and Distribution Date, the fee payable monthly to the Master Servicer in respect of master servicing compensation that accrues at an annual rate designated on the Mortgage Loan Schedule as the "MSTR SERV FEE" for such Mortgage Loan, as may be adjusted with respect to successor Master Servicers as provided in Section 7.02. Servicing Modification: Any reduction of the interest rate on or the outstanding principal balance of a Mortgage Loan, any extension of the final maturity date of a Mortgage Loan, and any increase to the outstanding principal balance of a Mortgage Loan by adding to the Stated Principal Balance unpaid principal and interest and other amounts owing under the Mortgage Loan, in each case pursuant to a modification of a Mortgage Loan that is in default, or for which, in the judgment of the Master Servicer, default is reasonably foreseeable, in accordance with Section 3.07(a). Servicing Officer: Any officer of the Master Servicer involved in, or responsible for, the administration and servicing of the Mortgage Loans whose name and specimen signature appear on a list of servicing officers furnished to the Trustee by the Master Servicer, as such list may from time to time be amended. Special Hazard Loss: Any Realized Loss not in excess of the cost of the lesser of repair or replacement of a Mortgaged Property (or, with respect to a Cooperative Loan, the related Cooperative Apartment) suffered by such Mortgaged Property (or Cooperative Apartment) on account of direct physical loss, exclusive of (i) any loss of a type covered by a hazard policy or a flood insurance policy required to be maintained in respect of such Mortgaged Property pursuant to Section 3.12(a), except to the extent of the portion of such loss not covered as a result of any coinsurance provision and (ii) any Extraordinary Loss. Standard & Poor's: Standard & Poor's, a division of The McGraw-Hill Companies, Inc., or its successor in interest. Stated Principal Balance: With respect to any Mortgage Loan or related REO Property, at any given time, (i) the sum of (a) the Cut-off Date Principal Balance of the Mortgage Loan plus (b) any amount by which the Stated Principal Balance of the Mortgage Loan is increased pursuant to a Servicing Modification, minus (ii) the sum of (a) the principal portion of the Monthly Payments due with respect to such Mortgage Loan or REO Property during each Due Period ending prior to the most recent Distribution Date which were received or with respect to which an Advance was made, and (b) all Principal Prepayments with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds, Liquidation Proceeds and REO Proceeds, to the extent applied by the Master Servicer as recoveries of principal in accordance with Section 3.14 with respect to such Mortgage Loan or REO Property, in each case which were distributed pursuant to Section 4.02 on any previous Distribution Date, and (c) any Realized Loss allocated to Certificateholders with respect thereto for any previous Distribution Date. Subclass: With respect to the Class A-V Certificates, any Subclass thereof issued pursuant to Section 5.01(c). Any such Subclass will represent the Uncertificated Class A-V REMIC Regular Interest or Interests specified by the initial Holder of the Class A-V Certificates pursuant to Section 5.01(c). Subordinate Certificate: Any one of the Class M Certificates or Class B Certificates, executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B and Exhibit C, respectively. Subordinate Class Percentage: With respect to any Distribution Date and any Class of Subordinate Certificates, a fraction, expressed as a percentage, the numerator of which is the aggregate Certificate Principal Balance of such Class of Subordinate Certificates immediately prior to such date and the denominator of which is the aggregate Stated Principal Balance of all of the Mortgage Loans (or related REO Properties) (other than the related Discount Fraction of each Discount Mortgage Loan) immediately prior to such Distribution Date. Subordinate Percentage: As of any Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, any Loan Group, 100% minus the related Senior Percentage as of such Distribution Date. Subsequent Recoveries: As of any Distribution Date, amounts received by the Master Servicer (net of any related expenses permitted to be reimbursed pursuant to Section 3.10) or surplus amounts held by the Master Servicer to cover estimated expenses (including, but not limited to, recoveries in respect of the representations and warranties made by the related Seller pursuant to the applicable Seller's Agreement and assigned to the Trustee pursuant to Section 2.04) specifically related to a Mortgage Loan that was the subject of a Cash Liquidation or an REO Disposition prior to the related Prepayment Period that resulted in a Realized Loss. Subserviced Mortgage Loan: Any Mortgage Loan that, at the time of reference thereto, is subject to a Subservicing Agreement. Subservicer: Any Person with whom the Master Servicer has entered into a Subservicing Agreement and who generally satisfied the requirements set forth in the Program Guide in respect of the qualification of a Subservicer as of the date of its approval as a Subservicer by the Master Servicer. Subservicer Advance: Any delinquent installment of principal and interest on a Mortgage Loan which is advanced by the related Subservicer (net of its Subservicing Fee) pursuant to the Subservicing Agreement. Subservicing Account: An account established by a Subservicer in accordance with Section 3.08. Subservicing Agreement: The written contract between the Master Servicer and any Subservicer relating to servicing and administration of certain Mortgage Loans as provided in Section 3.02, generally in the form of the servicer contract referred to or contained in the Program Guide or in such other form as has been approved by the Master Servicer and the Company. With respect to Additional Collateral Loans subserviced by MLCC, the Subservicing Agreement shall also include the Addendum and Assignment Agreement and the Pledged Asset Mortgage Servicing Agreement. With respect to any Pledged Asset Loan subserviced by GMAC Mortgage Corporation, the Addendum and Assignment Agreement, dated as of November 24, 1998, between the Master Servicer and GMAC Mortgage Corporation, as such agreement may be amended from time to time. Subservicing Fee: As to any Mortgage Loan, the fee payable monthly to the related Subservicer (or, in the case of a Nonsubserviced Mortgage Loan, to the Master Servicer) in respect of subservicing and other compensation that accrues at an annual rate equal to the excess of the Mortgage Rate borne by the related Mortgage Note over the rate per annum designated on the Mortgage Loan Schedule as the "CURR NET" for such Mortgage Loan. Surety: Ambac, or its successors in interest, or such other surety as may be identified in the Series Supplement. Surety Bond: The Limited Purpose Surety Bond (Policy No. AB0039BE), dated February 28, 1996 in respect to Mortgage Loans originated by MLCC, or the Surety Bond (Policy No. AB0240BE), dated March 17, 1999 in respect to Mortgage Loans originated by Novus Financial Corporation, in each case issued by Ambac for the benefit of certain beneficiaries, including the Trustee for the benefit of the Holders of the Certificates, but only to the extent that such Surety Bond covers any Additional Collateral Loans, or such other Surety Bond as may be identified in the Series Supplement. Tax Returns: The federal income tax return on Internal Revenue Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return, including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be filed on behalf of any REMIC formed under the Series Supplement and under the REMIC Provisions, together with any and all other information, reports or returns that may be required to be furnished to the Certificateholders or filed with the Internal Revenue Service or any other governmental taxing authority under any applicable provisions of federal, state or local tax laws. Transaction Party: As defined in Section 12.02(a). Transfer: Any direct or indirect transfer, sale, pledge, hypothecation or other form of assignment of any Ownership Interest in a Certificate. Transferee: Any Person who is acquiring by Transfer any Ownership Interest in a Certificate. Transferor: Any Person who is disposing by Transfer of any Ownership Interest in a Certificate. Trust Fund: The segregated pool of assets consisting of: (i) the Mortgage Loans and the related Mortgage Files and collateral securing such Mortgage Loans, (ii) all payments on and collections in respect of the Mortgage Loans due after the Cut-off Date (other than Monthly Payments due in the month of the Cut-Off Date) as shall be on deposit in the Custodial Account or in the Certificate Account and identified as belonging to the Trust Fund, including the proceeds from the liquidation of Additional Collateral for any Additional Collateral Loan or Pledged Assets for any Pledged Asset Loan, but not including amounts on deposit in the Initial Monthly Payment Fund, (iii) property that secured a Mortgage Loan and that has been acquired for the benefit of the Certificateholders by foreclosure or deed in lieu of foreclosure, (iv) the hazard insurance policies and Primary Insurance Policies, if any, the Pledged Assets with respect to each Pledged Asset Loan, and the interest in the Surety Bond transferred to the Trustee pursuant to Section 2.01, (v) the Initial Monthly Payment Fund, and (vi) all proceeds of clauses (i) through (v) above. Trustee Information: As specified in Section 12.05(a)(i)(A). Underwriter: As defined in the Series Supplement. Uninsured Cause: Any cause of damage to property subject to a Mortgage such that the complete restoration of such property is not fully reimbursable by the hazard insurance policies. United States Person: A citizen or resident of the United States, a corporation, partnership or other entity created or organized in, or under the laws of, the United States, provided that, for purposes solely of the restrictions on the transfer of residual interests, no partnership or other entity treated as a partnership for United States federal income tax purposes shall be treated as a United States Person unless all persons that own an interest in such partnership either directly or through any entity that is not a corporation for United States federal income tax purposes are required by the applicable operating agreement to be United States Persons, any state thereof, or the District of Columbia (except in the case of a partnership, to the extent provided in Treasury regulations) or any political subdivision thereof, or an estate that is described in Section 7701(a)(30)(D) of the Code, or a trust that is described in Section 7701(a)(30)(E) of the Code. Voting Rights: The portion of the voting rights of all of the Certificates which is allocated to any Certificate, and more specifically designated in Article XI of the Series Supplement. Section 1.02...Use of Words and Phrases. "Herein," "hereby," "hereunder," 'hereof," "hereinbefore," "hereinafter" and other equivalent words refer to the Pooling and Servicing Agreement as a whole. All references herein to Articles, Sections or Subsections shall mean the corresponding Articles, Sections and Subsections in the Pooling and Servicing Agreement. The definition set forth herein include both the singular and the plural. ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES Section 2.01...Conveyance of Mortgage Loans. (a) The Company, concurrently with the execution and delivery hereof, does hereby assign to the Trustee without recourse all the right, title and interest of the Company in and to the Mortgage Loans, including all interest and principal received on or with respect to the Mortgage Loans after the Cut-off Date (other than payments of principal and interest due on the Mortgage Loans in the month of the Cut-off Date). In connection with such transfer and assignment, the Company does hereby deliver to the Trustee the Certificate Policy (as defined in the Series Supplement), if any. The Company, the Master Servicer and the Trustee agree that it is not intended that any mortgage loan be included in the Trust that is (i) a "High-Cost Home Loan" as defined in the New Jersey Home Ownership Act effective November 27, 2003, (ii) a "High-Cost Home Loan" as defined in the New Mexico Home Loan Protection Act effective January 1, 2004, (iii) a "High Cost Home Mortgage Loan" as defined in the Massachusetts Predatory Home Practices Act effective November 7, 2004 or (iv) a "High-Cost Home Loan" as defined in the Indiana House Enrolled Act No. 1229, effective as of January 1, 2005. (b) In connection with such assignment, except as set forth in Section 2.01(c) and subject to Section 2.01(d) below, the Company does hereby deliver to, and deposit with, the Trustee, or to and with one or more Custodians, as the duly appointed agent or agents of the Trustee for such purpose, the following documents or instruments (or copies thereof as permitted by this Section) (I) with respect to each Mortgage Loan so assigned (other than a Cooperative Loan): (i) The original Mortgage Note, endorsed without recourse to the order of the Trustee and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Destroyed Mortgage Note, an original lost note affidavit from the related Seller or Residential Funding stating that the original Mortgage Note was lost, misplaced or destroyed, together with a copy of the related Mortgage Note; (ii) The original Mortgage, noting the presence of the MIN of the Mortgage Loan and language indicating that the Mortgage Loan is a MOM Loan if the Mortgage Loan is a MOM Loan, with evidence of recording indicated thereon or a copy of the Mortgage with evidence of recording indicated thereon; (iii) Unless the Mortgage Loan is registered on the MERS(R)System, an original Assignment of the Mortgage to the Trustee with evidence of recording indicated thereon or a copy of such assignment with evidence of recording indicated thereon; (iv) The original recorded assignment or assignments of the Mortgage showing an unbroken chain of title from the originator thereof to the Person assigning it to the Trustee (or to MERS, if the Mortgage Loan is registered on the MERS(R)System and noting the presence of a MIN) with evidence of recordation noted thereon or attached thereto, or a copy of such assignment or assignments of the Mortgage with evidence of recording indicated thereon; and (v) The original of each modification, assumption agreement or preferred loan agreement, if any, relating to such Mortgage Loan or a copy of each modification, assumption agreement or preferred loan agreement. and (II) with respect to each Cooperative Loan so assigned: (vi) The original Mortgage Note, endorsed without recourse to the order of the Trustee and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Destroyed Mortgage Note, an original lost note affidavit from the related Seller or Residential Funding stating that the original Mortgage Note was lost, misplaced or destroyed, together with a copy of the related Mortgage Note; (vii) A counterpart of the Cooperative Lease and the Assignment of Proprietary Lease to the originator of the Cooperative Loan with intervening assignments showing an unbroken chain of title from such originator to the Trustee; (viii) The related Cooperative Stock Certificate, representing the related Cooperative Stock pledged with respect to such Cooperative Loan, together with an undated stock power (or other similar instrument) executed in blank; (ix) The original recognition agreement by the Cooperative of the interests of the mortgagee with respect to the related Cooperative Loan; (x) The Security Agreement; (xi) Copies of the original UCC-1 financing statement, and any continuation statements, filed by the originator of such Cooperative Loan as secured party, each with evidence of recording thereof, evidencing the interest of the originator under the Security Agreement and the Assignment of Proprietary Lease; (xii) Copies of the filed UCC-3 assignments of the security interest referenced in clause (vi) above showing an unbroken chain of title from the originator to the Trustee, each with evidence of recording thereof, evidencing the interest of the originator under the Security Agreement and the Assignment of Proprietary Lease; (xiii) An executed assignment of the interest of the originator in the Security Agreement, Assignment of Proprietary Lease and the recognition agreement referenced in clause (iv) above, showing an unbroken chain of title from the originator to the Trustee; (xiv) The original of each modification, assumption agreement or preferred loan agreement, if any, relating to such Cooperative Loan; and (xv) A duly completed UCC-1 financing statement showing the Master Servicer as debtor, the Company as secured party and the Trustee as assignee and a duly completed UCC-1 financing statement showing the Company as debtor and the Trustee as secured party, each in a form sufficient for filing, evidencing the interest of such debtors in the Cooperative Loans. (c) The Company may, in lieu of delivering the original of the documents set forth in Section 2.01(b)(I)(ii), (iii), (iv) and (v) and Section (b)(II)(ii), (iv), (vii), (ix) and (x) (or copies thereof as permitted by Section 2.01(b)) to the Trustee or the Custodian or Custodians, deliver such documents to the Master Servicer, and the Master Servicer shall hold such documents in trust for the use and benefit of all present and future Certificateholders until such time as is set forth in the next sentence. Within thirty Business Days following the earlier of (i) the receipt of the original of all of the documents or instruments set forth in Section 2.01(b)(I)(ii), (iii), (iv) and (v) and Section (b)(II)(ii), (iv), (vii), (ix) and (x) (or copies thereof as permitted by such Section) for any Mortgage Loan and (ii) a written request by the Trustee to deliver those documents with respect to any or all of the Mortgage Loans then being held by the Master Servicer, the Master Servicer shall deliver a complete set of such documents to the Trustee or the Custodian or Custodians that are the duly appointed agent or agents of the Trustee. (d) Notwithstanding the provisions of Section 2.01(c), in connection with any Mortgage Loan, if the Company cannot deliver the original of the Mortgage, any assignment, modification, assumption agreement or preferred loan agreement (or copy thereof as permitted by Section 2.01(b)) with evidence of recording thereon concurrently with the execution and delivery of this Agreement because of (i) a delay caused by the public recording office where such Mortgage, assignment, modification, assumption agreement or preferred loan agreement as the case may be, has been delivered for recordation, or (ii) a delay in the receipt of certain information necessary to prepare the related assignments, the Company shall deliver or cause to be delivered to the Trustee or the respective Custodian a copy of such Mortgage, assignment, modification, assumption agreement or preferred loan agreement. The Company shall promptly cause to be recorded in the appropriate public office for real property records the Assignment referred to in clause (I)(iii) of Section 2.01(b), except (a) in states where, in the opinion of counsel acceptable to the Master Servicer, such recording is not required to protect the Trustee's interests in the Mortgage Loan against the claim of any subsequent transferee or any successor to or creditor of the Company or the originator of such Mortgage Loan or (b) if MERS is identified on the Mortgage or on a properly recorded assignment of the Mortgage as the mortgagee of record solely as nominee for the Seller and its successors and assigns, and shall promptly cause to be filed the Form UCC-3 assignment and UCC-1 financing statement referred to in clause (II)(vii) and (x), respectively, of Section 2.01(b). If any Assignment, Form UCC-3 or Form UCC-1, as applicable, is lost or returned unrecorded to the Company because of any defect therein, the Company shall prepare a substitute Assignment, Form UCC-3 or Form UCC-1, as applicable, or cure such defect, as the case may be, and cause such Assignment to be recorded in accordance with this paragraph. The Company shall promptly deliver or cause to be delivered to the Trustee or the respective Custodian such Mortgage or Assignment or Form UCC-3 or Form UCC-1, as applicable, (or copy thereof as permitted by Section 2.01(b)) with evidence of recording indicated thereon at the time specified in Section 2.01(c). In connection with its servicing of Cooperative Loans, the Master Servicer will use its best efforts to file timely continuation statements with regard to each financing statement and assignment relating to Cooperative Loans as to which the related Cooperative Apartment is located outside of the State of New York. If the Company delivers to the Trustee or Custodian any Mortgage Note or Assignment of Mortgage in blank, the Company shall, or shall cause the Custodian to, complete the endorsement of the Mortgage Note and the Assignment of Mortgage in the name of the Trustee in conjunction with the Interim Certification issued by the Custodian, as contemplated by Section 2.02. Any of the items set forth in Sections 2.01(b)(I)(ii), (iii), (iv) and (v) and (II)(vi) and (vii) and that may be delivered as a copy rather than the original may be delivered to the Trustee or the Custodian. In connection with the assignment of any Mortgage Loan registered on the MERS(R) System, the Company further agrees that it will cause, at the Company's own expense, within 30 Business Days after the Closing Date, the MERS(R)System to indicate that such Mortgage Loans have been assigned by the Company to the Trustee in accordance with this Agreement for the benefit of the Certificateholders by including (or deleting, in the case of Mortgage Loans which are repurchased in accordance with this Agreement) in such computer files (a) the code in the field which identifies the specific Trustee and (b) the code in the field "Pool Field" which identifies the series of the Certificates issued in connection with such Mortgage Loans. The Company further agrees that it will not, and will not permit the Master Servicer to, and the Master Servicer agrees that it will not, alter the codes referenced in this paragraph with respect to any Mortgage Loan during the term of this Agreement unless and until such Mortgage Loan is repurchased in accordance with the terms of this Agreement. (e) Residential Funding hereby assigns to the Trustee its security interest in and to any Additional Collateral or Pledged Assets, its right to receive amounts due or to become due in respect of any Additional Collateral or Pledged Assets pursuant to the related Subservicing Agreement and its rights as beneficiary under the Surety Bond in respect of any Additional Collateral Loans. With respect to any Additional Collateral Loan or Pledged Asset Loan, Residential Funding shall cause to be filed in the appropriate recording office a UCC-3 statement giving notice of the assignment of the related security interest to the Trust Fund and shall thereafter cause the timely filing of all necessary continuation statements with regard to such financing statements. (f) It is intended that the conveyance by the Company to the Trustee of the Mortgage Loans as provided for in this Section 2.01 be and the Uncertificated REMIC Regular Interests, if any (as provided for in Section 2.06), be construed as a sale by the Company to the Trustee of the Mortgage Loans and any Uncertificated REMIC Regular Interests for the benefit of the Certificateholders. Further, it is not intended that such conveyance be deemed to be a pledge of the Mortgage Loans and any Uncertificated REMIC Regular Interests by the Company to the Trustee to secure a debt or other obligation of the Company. However, if the Mortgage Loans and any Uncertificated REMIC Regular Interests are held to be property of the Company or of Residential Funding, or if for any reason this Agreement is held or deemed to create a security interest in the Mortgage Loans and any Uncertificated REMIC Regular Interests, then it is intended that (a) this Agreement shall be a security agreement within the meaning of Articles 8 and 9 of the New York Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction; (b) the conveyance provided for in Section 2.01 shall be deemed to be, and hereby is, (1) a grant by the Company to the Trustee of a security interest in all of the Company's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to any and all general intangibles, payment intangibles, accounts, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, advices of credit and investment property and other property of whatever kind or description now existing or hereafter acquired consisting of, arising from or relating to any of the following: (A) the Mortgage Loans, including (i) with respect to each Cooperative Loan, the related Mortgage Note, Security Agreement, Assignment of Proprietary Lease, Cooperative Stock Certificate and Cooperative Lease, (ii) with respect to each Mortgage Loan other than a Cooperative Loan, the related Mortgage Note and Mortgage, and (iii) any insurance policies and all other documents in the related Mortgage File, (B) all amounts payable pursuant to the Mortgage Loans in accordance with the terms thereof, (C) any Uncertificated REMIC Regular Interests and (D) all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts from time to time held or invested in the Certificate Account or the Custodial Account, whether in the form of cash, instruments, securities or other property and (2) an assignment by the Company to the Trustee of any security interest in any and all of Residential Funding's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to the property described in the foregoing clauses (1)(A), (B), (C) and (D) granted by Residential Funding to the Company pursuant to the Assignment Agreement; (c) the possession by the Trustee, the Custodian or any other agent of the Trustee of Mortgage Notes or such other items of property as constitute instruments, money, payment intangibles, negotiable documents, goods, deposit accounts, letters of credit, advices of credit, investment property, certificated securities or chattel paper shall be deemed to be "possession by the secured party," or possession by a purchaser or a person designated by such secured party, for purposes of perfecting the security interest pursuant to the Minnesota Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction as in effect (including, without limitation, Sections 8-106, 9-313 and 9-106 thereof); and (d) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, securities intermediaries, bailees or agents of, or persons holding for (as applicable) the Trustee for the purpose of perfecting such security interest under applicable law. The Company and, at the Company's direction, Residential Funding and the Trustee shall, to the extent consistent with this Agreement, take such reasonable actions as may be necessary to ensure that, if this Agreement were determined to create a security interest in the Mortgage Loans, any Uncertificated REMIC Regular Interests and the other property described above, such security interest would be determined to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement. Without limiting the generality of the foregoing, the Company shall prepare and deliver to the Trustee not less than 15 days prior to any filing date and, the Trustee shall forward for filing, or shall cause to be forwarded for filing, at the expense of the Company, all filings necessary to maintain the effectiveness of any original filings necessary under the Uniform Commercial Code as in effect in any jurisdiction to perfect the Trustee's security interest in or lien on the Mortgage Loans and any Uncertificated REMIC Regular Interests, as evidenced by an Officers' Certificate of the Company, including without limitation (x) continuation statements, and (y) such other statements as may be occasioned by (1) any change of name of Residential Funding, the Company or the Trustee (such preparation and filing shall be at the expense of the Trustee, if occasioned by a change in the Trustee's name), (2) any change of location of the place of business or the chief executive office of Residential Funding or the Company, (3) any transfer of any interest of Residential Funding or the Company in any Mortgage Loan or (4) any transfer of any interest of Residential Funding or the Company in any Uncertificated REMIC Regular Interest. (g) The Master Servicer hereby acknowledges the receipt by it of the Initial Monthly Payment Fund. The Master Servicer shall hold such Initial Monthly Payment Fund in the Custodial Account and shall include such Initial Monthly Payment Fund in the Available Distribution Amount for the initial Distribution Date. Notwithstanding anything herein to the contrary, the Initial Monthly Payment Fund shall not be an asset of any REMIC. To the extent that the Initial Monthly Payment Fund constitutes a reserve fund for federal income tax purposes, (1) it shall be an outside reserve fund and not an asset of any REMIC, (2) it shall be owned by the Seller and (3) amounts transferred by any REMIC to the Initial Monthly Payment Fund shall be treated as transferred to the Seller or any successor, all within the meaning of Section 1.860G-2(h) of the Treasury Regulations. (h) The Company agrees that the sale of each Pledged Asset Loan pursuant to this Agreement will also constitute the assignment, sale, setting-over, transfer and conveyance to the Trustee, without recourse (but subject to the Company's covenants, representations and warranties specifically provided herein), of all of the Company's obligations and all of the Company's right, title and interest in, to and under, whether now existing or hereafter acquired as owner of the Mortgage Loan with respect to all money, securities, security entitlements, accounts, general intangibles, instruments, documents, certificates of deposit, commodities contracts, and other investment property and other property of whatever kind or description consisting of, arising from or related to (i) the Assigned Contracts, (ii) all rights, powers and remedies of the Company as owner of such Mortgage Loan under or in connection with the Assigned Contracts, whether arising under the terms of such Assigned Contracts, by statute, at law or in equity, or otherwise arising out of any default by the Mortgagor under or in connection with the Assigned Contracts, including all rights to exercise any election or option or to make any decision or determination or to give or receive any notice, consent, approval or waiver thereunder, (iii) all security interests in and lien of the Company as owner of such Mortgage Loan in the Pledged Amounts and all money, securities, security entitlements, accounts, general intangibles, instruments, documents, 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 is credited to the Custodial Account, (iv) all documents, books and records concerning the foregoing (including all computer programs, tapes, disks and related items containing any such information) and (v) all insurance proceeds (including proceeds from the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation or any other insurance company) of any of the foregoing or replacements thereof or substitutions therefor, proceeds of proceeds and the conversion, voluntary or involuntary, of any thereof. The foregoing transfer, sale, assignment and conveyance does not constitute and is not intended to result in the creation, or an assumption by the Trustee, of any obligation of the Company, or any other person in connection with the Pledged Assets or under any agreement or instrument relating thereto, including any obligation to the Mortgagor, other than as owner of the Mortgage Loan. Section 2.02. Acceptance by Trustee. The Trustee acknowledges receipt (or, with respect to Mortgage Loans subject to a Custodial Agreement, and based solely upon a receipt or certification executed by the Custodian, receipt by the respective Custodian as the duly appointed agent of the Trustee) of the documents referred to in Section 2.01(b)(I)(i) and Section 2.01(b)(II)(i), (iii), (v), (vi) and (viii) above (except that for purposes of such acknowledgment only, a Mortgage Note may be endorsed in blank) and declares that it, or a Custodian as its agent, holds and will hold such documents and the other documents constituting a part of the Mortgage Files delivered to it, or a Custodian as its agent, and the rights of Residential Funding with respect to any Pledged Assets, Additional Collateral and the Surety Bond assigned to the Trustee pursuant to Section 2.01, in trust for the use and benefit of all present and future Certificateholders. The Trustee or Custodian (such Custodian being so obligated under a Custodial Agreement) agrees, for the benefit of Certificateholders, to review each Mortgage File delivered to it pursuant to Section 2.01(b) within 45 days after the Closing Date to ascertain that all required documents (specifically as set forth in Section 2.01(b)), have been executed and received, and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, as supplemented, that have been conveyed to it, and to deliver to the Trustee a certificate (the "Interim Certification") to the effect that all documents required to be delivered pursuant to Section 2.01(b) above have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, except for any exceptions listed on Schedule A attached to such Interim Certification. Upon delivery of the Mortgage Files by the Company or the Master Servicer, the Trustee shall acknowledge receipt (or, with respect to Mortgage Loans subject to a Custodial Agreement, and based solely upon a receipt or certification executed by the Custodian, receipt by the respective Custodian as the duly appointed agent of the Trustee) of the documents referred to in Section 2.01(c) above. If the Custodian, as the Trustee's agent, finds any document or documents constituting a part of a Mortgage File to be missing or defective, the Trustee shall promptly so notify the Master Servicer and the Company. Pursuant to Section 2.3 of the Custodial Agreement, the Custodian will notify the Master Servicer, the Company and the Trustee of any such omission or defect found by it in respect of any Mortgage File held by it in respect of the items reviewed by it pursuant to the Custodial Agreement. If such omission or defect materially and adversely affects the interests of the Certificateholders, the Master Servicer shall promptly notify Residential Funding of such omission or defect and request that Residential Funding correct or cure such omission or defect within 60 days from the date the Master Servicer was notified of such omission or defect and, if Residential Funding does not correct or cure such omission or defect within such period, the Master Servicer shall require Residential Funding to purchase such Mortgage Loan from the Trust Fund at its Purchase Price within 90 days from the date the Master Servicer was notified of such omission or defect; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. The Purchase Price for any such Mortgage Loan shall be deposited by the Master Servicer in the Custodial Account maintained by it pursuant to Section 3.07 and, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Trustee or any Custodian, as the case may be, shall release to Residential Funding the related Mortgage File and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Master Servicer, in each case without recourse, as shall be necessary to vest in Residential Funding or its designee any Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan shall not be part of the Trust Fund. It is understood and agreed that the obligation of Residential Funding to so cure or purchase any Mortgage Loan as to which a material and adverse defect in or omission of a constituent document exists shall constitute the sole remedy respecting such defect or omission available to Certificateholders or the Trustee on behalf of the Certificateholders. Section 2.03. Representations, Warranties and Covenants of the Master Servicer and the Company. (a) The Master Servicer hereby represents and warrants to the Trustee for the benefit of the Certificateholders that: (i) The Master Servicer is a corporation duly organized, validly existing and in good standing under the laws governing its creation and existence and is or will be in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Mortgage Loan in accordance with the terms of this Agreement; (ii) The execution and delivery of this Agreement by the Master Servicer and its performance and compliance with the terms of this Agreement will not violate the Master Servicer's Certificate of Incorporation or Bylaws or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Master Servicer is a party or which may be applicable to the Master Servicer or any of its assets; (iii) This Agreement, assuming due authorization, execution and delivery by the Trustee and the Company, constitutes a valid, legal and binding obligation of the Master Servicer, enforceable against it in accordance with the terms hereof subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights generally and to general principles of equity, regardless of whether such enforcement is considered in a proceeding in equity or at law; (iv) The Master Servicer is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default might have consequences that would materially and adversely affect the condition (financial or other) or operations of the Master Servicer or its properties or might have consequences that would materially adversely affect its performance hereunder; (v) No litigation is pending or, to the best of the Master Servicer's knowledge, threatened against the Master Servicer which would prohibit its entering into this Agreement or performing its obligations under this Agreement; (vi) The Master Servicer will comply in all material respects in the performance of this Agreement with all reasonable rules and requirements of each insurer under each Required Insurance Policy; (vii) No information, certificate of an officer, statement furnished in writing or report delivered to the Company, any Affiliate of the Company or the Trustee by the Master Servicer will, to the knowledge of the Master Servicer, contain any untrue statement of a material fact or omit a material fact necessary to make the information, certificate, statement or report not misleading; (viii) The Master Servicer has examined each existing, and will examine each new, Subservicing Agreement and is or will be familiar with the terms thereof. The terms of each existing Subservicing Agreement and each designated Subservicer are acceptable to the Master Servicer and any new Subservicing Agreements will comply with the provisions of Section 3.02; and (ix) The Master Servicer is a member of MERS in good standing, and will comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Mortgage Loans that are registered with MERS. It is understood and agreed that the representations and warranties set forth in this Section 2.03(a) shall survive delivery of the respective Mortgage Files to the Trustee or any Custodian. Upon discovery by either the Company, the Master Servicer, the Trustee or any Custodian of a breach of any representation or warranty set forth in this Section 2.03(a) which materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement). Within 90 days of its discovery or its receipt of notice of such breach, the Master Servicer shall either (i) cure such breach in all material respects or (ii) to the extent that such breach is with respect to a Mortgage Loan or a related document, purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. The obligation of the Master Servicer to cure such breach or to so purchase such Mortgage Loan shall constitute the sole remedy in respect of a breach of a representation and warranty set forth in this Section 2.03(a) available to the Certificateholders or the Trustee on behalf of the Certificateholders. (b) Representations and warranties relating to the Mortgage Loans are set forth in Section 2.03(b) of the Series Supplement. Section 2.04. Representations and Warranties of Residential Funding. The Company, as assignee of Residential Funding under the Assignment Agreement, hereby assigns to the Trustee for the benefit of Certificateholders all of its right, title and interest in respect of the Assignment Agreement (to the extent assigned to the Company pursuant to the Assignment Agreement) applicable to a Mortgage Loan. Insofar as the Assignment Agreement relates to the representations and warranties made by Residential Funding or the related Seller in respect of such Mortgage Loan and any remedies provided thereunder for any breach of such representations and warranties, such right, title and interest may be enforced by the Master Servicer on behalf of the Trustee and the Certificateholders. Upon the discovery by the Company, the Master Servicer, the Trustee or any Custodian of a breach of any of the representations and warranties made in the Assignment Agreement (which, for purposes hereof, will be deemed to include any other cause giving rise to a repurchase obligation under the Assignment Agreement) in respect of any Mortgage Loan which materially and adversely affects the interests of the Certificateholders in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement). The Master Servicer shall promptly notify Residential Funding of such breach and request that Residential Funding either (i) cure such breach in all material respects within 90 days from the date the Master Servicer was notified of such breach or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that Residential Funding shall have the option to substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution occurs within two years following the Closing Date; provided that if the breach would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure, repurchase or substitution must occur within 90 days from the date the breach was discovered. If the breach of representation and warranty that gave rise to the obligation to repurchase or substitute a Mortgage Loan pursuant to Section 4 of the Assignment Agreement was the representation and warranty set forth in clause (xxxi) of Section 4 thereof, then the Master Servicer shall request that Residential Funding pay to the Trust Fund, concurrently with and in addition to the remedies provided in the preceding sentence, an amount equal to any liability, penalty or expense that was actually incurred and paid out of or on behalf of the Trust Fund, and that directly resulted from such breach, or if incurred and paid by the Trust Fund thereafter, concurrently with such payment. In the event that Residential Funding elects to substitute a Qualified Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this Section 2.04, Residential Funding shall deliver to the Trustee for the benefit of the Certificateholders with respect to such Qualified Substitute Mortgage Loan or Loans, the original Mortgage Note, the Mortgage, an Assignment of the Mortgage in recordable form if required pursuant to Section 2.01, and such other documents and agreements as are required by Section 2.01, with the Mortgage Note endorsed as required by Section 2.01. No substitution will be made in any calendar month after the Determination Date for such month. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution shall not be part of the Trust Fund and will be retained by the Master Servicer and remitted by the Master Servicer to Residential Funding on the next succeeding Distribution Date. For the month of substitution, distributions to the Certificateholders will include the Monthly Payment due on a Deleted Mortgage Loan for such month and thereafter Residential Funding shall be entitled to retain all amounts received in respect of such Deleted Mortgage Loan. The Master Servicer shall amend or cause to be amended the Mortgage Loan Schedule, and, if the Deleted Mortgage Loan was a Discount Mortgage Loan, the Schedule of Discount Fractions, for the benefit of the Certificateholders to reflect the removal of such Deleted Mortgage Loan and the substitution of the Qualified Substitute Mortgage Loan or Loans and the Master Servicer shall deliver the amended Mortgage Loan Schedule, and, if the Deleted Mortgage Loan was a Discount Mortgage Loan, the amended Schedule of Discount Fractions, to the Trustee. Upon such substitution, the Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of this Agreement and the related Subservicing Agreement in all respects, Residential Funding shall be deemed to have made the representations and warranties with respect to the Qualified Substitute Mortgage Loan contained in the related Assignment Agreement, and the Company and the Master Servicer shall be deemed to have made with respect to any Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the covenants, representations and warranties set forth in this Section 2.04, in Section 2.03 hereof and in Section 4 of the Assignment Agreement, and the Master Servicer shall be obligated to repurchase or substitute for any Qualified Substitute Mortgage Loan as to which a Repurchase Event (as defined in the Assignment Agreement) has occurred pursuant to Section 4 of the Assignment Agreement. In connection with the substitution of one or more Qualified Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer will determine the amount (if any) by which the aggregate principal balance of all such Qualified Substitute Mortgage Loans as of the date of substitution is less than the aggregate Stated Principal Balance of all such Deleted Mortgage Loans (in each case after application of the principal portion of the Monthly Payments due in the month of substitution that are to be distributed to the Certificateholders in the month of substitution). Residential Funding shall deposit the amount of such shortfall into the Custodial Account on the day of substitution, without any reimbursement therefor. Residential Funding shall give notice in writing to the Trustee of such event, which notice shall be accompanied by an Officers' Certificate as to the calculation of such shortfall and (subject to Section 10.01(f)) by an Opinion of Counsel to the effect that such substitution will not cause (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code or (b) any portion of any REMIC to fail to qualify as such at any time that any Certificate is outstanding. It is understood and agreed that the obligation of Residential Funding to cure such breach or purchase or to substitute for, a such Mortgage Loan as to which such a breach has occurred and is continuing and to make any additional payments required under the Assignment Agreement in connection with a breach of the representation and warranty in clause (xxxi) of Section 4 thereof shall constitute the sole remedy respecting such breach available to the Certificateholders or the Trustee on behalf of Certificateholders. If the Master Servicer is Residential Funding, then the Trustee shall also have the right to give the notification and require the purchase or substitution provided for in the second preceding paragraph in the event of such a breach of a representation or warranty made by Residential Funding in the Assignment Agreement. In connection with the purchase of or substitution for any such Mortgage Loan by Residential Funding, the Trustee shall assign to Residential Funding all of the Trustee's right, title and interest in respect of the Assignment Agreement applicable to such Mortgage Loan. Section 2.05. Execution and Authentication of Certificates/Issuance of Certificates Evidencing Interests in REMIC I. As provided in Section 2.05 of the Series Supplement. Section 2.06. Conveyance of Uncertificated REMIC I and REMIC II Regular Interests; Acceptance by the Trustee. As provided in Section 2.06 of the Series Supplement. Section 2.07. Issuance of Certificates Evidencing Interests in REMIC II. As provided in Section 2.07 of the Series Supplement. Section 2.08. Purposes and Powers of the Trust. The purpose of the trust, as created hereunder, is to engage in the following activities: (a) to sell the Certificates to the Company in exchange for the Mortgage Loans; (b) to enter into and perform its obligations under this Agreement; (c) to engage in those activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith; and (d) subject to compliance with this Agreement, to engage in such other activities as may be required in connection with conservation of the Trust Fund and the making of distributions to the Certificateholders. The trust is hereby authorized to engage in the foregoing activities. Notwithstanding the provisions of Section 11.01, the trust shall not engage in any activity other than in connection with the foregoing or other than as required or authorized by the terms of this Agreement while any Certificate is outstanding, and this Section 2.08 may not be amended, without the consent of the Certificateholders evidencing a majority of the aggregate Voting Rights of the Certificates. ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS Section 3.01. Master Servicer to Act as Servicer. (a) The Master Servicer shall service and administer the Mortgage Loans in accordance with the terms of this Agreement and the respective Mortgage Loans , following such procedures as it would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities, and in the case of the Mortgage Loans being subserviced by Wells Fargo, if any, such procedures that comply with applicable federal, state and local law and that are in accordance with accepted mortgage servicing practices of prudent mortgage lending institutions which service loans of the same type as the Mortgage Loans in the jurisdiction in which the related Mortgaged Property is located, and shall have full power and authority, acting alone or through Subservicers as provided in Section 3.02, to do any and all things which it may deem necessary or desirable in connection with such servicing and administration. Without limiting the generality of the foregoing, the Master Servicer in its own name or in the name of a Subservicer is hereby authorized and empowered by the Trustee when the Master Servicer or the Subservicer, as the case may be, believes it appropriate in its best judgment, to execute and deliver, on behalf of the Certificateholders and the Trustee or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, or of consent to assumption or modification in connection with a proposed conveyance, or of assignment of any Mortgage and Mortgage Note in connection with the repurchase of a Mortgage Loan and all other comparable instruments, or with respect to the modification or re-recording of a Mortgage for the purpose of correcting the Mortgage, the subordination of the lien of the Mortgage in favor of a public utility company or government agency or unit with powers of eminent domain, the taking of a deed in lieu of foreclosure, the commencement, prosecution or completion of judicial or non-judicial foreclosure, the conveyance of a Mortgaged Property to the related Insurer, the acquisition of any property acquired by foreclosure or deed in lieu of foreclosure, or the management, marketing and conveyance of any property acquired by foreclosure or deed in lieu of foreclosure with respect to the Mortgage Loans and with respect to the Mortgaged Properties. The Master Servicer further is authorized and empowered by the Trustee, on behalf of the Certificateholders and the Trustee, in its own name or in the name of the Subservicer, when the Master Servicer or the Subservicer, as the case may be, believes it is appropriate in its best judgment to register any Mortgage Loan on the MERS(R)System, or cause the removal from the registration of any Mortgage Loan on the MERS(R)System, to execute and deliver, on behalf of the Trustee and the Certificateholders or any of them, any and all instruments of assignment and other comparable instruments with respect to such assignment or re-recording of a Mortgage in the name of MERS, solely as nominee for the Trustee and its successors and assigns. Any expenses incurred in connection with the actions described in the preceding sentence shall be borne by the Master Servicer in accordance with Section 3.16(c), with no right of reimbursement; provided, that if, as a result of MERS discontinuing or becoming unable to continue operations in connection with the MERS System, it becomes necessary to remove any Mortgage Loan from registration on the MERS System and to arrange for the assignment of the related Mortgages to the Trustee, then any related expenses shall be reimbursable to the Master Servicer. Notwithstanding the foregoing, subject to Section 3.07(a), the Master Servicer shall not permit any modification with respect to any Mortgage Loan that would both constitute a sale or exchange of such Mortgage Loan within the meaning of Section 1001 of the Code and any proposed, temporary or final regulations promulgated thereunder (other than in connection with a proposed conveyance or assumption of such Mortgage Loan that is treated as a Principal Prepayment in Full pursuant to Section 3.13(d) hereof) and cause any REMIC formed under the Series Supplement to fail to qualify as a REMIC under the Code. The Trustee shall furnish the Master Servicer with any powers of attorney and other documents necessary or appropriate to enable the Master Servicer to service and administer the Mortgage Loans. The Trustee shall not be liable for any action taken by the Master Servicer or any Subservicer pursuant to such powers of attorney. In servicing and administering any Nonsubserviced Mortgage Loan, the Master Servicer shall, to the extent not inconsistent with this Agreement, comply with the Program Guide as if it were the originator of such Mortgage Loan and had retained the servicing rights and obligations in respect thereof. In connection with servicing and administering the Mortgage Loans, the Master Servicer and any Affiliate of the Master Servicer (i) may perform services such as appraisals and brokerage services that are not customarily provided by servicers of mortgage loans, and shall be entitled to reasonable compensation therefor in accordance with Section 3.10 and (ii) may, at its own discretion and on behalf of the Trustee, obtain credit information in the form of a "credit score" from a credit repository. (b) All costs incurred by the Master Servicer or by Subservicers in effecting the timely payment of taxes and assessments on the properties subject to the Mortgage Loans shall not, for the purpose of calculating monthly distributions to the Certificateholders, be added to the amount owing under the related Mortgage Loans, notwithstanding that the terms of such Mortgage Loan so permit, and such costs shall be recoverable to the extent permitted by Section 3.10(a)(ii). (c) The Master Servicer may enter into one or more agreements in connection with the offering of pass-through certificates evidencing interests in one or more of the Certificates providing for the payment by the Master Servicer of amounts received by the Master Servicer as servicing compensation hereunder and required to cover certain Prepayment Interest Shortfalls on the Mortgage Loans, which payment obligation will thereafter be an obligation of the Master Servicer hereunder. Section 3.02. Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' and Sellers' Obligations. (a) The Master Servicer may continue in effect Subservicing Agreements entered into by Residential Funding and Subservicers prior to the execution and delivery of this Agreement, and may enter into new Subservicing Agreements with Subservicers, for the servicing and administration of all or some of the Mortgage Loans. Each Subservicer of a Mortgage Loan shall be entitled to receive and retain, as provided in the related Subservicing Agreement and in Section 3.07, the related Subservicing Fee from payments of interest received on such Mortgage Loan after payment of all amounts required to be remitted to the Master Servicer in respect of such Mortgage Loan. For any Mortgage Loan that is a Nonsubserviced Mortgage Loan, the Master Servicer shall be entitled to receive and retain an amount equal to the Subservicing Fee from payments of interest. Unless the context otherwise requires, references in this Agreement to actions taken or to be taken by the Master Servicer in servicing the Mortgage Loans include actions taken or to be taken by a Subservicer on behalf of the Master Servicer. Each Subservicing Agreement will be upon such terms and conditions as are generally required or permitted by the Program Guide and are not inconsistent with this Agreement and as the Master Servicer and the Subservicer have agreed. A representative form of Subservicing Agreement is attached to this Agreement as Exhibit E. With the approval of the Master Servicer, a Subservicer may delegate its servicing obligations to third-party servicers, but such Subservicer will remain obligated under the related Subservicing Agreement. The Master Servicer and a Subservicer may enter into amendments thereto or a different form of Subservicing Agreement, and the form referred to or included in the Program Guide is merely provided for information and shall not be deemed to limit in any respect the discretion of the Master Servicer to modify or enter into different Subservicing Agreements; provided, however, that any such amendments or different forms shall be consistent with and not violate the provisions of either this Agreement or the Program Guide in a manner which would materially and adversely affect the interests of the Certificateholders. The Program Guide and any other Subservicing Agreement entered into between the Master Servicer and any Subservicer shall require the Subservicer to accurately and fully report its borrower credit files to each of the Credit Repositories in a timely manner. (b) As part of its servicing activities hereunder, the Master Servicer, for the benefit of the Trustee and the Certificateholders, shall use its best reasonable efforts to enforce the obligations of each Subservicer under the related Subservicing Agreement and of each Seller under the related Seller's Agreement insofar as the Company's rights with respect to such obligation has been assigned to the Trustee hereunder, to the extent that the non-performance of any such Seller's obligation would have a material and adverse effect on a Mortgage Loan, including, without limitation, the obligation to purchase a Mortgage Loan on account of defective documentation, as described in Section 2.02, or on account of a breach of a representation or warranty, as described in Section 2.04. Such enforcement, including, without limitation, the legal prosecution of claims, termination of Subservicing Agreements or Seller's Agreements, as appropriate, and the pursuit of other appropriate remedies, shall be in such form and carried out to such an extent and at such time as the Master Servicer would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities. The Master Servicer shall pay the costs of such enforcement at its own expense, and shall be reimbursed therefor only (i) from a general recovery resulting from such enforcement to the extent, if any, that such recovery exceeds all amounts due in respect of the related Mortgage Loan or (ii) from a specific recovery of costs, expenses or attorneys fees against the party against whom such enforcement is directed. For purposes of clarification only, the parties agree that the foregoing is not intended to, and does not, limit the ability of the Master Servicer to be reimbursed for expenses that are incurred in connection with the enforcement of a Seller's obligations (insofar as the Company's rights with respect to such Seller's obligations have been assigned to the Trustee hereunder) and are reimbursable pursuant to Section 3.10(a)(viii). Section 3.03. Successor Subservicers. The Master Servicer shall be entitled to terminate any Subservicing Agreement that may exist in accordance with the terms and conditions of such Subservicing Agreement and without any limitation by virtue of this Agreement; provided, however, that in the event of termination of any Subservicing Agreement by the Master Servicer or the Subservicer, the Master Servicer shall either act as servicer of the related Mortgage Loan or enter into a Subservicing Agreement with a successor Subservicer which will be bound by the terms of the related Subservicing Agreement. If the Master Servicer or any Affiliate of Residential Funding acts as servicer, it will not assume liability for the representations and warranties of the Subservicer which it replaces. If the Master Servicer enters into a Subservicing Agreement with a successor Subservicer, the Master Servicer shall use reasonable efforts to have the successor Subservicer assume liability for the representations and warranties made by the terminated Subservicer in respect of the related Mortgage Loans and, in the event of any such assumption by the successor Subservicer, the Master Servicer may, in the exercise of its business judgment, release the terminated Subservicer from liability for such representations and warranties. Section 3.04. Liability of the Master Servicer. Notwithstanding any Subservicing Agreement, any of the provisions of this Agreement relating to agreements or arrangements between the Master Servicer or a Subservicer or reference to actions taken through a Subservicer or otherwise, the Master Servicer shall remain obligated and liable to the Trustee and the Certificateholders for the servicing and administering of the Mortgage Loans in accordance with the provisions of Section 3.01 without diminution of such obligation or liability by virtue of such Subservicing Agreements or arrangements or by virtue of indemnification from the Subservicer or the Company and to the same extent and under the same terms and conditions as if the Master Servicer alone were servicing and administering the Mortgage Loans. The Master Servicer shall be entitled to enter into any agreement with a Subservicer or Seller for indemnification of the Master Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification. Section 3.05. No Contractual Relationship Between Subservicer and Trustee or Certificateholders. Any Subservicing Agreement that may be entered into and any other transactions or services relating to the Mortgage Loans involving a Subservicer in its capacity as such and not as an originator shall be deemed to be between the Subservicer and the Master Servicer alone and the Trustee and the Certificateholders shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to the Subservicer in its capacity as such except as set forth in Section 3.06. The foregoing provision shall not in any way limit a Subservicer's obligation to cure an omission or defect or to repurchase a Mortgage Loan as referred to in Section 2.02 hereof. Section 3.06. Assumption or Termination of Subservicing Agreements by Trustee. (a) If the Master Servicer shall for any reason no longer be the master servicer (including by reason of an Event of Default), the Trustee, its designee or its successor shall thereupon assume all of the rights and obligations of the Master Servicer under each Subservicing Agreement that may have been entered into. The Trustee, its designee or the successor servicer for the Trustee shall be deemed to have assumed all of the Master Servicer's interest therein and to have replaced the Master Servicer as a party to the Subservicing Agreement to the same extent as if the Subservicing Agreement had been assigned to the assuming party except that the Master Servicer shall not thereby be relieved of any liability or obligations under the Subservicing Agreement. (b) The Master Servicer shall, upon request of the Trustee but at the expense of the Master Servicer, deliver to the assuming party all documents and records relating to each Subservicing Agreement and the Mortgage Loans then being serviced and an accounting of amounts collected and held by it and otherwise use its best efforts to effect the orderly and efficient transfer of each Subservicing Agreement to the assuming party. Section 3.07. Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account. (a) The Master Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Mortgage Loans, and shall, to the extent such procedures shall be consistent with this Agreement and the terms and provisions of any related Primary Insurance Policy, follow such collection procedures as it would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities. Consistent with the foregoing, the Master Servicer may in its discretion (i) waive any late payment charge or any prepayment charge or penalty interest in connection with the prepayment of a Mortgage Loan and (ii) extend the Due Date for payments due on a Mortgage Loan in accordance with the Program Guide; provided, however, that the Master Servicer shall first determine that any such waiver or extension will not impair the coverage of any related Primary Insurance Policy or materially adversely affect the lien of the related Mortgage. Notwithstanding anything in this Section to the contrary, the Master Servicer or any Subservicer shall not enforce any prepayment charge to the extent that such enforcement would violate any applicable law. In the event of any such arrangement, the Master Servicer shall make timely advances on the related Mortgage Loan during the scheduled period in accordance with the amortization schedule of such Mortgage Loan without modification thereof by reason of such arrangements unless otherwise agreed to by the Holders of the Classes of Certificates affected thereby; provided, however, that no such extension shall be made if any such advance would be a Nonrecoverable Advance. Consistent with the terms of this Agreement, the Master Servicer may also waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor if in the Master Servicer's determination such waiver, modification, postponement or indulgence is not materially adverse to the interests of the Certificateholders (taking into account any estimated Realized Loss that might result absent such action); provided, however, that the Master Servicer may not modify materially or permit any Subservicer to modify any Mortgage Loan, including without limitation any modification that would change the Mortgage Rate, forgive the payment of any principal or interest (unless in connection with the liquidation of the related Mortgage Loan or except in connection with prepayments to the extent that such reamortization is not inconsistent with the terms of the Mortgage Loan), capitalize any amounts owing on the Mortgage Loan by adding such amount to the outstanding principal balance of the Mortgage Loan, or extend the final maturity date of such Mortgage Loan, unless such Mortgage Loan is in default or, in the judgment of the Master Servicer, such default is reasonably foreseeable; provided, further, that (1) no such modification shall reduce the interest rate on a Mortgage Loan below one-half of the Mortgage Rate as in effect on the Cut-Off Date, but not less than the sum of the rates at which the Servicing Fee and the Subservicing Fee with respect to such Mortgage Loan accrues plus the rate at which the premium paid to the Certificate Insurer, if any, accrues, (2) the final maturity date for any Mortgage Loan shall not be extended beyond the Maturity Date, (3) the Stated Principal Balance of all Reportable Modified Mortgage Loans subject to Servicing Modifications (measured at the time of the Servicing Modification and after giving effect to any Servicing Modification) can be no more than five percent of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date, unless such limit is increased from time to time with the consent of the Rating Agencies and the Certificate Insurer, if any. In addition, any amounts owing on a Mortgage Loan added to the outstanding principal balance of such Mortgage Loan must be fully amortized over the remaining term of such Mortgage Loan, and such amounts may be added to the outstanding principal balance of a Mortgage Loan only once during the life of such Mortgage Loan. Also, the addition of such amounts described in the preceding sentence shall be implemented in accordance with the Program Guide and may be implemented only by Subservicers that have been approved by the Master Servicer for such purpose. In connection with any Curtailment of a Mortgage Loan, the Master Servicer, to the extent not inconsistent with the terms of the Mortgage Note and local law and practice, may permit the Mortgage Loan to be reamortized such that the Monthly Payment is recalculated as an amount that will fully amortize the remaining Stated Principal Balance thereof by the original Maturity Date based on the original Mortgage Rate; provided, that such re-amortization shall not be permitted if it would constitute a reissuance of the Mortgage Loan for federal income tax purposes, except if such reissuance is described in Treasury Regulation Section 1.860G-2(b)(3). (b) The Master Servicer shall establish and maintain a Custodial Account in which the Master Servicer shall deposit or cause to be deposited on a daily basis, except as otherwise specifically provided herein, the following payments and collections remitted by Subservicers or received by it in respect of the Mortgage Loans subsequent to the Cut-off Date (other than in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date): (i) All payments on account of principal, including Principal Prepayments made by Mortgagors on the Mortgage Loans and the principal component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (ii) All payments on account of interest at the Adjusted Mortgage Rate on the Mortgage Loans, including Buydown Funds, if any, and the interest component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (iii) Insurance Proceeds, Subsequent Recoveries and Liquidation Proceeds (net of any related expenses of the Subservicer); (iv) All proceeds of any Mortgage Loans purchased pursuant to Section 2.02, 2.03, 2.04, 4.07 or 9.01 and all amounts required to be deposited in connection with the substitution of a Qualified Substitute Mortgage Loan pursuant to Section 2.03 or 2.04; (v) Any amounts required to be deposited pursuant to Section 3.07(c) or 3.21; (vi) All amounts transferred from the Certificate Account to the Custodial Account in accordance with Section 4.02(a); (vii) Any amounts realized by the Subservicer and received by the Master Servicer in respect of any Additional Collateral; and (viii) Any amounts received by the Master Servicer in respect of Pledged Assets. The foregoing requirements for deposit in the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments on the Mortgage Loans which are not part of the Trust Fund (consisting of payments in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date) and payments or collections in the nature of prepayment charges or late payment charges or assumption fees may but need not be deposited by the Master Servicer in the Custodial Account. In the event any amount not required to be deposited in the Custodial Account is so deposited, the Master Servicer may at any time withdraw such amount from the Custodial Account, any provision herein to the contrary notwithstanding. The Custodial Account may contain funds that belong to one or more trust funds created for mortgage pass-through certificates of other series and may contain other funds respecting payments on mortgage loans belonging to the Master Servicer or serviced or master serviced by it on behalf of others. Notwithstanding such commingling of funds, the Master Servicer shall keep records that accurately reflect the funds on deposit in the Custodial Account that have been identified by it as being attributable to the Mortgage Loans. With respect to Insurance Proceeds, Liquidation Proceeds, REO Proceeds and the proceeds of the purchase of any Mortgage Loan pursuant to Sections 2.02, 2.03, 2.04 and 4.07 received in any calendar month, the Master Servicer may elect to treat such amounts as included in the Available Distribution Amount for the Distribution Date in the month of receipt, but is not obligated to do so. If the Master Servicer so elects, such amounts will be deemed to have been received (and any related Realized Loss shall be deemed to have occurred) on the last day of the month prior to the receipt thereof. (c) The Master Servicer shall use its best efforts to cause the institution maintaining the Custodial Account to invest the funds in the Custodial Account attributable to the Mortgage Loans in Permitted Investments which shall mature not later than the Certificate Account Deposit Date next following the date of such investment (with the exception of the Amount Held for Future Distribution) and which shall not be sold or disposed of prior to their maturities. All income and gain realized from any such investment shall be for the benefit of the Master Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time. The amount of any losses incurred in respect of any such investments attributable to the investment of amounts in respect of the Mortgage Loans shall be deposited in the Custodial Account by the Master Servicer out of its own funds immediately as realized without any right of reimbursement. (d) The Master Servicer shall give notice to the Trustee and the Company of any change in the location of the Custodial Account and the location of the Certificate Account prior to the use thereof. Section 3.08. Subservicing Accounts; Servicing Accounts. (a) In those cases where a Subservicer is servicing a Mortgage Loan pursuant to a Subservicing Agreement, the Master Servicer shall cause the Subservicer, pursuant to the Subservicing Agreement, to establish and maintain one or more Subservicing Accounts which shall be an Eligible Account or, if such account is not an Eligible Account, shall generally satisfy the requirements of the Program Guide and be otherwise acceptable to the Master Servicer and each Rating Agency. The Subservicer will be required thereby to deposit into the Subservicing Account on a daily basis , or with respect to the Mortgage Loans, subserviced by Wells Fargo, if any, within two (2) Business Days of receipt, all proceeds of Mortgage Loans received by the Subservicer, less its Subservicing Fees and unreimbursed advances and expenses, to the extent permitted by the Subservicing Agreement. If the Subservicing Account is not an Eligible Account, the Master Servicer shall be deemed to have received such monies upon receipt thereof by the Subservicer. The Subservicer shall not be required to deposit in the Subservicing Account payments or collections in the nature of prepayment charges or late charges or assumption fees. On or before the date specified in the Program Guide, but in no event later than the Determination Date, the Master Servicer shall cause the Subservicer, pursuant to the Subservicing Agreement, to remit to the Master Servicer for deposit in the Custodial Account all funds held in the Subservicing Account with respect to each Mortgage Loan serviced by such Subservicer that are required to be remitted to the Master Servicer. The Subservicer will also be required, pursuant to the Subservicing Agreement, to advance on such scheduled date of remittance amounts equal to any scheduled monthly installments of principal and interest less its Subservicing Fees on any Mortgage Loans for which payment was not received by the Subservicer. This obligation to advance with respect to each Mortgage Loan will continue up to and including the first of the month following the date on which the related Mortgaged Property is sold at a foreclosure sale or is acquired by the Trust Fund by deed in lieu of foreclosure or otherwise. All such advances received by the Master Servicer shall be deposited promptly by it in the Custodial Account. (b) The Subservicer may also be required, pursuant to the Subservicing Agreement, to remit to the Master Servicer for deposit in the Custodial Account interest at the Adjusted Mortgage Rate (or Modified Net Mortgage Rate plus the rate per annum at which the Servicing Fee accrues in the case of a Modified Mortgage Loan) on any Curtailment received by such Subservicer in respect of a Mortgage Loan from the related Mortgagor during any month that is to be applied by the Subservicer to reduce the unpaid principal balance of the related Mortgage Loan as of the first day of such month, from the date of application of such Curtailment to the first day of the following month. Any amounts paid by a Subservicer pursuant to the preceding sentence shall be for the benefit of the Master Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time pursuant to Sections 3.10(a)(iv) and (v). (c) In addition to the Custodial Account and the Certificate Account, the Master Servicer shall for any Nonsubserviced Mortgage Loan, and shall cause the Subservicers for Subserviced Mortgage Loans to, establish and maintain one or more Servicing Accounts and deposit and retain therein all collections from the Mortgagors (or advances from Subservicers) for the payment of taxes, assessments, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, or comparable items for the account of the Mortgagors. Each Servicing Account shall satisfy the requirements for a Subservicing Account and, to the extent permitted by the Program Guide or as is otherwise acceptable to the Master Servicer, may also function as a Subservicing Account. Withdrawals of amounts related to the Mortgage Loans from the Servicing Accounts may be made only to effect timely payment of taxes, assessments, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, or comparable items, to reimburse the Master Servicer or Subservicer out of related collections for any payments made pursuant to Sections 3.11 (with respect to the Primary Insurance Policy) and 3.12(a) (with respect to hazard insurance), to refund to any Mortgagors any sums as may be determined to be overages, to pay interest, if required, to Mortgagors on balances in the Servicing Account or to clear and terminate the Servicing Account at the termination of this Agreement in accordance with Section 9.01 or in accordance with the Program Guide. As part of its servicing duties, the Master Servicer shall, and the Subservicers will, pursuant to the Subservicing Agreements, be required to pay to the Mortgagors interest on funds in this account to the extent required by law. (d) The Master Servicer shall advance the payments referred to in the preceding subsection that are not timely paid by the Mortgagors or advanced by the Subservicers on the date when the tax, premium or other cost for which such payment is intended is due, but the Master Servicer shall be required so to advance only to the extent that such advances, in the good faith judgment of the Master Servicer, will be recoverable by the Master Servicer out of Insurance Proceeds, Liquidation Proceeds or otherwise. Section 3.09. Access to Certain Documentation and Information Regarding the Mortgage Loans. If compliance with this Section 3.09 shall make any Class of Certificates legal for investment by federally insured savings and loan associations, the Master Servicer shall provide, or cause the Subservicers to provide, to the Trustee, the Office of Thrift Supervision or the FDIC and the supervisory agents and examiners thereof access to the documentation regarding the Mortgage Loans required by applicable regulations of the Office of Thrift Supervision, such access being afforded without charge but only upon reasonable request and during normal business hours at the offices designated by the Master Servicer. The Master Servicer shall permit such representatives to photocopy any such documentation and shall provide equipment for that purpose at a charge reasonably approximating the cost of such photocopying to the Master Servicer. Section 3.10. Permitted Withdrawals from the Custodial Account. (a) The Master Servicer may, from time to time as provided herein, make withdrawals from the Custodial Account of amounts on deposit therein pursuant to Section 3.07 that are attributable to the Mortgage Loans for the following purposes: (i) to make deposits into the Certificate Account in the amounts and in the manner provided for in Section 4.01; (ii) to reimburse itself or the related Subservicer for previously unreimbursed Advances, Servicing Advances or other expenses made pursuant to Sections 3.01, 3.07(a), 3.08, 3.11, 3.12(a), 3.14 and 4.04 or otherwise reimbursable pursuant to the terms of this Agreement, such withdrawal right being limited to amounts received on the related Mortgage Loans (including, for this purpose, REO Proceeds, Insurance Proceeds, Liquidation Proceeds and proceeds from the purchase of a Mortgage Loan pursuant to Section 2.02, 2.03, 2.04, 4.07 or 9.01) which represent (A) Late Collections of Monthly Payments for which any such advance was made in the case of Subservicer Advances or Advances pursuant to Section 4.04 and (B) recoveries of amounts in respect of which such advances were made in the case of Servicing Advances; (iii) to pay to itself or the related Subservicer (if not previously retained by such Subservicer) out of each payment received by the Master Servicer on account of interest on a Mortgage Loan as contemplated by Sections 3.14 and 3.16, an amount equal to that remaining portion of any such payment as to interest (but not in excess of the Servicing Fee and the Subservicing Fee, if not previously retained) which, when deducted, will result in the remaining amount of such interest being interest at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the amount specified in the amortization schedule of the related Mortgage Loan as the principal balance thereof at the beginning of the period respecting which such interest was paid after giving effect to any previous Curtailments; (iv) to pay to itself as additional servicing compensation any interest or investment income earned on funds and other property deposited in or credited to the Custodial Account that it is entitled to withdraw pursuant to Section 3.07(c); (v) to pay to itself as additional servicing compensation any Foreclosure Profits, any amounts remitted by Subservicers as interest in respect of Curtailments pursuant to Section 3.08(b), and any amounts paid by a Mortgagor in connection with a Principal Prepayment in Full in respect of interest for any period during the calendar month in which such Principal Prepayment in Full is to be distributed to the Certificateholders; (vi) to pay to itself, a Subservicer, a Seller, Residential Funding, the Company or any other appropriate Person, as the case may be, with respect to each Mortgage Loan or property acquired in respect thereof that has been purchased or otherwise transferred pursuant to Section 2.02, 2.03, 2.04, 4.07 or 9.01, all amounts received thereon and not required to be distributed to the Certificateholders as of the date on which the related Stated Principal Balance or Purchase Price is determined; (vii) to reimburse itself or the related Subservicer for any Nonrecoverable Advance or Advances in the manner and to the extent provided in subsection (c) below, and any Advance or Servicing Advance made in connection with a modified Mortgage Loan that is in default or, in the judgment of the Master Servicer, default is reasonably foreseeable pursuant to Section 3.07(a), to the extent the amount of the Advance or Servicing Advance was added to the Stated Principal Balance of the Mortgage Loan in a prior calendar month, or any Advance reimbursable to the Master Servicer pursuant to Section 4.02(a); (viii) to reimburse itself or the Company for expenses incurred by and reimbursable to it or the Company pursuant to Sections 3.01(a), 3.11, 3.13, 3.14(c), 6.03, 10.01 or otherwise, or in connection with enforcing, in accordance with this Agreement, any repurchase, substitution or indemnification obligation of any Seller (other than an Affiliate of the Company) pursuant to the related Seller's Agreement; (ix) to reimburse itself for Servicing Advances expended by it (a) pursuant to Section 3.14 in good faith in connection with the restoration of property damaged by an Uninsured Cause, and (b) in connection with the liquidation of a Mortgage Loan or disposition of an REO Property to the extent not otherwise reimbursed pursuant to clause (ii) or (viii) above; and (x) to withdraw any amount deposited in the Custodial Account that was not required to be deposited therein pursuant to Section 3.07; and (xi) to reimburse or pay any Subservicer any such amounts as are due thereto under the applicable Subservicing Agreement and have not been retained by or paid to the Subservicer, to the extent provided in the related Subservicing Agreement. (b) Since, in connection with withdrawals pursuant to clauses (ii), (iii), (v) and (vi), the Master Servicer's entitlement thereto is limited to collections or other recoveries on the related Mortgage Loan, the Master Servicer shall keep and maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from the Custodial Account pursuant to such clauses. (c) The Master Servicer shall be entitled to reimburse itself or the related Subservicer for any advance made in respect of a Mortgage Loan that the Master Servicer determines to be a Nonrecoverable Advance by withdrawal from the Custodial Account of amounts on deposit therein attributable to the Mortgage Loans on any Certificate Account Deposit Date succeeding the date of such determination. Such right of reimbursement in respect of a Nonrecoverable Advance relating to an Advance pursuant to Section 4.04 on any such Certificate Account Deposit Date shall be limited to an amount not exceeding the portion of such advance previously paid to Certificateholders (and not theretofore reimbursed to the Master Servicer or the related Subservicer). Section 3.11. Maintenance of the Primary Insurance Policies; Collections Thereunder. (a) The Master Servicer shall not take, or permit any Subservicer to take, any action which would result in non-coverage under any applicable Primary Insurance Policy of any loss which, but for the actions of the Master Servicer or Subservicer, would have been covered thereunder. To the extent coverage is available, the Master Servicer shall keep or cause to be kept in full force and effect each such Primary Insurance Policy until the principal balance of the related Mortgage Loan secured by a Mortgaged Property is reduced to 80% or less of the Appraised Value in the case of such a Mortgage Loan having a Loan-to-Value Ratio at origination in excess of 80%, provided that such Primary Insurance Policy was in place as of the Cut-off Date and the Company had knowledge of such Primary Insurance Policy. The Master Servicer shall be entitled to cancel or permit the discontinuation of any Primary Insurance Policy as to any Mortgage Loan, if the Stated Principal Balance of the Mortgage Loan is reduced below an amount equal to 80% of the appraised value of the related Mortgaged Property as determined in any appraisal thereof after the Closing Date, or if the Loan-to-Value Ratio is reduced below 80% as a result of principal payments on the Mortgage Loan after the Closing Date. In the event that the Company gains knowledge that as of the Closing Date, a Mortgage Loan had a Loan-to-Value Ratio at origination in excess of 80% and is not the subject of a Primary Insurance Policy (and was not included in any exception to the representation in Section 2.03(b)(iv)) and that such Mortgage Loan has a current Loan-to-Value Ratio in excess of 80% then the Master Servicer shall use its reasonable efforts to obtain and maintain a Primary Insurance Policy to the extent that such a policy is obtainable at a reasonable price. The Master Servicer shall not cancel or refuse to renew any such Primary Insurance Policy applicable to a Nonsubserviced Mortgage Loan, or consent to any Subservicer canceling or refusing to renew any such Primary Insurance Policy applicable to a Mortgage Loan subserviced by it, that is in effect at the date of the initial issuance of the Certificates and is required to be kept in force hereunder unless the replacement Primary Insurance Policy for such canceled or non-renewed policy is maintained with an insurer whose claims-paying ability is acceptable to each Rating Agency for mortgage pass-through certificates having a rating equal to or better than the lower of the then-current rating or the rating assigned to the Certificates as of the Closing Date by such Rating Agency. (b) In connection with its activities as administrator and servicer of the Mortgage Loans, the Master Servicer agrees to present or to cause the related Subservicer to present, on behalf of the Master Servicer, the Subservicer, if any, the Trustee and Certificateholders, claims to the related Insurer under any Primary Insurance Policies, in a timely manner in accordance with such policies, and, in this regard, to take or cause to be taken such reasonable action as shall be necessary to permit recovery under any Primary Insurance Policies respecting defaulted Mortgage Loans. Pursuant to Section 3.07, any Insurance Proceeds collected by or remitted to the Master Servicer under any Primary Insurance Policies shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Section 3.12. Maintenance of Fire Insurance and Omissions and Fidelity Coverage. (a) The Master Servicer shall cause to be maintained for each Mortgage Loan (other than a Cooperative Loan) fire insurance with extended coverage in an amount which is equal to the lesser of the principal balance owing on such Mortgage Loan or 100 percent of the insurable value of the improvements; provided, however, that such coverage may not be less than the minimum amount required to fully compensate for any loss or damage on a replacement cost basis. To the extent it may do so without breaching the related Subservicing Agreement, the Master Servicer shall replace any Subservicer that does not cause such insurance, to the extent it is available, to be maintained. The Master Servicer shall also cause to be maintained on property acquired upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan (other than a Cooperative Loan), fire insurance with extended coverage in an amount which is at least equal to the amount necessary to avoid the application of any co-insurance clause contained in the related hazard insurance policy. Pursuant to Section 3.07, any amounts collected by the Master Servicer under any such policies (other than amounts to be applied to the restoration or repair of the related Mortgaged Property or property thus acquired or amounts released to the Mortgagor in accordance with the Master Servicer's normal servicing procedures) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Any cost incurred by the Master Servicer in maintaining any such insurance shall not, for the purpose of calculating monthly distributions to the Certificateholders, be added to the amount owing under the Mortgage Loan, notwithstanding that the terms of the Mortgage Loan so permit. Such costs shall be recoverable by the Master Servicer out of related late payments by the Mortgagor or out of Insurance Proceeds and Liquidation Proceeds to the extent permitted by Section 3.10. It is understood and agreed that no earthquake or other additional insurance is to be required of any Mortgagor or maintained on property acquired in respect of a Mortgage Loan other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. Whenever the improvements securing a Mortgage Loan (other than a Cooperative Loan) are located at the time of origination of such Mortgage Loan in a federally designated special flood hazard area, the Master Servicer shall cause flood insurance (to the extent available) to be maintained in respect thereof. Such flood insurance shall be in an amount equal to the lesser of (i) the amount required to compensate for any loss or damage to the Mortgaged Property on a replacement cost basis and (ii) the maximum amount of such insurance available for the related Mortgaged Property under the national flood insurance program (assuming that the area in which such Mortgaged Property is located is participating in such program). If the Master Servicer shall obtain and maintain a blanket fire insurance policy with extended coverage insuring against hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its obligations as set forth in the first sentence of this Section 3.12(a), it being understood and agreed that such policy may contain a deductible clause, in which case the Master Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property a policy complying with the first sentence of this Section 3.12(a) and there shall have been a loss which would have been covered by such policy, deposit in the Certificate Account the amount not otherwise payable under the blanket policy because of such deductible clause. Any such deposit by the Master Servicer shall be made on the Certificate Account Deposit Date next preceding the Distribution Date which occurs in the month following the month in which payments under any such policy would have been deposited in the Custodial Account. In connection with its activities as administrator and servicer of the Mortgage Loans, the Master Servicer agrees to present, on behalf of itself, the Trustee and the Certificateholders, claims under any such blanket policy. The Master Servicer shall obtain and maintain at its own expense and keep in full force and effect throughout the term of this Agreement a blanket fidelity bond and an errors and omissions insurance policy covering the Master Servicer's officers and employees and other persons acting on behalf of the Master Servicer in connection with its activities under this Agreement. The amount of coverage shall be at least equal to the coverage that would be required by Fannie Mae or Freddie Mac, whichever is greater, with respect to the Master Servicer if the Master Servicer were servicing and administering the Mortgage Loans for Fannie Mae or Freddie Mac. In the event that any such bond or policy ceases to be in effect, the Master Servicer shall obtain a comparable replacement bond or policy from an issuer or insurer, as the case may be, meeting the requirements, if any, of the Program Guide and acceptable to the Company. Coverage of the Master Servicer under a policy or bond obtained by an Affiliate of the Master Servicer and providing the coverage required by this Section 3.12(b) shall satisfy the requirements of this Section 3.12(b). Section 3.13. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments. (a) When any Mortgaged Property is conveyed by the Mortgagor, the Master Servicer or Subservicer, to the extent it has knowledge of such conveyance, shall enforce any due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent permitted under applicable law and governmental regulations, but only to the extent that such enforcement will not adversely affect or jeopardize coverage under any Required Insurance Policy. Notwithstanding the foregoing: (i) the Master Servicer shall not be deemed to be in default under this Section 3.13(a) by reason of any transfer or assumption which the Master Servicer is restricted by law from preventing; and (ii) if the Master Servicer determines that it is reasonably likely that any Mortgagor will bring, or if any Mortgagor does bring, legal action to declare invalid or otherwise avoid enforcement of a due-on-sale clause contained in any Mortgage Note or Mortgage, the Master Servicer shall not be required to enforce the due-on-sale clause or to contest such action. (b) Subject to the Master Servicer's duty to enforce any due-on-sale clause to the extent set forth in Section 3.13(a), in any case in which a Mortgaged Property is to be conveyed to a Person by a Mortgagor, and such Person is to enter into an assumption or modification agreement or supplement to the Mortgage Note or Mortgage which requires the signature of the Trustee, or if an instrument of release signed by the Trustee is required releasing the Mortgagor from liability on the Mortgage Loan, the Master Servicer is authorized, subject to the requirements of the sentence next following, to execute and deliver, on behalf of the Trustee, the assumption agreement with the Person to whom the Mortgaged Property is to be conveyed and such modification agreement or supplement to the Mortgage Note or Mortgage or other instruments as are reasonable or necessary to carry out the terms of the Mortgage Note or Mortgage or otherwise to comply with any applicable laws regarding assumptions or the transfer of the Mortgaged Property to such Person; provided, however, none of such terms and requirements shall either (i) both (A) constitute a "significant modification" effecting an exchange or reissuance of such Mortgage Loan under the REMIC Provisions and (B) cause any portion of any REMIC formed under the Series Supplement to fail to qualify as a REMIC under the Code or (subject to Section 10.01(f)), result in the imposition of any tax on "prohibited transactions" or (ii) constitute "contributions" after the start-up date under the REMIC Provisions. The Master Servicer shall execute and deliver such documents only if it reasonably determines that (i) its execution and delivery thereof will not conflict with or violate any terms of this Agreement or cause the unpaid balance and interest on the Mortgage Loan to be uncollectible in whole or in part, (ii) any required consents of insurers under any Required Insurance Policies have been obtained and (iii) subsequent to the closing of the transaction involving the assumption or transfer (A) the Mortgage Loan will continue to be secured by a first mortgage lien pursuant to the terms of the Mortgage, (B) such transaction will not adversely affect the coverage under any Required Insurance Policies, (C) the Mortgage Loan will fully amortize over the remaining term thereof, (D) no material term of the Mortgage Loan (including the interest rate on the Mortgage Loan) will be altered nor will the term of the Mortgage Loan be changed and (E) if the seller/transferor of the Mortgaged Property is to be released from liability on the Mortgage Loan, such release will not (based on the Master Servicer's or Subservicer's good faith determination) adversely affect the collectability of the Mortgage Loan. Upon receipt of appropriate instructions from the Master Servicer in accordance with the foregoing, the Trustee shall execute any necessary instruments for such assumption or substitution of liability as directed in writing by the Master Servicer. Upon the closing of the transactions contemplated by such documents, the Master Servicer shall cause the originals or true and correct copies of the assumption agreement, the release (if any), or the modification or supplement to the Mortgage Note or Mortgage to be delivered to the Trustee or the Custodian and deposited with the Mortgage File for such Mortgage Loan. Any fee collected by the Master Servicer or such related Subservicer for entering into an assumption or substitution of liability agreement will be retained by the Master Servicer or such Subservicer as additional servicing compensation. (c) The Master Servicer or the related Subservicer, as the case may be, shall be entitled to approve a request from a Mortgagor for a partial release of the related Mortgaged Property, the granting of an easement thereon in favor of another Person, any alteration or demolition of the related Mortgaged Property (or, with respect to a Cooperative Loan, the related Cooperative Apartment) without any right of reimbursement or other similar matters if it has determined, exercising its good faith business judgment in the same manner as it would if it were the owner of the related Mortgage Loan, that the security for, and the timely and full collectability of, such Mortgage Loan would not be adversely affected thereby and that any portion of any REMIC formed under the Series Supplement would not fail to continue to qualify as a REMIC under the Code as a result thereof and (subject to Section 10.01(f)) that no tax on "prohibited transactions" or "contributions" after the startup day would be imposed on any such REMIC as a result thereof. Any fee collected by the Master Servicer or the related Subservicer for processing such a request will be retained by the Master Servicer or such Subservicer as additional servicing compensation. (d) Subject to any other applicable terms and conditions of this Agreement, the Trustee and Master Servicer shall be entitled to approve an assignment in lieu of satisfaction with respect to any Mortgage Loan, provided the obligee with respect to such Mortgage Loan following such proposed assignment provides the Trustee and Master Servicer with a "Lender Certification for Assignment of Mortgage Loan" in the form attached hereto as Exhibit M, in form and substance satisfactory to the Trustee and Master Servicer, providing the following: (i) that the substance of the assignment is, and is intended to be, a refinancing of such Mortgage; (ii) that the Mortgage Loan following the proposed assignment will have a rate of interest at least 0.25 percent below or above the rate of interest on such Mortgage Loan prior to such proposed assignment; and (iii) that such assignment is at the request of the borrower under the related Mortgage Loan. Upon approval of an assignment in lieu of satisfaction with respect to any Mortgage Loan, the Master Servicer shall receive cash in an amount equal to the unpaid principal balance of and accrued interest on such Mortgage Loan and the Master Servicer shall treat such amount as a Principal Prepayment in Full with respect to such Mortgage Loan for all purposes hereof. Section 3.14. Realization Upon Defaulted Mortgage Loans. (a) The Master Servicer shall foreclose upon or otherwise comparably convert (which may include an REO Acquisition) the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Section 3.07. Alternatively, the Master Servicer may take other actions in respect of a defaulted Mortgage Loan, which may include (i) accepting a short sale (a payoff of the Mortgage Loan for an amount less than the total amount contractually owed in order to facilitate a sale of the Mortgaged Property by the Mortgagor) or permitting a short refinancing (a payoff of the Mortgage Loan for an amount less than the total amount contractually owed in order to facilitate refinancing transactions by the Mortgagor not involving a sale of the Mortgaged Property), (ii) arranging for a repayment plan or (iii) agreeing to a modification in accordance with Section 3.07. In connection with such foreclosure or other conversion or action, the Master Servicer shall, consistent with Section 3.11, follow such practices and procedures as it shall deem necessary or advisable, as shall be normal and usual in its general mortgage servicing activities and as shall be required or permitted by the Program Guide, as applicable; provided that the Master Servicer shall not be liable in any respect hereunder if the Master Servicer is acting in connection with any such foreclosure or other conversion in a manner that is consistent with the provisions of this Agreement. The Master Servicer, however, shall not be required to expend its own funds or incur other reimbursable charges in connection with any foreclosure, or attempted foreclosure which is not completed, or towards the restoration of any property unless it shall determine (i) that such restoration and/or foreclosure will increase the proceeds of liquidation of the Mortgage Loan to Holders of Certificates of one or more Classes after reimbursement to itself for such expenses or charges and (ii) that such expenses or charges will be recoverable to it through Liquidation Proceeds, Insurance Proceeds, or REO Proceeds (respecting which it shall have priority for purposes of withdrawals from the Custodial Account pursuant to Section 3.10, whether or not such expenses and charges are actually recoverable from related Liquidation Proceeds, Insurance Proceeds or REO Proceeds). In the event of such a determination by the Master Servicer pursuant to this Section 3.14(a), the Master Servicer shall be entitled to reimbursement of such amounts pursuant to Section 3.10. In addition to the foregoing, the Master Servicer shall use its best reasonable efforts to realize upon any Additional Collateral for such of the Additional Collateral Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Section 3.07; provided that the Master Servicer shall not, on behalf of the Trustee, obtain title to any such Additional Collateral as a result of or in lieu of the disposition thereof or otherwise; and provided further that (i) the Master Servicer shall not proceed with respect to such Additional Collateral in any manner that would impair the ability to recover against the related Mortgaged Property, and (ii) the Master Servicer shall proceed with any REO Acquisition in a manner that preserves the ability to apply the proceeds of such Additional Collateral against amounts owed under the defaulted Mortgage Loan. Any proceeds realized from such Additional Collateral (other than amounts to be released to the Mortgagor or the related guarantor in accordance with procedures that the Master Servicer would follow in servicing loans held for its own account, subject to the terms and conditions of the related Mortgage and Mortgage Note and to the terms and conditions of any security agreement, guarantee agreement, mortgage or other agreement governing the disposition of the proceeds of such Additional Collateral) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Any other payment received by the Master Servicer in respect of such Additional Collateral shall be deposited in the Custodial Account subject to withdrawal pursuant to Section 3.10. For so long as the Master Servicer is the Master Servicer under the Credit Support Pledge Agreement and any of the Mortgage Loans and Pledged Asset Loans, the Master Servicer shall perform its obligations under the Credit Support Pledge Agreement in accordance with such agreement and in a manner that is in the best interests of the Certificateholders. Further, the Master Servicer shall use its best reasonable efforts to realize upon any Pledged Assets for such of the Pledged Asset Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Section 3.07; provided that the Master Servicer shall not, on behalf of the Trustee, obtain title to any such Pledged Assets as a result of or in lieu of the disposition thereof or otherwise; and provided further that (i) the Master Servicer shall not proceed with respect to such Pledged Assets in any manner that would impair the ability to recover against the related Mortgaged Property, and (ii) the Master Servicer shall proceed with any REO Acquisition in a manner that preserves the ability to apply the proceeds of such Pledged Assets against amounts owed under the defaulted Mortgage Loan. Any proceeds realized from such Pledged Assets (other than amounts to be released to the Mortgagor or the related guarantor in accordance with procedures that the Master Servicer would follow in servicing loans held for its own account, subject to the terms and conditions of the related Mortgage and Mortgage Note and to the terms and conditions of any security agreement, guarantee agreement, mortgage or other agreement governing the disposition of the proceeds of such Pledged Assets) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Any other payment received by the Master Servicer in respect of such Pledged Assets shall be deposited in the Custodial Account subject to withdrawal pursuant to Section 3.10. Concurrently with the foregoing, the Master Servicer may pursue any remedies that may be available in connection with a breach of a representation and warranty with respect to any such Mortgage Loan in accordance with Sections 2.03 and 2.04. However, the Master Servicer is not required to continue to pursue both foreclosure (or similar remedies) with respect to the Mortgage Loans and remedies in connection with a breach of a representation and warranty if the Master Servicer determines in its reasonable discretion that one such remedy is more likely to result in a greater recovery as to the Mortgage Loan. Upon the occurrence of a Cash Liquidation or REO Disposition, following the deposit in the Custodial Account of all Insurance Proceeds, Liquidation Proceeds and other payments and recoveries referred to in the definition of "Cash Liquidation" or "REO Disposition," as applicable, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Trustee or any Custodian, as the case may be, shall release to the Master Servicer the related Mortgage File and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Master Servicer, in each case without recourse, as shall be necessary to vest in the Master Servicer or its designee, as the case may be, the related Mortgage Loan, and thereafter such Mortgage Loan shall not be part of the Trust Fund. Notwithstanding the foregoing or any other provision of this Agreement, in the Master Servicer's sole discretion with respect to any defaulted Mortgage Loan or REO Property as to either of the following provisions, (i) a Cash Liquidation or REO Disposition may be deemed to have occurred if substantially all amounts expected by the Master Servicer to be received in connection with the related defaulted Mortgage Loan or REO Property have been received, and (ii) for purposes of determining the amount of any Liquidation Proceeds, Insurance Proceeds, REO Proceeds or any other unscheduled collections or the amount of any Realized Loss, the Master Servicer may take into account minimal amounts of additional receipts expected to be received or any estimated additional liquidation expenses expected to be incurred in connection with the related defaulted Mortgage Loan or REO Property. (b) If title to any Mortgaged Property is acquired by the Trust Fund as an REO Property by foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be issued to the Trustee or to its nominee on behalf of Certificateholders. Notwithstanding any such acquisition of title and cancellation of the related Mortgage Loan, such REO Property shall (except as otherwise expressly provided herein) be considered to be an Outstanding Mortgage Loan held in the Trust Fund until such time as the REO Property shall be sold. Consistent with the foregoing for purposes of all calculations hereunder so long as such REO Property shall be considered to be an Outstanding Mortgage Loan it shall be assumed that, notwithstanding that the indebtedness evidenced by the related Mortgage Note shall have been discharged, such Mortgage Note and the related amortization schedule in effect at the time of any such acquisition of title (after giving effect to any previous Curtailments and before any adjustment thereto by reason of any bankruptcy or similar proceeding or any moratorium or similar waiver or grace period) remain in effect. (c) If the Trust Fund acquires any REO Property as aforesaid or otherwise in connection with a default or imminent default on a Mortgage Loan, the Master Servicer on behalf of the Trust Fund shall dispose of such REO Property as soon as practicable, giving due consideration to the interests of the Certificateholders, but in all cases within three full years after the taxable year of its acquisition by the Trust Fund for purposes of Section 860G(a)(8) of the Code (or such shorter period as may be necessary under applicable state (including any state in which such property is located) law to maintain the status of any portion of any REMIC formed under the Series Supplement as a REMIC under applicable state law and avoid taxes resulting from such property failing to be foreclosure property under applicable state law) or, at the expense of the Trust Fund, request, more than 60 days before the day on which such grace period would otherwise expire, an extension of such grace period unless the Master Servicer (subject to Section 10.01(f)) obtains for the Trustee an Opinion of Counsel, addressed to the Trustee and the Master Servicer, to the effect that the holding by the Trust Fund of such REO Property subsequent to such period will not result in the imposition of taxes on "prohibited transactions" as defined in Section 860F of the Code or cause any REMIC formed under the Series Supplement to fail to qualify as a REMIC (for federal (or any applicable State or local) income tax purposes) at any time that any Certificates are outstanding, in which case the Trust Fund may continue to hold such REO Property (subject to any conditions contained in such Opinion of Counsel). The Master Servicer shall be entitled to be reimbursed from the Custodial Account for any costs incurred in obtaining such Opinion of Counsel, as provided in Section 3.10. Notwithstanding any other provision of this Agreement, no REO Property acquired by the Trust Fund shall be rented (or allowed to continue to be rented) or otherwise used by or on behalf of the Trust Fund in such a manner or pursuant to any terms that would (i) cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code or (ii) subject the Trust Fund to the imposition of any federal income taxes on the income earned from such REO Property, including any taxes imposed by reason of Section 860G(c) of the Code, unless the Master Servicer has agreed to indemnify and hold harmless the Trust Fund with respect to the imposition of any such taxes. (d) The proceeds of any Cash Liquidation, REO Disposition or purchase or repurchase of any Mortgage Loan pursuant to the terms of this Agreement, as well as any recovery (other than Subsequent Recoveries) resulting from a collection of Liquidation Proceeds, Insurance Proceeds or REO Proceeds, will be applied in the following order of priority: first, to reimburse the Master Servicer or the related Subservicer in accordance with Section 3.10(a)(ii) and, in the case of Wells Fargo as a Subservicer, if applicable, to reimburse such Subservicer for any Subservicing Fees payable therefrom; second, to the Certificateholders to the extent of accrued and unpaid interest on the Mortgage Loan, and any related REO Imputed Interest, at the Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), to the Due Date in the related Due Period prior to the Distribution Date on which such amounts are to be distributed; third, to the Certificateholders as a recovery of principal on the Mortgage Loan (or REO Property); fourth, to all Servicing Fees and Subservicing Fees payable therefrom (and the Master Servicer and the Subservicer shall have no claims for any deficiencies with respect to such fees which result from the foregoing allocation); and fifth, to Foreclosure Profits. (e) In the event of a default on a Mortgage Loan one or more of whose obligors is not a United States Person, in connection with any foreclosure or acquisition of a deed in lieu of foreclosure (together, "foreclosure") in respect of such Mortgage Loan, the Master Servicer will cause compliance with the provisions of Treasury Regulation Section 1.1445-2(d)(3) (or any successor thereto) necessary to assure that no withholding tax obligation arises with respect to the proceeds of such foreclosure except to the extent, if any, that proceeds of such foreclosure are required to be remitted to the obligors on such Mortgage Loan. Section 3.15. Trustee to Cooperate; Release of Mortgage Files. (a) Upon becoming aware of the payment in full of any Mortgage Loan, or upon the receipt by the Master Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer will immediately notify the Trustee (if it holds the related Mortgage File) or the Custodian by a certification of a Servicing Officer (which certification shall include a statement to the effect that all amounts received or to be received in connection with such payment which are required to be deposited in the Custodial Account pursuant to Section 3.07 have been or will be so deposited), substantially in one of the forms attached hereto as Exhibit F, or, in the case of the Custodian, an electronic request in a form acceptable to the Custodian, requesting delivery to it of the Mortgage File. Within two Business Days of receipt of such certification and request, the Trustee shall release, or cause the Custodian to release, the related Mortgage File to the Master Servicer. The Master Servicer is authorized to execute and deliver to the Mortgagor the request for reconveyance, deed of reconveyance or release or satisfaction of mortgage or such instrument releasing the lien of the Mortgage, together with the Mortgage Note with, as appropriate, written evidence of cancellation thereon and to cause the removal from the registration on the MERS(R)System of such Mortgage and to execute and deliver, on behalf of the Trustee and the Certificateholders or any of them, any and all instruments of satisfaction or cancellation or of partial or full release. No expenses incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account or the Certificate Account. (b) From time to time as is appropriate for the servicing or foreclosure of any Mortgage Loan, the Master Servicer shall deliver to the Custodian, with a copy to the Trustee, a certificate of a Servicing Officer substantially in one of the forms attached as Exhibit F hereto, or, in the case of the Custodian, an electronic request in a form acceptable to the Custodian, requesting that possession of all, or any document constituting part of, the Mortgage File be released to the Master Servicer and certifying as to the reason for such release and that such release will not invalidate any insurance coverage provided in respect of the Mortgage Loan under any Required Insurance Policy. Upon receipt of the foregoing, the Trustee shall deliver, or cause the Custodian to deliver, the Mortgage File or any document therein to the Master Servicer. The Master Servicer shall cause each Mortgage File or any document therein so released to be returned to the Trustee, or the Custodian as agent for the Trustee when the need therefor by the Master Servicer no longer exists, unless (i) the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or (ii) the Mortgage File or such document has been delivered directly or through a Subservicer to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially, and the Master Servicer has delivered directly or through a Subservicer to the Trustee a certificate of a Servicing Officer certifying as to the name and address of the Person to which such Mortgage File or such document was delivered and the purpose or purposes of such delivery. In the event of the liquidation of a Mortgage Loan, the Trustee shall deliver the Request for Release with respect thereto to the Master Servicer upon deposit of the related Liquidation Proceeds in the Custodial Account. (c) The Trustee or the Master Servicer on the Trustee's behalf shall execute and deliver to the Master Servicer, if necessary, any court pleadings, requests for trustee's sale or other documents necessary to the foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal action brought to obtain judgment against any Mortgagor on the Mortgage Note or Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or rights provided by the Mortgage Note or Mortgage or otherwise available at law or in equity. Together with such documents or pleadings (if signed by the Trustee), the Master Servicer shall deliver to the Trustee a certificate of a Servicing Officer requesting that such pleadings or documents be executed by the Trustee and certifying as to the reason such documents or pleadings are required and that the execution and delivery thereof by the Trustee will not invalidate any insurance coverage under any Required Insurance Policy or invalidate or otherwise affect the lien of the Mortgage, except for the termination of such a lien upon completion of the foreclosure or trustee's sale. Section 3.16. Servicing and Other Compensation; Compensating Interest. (a) The Master Servicer, as compensation for its activities hereunder, shall be entitled to receive on each Distribution Date the amounts provided for by clauses (iii), (iv), (v) and (vi) of Section 3.10(a), subject to clause (e) below. The amount of servicing compensation provided for in such clauses shall be accounted for on a Mortgage Loan-by-Mortgage Loan basis. In the event that Liquidation Proceeds, Insurance Proceeds and REO Proceeds (net of amounts reimbursable therefrom pursuant to Section 3.10(a)(ii)) in respect of a Cash Liquidation or REO Disposition exceed the unpaid principal balance of such Mortgage Loan plus unpaid interest accrued thereon (including REO Imputed Interest) at a per annum rate equal to the related Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), the Master Servicer shall be entitled to retain therefrom and to pay to itself and/or the related Subservicer, any Foreclosure Profits and any Servicing Fee or Subservicing Fee considered to be accrued but unpaid. (b) Additional servicing compensation in the form of prepayment charges, assumption fees, late payment charges, investment income on amounts in the Custodial Account or the Certificate Account or otherwise shall be retained by the Master Servicer or the Subservicer to the extent provided herein, subject to clause (e) below. (c) The Master Servicer shall be required to pay, or cause to be paid, all expenses incurred by it in connection with its servicing activities hereunder (including payment of premiums for the Primary Insurance Policies, if any, to the extent such premiums are not required to be paid by the related Mortgagors, and the fees and expenses of the Trustee and any Custodian) and shall not be entitled to reimbursement therefor except as specifically provided in Sections 3.10 and 3.14. (d) The Master Servicer's right to receive servicing compensation may not be transferred in whole or in part except in connection with the transfer of all of its responsibilities and obligations of the Master Servicer under this Agreement. (e) Notwithstanding any other provision herein, the amount of servicing compensation that the Master Servicer shall be entitled to receive for its activities hereunder for the period ending on each Distribution Date shall be reduced (but not below zero) by an amount equal to Compensating Interest (if any) for such Distribution Date. Such reduction shall be applied during such period as follows: first, to any Servicing Fee or Subservicing Fee to which the Master Servicer is entitled pursuant to Section 3.10(a)(iii) and second, to any income or gain realized from any investment of funds held in the Custodial Account or the Certificate Account to which the Master Servicer is entitled pursuant to Sections 3.07(c) or 4.01(b), respectively. In making such reduction, the Master Servicer (i) will not withdraw from the Custodial Account any such amount representing all or a portion of the Servicing Fee to which it is entitled pursuant to Section 3.10(a)(iii) and (ii) will not withdraw from the Custodial Account or Certificate Account any such amount to which it is entitled pursuant to Section 3.07(c) or 4.01(b). Section 3.17. Reports to the Trustee and the Company. Not later than fifteen days after it receives a written request from the Trustee or the Company, the Master Servicer shall forward to the Trustee and the Company a statement, certified by a Servicing Officer, setting forth the status of the Custodial Account as of the close of business on such Distribution Date as it relates to the Mortgage Loans and showing, for the period covered by such statement, the aggregate of deposits in or withdrawals from the Custodial Account in respect of the Mortgage Loans for each category of deposit specified in Section 3.07 and each category of withdrawal specified in Section 3.10. Section 3.18. Annual Statement as to Compliance. The Master Servicer will deliver to the Company, the Trustee and any Certificate Insurer on or before the earlier of (a) March 31 of each year or (b) with respect to any calendar year during which the Company's annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the date on which the annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, a servicer compliance certificate, signed by an authorized officer of the Master Servicer, as described in Items 1122(a), 1122(b) and 1123 of Regulation AB, to the effect that: (i) A review of the Master Servicer's activities during the reporting period and of its performance under this Agreement has been made under such officer's supervision. (ii) To the best of such officer's knowledge, based on such review, the Master Servicer has fulfilled all of its obligations under this Agreement in all material respects throughout the reporting period or, if there has been a failure to fulfill any such obligation in any material respect, specifying each such failure known to such officer and the nature and status thereof. The Master Servicer shall use commercially reasonable efforts to obtain from all other parties participating in the servicing function any additional certifications required under Item 1123 of Regulation AB to the extent required to be included in a Report on Form 10-K; provided, however, that a failure to obtain such certifications shall not be a breach of the Master Servicer's duties hereunder if any such party fails to deliver such a certification. Section 3.19. Annual Independent Public Accountants' Servicing Report. On or before the earlier of (a) March 31 of each year or (b) with respect to any calendar year during which the Company's annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the date on which the annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the Master Servicer at its expense shall cause a firm of independent public accountants, which shall be members of the American Institute of Certified Public Accountants, to furnish to the Company and the Trustee the attestation required under Item 1122(b) of Regulation AB. In rendering such statement, such firm may rely, as to matters relating to the direct servicing of mortgage loans by Subservicers, upon comparable statements for examinations conducted by independent public accountants substantially in accordance with standards established by the American Institute of Certified Public Accountants (rendered within one year of such statement) with respect to such Subservicers. Section 3.20. Rights of the Company in Respect of the Master Servicer. The Master Servicer shall afford the Company, upon reasonable notice, during normal business hours access to all records maintained by the Master Servicer in respect of its rights and obligations hereunder and access to officers of the Master Servicer responsible for such obligations. Upon request, the Master Servicer shall furnish the Company with its most recent financial statements and such other information as the Master Servicer possesses regarding its business, affairs, property and condition, financial or otherwise. The Master Servicer shall also cooperate with all reasonable requests for information including, but not limited to, notices, tapes and copies of files, regarding itself, the Mortgage Loans or the Certificates from any Person or Persons identified by the Company or Residential Funding. The Company may, but is not obligated to, enforce the obligations of the Master Servicer hereunder and may, but is not obligated to, perform, or cause a designee to perform, any defaulted obligation of the Master Servicer hereunder or exercise the rights of the Master Servicer hereunder; provided that the Master Servicer shall not be relieved of any of its obligations hereunder by virtue of such performance by the Company or its designee. The Company shall not have any responsibility or liability for any action or failure to act by the Master Servicer and is not obligated to supervise the performance of the Master Servicer under this Agreement or otherwise. Section 3.21. Administration of Buydown Funds. (a) With respect to any Buydown Mortgage Loan, the Subservicer has deposited Buydown Funds in an account that satisfies the requirements for a Subservicing Account (the "Buydown Account"). The Master Servicer shall cause the Subservicing Agreement to require that upon receipt from the Mortgagor of the amount due on a Due Date for each Buydown Mortgage Loan, the Subservicer will withdraw from the Buydown Account the predetermined amount that, when added to the amount due on such date from the Mortgagor, equals the full Monthly Payment and transmit that amount in accordance with the terms of the Subservicing Agreement to the Master Servicer together with the related payment made by the Mortgagor or advanced by the Subservicer. (b) If the Mortgagor on a Buydown Mortgage Loan prepays such loan in its entirety during the period (the "Buydown Period") when Buydown Funds are required to be applied to such Buydown Mortgage Loan, the Subservicer shall be required to withdraw from the Buydown Account and remit any Buydown Funds remaining in the Buydown Account in accordance with the related buydown agreement. The amount of Buydown Funds which may be remitted in accordance with the related buydown agreement may reduce the amount required to be paid by the Mortgagor to fully prepay the related Mortgage Loan. If the Mortgagor on a Buydown Mortgage Loan defaults on such Mortgage Loan during the Buydown Period and the property securing such Buydown Mortgage Loan is sold in the liquidation thereof (either by the Master Servicer or the insurer under any related Primary Insurance Policy), the Subservicer shall be required to withdraw from the Buydown Account the Buydown Funds for such Buydown Mortgage Loan still held in the Buydown Account and remit the same to the Master Servicer in accordance with the terms of the Subservicing Agreement for deposit in the Custodial Account or, if instructed by the Master Servicer, pay to the insurer under any related Primary Insurance Policy if the Mortgaged Property is transferred to such insurer and such insurer pays all of the loss incurred in respect of such default. Any amount so remitted pursuant to the preceding sentence will be deemed to reduce the amount owed on the Mortgage Loan. Section 3.22. Advance Facility. (a) The Master Servicer is hereby authorized to enter into a financing or other facility (any such arrangement, an "Advance Facility") under which (1) the Master Servicer sells, assigns or pledges to another Person (an "Advancing Person") the Master Servicer's rights under this Agreement to be reimbursed for any Advances or Servicing Advances and/or (2) an Advancing Person agrees to fund some or all Advances and/or Servicing Advances required to be made by the Master Servicer pursuant to this Agreement. No consent of the Company, the Trustee, the Certificateholders or any other party shall be required before the Master Servicer may enter into an Advance Facility. Notwithstanding the existence of any Advance Facility under which an Advancing Person agrees to fund Advances and/or Servicing Advances on the Master Servicer's behalf, the Master Servicer shall remain obligated pursuant to this Agreement to make Advances and Servicing Advances pursuant to and as required by this Agreement. If the Master Servicer enters into an Advance Facility, and for so long as an Advancing Person remains entitled to receive reimbursement for any Advances including Nonrecoverable Advances ("Advance Reimbursement Amounts") and/or Servicing Advances including Nonrecoverable Advances ("Servicing Advance Reimbursement Amounts" and together with Advance Reimbursement Amounts, "Reimbursement Amounts") (in each case to the extent such type of Reimbursement Amount is included in the Advance Facility), as applicable, pursuant to this Agreement, then the Master Servicer shall identify such Reimbursement Amounts consistent with the reimbursement rights set forth in Section 3.10(a)(ii) and (vii) and remit such Reimbursement Amounts in accordance with this Section 3.22 or otherwise in accordance with the documentation establishing the Advance Facility to such Advancing Person or to a trustee, agent or custodian (an "Advance Facility Trustee") designated by such Advancing Person in an Advance Facility Notice described below in Section 3.22(b). Notwithstanding the foregoing, if so required pursuant to the terms of the Advance Facility, the Master Servicer may direct, and if so directed in writing the Trustee is hereby authorized to and shall pay to the Advance Facility Trustee the Reimbursement Amounts identified pursuant to the preceding sentence. An Advancing Person whose obligations hereunder are limited to the funding of Advances and/or Servicing Advances shall not be required to meet the qualifications of a Master Servicer or a Subservicer pursuant to Section 3.02(a) or 6.02(c) hereof and shall not be deemed to be a Subservicer under this Agreement. Notwithstanding anything to the contrary herein, in no event shall Advance Reimbursement Amounts or Servicing Advance Reimbursement Amounts be included in the Available Distribution Amount or distributed to Certificateholders. (b) If the Master Servicer enters into an Advance Facility and makes the election set forth in Section 3.22(a), the Master Servicer and the related Advancing Person shall deliver to the Trustee a written notice and payment instruction (an "Advance Facility Notice"), providing the Trustee with written payment instructions as to where to remit Advance Reimbursement Amounts and/or Servicing Advance Reimbursement Amounts (each to the extent such type of Reimbursement Amount is included within the Advance Facility) on subsequent Distribution Dates. The payment instruction shall require the applicable Reimbursement Amounts to be distributed to the Advancing Person or to an Advance Facility Trustee designated in the Advance Facility Notice. An Advance Facility Notice may only be terminated by the joint written direction of the Master Servicer and the related Advancing Person (and any related Advance Facility Trustee). (c) Reimbursement Amounts shall consist solely of amounts in respect of Advances and/or Servicing Advances made with respect to the Mortgage Loans for which the Master Servicer would be permitted to reimburse itself in accordance with Section 3.10(a)(ii) and (vii) hereof, assuming the Master Servicer or the Advancing Person had made the related Advance(s) and/or Servicing Advance(s). Notwithstanding the foregoing, except with respect to reimbursement of Nonrecoverable Advances as set forth in Section 3.10(c) of this Agreement, no Person shall be entitled to reimbursement from funds held in the Collection Account for future distribution to Certificateholders pursuant to this Agreement. Neither the Company nor the Trustee shall have any duty or liability with respect to the calculation of any Reimbursement Amount, nor shall the Company or the Trustee have any responsibility to track or monitor the administration of the Advance Facility and the Company shall not have any responsibility to track, monitor or verify the payment of Reimbursement Amounts to the related Advancing Person or Advance Facility Trustee. The Master Servicer shall maintain and provide to any Successor Master Servicer a detailed accounting on a loan-by-loan basis as to amounts advanced by, sold, pledged or assigned to, and reimbursed to any Advancing Person. The Successor Master Servicer shall be entitled to rely on any such information provided by the Master Servicer and the Successor Master Servicer shall not be liable for any errors in such information. (d) Upon the direction of and at the expense of the Master Servicer, the Trustee agrees to execute such acknowledgments, certificates, and other documents provided by the Master Servicer and reasonably satisfactory to the Trustee recognizing the interests of any Advancing Person or Advance Facility Trustee in such Reimbursement Amounts as the Master Servicer may cause to be made subject to Advance Facilities pursuant to this Section 3.22, and such other documents in connection with such Advance Facility as may be reasonably requested from time to time by any Advancing Person or Advance Facility Trustee and reasonably satisfactory to the Trustee. (e) Reimbursement Amounts collected with respect to each Mortgage Loan shall be allocated to outstanding unreimbursed Advances or Servicing Advances (as the case may be) made with respect to that Mortgage Loan on a "first-in, first out" ("FIFO") basis, subject to the qualifications set forth below: (i) Any successor Master Servicer to Residential Funding (a "Successor Master Servicer") and the Advancing Person or Advance Facility Trustee shall be required to apply all amounts available in accordance with this Section 3.22(e) to the reimbursement of Advances and Servicing Advances in the manner provided for herein; provided, however, that after the succession of a Successor Master Servicer, (A) to the extent that any Advances or Servicing Advances with respect to any particular Mortgage Loan are reimbursed from payments or recoveries, if any, from the related Mortgagor, and Liquidation Proceeds or Insurance Proceeds, if any, with respect to that Mortgage Loan, reimbursement shall be made, first, to the Advancing Person or Advance Facility Trustee in respect of Advances and/or Servicing Advances related to that Mortgage Loan to the extent of the interest of the Advancing Person or Advance Facility Trustee in such Advances and/or Servicing Advances, second to the Master Servicer in respect of Advances and/or Servicing Advances related to that Mortgage Loan in excess of those in which the Advancing Person or Advance Facility Trustee Person has an interest, and third, to the Successor Master Servicer in respect of any other Advances and/or Servicing Advances related to that Mortgage Loan, from such sources as and when collected, and (B) reimbursements of Advances and Servicing Advances that are Nonrecoverable Advances shall be made pro rata to the Advancing Person or Advance Facility Trustee, on the one hand, and any such Successor Master Servicer, on the other hand, on the basis of the respective aggregate outstanding unreimbursed Advances and Servicing Advances that are Nonrecoverable Advances owed to the Advancing Person, Advance Facility Trustee or Master Servicer pursuant to this Agreement, on the one hand, and any such Successor Master Servicer, on the other hand, and without regard to the date on which any such Advances or Servicing Advances shall have been made. In the event that, as a result of the FIFO allocation made pursuant to this Section 3.22(e), some or all of a Reimbursement Amount paid to the Advancing Person or Advance Facility Trustee relates to Advances or Servicing Advances that were made by a Person other than Residential Funding or the Advancing Person or Advance Facility Trustee, then the Advancing Person or Advance Facility Trustee shall be required to remit any portion of such Reimbursement Amount to the Person entitled to such portion of such Reimbursement Amount. Without limiting the generality of the foregoing, Residential Funding shall remain entitled to be reimbursed by the Advancing Person or Advance Facility Trustee for all Advances and Servicing Advances funded by Residential Funding to the extent the related Reimbursement Amount(s) have not been assigned or pledged to an Advancing Person or Advance Facility Trustee. The documentation establishing any Advance Facility shall require Residential Funding to provide to the related Advancing Person or Advance Facility Trustee loan by loan information with respect to each Reimbursement Amount distributed to such Advancing Person or Advance Facility Trustee on each date of remittance thereof to such Advancing Person or Advance Facility Trustee, to enable the Advancing Person or Advance Facility Trustee to make the FIFO allocation of each Reimbursement Amount with respect to each Mortgage Loan. (ii) By way of illustration, and not by way of limiting the generality of the foregoing, if the Master Servicer resigns or is terminated at a time when the Master Servicer is a party to an Advance Facility, and is replaced by a Successor Master Servicer, and the Successor Master Servicer directly funds Advances or Servicing Advances with respect to a Mortgage Loan and does not assign or pledge the related Reimbursement Amounts to the related Advancing Person or Advance Facility Trustee, then all payments and recoveries received from the related Mortgagor or received in the form of Liquidation Proceeds with respect to such Mortgage Loan (including Insurance Proceeds collected in connection with a liquidation of such Mortgage Loan) will be allocated first to the Advancing Person or Advance Facility Trustee until the related Reimbursement Amounts attributable to such Mortgage Loan that are owed to the Master Servicer and the Advancing Person, which were made prior to any Advances or Servicing Advances made by the Successor Master Servicer, have been reimbursed in full, at which point the Successor Master Servicer shall be entitled to retain all related Reimbursement Amounts subsequently collected with respect to that Mortgage Loan pursuant to Section 3.10 of this Agreement. To the extent that the Advances or Servicing Advances are Nonrecoverable Advances to be reimbursed on an aggregate basis pursuant to Section 3.10 of this Agreement, the reimbursement paid in this manner will be made pro rata to the Advancing Person or Advance Facility Trustee, on the one hand, and the Successor Master Servicer, on the other hand, as described in clause (i)(B) above. (f) The Master Servicer shall remain entitled to be reimbursed for all Advances and Servicing Advances funded by the Master Servicer to the extent the related rights to be reimbursed therefor have not been sold, assigned or pledged to an Advancing Person. (g) Any amendment to this Section 3.22 or to any other provision of this Agreement that may be necessary or appropriate to effect the terms of an Advance Facility as described generally in this Section 3.22, including amendments to add provisions relating to a successor Master Servicer, may be entered into by the Trustee, the Company and the Master Servicer without the consent of any Certificateholder, with written confirmation from each Rating Agency that the amendment will not result in the reduction of the ratings on any class of the Certificates below the lesser of the then current or original ratings on such Certificates, and an opinion of counsel as required by Section 11.01(c) notwithstanding anything to the contrary in Section 11.01 of or elsewhere in this Agreement. (h) Any rights of set-off that the Trust Fund, the Trustee, the Company, any Successor Master Servicer or any other Person might otherwise have against the Master Servicer under this Agreement shall not attach to any rights to be reimbursed for Advances or Servicing Advances that have been sold, transferred, pledged, conveyed or assigned to any Advancing Person. (i) At any time when an Advancing Person shall have ceased funding Advances and/or Servicing Advances (as the case may be) and the Advancing Person or related Advance Facility Trustee shall have received Reimbursement Amounts sufficient in the aggregate to reimburse all Advances and/or Servicing Advances (as the case may be) the right to reimbursement for which were assigned to the Advancing Person, then upon the delivery of a written notice signed by the Advancing Person and the Master Servicer or its successor or assign) to the Trustee terminating the Advance Facility Notice (the "Notice of Facility Termination"), the Master Servicer or its Successor Master Servicer shall again be entitled to withdraw and retain the related Reimbursement Amounts from the Custodial Account pursuant to Section 3.10. (j) After delivery of any Advance Facility Notice, and until any such Advance Facility Notice has been terminated by a Notice of Facility Termination, this Section 3.22 may not be amended or otherwise modified without the prior written consent of the related Advancing Person. ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS Section 4.01. Certificate Account. (a) The Master Servicer on behalf of the Trustee shall establish and maintain a Certificate Account in which the Master Servicer shall cause to be deposited on behalf of the Trustee on or before 2:00 P.M. New York time on each Certificate Account Deposit Date by wire transfer of immediately available funds an amount equal to the sum of (i) any Advance for the immediately succeeding Distribution Date, (ii) any amount required to be deposited in the Certificate Account pursuant to Section 3.12(a), (iii) any amount required to be deposited in the Certificate Account pursuant to Section 3.16(e) or Section 4.07 and (iv) all other amounts constituting the Available Distribution Amount for the immediately succeeding Distribution Date. (b) The Trustee shall, upon written request from the Master Servicer, invest or cause the institution maintaining the Certificate Account to invest the funds in the Certificate Account in Permitted Investments designated in the name of the Trustee for the benefit of the Certificateholders, which shall mature or be payable on demand not later than the Business Day next preceding the Distribution Date next following the date of such investment (except that (i) any investment in the institution with which the Certificate Account is maintained may mature or be payable on demand on such Distribution Date and (ii) any other investment may mature or be payable on demand on such Distribution Date if the Trustee shall advance funds on such Distribution Date to the Certificate Account in the amount payable on such investment on such Distribution Date, pending receipt thereof to the extent necessary to make distributions on the Certificates) and shall not be sold or disposed of prior to maturity. Subject to Section 3.16(e), all income and gain realized from any such investment shall be for the benefit of the Master Servicer and shall be subject to its withdrawal or order from time to time. The amount of any losses incurred in respect of any such investments shall be deposited in the Certificate Account by the Master Servicer out of its own funds immediately as realized without any right of reimbursement. Section 4.02. Distributions. As provided in Section 4.02 of the Series Supplement. Section 4.03. Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting. (a) Concurrently with each distribution charged to the Certificate Account and with respect to each Distribution Date the Master Servicer shall forward to the Trustee and the Trustee shall either forward by mail or make available to each Holder and the Company, via the Trustee's internet website, a statement (and at its option, any additional files containing the same information in an alternative format) setting forth information as to each Class of Certificates, the Mortgage Pool and, if the Mortgage Pool is comprised of two or more Loan Groups, each Loan Group, to the extent applicable. This statement will include the information set forth in an exhibit to the Series Supplement. Such exhibit shall set forth the Trustee's internet website address together with a phone number. The Trustee shall mail to each Holder that requests a paper copy by telephone a paper copy via first class mail. The Trustee may modify the distribution procedures set forth in this Section provided that such procedures are no less convenient for the Certificateholders. The Trustee shall provide prior notification to the Company, the Master Servicer and the Certificateholders regarding any such modification. In addition, the Master Servicer shall provide to any manager of a trust fund consisting of some or all of the Certificates, upon reasonable request, such additional information as is reasonably obtainable by the Master Servicer at no additional expense to the Master Servicer. Also, at the request of a Rating Agency, the Master Servicer shall provide the information relating to the Reportable Modified Mortgage Loans substantially in the form attached hereto as Exhibit Q to such Rating Agency within a reasonable period of time; provided, however, that the Master Servicer shall not be required to provide such information more than four times in a calendar year to any Rating Agency. (b) Within a reasonable period of time after it receives a written request from a Holder of a Certificate, other than a Class R Certificate, the Master Servicer shall prepare, or cause to be prepared, and shall forward, or cause to be forwarded, to each Person who at any time during the calendar year was the Holder of a Certificate, other than a Class R Certificate, a statement containing the information set forth in clauses (v) and (vi) of the exhibit to the Series Supplement referred to in subsection (a) above aggregated for such calendar year or applicable portion thereof during which such Person was a Certificateholder. Such obligation of the Master Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Master Servicer pursuant to any requirements of the Code. (c) Within a reasonable period of time after it receives a written request from any Holder of a Class R Certificate, the Master Servicer shall prepare, or cause to be prepared, and shall forward, or cause to be forwarded, to each Person who at any time during the calendar year was the Holder of a Class R Certificate, a statement containing the applicable distribution information provided pursuant to this Section 4.03 aggregated for such calendar year or applicable portion thereof during which such Person was the Holder of a Class R Certificate. Such obligation of the Master Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Master Servicer pursuant to any requirements of the Code. (d) Upon the written request of any Certificateholder, the Master Servicer, as soon as reasonably practicable, shall provide the requesting Certificateholder with such information as is necessary and appropriate, in the Master Servicer's sole discretion, for purposes of satisfying applicable reporting requirements under Rule 144A. (e) The Master Servicer shall, on behalf of the Company and in respect of the Trust Fund, sign and cause to be filed with the Commission any periodic reports required to be filed under the provisions of the Exchange Act, and the rules and regulations of the Commission thereunder including, without limitation, reports on Form 10-K, Form 10-D and Form 8-K. In connection with the preparation and filing of such periodic reports, the Trustee shall timely provide to the Master Servicer (I) a list of Certificateholders as shown on the Certificate Register as of the end of each calendar year, (II) copies of all pleadings, other legal process and any other documents relating to any claims, charges or complaints involving the Trustee, as trustee hereunder, or the Trust Fund that are received by a Responsible Officer of the Trustee, (III) notice of all matters that, to the actual knowledge of a Responsible Officer of the Trustee, have been submitted to a vote of the Certificateholders, other than those matters that have been submitted to a vote of the Certificateholders at the request of the Company or the Master Servicer, and (IV) notice of any failure of the Trustee to make any distribution to the Certificateholders as required pursuant to the Series Supplement. Neither the Master Servicer nor the Trustee shall have any liability with respect to the Master Servicer's failure to properly prepare or file such periodic reports resulting from or relating to the Master Servicer's inability or failure to obtain any information not resulting from the Master Servicer's own negligence or willful misconduct. (f) Any Form 10-K filed with the Commission in connection with this Section 4.03 shall include, with respect to the Certificates relating to such 10-K: (i) A certification, signed by the senior officer in charge of the servicing functions of the Master Servicer, in the form attached as Exhibit O hereto or such other form as may be required or permitted by the Commission (the "Form 10-K Certification"), in compliance with Rules 13a-14 and 15d-14 under the Exchange Act and any additional directives of the Commission. (ii) A report regarding its assessment of compliance during the preceding calendar year with all applicable servicing criteria set forth in relevant Commission regulations with respect to mortgage-backed securities transactions taken as a whole involving the Master Servicer that are backed by the same types of assets as those backing the certificates, as well as similar reports on assessment of compliance received from other parties participating in the servicing function as required by relevant Commission regulations, as described in Item 1122(a) of Regulation AB. The Master Servicer shall obtain from all other parties participating in the servicing function any required assesments. (iii) With respect to each assessment report described immediately above, a report by a registered public accounting firm that attests to, and reports on, the assessment made by the asserting party, as set forth in relevant Commission regulations, as described in Regulation 1122(b) of Regulation AB and Section 3.19 (iv) The servicer compliance certificate required to be delivered pursuant Section 3.18. (g) In connection with the Form 10-K Certification, the Trustee shall provide the Master Servicer with a back-up certification substantially in the form attached hereto as Exhibit P. (h) This Section 4.03 may be amended in accordance with this Agreement without the consent of the Certificateholders. (i) The Trustee shall make available on the Trustee's internet website each of the reports filed with the Commission by or on behalf of the Company under the Exchange Act upon delivery of such reports to the Trustee. Section 4.04. Distribution of Reports to the Trustee and the Company; Advances by the Master Servicer. (a) Prior to the close of business on the Determination Date, the Master Servicer shall furnish a written statement to the Trustee, any Paying Agent and the Company (the information in such statement to be made available to Certificateholders and any Certificate Insurer by the Master Servicer on request) setting forth (i) the Available Distribution Amount and (ii) the amounts required to be withdrawn from the Custodial Account and deposited into the Certificate Account on the immediately succeeding Certificate Account Deposit Date pursuant to clause (iii) of Section 4.01(a). The determination by the Master Servicer of such amounts shall, in the absence of obvious error, be presumptively deemed to be correct for all purposes hereunder and the Trustee shall be protected in relying upon the same without any independent check or verification. (b) On or before 2:00 P.M. New York time on each Certificate Account Deposit Date, the Master Servicer shall either (i) deposit in the Certificate Account from its own funds, or funds received therefor from the Subservicers, an amount equal to the Advances to be made by the Master Servicer in respect of the related Distribution Date, which shall be in an aggregate amount equal to the aggregate amount of Monthly Payments (with each interest portion thereof adjusted to the Net Mortgage Rate), less the amount of any related Servicing Modifications, Debt Service Reductions or reductions in the amount of interest collectable from the Mortgagor pursuant to the Relief Act, on the Outstanding Mortgage Loans as of the related Due Date, which Monthly Payments were not received as of the close of business as of the related Determination Date; provided that no Advance shall be made if it would be a Nonrecoverable Advance, (ii) withdraw from amounts on deposit in the Custodial Account and deposit in the Certificate Account all or a portion of the Amount Held for Future Distribution in discharge of any such Advance, or (iii) make advances in the form of any combination of (i) and (ii) aggregating the amount of such Advance. Any portion of the Amount Held for Future Distribution so used shall be replaced by the Master Servicer by deposit in the Certificate Account on or before 11:00 A.M. New York time on any future Certificate Account Deposit Date to the extent that funds attributable to the Mortgage Loans that are available in the Custodial Account for deposit in the Certificate Account on such Certificate Account Deposit Date shall be less than payments to Certificateholders required to be made on the following Distribution Date. The Master Servicer shall be entitled to use any Advance made by a Subservicer as described in Section 3.07(b) that has been deposited in the Custodial Account on or before such Distribution Date as part of the Advance made by the Master Servicer pursuant to this Section 4.04. The amount of any reimbursement pursuant to Section 4.02(a) in respect of outstanding Advances on any Distribution Date shall be allocated to specific Monthly Payments due but delinquent for previous Due Periods, which allocation shall be made, to the extent practicable, to Monthly Payments which have been delinquent for the longest period of time. Such allocations shall be conclusive for purposes of reimbursement to the Master Servicer from recoveries on related Mortgage Loans pursuant to Section 3.10. The determination by the Master Servicer that it has made a Nonrecoverable Advance or that any proposed Advance, if made, would constitute a Nonrecoverable Advance, shall be evidenced by an Officers' Certificate of the Master Servicer delivered to the Company and the Trustee. If the Master Servicer determines as of the Business Day preceding any Certificate Account Deposit Date that it will be unable to deposit in the Certificate Account an amount equal to the Advance required to be made for the immediately succeeding Distribution Date, it shall give notice to the Trustee of its inability to advance (such notice may be given by telecopy), not later than 3:00 P.M., New York time, on such Business Day, specifying the portion of such amount that it will be unable to deposit. Not later than 3:00 P.M., New York time, on the Certificate Account Deposit Date the Trustee shall, unless by 12:00 Noon, New York time, on such day the Trustee shall have been notified in writing (by telecopy) that the Master Servicer shall have directly or indirectly deposited in the Certificate Account such portion of the amount of the Advance as to which the Master Servicer shall have given notice pursuant to the preceding sentence, pursuant to Section 7.01, (a) terminate all of the rights and obligations of the Master Servicer under this Agreement in accordance with Section 7.01 and (b) assume the rights and obligations of the Master Servicer hereunder, including the obligation to deposit in the Certificate Account an amount equal to the Advance for the immediately succeeding Distribution Date. The Trustee shall deposit all funds it receives pursuant to this Section 4.04 into the Certificate Account. Section 4.05. Allocation of Realized Losses. As provided in Section 4.05 of the Series Supplement. Section 4.06. Reports of Foreclosures and Abandonment of Mortgaged Property. The Master Servicer or the Subservicers shall file information returns with respect to the receipt of mortgage interests received in a trade or business, the reports of foreclosures and abandonments of any Mortgaged Property and the information returns relating to cancellation of indebtedness income with respect to any Mortgaged Property required by Sections 6050H, 6050J and 6050P, respectively, of the Code, and deliver to the Trustee an Officers' Certificate on or before March 31 of each year stating that such reports have been filed. Such reports shall be in form and substance sufficient to meet the reporting requirements imposed by Sections 6050H, 6050J and 6050P of the Code. Section 4.07. Optional Purchase of Defaulted Mortgage Loans. (a) With respect to any Mortgage Loan which is delinquent in payment by 90 days or more, the Master Servicer may, at its option, purchase such Mortgage Loan from the Trustee at the Purchase Price therefor; provided, that such Mortgage Loan that becomes 90 days or more delinquent during any given calendar quarter shall only be eligible for purchase pursuant to this Section during the period beginning on the first Business Day of the following calendar quarter, and ending at the close of business on the second-to-last Business Day of such following calendar quarter; and provided, further, that such Mortgage Loan is 90 days or more delinquent at the time of repurchase. Such option if not exercised shall not thereafter be reinstated as to any Mortgage Loan, unless the delinquency is cured and the Mortgage Loan thereafter again becomes delinquent in payment by 90 days or more in a subsequent calendar quarter. (b) If at any time the Master Servicer makes a payment to the Certificate Account covering the amount of the Purchase Price for such a Mortgage Loan as provided in clause (a) above, and the Master Servicer provides to the Trustee a certification signed by a Servicing Officer stating that the amount of such payment has been deposited in the Certificate Account, then the Trustee shall execute the assignment of such Mortgage Loan at the request of the Master Servicer without recourse to the Master Servicer which shall succeed to all the Trustee's right, title and interest in and to such Mortgage Loan, and all security and documents relative thereto. Such assignment shall be an assignment outright and not for security. The Master Servicer will thereupon own such Mortgage, and all such security and documents, free of any further obligation to the Trustee or the Certificateholders with respect thereto. If, however, the Master Servicer shall have exercised its right to repurchase a Mortgage Loan pursuant to this Section 4.07 upon the written request of and with funds provided by the Junior Certificateholder and thereupon transferred such Mortgage Loan to the Junior Certificateholder, the Master Servicer shall so notify the Trustee in writing. Section 4.08. Surety Bond. (a) If a Required Surety Payment is payable pursuant to the Surety Bond with respect to any Additional Collateral Loan, the Master Servicer shall so notify the Trustee as soon as reasonably practicable and the Trustee shall promptly complete the notice in the form of Attachment 1 to the Surety Bond and shall promptly submit such notice to the Surety as a claim for a Required Surety. The Master Servicer shall upon request assist the Trustee in completing such notice and shall provide any information requested by the Trustee in connection therewith. (b) Upon receipt of a Required Surety Payment from the Surety on behalf of the Holders of Certificates, the Trustee shall deposit such Required Surety Payment in the Certificate Account and shall distribute such Required Surety Payment, or the proceeds thereof, in accordance with the provisions of Section 4.02. (c) The Trustee shall (i) receive as attorney-in-fact of each Holder of a Certificate any Required Surety Payment from the Surety and (ii) disburse the same to the Holders of such Certificates as set forth in Section 4.02. ARTICLE V THE CERTIFICATES Section 5.01. The Certificates. (a) The Senior, Class M, Class B and Class R Certificates shall be substantially in the forms set forth in Exhibits A, B, C and D, respectively, and shall, on original issue, be executed and delivered by the Trustee to the Certificate Registrar for authentication and delivery to or upon the order of the Company upon receipt by the Trustee or one or more Custodians of the documents specified in Section 2.01. The Certificates shall be issuable in the minimum denominations designated in the Preliminary Statement to the Series Supplement. The Certificates shall be executed by manual or facsimile signature on behalf of an authorized officer of the Trustee. Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Trustee shall bind the Trustee, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificate or did not hold such offices at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by the Certificate Registrar by manual signature, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. (b) Except as provided below, registration of Book-Entry Certificates may not be transferred by the Trustee except to another Depository that agrees to hold such Certificates for the respective Certificate Owners with Ownership Interests therein. The Holders of the Book-Entry Certificates shall hold their respective Ownership Interests in and to each of such Certificates through the book-entry facilities of the Depository and, except as provided below, shall not be entitled to Definitive Certificates in respect of such Ownership Interests. All transfers by Certificate Owners of their respective Ownership Interests in the Book-Entry Certificates shall be made in accordance with the procedures established by the Depository Participant or brokerage firm representing such Certificate Owner. Each Depository Participant shall transfer the Ownership Interests only in the Book-Entry Certificates of Certificate Owners it represents or of brokerage firms for which it acts as agent in accordance with the Depository's normal procedures. The Trustee, the Master Servicer and the Company may for all purposes (including the making of payments due on the respective Classes of Book-Entry Certificates) deal with the Depository as the authorized representative of the Certificate Owners with respect to the respective Classes of Book-Entry Certificates for the purposes of exercising the rights of Certificateholders hereunder. The rights of Certificate Owners with respect to the respective Classes of Book-Entry Certificates shall be limited to those established by law and agreements between such Certificate Owners and the Depository Participants and brokerage firms representing such Certificate Owners. Multiple requests and directions from, and votes of, the Depository as Holder of any Class of Book-Entry Certificates with respect to any particular matter shall not be deemed inconsistent if they are made with respect to different Certificate Owners. The Trustee may establish a reasonable record date in connection with solicitations of consents from or voting by Certificateholders and shall give notice to the Depository of such record date. If with respect to any Book-Entry Certificate (i)(A) the Company advises the Trustee in writing that the Depository is no longer willing or able to properly discharge its responsibilities as Depository with respect to such Book-Entry Certificate and (B) the Company is unable to locate a qualified successor, or (ii)(A) the Depositor at its option advises the Trustee in writing that it elects to terminate the book-entry system for such Book-Entry Certificate through the Depositary and (B) upon receipt of notice from the Depository of the Depositor's election to terminate the book-entry sysytem for such Book-Entry Certificate, the Depository Participants holding beneficial interests in such Book-Entry Certificates agree to initiate such termination, the Trustee shall notify all Certificate Owner of such Book-Entry Certificate, through the Depository, of the occurrence of any such event and of the availability of Definitive Certificates to Certificate Owners requesting the same. Upon surrender to the Trustee of the Book-Entry Certificates by the Depository, accompanied by registration instructions from the Depository for registration of transfer, the Trustee shall execute, authenticate and deliver the Definitive Certificates. In addition, if an Event of Default has occurred and is continuing, each Certificate Owner materially adversely affected thereby may at its option request a Definitive Certificate evidencing such Certificate Owner's Percentage Interest in the related Class of Certificates. In order to make such request, such Certificate Owner shall, subject to the rules and procedures of the Depository, provide the Depository or the related Depository Participant with directions for the Trustee to exchange or cause the exchange of the Certificate Owner's interest in such Class of Certificates for an equivalent Percentage Interest in fully registered definitive form. Upon receipt by the Trustee of instruction from the Depository directing the Trustee to effect such exchange (such instructions to contain information regarding the Class of Certificates and the Certificate Balance being exchanged, the Depository Participant account to be debited with the decrease, the registered holder of and delivery instructions for the Definitive Certificates and any other information reasonably required by the Trustee), (i) the Trustee shall instruct the Depository to reduce the related Depository Participant's account by the aggregate Certificate Principal Balance of the Definitive Certificates, (ii) the Trustee shall execute, authenticate and deliver, in accordance with the registration and delivery instructions provided by the Depository, a Definitive Certificate evidencing such Certificate Owner's Percentage Interest in such Class of Certificates and (iii) the Trustee shall execute and authenticate a new Book-Entry Certificate reflecting the reduction in the aggregate Certificate Principal Balance of such Class of Certificates by the amount of the Definitive Certificates. None of the Company, the Master Servicer or the Trustee shall be liable for any actions taken by the Depository or its nominee, including, without limitation, any delay in delivery of any instruction required under this section and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Certificates all references herein to obligations imposed upon or to be performed by the Depository in connection with the issuance of the Definitive Certificates pursuant to this Section 5.01 shall be deemed to be imposed upon and performed by the Trustee, and the Trustee and the Master Servicer shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder. (c) From time to time Residential Funding, as the initial Holder of the Class A-V Certificates, may exchange such Holder's Class A-V Certificates for Subclasses of Class A-V Certificates to be issued under this Agreement by delivering a "Request for Exchange" substantially in the form attached hereto as Exhibit N executed by an authorized officer, which Subclasses, in the aggregate, will represent the Uncertificated Class A-V REMIC Regular Interests corresponding to the Class A-V Certificates so surrendered for exchange. Any Subclass so issued shall bear a numerical designation commencing with Class A-V-1 and continuing sequentially thereafter, and will evidence ownership of the Uncertificated Class A-V REMIC Regular Interest or Interests specified in writing by such initial Holder to the Trustee. The Trustee may conclusively, without any independent verification, rely on, and shall be protected in relying on, Residential Funding's determinations of the Uncertificated Class A-V REMIC Regular Interests corresponding to any Subclass, the Initial Notional Amount and the initial Pass-Through Rate on a Subclass as set forth in such Request for Exchange and the Trustee shall have no duty to determine if any Uncertificated Class A-V REMIC Regular Interest designated on a Request for Exchange corresponds to a Subclass which has previously been issued. Each Subclass so issued shall be substantially in the form set forth in Exhibit A and shall, on original issue, be executed and delivered by the Trustee to the Certificate Registrar for authentication and delivery in accordance with Section 5.01(a). Every Certificate presented or surrendered for exchange by the initial Holder shall (if so required by the Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by a written instrument of transfer attached to such Certificate and shall be completed to the satisfaction of the Trustee and the Certificate Registrar duly executed by, the initial Holder thereof or his attorney duly authorized in writing. The Certificates of any Subclass of Class A-V Certificates may be transferred in whole, but not in part, in accordance with the provisions of Section 5.02. Section 5.02. Registration of Transfer and Exchange of Certificates. (a) The Trustee shall cause to be kept at one of the offices or agencies to be appointed by the Trustee in accordance with the provisions of Section 8.12 a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. The Trustee is initially appointed Certificate Registrar for the purpose of registering Certificates and transfers and exchanges of Certificates as herein provided. The Certificate Registrar, or the Trustee, shall provide the Master Servicer with a certified list of Certificateholders as of each Record Date prior to the related Determination Date. (b) Upon surrender for registration of transfer of any Certificate at any office or agency of the Trustee maintained for such purpose pursuant to Section 8.12 and, in the case of any Class M, Class B or Class R Certificate, upon satisfaction of the conditions set forth below, the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of a like Class (or Subclass) and aggregate Percentage Interest. (c) At the option of the Certificateholders, Certificates may be exchanged for other Certificates of authorized denominations of a like Class (or Subclass) and aggregate Percentage Interest, upon surrender of the Certificates to be exchanged at any such office or agency. Whenever any Certificates are so surrendered for exchange the Trustee shall execute and the Certificate Registrar shall authenticate and deliver the Certificates of such Class which the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for transfer or exchange shall (if so required by the Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing. (d) No transfer, sale, pledge or other disposition of a Class B Certificate shall be made unless such transfer, sale, pledge or other disposition is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event that a transfer of a Class B Certificate is to be made either (i)(A) the Trustee shall require a written Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee and the Company that such transfer may be made pursuant to an exemption, describing the applicable exemption and the basis therefor, from said Act and laws or is being made pursuant to said Act and laws, which Opinion of Counsel shall not be an expense of the Trustee, the Company or the Master Servicer (except that, if such transfer is made by the Company or the Master Servicer or any Affiliate thereof, the Company or the Master Servicer shall provide such Opinion of Counsel at their own expense); provided that such Opinion of Counsel will not be required in connection with the initial transfer of any such Certificate by the Company or any Affiliate thereof to the Company or an Affiliate of the Company and (B) the Trustee shall require the transferee to execute a representation letter, substantially in the form of Exhibit H hereto, and the Trustee shall require the transferor to execute a representation letter, substantially in the form of Exhibit I hereto, each acceptable to and in form and substance satisfactory to the Company and the Trustee certifying to the Company and the Trustee the facts surrounding such transfer, which representation letters shall not be an expense of the Trustee, the Company or the Master Servicer; provided, however, that such representation letters will not be required in connection with any transfer of any such Certificate by the Company or any Affiliate thereof to the Company or an Affiliate of the Company, and the Trustee shall be entitled to conclusively rely upon a representation (which, upon the request of the Trustee, shall be a written representation) from the Company, of the status of such transferee as an Affiliate of the Company or (ii) the prospective transferee of such a Certificate shall be required to provide the Trustee, the Company and the Master Servicer with an investment letter substantially in the form of Exhibit J attached hereto (or such other form as the Company in its sole discretion deems acceptable), which investment letter shall not be an expense of the Trustee, the Company or the Master Servicer, and which investment letter states that, among other things, such transferee (A) is a "qualified institutional buyer" as defined under Rule 144A, acting for its own account or the accounts of other "qualified institutional buyers" as defined under Rule 144A, and (B) is aware that the proposed transferor intends to rely on the exemption from registration requirements under the Securities Act provided by Rule 144A. The Holder of any such Certificate desiring to effect any such transfer, sale, pledge or other disposition shall, and does hereby agree to, indemnify the Trustee, the Company, the Master Servicer and the Certificate Registrar against any liability that may result if the transfer, sale, pledge or other disposition is not so exempt or is not made in accordance with such federal and state laws. (e) (i) In the case of any Class B or Class R Certificate presented for registration in the name of any Person, either (A) the Trustee shall require an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer to the effect that the purchase and holding of such Class B or Class R Certificate are permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Company or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in this Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Company or the Master Servicer or (B) the prospective Transferee shall be required to provide the Trustee, the Company and the Master Servicer with a certification to the effect set forth in paragraph six of Exhibit H (with respect to any Class B Certificate) or paragraph fifteen of Exhibit G-1 (with respect to any Class R Certificate), which the Trustee may rely upon without further inquiry or investigation, or such other certifications as the Trustee may deem desirable or necessary in order to establish that such Transferee or the Person in whose name such registration is requested either (a) is not an employee benefit plan or other plan subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code (each, a "Plan"), or any Person (including, without limitation, an investment manager, a named fiduciary or a trustee of any Plan) who is using "plan assets," within the meaning of the U.S. Department of Labor regulation promulgated at 29 C.F.R. Section 2510.3-101, of any Plan to effect such acquisition (each, a "Plan Investor") or (b) in the case of any Class B Certificate, the following conditions are satisfied: (i) such Transferee is an insurance company, (ii) the source of funds used to purchase or hold such Certificate (or any interest therein) is an "insurance company general account" (as defined in U.S. Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60, and (iii) the conditions set forth in Sections I and III of PTCE 95-60 have been satisfied (each entity that satisfies this clause (b), a "Complying Insurance Company"). (ii) Any Transferee of a Class M Certificate will be deemed to have represented by virtue of its purchase or holding of such Certificate (or any interest therein) that either (a) such Transferee is not a Plan or a Plan Investor, (b) it has acquired and is holding such Certificate in reliance on Prohibited Transaction Exemption ("PTE") 94-29, 59 Fed. Reg. 14674 (March 29, 1994), as most recently amended by PTE 2002-41, 67 Fed. Reg. 54487 (August 22, 2002) (the "RFC Exemption"), and that it understands that there are certain conditions to the availability of the RFC Exemption including that such Certificate must be rated, at the time of purchase, not lower than "BBB-" (or its equivalent) by Standard & Poor's, Fitch or Moody's or (c) such Transferee is a Complying Insurance Company. (iii) (A) If any Class M Certificate (or any interest therein) is acquired or held by any Person that does not satisfy the conditions described in paragraph (ii) above, then the last preceding Transferee that either (i) is not a Plan or a Plan Investor, (ii) acquired such Certificate in compliance with the RFC Exemption, or (iii) is a Complying Insurance Company shall be restored, to the extent permitted by law, to all rights and obligations as Certificate Owner thereof retroactive to the date of such Transfer of such Class M Certificate. The Trustee shall be under no liability to any Person for making any payments due on such Certificate to such preceding Transferee. (B) Any purported Certificate Owner whose acquisition or holding of any Class M Certificate (or any interest therein) was effected in violation of the restrictions in this Section 5.02(e) shall indemnify and hold harmless the Company, the Trustee, the Master Servicer, any Subservicer, each Underwriter and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by such parties as a result of such acquisition or holding. (f) (i) Each Person who has or who acquires any Ownership Interest in a Class R Certificate shall be deemed by the acceptance or acquisition of such Ownership Interest to have agreed to be bound by the following provisions and to have irrevocably authorized the Trustee or its designee under clause (iii)(A) below to deliver payments to a Person other than such Person and to negotiate the terms of any mandatory sale under clause (iii)(B) below and to execute all instruments of transfer and to do all other things necessary in connection with any such sale. The rights of each Person acquiring any Ownership Interest in a Class R Certificate are expressly subject to the following provisions: (A) Each Person holding or acquiring any Ownership Interest in a Class R Certificate shall be a Permitted Transferee and shall promptly notify the Trustee of any change or impending change in its status as a Permitted Transferee. (B) In connection with any proposed Transfer of any Ownership Interest in a Class R Certificate, the Trustee shall require delivery to it, and shall not register the Transfer of any Class R Certificate until its receipt of, (I) an affidavit and agreement (a "Transfer Affidavit and Agreement," in the form attached hereto as Exhibit G-1) from the proposed Transferee, in form and substance satisfactory to the Master Servicer, representing and warranting, among other things, that it is a Permitted Transferee, that it is not acquiring its Ownership Interest in the Class R Certificate that is the subject of the proposed Transfer as a nominee, trustee or agent for any Person who is not a Permitted Transferee, that for so long as it retains its Ownership Interest in a Class R Certificate, it will endeavor to remain a Permitted Transferee, and that it has reviewed the provisions of this Section 5.02(f) and agrees to be bound by them, and (II) a certificate, in the form attached hereto as Exhibit G-2, from the Holder wishing to transfer the Class R Certificate, in form and substance satisfactory to the Master Servicer, representing and warranting, among other things, that no purpose of the proposed Transfer is to impede the assessment or collection of tax. (C) Notwithstanding the delivery of a Transfer Affidavit and Agreement by a proposed Transferee under clause (B) above, if a Responsible Officer of the Trustee who is assigned to this Agreement has actual knowledge that the proposed Transferee is not a Permitted Transferee, no Transfer of an Ownership Interest in a Class R Certificate to such proposed Transferee shall be effected. (D) Each Person holding or acquiring any Ownership Interest in a Class R Certificate shall agree (x) to require a Transfer Affidavit and Agreement from any other Person to whom such Person attempts to transfer its Ownership Interest in a Class R Certificate and (y) not to transfer its Ownership Interest unless it provides a certificate to the Trustee in the form attached hereto as Exhibit G-2. (E) Each Person holding or acquiring an Ownership Interest in a Class R Certificate, by purchasing an Ownership Interest in such Certificate, agrees to give the Trustee written notice that it is a "pass-through interest holder" within the meaning of Temporary Treasury Regulations Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an Ownership Interest in a Class R Certificate, if it is, or is holding an Ownership Interest in a Class R Certificate on behalf of, a "pass-through interest holder." (ii) The Trustee will register the Transfer of any Class R Certificate only if it shall have received the Transfer Affidavit and Agreement, a certificate of the Holder requesting such transfer in the form attached hereto as Exhibit G-2 and all of such other documents as shall have been reasonably required by the Trustee as a condition to such registration. Transfers of the Class R Certificates to Non-United States Persons and Disqualified Organizations (as defined in Section 860E(e)(5) of the Code) are prohibited. (iii) (A) If any Disqualified Organization shall become a holder of a Class R Certificate, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. If a Non-United States Person shall become a holder of a Class R Certificate, then the last preceding United States Person shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. If a transfer of a Class R Certificate is disregarded pursuant to the provisions of Treasury Regulations Section 1.860E-1 or Section 1.860G-3, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. The Trustee shall be under no liability to any Person for any registration of Transfer of a Class R Certificate that is in fact not permitted by this Section 5.02(f) or for making any payments due on such Certificate to the holder thereof or for taking any other action with respect to such holder under the provisions of this Agreement. (B) If any purported Transferee shall become a Holder of a Class R Certificate in violation of the restrictions in this Section 5.02(f) and to the extent that the retroactive restoration of the rights of the Holder of such Class R Certificate as described in clause (iii)(A) above shall be invalid, illegal or unenforceable, then the Master Servicer shall have the right, without notice to the holder or any prior holder of such Class R Certificate, to sell such Class R Certificate to a purchaser selected by the Master Servicer on such terms as the Master Servicer may choose. Such purported Transferee shall promptly endorse and deliver each Class R Certificate in accordance with the instructions of the Master Servicer. Such purchaser may be the Master Servicer itself or any Affiliate of the Master Servicer. The proceeds of such sale, net of the commissions (which may include commissions payable to the Master Servicer or its Affiliates), expenses and taxes due, if any, will be remitted by the Master Servicer to such purported Transferee. The terms and conditions of any sale under this clause (iii)(B) shall be determined in the sole discretion of the Master Servicer, and the Master Servicer shall not be liable to any Person having an Ownership Interest in a Class R Certificate as a result of its exercise of such discretion. (iv) The Master Servicer, on behalf of the Trustee, shall make available, upon written request from the Trustee, all information necessary to compute any tax imposed (A) as a result of the Transfer of an Ownership Interest in a Class R Certificate to any Person who is a Disqualified Organization, including the information regarding "excess inclusions" of such Class R Certificates required to be provided to the Internal Revenue Service and certain Persons as described in Treasury Regulations Sections 1.860D-1(b)(5) and 1.860E-2(a)(5), and (B) as a result of any regulated investment company, real estate investment trust, common trust fund, partnership, trust, estate or organization described in Section 1381 of the Code that holds an Ownership Interest in a Class R Certificate having as among its record holders at any time any Person who is a Disqualified Organization. Reasonable compensation for providing such information may be required by the Master Servicer from such Person. (v) The provisions of this Section 5.02(f) set forth prior to this clause (v) may be modified, added to or eliminated, provided that there shall have been delivered to the Trustee the following: (A) written notification from each Rating Agency to the effect that the modification, addition to or elimination of such provisions will not cause such Rating Agency to downgrade its then-current ratings, if any, of any Class of the Senior, Class M or Class B Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency; and (B) subject to Section 10.01(f), an Officers' Certificate of the Master Servicer stating that the Master Servicer has received an Opinion of Counsel, in form and substance satisfactory to the Master Servicer, to the effect that such modification, addition to or absence of such provisions will not cause any portion of any REMIC formed under the Series Supplement to cease to qualify as a REMIC and will not cause (x) any portion of any REMIC formed under the Series Supplement to be subject to an entity-level tax caused by the Transfer of any Class R Certificate to a Person that is a Disqualified Organization or (y) a Certificateholder or another Person to be subject to a REMIC-related tax caused by the Transfer of a Class R Certificate to a Person that is not a Permitted Transferee. (g) No service charge shall be made for any transfer or exchange of Certificates of any Class, but the Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Certificates. (h) All Certificates surrendered for transfer and exchange shall be destroyed by the Certificate Registrar. Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any mutilated Certificate is surrendered to the Certificate Registrar, or the Trustee and the Certificate Registrar receive evidence to their satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Trustee and the Certificate Registrar such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee or the Certificate Registrar that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor, Class and Percentage Interest but bearing a number not contemporaneously outstanding. Upon the issuance of any new Certificate under this Section, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Certificate Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership in the Trust Fund, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 5.04. Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, the Company, the Master Servicer, the Trustee, any Certificate Insurer, the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee, any Certificate Insurer or the Certificate Registrar may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 4.02 and for all other purposes whatsoever, except as and to the extent provided in the definition of "Certificateholder," and neither the Company, the Master Servicer, the Trustee, any Certificate Insurer, the Certificate Registrar nor any agent of the Company, the Master Servicer, the Trustee, any Certificate Insurer or the Certificate Registrar shall be affected by notice to the contrary except as provided in Section 5.02(f). Section 5.05. Appointment of Paying Agent. The Trustee may appoint a Paying Agent for the purpose of making distributions to the Certificateholders pursuant to Section 4.02. In the event of any such appointment, on or prior to each Distribution Date the Master Servicer on behalf of the Trustee shall deposit or cause to be deposited with the Paying Agent a sum sufficient to make the payments to the Certificateholders in the amounts and in the manner provided for in Section 4.02, such sum to be held in trust for the benefit of the Certificateholders. The Trustee shall cause each Paying Agent to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee that such Paying Agent will hold all sums held by it for the payment to the Certificateholders in trust for the benefit of the Certificateholders entitled thereto until such sums shall be paid to such Certificateholders. Any sums so held by such Paying Agent shall be held only in Eligible Accounts to the extent such sums are not distributed to the Certificateholders on the date of receipt by such Paying Agent. ARTICLE VI THE COMPANY AND THE MASTER SERVICER Section 6.01. Respective Liabilities of the Company and the Master Servicer. The Company and the Master Servicer shall each be liable in accordance herewith only to the extent of the obligations specifically and respectively imposed upon and undertaken by the Company and the Master Servicer herein. By way of illustration and not limitation, the Company is not liable for the servicing and administration of the Mortgage Loans, nor is it obligated by Section 7.01 or Section 10.01 to assume any obligations of the Master Servicer or to appoint a designee to assume such obligations, nor is it liable for any other obligation hereunder that it may, but is not obligated to, assume unless it elects to assume such obligation in accordance herewith. Section 6.02. Merger or Consolidation of the Company or the Master Servicer; Assignment of Rights and Delegation of Duties by Master Servicer. (a) The Company and the Master Servicer will each keep in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation, and will each obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement, the Certificates or any of the Mortgage Loans and to perform its respective duties under this Agreement. (b) Any Person into which the Company or the Master Servicer may be merged or consolidated, or any corporation resulting from any merger or consolidation to which the Company or the Master Servicer shall be a party, or any Person succeeding to the business of the Company or the Master Servicer, shall be the successor of the Company or the Master Servicer, as the case may be, hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that the successor or surviving Person to the Master Servicer shall be qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac; and provided further that each Rating Agency's ratings, if any, of the Senior, Class M or Class B Certificates in effect immediately prior to such merger or consolidation will not be qualified, reduced or withdrawn as a result thereof (as evidenced by a letter to such effect from each Rating Agency). (c) Notwithstanding anything else in this Section 6.02 and Section 6.04 to the contrary, the Master Servicer may assign its rights and delegate its duties and obligations under this Agreement; provided that the Person accepting such assignment or delegation shall be a Person which is qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac, is reasonably satisfactory to the Trustee and the Company, is willing to service the Mortgage Loans and executes and delivers to the Company and the Trustee an agreement, in form and substance reasonably satisfactory to the Company and the Trustee, which contains an assumption by such Person of the due and punctual performance and observance of each covenant and condition to be performed or observed by the Master Servicer under this Agreement; provided further that each Rating Agency's rating of the Classes of Certificates that have been rated in effect immediately prior to such assignment and delegation will not be qualified, reduced or withdrawn as a result of such assignment and delegation (as evidenced by a letter to such effect from each Rating Agency). In the case of any such assignment and delegation, the Master Servicer shall be released from its obligations under this Agreement, except that the Master Servicer shall remain liable for all liabilities and obligations incurred by it as Master Servicer hereunder prior to the satisfaction of the conditions to such assignment and delegation set forth in the next preceding sentence. This Section 6.02 shall not apply to any sale, transfer, pledge or assignment by Residential Funding of the Call Rights. Section 6.03. Limitation on Liability of the Company, the Master Servicer and Others. Neither the Company, the Master Servicer nor any of the directors, officers, employees or agents of the Company or the Master Servicer shall be under any liability to the Trust Fund or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Company, the Master Servicer or any such Person against any breach of warranties or representations or covenants made herein or any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Company, the Master Servicer and any director, officer, employee or agent of the Company or the Master Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Company, the Master Servicer and any director, officer, employee or agent of the Company or the Master Servicer shall be indemnified by the Trust Fund and held harmless against any loss, liability or expense incurred in connection with any legal action relating to this Agreement or the Certificates, other than any loss, liability or expense related to any specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense shall be otherwise reimbursable pursuant to this Agreement) and any loss, liability or expense incurred by reason of willful misfeasance, bad faith or gross negligence in the performance of duties hereunder or by reason of reckless disregard of obligations and duties hereunder. Neither the Company nor the Master Servicer shall be under any obligation to appear in, prosecute or defend any legal or administrative action, proceeding, hearing or examination that is not incidental to its respective duties under this Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Company or the Master Servicer may in its discretion undertake any such action, proceeding, hearing or examination that it may deem necessary or desirable in respect to this Agreement and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder. In such event, the legal expenses and costs of such action, proceeding, hearing or examination and any liability resulting therefrom shall be expenses, costs and liabilities of the Trust Fund, and the Company and the Master Servicer shall be entitled to be reimbursed therefor out of amounts attributable to the Mortgage Loans on deposit in the Custodial Account as provided by Section 3.10 and, on the Distribution Date(s) following such reimbursement, the aggregate of such expenses and costs shall be allocated in reduction of the Accrued Certificate Interest on each Class entitled thereto in the same manner as if such expenses and costs constituted a Prepayment Interest Shortfall. Section 6.04. Company and Master Servicer Not to Resign. Subject to the provisions of Section 6.02, neither the Company nor the Master Servicer shall resign from its respective obligations and duties hereby imposed on it except upon determination that its duties hereunder are no longer permissible under applicable law. Any such determination permitting the resignation of the Company or the Master Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to the Trustee. No such resignation by the Master Servicer shall become effective until the Trustee or a successor servicer shall have assumed the Master Servicer's responsibilities and obligations in accordance with Section 7.02. ARTICLE VII DEFAULT Section 7.01. Events of Default. Event of Default, wherever used herein, means any one of the following events (whatever reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the Master Servicer shall fail to distribute or cause to be distributed to the Holders of Certificates of any Class any distribution required to be made under the terms of the Certificates of such Class and this Agreement and, in either case, such failure shall continue unremedied for a period of 5 days after the date upon which written notice of such failure, requiring such failure to be remedied, shall have been given to the Master Servicer by the Trustee or the Company or to the Master Servicer, the Company and the Trustee by the Holders of Certificates of such Class evidencing Percentage Interests aggregating not less than 25%; or (ii) the Master Servicer shall fail to observe or perform in any material respect any other of the covenants or agreements on the part of the Master Servicer contained in the Certificates of any Class or in this Agreement and such failure shall continue unremedied for a period of 30 days (except that such number of days shall be 15 in the case of a failure to pay the premium for any Required Insurance Policy) after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Master Servicer by the Trustee or the Company, or to the Master Servicer, the Company and the Trustee by the Holders of Certificates of any Class evidencing, in the case of any such Class, Percentage Interests aggregating not less than 25%; or (iii) a decree or order of a court or agency or supervisory authority having jurisdiction in the premises in an involuntary case under any present or future federal or state bankruptcy, insolvency or similar law or appointing a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Master Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days; or (iv) the Master Servicer shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities, or similar proceedings of, or relating to, the Master Servicer or of, or relating to, all or substantially all of the property of the Master Servicer; or (v) the Master Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of, or commence a voluntary case under, any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations; or (vi) the Master Servicer shall notify the Trustee pursuant to Section 4.04(b) that it is unable to deposit in the Certificate Account an amount equal to the Advance. If an Event of Default described in clauses (i)-(v) of this Section shall occur, then, and in each and every such case, so long as such Event of Default shall not have been remedied, either the Company or the Trustee may, and at the direction of Holders of Certificates entitled to at least 51% of the Voting Rights, the Trustee shall, by notice in writing to the Master Servicer (and to the Company if given by the Trustee or to the Trustee if given by the Company), terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof, other than its rights as a Certificateholder hereunder. If an Event of Default described in clause (vi) hereof shall occur, the Trustee shall, by notice to the Master Servicer and the Company, immediately terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof, other than its rights as a Certificateholder hereunder as provided in Section 4.04(b). On or after the receipt by the Master Servicer of such written notice, all authority and power of the Master Servicer under this Agreement, whether with respect to the Certificates (other than as a Holder thereof) or the Mortgage Loans or otherwise, shall subject to Section 7.02 pass to and be vested in the Trustee or the Trustee's designee appointed pursuant to Section 7.02; and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise. The Master Servicer agrees to cooperate with the Trustee in effecting the termination of the Master Servicer's responsibilities and rights hereunder, including, without limitation, the transfer to the Trustee or its designee for administration by it of all cash amounts which shall at the time be credited to the Custodial Account or the Certificate Account or thereafter be received with respect to the Mortgage Loans. No such termination shall release the Master Servicer for any liability that it would otherwise have hereunder for any act or omission prior to the effective time of such termination. Notwithstanding any termination of the activities of Residential Funding in its capacity as Master Servicer hereunder, Residential Funding shall be entitled to receive, out of any late collection of a Monthly Payment on a Mortgage Loan which was due prior to the notice terminating Residential Funding's rights and obligations as Master Servicer hereunder and received after such notice, that portion to which Residential Funding would have been entitled pursuant to Sections 3.10(a)(ii), (vi) and (vii) as well as its Servicing Fee in respect thereof, and any other amounts payable to Residential Funding hereunder the entitlement to which arose prior to the termination of its activities hereunder. Upon the termination of Residential Funding as Master Servicer hereunder the Company shall deliver to the Trustee a copy of the Program Guide. Section 7.02. Trustee or Company to Act; Appointment of Successor. (a) On and after the time the Master Servicer receives a notice of termination pursuant to Section 7.01 or resigns in accordance with Section 6.04, the Trustee or, upon notice to the Company and with the Company's consent (which shall not be unreasonably withheld) a designee (which meets the standards set forth below) of the Trustee, shall be the successor in all respects to the Master Servicer in its capacity as servicer under this Agreement and the transactions set forth or provided for herein and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Master Servicer (except for the responsibilities, duties and liabilities contained in Sections 2.02 and 2.03(a), excluding the duty to notify related Subservicers or Sellers as set forth in such Sections, and its obligations to deposit amounts in respect of losses incurred prior to such notice or termination on the investment of funds in the Custodial Account or the Certificate Account pursuant to Sections 3.07(c) and 4.01(b) by the terms and provisions hereof); provided, however, that any failure to perform such duties or responsibilities caused by the preceding Master Servicer's failure to provide information required by Section 4.04 shall not be considered a default by the Trustee hereunder. As compensation therefor, the Trustee shall be entitled to all funds relating to the Mortgage Loans which the Master Servicer would have been entitled to charge to the Custodial Account or the Certificate Account if the Master Servicer had continued to act hereunder and, in addition, shall be entitled to the income from any Permitted Investments made with amounts attributable to the Mortgage Loans held in the Custodial Account or the Certificate Account. If the Trustee has become the successor to the Master Servicer in accordance with Section 6.04 or Section 7.01, then notwithstanding the above, the Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so act, appoint, or petition a court of competent jurisdiction to appoint, any established housing and home finance institution, which is also a Fannie Mae- or Freddie Mac-approved mortgage servicing institution, having a net worth of not less than $10,000,000 as the successor to the Master Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Master Servicer hereunder. Pending appointment of a successor to the Master Servicer hereunder, the Trustee shall become successor to the Master Servicer and shall act in such capacity as hereinabove provided. In connection with such appointment and assumption, the Trustee may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree; provided, however, that no such compensation shall be in excess of that permitted the initial Master Servicer hereunder. The Company, the Trustee, the Custodian and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. The Servicing Fee for any successor Master Servicer appointed pursuant to this Section 7.02 will be lowered with respect to those Mortgage Loans, if any, where the Subservicing Fee accrues at a rate of less than 0.20% per annum in the event that the successor Master Servicer is not servicing such Mortgage Loans directly and it is necessary to raise the related Subservicing Fee to a rate of 0.20% per annum in order to hire a Subservicer with respect to such Mortgage Loans. The Master Servicer shall pay the reasonable expenses of the Trustee in connection with any servicing transition hereunder. (b) In connection with the termination or resignation of the Master Servicer hereunder, either (i) the successor Master Servicer, including the Trustee if the Trustee is acting as successor Master Servicer, shall represent and warrant that it is a member of MERS in good standing and shall agree to comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Mortgage Loans that are registered with MERS, in which case the predecessor Master Servicer shall cooperate with the successor Master Servicer in causing MERS to revise its records to reflect the transfer of servicing to the successor Master Servicer as necessary under MERS' rules and regulations, or (ii) the predecessor Master Servicer shall cooperate with the successor Master Servicer in causing MERS to execute and deliver an assignment of Mortgage in recordable form to transfer the Mortgage from MERS to the Trustee and to execute and deliver such other notices, documents and other instruments as may be necessary or desirable to effect a transfer of such Mortgage Loan or servicing of such Mortgage Loan on the MERS(R)System to the successor Master Servicer. The predecessor Master Servicer shall file or cause to be filed any such assignment in the appropriate recording office. The predecessor Master Servicer shall bear any and all fees of MERS, costs of preparing any assignments of Mortgage, and fees and costs of filing any assignments of Mortgage that may be required under this subsection (b). The successor Master Servicer shall cause such assignment to be delivered to the Trustee or the Custodian promptly upon receipt of the original with evidence of recording thereon or a copy certified by the public recording office in which such assignment was recorded. Section 7.03. Notification to Certificateholders. (a) Upon any such termination or appointment of a successor to the Master Servicer, the Trustee shall give prompt written notice thereof to the Certificateholders at their respective addresses appearing in the Certificate Register. (b) Within 60 days after the occurrence of any Event of Default, the Trustee shall transmit by mail to all Holders of Certificates notice of each such Event of Default hereunder known to the Trustee, unless such Event of Default shall have been cured or waived. Section 7.04. Waiver of Events of Default. The Holders representing at least 66% of the Voting Rights affected by a default or Event of Default hereunder may waive such default or Event of Default; provided, however, that (a) a default or Event of Default under clause (i) of Section 7.01 may be waived only by all of the Holders of Certificates affected by such default or Event of Default and (b) no waiver pursuant to this Section 7.04 shall affect the Holders of Certificates in the manner set forth in Section 11.01(b)(i) or (ii). Upon any such waiver of a default or Event of Default by the Holders representing the requisite percentage of Voting Rights affected by such default or Event of Default, such default or Event of Default shall cease to exist and shall be deemed to have been remedied for every purpose hereunder. No such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon except to the extent expressly so waived. ARTICLE VIII CONCERNING THE TRUSTEE Section 8.01. Duties of Trustee. (a) The Trustee, prior to the occurrence of an Event of Default and after the curing or waiver of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise as a prudent investor would exercise or use under the circumstances in the conduct of such investor's own affairs. (b) The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they conform to the requirements of this Agreement. The Trustee shall notify the Certificateholders of any such documents which do not materially conform to the requirements of this Agreement in the event that the Trustee, after so requesting, does not receive satisfactorily corrected documents. The Trustee shall forward or cause to be forwarded in a timely fashion the notices, reports and statements required to be forwarded by the Trustee pursuant to Sections 4.03, 4.06, 7.03 and 10.01. The Trustee shall furnish in a timely fashion to the Master Servicer such information as the Master Servicer may reasonably request from time to time for the Master Servicer to fulfill its duties as set forth in this Agreement. The Trustee covenants and agrees that it shall perform its obligations hereunder in a manner so as to maintain the status of any portion of any REMIC formed under the Series Supplement as a REMIC under the REMIC Provisions and (subject to Section 10.01(f)) to prevent the imposition of any federal, state or local income, prohibited transaction, contribution or other tax on the Trust Fund to the extent that maintaining such status and avoiding such taxes are reasonably within the control of the Trustee and are reasonably within the scope of its duties under this Agreement. (c) No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) Prior to the occurrence of an Event of Default, and after the curing or waiver of all such Events of Default which may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, no implied covenants or obligations shall be read into this Agreement against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee by the Company or the Master Servicer and which on their face, do not contradict the requirements of this Agreement; (ii) The Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (iii) The Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of Certificateholders of any Class holding Certificates which evidence, as to such Class, Percentage Interests aggregating not less than 25% as to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement; (iv) The Trustee shall not be charged with knowledge of any default (other than a default in payment to the Trustee) specified in clauses (i) and (ii) of Section 7.01 or an Event of Default under clauses (iii), (iv) and (v) of Section 7.01 unless a Responsible Officer of the Trustee assigned to and working in the Corporate Trust Office obtains actual knowledge of such failure or event or the Trustee receives written notice of such failure or event at its Corporate Trust Office from the Master Servicer, the Company or any Certificateholder; and (v) Except to the extent provided in Section 7.02, no provision in this Agreement shall require the Trustee to expend or risk its own funds (including, without limitation, the making of any Advance) or otherwise incur any personal financial liability in the performance of any of its duties as Trustee hereunder, or in the exercise of any of its rights or powers, if the Trustee shall have reasonable grounds for believing that repayment of funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) The Trustee shall timely pay, from its own funds, the amount of any and all federal, state and local taxes imposed on the Trust Fund or its assets or transactions including, without limitation, (A) "prohibited transaction" penalty taxes as defined in Section 860F of the Code, if, when and as the same shall be due and payable, (B) any tax on contributions to a REMIC after the Closing Date imposed by Section 860G(d) of the Code and (C) any tax on "net income from foreclosure property" as defined in Section 860G(c) of the Code, but only if such taxes arise out of a breach by the Trustee of its obligations hereunder, which breach constitutes negligence or willful misconduct of the Trustee. Section 8.02. Certain Matters Affecting the Trustee. (a) Except as otherwise provided in Section 8.01: (i) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) The Trustee may consult with counsel and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (iii) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Agreement or to institute, conduct or defend any litigation hereunder or in relation hereto at the request, order or direction of any of the Certificateholders, pursuant to the provisions of this Agreement, unless such Certificateholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived), to exercise such of the rights and powers vested in it by this Agreement, and to use the same degree of care and skill in their exercise as a prudent investor would exercise or use under the circumstances in the conduct of such investor's own affairs; (iv) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; (v) Prior to the occurrence of an Event of Default hereunder and after the curing or waiver of all Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by Holders of Certificates of any Class evidencing, as to such Class, Percentage Interests, aggregating not less than 50%; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Master Servicer, if an Event of Default shall have occurred and is continuing, and otherwise by the Certificateholder requesting the investigation; (vi) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys provided that the Trustee shall remain liable for any acts of such agents or attorneys; and (vii) To the extent authorized under the Code and the regulations promulgated thereunder, each Holder of a Class R Certificate hereby irrevocably appoints and authorizes the Trustee to be its attorney-in-fact for purposes of signing any Tax Returns required to be filed on behalf of the Trust Fund. The Trustee shall sign on behalf of the Trust Fund and deliver to the Master Servicer in a timely manner any Tax Returns prepared by or on behalf of the Master Servicer that the Trustee is required to sign as determined by the Master Servicer pursuant to applicable federal, state or local tax laws, provided that the Master Servicer shall indemnify the Trustee for signing any such Tax Returns that contain errors or omissions. (b) Following the issuance of the Certificates, the Trustee shall not accept any contribution of assets to the Trust Fund unless (subject to Section 10.01(f)) it shall have obtained or been furnished with an Opinion of Counsel to the effect that such contribution will not (i) cause any portion of any REMIC formed under the Series Supplement to fail to qualify as a REMIC at any time that any Certificates are outstanding or (ii) cause the Trust Fund to be subject to any federal tax as a result of such contribution (including the imposition of any federal tax on "prohibited transactions" imposed under Section 860F(a) of the Code). Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans. The recitals contained herein and in the Certificates (other than the execution of the Certificates and relating to the acceptance and receipt of the Mortgage Loans) shall be taken as the statements of the Company or the Master Servicer as the case may be, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Agreement or of the Certificates (except that the Certificates shall be duly and validly executed and authenticated by it as Certificate Registrar) or of any Mortgage Loan or related document, or of MERS or the MERS(R) System. Except as otherwise provided herein, the Trustee shall not be accountable for the use or application by the Company or the Master Servicer of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Company or the Master Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the Custodial Account or the Certificate Account by the Company or the Master Servicer. Section 8.04. Trustee May Own Certificates. The Trustee in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not Trustee. Section 8.05. Master Servicer to Pay Trustee's Fees and Expenses; Indemnification. (a) The Master Servicer covenants and agrees to pay to the Trustee and any co-trustee from time to time, and the Trustee and any co-trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by each of them in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee and any co-trustee, and the Master Servicer will pay or reimburse the Trustee and any co-trustee upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustee or any co-trustee in accordance with any of the provisions of this Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ, and the expenses incurred by the Trustee or any co-trustee in connection with the appointment of an office or agency pursuant to Section 8.12) except any such expense, disbursement or advance as may arise from its negligence or bad faith. (b) The Master Servicer agrees to indemnify the Trustee for, and to hold the Trustee harmless against, any loss, liability or expense incurred without negligence or willful misconduct on its part, arising out of, or in connection with, the acceptance and administration of the Trust Fund, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against any claim in connection with the exercise or performance of any of its powers or duties under this Agreement, and the Custodial Agreement and the Master Servicer further agrees to indemnify the Trustee for, and to hold the Trustee harmless against, any loss, liability or expense arising out of, or in connection with, the provisions set forth in Section 2.01(a) hereof, including, without limitation, all costs, liabilities and expenses (including reasonable legal fees and expenses) of investigating and defending itself against any claim, action or proceeding, pending or threatened, relating to the provisions of such paragraph, provided that: (i) with respect to any such claim, the Trustee shall have given the Master Servicer written notice thereof promptly after the Trustee shall have actual knowledge thereof; (ii) while maintaining control over its own defense, the Trustee shall cooperate and consult fully with the Master Servicer in preparing such defense; and (iii) notwithstanding anything in this Agreement to the contrary, the Master Servicer shall not be liable for settlement of any claim by the Trustee entered into without the prior consent of the Master Servicer which consent shall not be unreasonably withheld. No termination of this Agreement shall affect the obligations created by this Section 8.05(b) of the Master Servicer to indemnify the Trustee under the conditions and to the extent set forth herein. Notwithstanding the foregoing, the indemnification provided by the Master Servicer in this Section 8.05(b) shall not pertain to any loss, liability or expense of the Trustee, including the costs and expenses of defending itself against any claim, incurred in connection with any actions taken by the Trustee at the direction of the Certificateholders pursuant to the terms of this Agreement. Section 8.06. Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be a corporation or a national banking association having its principal office in a state and city acceptable to the Company and organized and doing business under the laws of such state or the United States of America, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authority. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.07. Section 8.07. Resignation and Removal of the Trustee. (a) The Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Company and the Master Servicer. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 8.06 and shall fail to resign after written request therefor by the Company, or if at any time the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. In addition, in the event that the Company determines that the Trustee has failed (i) to distribute or cause to be distributed to the Certificateholders any amount required to be distributed hereunder, if such amount is held by the Trustee or its Paying Agent (other than the Master Servicer or the Company) for distribution or (ii) to otherwise observe or perform in any material respect any of its covenants, agreements or obligations hereunder, and such failure shall continue unremedied for a period of 5 days (in respect of clause (i) above) or 30 days (in respect of clause (ii) above), other than any failure to comply with the provisions of Article XII, in which case no notice or grace period shall be applicable) after the date on which written notice of such failure, requiring that the same be remedied, shall have been given to the Trustee by the Company, then the Company may remove the Trustee and appoint a successor trustee by written instrument delivered as provided in the preceding sentence. In connection with the appointment of a successor trustee pursuant to the preceding sentence, the Company shall, on or before the date on which any such appointment becomes effective, obtain from each Rating Agency written confirmation that the appointment of any such successor trustee will not result in the reduction of the ratings on any class of the Certificates below the lesser of the then current or original ratings on such Certificates. (c) The Holders of Certificates entitled to at least 51% of the Voting Rights may at any time remove the Trustee and appoint a successor trustee by written instrument or instruments, in triplicate, signed by such Holders or their attorneys-in-fact duly authorized, one complete set of which instruments shall be delivered to the Company, one complete set to the Trustee so removed and one complete set to the successor so appointed. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.08. Section 8.08. Successor Trustee. (a) Any successor trustee appointed as provided in Section 8.07 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the like effect as if originally named as trustee herein. The predecessor trustee shall deliver to the successor trustee all Mortgage Files and related documents and statements held by it hereunder (other than any Mortgage Files at the time held by a Custodian, which shall become the agent of any successor trustee hereunder), and the Company, the Master Servicer and the predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. (b) No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.06. (c) Upon acceptance of appointment by a successor trustee as provided in this Section, the Company shall mail notice of the succession of such trustee hereunder to all Holders of Certificates at their addresses as shown in the Certificate Register. If the Company fails to mail such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. Section 8.09. Merger or Consolidation of Trustee. Any corporation or national banking association into which the Trustee may be merged or converted or with which it may be consolidated or any corporation or national banking association resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or national banking association succeeding to the business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation or national banking association shall be eligible under the provisions of Section 8.06, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. The Trustee shall mail notice of any such merger or consolidation to the Certificateholders at their address as shown in the Certificate Register. Section 8.10. Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions hereof, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Fund or property securing the same may at the time be located, the Master Servicer and the Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust Fund, and to vest in such Person or Persons, in such capacity, such title to the Trust Fund, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as the Master Servicer and the Trustee may consider necessary or desirable. If the Master Servicer shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, or in case an Event of Default shall have occurred and be continuing, the Trustee alone shall have the power to make such appointment. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 8.06 hereunder and no notice to Holders of Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be required under Section 8.08 hereof. (b) In the case of any appointment of a co-trustee or separate trustee pursuant to this Section 8.10 all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee, and such separate trustee or co-trustee jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Master Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust Fund or any portion thereof in any such jurisdiction) shall be exercised and performed by such separate trustee or co-trustee at the direction of the Trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article VIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee. (d) Any separate trustee or co-trustee may, at any time, constitute the Trustee, its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 8.11. Appointment of Custodians. The Trustee may, with the consent of the Master Servicer and the Company, or shall, at the direction of the Company and the Master Servicer, appoint one or more Custodians who are not Affiliates of the Company, the Master Servicer or any Seller to hold all or a portion of the Mortgage Files as agent for the Trustee, by entering into a Custodial Agreement. Subject to Article VIII, the Trustee agrees to comply with the terms of each Custodial Agreement and to enforce the terms and provisions thereof against the Custodian for the benefit of the Certificateholders. Each Custodian shall be a depository institution subject to supervision by federal or state authority, shall have a combined capital and surplus of at least $15,000,000 and shall be qualified to do business in the jurisdiction in which it holds any Mortgage File. Each Custodial Agreement may be amended only as provided in Section 11.01. The Trustee shall notify the Certificateholders of the appointment of any Custodian (other than the Custodian appointed as of the Closing Date) pursuant to this Section 8.11. Section 8.12. Appointment of Office or Agency. The Trustee will maintain an office or agency at the address designated in Section 11.05 of the Series Supplement where Certificates may be surrendered for registration of transfer or exchange. The Trustee will maintain an office at the address stated in Section 11.05 of the Series Supplement where notices and demands to or upon the Trustee in respect of this Agreement may be served. ARTICLE IX TERMINATION OR OPTIONAL PURCHASE OF ALL CERTIFICATES Section 9.01. Optional Purchase by the Master Servicer of All Certificates; Termination Upon Purchase by the Master Servicer or Liquidation of All Mortgage Loans. (a) Subject to Section 9.02, the respective obligations and responsibilities of the Company, the Master Servicer and the Trustee created hereby in respect of the Certificates (other than the obligation of the Trustee to make certain payments after the Final Distribution Date to Certificateholders and the obligation of the Company to send certain notices as hereinafter set forth) shall terminate upon the last action required to be taken by the Trustee on the Final Distribution Date pursuant to this Article IX following the earlier of: (i) the later of the final payment or other liquidation (or any Advance with respect thereto) of the last Mortgage Loan remaining in the Trust Fund or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, or (ii) the purchase by the Master Servicer of all Mortgage Loans and all property acquired in respect of any Mortgage Loan remaining in the Trust Fund at a price equal to 100% of the unpaid principal balance of each Mortgage Loan or, if less than such unpaid principal balance, the fair market value of the related underlying property of such Mortgage Loan with respect to Mortgage Loans as to which title has been acquired if such fair market value is less than such unpaid principal balance on the day of repurchase plus accrued interest thereon at the Mortgage Rate (or Modified Mortgage Rate in the case of any Modified Mortgage Loan) from the Due Date to which interest was last paid by the Mortgagor to, but not including, the first day of the month in which such repurchase price is distributed, provided, however, that in no event shall the trust created hereby continue beyond (i) the Maturity Date or (ii) the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof and provided further that the purchase price set forth above shall be increased as is necessary, as determined by the Master Servicer, to avoid disqualification of any portion of any REMIC formed under the Series Supplement as a REMIC. The purchase price paid by the Master Servicer shall also include any amounts owed by the Master Servicer pursuant to Section 4 of the Assignment Agreement in respect of any liability, penalty or expense that resulted from a breach of the representation and warranty set forth in clause (xii) of such Section that remain unpaid on the date of such purchase. The right of the Master Servicer to purchase all the assets of the Trust Fund pursuant to clause (ii) above is conditioned upon the Pool Stated Principal Balance as of the Final Distribution Date, prior to giving effect to distributions to be made on such Distribution Date, being less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans. If such right is exercised by the Master Servicer, the Master Servicer shall be entitled to reimbursement for the full amount of any unreimbursed Advances theretofore made by it with respect to the Mortgage Loans pursuant to Section 3.10. In addition, the Master Servicer shall provide to the Trustee the certification required by Section 3.15 and the Trustee and any Custodian shall, promptly following payment of the purchase price, release to the Master Servicer the Mortgage Files pertaining to the Mortgage Loans being purchased. In addition to the foregoing, on any Distribution Date on which the Pool Stated Principal Balance, prior to giving effect to distributions to be made on such Distribution Date, is less than ten percent of the Cut off Date Principal Balance of the Mortgage Loans, the Master Servicer shall have the right, at its option, to purchase the Certificates in whole, but not in part, at a price equal to the outstanding Certificate Principal Balance of such Certificates plus the sum of Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest.. (b) The Master Servicer shall give the Trustee not less than 40 days' prior notice of the Distribution Date on which the Master Servicer anticipates that the final distribution will be made to Certificateholders (whether as a result of the exercise by Residential Funding of its right to purchase the assets of the Trust Fund or otherwise) or on which the Master Servicer anticipates that the Certificates will be purchased (as a result of the exercise by Residential Funding of its right to purchase the outstanding Certificates). Notice of any termination, specifying the anticipated Final Distribution Date (which shall be a date that would otherwise be a Distribution Date) upon which the Certificateholders may surrender their Certificates to the Trustee (if so required by the terms hereof) for payment of the final distribution and cancellation or notice of any purchase of the outstanding Certificates shall be given promptly by the Master Servicer (if Residential Funding is exercising its right to purchase the assets of the Trust Fund or to purchase the outstanding Certificates), or by the Trustee (in any other case) by letter. Such notice shall be prepared by the Master Servicer (in the case of Residential Funding exercising its right to purchase the assets of the Trust Fund or to purchase the outstanding Certificates) or the Trustee (in any other case) and mailed by the Trustee to the Certificateholders not earlier than the 15th day and not later than the 25th day of the month next preceding the month of such final distribution specifying: (i) the anticipated Final Distribution Date upon which final payment of the Certificates is anticipated to be made upon presentation and surrender of Certificates at the office or agency of the Trustee therein designated where required pursuant to this Agreement or, in the case of the purchase by the Master Servicer of the outstanding Certificates, the Distribution Date on which such purchase is to be made, (ii) the amount of any such final payment, or in the case of the purchase of the outstanding Certificates, the purchase price, in either case, if known, and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable and that payment will be made only upon presentation and surrender of the Certificates at the office or agency of the Trustee therein specified. If the Master Servicer is obligated to give notice to Certificateholders as aforesaid, it shall give such notice to the Certificate Registrar at the time such notice is given to Certificateholders and, if Residential Funding is exercising its rights to purchase the outstanding Certificates, Residential Funding shall give such notice to each Rating Agency at the time such notice is given to Certificateholders. As a result of the exercise by Residential Funding of its right to purchase the assets of the Trust Fund or the outstanding Certificates, Residential Funding shall deposit in the Custodial Account before the Final Distribution Date in immediately available funds an amount equal to the purchase price for the assets of the Trust Fund, computed as provided above. (c) Upon presentation and surrender of the Certificates by the Certificateholders thereof in connection with the exercise by Residential Funding of its right to purchase the Certificates, the Trustee shall distribute to the Certificateholders on the Final Distribution Date the respective amounts determined in accordance with Section 4.02. Nothwithstanding the reduction of the Certificate Principal Balance of any Class of Subordinate Certificates to zero, such Class will be outstanding hereunder until the termination of the respective obligations and responsibilities of the Company, the Master Servicer and the Trustee hereunder in accordance with Article IX. (d) If any Certificateholders shall not surrender their Certificates for final payment and cancellation on or before the Final Distribution Date (if so required by the terms hereof), the Trustee shall on such date cause all funds in the Certificate Account not distributed in final distribution to Certificateholders to be withdrawn therefrom and credited to the remaining Certificateholders by depositing such funds in a separate escrow account for the benefit of such Certificateholders, and the Master Servicer (if Residential Funding exercised its right to purchase the assets of the Trust Fund), or the Trustee (in any other case) shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the remaining Certificateholders concerning surrender of their Certificates. The costs and expenses of maintaining the escrow account and of contacting Certificateholders shall be paid out of the assets which remain in the escrow account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation, the Trustee shall pay to the Master Servicer all amounts distributable to the holders thereof and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the escrow account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for final payment thereof in accordance with this Section 9.01. (e) If any Certificateholders do not surrender their Certificates on or before the Distribution Date on which a purchase of the outstanding Certificates is to be made, the Trustee shall on such date cause all funds in the Custodial Account deposited therein by Residential Funding pursuant to Section 9.01(b) to be withdrawn therefrom and deposited in a separate escrow account for the benefit of such Certificateholders, and the Master Servicer shall give a second written notice to such Certificateholders to surrender their Certificates for payment of the purchase price therefor. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the Holders of such Certificates concerning surrender of their Certificates. The costs and expenses of maintaining the escrow account and of contacting Certificateholders shall be paid out of the assets which remain in the escrow account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation in accordance with this Section 9.01, the Trustee shall pay to the Master Servicer all amounts distributable to the Holders thereof and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the escrow account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for payment in accordance with this Section 9.01. Any Certificate that is not surrendered on the Distribution Date on which a purchase pursuant to this Section 9.01 occurs as provided above will be deemed to have been purchased and the Holder as of such date will have no rights with respect thereto except to receive the purchase price therefor minus any costs and expenses associated with such escrow account and notices allocated thereto. (f) All rights of Residential Funding to purchase the assets of the Trust Fund, or to purchase specified classes of Certificates, as set forth in Section 9.01(a) are referred to in this Agreement as the "Call Rights". Notwithstanding any other provision of this Agreement, Residential Funding shall have the right to sell, transfer, pledge or otherwise assign the Call Rights at any time to any Person. Upon written notice by Residential Funding to the Trustee and the Master Servicer of any such assignment of the Call Rights to any assignee, the Trustee and the Master Servicer shall be obligated to recognize such assignee as the holder of the Call Rights. Such entity, if not Residential Funding or an affiliate, shall be deemed to represent, at the time of such sale, transfer, pledge or other assignment, that one of the following will be, and at the time the Call Right is exercised is, true and correct: (i) the exercise of such Call Right shall not result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (including by reason of U.S. Department of Labor ("DOL") Prohibited Transaction Class Exemption ("PTCE") 75-1 (Part I), 84-14, 90-1, 91-38, 95-60 or 96-23 or other applicable exemption) or (ii) such entity is (A) not a party in interest under Section 3(14) of ERISA or a disqualified person under Section 4975(e)(2) of the Code with respect to any employee benefit plan subject to Section 406 of ERISA or any plan subject to Section 4975 of the Code (other than an employee benefit plan or plan sponsored or maintained by the entity, provided that no assets of such employee benefit plan or plan are invested or deemed to be invested in the Certificates) and (B) not a "benefit plan investor" as described in DOL regulation Section 2510.3-101(f)(2). If any such assignee of the Call Right is unable to exercise such Call Right by reason of the preceding sentence, then the Call Right shall revert to the immediately preceding assignor of such Call Right subject to the rights of any secured party therein. Section 9.02. Additional Termination Requirements. (a) Each REMIC that comprises the Trust Fund shall be terminated in accordance with the following additional requirements, unless (subject to Section 10.01(f)) the Trustee and the Master Servicer have received an Opinion of Counsel (which Opinion of Counsel shall not be an expense of the Trustee) to the effect that the failure of each such REMIC to comply with the requirements of this Section 9.02 will not (i) result in the imposition on the Trust of taxes on "prohibited transactions," as described in Section 860F of the Code, or (ii) cause any such REMIC to fail to qualify as a REMIC at any time that any Certificate is outstanding: (i) The Master Servicer shall establish a 90-day liquidation period for each such REMIC and specify the first day of such period in a statement attached to the Trust Fund's final Tax Return pursuant to Treasury regulations Section 1.860F-1. The Master Servicer also shall satisfy all of the requirements of a qualified liquidation for a REMIC under Section 860F of the Code and regulations thereunder; (ii) The Master Servicer shall notify the Trustee at the commencement of such 90-day liquidation period and, at or prior to the time of making of the final payment on the Certificates, the Trustee shall sell or otherwise dispose of all of the remaining assets of the Trust Fund in accordance with the terms hereof; and (iii) If Residential Funding or the Company is exercising its right to purchase the assets of the Trust Fund, Residential Funding shall, during the 90-day liquidation period and at or prior to the Final Distribution Date, purchase all of the assets of the Trust Fund for cash. (b) Each Holder of a Certificate and the Trustee hereby irrevocably approves and appoints the Master Servicer as its attorney-in-fact to adopt a plan of complete liquidation for each REMIC at the expense of the Trust Fund in accordance with the terms and conditions of this Agreement. Section 9.03. Termination of Multiple REMICs. If the REMIC Administrator makes two or more separate REMIC elections, the applicable REMIC shall be terminated on the earlier of the Final Distribution Date and the date on which it is deemed to receive the last deemed distributions on the related Uncertificated REMIC Regular Interests and the last distribution due on the Certificates is made. ARTICLE X REMIC PROVISIONS Section 10.01. REMIC Administration. (a) The REMIC Administrator shall make an election to treat the Trust Fund as one or more REMICs under the Code and, if necessary, under applicable state law. The assets of each such REMIC will be set forth in the Series Supplement. Such election will be made on Form 1066 or other appropriate federal tax or information return (including Form 8811) or any appropriate state return for the taxable year ending on the last day of the calendar year in which the Certificates are issued. For the purposes of each REMIC election in respect of the Trust Fund, Certificates and interests to be designated as the "regular interests" and the sole class of "residual interests" in the REMIC will be set forth in Section 10.03 of the Series Supplement. The REMIC Administrator and the Trustee shall not permit the creation of any "interests" (within the meaning of Section 860G of the Code) in any REMIC elected in respect of the Trust Fund other than the "regular interests" and "residual interests" so designated. (b) The Closing Date is hereby designated as the "startup day" of the Trust Fund within the meaning of Section 860G(a)(9) of the Code. (c) The REMIC Administrator shall hold a Class R Certificate representing a 0.01% Percentage Interest each Class of the Class R Certificates and shall be designated as "the tax matters person" with respect to each REMIC in the manner provided under Treasury regulations section 1.860F-4(d) and Treasury regulations section 301.6231(a)(7)-1. The REMIC Administrator, as tax matters person, shall (i) act on behalf of each REMIC in relation to any tax matter or controversy involving the Trust Fund and (ii) represent the Trust Fund in any administrative or judicial proceeding relating to an examination or audit by any governmental taxing authority with respect thereto. The legal expenses, including without limitation attorneys' or accountants' fees, and costs of any such proceeding and any liability resulting therefrom shall be expenses of the Trust Fund and the REMIC Administrator shall be entitled to reimbursement therefor out of amounts attributable to the Mortgage Loans on deposit in the Custodial Account as provided by Section 3.10 unless such legal expenses and costs are incurred by reason of the REMIC Administrator's willful misfeasance, bad faith or gross negligence. If the REMIC Administrator is no longer the Master Servicer hereunder, at its option the REMIC Administrator may continue its duties as REMIC Administrator and shall be paid reasonable compensation not to exceed $3,000 per year by any successor Master Servicer hereunder for so acting as the REMIC Administrator. (d) The REMIC Administrator shall prepare or cause to be prepared all of the Tax Returns that it determines are required with respect to each REMIC created hereunder and deliver such Tax Returns in a timely manner to the Trustee and the Trustee shall sign and file such Tax Returns in a timely manner. The expenses of preparing such returns shall be borne by the REMIC Administrator without any right of reimbursement therefor. The REMIC Administrator agrees to indemnify and hold harmless the Trustee with respect to any tax or liability arising from the Trustee's signing of Tax Returns that contain errors or omissions. The Trustee and Master Servicer shall promptly provide the REMIC Administrator with such information as the REMIC Administrator may from time to time request for the purpose of enabling the REMIC Administrator to prepare Tax Returns. (e) The REMIC Administrator shall provide (i) to any Transferor of a Class R Certificate such information as is necessary for the application of any tax relating to the transfer of a Class R Certificate to any Person who is not a Permitted Transferee, (ii) to the Trustee, and the Trustee shall forward to the Certificateholders, such information or reports as are required by the Code or the REMIC Provisions including reports relating to interest, original issue discount and market discount or premium (using the Prepayment Assumption) and (iii) to the Internal Revenue Service the name, title, address and telephone number of the person who will serve as the representative of each REMIC. (f) The Master Servicer and the REMIC Administrator shall take such actions and shall cause each REMIC created hereunder to take such actions as are reasonably within the Master Servicer's or the REMIC Administrator's control and the scope of its duties more specifically set forth herein as shall be necessary or desirable to maintain the status of each REMIC as a REMIC under the REMIC Provisions (and the Trustee shall assist the Master Servicer and the REMIC Administrator, to the extent reasonably requested by the Master Servicer and the REMIC Administrator to do so). The Master Servicer and the REMIC Administrator shall not knowingly or intentionally take any action, cause the Trust Fund to take any action or fail to take (or fail to cause to be taken) any action reasonably within their respective control that, under the REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger the status of any portion of any REMIC formed under the Series Supplement as a REMIC or (ii) result in the imposition of a tax upon any such REMIC (including but not limited to the tax on prohibited transactions as defined in Section 860F(a)(2) of the Code and the tax on contributions to a REMIC set forth in Section 860G(d) of the Code) (either such event, in the absence of an Opinion of Counsel or the indemnification referred to in this sentence, an "Adverse REMIC Event") unless the Master Servicer or the REMIC Administrator, as applicable, has received an Opinion of Counsel (at the expense of the party seeking to take such action or, if such party fails to pay such expense, and the Master Servicer or the REMIC Administrator, as applicable, determines that taking such action is in the best interest of the Trust Fund and the Certificateholders, at the expense of the Trust Fund, but in no event at the expense of the Master Servicer, the REMIC Administrator or the Trustee) to the effect that the contemplated action will not, with respect to each REMIC created hereunder, endanger such status or, unless the Master Servicer, the REMIC Administrator or both, as applicable, determine in its or their sole discretion to indemnify the Trust Fund against the imposition of such a tax, result in the imposition of such a tax. Wherever in this Agreement a contemplated action may not be taken because the timing of such action might result in the imposition of a tax on the Trust Fund, or may only be taken pursuant to an Opinion of Counsel that such action would not impose a tax on the Trust Fund, such action may nonetheless be taken provided that the indemnity given in the preceding sentence with respect to any taxes that might be imposed on the Trust Fund has been given and that all other preconditions to the taking of such action have been satisfied. The Trustee shall not take or fail to take any action (whether or not authorized hereunder) as to which the Master Servicer or the REMIC Administrator, as applicable, has advised it in writing that it has received an Opinion of Counsel to the effect that an Adverse REMIC Event could occur with respect to such action. In addition, prior to taking any action with respect to any REMIC created hereunder or any related assets thereof, or causing any such REMIC to take any action, which is not expressly permitted under the terms of this Agreement, the Trustee will consult with the Master Servicer or the REMIC Administrator, as applicable, or its designee, in writing, with respect to whether such action could cause an Adverse REMIC Event to occur with respect to any such REMIC, and the Trustee shall not take any such action or cause any such REMIC to take any such action as to which the Master Servicer or the REMIC Administrator, as applicable, has advised it in writing that an Adverse REMIC Event could occur. The Master Servicer or the REMIC Administrator, as applicable, may consult with counsel to make such written advice, and the cost of same shall be borne by the party seeking to take the action not expressly permitted by this Agreement, but in no event at the expense of the Master Servicer or the REMIC Administrator. At all times as may be required by the Code, the Master Servicer will to the extent within its control and the scope of its duties more specifically set forth herein, maintain substantially all of the assets of each REMIC created hereunder as "qualified mortgages" as defined in Section 860G(a)(3) of the Code and "permitted investments" as defined in Section 860G(a)(5) of the Code. (g) In the event that any tax is imposed on "prohibited transactions" of any REMIC created hereunder as defined in Section 860F(a)(2) of the Code, on "net income from foreclosure property" of any such REMIC as defined in Section 860G(c) of the Code, on any contributions to any such REMIC after the Startup Day therefor pursuant to Section 860G(d) of the Code, or any other tax is imposed by the Code or any applicable provisions of state or local tax laws, such tax shall be charged (i) to the Master Servicer, if such tax arises out of or results from a breach by the Master Servicer of any of its obligations under this Agreement or the Master Servicer has in its sole discretion determined to indemnify the Trust Fund against such tax, (ii) to the Trustee, if such tax arises out of or results from a breach by the Trustee of any of its obligations under this Article X, or (iii) otherwise against amounts on deposit in the Custodial Account as provided by Section 3.10 and on the Distribution Date(s) following such reimbursement the aggregate of such taxes shall be allocated in reduction of the Accrued Certificate Interest on each Class entitled thereto in the same manner as if such taxes constituted a Prepayment Interest Shortfall. (h) The Trustee and the Master Servicer shall, for federal income tax purposes, maintain books and records with respect to each REMIC created hereunder on a calendar year and on an accrual basis or as otherwise may be required by the REMIC Provisions. (i) Following the Startup Day, neither the Master Servicer nor the Trustee shall accept any contributions of assets to any REMIC created hereunder unless (subject to Section 10.01(f)) the Master Servicer and the Trustee shall have received an Opinion of Counsel (at the expense of the party seeking to make such contribution) to the effect that the inclusion of such assets in such REMIC will not cause the REMIC to fail to qualify as a REMIC at any time that any Certificates are outstanding or subject the REMIC to any tax under the REMIC Provisions or other applicable provisions of federal, state and local law or ordinances. (j) Neither the Master Servicer nor the Trustee shall (subject to Section 10.01(f)) enter into any arrangement by which any REMIC created hereunder will receive a fee or other compensation for services nor permit any such REMIC to receive any income from assets other than "qualified mortgages" as defined in Section 860G(a)(3) of the Code or "permitted investments" as defined in Section 860G(a)(5) of the Code. (k) Solely for the purposes of Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, the "latest possible maturity date" by which the Certificate Principal Balance of each Class of Certificates (other than the Interest Only Certificates) representing a regular interest in the applicable REMIC and the Uncertificated Principal Balance of each Uncertificated REMIC Regular Interest (other than each Uncertificated REMIC Regular Interest represented by a Class A-V Certificate, if any) and the rights to the Interest Only Certificates and Uncertificated REMIC Regular Interest represented by any Class A-V Certificate would be reduced to zero is the Maturity Date for each such Certificate and Interest. (l) Within 30 days after the Closing Date, the REMIC Administrator shall prepare and file with the Internal Revenue Service Form 8811, "Information Return for Real Estate Mortgage Investment Conduits (REMIC) and Issuers of Collateralized Debt Obligations" for each REMIC created hereunder. (m) Neither the Trustee nor the Master Servicer shall sell, dispose of or substitute for any of the Mortgage Loans (except in connection with (i) the default, imminent default or foreclosure of a Mortgage Loan, including but not limited to, the acquisition or sale of a Mortgaged Property acquired by deed in lieu of foreclosure, (ii) the bankruptcy of any REMIC created hereunder, (iii) the termination of any such REMIC pursuant to Article IX of this Agreement or (iv) a purchase of Mortgage Loans pursuant to Article II or III of this Agreement) nor acquire any assets for any such REMIC, nor sell or dispose of any investments in the Custodial Account or the Certificate Account for gain nor accept any contributions to any such REMIC after the Closing Date unless it has received an Opinion of Counsel that such sale, disposition, substitution or acquisition will not (a) affect adversely the status of such REMIC as a REMIC or (b) unless the Master Servicer has determined in its sole discretion to indemnify the Trust Fund against such tax, cause such REMIC to be subject to a tax on "prohibited transactions" or "contributions" pursuant to the REMIC Provisions. Section 10.02. Master Servicer, REMIC Administrator and Trustee Indemnification. (a)The Trustee agrees to indemnify the Trust Fund, the Company, the REMIC Administrator and the Master Servicer for any taxes and costs including, without limitation, any reasonable attorneys fees imposed on or incurred by the Trust Fund, the Company or the Master Servicer, as a result of a breach of the Trustee's covenants set forth in Article VIII or this Article X. (b)The REMIC Administrator agrees to indemnify the Trust Fund, the Company, the Master Servicer and the Trustee for any taxes and costs (including, without limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the Company, the Master Servicer or the Trustee, as a result of a breach of the REMIC Administrator's covenants set forth in this Article X with respect to compliance with the REMIC Provisions, including without limitation, any penalties arising from the Trustee's execution of Tax Returns prepared by the REMIC Administrator that contain errors or omissions; provided, however, that such liability will not be imposed to the extent such breach is a result of an error or omission in information provided to the REMIC Administrator by the Master Servicer in which case Section 10.02(c) will apply. (c) The Master Servicer agrees to indemnify the Trust Fund, the Company, the REMIC Administrator and the Trustee for any taxes and costs (including, without limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the Company, the REMIC Administrator or the Trustee, as a result of a breach of the Master Servicer's covenants set forth in this Article X or in Article III with respect to compliance with the REMIC Provisions, including without limitation, any penalties arising from the Trustee's execution of Tax Returns prepared by the Master Servicer that contain errors or omissions. Section 10.03. Designation of REMIC(s). As provided in Section 10.03 of the Series Supplement. ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. Amendment. (a) This Agreement or any Custodial Agreement may be amended from time to time by the Company, the Master Servicer and the Trustee, without the consent of any of the Certificateholders: (i) to cure any ambiguity, (ii) to correct or supplement any provisions herein or therein, which may be inconsistent with any other provisions herein or therein or to correct any error, (iii) to modify, eliminate or add to any of its provisions to such extent as shall be necessary or desirable to maintain the qualification of the Trust Fund as a REMIC at all times that any Certificate is outstanding or to avoid or minimize the risk of the imposition of any tax on the Trust Fund pursuant to the Code that would be a claim against the Trust Fund, provided that the Trustee has received an Opinion of Counsel to the effect that (A) such action is necessary or desirable to maintain such qualification or to avoid or minimize the risk of the imposition of any such tax and (B) such action will not adversely affect in any material respect the interests of any Certificateholder, (iv) to change the timing and/or nature of deposits into the Custodial Account or the Certificate Account or to change the name in which the Custodial Account is maintained, provided that (A) the Certificate Account Deposit Date shall in no event be later than the related Distribution Date, (B) such change shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Certificateholder and (C) such change shall not result in a reduction of the rating assigned to any Class of Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date, as evidenced by a letter from each Rating Agency to such effect, (v) to modify, eliminate or add to the provisions of Section 5.02(f) or any other provision hereof restricting transfer of the Class R Certificates, by virtue of their being the "residual interests" in a REMIC, provided that (A) such change shall not result in reduction of the rating assigned to any such Class of Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date, as evidenced by a letter from each Rating Agency to such effect, and (B) such change shall not (subject to Section 10.01(f)), as evidenced by an Opinion of Counsel (at the expense of the party seeking so to modify, eliminate or add such provisions), cause any REMIC created hereunder or any of the Certificateholders (other than the transferor) to be subject to a federal tax caused by a transfer to a Person that is not a Permitted Transferee, (vi) to make any other provisions with respect to matters or questions arising under this Agreement or such Custodial Agreement which shall not be materially inconsistent with the provisions of this Agreement, provided that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Certificateholder, or (vii) to amend any provision herein or therein that is not material to any of the Certificateholders. (b) This Agreement or any Custodial Agreement may also be amended from time to time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates with a Certificate Principal Balance greater than zero affected thereby for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or such Custodial Agreement or of modifying in any manner the rights of the Holders of Certificates of such Class; provided, however, that no such amendment shall: (i) reduce in any manner the amount of, or delay the timing of, payments which are required to be distributed on any Certificate without the consent of the Holder of such Certificate, (ii) reduce the aforesaid percentage of Certificates of any Class the Holders of which are required to consent to any such amendment, in any such case without the consent of the Holders of all Certificates of such Class then outstanding. (c) Notwithstanding any contrary provision of this Agreement, the Trustee shall not consent to any amendment to this Agreement unless it shall have first received an Opinion of Counsel (subject to Section 10.01(f) and at the expense of the party seeking such amendment) to the effect that such amendment or the exercise of any power granted to the Master Servicer, the Company or the Trustee in accordance with such amendment is permitted hereunder and will not result in the imposition of a federal tax on the Trust Fund or cause any REMIC created under the Series Supplement to fail to qualify as a REMIC at any time that any Certificate is outstanding. (d) Promptly after the execution of any such amendment the Trustee shall furnish written notification of the substance of such amendment to the Custodian and each Certificateholder. It shall not be necessary for the consent of Certificateholders under this Section 11.01 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable regulations as the Trustee may prescribe. (e) The Company shall have the option, in its sole discretion, to obtain and deliver to the Trustee any corporate guaranty, payment obligation, irrevocable letter of credit, surety bond, insurance policy or similar instrument or a reserve fund, or any combination of the foregoing, for the purpose of protecting the Holders of the Class B Certificates against any or all Realized Losses or other shortfalls. Any such instrument or fund shall be held by the Trustee for the benefit of the Class B Certificateholders, but shall not be and shall not be deemed to be under any circumstances included in the Trust Fund. To the extent that any such instrument or fund constitutes a reserve fund for federal income tax purposes, (i) any reserve fund so established shall be an outside reserve fund and not an asset of the Trust Fund, (ii) any such reserve fund shall be owned by the Company, and (iii) amounts transferred by the Trust Fund to any such reserve fund shall be treated as amounts distributed by the Trust Fund to the Company or any successor, all within the meaning of Treasury Regulations Section 1.860G-2(h) as it reads as of the Cut-off Date. In connection with the provision of any such instrument or fund, this Agreement and any provision hereof may be modified, added to, deleted or otherwise amended in any manner that is related or incidental to such instrument or fund or the establishment or administration thereof, such amendment to be made by written instrument executed or consented to by the Company but without the consent of any Certificateholder and without the consent of the Master Servicer or the Trustee being required unless any such amendment would impose any additional obligation on, or otherwise adversely affect the interests of the Senior Certificateholders, the Class M Certificateholders, the Master Servicer or the Trustee, as applicable; provided that the Company obtains (subject to Section 10.01(f)) an Opinion of Counsel (which need not be an opinion of Independent counsel) to the effect that any such amendment will not cause (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code and (b) any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding. In the event that the Company elects to provide such coverage in the form of a limited guaranty provided by General Motors Acceptance Corporation, the Company may elect that the text of such amendment to this Agreement shall be substantially in the form attached hereto as Exhibit K (in which case Residential Funding's Subordinate Certificate Loss Obligation as described in such exhibit shall be established by Residential Funding's consent to such amendment) and that the limited guaranty shall be executed in the form attached hereto as Exhibit K, with such changes as the Company shall deem to be appropriate; it being understood that the Trustee has reviewed and approved the content of such forms and that the Trustee's consent or approval to the use thereof is not required. Section 11.02. Recordation of Agreement; Counterparts. (a) To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Master Servicer and at its expense on direction by the Trustee (pursuant to the request of Holders of Certificates entitled to at least 25% of the Voting Rights), but only upon direction accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Certificateholders. (b) For the purpose of facilitating the recordation of this Agreement as herein provided and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. Section 11.03. Limitation on Rights of Certificateholders. (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the Trust Fund, nor otherwise affect the rights, obligations and liabilities of any of the parties hereto. (b) No Certificateholder shall have any right to vote (except as expressly provided herein) or in any manner otherwise control the operation and management of the Trust Fund, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Certificateholder shall have any right by virtue of any provision of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given to the Trustee a written notice of default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates of any Class evidencing in the aggregate not less than 25% of the related Percentage Interests of such Class, shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Holders of Certificates of any Class shall have any right in any manner whatever by virtue of any provision of this Agreement to affect, disturb or prejudice the rights of the Holders of any other of such Certificates of such Class or any other Class, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner herein provided and for the common benefit of Certificateholders of such Class or all Classes, as the case may be. For the protection and enforcement of the provisions of this Section 11.03, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 11.04. Governing Law. This agreement and the Certificates shall be governed by and construed in accordance with the laws of the State of New York and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 11.05. Notices. As provided in Section 11.05 of the Series Supplement. Section 11.06. Required Notices to Rating Agency and Subservicer. The Company, the Master Servicer or the Trustee, as applicable, shall (i) notify each Rating Agency and the Subservicer at such time as it is otherwise required pursuant to this Agreement to give notice of the occurrence of any of the events described in clause (a), (b), (c), (d), (g), (h), (i) or (j) below or (ii) provide a copy to each Rating Agency and Subservicer at such time as otherwise required to be delivered pursuant to this Agreement of any of the statements described in clauses (e) and (f) below: (a) a material change or amendment to this Agreement, (b) the occurrence of an Event of Default, (c) the termination or appointment of a successor Master Servicer or Trustee or a change in the majority ownership of the Trustee, (d) the filing of any claim under the Master Servicer's blanket fidelity bond and the errors and omissions insurance policy required by Section 3.12 or the cancellation or modification of coverage under any such instrument, (e) the statement required to be delivered to the Holders of each Class of Certificates pursuant to Section 4.03, (f) the statements required to be delivered pursuant to Sections 3.18 and 3.19, (g) a change in the location of the Custodial Account or the Certificate Account, (h) the occurrence of any monthly cash flow shortfall to the Holders of any Class of Certificates resulting from the failure by the Master Servicer to make an Advance pursuant to Section 4.04, (i) the occurrence of the Final Distribution Date, and (j) the repurchase of or substitution for any Mortgage Loan, provided, however, that with respect to notice of the occurrence of the events described in clauses (d), (g) or (h) above, the Master Servicer shall provide prompt written notice to each Rating Agency and the Subservicer of any such event known to the Master Servicer. Section 11.07. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the Holders thereof. Section 11.08. Supplemental Provisions for Resecuritization. This Agreement may be supplemented by means of the addition of a separate Article hereto (a "Supplemental Article") for the purpose of resecuritizing any of the Certificates issued hereunder, under the following circumstances. With respect to any Class or Classes of Certificates issued hereunder, or any portion of any such Class, as to which the Company or any of its Affiliates (or any designee thereof) is the registered Holder (the "Resecuritized Certificates"), the Company may deposit such Resecuritized Certificates into a new REMIC, grantor trust or custodial arrangement (a "Restructuring Vehicle") to be held by the Trustee pursuant to a Supplemental Article. The instrument adopting such Supplemental Article shall be executed by the Company, the Master Servicer and the Trustee; provided, that neither the Master Servicer nor the Trustee shall withhold their consent thereto if their respective interests would not be materially adversely affected thereby. To the extent that the terms of the Supplemental Article do not in any way affect any provisions of this Agreement as to any of the Certificates initially issued hereunder, the adoption of the Supplemental Article shall not constitute an "amendment" of this Agreement. Each Supplemental Article shall set forth all necessary provisions relating to the holding of the Resecuritized Certificates by the Trustee, the establishment of the Restructuring Vehicle, the issuing of various classes of new certificates by the Restructuring Vehicle and the distributions to be made thereon, and any other provisions necessary for the purposes thereof. In connection with each Supplemental Article, the Company shall deliver to the Trustee an Opinion of Counsel to the effect that (i) the Restructuring Vehicle will qualify as a REMIC, grantor trust or other entity not subject to taxation for federal income tax purposes and (ii) the adoption of the Supplemental Article will not endanger the status of the Trust Fund as a REMIC or (subject to Section 10.01(f)) result in the imposition of a tax upon the Trust Fund (including but not limited to the tax on prohibited transactions as defined in Section 860F(a)(2) of the Code and the tax on contributions to a REMIC as set forth in Section 860G(d) of the Code). Section 11.09. Allocation of Voting Rights. As provided in Section 11.09 of the Series Supplement. SECTION 11.10 No Petition. The Company, Master Servicer and the Trustee, by entering into this Agreement, and each Certificateholder, by accepting a Certificate, hereby covenant and agree that they will not at any time institute against the Trust Fund, or join in any institution against the Trust Fund, any bankruptcy proceedings under any United States federal or state bankruptcy or similar law in connection with any obligation with respect to the Certificates or this Agreement. ARTICLE XII COMPLIANCE WITH REGULATION AB Section 12.01. Intent of Parties; Reasonableness. The Company, the Trustee and the Master Servicer acknowledge and agree that the purpose of this Article XII is to facilitate compliance by the Company with the provisions of Regulation AB and related rules and regulations of the Commission. The Company shall not exercise its right to request delivery of information or other performance under these provisions other than in good faith, or for purposes other than compliance with the Securities Act, the Exchange Act and the rules and regulations of the Commission under the Securities Act and the Exchange Act. Each of the Master Servicer and the Trustee acknowledges that interpretations of the requirements of Regulation AB may change over time, whether due to interpretive guidance provided by the Commission or its staff, consensus among participants in the mortgage-backed securities markets, advice of counsel, or otherwise, and agrees to comply with requests made by the Company in good faith for delivery of information under these provisions on the basis of evolving interpretations of Regulation AB. Each of the Master Servicer and the Trustee shall cooperate reasonably with the Company to deliver to the Company (including any of its assignees or designees), any and all disclosure, statements, reports, certifications, records and any other information necessary in the reasonable, good faith determination of the Company to permit the Company to comply with the provisions of Regulation AB. Section 12.02. Additional Representations and Warranties of the Trustee. (a) The Trustee shall be deemed to represent to the Company as of the date hereof and on each date on which information is provided to the Company under Sections 12.01, 12.02(b) or 12.03 that, except as disclosed in writing to the Company prior to such date: (i) it is not aware and has not received notice that any default, early amortization or other performance triggering event has occurred as to any other Securitization Transaction due to any default of the Trustee; (ii) there are no aspects of its financial condition that could have a material adverse effect on the performance by it of its trustee obligations under this Agreement or any other Securitization Transaction as to which it is the trustee; (iii) there are no material legal or governmental proceedings pending (or known to be contemplated) against it that would be material to Certificateholders; (iv) there are no relationships or transactions relating to the Trustee with respect to the Company or any sponsor, issuing entity, servicer, trustee, originator, significant obligor, enhancement or support provider or other material transaction party (as each of such terms are used in Regulation AB) relating to the Securitization Transaction contemplated by the Agreement, as identified by the Company to the Trustee in writing as of the Closing Date (each, a "Transaction Party") that are outside the ordinary course of business or on terms other than would be obtained in an arm's length transaction with an unrelated third party, apart from the Securitization Transaction, and that are material to the investors' understanding of the Certificates; and (v) the Trustee is not an affiliate of any Transaction Party. The Company shall notify the Trustee of any change in the identity of a Transaction Party after the Closing Date. (b) If so requested by the Company on any date following the Closing Date, the Trustee shall, within five Business Days following such request, confirm in writing the accuracy of the representations and warranties set forth in paragraph (a) of this Section or, if any such representation and warranty is not accurate as of the date of such confirmation, provide the pertinent facts, in writing, to the Company. Any such request from the Company shall not be given more than once each calendar quarter, unless the Company shall have a reasonable basis for a determination that any of the representations and warranties may not be accurate. Section 12.03. Information to be Provided by the Trustee. For so long as the Certificates are outstanding, for the purpose of satisfying the Company's reporting obligation under the Exchange Act with respect to any class of Certificates, the Trustee shall provide to the Company a written description of (a) any litigation or governmental proceedings pending against the Trustee as of the last day of each calendar month that would be material to Certificateholders, and (b) any affiliations or relationships (as described in Item 1119 of Regulation AB) that develop following the Closing Date between the Trustee and any Transaction Party of the type described in Section 12.02(a)(iv) or 12.02(a)(v) as of the last day of each calendar year. Any descriptions required with respect to legal proceedings, as well as updates to previously provided descriptions, under this Section 12.03 shall be given no later than five Business Days prior to the Determination Date following the month in which the relevant event occurs, and any notices and descriptions required with respect to affiliations, as well as updates to previously provided descriptions, under this Section 12.03 shall be given no later than January 31 of the calendar year following the year in which the relevant event occurs. As of the date the Company or Master Servicer files each Report on Form 10-D and Report on Form 10-K with respect to the Certificates, the Trustee will be deemed to represent that any information previously provided under this Article XII is materially correct and does not have any material omissions unless the Trustee has provided an update to such information. The Company will allow the Trustee to review any disclosure relating to material litigation against the Trustee prior to filing such disclosure with the Commission to the extent the Company changes the information provided by the Trustee. Section 12.04. Report on Assessment of Compliance and Attestation. On or before March 15 of each calendar year, the Trustee shall: (a) deliver to the Company a report (in form and substance reasonably satisfactory to the Company) regarding the Trustee's assessment of compliance with the applicable Servicing Criteria during the immediately preceding calendar year, as required under Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122 of Regulation AB. Such report shall be addressed to the Company and signed by an authorized officer of the Trustee, and shall address each of the Servicing Criteria specified on Exhibit R hereto; and (b) deliver to the Company a report of a registered public accounting firm reasonably acceptable to the Company that attests to, and reports on, the assessment of compliance made by the Trustee and delivered pursuant to the preceding paragraph. Such attestation shall be in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act. Section 12.05. Indemnification; Remedies. (a) The Trustee shall indemnify the Company, each affiliate of the Company, the Master Servicer and each broker dealer acting as underwriter, placement agent or initial purchaser of the Certificates or each Person who controls any of such parties (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act); and the respective present and former directors, officers, employees and agents of each of the foregoing, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon: (i) (A) any untrue statement of a material fact contained or alleged to be contained in any information, report, certification, accountants' attestation or other material provided under this Article XII by or on behalf of the Trustee (collectively, the "Trustee Information"), or (B) the omission or alleged omission to state in the Trustee Information a material fact required to be stated in the Trustee Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, by way of clarification, that clause (B) of this paragraph shall be construed solely by reference to the Trustee Information and not to any other information communicated in connection with a sale or purchase of securities, without regard to whether the Trustee Information or any portion thereof is presented together with or separately from such other information; or; (ii) any failure by the Trustee to deliver any information, report, certification or other material when and as required under this Article XII, other than a failure by the Trustee to deliver an accountants' attestation. (b) In the case of any failure of performance described in clause (ii) of Section 12.05(a), the Trustee shall promptly reimburse the Company for all costs reasonably incurred by the Company in order to obtain the information, report, certification, accountants' attestation or other material not delivered as required by the Trustee and (ii) cooperate with the Company to mitigate any damages that may result from such failure. (c) The Company and the Master Servicer shall indemnify the Trustee, each affiliate of the Trustee or each Person who controls the Trustee (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act); and the respective present and former directors, officers, employees and agents of the Trustee, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon (i) any untrue statement of a material fact contained or alleged to be contained in any information provided under this Agreement by or on behalf of the Company or Master Servicer for inclusion in any report filed with Commission under the Exchange Act (collectively, the "RFC Information"), or (ii) the omission or alleged omission to state in the RFC Information a material fact required to be stated in the RFC Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, by way of clarification, that clause (ii) of this paragraph shall be construed solely by reference to the RFC Information and not to any other information communicated in connection with a sale or purchase of securities, without regard to whether the RFC Information or any portion thereof is presented together with or separately from such other information. -------------------------------------------------------------------------------- EXHIBIT A FORM OF CLASS A CERTIFICATE, [PRINCIPAL ONLY/CLASS A-P] CERTIFICATE AND [INTEREST ONLY/CLASS A-V] CERTIFICATE SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"). [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] -------------------------------------------------------------------------------- Certificate No. [____] Rate [based on a Notional Amount] Class [A-___] Senior Percentage Interest: ____% Date of Pooling and Servicing Agreement Aggregate Initial [Certificate Principal and Cut-off Date: Balance] [Interest Only/Class A-V] [Notional [______________] Amount] [Subclass Notional Amount] of the Class [A-___] Certificates: $________ First Distribution Date: [Initial] [Certificate Principal Balance] [______________] [Interest Only/Class A-V] [Subclass] [Notional Amount] of this Certificate: $[______________] Master Servicer: Residential Funding Corporation [Assumed] [Scheduled] Final Distribution Date: CUSIP [______________] [______________] MORTGAGE PASS-THROUGH CERTIFICATE SERIES ________ evidencing a percentage interest in the distributions allocable to the Class [A-___] Certificates with respect to a Trust Fund consisting primarily of a pool of conventional one- to four-family fixed interest rate first mortgage loans formed and sold by RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Funding Mortgage Securities I, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Funding Mortgage Securities I, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that _____________ is the registered owner of the Percentage Interest evidenced by this Certificate [(obtained by dividing the [Initial Certificate Principal Balance] [Initial [Interest Only/Class A-V] Notional Amount] of this Certificate by the aggregate [Initial Certificate Principal Balance of all Class A- Certificates] [Initial [Interest Only/Class A-V] Notional Amounts of all [Interest Only/Class A-V] Certificates], both as specified above)] in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of conventional one- to four-family fixed interest rate first mortgage loans (the "Mortgage Loans"), formed and sold by Residential Funding Mortgage Securities I, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Series Supplement, dated as specified above, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (together, the "Pooling and Servicing Agreement" or the "Agreement") among the Company, the Master Servicer and _______________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month immediately preceding the month of such distribution (the "Record Date"), from the [related] Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount [(of interest and principal, if any)] required to be distributed to Holders of Class A- Certificates on such Distribution Date. [the [Interest Only/Class A-V] Notional Amount of the [Interest Only/Class A-V] Certificates as of any date of determination is equal to the aggregate stated Principal Balance of the Mortgage Loans corresponding to the uncertificated REMIC regular interests represented by such [Interest Only/Class A-V] Certificates.] Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. [The [Initial Certificate Principal Balance] [Initial [Interest Only/Class A-V] Notional Amount] of this Certificate is set forth above.] [The Certificate Principal Balance hereof will be reduced to the extent of distributions allocable to principal and any Realized Losses allocable hereto.] This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66.6% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan [in the related Loan Group] subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans [in the related Loan Group] and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans [in the related Loan Group] and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the [related] Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans [in the related Loan Group] as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans Group [in the related Loan Group]. Reference is hereby made to the further provisions of this Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated:____________________ [TRUSTEE], as Trustee By:__________________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class [A- ] Certificates referred to in the within-mentioned Agreement. [TRUSTEE], as Certificate Registrar By:___________________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ______________________________________________________________________________________________ (Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: Dated: __________________ ______________________________________ Signature by or on behalf of assignor _____________________________________ Signature Guaranteed -------------------------------------------------------------------------------- DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds to _______________________for the account of __________________ account number ______________, or, if mailed by check, to ____________________________. Applicable statements should be mailed to ________________________. This information is provided by _____________________, the assignee named above, or ________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT B FORM OF CLASS M CERTIFICATE THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE [RELATED] SENIOR CERTIFICATES [CLASS M-1 CERTIFICATES] [AND CLASS M-2 CERTIFICATES] AS DESCRIBED IN THE AGREEMENT (AS DEFINED BELOW). SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"). UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. ANY TRANSFEREE OF THIS CERTIFICATE WILL BE DEEMED TO HAVE REPRESENTED BY VIRTUE OF ITS PURCHASE OR HOLDING OF SUCH CERTIFICATE (OR ANY INTEREST HEREIN) THAT EITHER (A) SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER PLAN SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE (EACH, A "PLAN"), OR ANY PERSON (INCLUDING, WITHOUT LIMITATION, AN INVESTMENT MANAGER, A NAMED FIDUCIARY OR A TRUSTEE OF ANY PLAN) WHO IS USING "PLAN ASSETS," WITHIN THE MEANING OF THE U.S. DEPARTMENT OF LABOR REGULATION PROMULGATED AT 29 C.F.R.ss. 2510.3-101, OF ANY PLAN (EACH, A "PLAN INVESTOR") TO EFFECT SUCH ACQUISITION, (B) IT HAS ACQUIRED AND IS HOLDING THIS CERTIFICATE IN RELIANCE ON U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION EXEMPTION ("PTE") 94-29, 59 FED. REG. 14674 (MARCH 29, 1994), AS MOST RECENTLY AMENDED BY PTE 2002-41, 67 FED. REG. 54487 (AUGUST 22, 2002) (THE "RFC EXEMPTION"), AND THAT IT UNDERSTANDS THAT THERE ARE CERTAIN CONDITIONS TO THE AVAILABILITY OF THE RFC EXEMPTION INCLUDING THAT SUCH CERTIFICATE MUST BE RATED, AT THE TIME OF PURCHASE, NOT LOWER THAN "BBB-" (OR ITS EQUIVALENT) BY STANDARD & POOR'S, FITCH OR MOODY'S OR (C)(I) THE TRANSFEREE IS AN INSURANCE COMPANY, (II) THE SOURCE OF FUNDS USED TO PURCHASE OR HOLD THE CERTIFICATE (OR ANY INTEREST HEREIN) IS AN "INSURANCE COMPANY GENERAL ACCOUNT" (AS DEFINED IN U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 95-60), AND (III) THE CONDITIONS SET FORTH IN SECTIONS I AND III OF PTCE 95-60 HAVE BEEN SATISFIED (EACH ENTITY THAT SATISFIES THIS CLAUSE (C), A "COMPLYING INSURANCE COMPANY"). IF THIS CERTIFICATE (OR ANY INTEREST HEREIN) IS ACQUIRED OR HELD IN VIOLATION OF THE PROVISIONS OF THE PRECEDING PARAGRAPH, THEN THE LAST PRECEDING TRANSFEREE THAT EITHER (A) IS NOT A PLAN OR A PLAN INVESTOR, (B) ACQUIRED SUCH CERTIFICATE IN COMPLIANCE WITH THE RFC EXEMPTION OR (C) IS A COMPLYING INSURANCE COMPANY SHALL BE RESTORED, TO THE EXTENT PERMITTED BY LAW, TO ALL RIGHTS AND OBLIGATIONS AS CERTIFICATE OWNER THEREOF RETROACTIVE TO THE DATE OF SUCH TRANSFER OF THIS CERTIFICATE. THE TRUSTEE SHALL BE UNDER NO LIABILITY TO ANY PERSON FOR MAKING ANY PAYMENTS DUE ON THIS CERTIFICATE TO SUCH PRECEDING TRANSFEREE. ANY PURPORTED CERTIFICATE OWNER WHOSE ACQUISITION OR HOLDING OF THIS CERTIFICATE (OR ANY INTEREST HEREIN) WAS EFFECTED IN VIOLATION OF THE RESTRICTIONS IN SECTION 5.02(e) OF THE POOLING AND SERVICING AGREEMENT SHALL INDEMNIFY AND HOLD HARMLESS THE COMPANY, THE TRUSTEE, THE MASTER SERVICER, ANY SUBSERVICER, AND THE TRUST FUND FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, COSTS OR EXPENSES INCURRED BY SUCH PARTIES AS A RESULT OF SUCH ACQUISITION OR HOLDING. -------------------------------------------------------------------------------- Certificate No. [____] Class [M-___] Subordinate Date of Pooling and Servicing Agreement Principal Balance of the Class M and Cut-off Date: Certificates: $_______________ [______________] First Distribution Date: Initial Certificate Principal Balance of this [______________] Certificate: $[______________] Master Servicer: Residential Funding Corporation [Assumed] [Schedule] Final Distribution Date: CUSIP [______________] [______________] MORTGAGE PASS-THROUGH CERTIFICATE, SERIES ________ evidencing a percentage interest in any distributions allocable to the Class M-___ Certificates with respect to the Trust Fund consisting primarily of a pool of conventional one- to four-family fixed interest rate first mortgage loans formed and sold by RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Funding Mortgage Securities I, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Funding Mortgage Securities I, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that is the registered owner of the Percentage Interest evidenced by this Certificate (obtained by dividing the Certificate Principal Balance of this Certificate by the aggregate Certificate Principal Balance of all Class M-___ Certificates, both as specified above) in certain distributions with respect to a Trust Fund consisting primarily of a pool of conventional one- to four-family fixed interest rate first mortgage loans (the "Mortgage Loans"), formed and sold by Residential Funding Mortgage Securities I, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Series Supplement, dated as specified above, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (together, the "Pooling and Servicing Agreement" or the "Agreement") among the Company, the Master Servicer and ___________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month immediately preceding the month of such distribution (the "Record Date"), from the [related] Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount (of interest and principal, if any) required to be distributed to Holders of Class M-___ Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced to the extent of the distributions allocable to principal and any Realized Losses allocable hereto. As described above, any transferee of this Certificate will be deemed to have represented by virtue of its purchase or holding of this Certificate (or any interest herein) that either (a) such transferee is not a Plan or a Plan Investor, (b) it has acquired and is holding this Certificate in reliance on the RFC Exemption and that it understands that there are certain conditions to the availability of the RFC Exemption including that this Certificate must be rated, at the time of purchase, not lower than "BBB-" (or its equivalent) by Standard & Poor's, Fitch or Moody's or (c) the transferee is a Complying Insurance Company. In addition, any purported Certificate Owner whose acquisition or holding of this Certificate (or any interest herein) was effected in violation of the restrictions in Section 5.02(e) of the Agreement shall indemnify and hold harmless the Company, the Trustee, the Master Servicer, any Subservicer, and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by such parties as a result of such acquisition or holding. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66.6% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan [in the related Loan Group] subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans [in the related Loan Group] and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans [in the related Loan Group] and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the [related] Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans [in the related Loan Group] as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans Group [in the related Loan Group]. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated:____________________ [TRUSTEE], as Trustee By:__________________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class [A- ] Certificates referred to in the within-mentioned Agreement. [TRUSTEE], as Certificate Registrar By:___________________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ______________________________________________________________________________________________ (Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: Dated: __________________ ______________________________________ Signature by or on behalf of assignor _____________________________________ Signature Guaranteed -------------------------------------------------------------------------------- DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds to _______________________for the account of __________________ account number ______________, or, if mailed by check, to ____________________________. Applicable statements should be mailed to ________________________. This information is provided by _____________________, the assignee named above, or ________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT C FORM OF CLASS B CERTIFICATE THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE RELATED SENIOR CERTIFICATES AND THE RELATED CLASS M CERTIFICATES [AND CLASS B-1] [CLASS B-2 CERTIFICATES] DESCRIBED IN THE AGREEMENT (AS DEFINED HEREIN). THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE AGREEMENT. NO TRANSFER OF THIS CERTIFICATE (OR ANY INTEREST HEREIN) MAY BE MADE TO ANY PERSON, UNLESS THE TRANSFEREE PROVIDES THE TRUSTEE, THE COMPANY AND THE MASTER SERVICER WITH EITHER (A) A CERTIFICATION PURSUANT TO SECTION 5.02(e) OF THE AGREEMENT OR (B) AN OPINION OF COUNSEL ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, THE COMPANY AND THE MASTER SERVICER TO THE EFFECT THAT THE PURCHASE AND HOLDING OF THIS CERTIFICATE IS PERMISSIBLE UNDER APPLICABLE LAW, WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (OR COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS) AND WILL NOT SUBJECT THE TRUSTEE, THE COMPANY OR THE MASTER SERVICER TO ANY OBLIGATION OR LIABILITY (INCLUDING OBLIGATIONS AND LIABILITIES UNDER ERISA OR SECTION 4975 OF THE CODE) IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE TRUSTEE, THE COMPANY OR THE MASTER SERVICER. -------------------------------------------------------------------------------- Certificate No. [____] Class [B-___] Subordinate Date of Pooling and Servicing Agreement Principal Balance of the Class B-___ and Cut-off Date: Certificates as of the Cut-off Date: $________ [______________] First Distribution Date: Initial Certificate Principal Balance of this [______________] Certificate: $[______________] Master Servicer: Residential Funding Corporation Assumed Final Distribution Date: CUSIP [______________] [______________] MORTGAGE PASS-THROUGH CERTIFICATE, SERIES _______ evidencing a percentage interest in the distributions allocable to the Class B-___ Certificates with respect to a Trust Fund consisting primarily of a pool of conventional one- to four-family fixed interest rate first mortgage loans formed and sold by RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Funding Mortgage Securities I, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Funding Mortgage Securities I, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that _______________________ is the registered owner of the Percentage Interest evidenced by this Certificate (obtained by dividing the Initial Certificate Principal Balance of this Certificate by the aggregate Initial Certificate Principal Balance of all Class B-___ Certificates, both as specified above) in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of conventional one- to four-family fixed interest rate first mortgage loans (the "Mortgage Loans"), formed and sold by Residential Funding Mortgage Securities I, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Series Supplement, dated as specified above, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (together, the "Pooling and Servicing Agreement" or the "Agreement") among the Company, the Master Servicer and ___________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing on the first Distribution Date specified above, to the Person in whose name this Certificate is registered at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month next preceding the month of such distribution (the "Record Date"), from the [related] Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount (of interest and principal, if any) required to be distributed to Holders of Class B Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced to the extent of the distributions allocable to principal and any Realized Losses allocable hereto. No transfer of this Class B Certificate will be made unless such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event that such a transfer is to be made, (i) the Trustee or the Company may require an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee and the Company that such transfer is exempt (describing the applicable exemption and the basis therefor) from or is being made pursuant to the registration requirements of the Securities Act of 1933, as amended, and of any applicable statute of any state and (ii) the transferee shall execute an investment letter in the form described by Section 5.02(e) of the Agreement. The Holder hereof desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the Company, the Master Servicer and the Certificate Registrar acting on behalf of the Trustee against any liability that may result if the transfer is not so exempt or is not made in accordance with such Federal and state laws. As described above, no transfer of this Certificate (or any interest herein) shall be made unless the transferee provides the Trustee, the Company and the Master Servicer with either (a) a certification pursuant to Section 5.02(e) of the Agreement stating that either (i) the transferee is not an employee benefit or other plan subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code (each, a "Plan"), or any Person (including, without limitation, an investment manager, a named fiduciary or a trustee of any Plan) who is using "plan assets," within the meaning of the U.S. Department of Labor regulation promulgated at 29 C.F.R.ss.2510.3-101, of any Plan (each, a "Plan Investor") to effect such acquisition or (ii) the transferee is an insurance company, the source of funds used to purchase or hold such Certificate (or any interest therein) is an "insurance company general account" (as defined in U.S. Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60 and the conditions set forth in Sections I and III of PTCE 95-60 have been satisfied, or (b) an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer to the effect that the purchase and holding of this Certificate is permissible under applicable law, will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Company or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Agreement, which opinion of counsel shall not be an expense of the Trustee, the Company or the Master Servicer. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66.6% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan [in the related Loan Group] subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans [in the related Loan Group] and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans [in the related Loan Group] and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the [related] Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans [in the related Loan Group] as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans Group [in the related Loan Group]. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated:____________________ [TRUSTEE], as Trustee By:__________________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class [A- ] Certificates referred to in the within-mentioned Agreement. [TRUSTEE], as Certificate Registrar By:___________________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ______________________________________________________________________________________________ (Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: Dated: __________________ ______________________________________ Signature by or on behalf of assignor _____________________________________ Signature Guaranteed -------------------------------------------------------------------------------- DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds to _______________________for the account of __________________ account number ______________, or, if mailed by check, to ____________________________. Applicable statements should be mailed to ________________________. This information is provided by _____________________, the assignee named above, or ________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT D FORM OF CLASS R CERTIFICATE THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A NON-UNITED STATES PERSON OR A DISQUALIFIED ORGANIZATION (AS DEFINED BELOW). SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"). NO TRANSFER OF THIS CERTIFICATE (OR ANY INTEREST HEREIN) MAY BE MADE TO ANY PERSON, UNLESS THE TRANSFEREE PROVIDES THE TRUSTEE, THE COMPANY AND THE MASTER SERVICER WITH EITHER (A) A CERTIFICATION PURSUANT TO SECTION 5.02(e) OF THE AGREEMENT OR (B) AN OPINION OF COUNSEL ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, THE COMPANY AND THE MASTER SERVICER TO THE EFFECT THAT THE PURCHASE AND HOLDING OF THIS CERTIFICATE IS PERMISSIBLE UNDER APPLICABLE LAW, WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE (OR COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS) AND WILL NOT SUBJECT THE TRUSTEE, THE COMPANY OR THE MASTER SERVICER TO ANY OBLIGATION OR LIABILITY (INCLUDING OBLIGATIONS AND LIABILITIES UNDER ERISA OR SECTION 4975 OF THE CODE) IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE TRUSTEE, THE COMPANY OR THE MASTER SERVICER. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE MAY BE MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES A TRANSFER AFFIDAVIT TO THE MASTER SERVICER AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT (A) THE UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY POSSESSION OF THE UNITED STATES, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN AN INSTRUMENTALITY WHICH IS A CORPORATION IF ALL OF ITS ACTIVITIES ARE SUBJECT TO TAX AND EXCEPT FOR FREDDIE MAC, A MAJORITY OF ITS BOARD OF DIRECTORS IS NOT SELECTED BY SUCH GOVERNMENTAL UNIT), (B) A FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF EITHER OF THE FOREGOING, (C) ANY ORGANIZATION (OTHER THAN CERTAIN FARMERS' COOPERATIVES DESCRIBED IN SECTION 521 OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE CODE (INCLUDING THE TAX IMPOSED BY SECTION 511 OF THE CODE ON UNRELATED BUSINESS TAXABLE INCOME), (D) RURAL ELECTRIC AND TELEPHONE COOPERATIVES DESCRIBED IN SECTION 1381(A)(2)(C) OF THE CODE, (E) AN ELECTING LARGE PARTNERSHIP UNDER SECTION 775(A) OF THE CODE (ANY SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (A), (B), (C), (D) OR (E) BEING HEREIN REFERRED TO AS A "DISQUALIFIED ORGANIZATION"), OR (F) AN AGENT OF A DISQUALIFIED ORGANIZATION, (2) NO PURPOSE OF SUCH TRANSFER IS TO IMPEDE THE ASSESSMENT OR COLLECTION OF TAX AND (3) SUCH TRANSFEREE SATISFIES CERTAIN ADDITIONAL CONDITIONS RELATING TO THE FINANCIAL CONDITION OF THE PROPOSED TRANSFEREE. NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR ANY TRANSFER, SALE OR OTHER DISPOSITION OF THIS CERTIFICATE TO A DISQUALIFIED ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND SUCH PERSON SHALL NOT BE DEEMED TO BE A CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE. EACH HOLDER OF THIS CERTIFICATE BY ACCEPTANCE OF THIS CERTIFICATE SHALL BE DEEMED TO HAVE CONSENTED TO THE PROVISIONS OF THIS PARAGRAPH. -------------------------------------------------------------------------------- Certificate No. [____] Class [R-___] Senior Date of Pooling and Servicing Agreement Aggregate Initial Certificate Principal and Cut-off Date: Balance of the Class R-___ Certificates: [______________] $100.00 First Distribution Date: Initial Certificate Principal Balance of this [______________] Certificate: $[______________] Master Servicer: Percentage Interest: _____% Residential Funding Corporation Assumed Final Distribution Date: CUSIP [______________] [______________] MORTGAGE PASS-THROUGH CERTIFICATE, SERIES _______ evidencing a percentage interest in the distributions allocable to the Class R[-__] Certificates with respect to a Trust Fund consisting primarily of a pool of conventional one- to four-family fixed interest rate first mortgage loans formed and sold by RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Funding Mortgage Securities I, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Funding Mortgage Securities I, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that is the registered owner of the Percentage Interest evidenced by this Certificate (obtained by dividing the Initial Certificate Principal Balance of this Certificate by the aggregate Initial Certificate Principal Balance of all Class R[-__] Certificates, both as specified above) in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of conventional one- to four-family fixed interest rate first mortgage loans (the "Mortgage Loans"), formed and sold by Residential Funding Mortgage Securities I, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Series Supplement, dated as specified above, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (together, the "Pooling and Servicing Agreement" or the "Agreement") among the Company, the Master Servicer and ___________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month immediately preceding the month of such distribution (the "Record Date"), from the [related] Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount (of interest and principal, if any) required to be distributed to Holders of Class R Certificates on such Distribution Date. Each Holder of this Certificate will be deemed to have agreed to be bound by the restrictions set forth in the Agreement to the effect that (i) each person holding or acquiring any Ownership Interest in this Certificate must be a United States Person and a Permitted Transferee, (ii) the transfer of any Ownership Interest in this Certificate will be conditioned upon the delivery to the Trustee of, among other things, an affidavit to the effect that it is a United States Person and Permitted Transferee, (iii) any attempted or purported transfer of any Ownership Interest in this Certificate in violation of such restrictions will be absolutely null and void and will vest no rights in the purported transferee, and (iv) if any person other than a United States Person and a Permitted Transferee acquires any Ownership Interest in this Certificate in violation of such restrictions, then the Company will have the right, in its sole discretion and without notice to the Holder of this Certificate, to sell this Certificate to a purchaser selected by the Company, which purchaser may be the Company, or any affiliate of the Company, on such terms and conditions as the Company may choose. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced to the extent of distributions allocable to principal and any Realized Losses allocable hereto. Notwithstanding the reduction of the Certificate Principal Balance hereof to zero, this Certificate will remain outstanding under the Agreement and the Holder hereof may have additional obligations with respect to this Certificate, including tax liabilities, and may be entitled to certain additional distributions hereon, in accordance with the terms and provisions of the Agreement. As described above, no transfer of this Certificate (or any interest herein) shall be made unless the transferee provides the Trustee, the Company and the Master Servicer with either (a) a certification pursuant to Section 5.02(e) of the Agreement stating that the transferee is not an employee benefit or other plan subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code (each, a "Plan"), or any Person (including, without limitation, an insurance company investing its general accounts, an investment manager, a named fiduciary or a trustee of any Plan) who is using "plan assets," within the meaning of the U.S. Department of Labor regulation promulgated at 29 C.F.R.ss.2510.3-101, of any Plan (each, a "Plan Investor") to effect such acquisition, or (b) an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer to the effect that the purchase and holding of this Certificate is permissible under applicable law, will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Company or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Agreement, which opinion of counsel shall not be an expense of the Trustee, the Company or the Master Servicer. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66.6% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan [in the related Loan Group] subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans [in the related Loan Group] and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans [in the related Loan Group] and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the [related] Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans [in the related Loan Group] as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans Group [in the related Loan Group]. Reference is hereby made to the further provisions of this Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated:____________________ [TRUSTEE], as Trustee By:__________________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class [A- ] Certificates referred to in the within-mentioned Agreement. [TRUSTEE], as Certificate Registrar By:___________________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ______________________________________________________________________________________________ (Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: Dated: __________________ ______________________________________ Signature by or on behalf of assignor _____________________________________ Signature Guaranteed -------------------------------------------------------------------------------- DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds to _______________________for the account of __________________ account number ______________, or, if mailed by check, to ____________________________. Applicable statements should be mailed to ________________________. This information is provided by _____________________, the assignee named above, or ________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT E FORM OF SELLER/SERVICER CONTRACT This Seller/Servicer Contract (as may be amended, supplemented or otherwise modified from time to time, this "Contract") is made this day of _____________, 20__, by and between Residential Funding Corporation, its successors and assigns ("Residential Funding") and (the "Seller/Servicer," and, together with Residential Funding, the "parties" and each, individually, a "party"). WHEREAS, the Seller/Servicer desires to sell Loans to, and/or service Loans for, Residential Funding, and Residential Funding desires to purchase Loans from the Seller/Servicer and/or have the Seller/Servicer service various of its Loans, pursuant to the terms of this Contract and the Residential Funding Seller and Servicer Guides incorporated herein by reference, as amended, supplemented or otherwise modified, from time to time (together, the "Guides"). NOW, THEREFORE, in consideration of the premises, and the terms, conditions and agreements set forth below, the parties agree as follows: i. INCORPORATION OF GUIDES BY REFERENCE. The Seller/Servicer acknowledges that it has received and read the Guides. All provisions of the Guides are incorporated by reference into and made a part of this Contract, and shall be binding upon the parties; provided, however, that the Seller/Servicer shall be entitled to sell Loans to and/or service Loans for Residential Funding only if and for so long as it shall have been authorized to do so by Residential Funding in writing. Specific reference in this Contract to particular provisions of the Guides and not to other provisions does not mean that those provisions of the Guides not specifically cited in this Contract are not applicable. All terms used herein shall have the same meanings as such terms have in the Guides, unless the context clearly requires otherwise. AMENDMENTS. This Contract may not be amended or modified orally, and no provision of this Contract may be waived or amended except in writing signed by the party against whom enforcement is sought. Such a written waiver or amendment must expressly reference this Contract. However, by their terms, the Guides may be amended or supplemented by Residential Funding from time to time. Any such amendment(s) to the Guides shall be binding upon the parties hereto. REPRESENTATIONS AND WARRANTIES. B. Reciprocal Representations and Warranties. The Seller/Servicer and Residential Funding each represents and warrants to the other that as of the date of this Contract: (1) Each party is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, is qualified, if necessary, to do business and in good standing in each jurisdiction in which it is required to be so qualified, and has the requisite power and authority to enter into this Contract and all other agreements which are contemplated by this Contract and to carry out its obligations hereunder and under the Guides and under such other agreements. (2) This Contract has been duly authorized, executed and delivered by each party and constitutes a valid and legally binding agreement of each party enforceable in accordance with its terms. (3) There is no action, proceeding or investigation pending or threatened, and no basis therefor is known to either party, that could affect the validity or prospective validity of this Contract. (4) Insofar as its capacity to carry out any obligation under this Contract is concerned, neither party is in violation of any charter, articles of incorporation, bylaws, mortgage, indenture, indebtedness, agreement, instrument, judgment, decree, order, statute, rule or regulation and none of the foregoing adversely affects its capacity to fulfill any of its obligations under this Contract. Its execution of, and performance pursuant to, this Contract will not result in a violation of any of the foregoing. C. Seller/Servicer's Representations, Warranties and Covenants. In addition to the representations, warranties and covenants made by the Seller/Servicer pursuant to subparagraph (a) of this paragraph 3, the Seller/Servicer makes the representations, warranties and covenants set forth in the Guides and, upon request, agrees to deliver to Residential Funding the certified Resolution of Board of Directors which authorizes the execution and delivery of this Contract. REMEDIES OF RESIDENTIAL FUNDING. If an Event of Seller Default or an Event of Servicer Default shall occur, Residential Funding may, at its option, exercise one or more of those remedies set forth in the Guides. SELLER/SERVICER'S STATUS AS INDEPENDENT CONTRACTOR. At no time shall the Seller/Servicer represent that it is acting as an agent of Residential Funding. The Seller/Servicer shall, at all times, act as an independent contractor. PRIOR AGREEMENTS SUPERSEDED. This Contract restates, amends and supersedes any and all prior Seller Contracts or Servicer Contracts between the parties except that any subservicing agreement executed by the Seller/Servicer in connection with any loan-security exchange transaction shall not be affected. ASSIGNMENT. This Contract may not be assigned or transferred, in whole or in part, by the Seller/Servicer without the prior written consent of Residential Funding. Residential Funding may sell, assign, convey, hypothecate, pledge or in any other way transfer, in whole or in part, without restriction, its rights under this Contract and the Guides with respect to any Commitment or Loan. NOTICES. All notices, requests, demands or other communications that are to be given under this Contract shall be in writing, addressed to the appropriate parties and sent by telefacsimile or by overnight courier or by United States mail, postage prepaid, to the addresses and telefacsimile numbers specified below. However, another name, address and/or telefacsimile number may be substituted by the Seller/Servicer pursuant to the requirements of this paragraph 8, or Residential Funding pursuant to an amendment to the Guides. If to Residential Funding, notices must be sent to the appropriate address or telefacsimile number specified in the Guides. If to the Seller/Servicer, notice must be sent to: Attention: Telefacsimile Number: (_____) _____-_________ JURISDICTION AND VENUE. Each of the parties irrevocably submits to the jurisdiction of any state or federal court located in Hennepin County, Minnesota, over any action, suit or proceeding to enforce or defend any right under this Contract or otherwise arising from any loan sale or servicing relationship existing in connection with this Contract, and each of the parties irrevocably agrees that all claims in respect of any such action or proceeding may be heard or determined in such state or federal court. Each of the parties irrevocably waives the defense of an inconvenient forum to the maintenance of any such action or proceeding and any other substantive or procedural rights or remedies it may have with respect to the maintenance of any such action or proceeding in any such forum. Each of the parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Each of the parties further agrees not to institute any legal actions or proceedings against the other party or any director, officer, employee, attorney, agent or property of the other party, arising out of or relating to this Contract in any court other than as hereinabove specified in this paragraph 9. MISCELLANEOUS. This Contract, including all documents incorporated by reference herein, constitutes the entire understanding between the parties hereto and supersedes all other agreements, covenants, representations, warranties, understandings and communications between the parties, whether written or oral, with respect to the transactions contemplated by this Contract. All paragraph headings contained herein are for convenience only and shall not be construed as part of this Contract. Any provision of this Contract that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction, and, to this end, the provisions hereof are severable. This Contract shall be governed by, and construed and enforced in accordance with, applicable federal laws and the laws of the State of Minnesota. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the duly authorized officers of the Seller/Servicer and Residential Funding have executed this Seller/Servicer Contract as of the date first above written. ATTEST: SELLER/SERVICER [Corporate Seal] (Name of Seller/Servicer) By: By: (Signature) (Signature) By: By: (Typed Name) (Typed Name) Title: Title: ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- ATTEST: RESIDENTIAL FUNDING CORPORATION [Corporate Seal] By: By: (Signature) (Signature) By: By: Title: Title: -------------------------------------------------------------------------------- EXHIBIT F FORMS OF REQUEST FOR RELEASE DATE: TO: RE: REQUEST FOR RELEASE OF DOCUMENTS In connection with the administration of the pool of Mortgage Loans held by you for the referenced pool, we request the release of the Mortgage Loan File described below. Series Supplement, to the Standard Terms of Pooling and Servicing Agreement, Dated: Series#: Account#: Pool#: Loan#: Borrower Name(s): Reason for Document Request: (circle one) Mortgage Loan Prepaid in Full Mortgage Loan Repurchased "We hereby certify that all amounts received or to be received in connection with such payments which are required to be deposited have been or will be so deposited as provided in the Pooling and Servicing Agreement." Residential Funding Corporation Authorized Signature ****************************************************************************** TO CUSTODIAN/TRUSTEE: Please acknowledge this request, and check off documents being enclosed with a copy of this form. You should retain this form for your files in accordance with the terms of the Pooling and Servicing Agreement. Enclosed Documents: [ ] Promissory Note [ ] Primary Insurance Policy [ ] Mortgage or Deed of Trust [ ] Assignment(s) of Mortgage or Deed of Trust [ ] Title Insurance Policy [ ] Other: Name: Title: Date: -------------------------------------------------------------------------------- EXHIBIT G-1 FORM OF TRANSFER AFFIDAVIT AND AGREEMENT STATE OF ) ) ss.: COUNTY OF ) [NAME OF OFFICER], being first duly sworn, deposes and says: 1. That he is [Title of Officer] of [Name of Owner] (record or beneficial owner of the Mortgage Pass-Through Certificates, Series _______, Class R[-__] (the "Owner")), a [savings institution] [corporation] duly organized and existing under the laws of [the State of ] [the United States], on behalf of which he makes this affidavit and agreement. 2. That the Owner (i) is not and will not be a "disqualified organization" or an electing large partnership as of [date of transfer] within the meaning of Sections 860E(e)(5) and 775, respectively, of the Internal Revenue Code of 1986, as amended (the "Code") or an electing large partnership under Section 775(a) of the Code, (ii) will endeavor to remain other than a disqualified organization for so long as it retains its ownership interest in the Class R[-__] Certificates, and (iii) is acquiring the Class R[-__] Certificates for its own account or for the account of another Owner from which it has received an affidavit and agreement in substantially the same form as this affidavit and agreement. (For this purpose, a "disqualified organization" means an electing large partnership under Section 775 of the Code, the United States, any state or political subdivision thereof, any agency or instrumentality of any of the foregoing (other than an instrumentality all of the activities of which are subject to tax and, except for the Federal Home Loan Mortgage Corporation, a majority of whose board of directors is not selected by any such governmental entity) or any foreign government, international organization or any agency or instrumentality of such foreign government or organization, any rural electric or telephone cooperative, or any organization (other than certain farmers' cooperatives) that is generally exempt from federal income tax unless such organization is subject to the tax on unrelated business taxable income). 3. That the Owner is aware (i) of the tax that would be imposed on transfers of Class R[-__] Certificates to disqualified organizations or electing large partnerships, under the Code, that applies to all transfers of Class R[-__] Certificates after March 31, 1988; (ii) that such tax would be on the transferor (or, with respect to transfers to electing large partnerships, on each such partnership), or, if such transfer is through an agent (which person includes a broker, nominee or middleman) for a disqualified organization, on the agent; (iii) that the person (other than with respect to transfers to electing large partnerships) otherwise liable for the tax shall be relieved of liability for the tax if the transferee furnishes to such person an affidavit that the transferee is not a disqualified organization and, at the time of transfer, such person does not have actual knowledge that the affidavit is false; and (iv) that the Class R[-__] Certificates may be "noneconomic residual interests" within the meaning of Treasury regulations promulgated pursuant to the Code and that the transferor of a noneconomic residual interest will remain liable for any taxes due with respect to the income on such residual interest, unless no significant purpose of the transfer was to impede the assessment or collection of tax. 4. That the Owner is aware of the tax imposed on a "pass-through entity" holding Class R[-__] Certificates if either the pass-through entity is an electing large partnership under Section 775 of the Code or if at any time during the taxable year of the pass-through entity a disqualified organization is the record holder of an interest in such entity. (For this purpose, a "pass through entity" includes a regulated investment company, a real estate investment trust or common trust fund, a partnership, trust or estate, and certain cooperatives.) 5. The Owner is either (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity treated as a corporation or a partnership for U.S. federal income tax purposes and created or organized in or under the laws of the United States, any state thereof or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury regulations), (iii) an estate that is described in Section 7701(a)(30)(D) of the Code, or (iv) a trust that is described in Section 7701(a)(30)(E) of the Code. 6. The Owner hereby agrees that it will not cause income from the Class R[-__] Certificates to be attributable to a foreign permanent establishment or fixed base (within the meaning of an applicable income tax treaty) of the Owner of another United States taxpayer. 7. That the Owner is aware that the Trustee will not register the transfer of any Class R[- __] Certificates unless the transferee, or the transferee's agent, delivers to it an affidavit and agreement, among other things, in substantially the same form as this affidavit and agreement. The Owner expressly agrees that it will not consummate any such transfer if it knows or believes that any of the representations contained in such affidavit and agreement are false. 8. That the Owner has reviewed the restrictions set forth on the face of the Class R[-__] Certificates and the provisions of Section 5.02(f) of the Pooling and Servicing Agreement under which the Class R[-__] Certificates were issued (in particular, clause (iii)(A) and (iii)(B) of Section 5.02(f) which authorize the Trustee to deliver payments to a person other than the Owner and negotiate a mandatory sale by the Trustee in the event the Owner holds such Certificates in violation of Section 5.02(f)). The Owner expressly agrees to be bound by and to comply with such restrictions and provisions. 9. That the Owner consents to any additional restrictions or arrangements that shall be deemed necessary upon advice of counsel to constitute a reasonable arrangement to ensure that the Class R[-__] Certificates will only be owned, directly or indirectly, by an Owner that is not a disqualified organization. 10. The Owner's Taxpayer Identification Number is ________________. 11. This affidavit and agreement relates only to the Class R[-__] Certificates held by the Owner and not to any other holder of the Class R[-__] Certificates. The Owner understands that the liabilities described herein relate only to the Class R[-__] Certificates. 12. That no purpose of the Owner relating to the transfer of any of the Class R[-__] Certificates by the Owner is or will be to impede the assessment or collection of any tax; in making this representation, the Owner warrants that the Owner is familiar with (i) Treasury Regulation Section 1.860E-1(c) and recent amendments thereto, effective as of July 19, 2002, and (ii) the preamble describing the adoption of the amendments to such regulation, which is attached hereto as Exhibit 1. 13. That the Owner has no present knowledge or expectation that it will be unable to pay any United States taxes owed by it so long as any of the Certificates remain outstanding. In this regard, the Owner hereby represents to and for the benefit of the person from whom it acquired the Class R[-__] Certificate that the Owner intends to pay taxes associated with holding such Class R[- __] Certificate as they become due, fully understanding that it may incur tax liabilities in excess of any cash flows generated by the Class R[-__] Certificate. 14. That the Owner has no present knowledge or expectation that it will become insolvent or subject to a bankruptcy proceeding for so long as any of the Class R[-__] Certificates remain outstanding. 15. (a) The Owner is not an employee benefit plan or other plan subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code (each, a "Plan"), or any Person (including, without limitation, an insurance company investing its general accounts, an investment manager, a named fiduciary or a trustee of any Plan) who is using "plan assets," within the meaning of the U.S. Department of Labor regulation promulgated at 29 C.F.R.ss.2510.3-101, of any Plan (each, a "Plan Investor") to effect such acquisition; or (b) The Owner has provided the Trustee, the Company and the Master Servicer with an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer to the effect that the purchase and holding of Certificates is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments) and will not subject the Trustee, the Company or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which opinion of counsel shall not be an expense of the Trustee, the Company or the Master Servicer. In addition, the Owner hereby certifies, represents and warrants to, and covenants with, the Company, the Trustee and the Master Servicer that the Purchaser will not transfer such Certificates to any transferee unless such transferee meets the requirements set forth in either (a) or (b) above. Capitalized terms used but not defined herein shall have the meanings assigned in the Pooling and Servicing Agreement. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Owner has caused this instrument to be executed on its behalf, pursuant to the authority of its Board of Directors, by its [Title of Officer] and its corporate seal to be hereunto attached, attested by its [Assistant] Secretary, this day of _____,___ 200__. [NAME OF OWNER] By:............................................... [Name of Officer] [Title of Officer] [Corporate Seal] ATTEST: ....... [Assistant] Secretary Personally appeared before me the above-named [Name of Officer], known or proved to me to be the same person who executed the foregoing instrument and to be the [Title of Officer] of the Owner, and acknowledged to me that he executed the same as his free act and deed and the free act and deed of the Owner. Subscribed and sworn before me this ___ day of ________, 200 __. NOTARY PUBLIC COUNTY OF......................................... STATE OF.......................................... My Commission expires the __ day of _____, 20__. -------------------------------------------------------------------------------- EXHIBIT 1 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602 [TD 9004] RIN 1545-AW98 Real Estate Mortgage Investment Conduits AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. ----------------------------------------------------------------------- SUMMARY: This document contains final regulations relating to safe harbor transfers of noneconomic residual interests in real estate mortgage investment conduits (REMICs). The final regulations provide additional limitations on the circumstances under which transferors may claim safe harbor treatment. DATES: Effective Date: These regulations are effective July 19, 2002. Applicability Date: For dates of applicability, see Sec. 1.860E-(1)(c)(10). FOR FURTHER INFORMATION CONTACT: Courtney Shepardson at (202) 622-3940 (not a toll-free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information in this final rule has been reviewed and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget (OMB) under 44 U.S.C. 3507 and assigned control number 1545-1675. The collection of information in this regulation is in Sec. 1.860E -1(c)(5)(ii). This information is required to enable the IRS to verify that a taxpayer is complying with the conditions of this regulation. The collection of information is mandatory and is required. Otherwise, the taxpayer will not receive the benefit of safe harbor treatment as provided in the regulation. The likely respondents are businesses and other for-profit institutions. Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC, 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S, Washington, DC 20224. Comments on the collection of information should be received by September 17, 2002. Comments are specifically requested concerning: Whether the collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility; The accuracy of the estimated burden associated with the collection of information (see below); How the quality, utility, and clarity of the information to be collected may be enhanced; How the burden of complying with the collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. The estimated total annual reporting burden is 470 hours, based on an estimated number of respondents of 470 and an estimated average annual burden hours per respondent of one hour. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background This document contains final regulations regarding the proposed amendments to 26 CFR part 1 under section 860E of the Internal Revenue Code (Code). The regulations provide the circumstances under which a transferor of a noneconomic REMIC residual interest meeting the investigation and representation requirements may avail itself of the safe harbor by satisfying either the formula test or the asset test. Final regulations governing REMICs, issued in 1992, contain rules governing the transfer of noneconomic REMIC residual interests. In general, a transfer of a noneconomic residual interest is disregarded for all tax purposes if a significant purpose of the transfer is to [[Page 47452]] enable the transferor to impede the assessment or collection of tax. A purpose to impede the assessment or collection of tax (a wrongful purpose) exists if the transferor, at the time of the transfer, either knew or should have known that the transferee would be unwilling or unable to pay taxes due on its share of the REMIC's taxable income. Under a safe harbor, the transferor of a REMIC noneconomic residual interest is presumed not to have a wrongful purpose if two requirements are satisfied: (1) the transferor conducts a reasonable investigation of the transferee's financial condition (the investigation requirement); and (2) the transferor secures a representation from the transferee to the effect that the transferee understands the tax obligations associated with holding a residual interest and intends to pay those taxes (the representation requirement). The IRS and Treasury have been concerned that some transferors of noneconomic residual interests claim they satisfy the safe harbor even in situations where the economics of the transfer clearly indicate the transferee is unwilling or unable to pay the tax associated with holding the interest. For this reason, on February 7, 2000, the IRS published in the Federal Register (65 FR 5807) a notice of proposed rulemaking (REG-100276-97; REG-122450-98) designed to clarify the safe harbor by adding the "formula test," an economic test. The proposed regulation provides that the safe harbor is unavailable unless the present value of the anticipated tax liabilities associated with holding the residual interest does not exceed the sum of: (1) The present value of any consideration given to the transferee to acquire the interest; (2) the present value of the expected future distributions on the interest; and (3) the present value of the anticipated tax savings associated with holding the interest as the REMIC generates losses. In January 2001, the IRS published Rev. Proc. 2001-12 (2001-3 I.R.B. 335) to set forth an alternative safe harbor that taxpayers could use while the IRS and the Treasury considered comments on the proposed regulations. Under the alternative safe harbor, if a transferor meets the investigation requirement and the representation requirement but the transfer fails to meet the formula test, the transferor may invoke the safe harbor if the transferee meets a two-prong test (the asset test). A transferee generally meets the first prong of this test if, at the time of the transfer, and in each of the two years preceding the year of transfer, the transferee's gross assets exceed $100 million and its net assets exceed $10 million. A transferee generally meets the second prong of this test if it is a domestic, taxable corporation and agrees in writing not to transfer the interest to any person other than another domestic, taxable corporation that also satisfies the requirements of the asset test. A transferor cannot rely on the asset test if the transferor knows, or has reason to know, that the transferee will not comply with its written agreement to limit the restrictions on subsequent transfers of the residual interest. Rev. Proc. 2001-12 provides that the asset test fails to be satisfied in the case of a transfer or assignment of a noneconomic residual interest to a foreign branch of an otherwise eligible transferee. If such a transfer or assignment were permitted, a corporate taxpayer might seek to claim that the provisions of an applicable income tax treaty would resource excess inclusion income as foreign source income, and that, as a consequence, any U.S. tax liability attributable to the excess inclusion income could be offset by foreign tax credits. Such a claim would impede the assessment or collection of U.S. tax on excess inclusion income, contrary to the congressional purpose of assuring that such income will be taxable in all events. See, e.g., sections 860E(a)(1), (b), (e) and 860G(b) of the Code. The Treasury and the IRS have learned that certain taxpayers transferring noneconomic residual interests to foreign branches have attempted to rely on the formula test to obtain safe harbor treatment in an effort to impede the assessment or collection of U.S. tax on excess inclusion income. Accordingly, the final regulations provide that if a noneconomic residual interest is transferred to a foreign permanent establishment or fixed base of a U.S. taxpayer, the transfer is not eligible for safe harbor treatment under either the asset test or the formula test. The final regulations also require a transferee to represent that it will not cause income from the noneconomic residual interest to be attributable to a foreign permanent establishment or fixed base. Section 1.860E-1(c)(8) provides computational rules that a taxpayer may use to qualify for safe harbor status under the formula test. Section 1.860E-1(c)(8)(i) provides that the transferee is presumed to pay tax at a rate equal to the highest rate of tax specified in section 11(b). Some commentators were concerned that this presumed rate of taxation was too high because it does not take into consideration taxpayers subject to the alternative minimum tax rate. In light of the comments received, this provision has been amended in the final regulations to allow certain transferees that compute their taxable income using the alternative minimum tax rate to use the alternative minimum tax rate applicable to corporations. Additionally, Sec. 1.860E-1(c)(8)(iii) provides that the present values in the formula test are to be computed using a discount rate equal to the applicable Federal short-term rate prescribed by section 1274(d). This is a change from the proposed regulation and Rev. Proc. 2001-12. In those publications the provision stated that "present values are computed using a discount rate equal to the applicable Federal rate prescribed in section 1274(d) compounded semiannually" and that "[a] lower discount rate may be used if the transferee can demonstrate that it regularly borrows, in the course of its trade or business, substantial funds at such lower rate from an unrelated third party." The IRS and the Treasury Department have learned that, based on this provision, certain taxpayers have been attempting to use unrealistically low or zero interest rates to satisfy the formula test, frustrating the intent of the test. Furthermore, the Treasury Department and the IRS believe that a rule allowing for a rate other than a rate based on an objective index would add unnecessary complexity to the safe harbor. As a result, the rule in the proposed regulations that permits a transferee to use a lower discount rate, if the transferee can demonstrate that it regularly borrows substantial funds at such lower rate, is not included in the final regulations; and the Federal short-term rate has been substituted for the applicable Federal rate. To simplify taxpayers' computations, the final regulations allow use of any of the published short-term rates, provided that the present values are computed with a corresponding period of compounding. With the exception of the provisions relating to transfers to foreign branches, these changes generally have the proposed applicability date of February 4, 2000, but taxpayers may choose to apply the interest rate formula set forth in the proposed regulation and Rev. Proc. 2001-12 for transfers occurring before August 19, 2002. [[Page 47453]] Effect on Other Documents Rev. Proc. 2001-12 (2001-3 I.R.B. 335) is obsolete for transfers of noneconomic residual interests in REMICs occurring on or after August 19, 2002. Special Analyses It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that it is unlikely that a substantial number of small entities will hold REMIC residual interests. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that sections 553(b) and 553(d) of the Administrative Procedure Act (5 U.S.C. chapter 5) do not apply to these regulations. Drafting Information The principal author of these regulations is Courtney Shepardson. However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and record keeping requirements. 26 CFR Part 602 Reporting and record keeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR parts 1 and 602 are amended as follows: PART 1--INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * -------------------------------------------------------------------------------- EXHIBIT G-2 FORM OF TRANSFEROR CERTIFICATE __________ , 20__ Residential Funding Mortgage Securities I, Inc. 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 [Trustee] Attention: Residential Funding Corporation Series _______ Re: Mortgage Pass-Through Certificates, Series ________, Class R[-__] Ladies and Gentlemen: This letter is delivered to you in connection with the transfer by ________________ (the "Seller") to _____________________ (the "Purchaser") of $______________ Initial Certificate Principal Balance of Mortgage Pass-Through Certificates, Series ________, Class R[-__] (the "Certificates"), pursuant to Section 5.02 of the Series Supplement, dated as of ________________, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (together, the "Pooling and Servicing Agreement") among Residential Funding Mortgage Securities I, Inc., as seller (the "Company"), Residential Funding Corporation, as master servicer, and __________, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Seller hereby certifies, represents and warrants to, and covenants with, the Company and the Trustee that: 1. No purpose of the Seller relating to the transfer of the Certificate by the Seller to the Purchaser is or will be to impede the assessment or collection of any tax. 2. The Seller understands that the Purchaser has delivered to the Trustee and the Master Servicer a transfer affidavit and agreement in the form attached to the Pooling and Servicing Agreement as Exhibit G-1. The Seller does not know or believe that any representation contained therein is false. 3. The Seller has at the time of the transfer conducted a reasonable investigation of the financial condition of the Purchaser as contemplated by Treasury Regulations Section 1.860E-1(c)(4)(i) and, as a result of that investigation, the Seller has determined that the Purchaser has historically paid its debts as they become due and has found no significant evidence to indicate that the Purchaser will not continue to pay its debts as they become due in the future. The Seller understands that the transfer of a Class R[-__] Certificate may not be respected for United States income tax purposes (and the Seller may continue to be liable for United States income taxes associated therewith) unless the Seller has conducted such an investigation. 4. The Seller has no actual knowledge that the proposed Transferee is not both a United States Person and a Permitted Transferee. Very truly yours, (Seller) By:............................................... Name: Title: -------------------------------------------------------------------------------- EXHIBIT H FORM OF INVESTOR REPRESENTATION LETTER ______________ , 20___ Residential Funding Mortgage Securities I, Inc. 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 [Trustee] Residential Funding Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 Attention: Residential Funding Corporation Series ________ RE: Mortgage Pass-Through Certificates, Series ________, [Class B- ] Ladies and Gentlemen: _________________- (the "Purchaser") intends to purchase from _________________ (the "Seller") $_____________ Initial Certificate Principal Balance of Mortgage Pass-Through Certificates, Series ________, Class (the "Certificates"), issued pursuant to the Series Supplement, dated as of ________________, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (together, the "Pooling and Servicing Agreement") among Residential Funding Mortgage Securities I, Inc., as seller (the "Company"), Residential Funding Corporation, as master servicer (the "Master Servicer"), and _____________, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Purchaser hereby certifies, represents and warrants to, and covenants with, the Company, the Trustee and the Master Servicer that: 1. The Purchaser understands that (a) the Certificates have not been and will not be registered or qualified under the Securities Act of 1933, as amended (the "Act") or any state securities law, (b) the Company is not required to so register or qualify the Certificates, (c) the Certificates may be resold only if registered and qualified pursuant to the provisions of the Act or any state securities law, or if an exemption from such registration and qualification is available, (d) the Pooling and Servicing Agreement contains restrictions regarding the transfer of the Certificates and (e) the Certificates will bear a legend to the foregoing effect. 2. The Purchaser is acquiring the Certificates for its own account for investment only and not with a view to or for sale in connection with any distribution thereof in any manner that would violate the Act or any applicable state securities laws. 3. The Purchaser is (a) a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters, and, in particular, in such matters related to securities similar to the Certificates, such that it is capable of evaluating the merits and risks of investment in the Certificates, (b) able to bear the economic risks of such an investment and (c) an "accredited investor" within the meaning of Rule 501(a) promulgated pursuant to the Act. 4. The Purchaser has been furnished with, and has had an opportunity to review (a) [a copy of the Private Placement Memorandum, dated ___________, 20___, relating to the Certificates (b)] a copy of the Pooling and Servicing Agreement and [b] [c] such other information concerning the Certificates, the Mortgage Loans and the Company as has been requested by the Purchaser from the Company or the Seller and is relevant to the Purchaser's decision to purchase the Certificates. The Purchaser has had any questions arising from such review answered by the Company or the Seller to the satisfaction of the Purchaser. [If the Purchaser did not purchase the Certificates from the Seller in connection with the initial distribution of the Certificates and was provided with a copy of the Private Placement Memorandum (the "Memorandum") relating to the original sale (the "Original Sale") of the Certificates by the Company, the Purchaser acknowledges that such Memorandum was provided to it by the Seller, that the Memorandum was prepared by the Company solely for use in connection with the Original Sale and the Company did not participate in or facilitate in any way the purchase of the Certificates by the Purchaser from the Seller, and the Purchaser agrees that it will look solely to the Seller and not to the Company with respect to any damage, liability, claim or expense arising out of, resulting from or in connection with (a) error or omission, or alleged error or omission, contained in the Memorandum, or (b) any information, development or event arising after the date of the Memorandum.] 5. The Purchaser has not and will not nor has it authorized or will it authorize any person to (a) offer, pledge, sell, dispose of or otherwise transfer any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) solicit any offer to buy or to accept a pledge, disposition of other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) otherwise approach or negotiate with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) make any general solicitation by means of general advertising or in any other manner or (e) take any other action, that (as to any of (a) through (e) above) would constitute a distribution of any Certificate under the Act, that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Purchaser will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement. 6. The Purchaser (a) is not an employee benefit plan or other plan subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code") (each, a "Plan"), or any Person (including, without limitation, an investment manager, a named fiduciary or a trustee of any Plan) who is using "plan assets," within the meaning of the U.S. Department of Labor ("DOL") regulation promulgated at 29 C.F.R.ss. 2510.3-101, of any Plan (each, a "Plan Investor"), to effect such acquisition; (b) is an insurance company, the source of funds used to purchase or hold the Certificate (or any interest therein) is an "insurance company general account" (as defined in DOL Prohibited Transaction Class Exemption ("PTCE") 95-60), and the conditions set forth in Sections I and III of PTCE 95-60 have been satisfied; or (c) has provided the Trustee, the Company and the Master Servicer with an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer to the effect that the purchase and holding of the Certificates is permissible under applicable law, will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Company or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which opinion of counsel shall not be an expense of the Trustee, the Company or the Master Servicer. In addition, the Purchaser hereby certifies, represents and warrants to, and covenants with, the Company, the Trustee and the Master Servicer that the Purchaser will not transfer such Certificates to any transferee unless such transferee meets the requirements set forth in either (a), (b) or (c) above. Very truly yours, By:............................................... Name: Title: -------------------------------------------------------------------------------- EXHIBIT I FORM OF TRANSFEROR REPRESENTATION LETTER _________, 20___ Residential Funding Mortgage Securities I, Inc. 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 [Trustee] Attention: Residential Funding Corporation Series ________ Re: Mortgage Pass-Through Certificates, Series ________, [Class B-] Ladies and Gentlemen: In connection with the sale by ____________________ (the "Seller") to ____________________ (the "Purchaser") of __________________ Initial Certificate Principal Balance of Mortgage Pass-Through Certificates, Series ________, Class (the "Certificates"), issued pursuant to the Series Supplement, dated as of ________________, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (together, the "Pooling and Servicing Agreement") among Residential Funding Mortgage Securities I, Inc., as seller (the "Company"), Residential Funding Corporation, as master servicer, and __________, as trustee (the "Trustee"). The Seller hereby certifies, represents and warrants to, and covenants with, the Company and the Trustee that: Neither the Seller nor anyone acting on its behalf has (a) offered, pledged, sold, disposed of or otherwise transferred any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) has solicited any offer to buy or to accept a pledge, disposition or other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) has otherwise approached or negotiated with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) has made any general solicitation by means of general advertising or in any other manner, or (e) has taken any other action, that (as to any of (a) through (e) above) would constitute a distribution of the Certificates under the Securities Act of 1933 (the "Act"), that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Seller will not act, in any manner set forth in the foregoing sentence with respect to any Certificate. The Seller has not and will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement. -------------------------------------------------------------------------------- Very truly yours, (Seller) By: Name: Title: -------------------------------------------------------------------------------- EXHIBIT J [FORM OF RULE 144A INVESTMENT REPRESENTATION] Description of Rule 144A Securities, including numbers: _______________________________ _______________________________ _______________________________ _______________________________ The undersigned seller, as registered holder (the "Seller"), intends to transfer the Rule 144A Securities described above to the undersigned buyer (the "Buyer"). 1. In connection with such transfer and in accordance with the agreements pursuant to which the Rule 144A Securities were issued, the Seller hereby certifies the following facts: Neither the Seller nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security from, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Rule 144A Securities under the Securities Act of 1933, as amended (the "1933 Act"), or that would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, and that the Seller has not offered the Rule 144A Securities to any person other than the Buyer or another "qualified institutional buyer" as defined in Rule 144A under the 1933 Act. 2. The Buyer warrants and represents to, and covenants with, the Seller, the Trustee and the Master Servicer (as defined in the Series Supplement, dated as of ________________, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (the "Agreement") among Residential Funding Corporation as Master Servicer, Residential Funding Mortgage Securities I, Inc. as depositor pursuant to Section 5.02 of the Agreement and __________, as trustee, as follows: (a) The Buyer understands that the Rule 144A Securities have not been registered under the 1933 Act or the securities laws of any state. (b) The Buyer considers itself a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Rule 144A Securities. (c) The Buyer has been furnished with all information regarding the Rule 144A Securities that it has requested from the Seller, the Trustee or the Servicer. (d) Neither the Buyer nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security from, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Rule 144A Securities under the 1933 Act or that would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, nor will it act, nor has it authorized or will it authorize any person to act, in such manner with respect to the Rule 144A Securities. (e) The Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the 1933 Act and has completed either of the forms of certification to that effect attached hereto as Annex 1 or Annex 2. The Buyer is aware that the sale to it is being made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A Securities for its own account or the accounts of other qualified institutional buyers, understands that such Rule 144A Securities may be resold, pledged or transferred only (i) to a person reasonably believed to be a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, or (ii) pursuant to another exemption from registration under the 1933 Act. 3. The Buyer (a) is not an employee benefit plan or other plan subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code") (each, a "Plan"), or any Person (including, without limitation, an investment manager, a named fiduciary or a trustee of any Plan) who is using "plan assets," within the meaning of the U.S. Department of Labor ("DOL") regulation promulgated at 29 C.F.R.ss. 2510.3-101, of any Plan (each, a "Plan Investor"), to effect such acquisition; or (b) is an insurance company, the source of funds used to purchase or hold the Certificates (or any interest therein) is an "insurance company general account" (as defined in DOL Prohibited Transaction Class Exemption ("PTCE") 95-60), and the conditions set forth in Sections I and III PTCE 95-60 have been satisfied; or (c) has provided the Trustee, the Company and the Master Servicer with an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer to the effect that the purchase and holding of the Certificates is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments) and will not subject the Trustee, the Company or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which opinion of counsel shall not be an expense of the Trustee, the Company or the Master Servicer. 4. This document may be executed in one or more counterparts and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed to be an original; such counterparts, together, shall constitute one and the same document. IN WITNESS WHEREOF, each of the parties has executed this document as of the date set forth below. ____________________________ 5. __________________________ Print Name of Seller 6. Print Name of Buyer By:________________________ By:________________________ Name: 7. Name: Title: 8. Title: Taxpayer Identification 9. Taxpayer Identification: No. 10. No: Date: 11. Date: -------------------------------------------------------------------------------- ANNEX 1 TO EXHIBIT J QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Buyers Other Than Registered Investment Companies] The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached: 1. As indicated below, the undersigned is the President, Chief Financial Officer, Senior Vice President or other executive officer of the Buyer. 2. In connection with purchases by the Buyer, the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested on a discretionary basis $ in securities (except for the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A) and (ii) the Buyer satisfies the criteria in the category marked below. ___ Corporation, etc. The Buyer is a corporation (other than a bank, savings and loan association or similar institution), Massachusetts or similar business trust, partnership, or charitable organization described in Section 501(c)(3) of the Internal Revenue Code. ___ Bank. The Buyer (a) is a national bank or banking institution organized under the laws of any State, territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the State or territorial banking commission or similar official or is a foreign bank or equivalent institution, and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements, a copy of which is attached hereto. ___ Savings and Loan. The Buyer (a) is a savings and loan association, building and loan association, cooperative bank, homestead association or similar institution, which is supervised and examined by a State or Federal authority having supervision over any such institutions or is a foreign savings and loan association or equivalent institution and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements. ___ Broker-Dealer. The Buyer is a dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. ___ Insurance Company. The Buyer is an insurance company whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies and which is subject to supervision by the insurance commissioner or a similar official or agency of a State or territory or the District of Columbia. ___ State or Local Plan. The Buyer is a plan established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees. ___ ERISA Plan. The Buyer is an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974. ___ Investment Adviser. The Buyer is an investment adviser registered under the Investment Advisers Act of 1940. ___ SBIC. The Buyer is a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958. ___ Business Development Company. The Buyer is a business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940. ___ Trust Fund. The Buyer is a trust fund whose trustee is a bank or trust company and whose participants are exclusively (a) plans established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees, or (b) employee benefit plans within the meaning of Title I of the Employee Retirement Income Security Act of 1974, but is not a trust fund that includes as participants individual retirement accounts or H.R.10 plans. 3. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with the Buyer, (ii) securities that are part of an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan participations, (v) repurchase agreements, (vi) securities owned but subject to a repurchase agreement and (vii) currency, interest rate and commodity swaps. 4. For purposes of determining the aggregate amount of securities owned and/or invested on a discretionary basis by the Buyer, the Buyer used the cost of such securities to the Buyer and did not include any of the securities referred to in the preceding paragraph. Further, in determining such aggregate amount, the Buyer may have included securities owned by subsidiaries of the Buyer, but only if such subsidiaries are consolidated with the Buyer in its financial statements prepared in accordance with generally accepted accounting principles and if the investments of such subsidiaries are managed under the Buyer's direction. However, such securities were not included if the Buyer is a majority-owned, consolidated subsidiary of another enterprise and the Buyer is not itself a reporting company under the Securities Exchange Act of 1934. 5. The Buyer acknowledges that it is familiar with Rule 144A and understands that the seller to it and other parties related to the Certificates are relying and will continue to rely on the statements made herein because one or more sales to the Buyer may be in reliance on Rule 144A. ____ ____ Will the Buyer be purchasing the Rule Yes No 144A Securities only for the Buyer's own account? 6. If the answer to the foregoing question is "no", the Buyer agrees that, in connection with any purchase of securities sold to the Buyer for the account of a third party (including any separate account) in reliance on Rule 144A, the Buyer will only purchase for the account of a third party that at the time is a "qualified institutional buyer" within the meaning of Rule 144A. In addition, the Buyer agrees that the Buyer will not purchase securities for a third party unless the Buyer has obtained a current representation letter from such third party or taken other appropriate steps contemplated by Rule 144A to conclude that such third party independently meets the definition of "qualified institutional buyer" set forth in Rule 144A. 7. The Buyer will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice is given, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification as of the date of such purchase. Print Name of Buyer By:............................................... Name: Title: Date:............................................. -------------------------------------------------------------------------------- ANNEX 2 TO EXHIBIT J QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Buyers That Are Registered Investment Companies] The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached: 1. As indicated below, the undersigned is the President, Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of Investment Companies (as defined below), is such an officer of the Adviser. 2. In connection with purchases by Buyer, the Buyer is a "qualified institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an investment company registered under the Investment Company Act of 1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of Investment Companies, owned at least $100,000,000 in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year. For purposes of determining the amount of securities owned by the Buyer or the Buyer's Family of Investment Companies, the cost of such securities was used. The Buyer owned $ in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). The Buyer is part of a Family of Investment Companies which owned in the aggregate $ in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). 3. The term "Family of Investment Companies" as used herein means two or more registered investment companies (or series thereof) that have the same investment adviser or investment advisers that are affiliated (by virtue of being majority owned subsidiaries of the same parent or because one investment adviser is a majority owned subsidiary of the other). 4. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with the Buyer or are part of the Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates of deposit, (iii) loan participations, (iv) repurchase agreements, (v) securities owned but subject to a repurchase agreement and (vi) currency, interest rate and commodity swaps. 5. The Buyer is familiar with Rule 144A and understands that each of the parties to which this certification is made are relying and will continue to rely on the statements made herein because one or more sales to the Buyer will be in reliance on Rule 144A. In addition, the Buyer will only purchase for the Buyer's own account. 6. The undersigned will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification by the undersigned as of the date of such purchase. Print Name of Buyer By: Name: Title: IF AN ADVISOR: Print Name of Buyer Date:............................................. -------------------------------------------------------------------------------- EXHIBIT K [TEXT OF AMENDMENT TO POOLING AND SERVICING AGREEMENT PURSUANT TO SECTION 11.01(E) FOR ALIMITED GUARANTY] ARTICLE XII SUBORDINATE CERTIFICATE LOSS COVERAGE; LIMITED GUARANTY Section 12.01. Subordinate Certificate Loss Coverage; Limited Guaranty. (a) Subject to subsection (c) below, prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date, the Master Servicer shall determine whether it or any Sub-Servicer will be entitled to any reimbursement pursuant to Section 4.02(a) on such Distribution Date for Advances or Sub-Servicer Advances previously made, (which will not be Advances or Sub-Servicer Advances that were made with respect to delinquencies which were subsequently determined to be Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses) and, if so, the Master Servicer shall demand payment from Residential Funding of an amount equal to the amount of any Advances or Sub-Servicer Advances reimbursed pursuant to Section 4.02(a), to the extent such Advances or Sub-Servicer Advances have not been included in the amount of the Realized Loss in the related Mortgage Loan, and shall distribute the same to the Class B Certificateholders in the same manner as if such amount were to be distributed pursuant to Section 4.02(a). (b)....Subject to subsection (c) below, prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date, the Master Servicer shall determine whether any Realized Losses (other than Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess Fraud Losses and Extraordinary Losses) will be allocated to the Class B Certificates on such Distribution Date pursuant to Section 4.05, and, if so, the Master Servicer shall demand payment from Residential Funding of the amount of such Realized Loss and shall distribute the same to the Class B Certificateholders in the same manner as if such amount were to be distributed pursuant to Section 4.02(a); provided, however, that the amount of such demand in respect of any Distribution Date shall in no event be greater than the sum of (i) the additional amount of Accrued Certificate Interest that would have been paid for the Class B Certificateholders on such Distribution Date had such Realized Loss or Losses not occurred plus (ii) the amount of the reduction in the Certificate Principal Balances of the Class B Certificates on such Distribution Date due to such Realized Loss or Losses. Notwithstanding such payment, such Realized Losses shall be deemed to have been borne by the Certificateholders for purposes of Section 4.05. Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses allocated to the Class B Certificates will not be covered by the Subordinate Certificate Loss Obligation. (c)....Demands for payments pursuant to this Section shall be made prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date by the Master Servicer with written notice thereof to the Trustee. The maximum amount that Residential Funding shall be required to pay pursuant to this Section on any Distribution Date (the "Amount Available") shall be equal to the lesser of (X) minus the sum of (i) all previous payments made under subsections (a) and (b) hereof and (ii) all draws under the Limited Guaranty made in lieu of such payments as described below in subsection (d) and (Y) the then outstanding Certificate Principal Balances of the Class B Certificates, or such lower amount as may be established pursuant to Section 12.02. Residential Funding's obligations as described in this Section are referred to herein as the "Subordinate Certificate Loss Obligation." (d)....The Trustee will promptly notify General Motors Acceptance Corporation of any failure of Residential Funding to make any payments hereunder and shall demand payment pursuant to the limited guaranty (the "Limited Guaranty"), executed by General Motors Acceptance Corporation, of Residential Funding's obligation to make payments pursuant to this Section, in an amount equal to the lesser of (i) the Amount Available and (ii) such required payments, by delivering to General Motors Acceptance Corporation a written demand for payment by wire transfer, not later than the second Business Day prior to the Distribution Date for such month, with a copy to the Master Servicer. (e)....All payments made by Residential Funding pursuant to this Section or amounts paid under the Limited Guaranty shall be deposited directly in the Certificate Account, for distribution on the Distribution Date for such month to the Class B Certificateholders. (f)....The Company shall have the option, in its sole discretion, to substitute for either or both of the Limited Guaranty or the Subordinate Certificate Loss Obligation another instrument in the form of a corporate guaranty, an irrevocable letter of credit, a surety bond, insurance policy or similar instrument or a reserve fund; provided that (i) the Company obtains (subject to the provisions of Section 10.01(f) as if the Company was substituted for the Master Servicer solely for the purposes of such provision) an Opinion of Counsel (which need not be an opinion of Independent counsel) to the effect that obtaining such substitute corporate guaranty, irrevocable letter of credit, surety bond, insurance policy or similar instrument or reserve fund will not cause either (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860(F)(a)(1) of the Code or on "contributions after the startup date" under Section 860(G)(d)(1) of the Code or (b) the Trust Fund to fail to qualify as a REMIC at any time that any Certificate is outstanding, and (ii) no such substitution shall be made unless (A) the substitute Limited Guaranty or Subordinate Certificate Loss Obligation is for an initial amount not less than the then current Amount Available and contains provisions that are in all material respects equivalent to the original Limited Guaranty or Subordinate Certificate Loss Obligation (including that no portion of the fees, reimbursements or other obligations under any such instrument will be borne by the Trust Fund), (B) the long term debt obligations of any obligor of any substitute Limited Guaranty or Subordinate Certificate Loss Obligation (if not supported by the Limited Guaranty) shall be rated at least the lesser of (a) the rating of the long term debt obligations of General Motors Acceptance Corporation as of the date of issuance of the Limited Guaranty and (b) the rating of the long term debt obligations of General Motors Acceptance Corporation at the date of such substitution and (C) the Company obtains written confirmation from each nationally recognized credit rating agency that rated the Class B Certificates at the request of the Company that such substitution shall not lower the rating on the Class B Certificates below the lesser of (a) the then-current rating assigned to the Class B Certificates by such rating agency and (b) the original rating assigned to the Class B Certificates by such rating agency. Any replacement of the Limited Guaranty or Subordinate Certificate Loss Obligation pursuant to this Section shall be accompanied by a written Opinion of Counsel to the substitute guarantor or obligor, addressed to the Master Servicer and the Trustee, that such substitute instrument constitutes a legal, valid and binding obligation of the substitute guarantor or obligor, enforceable in accordance with its terms, and concerning such other matters as the Master Servicer and the Trustee shall reasonably request. Neither the Company, the Master Servicer nor the Trustee shall be obligated to substitute for or replace the Limited Guaranty or Subordinate Certificate Loss Obligation under any circumstance. Section 12.02. Amendments Relating to the Limited Guaranty. Notwithstanding Sections 11.01 or 12.01: (i) the provisions of this Article XII may be amended, superseded or deleted, (ii) the Limited Guaranty or Subordinate Certificate Loss Obligation may be amended, reduced or canceled, and (iii) any other provision of this Agreement which is related or incidental to the matters described in this Article XII may be amended in any manner; in each case by written instrument executed or consented to by the Company and Residential Funding but without the consent of any Certificateholder and without the consent of the Master Servicer or the Trustee being required unless any such amendment would impose any additional obligation on, or otherwise adversely affect the interests of, the Master Servicer or the Trustee, as applicable; provided that the Company shall also obtain a letter from each nationally recognized credit rating agency that rated the Class B Certificates at the request of the Company to the effect that such amendment, reduction, deletion or cancellation will not lower the rating on the Class B Certificates below the lesser of (a) the then-current rating assigned to the Class B Certificates by such rating agency and (b) the original rating assigned to the Class B Certificates by such rating agency, unless (A) the Holder of 100% of the Class B Certificates is Residential Funding or an Affiliate of Residential Funding, or (B) such amendment, reduction, deletion or cancellation is made in accordance with Section 11.01(e) and, provided further that the Company obtains (subject to the provisions of Section 10.01(f) as if the Company was substituted for the Master Servicer solely for the purposes of such provision), in the case of a material amendment or supersession (but not a reduction, cancellation or deletion of the Limited Guaranty or the Subordinate Certificate Loss Obligation), an Opinion of Counsel (which need not be an opinion of Independent counsel) to the effect that any such amendment or supersession will not cause either (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code or (b) the Trust Fund to fail to qualify as a REMIC at any time that any Certificate is outstanding. A copy of any such instrument shall be provided to the Trustee and the Master Servicer together with an Opinion of Counsel that such amendment complies with this Section 12.02. -------------------------------------------------------------------------------- EXHIBIT L [FORM OF LIMITED GUARANTY] LIMITED GUARANTY RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC. Mortgage Pass-Through Certificates Series ________ ___________, 20____ [Trustee] Attention: Residential Funding Corporation Series ________ Ladies and Gentlemen: WHEREAS, Residential Funding Corporation, a Delaware corporation ("Residential Funding"), an indirect wholly-owned subsidiary of General Motors Acceptance Corporation, a New York corporation ("GMAC"), plans to incur certain obligations as described under Section 12.01 of the Series Supplement, dated as of ________________, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (together, the "Servicing Agreement"), among Residential Funding Mortgage Securities I, Inc. (the "Company"), Residential Funding and __________ (the "Trustee") as amended by Amendment No. thereto, dated as of , with respect to the Mortgage Pass-Through Certificates, Series ________ (the "Certificates"); and WHEREAS, pursuant to Section 12.01 of the Servicing Agreement, Residential Funding agrees to make payments to the Holders of the Class B Certificates with respect to certain losses on the Mortgage Loans as described in the Servicing Agreement; and WHEREAS, GMAC desires to provide certain assurances with respect to the ability of Residential Funding to secure sufficient funds and faithfully to perform its Subordinate Certificate Loss Obligation; NOW THEREFORE, in consideration of the premises herein contained and certain other good and valuable consideration, the receipt of which is hereby acknowledged, GMAC agrees as follows: 1. Provision of Funds. (a) GMAC agrees to contribute and deposit in the Certificate Account on behalf of Residential Funding (or otherwise provide to Residential Funding, or to cause to be made available to Residential Funding), either directly or through a subsidiary, in any case prior to the related Distribution Date, such moneys as may be required by Residential Funding to perform its Subordinate Certificate Loss Obligation when and as the same arises from time to time upon the demand of the Trustee in accordance with Section 12.01 of the Servicing Agreement. (b) The agreement set forth in the preceding clause (a) shall be absolute, irrevocable and unconditional and shall not be affected by the transfer by GMAC or any other person of all or any part of its or their interest in Residential Funding, by any insolvency, bankruptcy, dissolution or other proceeding affecting Residential Funding or any other person, by any defense or right of counterclaim, set-off or recoupment that GMAC may have against Residential Funding or any other person or by any other fact or circumstance. Notwithstanding the foregoing, GMAC's obligations under clause (a) shall terminate upon the earlier of (x) substitution for this Limited Guaranty pursuant to Section 12.01(f) of the Servicing Agreement, or (y) the termination of the Trust Fund pursuant to the Servicing Agreement. 2. Waiver. GMAC hereby waives any failure or delay on the part of Residential Funding, the Trustee or any other person in asserting or enforcing any rights or in making any claims or demands hereunder. Any defective or partial exercise of any such rights shall not preclude any other or further exercise of that or any other such right. GMAC further waives demand, presentment, notice of default, protest, notice of acceptance and any other notices with respect to this Limited Guaranty, including, without limitation, those of action or nonaction on the part of Residential Funding or the Trustee. 3. Modification, Amendment and Termination. This Limited Guaranty may be modified, amended or terminated only by the written agreement of GMAC and the Trustee and only if such modification, amendment or termination is permitted under Section 12.02 of the Servicing Agreement. The obligations of GMAC under this Limited Guaranty shall continue and remain in effect so long as the Servicing Agreement is not modified or amended in any way that might affect the obligations of GMAC under this Limited Guaranty without the prior written consent of GMAC. 4. Successor. Except as otherwise expressly provided herein, the guarantee herein set forth shall be binding upon GMAC and its respective successors. 5. Governing Law. This Limited Guaranty shall be governed by the laws of the State of New York. 6. Authorization and Reliance. GMAC understands that a copy of this Limited Guaranty shall be delivered to the Trustee in connection with the execution of Amendment No. 1 to the Servicing Agreement and GMAC hereby authorizes the Company and the Trustee to rely on the covenants and agreements set forth herein. 7. Definitions. Capitalized terms used but not otherwise defined herein shall have the meaning given them in the Servicing Agreement. 8. Counterparts. This Limited Guaranty may be executed in any number of counterparts, each of which shall be deemed to be an original and such counterparts shall constitute but one and the same instrument. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, GMAC has caused this Limited Guaranty to be executed and delivered by its respective officers thereunto duly authorized as of the day and year first above written. GENERAL MOTORS ACCEPTANCE CORPORATION By:............................................... Name: Title: Acknowledged by: [Trustee], as Trustee By: ....... Name: Title: RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC. By: ....... Name: Title: -------------------------------------------------------------------------------- EXHIBIT M FORM OF LENDER CERTIFICATION FOR ASSIGNMENT OF MORTGAGE LOAN _____________, 20______ Residential Funding Mortgage Securities I, Inc. 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 [Trustee] Attention: Residential Funding Corporation Series ________ Re: Mortgage Pass-Through Certificates, Series ________ Assignment of Mortgage Loan Ladies and Gentlemen: This letter is delivered to you in connection with the assignment by ___________ (the "Trustee") to _____________________ (the "Lender") of __________________(the "Mortgage Loan") pursuant to Section 3.13(d) of the Series Supplement, dated as of ________________, to the Standard Terms of Pooling and Servicing Agreement dated as of ________________ (together, the "Pooling and Servicing Agreement") among Residential Funding Mortgage Securities I, Inc., as seller (the "Company"), Residential Funding Corporation, as master servicer, and the Trustee. All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Lender hereby certifies, represents and warrants to, and covenants with, the Master Servicer and the Trustee that: (a) the Mortgage Loan is secured by Mortgaged Property located in a jurisdiction in which an assignment in lieu of satisfaction is required to preserve lien priority, minimize or avoid mortgage recording taxes or otherwise comply with, or facilitate a refinancing under, the laws of such jurisdiction; (b) the substance of the assignment is, and is intended to be, a refinancing of such Mortgage Loan and the form of the transaction is solely to comply with, or facilitate the transaction under, such local laws; (c) the Mortgage Loan following the proposed assignment will be modified to have a rate of interest at least 0.25 percent below or above the rate of interest on such Mortgage Loan prior to such proposed assignment; and such assignment is at the request of the borrower under the related Mortgage Loan. Very truly yours, (Lender) By:............................................... Name: Title: -------------------------------------------------------------------------------- EXHIBIT N FORM OF REQUEST FOR EXCHANGE [Date] U.S. Bank National Association U.S. Bank Corporate Trust Services 60 Livingston Avenue EP-MN-WS3D St. Paul, MN 55107-2292 Re: Residential Funding Mortgage Securities I, Inc. Mortgage Pass-Through Certificates, Series [________] Residential Funding Corporation, as the Holder of a ____% Percentage Interest of the [Class/Subclass] of Class A-V Certificates, hereby requests the Trustee to exchange the above-referenced Certificates for the Subclasses referred to below: 1. Class A-V Certificates, corresponding to the following Uncertificated REMIC Regular Interests: [List numbers corresponding to the related loans and Pool Strip Rates from the Mortgage Loan Schedule]. The Initial Subclass Notional Amount and the initial Pass-Through Rate on the Class A-V Certificates will be $___________ and _____%, respectively. [2. Repeat as appropriate.] The Subclasses requested above will represent in the aggregate all of the Uncertificated REMIC Regular Interests represented by the Class A-V Certificates surrendered for exchange. The capitalized terms used but not defined herein shall have the meanings set forth in the Pooling and Servicing Agreement, dated as of _______, among Residential Funding Mortgage Securities I, Inc., Residential Funding Corporation and U.S. Bank National Association, as trustee. RESIDENTIAL FUNDING CORPORATION By:............................................... Name: Title: -------------------------------------------------------------------------------- EXHIBIT O FORM OF FORM 10-K CERTIFICATION I, [identify the certifying individual], certify that: 1. I have reviewed this report on Form 10-K and all reports on Form 10-D required to be filed in respect of the period covered by this report on Form 10-K of the trust (the Exchange Act periodic reports) created pursuant to the Pooling and Servicing Agreement dated __________ (the "Agreement") among Residential Funding Mortgage Securities I, Inc., Residential Funding Corporation (the "Master Servicer") and [Name of Trustee] (the "Trustee"); 2. Based on my knowledge, Exchange Act periodic reports, taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, all of the distribution, servicing and other information required to be provided under Form 10-D for the period covered by this report is included in the Exchange Act periodic reports; 4. I am responsible for reviewing the activities performed by the Master Servicer and based on my knowledge and the compliance review conducted in preparing the servicer compliance statement required in this report under Item 1123 of Regulation AB and except as disclosed in the Exchange Act periodic reports, the Master Servicer has fulfilled its obligations under the Agreement; and 5. All of the reports on assessment of compliance with servicing criteria for asset-backed securities and their related attestation reports on assessment of compliance with servicing criteria for asset-backed securities required to be included in this report in accordance with Item 1122 of Regulation AB and Exchange Act Rules 13a-18 and 15d-18 have been included as an exhibit to this report, except as otherwise disclosed in this report. Any material instances of noncompliance described in such reports have been disclosed in this report on Form 10-K. In giving the certifications above, I have reasonably relied on the information provided to me by the following unaffiliated parties: [the Trustee]. Date:____________ _________________________________* [Signature] Name: Title: * - to be signed by the senior officer in charge of the servicing functions of the Master Servicer -------------------------------------------------------------------------------- EXHIBIT P FORM OF BACK-UP CERTIFICATION TO FORM 10-K CERTIFICATE The undersigned, a Responsible Officer of U.S. Bank National Association (the "Trustee") certifies that: 1. The Trustee has performed all of the duties specifically required to be performed by it pursuant to the provisions of the Pooling and Servicing Agreement dated ____________ (the "Agreement") by and among Residential Funding Mortgage Securities I, Inc. (the "Company"), Residential Funding Corporation (the "Master Servicer") and Trustee in accordance with the standards set forth therein. 2. Based on my knowledge, the list of Certificateholders as shown on the Certificate Register as of the end of each calendar year that is provided by the Trustee pursuant to Section 4.03(f)(I) of the Agreement is accurate as of the last day of the 20___ calendar year. Capitalized terms used and not defined herein shall have the meanings given such terms in the Agreement. IN WITNESS THEREOF, I have duly executed this certificate as of ____________, 20___. Name:............................................. Title:............................................ -------------------------------------------------------------------------------- EXHIBIT Q INFORMATION TO BE PROVIDED BY THE MASTER SERVICER TO THE RATING AGENCIES RELATING TO REPORTABLE MODIFIED MORTGAGE LOANS Account number Transaction Identifier Unpaid Principal Balance prior to Modification Next Due Date Monthly Principal and Interest Payment Total Servicing Advances Current Interest Rate Original Maturity Date Original Term to Maturity (Months) Remaining Term to Maturity (Months) Trial Modification Indicator Mortgagor Equity Contribution Total Servicer Advances Trial Modification Terms (Months) Trial Modification Start Date Trial Modification End Date Trial Modification Period Principal and Interest Payment Trial Modification Interest Rate Trial Modification Term Rate Reduction Indicator Interest Rate Post Modification Rate Reduction Start Date Rate Reduction End Date Rate Reduction Term Term Modified Indicator Modified Amortization Period Modified Final Maturity Date Total Advances Written Off Unpaid Principal Balance Written Off Other Past Due Amounts Written Off Write Off Date Unpaid Principal Balance Post Write Off Capitalization Indicator Mortgagor Contribution Total Capitalized Amount Modification Close Date Unpaid Principal Balance Post Capitalization Modification Next Payment Due Date per Modification Plan Principal and Interest Payment Post Modification Interest Rate Post Modification Payment Made Post Capitalization Delinquency Status to Modification Plan -------------------------------------------------------------------------------- EXHIBIT R SERVICING CRITERIA The assessment of compliance to be delivered by the Trustee shall address, at a minimum, the criteria identified below as "Applicable Servicing Criteria" -------------------------------------------------------------------------- ------------------ APPLICABLE SERVICING SERVICING CRITERIA CRITERIA ----------------- -------------------------------------------------------- ------------------ REFERENCE CRITERIA ----------------- -------------------------------------------------------- ------------------ GENERAL SERVICING CONSIDERATIONS ----------------- -------------------------------------------------------- ------------------ 1122(d)(1)(i) Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements. ----------------- -------------------------------------------------------- ------------------ 1122(d)(1)(ii) If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party's performance and compliance with such servicing activities. ----------------- -------------------------------------------------------- ------------------ 1122(d)(1)(iii) Any requirements in the transaction agreements to maintain a back-up servicer for the pool assets are maintained. ----------------- -------------------------------------------------------- ------------------ 1122(d)(1)(iv) A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction agreements. ----------------- -------------------------------------------------------- ------------------ CASH COLLECTION AND ADMINISTRATION ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(i) Payments on pool assets are deposited into the |X|(as to appropriate custodial bank accounts and related bank clearing accounts no more than two business days following receipt, or such other number of days accounts held by specified in the transaction agreements. Trustee) ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(ii) Disbursements made via wire transfer on behalf of an |X|(as to obligor or to an investor are made only by authorized investors only) personnel. ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(iii) Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of |X|(as to overcollateralization, are separately maintained accounts held by (e.g., with respect to commingling of cash) as set Trustee) 1122(d)(2)(iv) forth in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(v) Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements. For purposes of this criterion, "federally insured depository institution" with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) of the Securities Exchange Act. ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(vi) Unissued checks are safeguarded so as to prevent unauthorized access. ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(vii) Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts. These reconciliations are (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items. These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ INVESTOR REMITTANCES AND REPORTING ----------------- -------------------------------------------------------- ------------------ 1122(d)(3)(i) Reports to investors, including those to be filed with the Commission, are maintained in accordance with the transaction agreements and applicable Commission requirements. Specifically, such reports (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the Commission as required by its rules and regulations; and (D) agree with investors' or the trustee's records as to the total unpaid principal balance and number of pool assets serviced by the servicer. ----------------- -------------------------------------------------------- ------------------ 1122(d)(3)(ii) Amounts due to investors are allocated and remitted in |X| accordance with timeframes, distribution priority and other terms set forth in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ Disbursements made to an investor are posted within two business days to the servicer's investor records, or such other number of days specified in the |X| 1122(d)(3)(iii) transaction agreements. ----------------- -------------------------------------------------------- ------------------ Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, |X| 1122(d)(3)(iv) or custodial bank statements. ----------------- -------------------------------------------------------- ------------------ POOL ASSET ADMINISTRATION ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(i) Collateral or security pool asset is maintained as required by the transaction agreements or related asset pool documents. ----------------- -------------------------------------------------------- ------------------ Pool assets and related documents are safeguarded as 1122(d)(4)(ii) required by the transaction agreements ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(iii) Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(iv) Payments on pool assets, including any payoffs, made in accordance with the related pool asset documents are posted to the servicer's obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related pool asset documents. ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(v) The servicer's records regarding the pool assets agree with the servicer's records with respect to an obligor's unpaid principal balance. ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(vi) Changes with respect to the terms or status of an obligor's pool asset (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents. ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(vii) Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements established by the transaction agreements. ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(viii) Records documenting collection efforts are maintained during the period a pool asset is delinquent in accordance with the transaction agreements. Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity's activities in monitoring delinquent pool assets including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or unemployment). ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(ix) Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset documents. ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(x) Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor's pool asset documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable pool asset documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related pool asset, or such other number of days specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(xi) Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(xii) Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer's funds and not charged to the obligor, unless the late payment was due to the obligor's error or omission. ----------------- -------------------------------------------------------- ------------------ Disbursements made on behalf of an obligor are posted within two business days to the obligor's records maintained by the servicer, or such other number of 1122(d)(4)(xiii) days specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(xiv) Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements. ----------------- -------------------------------------------------------- ------------------ Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as set forth in the |X| 1122(d)(4)(xv) transaction agreements. ----------------- -------------------------------------------------------- ------------------

  Exhibit 10.1 Execution Version --------------------------------------------------------------------------------   SECOND AMENDED AND RESTATED REVOLVING LOAN AGREEMENT dated as of November 14, 2006 among AVALONBAY COMMUNITIES, INC., as Borrower, JPMORGAN CHASE BANK, N.A. and WACHOVIA BANK, NATIONAL ASSOCIATION, as a Bank and Syndication Agent, BANK OF AMERICA, N.A., as a Bank, Swing Lender and Issuing Bank MORGAN STANLEY BANK, WELLS FARGO BANK, NATIONAL ASSOCIATION and DEUTSCHE BANK TRUST COMPANY AMERICAS, as a Bank and Documentation Agent, THE OTHER BANKS SIGNATORY HERETO, each as a Bank, J.P. MORGAN SECURITIES INC., as Sole Bookrunner and Lead Arranger, and BANK OF AMERICA, N.A., as Administrative Agent   --------------------------------------------------------------------------------     TABLE OF CONTENTS       Page ARTICLE I   DEFINITIONS; ETC   1 Section 1.01   Definitions   1 Section 1.02   Accounting Terms   18 Section 1.03   Computation of Time Periods   18 Section 1.04   Rules of Construction   18           ARTICLE II   THE LOANS   18 Section 2.01   Ratable Loans; Bid Rate Loans; Purpose   18 Section 2.02   Bid Rate Loans   19 Section 2.03   Advances, Generally   23 Section 2.04   Procedures for Advances   23 Section 2.05   Interest Periods; Renewals   24 Section 2.06   Interest   24 Section 2.07   Fees   24 Section 2.08   Notes   25 Section 2.09   Prepayments   26 Section 2.10   Cancellation of Commitments   26 Section 2.11   Method of Payment   26 Section 2.12   Elections, Conversions or Continuation of Loans   27 Section 2.13   Minimum Amounts   27 Section 2.14   Certain Notices Regarding Elections, Conversions and Continuations of Loans   27 Section 2.15   Late Payment Premium   28 Section 2.16   Letters of Credit   28 Section 2.17   Swing Loans   30 Section 2.18   Extension Of Maturity   32 Section 2.19   Additional Loan Commitments   32           ARTICLE III   YIELD PROTECTION; ILLEGALITY, ETC   34 Section 3.01   Additional Costs   34 Section 3.02   Limitation on Types of Loans   35 Section 3.03   Illegality   35   i --------------------------------------------------------------------------------     Section 3.04   Treatment of Affected Loans   36 Section 3.05   Certain Compensation   36 Section 3.06   Capital Adequacy   37 Section 3.07   Substitution of Banks   37 Section 3.08   Applicability   38 Section 3.09   Time for Notices   38           ARTICLE IV   CONDITIONS PRECEDENT   39 Section 4.01   Conditions Precedent to the Initial Advance   39 Section 4.02   Conditions Precedent to Each Advance   40 Section 4.03   Deemed Representations   41           ARTICLE V   REPRESENTATIONS AND WARRANTIES   41 Section 5.01   Due Organization   41 Section 5.02   Power and Authority; No Conflicts; Compliance With Laws   41 Section 5.03   Legally Enforceable Agreements   41 Section 5.04   Litigation   42 Section 5.05   Good Title to Properties   42 Section 5.06   Taxes   42 Section 5.07   ERISA   42 Section 5.08   No Default on Outstanding Judgments or Orders, Etc   42 Section 5.09   No Defaults on Other Agreements   43 Section 5.10   Government Regulation   43 Section 5.11   Environmental Protection   43 Section 5.12   Solvency   43 Section 5.13   Financial Statements   43 Section 5.14   Valid Existence of Affiliates   43 Section 5.15   Insurance   44 Section 5.16   Accuracy of Information; Full Disclosure   44           ARTICLE VI   AFFIRMATIVE COVENANTS   44 Section 6.01   Maintenance of Existence   44 Section 6.02   Maintenance of Records   44   ii --------------------------------------------------------------------------------     Section 6.03   Maintenance of Insurance   44 Section 6.04   Compliance with Laws; Payment of Taxes   45 Section 6.05   Right of Inspection   45 Section 6.06   Compliance With Environmental Laws   45 Section 6.07   Maintenance of Properties   45 Section 6.08   Payment of Costs   45 Section 6.09   Reporting and Miscellaneous Document Requirements   45 Section 6.10   Principal Prepayments as a Result of Reduction in Total Loan Commitment   48           ARTICLE VII   NEGATIVE COVENANTS   48 Section 7.01   Mergers Etc   48 Section 7.02   Investments   48 Section 7.03   Sale of Assets   48 Section 7.04   Distributions   48           ARTICLE VIII   FINANCIAL COVENANTS   49 Section 8.01   Relationship of Total Outstanding Indebtedness to Capitalization Value   49 Section 8.02   Relationship of Combined EBITDA to Combined Debt Service   49 Section 8.03   Ratio of Unsecured Indebtedness to Unencumbered Asset Value   49 Section 8.04   Relationship of Secured Indebtedness to Capitalization Value   49           ARTICLE IX   EVENTS OF DEFAULT   49 Section 9.01   Events of Default   49 Section 9.02   Remedies   52           ARTICLE X   ADMINISTRATIVE AGENT; RELATIONS AMONG BANKS   52 Section 10.01   Appointment, Powers and Immunities of Administrative Agent   52 Section 10.02   Reliance by Administrative Agent   53 Section 10.03   Defaults   53 Section 10.04   Rights of Administrative Agent as a Bank   54   iii --------------------------------------------------------------------------------     Section 10.05   Indemnification of Administrative Agent   54 Section 10.06   Non-Reliance on Administrative Agent and Other Banks   54 Section 10.07   Failure of Administrative Agent to Act   55 Section 10.08   Resignation or Removal of Administrative Agent   55 Section 10.09   Amendments Concerning Agency Function   56 Section 10.10   Liability of Administrative Agent   56 Section 10.11   Transfer of Agency Function   56 Section 10.12   Non-Receipt of Funds by Administrative Agent   56 Section 10.13   Withholding Taxes   57 Section 10.14   [Reserved]   57 Section 10.15   Pro Rata Treatment   57 Section 10.16   Sharing of Payments Among Banks   57 Section 10.17   Possession of Documents   58           ARTICLE XI   NATURE OF OBLIGATIONS   58 Section 11.01   Absolute and Unconditional Obligations   58 Section 11.02   Non-Recourse to Borrower’s Principals   58           ARTICLE XII   MISCELLANEOUS   59 Section 12.01   Binding Effect of Request for Advance   59 Section 12.02   Amendments and Waivers   59 Section 12.03   Usury   60 Section 12.04   Expenses; Indemnification   60 Section 12.05   Assignment; Participation   61 Section 12.06   Documentation Satisfactory   63 Section 12.07   Notices   63 Section 12.08   Setoff   65 Section 12.09   Table of Contents; Headings   65 Section 12.10   Severability   65 Section 12.11   Counterparts   65 Section 12.12   Integration   65 Section 12.13   Governing Law   65 Section 12.14   Waivers   65 Section 12.15   Jurisdiction; Immunities   66 Section 12.16   Designated Lender   67 Section 12.17   No Bankruptcy Proceedings   67 Section 12.18   USA Patriot Act   67 Section 12.19   Transitional Arrangements   68   iv --------------------------------------------------------------------------------   EXHIBITS EXHIBIT A   —   Authorization Letter EXHIBIT B   —   Ratable Loan Note EXHIBIT B-1   —   Bid Rate Loan Note EXHIBIT B-2   —   Swing Loan Note EXHIBIT C   —   Information Regarding Material Affiliates EXHIBIT D   —   Solvency Certificate EXHIBIT E   —   Assignment and Acceptance EXHIBIT F   —   Designation Agreement EXHIBIT G-1   —   Bid Rate Quote Request EXHIBIT G-2   —   Invitation for Bid Rate Quotes EXHIBIT G-3   —   Bid Rate Quote EXHIBIT G-4   —   Borrower’s Acceptance of Bid Rate Quote EXHIBIT H   —   Acceptance Letter EXHIBIT I   —   Form of Guaranty                     SCHEDULES           SCHEDULE 1   —   Loan Commitments SCHEDULE 2.16       Existing Letters of Credit   -------------------------------------------------------------------------------- SECOND AMENDED AND RESTATED REVOLVING LOAN AGREEMENT dated as of November 14, 2006 (this “Agreement”) among AVALONBAY COMMUNITIES, INC., a corporation organized and existing under the laws of the State of Maryland (“Borrower”); JPMORGAN CHASE BANK, N.A. (“JPMC”), BANK OF AMERICA, N.A. or any successor thereto (in its individual capacity and not as Administrative Agent, “Bank of America”) and the other lenders signatory hereto, as Banks; and BANK OF AMERICA, N.A., as administrative agent for the Banks (in such capacity, together with its successors in such capacity, “Administrative Agent”; JPMC, Bank of America, the other lenders signatory hereto, such other lenders who from time to time become Banks pursuant to Section 2.19, 3.07 or 12.05 and, if applicable, any of the foregoing lenders’ Designated Lender, each a “Bank” and collectively, the “Banks”). Borrower, JPMC, Fleet National Bank (as predecessor to Bank of America), certain of the Banks and the Administrative Agent entered into that certain Amended and Restated Revolving Loan Agreement, dated as of May 24, 2004 (the “2004 Credit Agreement”) and now desire to amend and restate the 2004 Credit Agreement in its entirety in accordance with the terms and provisions contained herein.  Accordingly, in consideration of the premises and the mutual agreements, covenants and conditions hereinafter set forth, Borrower, Administrative Agent and each of the Banks agree as follows: ARTICLE I DEFINITIONS; ETC. Section 1.01         Definitions.  As used in this Agreement the following terms have the following meanings: “Absolute Bid Rate” has the meaning specified in Section 2.02(c)(2). “Absolute Bid Rate Loan” means a Bid Rate Loan bearing interest at the Absolute Bid Rate. “Absolute Rate Auction” means a solicitation of Bid Rate Quotes setting forth Absolute Bid Rates pursuant to Section 2.02. “Acceptance Letter” has the meaning specified in Section 2.19. “Accordion Amount” means, at any time, $350,000,000. “Acquisition” means the acquisition by Borrower, directly or indirectly, of an interest in multi-family real estate. “Acquisition Asset” means any improved real property asset that has been owned by the Borrower, its Consolidated Businesses or any UJV for fewer than twelve (12) months, unless the Borrower has made a one-time election (by written notice to the Administrative Agent) to no longer treat such asset as an Acquisition Asset for purposes of this Agreement. “Additional Costs” has the meaning specified in Section 3.01. “Administrative Agent” has the meaning specified in the preamble. -------------------------------------------------------------------------------- “Administrative Agent’s Office” means Administrative Agent’s address located at 777 Main Street, Hartford, Connecticut 06115, or such other address in the United States as Administrative Agent may designate by written notice to Borrower and the Banks. “Affiliate” means, with respect to any Person (the “first Person”), any other Person (1) which directly or indirectly controls, or is controlled by, or is under common control with the first Person; or (2) 10% or more of the beneficial interest in which is directly or indirectly owned or held by the first Person.  The term “control” means the possession, directly or indirectly, of the power, alone, to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. “Agreement” has the meaning specified in the preamble. “Applicable Lending Office” means, for each Bank and for its LIBOR Loan, Bid Rate Loan(s) or Base Rate Loan, as applicable, the lending office of such Bank (or of an Affiliate of such Bank) designated as such on its signature page hereof or in the applicable Assignment and Acceptance, or such other office of such Bank (or of an Affiliate of such Bank) as such Bank may from time to time specify to Administrative Agent and Borrower as the office by which its LIBOR Loan, Bid Rate Loan(s) or Base Rate Loan (and, in the case of the Swing Lender, its Swing Loan), as applicable, is to be made and maintained. “Applicable Margin” means, with respect to Base Rate Loans and LIBOR Loans (and for purposes of determining the Banks’ L/C Fee Rate under Section 2.16(f)), the respective rates per annum determined at any time, based on the range into which Borrower’s Credit Rating then falls, in accordance with the following table (any change in Borrower’s Credit Rating causing it to move to a different range on the table shall effect an immediate change in the Applicable Margin):   Range of Borrower’s Credit Rating (S&P/Moody’s or other agency equivalent)   Applicable Margin for Base Rate Loans (% per annum)   Applicable Margin for LIBOR Loans (% per annum) Below BBB- or unrated/ Below Baa3 or unrated   0.25   1.00 BBB-/Baa3   0.00   0.675 BBB/Baa2   0.00   0.50 BBB+/Baa1   0.00   0.40 A-/A3   0.00   0.35 A or higher/A2 or higher   0.00   0.325   “Assignee” has the meaning specified in Section 12.05. “Assignment and Acceptance” means an Assignment and Acceptance, substantially in the form of EXHIBIT E, pursuant to which a Bank assigns and an Assignee assumes rights and obligations in accordance with Section 12.05. 2 -------------------------------------------------------------------------------- “Authorization Letter” means a letter agreement executed by Borrower in the form of EXHIBIT A. “Available Total Loan Commitment” has the meaning specified in Section 2.01(b). “Bank” and “Banks” have the respective meanings specified in the preamble; provided, however, that the term “Bank” shall exclude each Designated Lender when used in reference to a Ratable Loan, the Loan Commitments or terms relating to the Ratable Loans and the Loan Commitments. “Bank of America” has the meaning specified in the preamble. “Bank Parties” means Administrative Agent, Issuing Bank, Swing Lender and the Banks. “Banking Day” means (1) any day on which commercial banks are not authorized or required to close in New York City and (2) whenever such day relates to a LIBOR Loan, a LIBOR Bid Rate Loan, an Interest Period with respect to a LIBOR Loan or a LIBOR Bid Rate Loan, or notice with respect to a LIBOR Loan or a LIBOR Bid Rate Loan or a LIBOR Auction, a day on which dealings in Dollar deposits are also carried out in the London interbank market and banks are open for business in London. “Base Rate” means, for any day, the higher of (1) the Federal Funds Rate for such day plus .50%, or (2) the Prime Rate for such day. “Base Rate Loan” means all or any portion (as the context requires) of a Bank’s Ratable Loan which shall accrue interest at a rate determined in relation to the Base Rate. “Bid Borrowing Limit” means sixty-five percent (65%) of the Total Loan Commitment. “Bid Rate Loan” has the meaning specified in Section 2.01(c). “Bid Rate Loan Note” has the meaning specified in Section 2.08. “Bid Rate Quote” means an offer by a Bank to make a Bid Rate Loan in accordance with Section 2.02. “Bid Rate Quote Request” has the meaning specified in Section 2.02(a). “Borrower” has the meaning specified in the preamble. “Borrower’s Accountants” means Ernst & Young, or such other accounting firm(s) of nationally-recognized standing selected by Borrower and reasonably acceptable to the Administrative Agent. “Borrower’s Credit Rating” means the rating assigned from time to time to Borrower’s unsecured and unsubordinated long-term indebtedness by, respectively, S&P, Moody’s and/or one or more other nationally-recognized rating agencies reasonably approved by Administrative Agent.  If such a rating is assigned by only one (1) such rating agency, it must be either S&P or Moody’s.  If such a rating is assigned by two (2) such rating agencies, at least one (1) must be S&P or Moody’s, and “Borrower’s Credit Rating” shall be the higher of said ratings, except if the aforesaid ratings are 3 -------------------------------------------------------------------------------- greater than one (1) rating level apart, in which case “Borrower’s Credit Rating” shall be the average of said ratings.  If such a rating is obtained from more than two (2) such rating agencies, “Borrower’s Credit Rating” shall be the higher of the lowest two (2) ratings, if at least one (1) of such two (2) is either S&P or Moody’s; if neither of the two (2) lowest ratings is from S&P or Moody’s, then “Borrower’s Credit Rating” shall be the lower of the ratings from S&P and Moody’s.  Unless such indebtedness of Borrower is rated by either S&P or Moody’s, “Borrower’s Credit Rating” shall be considered unrated for purposes of this Agreement. “Borrower’s Principals” means the officers and directors of Borrower at any applicable time. “Borrower’s Share of UJV Combined Outstanding Indebtedness” means the sum of the indebtedness of each of the UJVs contributing to UJV Combined Outstanding Indebtedness multiplied by Borrower’s respective beneficial fractional interests in each such UJV. “Capitalization Value” means, as of the end of any calendar quarter, the sum, without double-counting, of (1) Combined EBITDA attributable to Wholly-Owned Assets (other than Acquisition Assets and Construction-in-Process) (less all leasing commissions and management and development fees, net of any expenses applicable thereto, contributing to such Combined EBITDA) for such quarter annualized (i.e., multiplied by four (4)), capitalized at a rate of 6.75% per annum (i.e., divided by 6.75%), (2) Combined EBITDA attributable to Borrower’s beneficial interest in the UJV’s (other than with respect to Acquisition Assets or Construction-in-Process) (less all leasing commissions and management and development fees, net of any expenses applicable thereto, contributing to such Combined EBITDA) for such quarter annualized (i.e., multiplied by four (4)), capitalized at a rate of 6.75% per annum (i.e., divided by 6.75%), (3) such leasing commissions and management and development fees for such quarter as were subtracted from Combined EBITDA pursuant to clauses (1) and (2) above, annualized, (i.e., multiplied by four (4)), capitalized at a rate of 20% per annum (i.e., divided by 20%), (4) Cash and Cash Equivalents of Borrower and its Consolidated Businesses, as of the end of such quarter, as reflected in Borrower’s Consolidated Financial Statements, (5) the aggregate book value (on a cost basis) of land held for future development and Construction-in-Process of Borrower and its Consolidated Businesses plus Borrower’s beneficial interest in the book value (on a cost basis) of land held for future development and Construction-in-Process of the UJVs, (6) the aggregate book value (on a cost basis) of Acquisition Assets of Borrower and its Consolidated Businesses plus Borrower’s beneficial interest in the book value (on a cost basis) of Acquisition Assets of the UJVs, (7) the value (at the lower of cost or market in accordance with GAAP) of Performing Notes held by Borrower and its Consolidated Businesses, and (8) Eligible Cash 1031 Proceeds; provided that the sum of items (2), (5) and (7) above shall not exceed 30% of Capitalization Value. “Capital Lease” means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP. “Cash and Cash Equivalents” means (1) cash, (2) direct obligations of the United States Government, including, without limitation, treasury bills, notes and bonds, (3) interest-bearing or discounted obligations of federal agencies and government-sponsored entities or pools of such instruments offered by Approved Banks and dealers, including, without limitation, Federal Home Loan  Mortgage Corporation participation sale certificates, Government National Mortgage 4 -------------------------------------------------------------------------------- Association modified pass through certificates, Federal National Mortgage Association bonds and notes, and Federal Farm Credit System securities, (4) time deposits, domestic and eurodollar certificates of deposit, bankers’ acceptances, commercial paper rated at least A-1 by S&P and P-1 by Moody’s and/or guaranteed by an Aa rating by Moody’s, an AA rating by S&P or better rated credit, floating rate notes, other money market instruments and letters of credit each issued by Approved Banks, (5) obligations of domestic corporations, including, without limitation, commercial paper, bonds, debentures and loan participations, each of which is rated at least AA by S&P and/or Aa2 by Moody’s and/or guaranteed by an Aa rating by Moody’s, an AA rating by S&P or better rated credit, (6) obligations issued by states and local governments or their agencies, rated at least MIG-1 by Moody’s and /or SP-1 by S&P and /or guaranteed by an irrevocable letter of credit of an Approved Bank, (7) repurchase agreements with major banks and primary government security dealers fully secured by the United States Government or agency collateral equal to or exceeding the principal amount on a daily basis and held in safekeeping and (8) real estate loan pool participations, guaranteed by an AA rating given by S&P or an Aa2 rating given by Moody’s or better rated credit. For purposes of this definition, “Approved Bank” means a financial institution which has (x) (A) a minimum net worth of $500,000,000 and/or (B) total assets of at least $10,000,000,000 and (y) a minimum long-term debt rating of A+ by S&P or A1 by Moody’s. “Closing Date” means the date this Agreement has been executed by all parties. “Code” means the Internal Revenue Code of 1986, including the rules and regulations promulgated thereunder. “Combined Debt Service” means, for any period of time, (1) Borrower’s share of total debt service (including principal) paid or payable by Borrower and its Consolidated Businesses during such period (other than debt service on construction loans until completion of the relevant construction and other capitalized interest) plus a deemed annual capital expense charge of $150 per apartment unit owned by Borrower or its Consolidated Businesses plus (2) Borrower’s beneficial interest in the sum of (a) total debt service (including principal) paid or payable by the UJVs during such period (other than debt service on construction loans until completion of the relevant construction and other capitalized interest) plus (b) a deemed annual capital expense charge of $150 per apartment unit owned by the UJVs plus (3) preferred dividends and distributions paid or payable by Borrower and its Consolidated Businesses during such period. “Combined EBITDA” means, for any period of time, the sum, without duplication, of (1) Borrower’s share of revenues less operating expenses, general and administrative expenses and property taxes before Interest Expense, income taxes, gains or losses on the sale of real estate and/or marketable securities, depreciation and amortization and extraordinary items for Borrower and its Consolidated Businesses, and adjusted, if material, for non-cash revenue attributable to straight lining of rents and (2) Borrower’s beneficial interest in revenues less operating expenses, general and administrative expenses and property taxes before Interest Expense, income taxes, gains or losses on the sale of real estate and/or marketable securities, depreciation and amortization and extraordinary items (after eliminating appropriate intercompany amounts) applicable to each of the UJVs, and adjusted, if material, for non-cash revenue attributable to straight lining of rents, in all cases as reflected in Borrower’s Consolidated Financial Statements. 5 -------------------------------------------------------------------------------- “Consolidated Business” means, individually, each Affiliate of Borrower who is or should be included in Borrower’s Consolidated Financial Statements in accordance with GAAP. “Consolidated Financial Statements” means, with respect to any Person, the consolidated balance sheet and related consolidated statement of operations, accumulated deficiency in assets and cash flows, and footnotes thereto, of such Person, prepared in accordance with GAAP. “Consolidated Outstanding Indebtedness” means, as of any time, Borrower’s share of all indebtedness and liability for borrowed money, secured or unsecured, of Borrower and its Consolidated Businesses, including mortgage and other notes payable but excluding any indebtedness which is margin indebtedness on cash and cash equivalent securities, all as reflected in Borrower’s Consolidated Financial Statements. “Consolidated Tangible Net Worth” means, at any date, Borrower’s share of the consolidated stockholders’ equity of Borrower and its Consolidated Businesses less their consolidated Intangible Assets, all determined as of such date.  For purposes of this definition, “Intangible Assets” means with respect to any such intangible assets, the amount (to the extent reflected in determining such consolidated stockholders’ equity) of (1) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve (12) months after the acquisition of such business) subsequent to September 30, 1994 in the book value of any asset (other than real property assets) owned by Borrower or a Consolidated Business and (2) all debt discount and expense, deferred charges, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expenses and other intangible assets (in each case, not adjusted for depreciation). “Construction-in-Process” means a property on which construction of improvements (excluding non-revenue generating capital expenditures and excluding costs incurred prior to construction, all as set forth in related quarterly financial statements or supplemental financial information attached thereto) has commenced and is proceeding to completion in the ordinary course but has not yet been completed (as such completion shall be evidenced by a temporary or permanent certificate of occupancy permitting use of such property by the general public).  Any such property shall be treated as Construction-in-Process until 12 months from the date of completion (as evidenced by a certificate of occupancy or its equivalent permitting use of such property by the general public), unless the Borrower has made a one-time election (by written notice to the Administrative Agent) to no longer treat such property as Construction-in-Process for purposes of this Agreement. “Contingent Obligations” means, without duplication, Borrower’s share of (1) any contingent obligations of Borrower or its Consolidated Businesses required to be shown on the balance sheet of Borrower and its Consolidated Businesses in accordance with GAAP and (2) any obligation required to be disclosed in the footnotes to Borrower’s Consolidated Financial Statements, guaranteeing partially or in whole any non-Recourse Debt, lease, dividend or other obligation, exclusive of contractual indemnities (including, without limitation, any indemnity or price-adjustment provision relating to the purchase or sale of securities or other assets) and guarantees of non-monetary obligations (other than guarantees of completion) which have not yet been called on or quantified, of Borrower or any of its Consolidated Businesses or of any other Person.  The amount of any Contingent Obligation described in clause (2) shall be deemed to be (a) with respect to a guaranty of interest or interest and principal, or operating income guaranty, the net present 6 -------------------------------------------------------------------------------- value (using the Base Rate as a discount rate) of the sum of all payments required to be made thereunder (which in the case of an operating income guaranty shall be deemed to be equal to the debt service for the note secured thereby), through (i) in the case of an interest or interest and principal guaranty, the stated date of maturity of the obligation (and commencing on the date interest could first be payable thereunder) or (ii) in the case of an operating income guaranty, the date through which such guaranty will remain in effect and (b) with respect to all guarantees not covered by the preceding clause (a), an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming Borrower and/or one or more of its Consolidated Businesses is required to perform thereunder) as recorded on the balance sheet and on the footnotes to the most recent Borrower’s Consolidated Financial Statements required to be delivered pursuant to this Agreement.  Notwithstanding anything contained herein to the contrary, guarantees of completion, of environmental indemnities and of fraud, misappropriation and other “bad act” indemnities shall not be deemed to be Contingent Obligations unless and until a claim for payment or performance has been made thereunder, at which time any such guaranty shall be deemed to be a Contingent Obligation in an amount equal to any such claim.  Subject to the preceding sentence, (1) in the case of a joint and several guaranty given by Borrower or one of its Consolidated Businesses and another Person (but only to the extent such guaranty is recourse, directly or indirectly to Borrower), the amount of the guaranty shall be deemed to be 100% thereof unless and only to the extent that such other Person has delivered Cash and Cash Equivalents to secure all or any part of such Person’s guaranteed obligations and (2) in the case of joint and several guarantees given by a Person in which Borrower owns an interest (which guarantees are non-recourse to Borrower), to the extent the guarantees, in the aggregate, exceed 10% of Capitalization Value, the amount in excess of 10% shall be deemed to be a Contingent Obligation of Borrower.  Notwithstanding anything contained herein to the contrary, “Contingent Obligations” shall be deemed not to include guarantees of unadvanced funds under any indebtedness of Borrower or its Consolidated Businesses or of construction loans to the extent the same have not been drawn.  All matters constituting “Contingent Obligations” shall be calculated without duplication. “Continue”, “Continuation” and “Continued” refer to the continuation pursuant to Section 2.12 of a LIBOR Loan as a LIBOR Loan from one Interest Period to the next Interest Period. “Convert”, “Conversion” and “Converted” refer to a conversion pursuant to Section 2.12 of a Base Rate Loan into a LIBOR Loan or a LIBOR Loan into a Base Rate Loan, each of which may be accompanied by the transfer by a Bank (at its sole discretion) of all or a portion of its Ratable Loan from one Applicable Lending Office to another. “Debt” means (1) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services (including trade obligations); (2) obligations as lessee under Capital Leases; (3) current liabilities in respect of unfunded vested benefits under any Plan; (4) obligations in respect of letters of credit issued for the account of any Person; (5) all obligations arising under bankers’ or trade acceptance facilities; (6) all guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase any of the items included in this definition, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss; (7) all obligations secured by any Lien on property owned by the Person whose Debt is being measured, whether or not the obligations have 7 -------------------------------------------------------------------------------- been assumed; and (8) all obligations under any agreement providing for contingent participation or other hedging mechanisms with respect to interest payable on any of the items described above in this definition. “Default” means any event which with the giving of notice or lapse of time, or both, would become an Event of Default. “Default Rate” means a rate per annum equal to: (1) with respect to Base Rate Loans and Swing Loans, a variable rate 2% above the rate of interest then in effect thereon; and (2) with respect to LIBOR Loans and Bid Rate Loans, a fixed rate 2% above the rate(s) of interest in effect thereon (including the Applicable Margin or the LIBOR Bid Margin, as the case may be) at the time of Default until the end of the then current Interest Period therefor and, thereafter, a variable rate 2% above the rate of interest for a Base Rate Loan. “Designated Lender” means a special purpose corporation that (i) shall have become a party to this Agreement pursuant to Section 12.16 and (ii) is not otherwise a Bank. “Designating Lender” has the meaning specified in Section 12.16. “Designation Agreement” means an agreement in substantially the form of EXHIBIT F, entered into by a Bank and a Designated Lender and accepted by Administrative Agent. “Disposition” means a sale (whether by assignment, transfer or Capital Lease) of an asset. “Documentation Agent” means, individually and collectively, Morgan Stanley Bank, Wells Fargo Bank, National Association and Deutsche Bank Trust Company Americas. “Dollars” and the sign “$” mean lawful money of the United States of America. “Elect” and “Election” refer to election, if any, by Borrower pursuant to Section 2.12 to have all or a portion of an advance of the Ratable Loans be outstanding as LIBOR Loans. “Eligible Cash 1031 Proceeds” means the cash proceeds held by a “qualified intermediary” from the sale of real property of Borrower and its Consolidated Businesses, which proceeds are intended to be used by such qualified intermediary to acquire one or more “replacement properties” that are of “like-kind” to such real property in an exchange that qualifies as a tax-free exchange under Section 1031 of the Code, and no portion of which proceeds Borrower or any Affiliate has the right to receive, pledge, borrow or otherwise obtain the benefits of until such time as provided under the applicable “exchange agreement” (as such terms in quotations are defined in Treasury Regulations Section 1.1031(k)-1(g)(4) (the “Regulations”)) or until such exchange is terminated.  Upon the cash proceeds no longer being held by such qualified intermediary pursuant to the Regulations or otherwise no longer qualifying under the Regulations for like-kind exchange treatment, such proceeds shall cease being Eligible Cash 1031 Proceeds. “Environmental Discharge” means any discharge or release of any Hazardous Materials in violation of any applicable Environmental Law. 8 -------------------------------------------------------------------------------- “Environmental Law” means any applicable Law relating to pollution or the environment, including Laws relating to noise or to emissions, discharges, releases or threatened releases of Hazardous Materials into the work place, the community or the environment, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. “Environmental Notice” means any written complaint, order, citation or notice from any Person (1) affecting or relating to Borrower’s compliance with any Environmental Law in connection with any activity or operations at any time conducted by Borrower, (2) relating to (a) the existence of any Hazardous Materials contamination or Environmental Discharges or threatened Hazardous Materials contamination or Environmental Discharges at any of Borrower’s locations or facilities or (b) remediation of any Environmental Discharge or Hazardous Materials at any such location or facility or any part thereof; or (3) relating to any violation or alleged violation by Borrower of any relevant Environmental Law. “ERISA” means the Employee Retirement Income Security Act of 1974, including the rules and regulations promulgated thereunder. “ERISA Affiliate” means any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as Borrower, or any trade or business which is under common control (within the meaning of Section 414(c) of the Code) with Borrower, or any organization which is required to be treated as a single employer with Borrower under Section 414(m) or 414(o) of the Code. “Event of Default” has the meaning specified in Section 9.01. “Extension Option” and “Notice to Extend” have the respective meanings specified in Section 2.18. “Facility Fee Rate” means the rate per annum determined, at any time, based on Borrower’s Credit Rating in accordance with the following table.  Any change in Borrower’s Credit Rating which causes it to move into a different range on the table shall effect an immediate change in the Facility Fee Rate. Borrower’s Credit Rating (S&P/Moody’s)   Facility Fee Rate (% per annum) Below BBB- or unrated/Below Baa3 or unrated   0.25 BBB-/Baa3   0.20 BBB/Baa2   0.15 BBB+/Baa1   0.125 A-/A3   0.10 A or higher/A2 or higher   0.10   “Federal Funds Rate” means, for any day, the rate per annum (expressed on a 360-day basis of calculation) equal to the weighted average of the rates on overnight federal funds transactions as published by the Federal Reserve Bank of New York for such day provided that (1) if such day is not a Banking Day, the Federal Funds Rate for such day shall be such rate on such transactions on 9 -------------------------------------------------------------------------------- the immediately preceding Banking Day as so published on the next succeeding Banking Day; and (2) if no such rate is so published on such next succeeding Banking Day, the Federal Funds Rate for such day shall be the average of the rates quoted by three (3) Federal Funds brokers to Administrative Agent on such day on such transactions. “Fee Letter” means the letter agreement, dated as of October 20, 2006, between Borrower and JPMC. “Fiscal Year” means each period from January 1 to December 31. “GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time, applied on a basis consistent with those used in the preparation of the financial statements referred to in Section 5.13 (except for changes concurred in by Borrower’s Accountants). “Good Faith Contest” means the contest of an item if: (1) the item is diligently contested in good faith, and, if appropriate, by proceedings timely instituted; (2) reserves that are adequate based on reasonably foreseeable likely outcomes are established with respect to the contested item; (3) during the period of such contest, the enforcement of any contested item is effectively stayed, delayed or postponed; and (4) the failure to pay or comply with the contested item during the period of the contest is not likely to result in a Material Adverse Change. “Governmental Approvals” means any authorization, consent, approval, license, permit, certification, or exemption of, registration or filing with or report or notice to, any Governmental Authority. “Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. “Hazardous Materials” means any pollutant, effluents, emissions, contaminants, toxic or hazardous wastes or substances, as any of those terms are defined from time to time in or for the purposes of any relevant Environmental Law, including asbestos fibers and friable asbestos, polychlorinated biphenyls, and any petroleum or hydrocarbon-based products or derivatives. “Initial Advance” means the first advance of proceeds of the Loans. “Interest Expense” means, for any period of time, Borrower’s share of the consolidated interest expense (without deduction of consolidated interest income, and excluding (x) interest expense on construction loans and (y) other capitalized interest expense in respect of either construction activity or construction loans, in any such case under clauses (x) or (y), only until completion of the relevant construction) of Borrower and its Consolidated Businesses, including, without limitation or duplication (or, to the extent not so included, with the addition of), (1) the portion of any rental obligation in respect of any Capital Lease obligation allocable to interest expense in accordance with GAAP; (2) the amortization of Debt discounts; (3) any expense, payments or fees (other than up-front fees) with respect to interest rate swap or similar agreements; and (4) the interest expense and items listed in clauses (1) through (3) above applicable to each of the UJVs multiplied by 10 -------------------------------------------------------------------------------- Borrower’s respective beneficial interests in the UJVs, in all cases as reflected in Borrower’s Consolidated Financial Statements. “Interest Period” means, (1) with respect to any LIBOR Loan, the period commencing on the date the same is advanced, Converted from a Base Rate Loan or Continued, as the case may be, and ending, as Borrower may select pursuant to Section 2.05, on the numerically corresponding day in the first, second or third calendar month thereafter, or, with the consent of all Banks, 7 days, 14 days or 6 months thereafter, provided that each such Interest Period which commences on the last Banking Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Banking Day of the appropriate calendar month; (2) with respect to any LIBOR Bid Rate Loan, the period commencing on the date the same is advanced and ending, as Borrower may select pursuant to Section 2.02, on the numerically corresponding day in the first, second or third calendar month thereafter, provided that each such Interest Period which commences on the last Banking Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Banking Day of the appropriate calendar month; and (3) with respect to any Absolute Bid Rate Loan, the period commencing on the date the same is advanced and ending, as Borrower may select pursuant to Section 2.02, provided, however, that each such period shall not be less than fourteen (14) days nor more than ninety (90) days. “Invitation for Bid Rate Quotes” has the meaning specified in Section 2.02 (b). “Issuing Bank” means Bank of America in its capacity as issuing bank of the Letters of Credit under the Letter of Credit facility described in Section 2.16, and its successors in such capacity. “JPMC” has the meaning specified in the preamble. “Law” means any federal, state or local statute, law, rule, regulation, ordinance, order, code, or rule of common law, now or hereafter in effect, and in each case as amended, and any judicial or administrative order, consent decree or judgment. “Letter of Credit” has the meaning specified in Section 2.16(a). “LIBOR Auction” means a solicitation of Bid Rate Quotes setting forth LIBOR Bid Margins pursuant to Section 2.02. “LIBOR Base Rate” means, with respect to any Interest Period therefor, the rate per annum (rounded up, if necessary, to the nearest 1/100 of 1%) that appears on Dow Jones Page 3750 at approximately 11:00 a.m. (London time) on the date (the “LIBOR Determination Date”) two (2) Banking Days prior to the first day of the applicable Interest Period, for the same period of time as the Interest Period; or, if such rate does not appear on Dow Jones Page 3750 as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date, the rate (rounded up, if necessary, to the nearest 1/100 of 1%) for deposits in Dollars for a period comparable to the applicable Interest Period that appears on the Reuters Screen LIBOR Page as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date.  If such rate does not appear on either Dow Jones Page 3750 or on the Reuters Screen LIBOR Page as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date, the LIBOR Base Rate for the Interest Period will be determined on the basis of the offered rates for deposits in Dollars for the same period of time as such Interest Period 11 -------------------------------------------------------------------------------- that are offered by four (4) major banks in the London interbank market at approximately 11:00 a.m. (London time) on the LIBOR Determination Date.  Administrative Agent will request that the principal London office of each of the four (4) major banks provide a quotation of its Dollar deposit offered rate.  If at least two (2) such quotations are provided, the LIBOR Base Rate will be the arithmetic mean of the quotations.  If fewer than two (2) quotations are provided as requested, the LIBOR Base Rate will be determined on the basis of the rates quoted for loans in Dollars to leading European banks for amounts comparable to such amount requested by Borrower for the same period of time as such Interest Period offered by major banks in New York City at approximately 11:00 a.m. (New York time) on the LIBOR Determination Date.  In the event that Administrative Agent is unable to obtain any such quotation as provided above, it will be deemed that the LIBOR Base Rate cannot be determined.  For purposes of the foregoing definition, “Dow Jones Page 3750” means the display designated as “Page 3750” on the Dow Jones Markets Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying British Bankers’ Association Interest Settlement Rates for Dollar deposits); and “Reuters Screen LIBOR Page” means the display designated as page “LIBO” on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying interbank rates from London in Dollars). “LIBOR Bid Margin” has the meaning specified in Section 2.02(c)(2). “LIBOR Bid Rate” means the rate per annum equal to the sum of (1) the LIBOR Interest Rate for the LIBOR Bid Rate Loan and Interest Period in question and (2) the LIBOR Bid Margin. “LIBOR Bid Rate Loan” means a Bid Rate Loan bearing interest at the LIBOR Bid Rate. “LIBOR Interest Rate” means, for any LIBOR Loan or LIBOR Bid Rate Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Administrative Agent to be equal to the quotient of (1) the LIBOR Base Rate for such LIBOR Loan or LIBOR Bid Rate Loan, as the case may be, for the Interest Period therefor divided by (2) one minus the LIBOR Reserve Requirement for such LIBOR Loan or LIBOR Bid Rate Loan, as the case may be, for such Interest Period. “LIBOR Loan” means all or any portion (as the context requires) of any Bank’s Ratable Loan which shall accrue interest at rate(s) determined in relation to LIBOR Interest Rate(s). “LIBOR Reserve Requirement” means, for any LIBOR Loan or LIBOR Bid Rate Loan, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during the Interest Period for such LIBOR Loan or LIBOR Bid Rate Loan under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000 against “Eurocurrency liabilities” (as such term is used in Regulation D).  Without limiting the effect of the foregoing, the LIBOR Reserve Requirement shall also reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (1) any category of liabilities which includes deposits by reference to which the LIBOR Base Rate is to be determined as provided in the definition of “LIBOR Base Rate” in this Section 1.01 or (2) any category of extensions of credit or other assets 12 -------------------------------------------------------------------------------- which include loans the interest rate on which is determined on the basis of rates referred to in said definition of “LIBOR Base Rate”. “Lien” means any mortgage, deed of trust, pledge, negative pledge, security interest, hypothecation, assignment for collateral purposes, deposit arrangement, lien (statutory or other), or other security agreement or charge of any kind or nature whatsoever of any third party (excluding any right of setoff but including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable Law of any jurisdiction to evidence any of the foregoing and carriers, warehousemen, mechanics and other similar inchoate liens that have not been insured against in a manner reasonably satisfactory to Administrative Agent). “Loan” means, with respect to each Bank, collectively, its Ratable Loan and Bid Rate Loan(s), and, in the case of the Swing Lender, its Swing Loan(s). “Loan Commitment” means, with respect to each Bank, the obligation to make a Ratable Loan in the principal amount set forth in Schedule 1 (subject to change in accordance with the terms of this Agreement). “Loan Documents” means this Agreement, the Notes, the Authorization Letter, the Solvency Certificate and any guaranty executed and delivered pursuant to clause (v) of the definition of “Unencumbered Assets” in Section 1.01. “Material Adverse Change” means an effect resulting from any circumstance or event or series of circumstances or events, of whatever nature, which does or could reasonably be expected to, on more than an interim basis, either (1) materially and adversely impair the ability of Borrower and its Consolidated Businesses, taken as a whole, to fulfill its material obligations or (2) cause a Default or an Event of Default. “Material Affiliates” means the Affiliates of Borrower described on EXHIBIT C, together with (or excluding) any Affiliates of Borrower which are hereafter from time to time reasonably determined by Administrative Agent to be material (or no longer material), upon written notice to Borrower, based on the most recent Borrower’s Consolidated Financial Statements. “Maturity Date” means November 14, 2010, subject to extension in accordance with Section 2.18. “Moody’s” means Moody’s Investors Service, Inc. “Multiemployer Plan” means a Plan defined as such in Section 3(37) of ERISA to which contributions have been made by Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. “New Bank” and “New Note” have the respective meanings specified in Section 2.19. “Note” and “Notes” have the respective meanings specified in Section 2.08. 13 -------------------------------------------------------------------------------- “Obligations” means each and every obligation, covenant and agreement of Borrower, now or hereafter existing, contained in this Agreement, and any of the other Loan Documents, whether for principal, reimbursement obligations, interest, fees, expenses, indemnities or otherwise, and any amendments or supplements thereto, extensions or renewals thereof or replacements therefor, including but not limited to all indebtedness, obligations and liabilities of Borrower to Administrative Agent and any Bank now existing or hereafter incurred under or arising out of or in connection with the Notes, this Agreement, the other Loan Documents, and any documents or instruments executed in connection therewith; in each case whether direct or indirect, joint or several, absolute or contingent, liquidated or unliquidated, now or hereafter existing, renewed or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred, and including all indebtedness of Borrower, under any instrument now or hereafter evidencing or securing any of the foregoing. “Parent” means, with respect to any Bank, any Person controlling such Bank. “Participant” and “Participation” have the respective meanings specified in Section 12.05. “PBGC” means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. “Performing Notes” means mortgage notes and notes receivable which are not more than 30 days past due or otherwise in default; provided, that, in the case of mortgage notes and notes receivable that generate cash and non-cash payments, such mortgage notes and notes receivable shall be treated as Performing Notes whose value is determined solely by reference to the cash payments and references to the income generated by the Performing Notes shall include only the cash payments which have current payments payable in cash. “Person” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. “Plan” means any employee benefit or other plan established or maintained, or to which contributions have been made, by Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA or to which Section 412 of the Code applies. “presence”, when used in connection with any Environmental Discharge or Hazardous Materials, means and includes presence, generation, manufacture, installation, treatment, use, storage, handling, repair, encapsulation, disposal, transportation, spill, discharge and release. “Prime Rate” means the variable per annum rate of interest designated from time to time by Administrative Agent at its principal office as its “prime rate” (it being understood that the “prime rate” is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer). “Pro Rata Share” means, for purposes of this Agreement and with respect to each Bank, a fraction, the numerator of which is the amount of such Bank’s Loan Commitment and the denominator of which is the Total Loan Commitment. 14 -------------------------------------------------------------------------------- “Prohibited Transaction” means any transaction proscribed by Section 406 of ERISA or Section 4975 of the Code and to which no statutory or administrative exemption applies. “Ratable Loan” has the meaning specified in Section 2.01(b). “Ratable Loan Note” has the meaning specified in Section 2.08. “Recourse Debt” means Debt, recourse for the satisfaction of which is not limited to specified collateral. “Refunded Swing Loans” and “Refunding Date” have the respective meanings specified in Section 2.17. “Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System. “Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System. “Regulatory Change” means, with respect to any Bank, any change after the date of this Agreement in United States federal, state, municipal or foreign laws or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including such Bank of or under any United States, federal, state, municipal or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. “Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty (30) day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. §2615. “Required Banks” means at any time the Banks having Pro Rata Shares aggregating at least 51%; provided, however, if the Loan Commitments have been terminated, the “Required Banks” shall be the Banks holding at least 51% of the then aggregate unpaid principal amount of the Loans.  For purposes of this definition, a Bank’s Loan shall be deemed to include its participating interest in Swing Loans pursuant to Section 2.17(c) and the Swing Lender’s Loans shall be deemed to exclude such participating interests of other Banks. “Requested Increase” has the meaning specified in Section 2.19. “Secured Indebtedness” means that portion of Total Outstanding Indebtedness that is secured by a Lien. “Solvency Certificate” means a certificate in the form of EXHIBIT D, to be delivered by Borrower pursuant to the terms of this Agreement. “Solvent” means, when used with respect to any Person, that the fair value of the property of such Person, on a going concern basis, is greater than the total amount of liabilities (including, without limitation, contingent liabilities) of such Person. “S&P” means Standard and Poor’s Ratings Services, a division of McGraw-Hill Companies. 15 -------------------------------------------------------------------------------- “Supplemental Fee Letter” means the letter agreement, dated as of November 14, 2006, between Borrower and Bank of America. “Supplemental Note” has the meaning specified in Section 2.19. “Swing Lender” means Bank of America in its capacity as the lender under the Swing Loan facility described in Section 2.17, and its successors in such capacity. “Swing Loan” means a loan made by the Swing Lender pursuant to Section 2.17. “Swing Loan Commitment” means ten percent (10%) of the Total Loan Commitment. “Swing Loan Note” has the meaning specified in Section 2.08. “Swing Loan Refund Amount” has the meaning specified in Section 2.17. “Syndication Agent” means JPMorgan Chase Bank, N.A.. “Syndication Expiration Date” has the meaning specified in Section 2.19. “Total Loan Commitment” means an amount equal to the aggregate amount of all Loan Commitments (i.e., initially, $650,000,000), as the same may increase pursuant to Section 2.19 or decrease pursuant to Section 2.10. “Total Outstanding Indebtedness” means, at any time, the sum, without duplication, of (1) Consolidated Outstanding Indebtedness; (2) Borrower’s Share of UJV Combined Outstanding Indebtedness; and (3) Contingent Obligations. “UJV Combined Outstanding Indebtedness” means, as of any time, all indebtedness and liability for borrowed money, secured or unsecured, of the UJV’s, on a combined basis, including mortgage and other notes payable but excluding any indebtedness which is margin indebtedness on cash and cash equivalent securities, all as reflected in the balance sheets of each of the UJVs, prepared in accordance with GAAP. “UJVs” means the unconsolidated joint ventures (including general and limited partnerships) in which Borrower owns a beneficial interest and which are accounted for under the equity method in Borrower’s Consolidated Financial Statements. “Unencumbered” means, with respect to any asset, that such asset is not, and the direct or indirect interests of Borrower therein are not, subject to any Lien to secure all or any portion of Secured Indebtedness. “Unencumbered Asset Value” means, as of the end of any calendar quarter, without duplication, (1) Unencumbered Wholly-Owned Combined EBITDA for such quarter, annualized (i.e., multiplied by four (4)), capitalized at a rate of 6.75% per annum (i.e., divided by 6.75%), plus (2) Unencumbered Non-Wholly-Owned Combined EBITDA for such quarter, annualized (i.e., multiplied by four (4)), capitalized at a rate of 6.75% per annum (i.e., divided by 6.75%), plus (3) the aggregate book value (on a cost basis) of Unencumbered Land and Construction-in-Process, 16 -------------------------------------------------------------------------------- plus (4) the aggregate book value (on a cost basis) of Unencumbered Assets of Borrower and its Consolidated Business which are Acquisition Assets plus Borrower’s beneficial interest in the book value (on a cost basis) of Unencumbered Assets of the UJVs that are Acquisition Assets (and for which Borrower substantially controls the financing and sale), plus (5) unrestricted Cash and Cash Equivalents of Borrower and its Consolidated Businesses, as of the end of such quarter, as reflected in Borrower’s Consolidated Financial Statements, to the extent the same are Unencumbered, plus (6) the value of all Eligible Cash 1031 Proceeds resulting from the sale of Unencumbered Assets, to the extent the same are Unencumbered, plus (7) the value (at the lower of cost or market in accordance with GAAP) of Performing Notes held by Borrower and its Consolidated Businesses, to the extent the same are Unencumbered; provided that the sum of clauses (2), (3) and (7) above shall not exceed 30% of Unencumbered Asset Value. “Unencumbered Assets” are income-producing assets, reflected on Borrower’s Consolidated Financing Statements, owned (in whole or in part), directly or indirectly by Borrower which (1) are Unencumbered and (2) have been improved by buildings or other improvements that have been issued a certificate of occupancy (or its equivalent) and are fully operational.  Notwithstanding the foregoing, if an asset that would otherwise qualify as an Unencumbered Asset is owned by a Consolidated Business that has any Recourse Debt, such asset shall not constitute, and may not be treated as, an Unencumbered Asset unless and until the earlier to occur of (x) such Recourse Debt has been repaid in full in cash and all loan documents evidencing such Recourse Debt have been terminated and (y) such Consolidated Business executes and delivers to the Administrative Agent, for the benefit of the Administrative Agent and the Banks, a guaranty of the Obligations in substantially the form of Exhibit I attached hereto. “Unencumbered Land and Construction-in-Process” means all land held for future development and Construction-in-Process reflected on Borrower’s Consolidated Financial Statements, which are wholly-owned, directly or indirectly, by Borrower and are Unencumbered. “Unencumbered Non-Wholly-Owned Combined EBITDA” means that portion of Combined EBITDA attributable to Unencumbered Assets that are not Unencumbered Wholly-Owned Assets but for which the Borrower substantially controls the sale or financing of such Unencumbered Asset (assuming general and administrative expense is allocated proportionately to Unencumbered Assets). “Unencumbered Wholly-Owned Assets” means Unencumbered Assets which are Wholly-Owned Assets. “Unencumbered Wholly-Owned Combined EBITDA” means that portion of Combined EBITDA attributable to Unencumbered Wholly-Owned Assets (assuming general and administrative expense is allocated proportionately to Unencumbered Wholly-Owned Assets). “Unsecured Indebtedness” means that portion of Total Outstanding Indebtedness that is not secured by a Lien. “Unsecured Interest Expense” means that portion of Interest Expense relating to Unsecured Indebtedness. 17 -------------------------------------------------------------------------------- “Wholly-Owned Assets” means income-producing assets, which are reflected on Borrower’s Consolidated Financial Statements, and are wholly-owned, directly or indirectly, by Borrower. Section 1.02         Accounting Terms.  All accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all financial data required to be delivered hereunder shall be prepared in accordance with GAAP. Section 1.03         Computation of Time Periods.  Except as otherwise provided herein, in this Agreement, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and words “to” and “until” each means “to but excluding”. Section 1.04         Rules of Construction.  Except as provided otherwise, when used in this Agreement (1) “or” is not exclusive; (2) a reference to a Law includes any amendment, modification or supplement to, or replacement of, such Law; (3) a reference to a Person includes its permitted successors and permitted assigns; (4) all terms used in the singular shall have a correlative meaning when used in the plural and vice versa; (5) a reference to an agreement, instrument or document shall include such agreement, instrument or document as the same may be amended, modified or supplemented from time to time in accordance with its terms and as permitted by the Loan Documents; (6) all references to Articles, Sections or Exhibits shall be to Articles, Sections and Exhibits of this Agreement unless otherwise indicated; (7) “hereunder”, “herein”, “hereof” and the like refer to this Agreement as a whole; and (8) all Exhibits to this Agreement shall be incorporated into this Agreement. ARTICLE II THE LOANS Section 2.01         Ratable Loans; Bid Rate Loans; Purpose. (a)           Subject to the terms and conditions of this Agreement, the Banks agree to make loans to Borrower as provided in this Article II. (b)           Each of the Banks severally agrees to make loans to Borrower (each such loan by a Bank, a “Ratable Loan”) in an amount up to its Loan Commitment, pursuant to which the Bank shall from time to time advance and re-advance to Borrower an amount equal to its Pro Rata Share of the excess (the “Available Total Loan Commitment”) of the Total Loan Commitment over the sum of (1) all previous advances (including Bid Rate Loans and Swing Loans) made by the Banks which remain unpaid and (2) the outstanding amount of all Letters of Credit and unreimbursed drawings on all Letters of Credit.  Within the limits set forth herein, Borrower may borrow from time to time under this paragraph (b) and prepay from time to time pursuant to Section 2.09 (subject, however, to the restrictions on prepayment set forth in said Section), and thereafter re-borrow pursuant to this paragraph (b).  The Ratable Loans may be outstanding as (1) Base Rate Loans; (2) LIBOR Loans; or (3) a combination of the foregoing, as Borrower shall elect and notify Administrative Agent in accordance with Section 2.14.  The LIBOR Loan, Bid Rate Loan and Base Rate Loan of each Bank shall be maintained at such Bank’s Applicable Lending Office. 18 -------------------------------------------------------------------------------- (c)           In addition to Ratable Loans pursuant to paragraph (b) above, so long as Borrower’s Credit Rating is BBB- or higher by S&P or Baa3 or higher by Moody’s or an equivalent rating by another nationally-recognized rating agency, as reasonably approved by Administrative Agent, one or more Banks may, at Borrower’s request and in their sole discretion, make non-ratable loans which shall bear interest at the LIBOR Bid Rate or the Absolute Bid Rate in accordance with Section 2.02 (such loans being referred to in this Agreement as “Bid Rate Loans”).  Borrower may borrow Bid Rate Loans from time to time pursuant to this paragraph (c) in an amount up to the Available Total Loan Commitment at the time of the borrowing (taking into account any repayments of the Loans made simultaneously therewith) and shall repay such Bid Rate Loans as required by Section 2.08, and it may thereafter re-borrow pursuant to this paragraph (c); provided, however, that the aggregate outstanding principal amount of Bid Rate Loans at any particular time shall not exceed the Bid Borrowing Limit. (d)           The obligations of the Banks under this Agreement are several, and no Bank shall be responsible for the failure of any other Bank to make any advance of a Loan to be made by such other Bank.  However, the failure of any Bank to make any advance of the Loan to be made by it hereunder on the date specified therefor shall not relieve any other Bank of its obligation to make any advance of its Loan specified hereby to be made on such date. (e)           Borrower shall use the proceeds of the Loans for general capital and working capital requirements of Borrower and its Consolidated Businesses and UJVs (which shall include, but not be limited to, Acquisitions and/or costs incurred in connection with the development, construction or reconstruction of multi-family real estate properties).  In no event shall proceeds of the Loans be used in a manner that would violate Regulation U or in connection with a hostile acquisition. Section 2.02         Bid Rate Loans. (a)           When Borrower wishes to request offers from the Banks to make Bid Rate Loans, it shall transmit to Administrative Agent by facsimile a request (a “Bid Rate Quote Request”) substantially in the form of EXHIBIT G-1 so as to be received not later than 12:00 noon (New York time) on (x) the fifth Banking Day prior to the date for funding of the LIBOR Bid Rate Loan(s) proposed therein in the case of a LIBOR Auction or (y) the second Banking Day prior to the date for funding of the Absolute Bid Rate Loan(s) proposed therein in the case of an Absolute Rate Auction, specifying: (1)           the proposed date of funding of the Bid Rate Loan(s), which shall be a Banking Day; (2)           the aggregate amount of the Bid Rate Loans requested, which shall be $5,000,000 or a larger integral multiple of  $500,000; (3)           the duration of the Interest Period(s) applicable thereto, subject to the provisions of the definition of “Interest Period” in Section 1.01 and the provisions of Section 2.05; and 19 -------------------------------------------------------------------------------- (4)           whether the Bid Rate Quotes requested are to set forth a LIBOR Bid Margin (to be used to compute the LIBOR Bid Rate) or an Absolute Bid Rate. Borrower may request offers to make Bid Rate Loans for more than one (1) Interest Period in a single Bid Rate Quote Request.  No more than two (2) Bid Rate Quote Requests may be submitted by Borrower during any calendar month and no more than twenty-four (24) Bid Rate Quote Requests per year may be submitted by Borrower. (b)           Promptly (the same day, if possible) upon receipt of a Bid Rate Quote Request, Administrative Agent shall send to the Banks by facsimile an invitation (an “Invitation for Bid Rate Quotes”) substantially in the form of EXHIBIT G-2, which shall constitute an invitation by Borrower to the Banks to submit Bid Rate Quotes offering to make Bid Rate Loans to which such Bid Rate Quote Request relates in accordance with this Section. (c)           (1)           Each Bank may submit a Bid Rate Quote containing an offer or offers to make Bid Rate Loans in response to any Invitation for Bid Rate Quotes.  Each Bid Rate Quote must comply with the requirements of this paragraph (c) and must be submitted to Administrative Agent by facsimile not later than (x) 2:00 p.m. (New York time) on the fourth Banking Day prior to the proposed date of the LIBOR Bid Rate Loan(s) in the case of a LIBOR Auction or (y) 9:30 a.m. (New York time) on the Banking Day immediately preceding the proposed date of the Absolute Bid Rate Loan(s) in the case of an Absolute Rate Auction; provided that Bid Rate Quotes submitted by Administrative Agent (or any Affiliate of Administrative Agent) in its capacity as a Bank may be submitted, and may only be submitted, if Administrative Agent or such Affiliate notifies Borrower of the terms of the offer or offers contained therein not later than thirty (30) minutes prior to the deadline for the other Banks.  Any Bid Rate Quote so made shall (subject to Borrower’s satisfaction of the conditions precedent set forth in this Agreement to its entitlement to an advance) be irrevocable except with the written consent of Administrative Agent given on the instructions of Borrower.  Bid Rate Loans to be funded pursuant to a Bid Rate Quote may, as provided in Section 12.16, be funded by a Bank’s Designated Lender.  A Bank making a Bid Rate Quote shall, if then known, specify in its Bid Rate Quote whether the related Bid Rate Loans are intended to be funded by such Bank’s Designated Lender, as provided in Section 12.16, provided, however, that whether or not the same is specified in a Bank’s Bid Rate Quote, such Bank’s Bid Rate Loan(s) may be funded by its Designated Lender at the time of funding thereof. (2)           Each Bid Rate Quote shall be in substantially the form of EXHIBIT G-3 and shall in any case specify: (i)            the proposed date of funding of the Bid Rate Loan(s); (ii)           the principal amount of the Bid Rate Loan(s) for which each such offer is being made, which principal amount (w) may be greater than or less than the Loan Commitment of the quoting Bank, (x) must be in the aggregate $5,000,000 or a larger integral multiple of $500,000, (y) may not exceed the principal amount of Bid Rate Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Bid Rate Loans for which offers being made by such quoting Bank may be accepted; 20 -------------------------------------------------------------------------------- (iii)          in the case of a LIBOR Auction, the margin above or below the applicable LIBOR Interest Rate (the “LIBOR Bid Margin”) offered for each such LIBOR Bid Rate Loan, expressed as a percentage per annum (specified to the nearest 1/1,000th of 1%) to be added to (or subtracted from) the applicable LIBOR Interest Rate; (iv)          in the case of an Absolute Rate Auction, the rate of interest, expressed as a percentage per annum (specified to the nearest 1/1,000th of 1%) (the “Absolute Bid Rate”), offered for each such Absolute Bid Rate Loan; (v)           the applicable Interest Period; and (vi)          the identity of the quoting Bank. A Bid Rate Quote may set forth up to three (3) separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Bid Rate Quotes. (3)           Any Bid Rate Quote shall be disregarded if it: (i)            is not substantially in conformity with EXHIBIT G-3 or does not specify all of the information required by sub-paragraph (c)(2) above; (ii)           contains qualifying, conditional or similar language (except for an aggregate limitation as provided in sub-paragraph  (c)(2)(ii) above); (iii)          proposes terms other than or in addition to those set forth in the applicable Invitation for Bid Rate Quotes; or (iv)          arrives after the time set forth in sub-paragraph (c)(1) above. (d)           Administrative Agent shall (x) not later than 3:00 p.m. (New York time) on the fourth Banking Day prior to the proposed date of funding of the LIBOR Bid Rate Loan(s) in the case of a LIBOR Auction or (y) not later than 10:30 a.m. (New York time) on the Banking Day immediately preceding the proposed date of funding of the Absolute Bid Rate Loan(s) in the case of an Absolute Rate Auction, notify Borrower in writing of the terms of any Bid Rate Quote submitted by a Bank that is in accordance with paragraph (c).  In addition, Administrative Agent shall, on the Banking Day of its receipt thereof, notify Borrower in writing of any Bid Rate Quote that amends, modifies or is otherwise inconsistent with a previous Bid Rate Quote submitted by such Bank with respect to the same Bid Rate Quote Request.  Any such subsequent Bid Rate Quote shall be disregarded by Administrative Agent unless such subsequent Bid Rate Quote is submitted solely to correct a manifest error in such former Bid Rate Quote. Administrative Agent’s notice to Borrower shall specify (A) the aggregate principal amount of Bid Rate Loans for which offers have been received for each Interest Period specified in the related Bid Rate Quote Request, (B) the respective principal amounts, LIBOR Bid Margins and Absolute Bid Rates so offered and (C) if applicable, limitations on the aggregate principal amount of Bid Rate Loans for which offers in any single Bid Rate Quote may be accepted. 21 -------------------------------------------------------------------------------- (e)           Not later than (x) 9:30 a.m. (New York time) on the third Banking Day prior to the proposed date of funding of the LIBOR Bid Rate Loan in the case of a LIBOR Auction or (y) 1:00 p.m. (New York time) on the Banking Day immediately preceding the proposed date of funding of the Absolute Bid Rate Loan in the case of an Absolute Rate Auction, Borrower shall notify Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to paragraph (d).  If Borrower fails to notify Administrative Agent of its acceptance of such offers, it shall be deemed to have rejected such offers.  A notice of acceptance shall be substantially in the form of EXHIBIT G-4 and shall specify the aggregate principal amount of offers for each Interest Period that are accepted.  Borrower may accept any Bid Rate Quote in whole or in part; provided that: (i)            the principal amount of each Bid Rate Loan may not exceed the applicable amount set forth in the related Bid Rate Quote Request or be less than $500,000 per Bank and shall be an integral multiple of $100,000; (ii)           acceptance of offers with respect to a particular Interest Period may only be made on the basis of ascending LIBOR Bid Margins or Absolute Bid Rates, as the case may be, offered for such Interest Period from the lowest effective cost; and (iii)          Borrower may not accept any offer that is described in sub-paragraph (c)(3) or that otherwise fails to comply with the requirements of this Agreement. (f)            If offers are made by two (2) or more Banks with the same LIBOR Bid Margins or Absolute Bid Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Bid Rate Loans in respect of which such offers are accepted shall be allocated by Administrative Agent among such Banks as nearly as possible (in multiples of $100,000, as Administrative Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Administrative Agent shall promptly (and in any event within one (1) Banking Day after such offers are accepted) notify Borrower and each such Bank in writing of any such allocation of Bid Rate Loans.  Determinations by Administrative Agent of the allocation of Bid Rate Loans shall be conclusive in the absence of manifest error. (g)           In the event that Borrower accepts the offer(s) contained in one (1) or more Bid Rate Quotes in accordance with paragraph (e), the Bank(s) making such offer(s) shall make a Bid Rate Loan in the accepted amount (as allocated, if necessary, pursuant to paragraph (f)) on the date specified therefor, in accordance with the procedures specified in Section 2.04, and such Bid Rate Loan shall bear interest at the accepted LIBOR Bid Rate or Absolute Bid Rate, as the case may be, for the applicable Interest Period. 22 -------------------------------------------------------------------------------- (h)           Notwithstanding anything to the contrary contained herein, each Bank shall be required to fund its Pro Rata Share of the Available Total Loan Commitment in accordance with Section 2.01(b) despite the fact that any Bank’s Loan Commitment may have been or may be exceeded as a result of such Bank’s making Bid Rate Loans. (i)            A Bank who is notified that it has been selected to make a Bid Rate Loan as provided above may designate its Designated Lender (if any) to fund such Bid Rate Loan on its behalf, as described in Section 12.16.  Any Designated Lender which funds a Bid Rate Loan shall on and after the time of such funding become the obligee under such Bid Rate Loan and be entitled to receive payment thereof when due.  No Bank shall be relieved of its obligation to fund a Bid Rate Loan, and no Designated Lender shall assume such obligation, prior to the time the applicable Bid Rate Loan is funded. (j)            Administrative Agent shall promptly notify each Bank which submitted a Bid Rate Quote of Borrower’s acceptance or non-acceptance thereof.  At the request of any Bank which submitted a Bid Rate Quote, Administrative Agent will promptly notify all Banks which submitted Bid Rate Quotes of (a) the aggregate principal amount of, and (b) the range of Absolute Bid Rates or LIBOR Bid Margins of, the accepted Bid Rate Loans for each requested Interest Period. Section 2.03         Advances, Generally.  The Initial Advance shall be in the minimum amount of $500,000 and in integral multiples of $100,000 above such amount and shall be made upon satisfaction of the conditions set forth in Section 4.01.  Subsequent advances shall be made no more frequently than twice weekly thereafter, upon satisfaction of the conditions set forth in Section 4.02.  The amount of each advance subsequent to the Initial Advance shall be in the minimum amount of $500,000 (unless less than $500,000 is available for disbursement pursuant to the terms hereof at the time of any subsequent advance, in which case the amount of such subsequent advance shall be equal to such remaining availability) and in integral multiples of $100,000 above such amount.  Additional restrictions on the amounts and timing of, and conditions to the making of, advances of Bid Rate Loans are set forth in Section 2.02. Section 2.04         Procedures for Advances.  In the case of advances of Ratable Loans hereunder, Borrower shall submit to Administrative Agent a request for each advance, stating the amount requested and certifying the purpose, in general terms, for which such advance is to be used, no later than 11:00 a.m. (New York time) on the date, in the case of advances of Base Rate Loans, which is one (1) Banking Day, and, in the case of advances of LIBOR Loans, which is three (3) Banking Days, prior to the date the advance is to be made.  In the case of advances of Swing Loans hereunder, Borrower shall submit to Administrative Agent a request for such advance, stating the amount requested and certifying the purpose, in general terms, for which such advance is to be used, no later than 11:00 a.m. (New York time) on the date which is one (1) Banking Day prior to the date the advance is to be made.  In the case of advances of Bid Rate Loans hereunder, Borrower shall submit a Bid Rate Quote Request at the time specified in Section 2.02, accompanied by a certification of the purpose, in general terms, for which the advance is to be used.  Administrative Agent, on the Banking Day of its receipt and approval of the request for advance, will so notify the Banks (or, in the case of Swing Loans, the Swing Lender) either by telephone or by facsimile.  Not later than 11:00 a.m. (New York time) on the date of each advance, each Bank (in the case of Ratable Loans) or the applicable Bank(s) (in the case of Bid Rate Loans) 23 -------------------------------------------------------------------------------- or the Swing Lender (in the case of Swing Loans) shall, through its Applicable Lending Office and subject to the conditions of this Agreement, make the amount to be advanced by it on such day available to Administrative Agent, at Administrative Agent’s Office and in immediately available funds for the account of Borrower.  The amount so received by Administrative Agent shall, subject to the conditions of this Agreement, be made available to Borrower, in immediately available funds, by Administrative Agent’s crediting an account of Borrower designated by Borrower and maintained with Administrative Agent at Administrative Agent’s Office. Section 2.05         Interest Periods; Renewals.  In the case of the LIBOR Loans and Bid Rate Loans, Borrower shall select an Interest Period of any duration in accordance with the definition of Interest Period in Section 1.01, subject to the following limitations: (1) no Interest Period may extend beyond the Maturity Date; and (2) if an Interest Period would end on a day which is not a Banking Day, such Interest Period shall be extended to the next Banking Day, unless such Banking Day would fall in the next calendar month, in which event such Interest Period shall end on the immediately preceding Banking Day.  Only fifteen (15) discrete segments of a Bank’s Ratable Loan bearing interest at a LIBOR Interest Rate, for a designated Interest Period, pursuant to a particular Election, Conversion or Continuation, may be outstanding at any one time (each such segment of each Bank’s Ratable Loan corresponding to a proportionate segment of each of the other Banks’ Ratable Loans).  Upon notice to Administrative Agent as provided in Section 2.14, Borrower may Continue any LIBOR Loan on the last day of the Interest Period of the same or different duration in accordance with the limitations provided above.  If Borrower shall fail to give notice to Administrative Agent of such a Continuation, such LIBOR Loan shall automatically become a LIBOR Loan with an Interest Period of one (1) month on the last day of the current Interest Period.  Administrative Agent shall notify each of the Banks, either by telephone or by facsimile, at least two (2) Banking Days prior to the termination of the Interest Period in question in the event of such failure by Borrower to give such notice of Continuation. Section 2.06         Interest.  Borrower shall pay interest to Administrative Agent for the account of the applicable Bank on the outstanding and unpaid principal amount of the Loans, at a rate per annum as follows: (1) for Base Rate Loans at a rate equal to the Base Rate plus the Applicable Margin; (2) for LIBOR Loans at a rate equal to the applicable LIBOR Interest Rate plus the Applicable Margin; (3) for LIBOR Bid Rate Loans at a rate equal to the applicable LIBOR Bid Rate; (4) for Absolute Bid Rate Loans at a rate equal to the applicable Absolute Bid Rate; and (5) for Swing Loans at a daily LIBOR rate for a period not to exceed three (3) days, as determined by the Swing Lender.  Any principal amount not paid when due (when scheduled, at acceleration or otherwise) shall bear interest thereafter, payable on demand, at the Default Rate. The interest rate on Base Rate Loans shall change when the Base Rate changes.  Interest on Base Rate Loans, LIBOR Loans, Bid Rate Loans and Swing Loans shall not exceed the maximum amount permitted under applicable Law.  Interest shall be calculated for the actual number of days elapsed on the basis of, in the case of Base Rate Loans, LIBOR Loans, Bid Rate Loans and Swing Loans, three hundred sixty (360) days. Accrued interest shall be due and payable in arrears upon and with respect to any payment or prepayment of principal and, (x) in the case of Base Rate Loans, LIBOR Loans and Swing Loans, on the first Banking Day of each calendar month and (y) in the case of Bid Rate Loans, at the expiration of the Interest Period applicable thereto; provided, however, that interest accruing at the Default Rate shall be due and payable on demand. 24 -------------------------------------------------------------------------------- Section 2.07         Fees. (a)           Borrower agrees to pay to and for the accounts of the parties specified therein, the fees provided for in the Fee Letter and the Supplemental Fee Letter. (b)           Borrower shall pay to Administrative Agent for the account of each Bank a facility fee computed on the daily Loan Commitment of such Bank (irrespective of usage) at a rate per annum equal to the daily Facility Fee Rate, calculated on the basis of a year of three hundred sixty (360) days for the actual number of days elapsed.  The facility fee shall accrue for each calendar quarter (or portion thereof) and shall be due and payable quarterly in arrears on the tenth (10th) day of  October, January, April and July of each year, commencing on the first such date after the Closing Date, and upon the Maturity Date (as stated or by acceleration or otherwise) or earlier termination of the Loan Commitments. Section 2.08         Notes.  The Ratable Loan made by each Bank under this Agreement shall be evidenced by, and repaid with interest in accordance with, a single promissory note of Borrower in the form of EXHIBIT B duly completed and executed by Borrower, in the principal amount equal to such Bank’s Loan Commitment, payable to such Bank for the account of its Applicable Lending Office (each such note, as the same may hereafter be amended, modified, extended, severed, assigned, renewed or restated from time to time, including any new or substitute notes pursuant to Section 2.19, 3.07 or 12.05, a “Ratable Loan Note”). The Bid Rate Loans of the Banks shall be evidenced by a single global promissory note of Borrower, in the form of EXHIBIT B-1, duly completed and executed by Borrower, in the principal amount of the Bid Borrowing Limit, payable to Administrative Agent for the account of the respective Banks making Bid Rate Loans (such note, as the same may hereafter be amended, modified, extended, severed, assigned, substituted, renewed or restated from time to time, the “Bid Rate Loan Note”).  The Swing Loan of the Swing Lender shall be evidenced by, and repaid with interest in accordance with, a promissory note of Borrower, in the form of EXHIBIT B-2, duly completed and executed by Borrower, payable to the Swing Lender (such note, as the same may hereafter be amended, modified extended, severed, assigned, substituted, renewed or restated from time to time, the “Swing Loan Note”).  A particular Bank’s Ratable Loan Note, together with its interest, if any, in the Bid Rate Loan Note, and, in the case of the Swing Lender, the Swing Loan Note, are referred to collectively in this Agreement as such Bank’s “Note”; all such Ratable Loan Notes, the Bid Rate Loan Note and the Swing Loan Note are referred to collectively in this Agreement as the “Notes”.  The Ratable Loan Notes shall mature, and all outstanding principal and accrued interest and other sums thereunder shall be paid in full, on the Maturity Date, as the same may be accelerated.  The outstanding principal amount of each Bid Rate Loan evidenced by the Bid Rate Loan Note, and all accrued interest and other sums with respect thereto, shall become due and payable to the Bank making such Bid Rate Loan at the earlier of the expiration of the Interest Period applicable thereto or the Maturity Date, as the same may be accelerated.  Principal amounts evidenced by the Swing Loan Notes shall become due and payable at the earlier of three (3) Banking Days after said amounts are advanced or the Maturity Date. 25 -------------------------------------------------------------------------------- Each Bank is hereby authorized by Borrower to endorse on the schedule attached to the Ratable Loan Note held by it, the amount of each advance and each payment of principal received by such Bank for the account of its Applicable Lending Office(s) on account of its Ratable Loan, which endorsement shall, in the absence of manifest error, be conclusive as to the outstanding balance of the Ratable Loan made by such Bank.  The Swing Lender is hereby authorized by Borrower to endorse on the schedule attached to the Swing Loan Note held by it, the amount of each advance and each payment of principal received by the Swing Lender for the account of its Applicable Lending Office(s) on account of its Swing Loan, which endorsement shall, in the absence of manifest error, be conclusive as to the outstanding balance of the Swing Loan made by the Swing Lender.  Administrative Agent is hereby authorized by Borrower to endorse on the schedule attached to the Bid Rate Loan Note the amount of each LIBOR Bid Rate Loan and/or Absolute Bid Rate Loan, the name of the Bank making the same, the date of the advance thereof, the interest rate applicable thereto and the expiration of the Interest Period applicable thereto (i.e., the maturity date thereof).  The failure by Administrative Agent or any Bank to make such notations with respect to the Loans or each advance or payment shall not limit or otherwise affect the obligations of Borrower under this Agreement or the Notes.  In case of any loss, theft, destruction or mutilation of any Bank’s Note, Borrower shall, upon its receipt of an affidavit of an officer of such Bank as to such loss, theft, destruction or mutilation and an appropriate indemnification, execute and deliver a replacement Note to such Bank in the same principal amount and otherwise of like tenor as the lost, stolen, destroyed or mutilated Note. Section 2.09         Prepayments.  Without prepayment premium or penalty but subject to Section 3.05, Borrower may, upon at least one (1) Banking Day’s notice to Administrative Agent in the case of the Base Rate Loans and Swing Loans, and at least three (3) Banking Days’ notice to Administrative Agent (who shall provide such notice, promptly upon receipt, to each of the Banks) in the case of LIBOR Loans, prepay the Ratable Loans, provided that (1) any partial prepayment under this Section shall be in integral multiples of $500,000; (2) a LIBOR Loan or Swing Loan may be prepaid at any time, subject, however, to the provisions of Section 3.05; and (3) each prepayment under this Section shall include all interest accrued on the amount of principal prepaid through the date of prepayment.  Prepayment of Bid Rate Loans shall not be permitted. Section 2.10         Cancellation of Commitments. (a)           At any time, Borrower shall have the right, without premium or penalty, to terminate any unused Loan Commitments (i.e., to terminate Loan Commitments to the extent of the Available Total Loan Commitment) or unused commitment of the Swing Lender to make Swing Loans, in whole or in part, from time to time, provided that: (1) Borrower shall give notice of each such termination to Administrative Agent (who shall provide such notice, promptly upon receipt, to each of the Banks) and the Swing Lender, if applicable, no later then 10:00 a.m. (New York time) on the date which is fifteen (15) Banking Days prior to the effectiveness of such termination; (2) the Loan Commitments of each of the Banks, or Swing Lender, as applicable, must be terminated ratably and simultaneously with those of the other Banks, or Swing Lender, as applicable; (3) each partial termination of the Loan Commitments, or commitments to make Swing Loans, as a whole (and corresponding reduction of the Total Loan Commitment) shall be in an integral multiple of $1,000,000 and (4) no partial cancellation of the Loan Commitments shall reduce the Total Loan Commitment to an amount below $200,000,000. (b)           The Loan Commitments, to the extent terminated, may not be reinstated. 26 -------------------------------------------------------------------------------- Section 2.11         Method of Payment.  Borrower shall make each payment under this Agreement and under the Notes not later than 11:00 a.m. (New York time) on the date when due in Dollars to Administrative Agent at Administrative Agent’s Office in immediately available funds.  Administrative Agent will thereafter, on the day of its receipt of each such payment, cause to be distributed to each Bank (1) such Bank’s appropriate share determined pursuant to Section 10.15 of the payments of principal and interest in like funds for the account of such Bank’s Applicable Lending Office; and (2) fees payable to such Bank in accordance with the terms of this Agreement.  In the event Administrative Agent fails to pay funds received from Borrower to the Banks on the date on which Borrower is credited with payment, Administrative Agent shall pay interest on such amounts at the Federal Funds Rate until such payment to the Banks is made.  Borrower hereby authorizes Administrative Agent and the Banks, if and to the extent payment by Borrower is not made when due under this Agreement or under the Notes, to charge from time to time against any account Borrower maintains with Administrative Agent or any Bank any amount so due to Administrative Agent and/or the Banks.  Except to the extent provided in this Agreement, whenever any payment to be made under this Agreement or under the Notes is due on any day other than a Banking Day, such payment shall be made on the next succeeding Banking Day, and such extension of time shall in such case be included in the computation of the payment of interest and other fees, as the case may be. Section 2.12         Elections, Conversions or Continuation of Loans.  Subject to the provisions of Article III and Sections 2.05 and 2.13, Borrower shall have the right to Elect to have all or a portion of any advance of the Ratable Loans be LIBOR Loans, to Convert Base Rate Loans into LIBOR Loans, to Convert LIBOR Loans into Base Rate Loans, or to Continue LIBOR Loans as LIBOR Loans, at any time or from time to time, provided that (1) Borrower shall give Administrative Agent notice of each such Election, Conversion or Continuation as provided in Section 2.14; and (2) a LIBOR Loan may be Converted or Continued only on the last day of the applicable Interest Period for such LIBOR Loan.  Except as otherwise provided in this Agreement, each Election, Continuation and Conversion shall be applicable to each Bank’s Ratable Loan in accordance with its Pro Rata Share. Section 2.13         Minimum Amounts.  With respect to the Ratable Loans as a whole, each Election and each Conversion shall be in an amount at least equal to $1,000,000 and in integral multiples of $500,000. Section 2.14         Certain Notices Regarding Elections, Conversions and Continuations of Loans.  Notices by Borrower to Administrative Agent of Elections, Conversions and Continuations of LIBOR Loans shall be irrevocable and shall be effective only if received by Administrative Agent not later than 10:30 a.m. (New York time) on the number of Banking Days prior to the date of the relevant Election, Conversion or Continuation specified below:   Number of Banking Days Prior Notice       Conversions into Base Rate Loans   two (2)       Elections of, Conversions into or Continuations as, LIBOR Loans   three (3)   27 --------------------------------------------------------------------------------   Promptly following its receipt of any such notice, and no later than the close of business on the Banking Day of such receipt, Administrative Agent shall so advise the Banks either by telephone or by facsimile.  Each such notice of Election shall specify the portion of the amount of the advance that is to be LIBOR Loans (subject to Section 2.13) and the duration of the  Interest Period applicable thereto (subject to Section 2.05); each such notice of Conversion shall specify the LIBOR Loans or Base Rate Loans to be Converted; and each such notice of Conversion or Continuation shall specify the date of Conversion or Continuation (which shall be a Banking Day), the amount thereof (subject to Section 2.13) and the duration of the Interest Period applicable thereto (subject to Section 2.05).  In the event that Borrower fails to Elect to have any portion of an advance of the Ratable Loans be LIBOR Loans, the entire amount of such advance shall constitute Base Rate Loans.  In the event that Borrower fails to Continue LIBOR Loans within the time period and as otherwise provided in this Section, such LIBOR Loans will automatically become LIBOR Loans with an Interest Period of one (1) month on the last day of the then current applicable Interest Period for such LIBOR Loans.  Administrative Agent shall notify each of the Banks, either by telephone or by facsimile, at least two (2) Banking Days prior to the termination of the Interest Period in question in the event of such failure by Borrower. Section 2.15         Late Payment Premium.  Borrower shall, at Administrative Agent’s option and upon notice to Borrower, pay to Administrative Agent for the account of the Banks a late payment premium in the amount of 4% of any payments of interest under the Loans made more than ten (10) days after the due date thereof, which shall be due with any such late payment. Section 2.16         Letters of Credit. (a)           Borrower, by notice to Administrative Agent and the Issuing Bank, may request, in lieu of advances of proceeds of the Ratable Loans, that the Issuing Bank issue unconditional, irrevocable standby letters of credit or direct-pay letters of credit (each, a “Letter of Credit”) for the account of Borrower or its Consolidated Businesses, payable by sight drafts, for such beneficiaries and with such other terms as Borrower shall specify.  Promptly upon receipt of notice from the Issuing Bank of the issuance, amendment or extension of a Letter of Credit, Administrative Agent shall notify each of the Banks.  The letters of credit listed on Schedule 2.16 attached hereto (the “Existing Letters of Credit”) shall be deemed to be Letters of Credit issued under this Agreement for all purposes, and each of the Borrower and the Banks confirms and agrees that its respective obligations with respect to the Existing Letters of Credit shall be governed by this Agreement. (b)           The amount of any Letter of Credit shall be limited to the lesser of (x) $100,000,000 less the aggregate amount of all Letters of Credit theretofore issued and outstanding or (y) the Available Total Loan Commitment, it being understood that the amount of each Letter of Credit issued and outstanding shall effect a reduction, by an equal amount, of the Available Total Loan Commitment (such reduction to be allocated to each Bank’s Loan Commitment ratably in accordance with the Banks’ respective Pro Rata Shares). 28 -------------------------------------------------------------------------------- (c)           The amount of each Letter of Credit shall be further subject to the limitations applicable to amounts of advances set forth in Section 2.03 (unless the Issuing Bank agrees to issue Letters of Credit in smaller denominations) and the procedures for the issuance of each Letter of Credit shall be the same as the procedures applicable to the making of advances as set forth in the first sentence of Section 2.04.  The Issuing Bank’s issuance of each Letter of Credit shall be subject to notice from the Administrative Agent that it has determined that Borrower has satisfied all conditions precedent to its entitlement to an advance of proceeds of the Loans. (d)           Each Letter of Credit shall expire no later than fifteen (15) days prior to the Maturity Date, but may have a so-called “evergreen” clause allowing for the extension of the expiration date thereof upon the extension of the Maturity Date pursuant to Section 2.18. (e)           In connection with, and as a further condition to the issuance of, each Letter of Credit, Borrower shall execute and deliver to Administrative Agent and the Issuing Bank an application for the Letter of Credit on the Issuing Bank’s standard form therefor, together with such other documents, opinions and assurances as Administrative Agent and the Issuing Bank shall reasonably require. (f)            In connection with each Letter of Credit, Borrower hereby covenants to pay to Administrative Agent the following fees:  (1) a fee, payable quarterly in arrears (on the first Banking Day of each calendar quarter following the issuance of the Letter of Credit), for the account of the Banks, computed daily on the amount of the Letter of Credit issued and outstanding at a rate per annum equal to the “Banks’ L/C Fee Rate” (as hereinafter defined) and (2) a fronting fee, payable quarterly in arrears (on the first Banking Day of each calendar quarter following the issuance of the Letter of Credit), for the Issuing Bank’s account, computed daily on the amount of the Letter of Credit issued and outstanding, at a rate per annum equal to 0.10%.  In addition to the fees described in the preceding sentence, the Borrower shall pay to the Issuing Bank such other customary letter of credit charges when incurred.  For purposes of this Agreement, the “Banks’ L/C Fee Rate” shall mean, at any time, a rate per annum equal to the Applicable Margin for LIBOR Loans less 0.10% per annum.  It is understood and agreed that the last installment of the fees provided for in this paragraph (f) with respect to any particular Letter of Credit shall be due and payable on the first day of the calendar quarter following the return, undrawn, or cancellation of such Letter of Credit to the Issuing Bank, who shall promptly provide notice to Administrative Agent of such return or cancellation, and Borrower’s receipt of notice from Administrative Agent. (g)           Upon any drawing under a Letter of Credit, the Issuing Bank shall immediately provide notice to the Borrower and Administrative Agent of such drawing.  The Borrower shall reimburse the Issuing Bank on the date of any drawing under a Letter of Credit.  Such reimbursement shall be made with the proceeds of an advance of Loans as set forth below unless such advance cannot for any reason be made.  The parties hereto acknowledge and agree that, immediately upon notice from Administrative Agent of any drawing under a Letter of Credit, each Bank shall, notwithstanding the existence of a Default or Event of Default or the non-satisfaction of any conditions precedent to the making of an advance of the Loans, advance proceeds of its Ratable Loan, in an amount equal to its Pro Rata Share of such drawing, which advance shall be made to Administrative Agent for the account of the Issuing Bank to reimburse the Issuing Bank for such drawing.  29 -------------------------------------------------------------------------------- Each of the Banks further acknowledges that its obligation to fund its Pro Rata Share of drawings under Letters of Credit as aforesaid shall survive the Banks’ termination of this Agreement or enforcement of remedies hereunder or under the other Loan Documents.  In the event that any Ratable Loan 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 any applicable bankruptcy or insolvency Law with respect to Borrower), then each Bank shall purchase (on or as of the date such Ratable Loan would otherwise have been made) from the Issuing Bank a participation interest in any unreimbursed drawing in an amount equal to its Pro Rata Share of such unreimbursed drawing. (h)           Borrower agrees, upon the occurrence of an Event of Default and at the written request of Administrative Agent, (1) to deposit with Administrative Agent for the benefit of the Issuing Bank and the Banks cash collateral in the amount of all the outstanding Letters of Credit, which cash collateral shall be held by Administrative Agent for the benefit of the Issuing Bank and the Banks as security for Borrower’s obligations in connection with the Letters of Credit and (2) to execute and deliver to Administrative Agent and the Issuing Bank such documents as Administrative Agent or the Issuing Bank reasonably requests to confirm and perfect the assignment of such cash collateral to Administrative Agent for the benefit of the Issuing Bank and the Banks. Section 2.17         Swing Loans. (a)           During the term of this Agreement, the Swing Lender agrees, on the terms and conditions set forth in this Agreement, to make advances to Borrower pursuant to this Section from time to time in amounts such that (i) the aggregate of such advance and amount of Swing Loans theretofore advanced and still outstanding does not at any time exceed the Swing Loan Commitment and (ii) the amount of such advance does not exceed the Available Total Loan Commitment.  Each advance under this Section shall be in an aggregate principal amount of $1,000,000 or a larger multiple of $100,000 (except that any such advance may be in the aggregate available amount of Swing Loans determined in accordance with the immediately preceding sentence).  With the foregoing limits, Borrower may borrow under this Section, repay or, to the extent permitted by Section 2.09, prepay Swing Loans and reborrow under this Section at any time during the term of this Agreement. (b)           The Swing Lender shall, on behalf of Borrower (which hereby irrevocably directs the Swing Lender to act on its behalf), on notice given by the Swing Lender no later than 1:00 p.m. (New York time) on the Banking Day immediately following the funding of any Swing Loan, request each Bank to make, and each Bank hereby agrees to make, an advance of its Ratable Loan, in an amount (with respect to each Bank, its “Swing Loan Refund Amount”) equal to such Bank’s Pro Rata Share of the aggregate principal amount of the Swing Loans (the “Refunded Swing Loans”) outstanding on the date of such notice, to repay the Swing Lender.  Unless any of the events described in paragraph (5) of Section 9.01 with respect to Borrower shall have occurred and be continuing (in which case the procedures of paragraph (c) of this Section shall apply), each Bank shall make such advance of its Ratable Loan available to Administrative Agent at Administrative Agent’s Office in immediately available funds, not later than 1:00 p.m. (New York time), on the third 30 -------------------------------------------------------------------------------- Banking Day immediately following the date of such notice.  Administrative Agent shall pay the proceeds of such advance of Ratable Loans to the Swing Lender, which shall immediately apply such proceeds to repay Refunded Swing Loans.  Effective on the day such advances of Ratable Loans are made, the portion of the Swing Loans so paid shall no longer be outstanding as Swing Loans, shall no longer be due as Swing Loans under the Swing Loan Note held by the Swing Lender, and shall be due as Ratable Loans under the respective Ratable Loan Notes issued to the Banks (including the Swing Lender).  Borrower authorizes the Swing Lender to charge Borrower’s accounts with Administrative Agent (up to the amount available in each such accounts) in order to immediately pay the amount of such Refunded Swing Loans to the extent amounts received from the Banks are not sufficient to repay in full such Refunded Swing Loans. (c)           If, prior to the time advances of Ratable Loans would have otherwise been made pursuant to paragraph (b) of this Section, one of the events described in paragraph (5) of Section 9.01 with respect to the Borrower shall have occurred and be continuing, each Bank shall, on the date such advances were to have been made pursuant to the notice referred to in paragraph (b) of this Section (the “Refunding Date”), purchase an undivided participating interest in the Swing Loans in an amount equal to such Bank’s Swing Loan Refund Amount.  On the Refunding Date, each Bank shall transfer to the Swing Lender, in immediately available funds, such Bank’s Swing Loan Refund Amount, and upon receipt thereof, the Swing Lender shall deliver to such Bank a Swing Loan participation certificate dated the date of the Swing Lender’s receipt of such funds and in the Swing Loan Refund Amount of such Bank. (d)           Whenever, at any time after the Swing Lender has received from any Bank such Bank’s Swing Loan Refund Amount pursuant to paragraph (c) of this Section, the Swing Lender receives any payment on account of the Swing Loans in which the Banks have purchased Participations pursuant to said paragraph (c), the Swing Lender will promptly distribute to each such Bank its ratable share (determined on the basis of the Swing Loan Refund Amounts of all of the Banks) of such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Bank’s participating interest was outstanding and funded); provided, however, that in the event that such payment received by the Swing Lender is required to be returned, such Bank will return to the Swing Lender any portion thereof previously distributed to it by the Swing Lender. (e)           Each Bank’s obligation to make an advance of its Ratable Loan as provided in paragraph (b) of this Section or to purchase a participating interest pursuant to paragraph (c) of this Section shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Bank, Borrower or any other Person may have against the Swing Lender or any other Person, (ii) the occurrence or continuance of a Default or an Event of Default, the termination or reduction of the Loan Commitments or the non-satisfaction of any condition precedent to the making of any advance of the Loans, (iii) any adverse change in the condition (financial or otherwise) of Borrower or any other Person, (iv) any breach of this Agreement by Borrower, any other Bank or any other Person or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 31 -------------------------------------------------------------------------------- (f)            Notwithstanding anything above in this Section or elsewhere in this Agreement to the contrary, in the event that the Swing Lender funds a Swing Loan hereunder when it has actual knowledge that a monetary Default, or material Event of Default (which, for the avoidance of doubt shall include any violation of any provision of Article VII or Article VIII) has occurred and is continuing, the Banks shall have the option, but not the obligation, to make Ratable Loans to fund their ratable shares of such Swing Loan as contemplated in paragraph (b) of this Section or to purchase participations as contemplated in paragraph (c) of this Section. (g)           For purposes of Article III, Swing Loans shall be deemed to be LIBOR Loans. Section 2.18         Extension Of Maturity.  Borrower shall have the option (the “Extension Option”) to extend the original Maturity Date for a period of one (1) year.  Subject to the conditions set forth below, Borrower may exercise the Extension Option by delivering a written notice to Administrative Agent (who shall provide such notice, promptly upon receipt, to each of the Banks) not more than ninety (90) days and not less than thirty (30) days prior to the original Maturity Date (a “Notice to Extend”), stating that Borrower has elected to extend the original Maturity Date for one (1) year.  Borrower’s delivery of the Notice to Extend shall be irrevocable and Borrower’s right to exercise the Extension Option shall be subject to the following terms and conditions:  (i) there shall exist no Event of Default on both the date Borrower delivers the Notice to Extend to Administrative Agent and on the original Maturity Date, (ii) Borrower shall have paid to Administrative Agent for the account of each Bank an extension fee equal to 0.10% of such Bank’s Loan Commitment simultaneously with delivery of the Notice to Extend and (iii) Borrower shall be in compliance with the covenants contained in Articles VII and VIII, as evidenced by a certificate from Borrower of the sort required by paragraph (3) of Section 6.09 (based on financial results for the most recent calendar quarter for which Borrower is required to report financial results). Section 2.19         Additional Loan Commitments. (a)           Borrower may, from time to time, up to a maximum of three (3) requests, request the Banks to increase their Loan Commitments, so as to increase the Total Loan Commitment to an amount no greater than the sum of (1) the Accordion Amount plus (2) $650,000,000 less (3) the amount of any reduction of the Total Loan Commitment pursuant to Section 2.10.  The increase in the Total Loan Commitment pursuant to any such particular request shall be at least an amount (the “Minimum Request”) equal to the lesser of (x) $50,000,000 or (y) the Accordion Amount less all previous increases in the Total Loan Commitment pursuant to this Section.  Borrower shall make each such request by giving notice to Syndication Agent no later than forty-five (45) days prior to the date (the “Syndication Expiration Date”) that is thirty-nine (39) months after the Closing Date, which notice shall set forth the amount (which shall be no less than the Minimum Request) of the requested increase in the Total Loan Commitment (the “Requested Increase”) and such other details with respect to such increase as Syndication Agent shall reasonably 32 -------------------------------------------------------------------------------- request.  Upon receipt of such notice, Syndication Agent shall promptly send a copy of such notice to each Bank.  Syndication Agent and/or its Affiliates will use commercially reasonable efforts, with the assistance of Borrower, to arrange a syndicate of Banks with Loan Commitments (including the then-existing Loan Commitments) aggregating the then existing Total Loan Commitment plus the Requested Increase.  Any Bank that is a party to this Agreement prior to such Requested Increase, at its sole discretion, may elect to increase its Loan Commitment but shall not have any obligation to so increase its Loan Commitment.  In the event that each Bank does not elect to increase its Loan Commitment, Syndication Agent and/or its Affiliates shall use commercially reasonable efforts to locate additional lenders willing to hold commitments for the Requested Increase, subject to the approval of any such proposed lender by the Borrower, and the Borrower may also identify additional lenders willing to hold commitments for the Requested Increase, provided that the Administrative Agent shall have the right to approve any such additional lender, which approval will not be unreasonably withheld or delayed.  From and after the Syndication Expiration Date, Syndication Agent and its Affiliates shall have no further obligation to syndicate the Facility or to obtain or accept any additional Loan Commitments. (b)           In connection with increases to the Loan Commitments of some or all of the Banks as provided in paragraph (a) above, Borrower shall execute supplemental Ratable Loan Notes (the “Supplemental Notes”) evidencing such increases, as well as such other confirmatory modifications to this Agreement as Syndication Agent shall reasonably request.  In connection with the addition of lenders as a result of solicitations by Syndication Agent pursuant to paragraph (a) above (“New Banks”), Borrower, Administrative Agent and each New Bank shall execute an Acceptance Letter in the form of EXHIBIT H, Borrower shall execute a Ratable Loan Note to each New Bank in the amount of the New Bank’s Loan Commitment (a “New Note”) and Borrower and Administrative Agent (with the consent of only the New Banks and those Banks increasing their Loan Commitments) shall execute such confirmatory modifications to this Agreement as Administrative Agent shall reasonably request, whereupon the New Bank shall become, and have the rights and obligations of, a “Bank”, with a Loan Commitment in the amount set forth in such Acceptance Letter.  The Banks shall have no right of approval with respect to a New Bank’s becoming a Bank or the amount of its Loan Commitment, provided, however, that Syndication Agent shall have such right of approval, not to be unreasonably withheld.  Each Supplemental Note and New Note shall constitute “Ratable Loan Notes” for all purposes of this Agreement. (c)           If at the time a New Bank becomes a Bank (or a Bank increases its Loan Commitment) pursuant to this Section there is any principal outstanding under the Ratable Loan Notes of the previously admitted Banks (the “Existing Banks”), such New Bank (or Bank increasing its Loan Commitment) shall remit to Administrative Agent an amount equal to the Outstanding Percentage (as defined below) multiplied by the Loan Commitment of the New Bank (or the amount of the increase in the Loan Commitment of a Bank increasing its Loan Commitment), which amount shall be deemed advanced under the Ratable Loan of the New Bank (or the Bank increasing its Loan Commitment).  Administrative Agent shall pay such amount to the Existing Banks in accordance with the Existing Banks’ respective Pro Rata Shares (as calculated immediately prior to the admission of the New Bank (or the increase in a Bank’s Loan Commitment)), and such 33 -------------------------------------------------------------------------------- payment shall effect an automatic reduction of the outstanding principal balance under the respective Ratable Loan Notes of the Existing Banks.  For purposes of this Section, the term “Outstanding Percentage” means the ratio of (i) the aggregate outstanding principal amount under the Ratable Notes of the Existing Banks, immediately prior to the admission of the New Bank (or the increase in the Loan Commitment of a Bank), to (ii) the aggregate of the Loan Commitments of the Existing Banks (as increased pursuant to this Section, if applicable) and the New Bank. (d)           The fees payable by the Borrower upon any increase of the Loan Commitments shall be agreed upon by the Borrower, the Syndication Agent, the New Banks and those Banks increasing their Loan Commitments. Nothing in this Section 2.19 shall constitute or be deemed to constitute an agreement or commitment by any Bank to increase its Loan Commitment hereunder. ARTICLE III YIELD PROTECTION; ILLEGALITY, ETC. Section 3.01         Additional Costs.  Borrower shall pay directly to each Bank from time to time on demand such amounts as such Bank may determine to be necessary to compensate it for any increased costs which such Bank determines are attributable to its making or maintaining a LIBOR Loan or a LIBOR Bid Rate Loan, or its obligation to make or maintain a LIBOR Loan or a LIBOR Bid Rate Loan, or its obligation to Convert a Base Rate Loan to a LIBOR Loan hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of its LIBOR Loan or LIBOR Bid Rate Loan(s) or such obligations (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), in each case resulting from any Regulatory Change which: (1)           changes the basis of taxation of any amounts payable to such Bank under this Agreement or the Notes in respect of any  such LIBOR Loan or LIBOR Bid Rate Loan (other than changes in the rate of general corporate, franchise, branch profit, net income or other income tax imposed on such Bank or its Applicable Lending Office by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); or (2)           (other than to the extent the LIBOR Reserve Requirement is taken into account in determining the LIBOR Rate at the commencement of the applicable Interest Period) imposes or modifies any reserve, special deposit, deposit insurance or assessment, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any LIBOR Loan or LIBOR Bid Rate Loan or any deposits referred to in the definition of “LIBOR Interest Rate” in Section 1.01), or any commitment of such Bank (including such Bank’s Loan Commitment hereunder); or (3)           imposes any other condition affecting this Agreement or the Notes (or any of such extensions of credit or liabilities). 34 -------------------------------------------------------------------------------- Without limiting the effect of the provisions of the first paragraph of this Section, in the event that, by reason of any Regulatory Change, any Bank either (1) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits of other liabilities of such Bank which includes deposits by reference to which the LIBOR Interest Rate is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes loans based on the LIBOR Interest Rate or (2) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to Borrower (with a copy to Administrative Agent), the obligation of such Bank to permit Elections of, to Continue, or to Convert Base Rate Loans into, LIBOR Loans shall be suspended (in which case the provisions of Section 3.04 shall be applicable) until such Regulatory Change ceases to be in effect. Determinations and allocations by a Bank for purposes of this Section of the effect of any Regulatory Change pursuant to the first or second paragraph of this Section, on its costs or rate of return of making or maintaining its Loan or portions thereof or on amounts receivable by it in respect of its Loan or portions thereof, and the amounts required to compensate such Bank under this Section, shall be included in a calculation of such amounts given to Borrower and shall be conclusive absent manifest error. Section 3.02         Limitation on Types of Loans.  Anything herein to the contrary notwithstanding, if, on or prior to the determination of the LIBOR Interest Rate for any Interest Period: (1)           Administrative Agent reasonably determines (which determination shall be conclusive), and provides Borrower, in writing, with reasonable detail supporting such determination, that quotations of interest rates for the relevant deposits referred to in the definition of “LIBOR Interest Rate” in Section 1.01 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for the LIBOR Loans or LIBOR Bid Rate Loans as provided in this Agreement; or (2)           a Bank reasonably determines (which determination shall be conclusive), and provides Borrower, in writing, with reasonable detail supporting such determination, and promptly notifies Administrative Agent that the relevant rates of interest referred to in the definition of “LIBOR Interest Rate” in Section 1.01 upon the basis of which the rate of interest for LIBOR Loans or LIBOR Bid Rate Loans for such Interest Period is to be determined do not adequately cover the cost to such Bank of making or maintaining such LIBOR Loan or LIBOR Bid Rate Loan for such Interest Period; then Administrative Agent shall give Borrower prompt notice thereof, and so long as such condition remains in effect, the Banks (or, in the case of the circumstances described in clause (2) above, the affected Bank) shall be under no obligation to permit Elections of LIBOR Loans, to Convert Base Rate Loans into LIBOR Loans or to Continue LIBOR Loans and Borrower shall, on the last day(s) of the then current Interest Period(s) for the affected outstanding LIBOR Loans or LIBOR Bid Rate Loans, either (x) prepay the affected LIBOR Loans or LIBOR Bid Rate Loans or (y) Convert the affected LIBOR Loans into Base Rate Loans in accordance with Section 2.12 or convert the rate of interest under the affected LIBOR Bid Rate Loans to the rate applicable to Base Rate Loans by following the same procedures as are applicable for Conversions into Base Rate Loans set forth in Section 2.12. 35 -------------------------------------------------------------------------------- Section 3.03         Illegality.  Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to honor its obligation to make or maintain a LIBOR Loan or LIBOR Bid Rate Loan hereunder, to allow Elections or Continuations of a LIBOR Loan or to Convert a Base Rate Loan into a LIBOR Loan, then such Bank shall promptly notify Administrative Agent and Borrower thereof and such Bank’s obligation to make or maintain a LIBOR Loan or LIBOR Bid Rate Loan, or to permit Elections of, to Continue, or to Convert its Base Rate Loan into, a LIBOR Loan shall be suspended (in which case the provisions of Section 3.04 shall be applicable) until such time as such Bank may again make and maintain a LIBOR Loan or a LIBOR Bid Rate Loan. Section 3.04         Treatment of Affected Loans.  If the obligations of any Bank to make or maintain a LIBOR Loan or a LIBOR Bid Rate Loan, or to permit an Election of a LIBOR Loan, to Continue its LIBOR Loan, or to Convert its Base Rate Loan into a LIBOR Loan, are suspended pursuant to Sections 3.01 or 3.03 (each LIBOR Loan or LIBOR Bid Rate Loan so affected being herein called an “Affected Loan”), such Bank’s Affected Loan shall be automatically Converted into a Base Rate Loan (or, in the case of an Affected Loan that is a LIBOR Bid Rate Loan, the interest rate thereon shall be converted to the rate applicable to Base Rate Loans) on the last day of the then current Interest Period for the Affected Loan (or, in the case of a Conversion (or conversion) required by Sections 3.01 or 3.03, on such earlier date as such Bank may specify to Borrower). To the extent that such Bank’s Affected Loan has been so Converted (or the interest rate thereon so converted), all payments and prepayments of principal which would otherwise be applied to such Bank’s Affected Loan shall be applied instead to its Base Rate Loan (or to its LIBOR Bid Rate Loan bearing interest at the converted rate) and such Bank shall have no obligation to Convert its Base Rate Loan into a LIBOR Loan. Section 3.05         Certain Compensation.  Other than in connection with a Conversion of an Affected Loan, Borrower shall pay to Administrative Agent for the account of the applicable Bank, upon the request of such Bank through Administrative Agent which request includes a calculation of the amount(s) due, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any non-administrative, actual loss, cost or expense which such Bank reasonably determines is attributable to: (1)           any payment or prepayment of a LIBOR Loan or Bid Rate Loan made by such Bank, or any Conversion or Continuation of a LIBOR Loan (or conversion of the rate of interest on a LIBOR Bid Rate Loan) made by such Bank, in any such case on a date other than the last day of an applicable Interest Period, whether by reason of acceleration or otherwise; or (2)           any failure by Borrower for any reason to Convert a Base Rate Loan or a LIBOR Loan or Continue a LIBOR Loan to be Converted or Continued by such Bank on the date specified therefor in the relevant notice  under Section 2.14; or 36 -------------------------------------------------------------------------------- (3)           any failure by Borrower to borrow (or to qualify for a borrowing of) a LIBOR Loan or Bid Rate Loan which would otherwise be made hereunder on the date specified in the relevant Election notice under Section 2.14 or Bid Rate Quote acceptance under Section 2.02(e) given or submitted by Borrower. Without limiting the foregoing, such compensation shall include any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after the date of such payment, prepayment, Conversion or Continuation (or failure to Convert, Continue or borrow).  A determination of any Bank as to the amounts payable pursuant to this Section shall be conclusive absent manifest error.  No Bank shall make any request pursuant to this Section 3.05 unless such amounts due to, and costs incurred by, such Bank are equal to or greater than $100. Section 3.06         Capital Adequacy.  If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank’s obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within fifteen (15) days after demand by such Bank (with a copy to Administrative Agent), Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction.  A certificate of any Bank claiming compensation under this Section, setting forth in reasonable detail the basis therefor, shall be conclusive absent manifest error. Section 3.07         Substitution of Banks.  If any Bank (an “Affected Bank”) (1) makes demand upon Borrower for (or if Borrower is otherwise required to pay) Additional Costs pursuant to Section 3.01 or (2) is unable to make or maintain a LIBOR Loan or LIBOR Bid Rate Loan as a result of a condition described in Section 3.03 or clause (2) of Section 3.02, Borrower may, within ninety (90) days of receipt of such demand or notice (or the occurrence of such other event causing Borrower to be required to pay Additional Costs or causing said Section 3.03 or clause (2) of Section 3.02 to be applicable), as the case may be, give written notice (a “Replacement Notice”) to Administrative Agent and to each Bank of Borrower’s intention either (x) to prepay in full the Affected Bank’s Note and to terminate the Affected Bank’s entire Loan Commitment or (y) to replace the Affected Bank with another financial institution (the “Replacement Bank”) designated in such Replacement Notice.  In the event Borrower opts to give the notice provided for in clause (x) above, and if the Affected Bank shall not agree within thirty (30) days of its receipt thereof to waive the payment of the Additional Costs in question or the effect of the circumstances described in Section 3.03 or clause (2) of Section 3.02, then, so long as no Default or Event of Default shall exist, Borrower may (notwithstanding the provisions of clause (2) of Section 2.10(a)) terminate the Affected Bank’s entire Loan Commitment, provided that in connection therewith it pays to the Affected Bank all outstanding principal and accrued and unpaid interest under the Affected Bank’s Note, together with all other amounts, if any, due from Borrower to the Affected Bank, including all amounts properly demanded and unreimbursed under Sections 3.01 and 3.05. 37 -------------------------------------------------------------------------------- In the event Borrower opts to give the notice provided for in clause (y) above, and if (i) Administrative Agent shall, within thirty (30) days of its receipt of the Replacement Notice, notify Borrower and each Bank in writing that the Replacement Bank is reasonably satisfactory to Administrative Agent and (ii) the Affected Bank shall not, prior to the end of such thirty (30)-day period, agree to waive the payment of the Additional Costs in question or the effect of the circumstances described in Section 3.03 or clause (2) of Section 3.02, then the Affected Bank shall, so long as no Default or Event of Default shall exist, assign its Note and all of its rights and obligations under this Agreement to the Replacement Bank, and the Replacement Bank shall assume all of the Affected Bank’s rights and obligations, pursuant to an agreement, substantially in the form of an Assignment and Acceptance, executed by the Affected Bank and the Replacement Bank.  In connection with such assignment and assumption, the Replacement Bank shall pay to the Affected Bank an amount equal to the outstanding principal amount under the Affected Bank’s Note plus all interest accrued thereon, plus all other amounts, if any (other than the Additional Costs in question), then due and payable to the Affected Bank; provided, however, that prior to or simultaneously with any such assignment and assumption, Borrower shall have paid to such Affected Bank all amounts properly demanded and unreimbursed under Sections 3.01 and 3.05.  Upon the effective date of such assignment and assumption, the Replacement Bank shall become a Bank party to this Agreement and shall have all the rights and obligations of a Bank as set forth in such Assignment and Acceptance, and the Affected Bank shall be released from its obligations hereunder, and no further consent or action by any party shall be required.  Upon the consummation of any assignment pursuant to this Section, a substitute Ratable Loan Note (and, if applicable, Swing Loan Note) shall be issued to the Replacement Bank by Borrower, in exchange for the return of the Affected Bank’s Ratable Loan Note (and, if applicable, Swing Loan Note).  The obligations evidenced by such substitute note shall constitute “Obligations” for all purposes of this Agreement and the other Loan Documents.  In connection with Borrower’s execution of substitute notes as aforesaid, Borrower shall deliver to Administrative Agent evidence, satisfactory to Administrative Agent, of all requisite corporate action to authorize Borrower’s execution and delivery of the substitute notes and any related documents.  If the Replacement Bank is not incorporated under the Laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to Borrower and Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 10.13.  Each Replacement Bank shall be deemed to have made the representations contained in, and shall be bound by the provisions of, Section 10.13. Borrower, Administrative Agent and the Banks shall execute such modifications to the Loan Documents as shall be reasonably required in connection with and to effectuate the foregoing. Section 3.08         Applicability.  The provisions of this Article III shall be applied to Borrower so as not to discriminate against Borrower vis-a-vis similarly situated customers of the Banks. 38 -------------------------------------------------------------------------------- Section 3.09         Time for Notices.  No Bank shall be entitled to compensation under Section 3.01 or Section 3.06 for any costs incurred or reduction suffered with respect to any date unless such Bank shall have notified the Borrower that it will demand compensation for such costs or reduction (such notice to provide a computation of such costs or reductions) not more than one hundred and twenty (120) days after such Bank has obtained actual knowledge of an event entitling it to such compensation, except that if such event giving rise to compensation is retroactive, then the 120-day period referred to above shall be extended to include the period of retroactive effect. ARTICLE IV CONDITIONS PRECEDENT Section 4.01         Conditions Precedent to the Initial Advance.  The obligations of the Banks hereunder and the obligation of each Bank to make the Initial Advance are subject to the condition precedent that Administrative Agent shall have received and approved on or before the Closing Date (other than with respect to paragraph (10) below which shall be required prior to the Initial Advance) each of the following documents, and each of the following requirements shall have been fulfilled: (1)           Fees and Expenses.  The payment of (a) all fees and expenses incurred by Syndication Agent and Administrative Agent (including, without limitation, the reasonable fees and expenses of legal counsel) and (b) those fees specified in the Fee Letter and the Supplemental Fee Letter to be paid by Borrower on or before the Closing Date; (2)           Loan Agreement and Notes.  This Agreement, the Ratable Loan Notes for each of the Banks signatory hereto, the Bid Rate Loan Note for Administrative Agent, and the Swing Note for the Swing Lender, each duly executed by Borrower; (3)           Financial Statements.  (a) Audited Borrower’s Consolidated Financial Statements as of and for the year ended December 31, 2005 and (b) unaudited Borrower’s Consolidated Financial Statements, certified by the chief financial officer thereof, as of and for the quarter ended June 30, 2006; (4)           Evidence of Formation of Borrower.  Certified (as of the Closing Date) copies of Borrower’s certificate of incorporation and by-laws, with all amendments thereto, and a certificate of the Secretary of State of the jurisdiction of formation as to its good standing therein; (5)           Evidence of All Corporate Action.  Certified (as of the Closing Date) copies of all documents evidencing the corporate action taken by Borrower authorizing the execution, delivery and performance of the Loan Documents and each other document to be delivered by or on behalf of Borrower pursuant to this Agreement; (6)           Incumbency and Signature Certificate of Borrower.  A certificate (dated as of the Closing Date) of the secretary of Borrower certifying the names and true signatures of each person authorized to sign on behalf of Borrower; 39 -------------------------------------------------------------------------------- (7)           Solvency Certificate.  A duly executed Solvency Certificate; (8)           Opinion of Counsel for Borrower.  A favorable opinion, dated the Closing Date, of Goodwin Procter LLP, counsel for Borrower, as to such matters as Administrative Agent may reasonably request; (9)           Authorization Letter.  The Authorization Letter, duly executed by Borrower; (10)         Request for Advance.  A request for an advance in accordance with Section 2.04; (11)         Certificate.  The following statements shall be true and Administrative Agent shall have received a certificate dated the Closing Date signed by a duly authorized signatory of Borrower stating, to the best of the certifying party’s knowledge, the following: (a)           All representations and warranties contained in this Agreement and in each of the other Loan Documents are true and correct on and as of the Closing Date as though made on and as of such date, and (b)           No Default or Event of Default has occurred and is continuing, or could result from the transactions contemplated by this Agreement and the other Loan Documents; and (c)           No Material Adverse Change exists on and as of the Closing Date; (12)         Fee Letters.  The Fee Letter and Supplemental Fee Letter, duly executed by Borrower; (13)         Covenant Compliance.  A covenant compliance certificate of the sort required by paragraph (3) of Section 6.09 for the most recent calendar quarter for which Borrower is required to report financial results; and (14)         Additional Materials.  Such other approvals, documents, instruments or opinions as Administrative Agent may reasonably request. Section 4.02         Conditions Precedent to Each Advance.  The obligation of each Bank to make each advance of the Loans, and the obligation of the Issuing Bank to issue any Letter of Credit, shall be subject to satisfaction of the following conditions precedent: (1)           All conditions of Section 4.01 shall have been and remain satisfied as of the date of such advance or issuance; (2)           No Default or Event of Default shall have occurred and be continuing as of the date of the advance or issuance or would result from the making of such advance or issuance; 40 -------------------------------------------------------------------------------- (3)           Each of the representations and warranties contained in this Agreement and in each of the other Loan Documents shall be true and correct in all material respects as of the date of the advance or issuance; and (4)           Administrative Agent shall have received a request for an advance in accordance with Section 2.04 or Administrative Agent and the Issuing Bank shall have received a request for such Letter of Credit in accordance with Section 2.16. Section 4.03         Deemed Representations.  Each request by Borrower for, and acceptance by Borrower of, an advance of proceeds of the Loans, and each request by Borrower for, and each issuance by the Issuing Bank of, a Letter of Credit, shall constitute a representation and warranty by Borrower that, as of both the date of such request and the date of such advance or issuance (1) no Default or Event of Default has occurred and is continuing or would result from the making of such advance or issuance and (2) each representation or warranty contained in this Agreement or the other Loan Documents is true and correct in all material respects. ARTICLE V REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to Administrative Agent and each Bank as follows: Section 5.01         Due Organization.  Borrower is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization, has the power and authority to own its assets and to transact the business in which it is now engaged, and, if applicable, is duly qualified for the conduct of business and in good standing under the Laws of each other jurisdiction in which such qualification is required and where the failure to be so qualified would cause a Material Adverse Change. Section 5.02         Power and Authority; No Conflicts; Compliance With Laws.  The execution, delivery and performance of the obligations required to be performed by Borrower of the Loan Documents are within the Borrower’s corporate powers, have been authorized by all necessary corporate action, and do not and will not (a) require the consent or approval of its shareholders or such consent or approval has been obtained, (b) contravene either its certificate of incorporation or by-laws, (c) to the best of Borrower’s knowledge, violate any provision of, or require any filing, registration, consent or approval under, any Law (including, without limitation, Regulation U), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it, (d) result in a breach of or constitute a default under or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which it may be a party or by which it or its properties may be bound or affected except for consents which have been obtained, (e) result in, or require, the creation or imposition of any Lien, upon or with respect to any of its properties now owned or hereafter acquired or (f) to the best of Borrower’s knowledge, cause it to be in default under any such Law, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument; to the best of its knowledge, Borrower is in material compliance with all Laws applicable to it and its properties. 41 -------------------------------------------------------------------------------- Section 5.03         Legally Enforceable Agreements.  Each Loan Document has been duly executed and delivered by the Borrower and is a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar Laws affecting creditors’ rights generally. Section 5.04         Litigation.  There are no actions, suits or proceedings pending or, to its knowledge, threatened against Borrower or any of its Affiliates before any court or arbitrator or any Governmental Authority which are reasonably likely to result in a Material Adverse Change or challenge the validity or enforceability of any of the Loan Documents. Section 5.05         Good Title to Properties.  Borrower and each of its Material Affiliates have good, marketable and legal title to all of the properties and assets each of them purports to own (including, without limitation, those reflected in the Consolidated Financial Statements referred to in Section 5.13), only with exceptions which do not materially detract from the value of such property or assets or the use thereof in Borrower’s and such Material Affiliate’s business, and except to the extent that any such properties and assets have been encumbered or disposed of since the date of such financial statements without violating any of the covenants contained in Article VII or elsewhere in this Agreement.  Borrower and its Material Affiliates enjoy peaceful and undisturbed possession of all leased property necessary in any material respect in the conduct of their respective businesses.  All such leases are valid and subsisting and are in full force and effect. Section 5.06         Taxes.  Borrower has filed all tax returns (federal, state and local) required to be filed and has paid all taxes, assessments and governmental charges and levies due and payable without the imposition of a penalty, including interest and penalties, except to the extent they are the subject of a Good Faith Contest. Borrower qualifies as a real estate investment trust under the Code. Section 5.07         ERISA.  Borrower is in compliance in all material respects with all applicable provisions of ERISA.  Neither a Reportable Event nor a Prohibited Transaction has occurred with respect to any Plan which could result in liability of Borrower; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated within the past five (5) years; no circumstance exists which constitutes grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; Borrower and the ERISA Affiliates have not completely or partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; Borrower and the ERISA Affiliates have met the minimum funding requirements of Section 412 of the Code and Section 302 of ERISA of each with respect to the Plans of each and there is no material “Unfunded Current Liability” (as such quoted term is defined in ERISA) with respect to any Plan established or maintained by each; and Borrower and the ERISA Affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA).  No part of the funds to be used by Borrower in satisfaction of its obligations under this Agreement constitute “plan assets” of any “employee benefit plan” within the meaning of ERISA or of any “plan” within the meaning of Section 4975(e)(1) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases, bulletins or as interpreted under applicable case law. 42 -------------------------------------------------------------------------------- Section 5.08         No Default on Outstanding Judgments or Orders, Etc.  Borrower and each of its Material Affiliates have satisfied all judgments which are not being appealed or which are not fully covered by insurance, and are not in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any court, arbitrator or federal, state, municipal or other Governmental Authority, commission, board, bureau, agency or instrumentality, domestic or foreign. Section 5.09         No Defaults on Other Agreements.  Except as disclosed to Administrative Agent in writing (who shall provide such information, promptly upon receipt, to each of the Banks), Borrower is not a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any partnership, trust or other restriction which is likely to result in a Material Adverse Change.  Borrower is not in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument which is likely to result in a Material Adverse Change. Borrower and each of its Material Affiliates are in compliance in all material respects with all Laws applicable to it, except where no Material Adverse Change could reasonably be expected to occur as a result of such non-compliance. Section 5.10         Government Regulation.  Borrower is not subject to regulation under the Investment Company Act of 1940 or any statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated hereby. Section 5.11         Environmental Protection.  To the best of Borrower’s knowledge, none of Borrower’s or its Material Affiliates’ properties contains any Hazardous Materials that, under any Environmental Law currently in effect, (1) would impose liability on Borrower that is likely to result in a Material Adverse Change or (2) is likely to result in the imposition of a Lien on any assets of Borrower or its Material Affiliates, in each case if not properly handled in accordance with applicable Law or not covered by insurance or a bond, in either case reasonably satisfactory to Administrative Agent.  To the best of Borrower’s knowledge, neither it nor any of its Material Affiliates is in material violation of, or subject to any existing, pending or threatened material investigation or proceeding by any Governmental Authority under any Environmental Law. Section 5.12         Solvency.  Borrower is, and upon consummation of the transactions contemplated by this Agreement, the other Loan Documents and any other documents, instruments or agreements relating thereto, will be, Solvent. Section 5.13         Financial Statements.  The Borrower’s Consolidated Financial Statements most recently delivered to the Banks pursuant to the terms of this Agreement are in all material respects complete and correct and fairly present the financial condition of the subject thereof as of the dates of and for the periods covered by such statements, all in accordance with GAAP.  There has been no Material Adverse Change since the date of such most recently delivered Borrower’s Consolidated Financial Statements. 43 -------------------------------------------------------------------------------- Section 5.14         Valid Existence of Affiliates.  At the Closing Date, the only Material Affiliates of Borrower are listed on EXHIBIT C.  Each Material Affiliate is a corporation, partnership or limited liability company duly organized and existing in good standing under the Laws of the jurisdiction of its formation.  As to each Material Affiliate, its correct name, the jurisdiction of its formation, Borrower’s percentage of beneficial interest therein, and the type of business in which it is primarily engaged, are set forth on said EXHIBIT C.  Borrower and each of its Material Affiliates have the power to own their respective properties and to carry on their respective businesses now being conducted.  Each Material Affiliate is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the respective businesses conducted by it or its respective properties, owned or held under lease, make such qualification necessary and where the failure to be so qualified would cause a Material Adverse Change. Section 5.15         Insurance.  Borrower and each of its Material Affiliates have in force paid insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same type of business and similarly situated. Section 5.16         Accuracy of Information; Full Disclosure.  Neither this Agreement nor any documents, financial statements, reports, notices, schedules, certificates, statements or other writings furnished by or on behalf of Borrower to Administrative Agent or any Bank in connection with the negotiation of this Agreement or the consummation of the transactions contemplated hereby, or required herein to be furnished by or on behalf of Borrower (other than projections which are made by Borrower in good faith), contains any untrue or misleading statement of a material fact or omits a material fact necessary to make the statements herein or therein not misleading.  To the best of Borrower’s knowledge, there is no fact which Borrower has not disclosed to Administrative Agent and the Banks in writing which materially affects adversely nor, so far as Borrower can now foresee, will materially affect adversely the business affairs or financial condition of Borrower or the ability of Borrower to perform this Agreement and the other Loan Documents. Section 5.17         OFAC.  None of the Borrower, any of its Consolidated Businesses, or any Affiliate of the Borrower : (i) is a person named on the list of Specially Designated Nationals or Blocked Persons maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control available at http://www.treas.gov/offices/eotffc/ofac/sdn/index.html, or as otherwise published from time to time; (ii) is (A) an agency of the government of a country, (B) an organization controlled by a country, or (C) a person resident in a country that is subject to a sanctions program identified on the list maintained by OFAC and available at  http://www.treas.gov/offices/eotffc/ofac/sanctions/index.html, or as otherwise published from time to time, as such program may be applicable to such agency, organization or person; or (iii) derives more than 15% of its assets or operating income from investments in or transactions with any such country, agency, organization or person.  None of the proceeds from the Loans will be used to finance any operations, investments or activities in, or make any payments to, any such country, agency, organization, or person. ARTICLE VI AFFIRMATIVE COVENANTS So long as any of the Notes shall remain unpaid or the Loan Commitments remain in effect, or any other amount is owing by Borrower to any Bank Party hereunder or under any other Loan Document, Borrower shall, and, in the case of Sections 6.01 through 6.07, inclusive, shall cause each of its Material Affiliates to: 44 -------------------------------------------------------------------------------- Section 6.01         Maintenance of Existence.  Preserve and maintain its legal existence and good standing in the jurisdiction of its organization, and qualify and remain qualified as a foreign entity in each other jurisdiction in which such qualification is required except to the extent that failure to be so qualified in such other jurisdictions is not likely to result in a Material Adverse Change. Section 6.02         Maintenance of Records.  Keep adequate records and books of account, in which complete entries will be made reflecting all of its financial transactions, in accordance with GAAP. Section 6.03         Maintenance of Insurance.  At all times, maintain and keep in force insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same type of business and similarly situated, which insurance shall be acceptable to Administrative Agent and may provide for reasonable deductibility from coverage thereof.  In connection with the foregoing, it is understood that Borrower’s earthquake insurance coverage in place as of the Closing Date is acceptable to Administrative Agent. Section 6.04         Compliance with Laws; Payment of Taxes.  Comply in all material respects with all Laws applicable to it or to any of its properties or any part thereof, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property, except to the extent they are the subject of a Good Faith Contest. Section 6.05         Right of Inspection.  At any reasonable time and from time to time upon reasonable notice, permit Administrative Agent or any Bank or any agent or representative thereof to examine and make copies and abstracts from its records and books of account and visit its properties and to discuss its affairs, finances and accounts with the independent accountants of Borrower. Section 6.06         Compliance With Environmental Laws.  Comply in all material respects with all applicable Environmental Laws and timely pay or cause to be paid all costs and expenses incurred in connection with such compliance, except to the extent there is a Good Faith Contest. Section 6.07         Maintenance of Properties.  Do all things reasonably necessary to maintain, preserve, protect and keep its properties in good repair, working order and condition except where the cost thereof is not in Borrower’s best interests and the failure to do so would not result in a Material Adverse Change. Section 6.08         Payment of Costs.  Pay all costs and expenses required for the satisfaction of the conditions of this Agreement. Section 6.09         Reporting and Miscellaneous Document Requirements.  Furnish directly to Administrative Agent (who shall provide, promptly upon receipt, to each of the Banks): 45 -------------------------------------------------------------------------------- (1)           Annual Financial Statements.  As soon as available and in any event within ninety (90) days after the end of each Fiscal Year, Borrower’s Consolidated Financial Statements as of the end of and for such Fiscal Year, in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior Fiscal Year and audited by Borrower’s Accountants (without a “going concern” or other extraordinary qualification or exception); (2)           Quarterly Financial Statements.  As soon as available and in any event within forty-five (45) days after the end of each calendar quarter (other than the last quarter of the Fiscal Year), the unaudited Borrower’s Consolidated Financial Statements as of the end of and for such calendar quarter, in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior Fiscal Year; (3)           Certificate of No Default and Financial Compliance.  Within ninety (90) days after the end of each Fiscal Year and within forty-five (45) days after the end of each calendar quarter, a certificate of Borrower’s chief financial officer or treasurer (a) stating that, to the best of his or her knowledge, no Default or Event of Default has occurred and is continuing, or if a Default or Event of Default has occurred and is continuing, specifying the nature thereof and the action which is proposed to be taken with respect thereto; (b) stating that the covenants contained in Sections 7.02, 7.03 and 7.04 and in Article VIII have been complied with (or specifying those that have not been complied with) and including computations demonstrating such compliance (or non-compliance); and (c) setting forth the details of all items comprising Capitalization Value, Unencumbered Asset Value, Total Outstanding Indebtedness, Secured Indebtedness, Interest Expense and Unsecured Indebtedness (including amount, maturity, interest rate and amortization requirements with respect to all Indebtedness); (4)           Certificate of Borrower’s Accountants.  Simultaneously with the delivery of the annual financial statements required by paragraph (1) of this Section, (a) a statement of Borrower’s Accountants who audited such financial statements comparing the computations set forth in the financial compliance certificate required by paragraph (3) of this Section to the audited financial statements required by paragraph (1) of this Section and (b) when the audited financial statements required by paragraph (1) of this Section have a qualified auditor’s opinion, a statement of Borrower’s Accountants who audited such financial statements of whether any Default or Event of Default has occurred and is continuing; (5)           Notice of Litigation.  Promptly after the commencement and knowledge thereof, notice of all actions, suits, and proceedings before any court or arbitrator, affecting Borrower which, if determined adversely to Borrower is likely to result in a Material Adverse Change; (6)           Notices of Defaults and Events of Default.  As soon as possible and in any event within ten (10) days after Borrower becomes aware of the occurrence of a material Default or any Event of Default, a written notice (which notice shall state that it is a “Notice of Default”) setting forth the details of such Default or Event of Default and the action which is proposed to be taken with respect thereto; 46 -------------------------------------------------------------------------------- (7)           Material Adverse Change.  As soon as is practicable and in any event within five (5) days after knowledge of the occurrence of any event or circumstance which is likely to result in or has resulted in a Material Adverse Change, written notice thereof; (8)           Offices.  Thirty (30) days’ prior written notice of any change in the chief executive office or principal place of business of Borrower; (9)           Environmental and Other Notices.  As soon as possible and in any event within ten (10) days after receipt, copies of all Environmental Notices received by Borrower which are not received in the ordinary course of business and which relate to a situation which is likely to result in a Material Adverse Change; (10)         Insurance Coverage.  Promptly, such information concerning Borrower’s insurance coverage as Administrative Agent may reasonably request; (11)         Proxy Statements, Etc..  Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports which Borrower or its Material Affiliates sends to its shareholders, and copies of all regular, periodic and special reports, and all registration statements which Borrower or its Material Affiliates files with the Securities and Exchange Commission or any Governmental Authority which may be substituted therefor, or with any national securities exchange; (12)         Operating Statements.  As soon as available and in any event within forty-five (45) days after the end of each calendar quarter, an operating statement for each property directly or indirectly owned in whole or in part by Borrower; and (13)         General Information.  Promptly, such other information respecting the condition or operations, financial or otherwise, of Borrower or any properties of Borrower as Administrative Agent may from time to time reasonably request. Documents required to be delivered pursuant to Sections 6.09(1), (2) or (11) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed in Section 12.07; or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Bank and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Bank that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Bank and (ii) the Borrower shall notify the Administrative Agent and each Bank (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents.  The Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Bank shall be solely responsible for requesting delivery to it or maintaining its copies of such documents. 47 -------------------------------------------------------------------------------- The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Syndication Agent will make available to the Banks 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 Banks may be “public-side” Banks (i.e., Banks 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 Administrative Agent, the Syndication Agent, and the Banks 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 or any confidentiality agreement entered into by any Bank; (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 the Syndication Agent 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.” Section 6.10         Principal Prepayments as a Result of Reduction in Total Loan Commitment.  If the outstanding principal amount under the Notes at any time exceeds the Total Loan Commitment, Borrower shall, within ten (10) days of Administrative Agent’s written demand, make a payment in the amount of such excess in reduction of such outstanding principal balance. ARTICLE VII NEGATIVE COVENANTS So long as any of the Notes shall remain unpaid, or the Loan Commitments remain in effect, or any other amount is owing by Borrower to any Bank Party hereunder or under any other Loan Document, Borrower shall not do any or all of the following: Section 7.01         Mergers Etc.  Merge or consolidate with (except where Borrower is the surviving entity), or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired). Section 7.02         Investments.  Directly or indirectly, make any loan or advance to any Person or purchase or otherwise acquire any capital stock, assets, obligations or other securities of, make any capital contribution to, or otherwise invest in, or acquire any interest in, any Person (any such transaction, an “Investment”) if such Investment constitutes the acquisition of a minority interest in a Person (a “Minority Interest”) and the amount of such Investment, together with the 48 -------------------------------------------------------------------------------- value of all other Minority Interests, would exceed 20% of Capitalization Value, determined as of the end of the most recent calendar quarter for which Borrower is required to have reported financial results pursuant to Section 6.09.  A 50% beneficial interest in a Person, in connection with which the holder thereof exercises joint control over such Person with the holder(s) of the other 50% beneficial interest, shall not constitute a “Minority Interest” for purposes of this Section. Section 7.03         Sale of Assets.  Effect (i) a Disposition of any of its now owned or hereafter acquired assets (including equity interests therein), including assets in which Borrower owns a beneficial interest through its ownership of interests in joint ventures, (a) in one or more transactions after the Closing Date aggregating more than 25% of Capitalization Value or (b) if after giving effect to such Disposition, a Default or Event of Default would exist, or (ii) the granting of a Lien on any Unencumbered Wholly-Owned Assets or Unencumbered Land and Construction-In-Process, if after granting such Lien, a Default or Event of Default would exist. Section 7.04         Distributions.  During the existence of any Event of Default, make, declare or pay, directly or indirectly, any dividend or distribution to any of its equity holders in an amount greater than the minimum dividend or distribution required under the Code to maintain the real estate investment trust status of Borrower under the Code, as evidenced by a detailed certificate of Borrower’s chief financial officer or treasurer reasonably satisfactory in form and substance to Administrative Agent; provided, however, that following acceleration of the maturity of the Notes, Borrower shall not, directly or indirectly, make, declare or pay any dividend or distribution to any of its equity holders. ARTICLE VIII FINANCIAL COVENANTS So long as any of the Notes shall remain unpaid, or the Loan Commitments remain in effect, or any other amount is owing by Borrower to any Bank Party under this Agreement or under any other Loan Document, Borrower shall not permit or suffer any or all of the following: Section 8.01         Relationship of Total Outstanding Indebtedness to Capitalization Value.  At any time, the ratio of Total Outstanding Indebtedness to Capitalization Value to exceed 60%; provided that such ratio may exceed 60% from time to time following an acquisition by Borrower and its Affiliates of real property assets so long as (a) such ratio does not exceed 65%, (b) such ratio ceases to exceed 60% within 180 days after each date such ratio first exceeded 60%, and (c) the Borrower provides a certificate of its chief financial officer or treasurer to the Administrative Agent when such ratio first exceeds 60% and when such ratio ceases to exceed 60%. Section 8.02         Relationship of Combined EBITDA to Combined Debt Service.  For any calendar quarter, the ratio of (1) Combined EBITDA to (2) Combined Debt Service (each for the twelve (12)-month period ending with such quarter), to be less than 1.50 to 1.00. Section 8.03         Ratio of Unsecured Indebtedness to Unencumbered Asset Value.  At any time, the ratio of (1) Unsecured Indebtedness to (2) Unencumbered Asset Value to exceed 65%. Section 8.04         Relationship of Secured Indebtedness to Capitalization Value.  At any time, Secured Indebtedness to exceed 40% of Capitalization Value. 49 -------------------------------------------------------------------------------- ARTICLE IX EVENTS OF DEFAULT Section 9.01         Events of Default.  Any of the following events shall be an “Event of Default”: (1)           If Borrower shall fail to pay the principal of any Notes as and when due, and such failure to pay shall continue unremedied for five (5) days after the due date of such amount; or fail to pay interest accruing on any Notes as and when due, and such failure to pay shall continue unremedied for five (5) days after written notice by Administrative Agent of such failure to pay; or fail to make any payment required under Section 6.10 as and when due; or fail to pay any fee or any other amount due under this Agreement, any other Loan Document or the Fee Letter or the Supplemental Fee Letter as and when due and such failure to pay shall continue unremedied for two (2) Banking Days after written notice by Administrative Agent of such failure to pay; or (2)           If any representation or warranty made by Borrower in this Agreement or in any other Loan Document or which is contained in any certificate, document, opinion, financial or other statement furnished at any time under or in connection with a Loan Document shall prove to have been incorrect in any material respect on or as of the date made; or (3)           If Borrower shall fail (a) to perform or observe any term, covenant or agreement contained in Article VII or Article VIII; or (b) to perform or observe any term, covenant or agreement contained in this Agreement (other than obligations specifically referred to elsewhere in this Section 9.01) or any Loan Document, or any other document executed by Borrower and delivered to Administrative Agent or the Banks in connection with the transactions contemplated hereby and such failure under this clause (b) shall remain unremedied for thirty (30) consecutive calendar days after notice thereof (or such shorter cure period as may be expressly prescribed in the applicable document); provided, however, that if any such default under clause (b) above cannot by its nature be cured within such thirty (30) day, or shorter, as the case may be, grace period and so long as Borrower shall have commenced cure within such thirty (30) day, or shorter, as the case may be, grace period and shall, at all times thereafter, diligently prosecute the same to completion, Borrower shall have an additional period, not to exceed sixty (60) days,  to cure such default; in no event, however, is the foregoing intended to effect an extension of the Maturity Date; or (4)           If Borrower or any Consolidated Business shall fail (a) to pay any Recourse Debt of the Borrower or such Consolidated Business (other than the payment obligations described in paragraph (1) of this Section) in an amount equal to or greater than $50,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) after the expiration of any applicable grace period, or (b) to perform or observe any material term, covenant, or 50 -------------------------------------------------------------------------------- condition under any agreement or instrument relating to any such Debt, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, after the giving of notice or the lapse of time, or both (other than in cases where, in the judgment of the Required Banks, meaningful discussions likely to result in (i) a waiver or cure of the failure to perform or observe, or (ii) otherwise averting such acceleration are in progress between Borrower and the obligee of such Debt), the maturity of such Debt, or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled or otherwise required prepayment), prior to the stated maturity thereof; or (5)           If Borrower, or any Affiliate of Borrower to which $50,000,000 or more of Capitalization Value is attributable, shall (a) generally not, or be unable to, or shall admit in writing its inability to, pay its debts as such debts become due; or (b) make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; or (c) commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation Law of any jurisdiction, whether now or hereafter in effect; or (d) have had any such petition or application filed or any such proceeding shall have been commenced, against it, in which an adjudication or appointment is made or order for relief is entered, or which petition, application or proceeding remains undismissed or unstayed for a period of sixty (60) days or more; or (e) be the subject of any proceeding under which all or a substantial part of its assets may be subject to seizure, forfeiture or divestiture; or (f) by any act or omission indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or trustee for all or any substantial part of its property; or (g) suffer any such custodianship, receivership or trusteeship for all or any substantial part of its property, to continue undischarged for a period of sixty (60) days or more; or (6)           If one or more judgments, decrees or orders for the payment of money in an amount in excess of 5% of Consolidated Tangible Net Worth (excluding any such judgments, decrees or orders which are fully covered by insurance) in the aggregate shall be rendered against Borrower or any of its Material Affiliates, and any such judgments, decrees or orders shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; or (7)           If any of the following events shall occur or exist with respect to Borrower or any ERISA Affiliate: (a) any Prohibited Transaction involving any Plan; (b) any Reportable Event with respect to any Plan; (c) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (d) any event or circumstance which would constitute grounds for the termination of, or for the appointment of a trustee to administer, any Plan under Section 4042 of ERISA, or the institution by the PBGC of proceedings for any such termination or appointment under Section 4042 of ERISA; or (e) complete or partial 51 -------------------------------------------------------------------------------- withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency, or termination of any Multiemployer Plan; and in each case above, if such event or conditions, if any, could in the reasonable opinion of any Bank subject Borrower to any tax, penalty, or other liability to a Plan, Multiemployer Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate exceeds or is likely to exceed $50,000; or (8)           If at any time Borrower is not a qualified real estate investment trust under Sections 856 through 860 of the Code or is not a publicly traded company listed on the New York Stock Exchange; or (9)           If at any time any portion of Borrower’s assets constitute plan assets for ERISA purposes (within the meaning of C.F.R. §2510.3-101); or (10)         If, in the reasonable judgment of all of the Banks (and the basis for such determination is provided to Borrower in writing in reasonable detail), there shall occur a Material Adverse Change; or (11)         If, during any period of up to twelve (12) consecutive months commencing on or after the Closing Date, individuals who were directors of Borrower at the beginning of such period (the “Continuing Directors”), plus any new directors whose election or appointment was approved by a majority of the Continuing Directors then in office, shall cease for any reason to constitute a majority of the Board of Directors of Borrower; or (12)         If, through any transaction or series of related transactions, any Person (including Affiliates of such Person) shall acquire beneficial ownership, directly or indirectly, of securities of Borrower (or of securities convertible into securities of Borrower) representing 25% or more of the combined voting power of all securities of Borrower entitled to vote in the election of directors. Section 9.02         Remedies.  If an Event of Default has occurred and is continuing (other than an Event of Default with respect to the Borrower described in Section 9.01(5)), the Administrative Agent, at the request of the Required Banks, shall by notice to the Borrower take any or all of the following actions, at the same or different times:  (i) terminate the Loan Commitments, and thereupon the Loan Commitments shall terminate immediately, (ii) declare the Loans then out­standing to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower 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 Borrower and (iii) exercise any remedies provided in any of the Loan Documents or by law; and in case of any Event of Default with respect to the Borrower described in Section 9.01(5), the Loan Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower 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 Borrower.  52 -------------------------------------------------------------------------------- Notwithstanding the foregoing, if an Event of Default under Section 9.01(10) shall occur and be continuing, Administrative Agent shall not be entitled to exercise the foregoing remedies until (1) it has received a written notice from all of the Banks (the “Unanimous Bank Notices”) (i) requesting Administrative Agent exercise such remedies and (ii) indicating each Bank’s conclusion in its reasonable judgment that  a Material Adverse Change has occurred and (2) Administrative Agent has provided notice to Borrower, together with copies of all of the Unanimous Bank Notices. ARTICLE X ADMINISTRATIVE AGENT; RELATIONS AMONG BANKS Section 10.01       Appointment, Powers and Immunities of Administrative Agent.  Each Bank hereby irrevocably appoints and authorizes Administrative Agent to act as its agent hereunder and under any other Loan Document with such powers as are specifically delegated to Administrative Agent by the terms of this Agreement and any other Loan Document, together with such other powers as are reasonably incidental thereto.  Administrative Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and any other Loan Document or required by Law, and shall not by reason of this Agreement be a fiduciary or trustee for any Bank except to the extent that Administrative Agent acts as an agent with respect to the receipt or payment of funds (nor shall Administrative Agent have any fiduciary duty to Borrower nor shall any Bank have any fiduciary duty to Borrower or to any other Bank).  No implied covenants, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against Administrative Agent.  Neither Administrative Agent nor any of its directors, officers, employees, attorneys-in-fact or affiliates shall be responsible to the Banks for any recitals, statements, representations or warranties made by Borrower or any officer, partner or official of Borrower or any other Person contained in this Agreement or any other Loan Document, or in any certificate or other document or instrument referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, legality, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document or instrument referred to or provided for herein or therein, for the perfection or priority of any Lien securing the Obligations or for any failure by Borrower to perform any of its obligations hereunder or thereunder.  Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible, except as to money or securities received by it or its authorized agents, for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care.  Neither Administrative Agent nor any of its directors, officers, employees, attorneys-in-fact, agents or affiliates shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct.  Borrower shall pay any fee agreed to by Borrower and Administrative Agent with respect to Administrative Agent’s services hereunder. Section 10.02       Reliance by Administrative Agent.  Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Administrative Agent.  Administrative Agent may deem and treat each Bank as the holder of the Loan made by it for all purposes hereof 53 -------------------------------------------------------------------------------- and shall not be required to deal with any Person who has acquired a Participation in any Loan or Participation from a Bank.  As to any matters not expressly provided for by this Agreement or any other Loan Document, Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Banks or all Banks, as required by this Agreement, and such instructions of the Required Banks or all Banks, as the case may be, and any action taken or failure to act pursuant thereto, shall be binding on all of the Banks and any other holder of all or any portion of any Loan or Participation. Section 10.03       Defaults.  Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default unless Administrative Agent has received notice from a Bank or Borrower specifying such Default or Event of Default and stating that such notice is a “Notice of Default.”  In the event that Administrative Agent receives such a notice of the occurrence of a Default or Event of Default, Administrative Agent shall give prompt notice thereof to the Banks.  Administrative Agent, following consultation with the Banks, shall (subject to Section 10.07 and Section 12.02) take such action with respect to such Default or Event of Default which is continuing as shall be directed by the Required Banks; provided that, unless and until Administrative Agent shall have received such directions, Administrative Agent may take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Banks; and provided further that Administrative Agent shall not send a notice of default or acceleration to Borrower without the approval of the Required Banks.  In no event shall Administrative Agent be required to take any such action which it determines to be contrary to Law or to the Loan Documents.  Each of the Banks acknowledges and agrees that no individual Bank may separately enforce or exercise any of the provisions of any of the Loan Documents, including, without limitation, the Notes, other than through Administrative Agent. Section 10.04       Rights of Administrative Agent as a Bank.  With respect to its Loan Commitment and the Loan provided by it, Administrative Agent in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as Administrative Agent, and the term “Bank” or “Banks” shall, unless the context otherwise indicates, include Administrative Agent in its capacity as a Bank.  Administrative Agent and its Affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to (on a secured or unsecured basis), and generally engage in any kind of banking, trust or other business with Borrower (and any Affiliates of Borrower) as if it were not acting as Administrative Agent. Section 10.05       Indemnification of Administrative Agent.  Each Bank agrees to indemnify Administrative Agent (to the extent not reimbursed under Section 12.04 or under the applicable provisions of any other Loan Document, but without limiting the obligations of Borrower under Section 12.04 or such provisions), for its Pro Rata Share of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Administrative Agent in any way relating to or arising out of this Agreement, any other Loan Document or any other documents contemplated by or referred to herein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which Borrower is obligated to pay under Section 12.04) or under the applicable provisions of any other Loan Document or the enforcement of any of the terms hereof or thereof or of any such other documents or instruments; 54 -------------------------------------------------------------------------------- provided that no Bank shall be liable for (1) any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified, (2) any loss of principal or interest with respect to Administrative Agent’s Loan or (3) any loss suffered by Administrative Agent in connection with a swap or other interest rate hedging arrangement entered into with Borrower. Section 10.06       Non-Reliance on Administrative Agent and Other Banks.  Each Bank agrees that it has, independently and without reliance on Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrower and the decision to enter into this Agreement and that it will, independently and without reliance upon Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any other Loan Document.  Administrative Agent shall not be required to keep itself informed as to the performance or observance by Borrower of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or to inspect the properties or books of Borrower.  Except for notices, reports and other documents and information expressly required to be furnished to the Banks by Administrative Agent hereunder, Administrative Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of Borrower (or any Affiliate of Borrower) which may come into the possession of Administrative Agent or any of its Affiliates.  Administrative Agent shall not be required to file this Agreement, any other Loan Document or any document or instrument referred to herein or therein, for record or give notice of this Agreement, any other Loan Document or any document or instrument referred to herein or therein, to anyone. Section 10.07       Failure of Administrative Agent to Act.  Except for action expressly required of Administrative Agent hereunder, Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances (which may include cash collateral) of the indemnification obligations of the Banks under Section 10.05 in respect of any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.  If any indemnity furnished by the Banks to Administrative Agent for any purpose shall, in the reasonable opinion of Administrative Agent, be insufficient or become impaired, Administrative Agent may call for additional indemnity and cease, or not commence, to do the action indemnified against until such additional indemnity is furnished. Section 10.08       Resignation or Removal of Administrative Agent.  Administrative Agent hereby agrees not to unilaterally resign except in the event it becomes an Affected Bank and is removed or replaced as a Bank pursuant to Section 3.07, in which event it shall have the right to resign.  Bank of America agrees that it may be replaced as Administrative Agent by the Required Banks if its Loan Commitment is reduced to $25,000,000 or less through assignments to Assignees.  In addition, Administrative Agent may be removed at any time with cause by the Required Banks.  In the case of any removal of Administrative Agent, Borrower and the Banks shall be promptly notified thereof.  Upon any such resignation or removal of Administrative Agent, the Required Banks shall have the right to appoint a successor Administrative Agent, which successor Administrative Agent, so long as it is reasonably acceptable to the Required Banks, shall be that Bank then having the greatest Loan Commitment; if two (2) or more Banks have an equal greatest 55 -------------------------------------------------------------------------------- Loan Commitment, the Required Banks shall select between or among them.  If no successor Administrative Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within thirty (30) days after the Required Banks’ removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be one of the Banks.  The Required Banks or the retiring Administrative Agent, as the case may be, shall upon the appointment of a successor Administrative Agent promptly so notify Borrower and the other Banks.  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 hereunder.  After any retiring Administrative Agent’s removal hereunder as Administrative Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. Section 10.09       Amendments Concerning Agency Function.  Notwithstanding anything to the contrary contained herein, Administrative Agent shall not be bound by any waiver, amendment, supplement or modification hereof or of any other Loan Document which affects its duties, rights, and/or function hereunder or thereunder unless it shall have given its prior written consent thereto. Section 10.10       Liability of Administrative Agent.  Administrative Agent shall not have any liabilities or responsibilities to Borrower on account of the failure of any Bank to perform its obligations hereunder or to any Bank on account of the failure of Borrower to perform its obligations hereunder or under any other Loan Document. Section 10.11       Transfer of Agency Function.  Without the consent of Borrower or any Bank, Administrative Agent may at any time or from time to time transfer its functions as Administrative Agent hereunder to any of its offices wherever located in the United States, provided that Administrative Agent shall promptly notify Borrower and the Banks thereof. Section 10.12       Non-Receipt of Funds by Administrative Agent.  (a) Unless Administrative Agent shall have received notice from a Bank or Borrower (either one as appropriate being the “Payor”) prior to the date on which such Bank is to make payment hereunder to Administrative Agent of the proceeds of a Loan or Borrower is to make payment to Administrative Agent, as the case may be (either such payment being a “Required Payment”), which notice shall be effective upon receipt, that the Payor will not make the Required Payment in full to Administrative Agent, Administrative Agent may assume that the Required Payment has been made in full to Administrative Agent on such date, and Administrative Agent in its sole discretion may, but shall not be obligated to, in reliance upon such assumption, make the amount thereof available to the intended recipient on such date.  If and to the extent the Payor shall not have in fact so made the Required Payment in full to Administrative Agent, the recipient of such payment shall repay to Administrative Agent forthwith on demand such amount made available to it together with interest thereon, for each day from the date such amount was so made available by Administrative Agent until the date Administrative Agent recovers such amount, at the customary rate set by Administrative Agent for the correction of errors among Banks for three (3) Banking Days and thereafter at the Base Rate. 56 -------------------------------------------------------------------------------- (b)           If, after Administrative Agent has paid each Bank’s share of any payment received or applied by Administrative Agent in respect of the Loan, that payment is rescinded or must otherwise be returned or paid over by Administrative Agent, whether pursuant to any bankruptcy or insolvency Law, sharing of payments clause of any loan agreement or otherwise, such Bank shall, at Administrative Agent’s request, promptly return its share of such payment or application to Administrative Agent, together with such Bank’s proportionate share of any interest or other amount required to be paid by Administrative Agent with respect to such payment or application.  In addition, if a court of competent jurisdiction shall adjudge that any amount received and distributed by Administrative Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to Administrative Agent its share of the amount so adjudged to be repaid or shall pay over to the same in such manner and to such Persons as shall be determined by such court. Section 10.13       Withholding Taxes.  Each Bank represents that it is entitled to receive any payments to be made to it hereunder without the withholding of any tax and will furnish to Administrative Agent such forms, certifications, statements and other documents as Administrative Agent may request from time to time to evidence such Bank’s exemption from the withholding of any tax imposed by any jurisdiction or to enable Administrative Agent or Borrower to comply with any applicable Laws or regulations relating thereto.  Without limiting the effect of the foregoing, if any Bank is not created or organized under the Laws of the United States of America or any state thereof, such Bank will furnish to Administrative Agent a United States Internal Revenue Service Form W-8ECI in respect of all payments to be made to such Bank by Borrower or Administrative Agent under this Agreement or any other Loan Document or a United States Internal Revenue Service Form W-8BEN establishing such Bank’s complete exemption from United States withholding tax in respect of payments to be made to such Bank by Borrower or Administrative Agent under this Agreement or any other Loan Document, or such other forms, certifications, statements or documents, duly executed and completed by such Bank as evidence of such Bank’s exemption from the withholding of U.S. tax with respect thereto.  Administrative Agent shall not be obligated to make any payments hereunder to such Bank in respect of any Loan or Participation or such Bank’s Loan Commitment or obligation to purchase Participations until such Bank shall have furnished to Administrative Agent the requested form, certification, statement or document. Section 10.14       [Reserved]. Section 10.15       Pro Rata Treatment.  Except to the extent otherwise provided, (1) each advance of proceeds of the Ratable Loans shall be made by the Banks; (2) each reduction of the amount of the Total Loan Commitment under Section 2.10 shall be applied to the Loan Commitments of the Banks; and (3) each payment of the fee accruing under paragraph (b) of Section 2.07 and clause (1) of Section 2.16(f) shall be made for the account of the Banks, ratably according to the amounts of their respective Loan Commitments.  Except as otherwise expressly provided in this Agreement, each payment in respect of principal or interest under the Loans shall be applied to such obligations owing to the Banks pro rata according to the respective amounts then due and owing to the Banks. 57 -------------------------------------------------------------------------------- Section 10.16       Sharing of Payments Among Banks.  If a Bank shall obtain payment of any principal of or interest on any Loan made by it through the exercise of any right of setoff, banker’s lien, counterclaim, or by any other means (including direct payment), and such payment results in such Bank receiving a greater payment than it would have been entitled to had such payment been paid directly to Administrative Agent for disbursement to the Banks, then such Bank shall promptly purchase for cash from the other Banks Participations in the Loans made by the other Banks in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Banks shall share ratably the benefit of such payment.  To such end the Banks shall make appropriate adjustments among themselves (by the resale of Participations sold or otherwise) if such payment is rescinded or must otherwise be restored.  Borrower agrees that any Bank so purchasing a Participation in the Loans made by other Banks may exercise all rights of setoff, banker’s lien, counterclaim or similar rights with respect to such Participation.  Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness of Borrower. Section 10.17       Possession of Documents.  Each Bank shall keep possession of its own Ratable Loan Note and the Swing Lender shall keep possession of its Swing Loan Note.  Administrative Agent shall hold all the other Loan Documents and related documents in its possession and maintain separate records and accounts with respect thereto, and shall permit the Banks and their representatives access at all reasonable times to inspect such Loan Documents, related documents, records and accounts. ARTICLE XI NATURE OF OBLIGATIONS Section 11.01       Absolute and Unconditional Obligations.  Borrower acknowledges and agrees that its obligations and liabilities under this Agreement and under the other Loan Documents shall be absolute and unconditional irrespective of (1) any lack of validity or enforceability of any of the Obligations, any Loan Documents, or any agreement or instrument relating thereto; (2) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations, or any other amendment or waiver of or consent to any departure from any Loan Documents or any other documents or instruments executed in connection with or related to the Obligations; (3) any exchange or release of any collateral, if any, or of any other Person from all or any of the Obligations; or (4) any other circumstances which might otherwise constitute a defense available to, or a discharge of, Borrower or any other Person in respect of the Obligations. The obligations and liabilities of Borrower under this Agreement and other Loan Documents shall not be conditioned or contingent upon the pursuit by any Bank or any other Person at any time of any right or remedy against Borrower or any other Person which may be or become liable in respect of all or any part of the Obligations or against any collateral or security or guarantee therefor or right of setoff with respect thereto. 58 -------------------------------------------------------------------------------- Section 11.02       Non-Recourse to Borrower’s Principals.  Notwithstanding anything to the contrary contained herein, in any of the other Loan Documents, or in any other instruments, certificates, documents or agreements executed in connection with the Loans (all of the foregoing, for purposes of this Section, hereinafter referred to, individually and collectively, as the “Relevant Documents”), no recourse under or upon any Obligation, representation, warranty, promise or other matter whatsoever shall be had against any of Borrower’s Principals and each Bank expressly waives and releases, on behalf of itself and its successors and assigns, all right to assert any liability whatsoever under or with respect to the Relevant Documents against, or to satisfy any claim or obligation arising thereunder against, any of Borrower’s Principals or out of any assets of Borrower’s Principals, provided, however, that nothing in this Section shall be deemed to (1) release Borrower from any personal liability pursuant to, or from any of its respective obligations under, the Relevant Documents, or from personal liability for its fraudulent actions or fraudulent omissions; (2) release any of Borrower’s Principals from personal liability for its or his own fraudulent actions or fraudulent omissions; (3) constitute a waiver of any obligation evidenced or secured by, or contained in, the Relevant Documents or affect in any way the validity or enforceability of the Relevant Documents; or (4) limit the right of Administrative Agent and/or the Banks to proceed against or realize upon any collateral hereafter given for the Loans or any and all of the assets of Borrower (notwithstanding the fact that any or all of Borrower’s Principals have an ownership interest in Borrower and, thereby, an interest in the assets of Borrower) or to name Borrower (or, to the extent that the same are required by applicable Law or are determined by a court to be necessary parties in connection with an action or suit against Borrower or any collateral hereafter given for the Loans, any of Borrower’s Principals) as a party defendant in, and to enforce against any collateral hereafter given for the Loans and/or assets of Borrower any judgment obtained by Administrative Agent and/or the Banks with respect to, any action or suit under the Relevant Documents so long as no judgment shall be taken (except to the extent taking a judgment is required by applicable Law or determined by a court to be necessary to preserve Administrative Agent’s and/or Banks’ rights against any collateral hereafter given for the Loans or Borrower, but not otherwise) or shall be enforced against Borrower’s Principals or their assets. ARTICLE XII MISCELLANEOUS Section 12.01       Binding Effect of Request for Advance.  Borrower agrees that, by its acceptance of any advance of proceeds of the Loans under this Agreement, it shall be bound in all respects by the request for advance submitted on its behalf in connection therewith with the same force and effect as if Borrower had itself executed and submitted the request for advance and whether or not the request for advance is executed and/or submitted by an authorized person. Section 12.02       Amendments and Waivers.  No amendment or waiver of any provision of this Agreement or any other Loan Document nor consent to any departure by Borrower (or, in the case of any guaranty executed and delivered pursuant to clause (v) of the definition of “Unencumbered Assets” in Section 1.01, the Subsidiary Guarantor referred to therein) therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Banks and, solely for purposes of its acknowledgment thereof, Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall (1) increase the Loan Commitment of any Bank without the written consent of such Bank; (2)  reduce the principal of, or interest on, the Notes or any fees due hereunder or any other amount due hereunder or under any Loan Document, without the written consent of each Bank affected thereby; (3) except as provided 59 -------------------------------------------------------------------------------- in Section 2.18, postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees due hereunder or under any Loan Document without the written consent of each Bank affected thereby; (4) change the definition of “Required Banks”; (5) amend Section 10.15, this Section or any other provision requiring the consent of all the Banks, without the written consent of each Bank; (6) waive any default under paragraph (5) of Section 9.01 or (7) release all or substantially all of the guaranties executed and delivered pursuant to clause (v) of the definition of “Unencumbered Assets” in Section 1.01; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Issuing Bank or the Swing Lender hereunder without the prior written consent of the Administrative Agent, the Issuing Bank or the Swing Lender, as the case may be.  Any advance of proceeds of the Loans made, or any Letter of Credit issued, prior to or without the fulfillment by Borrower of all of the conditions precedent thereto, whether or not known to Administrative Agent and the Banks, shall not constitute a waiver of any Default or Event of Default or a waiver of the requirement that all conditions, including the non-performed conditions, shall be required with respect to all future advances and issuances of Letters of Credit.  Neither any failure or delay on the part of Administrative Agent or any Bank to exercise any right hereunder nor any single or partial exercise of any right or power hereunder or any abandonment or discontinuance of steps to enforce such right or power shall operate as a waiver thereof or 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.  All communications from Administrative Agent to the Banks requesting the Banks’ determination, consent, approval or disapproval (i) shall be given in the form of a written notice to each Bank, (ii) shall be accompanied by a description of the matter or thing as to which such determination, approval, consent or disapproval is requested and (iii) shall include Administrative Agent’s recommended course of action or determination in respect thereof.  Each Bank shall reply promptly, but in any event within ten (10) Banking Days (or five (5) Banking Days with respect to any decision to accelerate or stop acceleration of the Loan) after receipt of the request therefor by Administrative Agent (the “Bank Reply Period”).  Unless a Bank shall give written notice to Administrative Agent that it objects to the recommendation or determination of Administrative Agent (together with a written explanation of the reasons behind such objection) within the Bank Reply Period, such Bank shall be deemed to have approved or consented to such recommendation or determination. Section 12.03       Usury.  Anything herein to the contrary notwithstanding, the obligations of Borrower under this Agreement and the Notes shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of Law applicable to a Bank limiting rates of interest which may be charged or collected by such Bank. Section 12.04       Expenses; Indemnification.  Borrower agrees (i) to reimburse Administrative Agent and Syndication Agent on demand for all costs, expenses, and charges (including, without limitation, all reasonable fees and charges of engineers, appraisers and legal counsel) incurred by it in connection with the Loans and the preparation, execution, delivery and administration of the Loan Documents and any amendment or waiver with respect thereto, and (ii) to reimburse each of the Banks for reasonable legal costs, expenses and charges incurred by each of the Banks in connection with the performance or enforcement of this Agreement, the Notes, or any other Loan Documents; provided, however, that Borrower is not responsible for costs, expenses and charges incurred by the Bank Parties in connection with the administration or syndication of 60 -------------------------------------------------------------------------------- the Loans (other than the fees required by the Fee Letter and the Supplemental Fee Letter).  Borrower agrees to indemnify Administrative Agent and each Bank and their respective directors, officers, employees and agents (each such Person, an “Indemnitee”) from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of (x) any claims by brokers due to acts or omissions by Borrower, (y) this Agreement or the transactions contemplated hereby or (z) any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to any actual or proposed use by Borrower of the proceeds of the Loans, including without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of such Indemnitee).  To the extent permitted by applicable law, the Borrower shall not assert, and 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 transaction, agreement or instrument contemplated hereby, any Loan or Letter of Credit or the use of the proceeds thereof. The obligations of Borrower under this Section and under Article III shall survive the repayment of all amounts due under or in connection with any of the Loan Documents and the termination of the Loans, provided, however, that in the case of Article III, such obligations shall survive only for a period of ninety (90) days after such repayment and termination. Section 12.05       Assignment; Participation.  This Agreement shall be binding upon, and shall inure to the benefit of, Borrower, Administrative Agent, the Banks and their respective successors and permitted assigns.  Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of each Bank (and any attempted assignment or transfer without such consent shall be null and void). Any Bank may, without the consent of, or notice to, the Borrower, the Administrative Agent or the Issuing Bank, at any time grant to one or more banks or other institutions (each a “Participant”) participating interests in its Loan (each a “Participation”).  In the event of any such grant by a Bank of a Participation to a Participant, whether or not Borrower or Administrative Agent was given notice, such Bank shall remain responsible for the performance of its obligations hereunder, and Borrower and Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations hereunder.  Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of Borrower hereunder and under any other Loan Document including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement or any other Loan Document; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in the first proviso to Section 12.02 without the consent of the Participant.  Any Participant hereunder shall have the same benefits as any Bank with respect to the yield protection and increased cost provisions of Article III, but a Participant shall not be entitled to receive any greater payment than the Lender granting such Participation would have been entitled to receive. 61 -------------------------------------------------------------------------------- Subject to the conditions set forth below, any Bank 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 Loan Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of: (i)            the Borrower, provided that no consent of the Borrower shall be required for an assignment to a Bank, an Affiliate of a Bank, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee; (ii)           the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment of any Loan Commitment to an assignee that is a Bank with a Loan Commitment immediately prior to giving effect to such assignment; and (iii)          the Issuing Bank, provided that no consent of the Issuing Bank shall be required for an assignment of any Loan Commitment to an assignee that is a Bank with a Loan Commitment immediately prior to giving effect to such assignment. Such assignments shall be subject to the following additional conditions: (1)           except in the case of an assignment to a Bank or an Affiliate of a Bank or an assignment of the entire remaining amount of the assigning Bank’s Loan Commitment or Loans, the amount of the Loan Commitment or Loans of the assigning Bank subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing; (2)           each partial assignment shall be made as an assignment of a proportionate part of all the assigning Bank’s rights and obligations under this Agreement; (3)           the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; and (4)           the assignee, if it shall not be a Bank, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower and its related parties or its securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws. 62 -------------------------------------------------------------------------------- For the purposes of this Section 12.05, the term “Approved Fund” has the following meaning: “Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Bank, (b) an Affiliate of a Bank or (c) an entity or an Affiliate of an entity that administers or manages a Bank. Upon (i) execution and delivery of such Assignment and Acceptance, (ii) payment by such Assignee to the Bank of an amount equal to the purchase price agreed between the Bank and such Assignee and (iii) payment of the fee described in paragraph (3) above, such Assignee shall be a Bank Party to this Agreement and shall have all the rights and obligations of a Bank as set forth in such Assignment and Acceptance, and the assigning Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required.  Upon the consummation of any assignment pursuant to this paragraph, substitute Ratable Loan Notes (and, if applicable, Swing Loan Note) shall be issued to the assigning Bank and Assignee by Borrower, in exchange for the return of the original Ratable Loan Note (and, if applicable, Swing Loan Note).  The obligations evidenced by such substitute notes shall constitute “Obligations” for all purposes of this Agreement and the other Loan Documents. In connection with Borrower’s execution of substitute notes as aforesaid, Borrower shall deliver to Administrative Agent evidence, satisfactory to Administrative Agent, of all requisite corporate action to authorize Borrower’s execution and delivery of the substitute notes and any related documents.  If the Assignee is not incorporated under the Laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to Borrower and Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 10.13.  Each Assignee shall be deemed to have made the representations contained in, and shall be bound by the provisions of, Section 10.13. Notwithstanding the foregoing, any Designated Lender may assign at any time to its Designating Lender, without the consents required by or other limitations set forth in the first sentence of this paragraph, any or all of the Loans it may have funded hereunder and pursuant to its Designation Agreement. Any Bank may at any time pledge or assign or grant a security interest in all or any portion of its rights under this Agreement to secure obligations of such Bank, including without limitation any pledge or assignment or grant to secure obligations to a Federal Reserve Bank, and this Section 12.05 shall not apply to any such pledge or assignment or grant of a security interest; provided that no such pledge or assignment or grant of a security interest shall release a Bank from any of its obligations hereunder or substitute any such pledgee or assignee or grantee for such Bank as a party hereto. Borrower recognizes that in connection with a Bank’s selling of Participations or making of assignments, any or all documentation, financial statements, appraisals and other data, or copies thereof, relevant to Borrower or the Loans may be exhibited to and retained by any such Participant or assignee or prospective Participant or assignee.  In connection with a Bank’s delivery of any 63 -------------------------------------------------------------------------------- financial statements and appraisals to any such Participant or assignee or prospective Participant or assignee, such Bank shall also indicate that the same are delivered on a confidential basis.  Borrower agrees to provide all assistance reasonably requested by a Bank to enable such Bank to sell Participations or make assignments of its Loan as permitted by this Section.  Each Bank agrees to provide Borrower with notice of all Participations sold by such Bank to other than its Affiliates.  Any Bank or Participant may pledge its Loans or Participations as collateral in accordance with applicable law. Section 12.06       Documentation Satisfactory.  All documentation required from or to be submitted on behalf of Borrower in connection with this Agreement and the documents relating hereto shall be subject to the prior approval of, and be satisfactory in form and substance to, Administrative Agent, its counsel and, where specifically provided herein, the Banks.  In addition, the persons or parties responsible for the execution and delivery of, and signatories to, all of such documentation, shall be acceptable to, and subject to the approval of, Administrative Agent and its counsel and the Banks. Section 12.07       Notices. (a)           Unless the party to be notified otherwise notifies the other party in writing as provided in this Section, and except as otherwise provided in this Agreement, notices shall be given to Administrative Agent by telephone, confirmed by writing, and to the Banks and to Borrower by ordinary mail or overnight courier, receipt confirmed, addressed to such party at its address on the signature page of this Agreement.  Notices shall be effective  (1) if by telephone, at the time of such telephone conversation, (2) if given by mail, three (3) days after mailing; and (3) if given by overnight courier, upon receipt.  Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b). (b)           Electronic Communications.  Notices and other communications to the Banks hereunder may be delivered or furnished by electronic communication (including e-mail and internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Bank pursuant to Section 2 if such Bank, has notified the Administrative Agent that it is incapable of receiving notices under such section by electronic communication.  The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor. 64 -------------------------------------------------------------------------------- (c)           The Platform.  THE PLATFORM (AS DEFINED IN SECTION 6.09) IS PROVIDED “AS IS” AND “AS AVAILABLE.”  THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS (AS DEFINED IN SECTION 6.09) OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS.  NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM.  In no event shall the Administrative Agent, the Syndication Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to Borrower, any Bank or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of Borrower’s or the Administrative Agent’s or the Syndication Agent’s transmission of Borrower Materials through the internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and non-appealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to Borrower, any Bank or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages). Section 12.08       Setoff.  Borrower agrees that, in addition to (and without limitation of) any right of setoff, bankers’ lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final) held by it for the account of Borrower at any of such Bank’s offices, in Dollars or in any other currency, against any amount payable by Borrower to such Bank under this Agreement or such Bank’s Note, or any other Loan Document which is not paid when due (regardless of whether such balances are then due to Borrower), in which case it shall promptly notify Borrower and Administrative Agent thereof; provided that such Bank’s failure to give such notice shall not affect the validity thereof. Payments by Borrower hereunder or under the other Loan Documents shall be made without setoff or counterclaim. Section 12.09       Table of Contents; Headings.  Any table of contents and the headings and captions hereunder are for convenience only and shall not affect the interpretation or construction of this Agreement. Section 12.10       Severability.  The provisions of this Agreement are intended to be severable.  If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 65 -------------------------------------------------------------------------------- Section 12.11       Counterparts.  This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart.  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 12.12       Integration.  The Loan Documents, the Fee Letter and Supplemental Fee Letter set forth the entire agreement among the parties hereto relating to the transactions contemplated thereby and supersede any prior oral or written statements or agreements with respect to such transactions. Section 12.13       Governing Law.  This Agreement shall be governed by, and construed and enforced in accordance with, the Laws of the State of New York (without giving effect to New York’s principles of conflicts of Laws). Section 12.14       Waivers.  In connection with the obligations and liabilities as aforesaid, Borrower hereby waives  (1) promptness and diligence; (2) notice of any actions taken by any Bank Party under this Agreement, any other Loan Document or any other agreement or instrument relating thereto except to the extent otherwise provided herein; (3) all other notices, demands and protests, and all other formalities of every kind in connection with the enforcement of the Obligations, the omission of or delay in which, but for the provisions of this Section, might constitute grounds for relieving Borrower of its obligations hereunder; (4) any requirement that any Bank Party protect, secure, perfect or insure any Lien on any collateral or exhaust any right or take any action against Borrower or any other Person or any collateral; (5) any right or claim of right to cause a marshalling of the assets of Borrower; and (6) all rights of subrogation or contribution, whether arising by contract or operation of law (including, without limitation, any such right arising under the Federal Bankruptcy Code) or otherwise by reason of payment by Borrower, either jointly or severally, pursuant to this Agreement or other Loan Documents. Section 12.15       Jurisdiction; Immunities.  Borrower, Administrative Agent and each Bank hereby irrevocably submit to the jurisdiction of any New York State or United States Federal court sitting in New York City over any action or proceeding arising out of or relating to this Agreement, the Notes or any other Loan Document.  Borrower, Administrative Agent, and each Bank irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in such New York State or United States Federal court.  Borrower, Administrative Agent, and each Bank irrevocably consent to the service of any and all process in any such action or proceeding by the mailing of copies of such process to Borrower, Administrative Agent or each Bank, as the case may be, at the addresses specified herein.  Borrower, Administrative Agent and each Bank agree 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.  Borrower, Administrative Agent and each Bank further waive any objection to venue in the State of New York and any objection to an action or proceeding in the State of New York on the basis of forum non conveniens.  Borrower, Administrative Agent and each Bank agree that any action or proceeding brought against Borrower, Administrative Agent or any Bank, as the case may be, shall be brought only in a New York State court sitting in New York City or a United States Federal court sitting in New York City, to the extent permitted or not expressly prohibited by applicable Law. 66 -------------------------------------------------------------------------------- Nothing in this Section shall affect the right of Borrower, Administrative Agent or any Bank to serve legal process in any other manner permitted by Law. To the extent that Borrower, Administrative Agent or any Bank have or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, Borrower, Administrative Agent and each Bank hereby irrevocably waive such immunity in respect of its obligations under this Agreement, the Notes and any other Loan Document. BORROWER, ADMINISTRATIVE AGENT AND EACH BANK WAIVE ANY RIGHT EACH SUCH PARTY MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE LOANS.  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 12.16       Designated Lender.  Any Bank (other than a Bank who is such solely because it is a Designated Lender) (each, a “Designating Lender”) may at any time designate one (1) Designated Lender to fund Bid Rate Loans on behalf of such Designating Lender subject to the terms of this Section and the provisions in Section 12.05 shall not apply to such designation.  No Bank may designate more than one (1) Designated Lender.  The parties to each such designation shall execute and deliver to Administrative Agent for its acceptance a Designation Agreement.  Upon such receipt of an appropriately completed Designation Agreement executed by a Designating Lender and a designee representing that it is a Designated Lender, Administrative Agent will accept such Designation Agreement and give prompt notice thereto to Borrower, whereupon, (i) from and after the “Effective Date” specified in the Designation Agreement, the Designated Lender shall become a party to this Agreement with a right to make Bid Rate Loans on behalf of its Designating Lender pursuant to Section 2.02 after Borrower has accepted the Bid Rate Quote of the Designating Lender and (ii) the Designated Lender shall not be required to make payments with respect to any obligations in this Agreement except to the extent of excess cash flow of such Designated Lender which is not otherwise required to repay obligations of such Designated Lender which are then due and payable; provided, however, that regardless of such designation and assumption by the Designated Lender, the Designating Lender shall be and remain obligated to Borrower, Administrative Agent and the Banks for each and every of the obligations of the Designating Lender and its related Designated Lender with respect to this Agreement, including, without limitation, any indemnification obligations under Section 10.05.  Each Designating Lender shall serve as the administrative agent of its Designated Lender and shall on behalf of, and to the exclusion of, the Designated Lender:  (i) receive any and all payments made for the benefit of the 67 -------------------------------------------------------------------------------- Designated Lender and (ii) give and receive all communications and notices and take all actions hereunder, including, without limitation, votes, approvals, waivers and consents under or relating to this Agreement and the other Loan Documents.  Any such notice, communication, vote, approval, waiver or consent shall be signed by the Designating Lender as administrative agent for the Designated Lender and shall not be signed by the Designated Lender on its own behalf, but shall be binding on the Designated Lender to the same extent as if actually signed by the Designated Lender.  Borrower, Administrative Agent and the Banks may rely thereon without any requirement that the Designated Lender sign or acknowledge the same.  No Designated Lender may assign or transfer all or any portion of its interest hereunder or under any other Loan Document, other than assignments to the Designating Lender which originally designated such Designated Lender. Section 12.17       No Bankruptcy Proceedings.  Each of Borrower, the Banks and Administrative Agent hereby agrees that it will not institute against any Designated Lender or join any other Person in instituting against any Designated Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any federal or state bankruptcy or similar Law, for one (1) year and one (1) day after the payment in full of the latest maturing commercial paper note issued by such Designated Lender. Section 12.18       USA Patriot Act.  Each Bank hereby notifies 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 “Act”), it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow such Bank to identify Borrower in accordance with the Act. Section 12.19       Transitional Arrangements. (a)           2004 Credit Agreement Superseded.  This Agreement shall supersede the 2004 Credit Agreement in its entirety, except as provided in this Section 12.19.  On the Closing Date, the rights and obligations of the parties under the 2004 Credit Agreement and the “Notes” defined therein shall be subsumed within and be governed by this Agreement and the Notes; provided however, that any of the “Obligations” (as defined in the 2004 Credit Agreement) outstanding under the 2004 Credit Agreement shall, for purposes of this Agreement, be Obligations hereunder.  The Banks’ interests in such Obligations, and participations in Existing Letters of Credit shall be reallocated on the Closing Date in accordance with each Bank’s applicable Pro Rata Share. (b)           Return and Cancellation of Notes.  Upon its receipt of the Notes to be delivered hereunder on the Closing Date, each Bank will promptly return to Borrower, marked “Cancelled” or “Replaced”, the notes of Borrower held by such Bank pursuant to the 2004 Credit Agreement. (c)           Interest and Fees Under 2004 Credit Agreement.  All interest and all commitment, facility and other fees and expenses owing or accruing under or in respect of the 2004 Credit Agreement shall be calculated as of the Closing Date (prorated in the case of any fractional periods), and shall be paid on the Closing Date in accordance with the method specified in the 2004 Credit Agreement as if such agreement were still in effect. 68 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.   AVALONBAY COMMUNITIES, INC.                         By:   /s/ Joanne M. Lockridge         Name: Joanne M. Lockridge         Title: Senior Vice President               Address for Notices:               100 Bridgeport Ave., Suite 258     Shelton, CT 06484               Attention:               Telephone:   (203) 926-2326     Telecopy:   (203) 926-2304               Address of principal place of business, if different than above:               Taxpayer Identification Number:   [Signature page to Second Amended and Restated Revolving Loan Agreement] --------------------------------------------------------------------------------     BANK OF AMERICA, N.A.     (as Bank and Administrative Agent)                         By:   /s/ Lisa Sanders         Name: Lisa Sanders         Title: Senior Vice President               Address for Notices and Applicable Lending Office:               Bank of America, N.A.     One Landmark Square     Stamford, CT 06904               Attention: Lisa Sanders               Telephone:   (203) 973-1984     Telecopy:   (203) 964-9038   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     JPMORGAN CHASE BANK, N.A.     (as Bank and Syndication Agent)                         By:   /s/ Marc E. Costantino         Name: Marc E. Costantino         Title: Vice President               Address for Notices and Applicable Lending Office:               JPMorgan Chase Bank, N.A.     277 Park Avenue, 3rd Floor     New York, NY 10072               Attention: Marc E. Costantino               Telephone:   (212) 622-8167     Telecopy:   (646) 534-0574   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     WACHOVIA BANK, NATIONAL ASSOCIATION     (as Bank and Syndication Agent)                         By:   /s/ Amit Khimji         Name: Amit Khimji         Title: Vice President               Address for Notices and Applicable Lending Office:               Wachovia Bank, National Association     171 17th  Street NW, 100 Building     GA4506     Atlanta, GA 30363               Attention: Cathy A. Casey               Telephone:   (404) 214-6335     Telecopy:   (404) 214-5493   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     DEUTSCHE BANK TRUST COMPANY AMERICAS     (as Bank and Documentation Agent)                         By:   /s/ Brenda Casey         Name: Brenda Casey         Title: Director                         By:   /s/ Joanna Soliman         Name: Joanna Soliman         Title: Assistant Vice President               Address for Notices and Applicable Lending Office:               Deutsche Bank Trust Company Americas     90 Hudson Street     Jersey City, NJ 07302               Attention: Juliet Cadiz               Telephone:   (201) 593-2164     Telecopy:   (201) 593-2308   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     MORGAN STANLEY BANK     (as Bank and Documentation Agent)                         By:   /s/ Daniel Twenge         Name: Daniel Twenge         Title: Authorized Signatory           Morgan Stanley Bank   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     WELLS FARGO BANK, NATIONAL ASSOCIATION     (as Bank and Documentation Agent)                         By:   /s/ Stephen F. Gray         Name: Stephen F. Gray         Title: Vice President               Address for Notices and Applicable Lending Office:               Wells Fargo Bank     733 Marquette Avenue     Minneapolis, MN 55402               Attention: Tiffany Moore-Welch               Telephone:   (612) 667-6333     Telecopy:   (612) 595-7868                         With a copy to:               Wells Fargo Bank, National Association     1750 H Street, N.W., Suite 400     Washington, DC 20006           Attention: Stephen Gray               Telephone:   (202) 303-3010     Telecopy:   (202) 429-2984   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     SUNTRUST BANK                         By:   /s/ Ashish Tandon         Name: Ashish Tandon         Title: Assistant Vice President               Address for Notices and Applicable Lending Office:               Suntrust Bank     8330 Boone Blvd., 8th  Floor     Vienna, VA 22182               Attention: Ashish Tandon               Telephone:   (703) 442-1557     Telecopy:   (703) 442-1570   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     UBS LOAN FINANCE                         By:   /s/ Richard L. Tavrow         Name: Richard L. Tavrow         Title: Director               By:   /s/ Irja R. Otsa         Name: Irja R. Otsa         Title: Associate Director               Address for Notices and Applicable Lending Office:               UBS Loan Finance LLC     677 Washington Boulevard     Stamford, CT 06901               Attention: Robert Arscott               Telephone:   (203) 719-8269     Telecopy:   (203) 719-3888   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     AMSOUTH BANK AMSOUTH BANK         is now         REGIONS BANK   By:   /s/ Alan Brown         Name: Alan Brown         Title: Senior Vice President               Address for Notices and Applicable Lending Office:               AmSouth Bank     1900 5th Avenue N., BAC-15     Birmingham, AL 35203               Attention: Alan Brown               Telephone:   (205) 581-7267     Telecopy:   (205) 326-4075   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     BANK OF CHINA, NEW YORK BRANCH                         By:   /s/ Li Xiao Jing         Name: Li Xiao Jing         Title: General Manager               Address for Notices and Applicable Lending Office:               Bank of China, New York Branch     410 Madison Avenue     New York, NY 10017               Attention: George Moy               Telephone:   (212) 935-3101 ext. 408     Telecopy:   (212) 308-4993   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     THE BANK OF NEW YORK                         By:   /s/ David Applebaum         Name: David Applebaum         Title: Vice President               Address for Notices and Applicable Lending Office:               The Bank of New York     One Wall Street     New York, NY 10286               Attention: David Applebaum               Telephone:   (212) 635-7320     Telecopy:   (212) 809-9526   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     PNC BANK, NATIONAL ASSOCIATION                         By:   /s/ William R. Lynch, III         Name: William R. Lynch, III         Title: Senior Vice President               Address for Notices and Applicable Lending Office:               PNC Bank, National Association     500 First Avenue     Mail Stop: P7-PFFC-04-Z     Pittsburgh, PA 15219               Attention: Real Estate Banking               Telephone:   (412) 768-7647     Telecopy:   (412) 768-4586               with a copy to:               808 17th Street, NW     Mail Stop: C1-C808-02-1     Washington, DC 20006               Attention: William Lynch               Telephone:   (202) 835-4513     Telecopy:   (202) 835-5982   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     SCOTIABANK INC.                         By:   /s/ Christopher J. Allen         Name: Christopher J. Allen         Title: Manager Director               Address for Notices and Applicable Lending Office:               Scotiabank Inc.     600 Peachtree St., NE, Suite 2700     Atlanta, GA 30308               Attention: Jay Willson               Telephone:   (404) 877-1515     Telecopy:   (404) 888-8995   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     CHANG HWA COMMERCIAL BANK, LTD.,     NEW YORK BRANCH                         By:   /s/ Jim C.Y. Chen         Name: Jim C.Y. Chen         Title: VP & General Manager               Address for Notices and Applicable Lending Office:               Chang Hwa Commercial Bank, Ltd., New York Branch     685 Third Avenue, 29th Floor     New York, NY 10017               Attention: Danielle Tsai               Telephone:   (212) 651-9770 ext. 29     Telecopy:   (212) 651-9785   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     COMERICA BANK                               By:   /s/ Casey L. Stevenson         Name: Casey L. Stevenson         Title: Vice President               Address for Notices and Applicable Lending Office:                     Overnight Mail:     Comerica Bank     500 Woodward Ave., 7th Floor     Detroit, MI 48226-3256           U.S. Mail:     Comerica Bank     P.O. Box 75000     Detroit, MI 48275-3256               Attention: Casey L. Stevenson               Telephone:   (313) 222-5286     Telecopy:   (313) 222-9295   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     FIRST HORIZON BANK,     a divison of First Tennessee Bank N.A.                         By:   /s/ Kenneth W. Rub         Name: Kenneth W. Rub         Title: Vice President               Address for Notices and Applicable Lending Office:               First Horizon Bank,     a division of First Tennessee Bank N.A.     1650 Tysons Boulevard, Suite 1150     McLean, VA 22102               Attention: Kenneth W. Rub               Telephone:   (703) 394-2520     Telecopy:   (703) 734-1834   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     E.SUN COMMERCIAL BANK, LTD.,     LOS ANGELES BRANCH                         By:   /s/ Benjamin Lin         Name: Benjamin Lin         Title: EVP & General Manager               Address for Notices and Applicable Lending Office:               E.Sun Commercial Bank, Ltd.,     Los Angeles Branch     17700 Castleton Street, Suite 500     City of Industry, CA 91748               Attention: Homer Hou               Telephone:   (626) 810-2400 ext. 225     Telecopy:   (626) 839-5531 Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     THE GOVERNOR AND COMPANY OF     THE BANK OF IRELAND                         By:   /s/ Daniel McAneney         Name: Daniel McAneney         Title: Authorised Signatory               By:   /s/ Gwen Evans         Name: Gwen Evans         Title: Authorised Signatory               Address for Notices and Applicable Lending Office:               Bank of Ireland Corporate     B2, Head Office     Lower Baggot street     Dublin 2, Ireland                     Attention:   Noelle McGrath/         Ciaran Doyle                         Telephone:   353 1 604 4709/4707     Telecopy:   353 1 604 4798 Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     BANK OF TOKYO-MITSUBISHI UFJ, LTD.                         By:   /s/ James Taylor         Name: James Taylor         Title: Vice President               Address for Notices and Applicable Lending Office:               The Bank of Tokyo-Mitsubishi UFJ, Ltd.     1251 Avenue of the Americas     New York, NY 10020               Attention: James T. Taylor               Telephone:   (212) 782-4116     Telecopy:   (212) 782-6442 Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     BANK OF HAPOALIM B.M.                         By:   /s/ James P. Surless         Name: James P. Surless         Title: Vice President               By:   /s/ Charles McLaughlin         Name: Charles McLaughlin         Title: Senior Vice President               Address for Notices and Applicable Lending Office:               Bank Hapoalim, B.M.     1177 Avenue of the Americas     New York, NY 10036               Attention: James P. Surless               Telephone:   (212) 728-2178     Telecopy:   (212) 782-2382   Signature page to Second Amended and Restated Revolving Loan Agreement   --------------------------------------------------------------------------------     PEOPLE’S BANK                         By:   /s/ Maurice Fry         Name: Maurice Fry         Title: Vice President               Address for Notices and Applicable Lending Office:               People’s Bank     850 Main Street     Bridgeport, CT 06604               Attention: Maurice Fry               Telephone:   (203) 338-7375     Telecopy:   (203) 338-7800   Signature page to Second Amended and Restated Revolving Loan Agreement -------------------------------------------------------------------------------- EXHIBIT A AUTHORIZATION LETTER November     , 2006 Bank of America, N.A. 777 Main Street Hartford, CT  06115 Attention:                                Re:                               Second Amended and Restated Revolving Loan Agreement dated as of November 14, 2006 (the “Loan Agreement”; capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement) among us, as Borrower, the Banks named therein, and you, as Administrative Agent for said Banks Ladies/Gentlemen: In connection with the captioned Loan Agreement, we hereby designate any of the following persons to give to you instructions, including notices required pursuant to the Loan Agreement, orally, by telephone or teleprocess, or in writing: [NAMES] Instructions may be honored on the oral, telephonic, teleprocess or written instructions of anyone purporting to be any one of the above designated persons even if the instructions are for the benefit of the person delivering them.  We will furnish you with written confirmation of each such instruction signed by any person designated above (including any telecopy which appears to bear the signature of any person designated above) on the same day that the instruction is provided to you, but your responsibility with respect to any instruction shall not be affected by your failure to receive such confirmation or by its contents. Without limiting the foregoing, we hereby unconditionally authorize any one of the above-designated persons to execute and submit requests for advances of proceeds of the Loans (including the Initial Advance) and notices of Elections, Conversions and Continuations to you under the Loan Agreement with the identical force and effect in all respects as if executed and submitted by us. You and the Banks shall be fully protected in, and shall incur no liability to us for, acting upon any instructions which you in good faith believe to have been given by any person designated above, and in no event shall you or the Banks be liable for special, consequential or punitive damages.  In addition, we agree to hold you and the Banks and your and their respective agents harmless from any and all liability, loss and expense arising directly or indirectly out of instructions that we provide to you in connection with the Loan Agreement except for liability, loss or expense occasioned by your gross negligence or willful misconduct. -------------------------------------------------------------------------------- Upon notice to us, you may, at your option, refuse to execute any instruction, or part thereof, without incurring any responsibility for any loss, liability or expense arising out of such refusal if you in good faith believe that the person delivering the instruction is not one of the persons designated above or if the instruction is not accompanied by an authentication method that we have agreed to in writing. We will promptly notify you in writing of any change in the persons designated above and, until you have actually received such written notice and have had a reasonable opportunity to act upon it, you are authorized to act upon instructions, even though the person delivering them may no longer be authorized.   Very truly yours,           AVALONBAY COMMUNITIES, INC.               By:             Name:         Title:   A-2 --------------------------------------------------------------------------------   EXHIBIT B RATABLE LOAN NOTE $                            New York, New York           November 14, 2006   For value received, AvalonBay Communities, Inc., a Maryland corporation (“Borrower”), hereby promises to pay to the order of                       or its successors or assigns (collectively, the “Bank”), at the principal office of Bank of America, N.A. (“Administrative Agent”) located at 777 Main Street, Hartford, CT  06115 for the account of the Applicable Lending Office of the Bank, the principal sum of                Dollars ($                    ), or if less, the amount loaned by the Bank under its Ratable Loan to Borrower pursuant to the Loan Agreement (as defined below) and actually outstanding, in lawful money of the United States and in immediately available funds, in accordance with the terms set forth in the Loan Agreement.  Borrower also promises to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, in like money, at said office for the account of said Applicable Lending Office, at the time and at a rate per annum as provided in the Loan Agreement.  Any amount of principal hereof which is not paid when due, whether at stated maturity, by acceleration, or otherwise, shall bear interest from the date when due until said principal amount is paid in full, payable on demand, at the rate set forth in the Loan Agreement. The date and amount of each advance of the Ratable Loan made by the Bank to Borrower under the Loan Agreement referred to below, and each payment of said Ratable Loan, shall be recorded by the Bank on its books and, prior to any transfer of this Note (or, at the discretion of the Bank, at any other time), may be endorsed by the Bank on the schedule attached hereto and any continuation thereof. This Note is one of the Ratable Loan Notes referred to in the Second Amended and Restated Revolving Loan Agreement dated as of November 14, 2006 (as the same may be amended from time to time, the “Loan Agreement”) among Borrower, the Banks named therein (including the Bank) and Administrative Agent, as administrative agent for the Banks.  All of the terms, conditions and provisions of the Loan Agreement are hereby incorporated by reference.  All capitalized terms used herein and not defined herein shall have the meanings given to them in the Loan Agreement. The Loan Agreement contains, among other things, provisions for the prepayment of and acceleration of this Note upon the happening of certain stated events. No recourse shall be had under this Note against Borrower’s Principals except as and to the extent set forth in Section 11.02 of the Loan Agreement. All parties to this Note, whether principal, surety, guarantor or endorser, hereby waive presentment for payment, demand, protest, notice of protest and notice of dishonor.  This Note shall be governed by, and construed and enforced in accordance with, the Laws of the State of B-1 -------------------------------------------------------------------------------- New York, provided that, as to the maximum lawful rate of interest which may be charged or collected, if the Laws applicable to the Bank permit it to charge or collect a higher rate than the Laws of the State of New York, then such Law applicable to the Bank shall apply to the Bank under this Note.   AVALONBAY COMMUNITIES, INC.               By:             Name:         Title:   B-2 --------------------------------------------------------------------------------   Date   Amount of Loan   Amount of Principal Paid or Prepaid   Balance of Principal Unpaid   Notation Made By:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               B-3 -------------------------------------------------------------------------------- EXHIBIT B-1 BID RATE LOAN NOTE $422,500,000   New York, New York           November 14, 2006   For value received, AvalonBay Communities, Inc., a Maryland corporation (“Borrower”), hereby promises to pay to the order of Bank of America, N.A. (“Administrative Agent”) or its successors or assigns for the account of the respective Banks making Bid Rate Loans or their respective successors or assigns (for the further account of their respective Applicable Lending Offices), at the principal office of Administrative Agent located at 777 Main Street, Hartford, CT  06115, the principal sum of Four Hundred Twenty-Two Million Five Hundred Thousand Dollars ($422,500,000.00), or if less, the amount loaned by one or more of said Banks under their respective Bid Rate Loans to Borrower pursuant to the Loan Agreement (as defined below) and actually outstanding, in lawful money of the United States and in immediately available funds, in accordance with the terms set forth in the Loan Agreement.  Borrower also promises to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, in like money, at said office for the account of said Banks for the further account of their respective Applicable Lending Offices, at the times and at the rates per annum as provided in the Loan Agreement.  Any amount of principal hereof which is not paid when due, whether at stated maturity, by acceleration, or otherwise, shall bear interest from the date when due until said principal amount is paid in full, payable on demand, at the rate set forth in the Loan Agreement. The date and amount of each Bid Rate Loan to Borrower under the Loan Agreement referred to below, the name of the Bank making the same, the interest rate applicable thereto and the maturity date thereof (i.e., the end of the Interest Period Applicable thereto) shall be recorded by Administrative Agent on its records and may be endorsed by Administrative Agent on the schedule attached hereto and any continuation thereof. This Note is the Bid Rate Loan Note referred to in the Second Amended and Restated Revolving Loan Agreement dated as of November 14, 2006 (as the same may be amended from time to time, the “Loan Agreement”) among Borrower, the Banks named therein and Administrative Agent, as administrative agent for the Banks.  All of the terms, conditions and provisions of the Loan Agreement are hereby incorporated by reference.  All capitalized terms used herein and not defined herein shall have the meanings given to them in the Loan Agreement. The Loan Agreement contains, among other things, provisions for the prepayment of and acceleration of this Note upon the happening of certain stated events. No recourse shall be had under this Note against the Borrower’s Principals except as and to the extent set forth in Section 11.02 of the Loan Agreement. All parties to this Note, whether principal, surety, guarantor or endorser, hereby waive presentment for payment, demand, protest, notice of protest and notice of dishonor. B-1-1 -------------------------------------------------------------------------------- This Note shall be governed by, and construed and enforced in accordance with, the Laws of the State of New York, provided that, as to the maximum lawful rate of interest which may be charged or collected, if the Laws applicable to a particular Bank permit it to charge or collect a higher rate than the Laws of the State of New York, then such Law applicable to such Bank shall apply to such Bank under this Note.   AVALONBAY COMMUNITIES, INC.               By:             Name:         Title:   B-1-2 --------------------------------------------------------------------------------   Bid Rate Loan Number   Date   Amount of Bid Rate Loan   Interest Rate   Expiration of Interest Period   Notation Made By:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       B-1-3 -------------------------------------------------------------------------------- EXHIBIT B-2 SWING LOAN NOTE New York, New York November 14, 2006 For value received, AvalonBay Communities, Inc., a Maryland corporation (“Borrower”), hereby promises to pay to the order of                         or its successors or assigns (collectively, the “Bank”), at the principal office of Bank of America, N.A. (“Administrative Agent”) located at 777 Main Street, Hartford, CT  06115 for the account of the Applicable Lending Office of the Bank, the principal sum equal to the amount loaned by the Bank under its Swing Loan to Borrower pursuant to the Loan Agreement (as defined below) and actually outstanding, in lawful money of the United States and in immediately available funds, in accordance with the terms set forth in the Loan Agreement.  Borrower also promises to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, in like money, at said office for the account of said Applicable Lending Office, at the time and at a rate per annum as provided in the Loan Agreement.  Any amount of principal hereof which is not paid when due, whether at stated maturity, by acceleration, or otherwise, shall bear interest from the date when due until said principal amount is paid in full, payable on demand, at the rate set forth in the Loan Agreement. The date and amount of each advance of the Swing Loan made by the Bank to Borrower under the Loan Agreement referred to below, and each payment of said Swing Loan, shall be recorded by the Bank on its books and, prior to any transfer of this Note (or, at the discretion of the Bank, at any other time), may be endorsed by the Bank on the schedule attached hereto and any continuation thereof. This Note is one of the Swing Loan Notes referred to in the Second Amended and Restated Revolving Loan Agreement dated as of November 14, 2006 (as the same may be amended from time to time, the “Loan Agreement”) among Borrower, the Banks named therein (including the Bank) and Administrative Agent, as administrative agent for the Banks.  All of the terms, conditions and provisions of the Loan Agreement are hereby incorporated by reference.  All capitalized terms used herein and not defined herein shall have the meanings given to them in the Loan Agreement. The Loan Agreement contains, among other things, provisions for the prepayment of and acceleration of this Note upon the happening of certain stated events. No recourse shall be had under this Note against Borrower’s Principals except as and to the extent set forth in Section 11.02 of the Loan Agreement. All parties to this Note, whether principal, surety, guarantor or endorser, hereby waive presentment for payment, demand, protest, notice of protest and notice of dishonor. B-2-1 -------------------------------------------------------------------------------- This Note shall be governed by, and construed and enforced in accordance with, the Laws of the State of New York, provided that, as to the maximum lawful rate of interest which may be charged or collected, if the Laws applicable to the Bank permit it to charge or collect a higher rate than the Laws of the State of New York, then such Law applicable to the Bank shall apply to the Bank under this Note.       AVALONBAY COMMUNITIES, INC.                       By:                 Name:             Title:   B-2-2 --------------------------------------------------------------------------------   Date   Amount of Loan   Amount of Principal Paid or Prepaid   Balance of Principal Unpaid   Notation Made By:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               B-2-3 -------------------------------------------------------------------------------- EXHIBIT D SOLVENCY CERTIFICATE The person executing this certificate is the                                          of AvalonBay Communities, Inc., a Maryland corporation (“Borrower”), and is familiar with its properties, assets and businesses, and is duly authorized to execute this certificate on behalf of Borrower pursuant to Section 4.01(7) of the Second Amended and Restated Revolving Loan Agreement dated the date hereof (the “Loan Agreement”) among Borrower, the banks party thereto (each a “Bank” and collectively, the “Banks”) and Bank of America, N.A., as administrative agent for the Banks (in such capacity, together with its successors in such capacity, “Administrative Agent”).  In executing this Certificate, such person is acting solely in his or her capacity as the                       of Borrower, and not in his or her individual capacity.  Unless otherwise defined herein, terms defined in the Loan Agreement are used herein as therein defined. The undersigned further certifies that he or she has carefully reviewed the Loan Agreement and the other Loan Documents and the contents of this Certificate and, in connection herewith, has made such investigation and inquiries as he or she deems reasonably necessary and prudent therefor.  The undersigned further certifies that the financial information and assumptions which underlie and form the basis for the representations made in this Certificate were reasonable when made and were made in good faith and continue to be reasonable as of the date hereof. The undersigned understands that Administrative Agent and the Banks are relying on the truth and accuracy of this Certificate in connection with the transactions contemplated by the Loan Agreement. The undersigned certifies that Borrower is Solvent. IN WITNESS WHEREOF, the undersigned has executed this Certificate on November 14, 2006.       Name:     Title:   D-1 -------------------------------------------------------------------------------- EXHIBIT E ASSIGNMENT AND ACCEPTANCE This Assignment and Acceptance (the “Assignment and Acceptance”) is dated as of the Effective Date set forth below and is entered into by and between                                           (the “Assignor”) and                                     (the “Assignee”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Loan Agreement identified below (as amended, the “Loan Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee.  The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Acceptance as if set forth herein in full. For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Loan Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below, (a) all of the Assignor’s rights and obligations in its capacity as a Bank under the Loan Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including without limitation any letters of credit, guarantees, and swingline loans included in such facilities) and (b) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Bank) against any Person, whether known or unknown, arising under or in connection with the Loan Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (a) above (the rights and obligations sold and assigned pursuant to clauses (a) and (b) above being referred to herein collectively as, the “Assigned Interest”).  Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Acceptance, without representation or warranty by the Assignor. 1.   Assignor:               2.   Assignee:             [and is an Affiliate of                            (1)] 3.   Borrower:   AvalonBay Communities, Inc.           4.   Administrative Agent:   Bank of America, N.A.,         as the Administrative Agent under the Loan Agreement -------------------------------------------------------------------------------- (1)             Select Bank as applicable.   E-1 --------------------------------------------------------------------------------   5.   Loan Agreement:   The Second Amended and Restated Revolving Loan Agreement dated as of November 14, 2006 among AvalonBay Communities, Inc., as borrower, the Banks parties thereto, and Bank of America N.A. or any successor thereto, individually and as Administrative Agent, Swing Lender and Issuing Bank. 6.   Assigned Interest:       Facility Assigned   Aggregate Amount of Loan Commitment/Loans for all Lenders*   Amount of Loan Commitment/Loans Assigned*   Percentage Assigned of Loan Commitment/Loans(2) Loan Commitment   $   $   % Ratable Loans   $   $   % Bid Rate Loans   $   $   % Participations in Letters of Credit   $   $   % [Swing Loans]   $   $   %   [7   Trade Date:                                     ](3)   Effective Date:                                       , 20        [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.] [Remainder of Page Intentionally Left Blank]   -------------------------------------------------------------------------------- *                   Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date. (2)             Set forth, to at least 9 decimals, as a percentage of the Loan Commitment/Loans of all Lenders thereunder. (3)             To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date. E-2 -------------------------------------------------------------------------------- The terms set forth in this Assignment and Acceptance are hereby agreed to:   ASSIGNOR     [NAME OF ASSIGNOR]               By:             Name:         Title:               ASSIGNEE     [NAME OF ASSIGNEE]               By:             Name:         Title:   [Consented to and](4) Accepted: BANK OF AMERICA, N.A., acting in its capacity as Administrative Agent and as Issuing Bank By:             Name:         Title:       [Consented to: AVALONBAY COMMUNITIES, Inc., a Maryland corporation By:             Name:         Title:](5)       -------------------------------------------------------------------------------- (4)             Administrative Agent/Issuing Bank consent is not required for assignments to another Bank.  See Section 12.05 of Loan Agreement. (5)             Borrower consent is required unless (a) assignment is to a Bank, or Affiliate of a Bank or an Approved Fund, or (b) an Event of Default has occurred and is continuing.  See Section 12.05 of the Loan Agreement. E-3 -------------------------------------------------------------------------------- ANNEX 1 Re:  The Second Amended and Restated Revolving Loan Agreement dated as of November 14, 2006, among AvalonBay Communities, Inc., as borrower, the Banks parties thereto, Bank of America, N.A. and any successors thereto, individually and as Administrative Agent, Swing Lender and Issuing Bank (the “Loan Agreement”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Assignment and Acceptance to which this annex is attached and if not defined therein, shall have the meanings given to them in the Loan Agreement. [g240171kh31i001.gif]STANDARD TERMS AND CONDITIONS FOR ASSIGNMENT AND ACCEPTANCE 1.         Representations and Warranties. 1.1       Assignor.  The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Acceptance and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Loan Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document. 1.2.      Assignee.  The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Acceptance and to consummate the transactions contemplated hereby and to become a Bank under the Loan Agreement, (ii) it meets all requirements of an Assignee under the Loan Agreement (subject to receipt of such consents as may be required under the Loan Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Loan Agreement as a Bank thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Bank thereunder, and (iv) it has received a copy of the Loan Agreement, together with copies of the most recent financial statements delivered pursuant to §4.01(3) and §6.09 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Bank, and (v) if it is a non-U.S. Bank, attached to the Assignment and Acceptance is any documentation required to be delivered by it pursuant to the terms of the Loan Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative E-4 -------------------------------------------------------------------------------- Agent, the Assignor or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Bank. 2.     Payments.  From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to, on or after the Effective Date.  The Assignor and the Assignee shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. 3.     General Provisions.  This Assignment and Acceptance shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns.  This Assignment and Acceptance may be executed in any number of counterparts, which together shall constitute one instrument.  Delivery of an executed counterpart of a signature page of this Assignment and Acceptance by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance.  This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. E-5 -------------------------------------------------------------------------------- EXHIBIT F DESIGNATION AGREEMENT Reference is made to that certain Second Amended and Restated Revolving Loan Agreement dated as of November 14, 2006 (as amended, supplemented or otherwise modified from time to time, the “Loan Agreement”) among AvalonBay Communities, Inc., a Maryland corporation, the banks parties thereto, and Bank of America, N.A., as administrative agent for said banks.  Terms defined in the Loan Agreement not otherwise defined herein are used herein with the same meaning. [BANK] (“Designor”) and                              , a                                                                 (“Designee”) agree as follows: 1.             Designor hereby designates Designee, and Designee hereby accepts such designation, to have a right to make Bid Rate Loans pursuant to Section 2.02 of the Loan Agreement.  Any assignment by Designor to Designee of its rights to make a Bid Rate Loan pursuant to such Section shall be effective at the time of the funding of such Bid Rate Loan and not before such time. 2.             Except as set forth in Section 6 below, Designor makes no representation or warranty and assumes no responsibility pursuant to this Designation Agreement with respect to (a) any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument and document furnished pursuant thereto and (b) the financial condition of Borrower or the performance or observance by Borrower of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto. 3.             Designee (a) confirms that it has received a copy of each Loan Document, together with copies of such financial statements and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Designation Agreement; (b) agrees that it will independently and without reliance upon Administrative Agent, Designor or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under any Loan Document; (c) represents that it is a Designated Lender; (d) appoints and authorizes Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under any Loan Document as are delegated to Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; and (e) agrees that it will perform in accordance with their terms all of the obligations which by the terms of any Loan Document are required to be performed by it as a Bank. 4.             Designee hereby appoints Designor as Designee’s agent and attorney-in-fact, and grants to Designor an irrevocable power of attorney, to receive payments made for the benefit of Designee under the Loan Agreement, to deliver and receive all communications and notices under the Loan Agreement and other Loan Documents and to exercise on Designee’s behalf all rights to vote and to grant and make approvals, waivers, consents or amendments to or under the F-1 -------------------------------------------------------------------------------- Loan Agreement or other Loan Documents.  Any document executed by Designor on Designee’s behalf in connection with the Loan Agreement or other Loan Documents shall be binding on Designee.  Borrower, Administrative Agent and each of the Banks may rely on and are beneficiaries of this Designation Agreement. 5.             Following the execution of this Designation Agreement by Designor and Designee, it will be delivered to Administrative Agent for acceptance by Administrative Agent.  The effective date for this Designation Agreement (the “Effective Date”) shall be the date of acceptance hereof by Administrative Agent. 6.             Designor unconditionally agrees to pay or reimburse Designee and save Designee harmless against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed or asserted by any of the parties to the Loan Documents against Designee, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by the Designee hereunder or thereunder, provided that Designor shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements if the same results from Designee’s gross negligence or willful misconduct. 7.             As of the Effective Date, Designee shall be a party to the Loan Agreement with a right to make Bid Rate Loans as a Bank pursuant to Section 2.02 of the Loan Agreement and the rights and obligations of a Bank related thereto; provided, however, that Designee shall not be required to make payments with respect to such obligations except to the extent of excess cash flow of such Designee which is not otherwise required to repay obligations of Designee which are then due and payable.  Notwithstanding the foregoing, Designor, as administrative agent for Designee, shall be and remain obligated to Borrower, Administrative Agent and the Banks for each and every of the obligations of Designee and its Designor with respect to the Loan Agreement, including, without limitation, any indemnification obligations under Section 10.05 of the Loan Agreement. 8.             This Designation Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 9.             This Designation Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. F-2 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Designor and Designee have executed and delivered this Designation Agreement as of the date first set forth above.   [DESIGNOR]               By             Name:         Title:               [DESIGNEE]               By             Name:         Title:               Applicable Lending Office and Address for Notices:                                           Attention:                          Telephone: (    )                     Telecopy: (       )                          ACCEPTED AS OF THE       DAY OF                           ,200   .           BANK OF AMERICA, N.A., as Administrative Agent               By             Name:         Title:   F-3 -------------------------------------------------------------------------------- EXHIBIT G-1 BID RATE QUOTE REQUEST [Date] To:          Bank of America, N.A., as Administrative Agent (the “Administrative Agent”) From:      AvalonBay Communities, Inc. Re:                               Second Amended and Restated Revolving Loan Agreement (the “Loan Agreement”) dated as of November 14, 2006 among AvalonBay Communities, Inc., the Banks parties thereto and the Administrative Agent We hereby give notice pursuant to Section 2.02 of the Loan Agreement that we request Bid Rate Quotes for the following proposed Bid Rate Loans: Date of Borrowing:           Principal Amount*       Interest Period**     $ Such Bid Rate Quotes should offer a(n) [LIBOR Bid Margin] [Absolute Bid Rate]. Terms used herein have the meanings assigned to them in the Loan Agreement.   AVALONBAY COMMUNITIES, INC.               By             Name:         Title:(6)   -------------------------------------------------------------------------------- *                    Subject to the minimum amount and other requirements set forth in Section 2.02(a) of the Loan Agreement. **             Subject to the provisions regarding “Interest Period” in the Loan Agreement. G-1-1 -------------------------------------------------------------------------------- EXHIBIT G-2 INVITATION FOR BID RATE QUOTES To:          [Bank] Re:          Invitation for Bid Rate Quotes to AvalonBay Communities, Inc. (“Borrower”) Pursuant to Section 2.02 of the Second Amended and Restated Revolving Loan Agreement dated as of November 14, 2006 among Borrower, the Banks parties thereto and the undersigned, as Administrative Agent, we are pleased on behalf of Borrower to invite you to submit Bid Rate Quotes to Borrower for the following proposed Bid Rate Loans: Date of Borrowing:         Principal Amount       Interest Period $           Such Bid Rate Quotes should offer a(n) [LIBOR Bid Margin] [Absolute Bid Rate]. Please respond to this invitation by no later than [2:00 P.M.][9:30 A.M.]  (New York time) on [date].(7) Terms used herein have the meanings assigned to them in the Loan Agreement.   BANK OF AMERICA, N.A., as Administrative Agent               By             Name:         Title:   -------------------------------------------------------------------------------- (7)             2:00 P.M. on the fourth Banking Day prior to proposed funding date in the case of a LIBOR Auction; 9:30 A.M. on the Banking Day immediately preceding the proposed funding date for Absolute Rate Auction. G-2-1 -------------------------------------------------------------------------------- EXHIBIT G-3 BID RATE QUOTE To:          Bank of America, N.A., as Administrative Agent Re:                               Bid Rate Quote to AvalonBay Communities, Inc. (“Borrower”) pursuant to the Second Amended and Restated Revolving Loan Agreement dated November 14, 2006 among Borrower, the Banks party thereto and you, as Administrative Agent (the “Loan Agreement”) In response to your invitation on behalf of Borrower dated                         200    , we hereby make the following Bid Rate Quote on the following terms: 1.   Quoting Bank: 2.   Person to contact at quoting Bank:     3.   Date of borrowing:     * 4.   We hereby offer to make Bid Rate Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates:   Principal Amount**   Interest Period***   LIBOR Bid Margin****   Absolute Bid Rate $             $               [Provided, that the aggregate principal amount of Bid Rate Loans for which the above offers may be accepted shall not exceed $               .] 5.   LIBOR Reserve Requirement, if any:               6.   Terms used herein have the meanings assigned to them in the Loan Agreement.   -------------------------------------------------------------------------------- *                                         As specified in the related Invitation for Bid Rate Quotes. **                                  Principal amount bid for each Interest Period may not exceed principal amount requested.  Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend.  Amounts of bids are subject to the requirements of Section 2.02(c) of the Loan Agreement. ***                           No more than three (3) bids are permitted for each Interest Period. ****                    Margin over or under the LIBOR Interest Rate determined for the applicable Interest Period.  Specify percentage (to the nearest 1/1,000 of 1%) and specify whether “PLUS” or “MINUS”.   G-3-1 -------------------------------------------------------------------------------- We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Loan Agreement, irrevocably obligates us to make the Bid Rate Loan(s) for which any offer(s) are accepted, in whole or in part.   Very truly yours, [NAME OF BANK]                     Date:         By             Authorized Officer     G-3-2 -------------------------------------------------------------------------------- EXHIBIT G-4 ACCEPTANCE OF BID RATE QUOTE To:          Bank of America, N.A., as Administrative Agent (the “Administrative Agent”) From:      AvalonBay Communities, Inc. Re:                               Second Amended and Restated Revolving Loan Agreement (the “Loan Agreement”) dated as of November 14, 2006 among AvalonBay Communities, Inc., the Banks parties thereto and Administrative Agent We hereby accept the offers to make Bid Rate Loan(s) set forth in the Bid Rate Quote(s) identified below: Bank   Date of Bid Rate Quote   Principal Amount   Interest Period   LIBOR Bid Margin   Absolute Bid Rate         $                     $               Terms used herein have the meanings assigned to them in the Loan Agreement.   Very truly yours,               AVALONBAY COMMUNITIES, INC.               By             Name:         Title:   G-4-1 -------------------------------------------------------------------------------- EXHIBIT H ACCEPTANCE LETTER Bank of America, N.A., as Administrative Agent                                                                                                     AvalonBay Communities, Inc.                                                                                                     Gentlemen: We refer to the Second Amended and Restated Revolving Loan Agreement, dated as of November 14, 2006, among AvalonBay Communities, Inc., as Borrower; Bank of America, N.A. and the other lenders who have become a party to said Second Amended and Restated Revolving Loan Agreement as original signatories thereto or through the execution of Acceptance Letters or Assignment and Assumption Agreements prior to the date hereof, as Banks; and Bank of America, N.A., as Administrative Agent.  Said Second Amended and Restated Revolving Loan Agreement, as amended from time to time, is hereinafter referred to as the “Loan Agreement”.  Capitalized terms not otherwise defined herein shall have the respective definitions given them in the Loan Agreement. You and we hereby acknowledge and agree that, pursuant to Section 2.19 of the Loan Agreement, we are hereby made a party to the Loan Agreement, and for all purposes of the Loan Agreement shall be, and shall have all the rights and obligations of, a Bank, with a Loan Commitment in the amount of $                     . We hereby acknowledge receipt of a Ratable Loan Note from Borrower in said principal amount.  Each of you acknowledges your consent to our becoming a Bank and to the amount of our Loan Commitment. Immediately following the execution hereof by all parties, we shall, pursuant to paragraph (c) of Section 2.19 of the Loan Agreement, remit to Administrative Agent the sum of $                   , which shall be deemed the first advance under our Ratable Loan.  Attached hereto as Schedule A is an updated list setting forth the Total Loan Commitment, each Bank’s Loan Commitment and the principal balance that will be outstanding under each Bank’s Ratable Loan Note following our disbursement of funds as aforesaid and the application thereof as provided in said paragraph (c) of Section 2.19. Set forth beneath our signature are the location of our Applicable Lending Office(s) and our address for notices under the Loan Agreement. H-1 -------------------------------------------------------------------------------- Kindly indicate your agreement with the foregoing by your execution below.   Very truly yours,               [NEW BANK]               By             Name:         Title:               Address for notices:               Applicable Lending Office:   Agreement acknowledged this day of                   , 200   . AVALONBAY COMMUNITIES, INC. By             Name:         Title:       Agreement acknowledged this day of                      , 200   . BANK OF AMERICA, N.A., as Administrative Agent By             Name:         Title:       H-2 -------------------------------------------------------------------------------- EXHIBIT I FORM OF SUBSIDIARY GUARANTY Subsidiary Guaranty, dated as of                    , 200      by and among the undersigned (the “Subsidiary Guarantor”), in favor of each of the Banks (as defined herein) and Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”) for itself and for the other financial institutions (collectively, the “Banks”) which are or may become parties to the Second Amended and Restated Revolving Loan Agreement dated as of November 14, 2006 among AvalonBay Communities, Inc. (the “Borrower”), the Administrative Agent, and the Banks (as amended, supplemented or otherwise modified from time to time, the “Loan Agreement”).  Capitalized terms used herein without definition shall have the meanings ascribed to them in the Loan Agreement. WHEREAS, the Borrower, the Administrative Agent, the Banks and the other parties thereto have entered into the Loan Agreement; WHEREAS, the Borrower and the Subsidiary Guarantor are members of a group of related entities, the success of each of which is dependent in part on the success of the other members of such group; WHEREAS, the Subsidiary Guarantor expects to receive substantial direct and indirect benefits from the Loans and other extensions of credit made by each Bank to the Borrower pursuant to the Loan Agreement (which benefits are hereby acknowledged); WHEREAS, the Borrower has covenanted and agreed with the Banks, that pursuant to the definition of Unencumbered Assets set forth in Section 1.01 of the Loan Agreement, the undersigned Subsidiary Guarantor shall execute and deliver this Subsidiary Guaranty; and WHEREAS, the Subsidiary Guarantor wishes to guaranty the Borrower’s obligations to the Banks and the Administrative Agent under and in respect of the Loan Agreement as herein provided; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1.             Guaranty of Payment and Performance of Obligations.  In consideration of the Banks’ extending credit, or otherwise, in their discretion, giving time, financial or banking facilities or accommodations to the Borrower, the Subsidiary Guarantor hereby absolutely, irrevocably and unconditionally guarantees to the Administrative Agent and each Bank that the Borrower will duly and punctually pay or perform, at the place specified therefor, or if no place is specified, at the Administrative Agent’s head office, (i) all indebtedness, obligations and liabilities of the Borrower to any of the Banks and the Administrative Agent, individually or collectively, under the Loan I-1 -------------------------------------------------------------------------------- Agreement or any of the other Loan Documents or in respect of any of the Loans or the Letters of Credit, or the Notes or other instruments at any time evidencing any obligations thereunder, whether existing on the date of the Loan Agreement or arising or incurred thereafter, direct or indirect, secured or unsecured, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, arising by contract, operation of law or otherwise, including all such which would become due but for the operation of the automatic stay pursuant to §362(a) of the Federal Bankruptcy Code and the operation of §§502(b) and 506(b) of the Federal Bankruptcy Code; and (ii) without limitation of the foregoing, all reasonable fees, costs and expenses incurred by the Administrative Agent or the Banks in attempting to collect or enforce any of the foregoing, accrued in each case to the date of payment thereof (collectively the “Obligations” and individually an “Obligation”).  This Subsidiary Guaranty is an absolute, unconditional, irrevocable and continuing guaranty of the full and punctual payment and performance by the Borrower of the Obligations and not of their collectibility only and is in no way conditioned upon any requirement that any Bank or the Administrative Agent first attempt to collect any of the Obligations from the Borrower or resort to any security or other means of obtaining payment of any of the Obligations which any Bank or the Administrative Agent now has or may acquire after the date hereof or upon any other contingency whatsoever.  Upon any Event of Default which is continuing by the Borrower in the full and punctual payment and performance of the Obligations, the liabilities and obligations of the Subsidiary Guarantor hereunder shall, at the option of the Administrative Agent, become forthwith due and payable to the Administrative Agent and to the Bank or Banks owed the same without demand or notice of any nature, all of which are expressly waived by the Subsidiary Guarantor, except for notices required to be given to the Borrower under the Loan Documents.  Payments by the Subsidiary Guarantor hereunder may be required by any Bank or the Administrative Agent on any number of occasions. 2.             Subsidiary Guarantor’s Further Agreements to Pay.  The Subsidiary Guarantor further agrees, as the principal obligor and not as a guarantor only, to pay to each Bank and the Administrative Agent forthwith upon demand, in funds immediately available to such Bank or the Administrative Agent, all costs and expenses (including court costs and legal fees and expenses) incurred or expended by the Administrative Agent or such Bank in connection with this Subsidiary Guaranty and the enforcement hereof, together with interest on amounts recoverable under this Subsidiary Guaranty from the time after such amounts become due at the default rate of interest set forth in the Loan Agreement; provided that if such interest exceeds the maximum amount permitted to be paid under applicable law, then such interest shall be reduced to such maximum permitted amount. 3.             Payments.  The Subsidiary Guarantor covenants and agrees that the Obligations will be paid strictly in accordance with their respective terms regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or any Bank with respect thereto.  Without limiting the generality of the foregoing, the Subsidiary Guarantor’s obligations hereunder with respect to any Obligation shall not be discharged by a payment in a currency other than the currency in which such Obligation is denominated (the “Obligation Currency”) or at a place other than the place specified for the payment of such Obligation, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to the Obligation Currency and transferred to New York, New York, U.S.A., under normal banking procedures does not yield the amount of Obligation Currency due thereunder. I-2 -------------------------------------------------------------------------------- 4.             Taxes.  All payments hereunder shall be made without any counterclaim or set-off, free and clear of, and without reduction for any Indemnified Taxes or Other Taxes, which are now or may hereafter be imposed, levied or assessed by any Governmental Authority on payments hereunder, all of which will be for the account of and paid by the Subsidiary Guarantor.  If for any reason, any such reduction is made or any Taxes are paid by the Administrative Agent or any Bank (except for taxes on income or profits of the Administrative Agent or such Bank), the Subsidiary Guarantor agrees to pay to the Administrative Agent or such Bank such additional amounts as may be necessary to ensure that the Administrative Agent or such Bank receives the same net amount which it would have received had no such reduction been made or Taxes paid. 5.             Consent to Jurisdiction.  The Subsidiary Guarantor agrees that any suit for the enforcement of this Subsidiary Guaranty or any of the other Loan Documents may be brought in the courts of the State of New York sitting in New York, New York or any federal court sitting in New York, New York and consents to the non-exclusive jurisdiction of such courts and the service of process in any such suit being made upon the Subsidiary Guarantor by mail at the address specified herein.  Except to the extent such waiver is expressly prohibited by law, the Subsidiary Guarantor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient court. 6.             Liability of the Subsidiary Guarantor.  The Administrative Agent and the Bank have and shall have the absolute right to enforce the liability of the Subsidiary Guarantor hereunder without resort to any other right or remedy including any right or remedy under any other guaranty or against any other guarantor of any of the Obligations, and the release or discharge of any other guarantor of any Obligations shall not affect the continuing liability of the Subsidiary Guarantor hereunder that has not been released or discharged. 7.             Representations and Warranties; Covenants.  (a) The Subsidiary Guarantor hereby makes and confirms the representations and warranties made on its behalf by the Borrower pursuant to Article V of the Loan Agreement, as if such representations and warranties were set forth herein.  The Subsidiary Guarantor hereby agrees to perform the covenants set forth in Articles VI and VII of the Loan Agreement (to the extent such covenants expressly apply to the Subsidiary Guarantor) as if such covenants were set forth herein.  The Subsidiary Guarantor acknowledges that it is, on a collective basis with the Borrower and all other Subsidiary Guarantors, bound by the financial covenants and other covenants set forth in Article VIII of the Loan Agreement.  The Subsidiary Guarantor hereby confirms that it shall be bound by all acts or omissions of the Borrower pursuant to the Loan Agreement. (b)           The Subsidiary Guarantor represents and warrants that it is a limited liability company, limited partnership, corporation, or other legal entity, as applicable, duly formed or organized, validly existing and in good standing under the laws of the state of its formation or organization; the Subsidiary Guarantor has all requisite limited liability company, limited partnership, corporate or other legal entity power, as applicable, to own its respective properties and conduct its respective business as now conducted and as presently contemplated; and the Subsidiary Guarantor is in good standing as a foreign entity and is duly authorized to do business in the jurisdictions where the properties and Unencumbered Assets owned by it are located and in each other jurisdiction where such qualification is necessary except where a failure to be so qualified in such other jurisdiction would not cause a Material Adverse Change.  The execution, I-3 -------------------------------------------------------------------------------- delivery and performance of this Subsidiary Guaranty and the transactions contemplated hereby (i) are within the authority of the Subsidiary Guarantor, (ii) have been duly authorized by all necessary proceedings on the part of the Subsidiary Guarantor and any member, manager, or other controlling Person thereof, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Subsidiary Guarantor is subject or any judgment, order, writ, injunction, license or permit applicable to the Subsidiary Guarantor, (iv) do not conflict with any provision of the Certificate of Organization or Formation, the limited liability company agreement, articles of incorporation, bylaws, or other authority documents of the Subsidiary Guarantor or the authority documents of any controlling Person thereof, and (v) do not contravene any provisions of, or constitute a Default or Event of Default or a default under or a failure to comply with any term, condition or provision of, any other agreement, instrument, judgment, order, decree, permit, license or undertaking binding upon or applicable to the Subsidiary Guarantor or any of the Subsidiary Guarantor’s properties (except for any such failure to comply under any such other agreement, instrument, judgment, order, decree, permit, license, or undertaking as would not cause a Material Adverse Change) or result in the creation of any mortgage, pledge, security interest, lien, encumbrance or charge upon any of the properties or assets of the Subsidiary Guarantor. (c)           This Subsidiary Guaranty has been duly executed and delivered by and constitutes the legal, valid and binding and enforceable obligations of the Subsidiary Guarantor, subject only to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights and to the fact that the availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. (d)           The execution, delivery and performance by the Subsidiary Guarantor of this Subsidiary Guaranty and the transactions contemplated hereby do not require (i) the approval or consent of any governmental agency or authority other than those already obtained, or (ii) filing with any governmental agency or authority, other than filings which will be made with the SEC when and as required by law. 8.             Effectiveness.  The obligations of the Subsidiary Guarantor under this Subsidiary Guaranty shall continue in full force and effect and shall remain in operation until all of the Obligations shall have been indefeasibly paid in full or otherwise fully satisfied, and shall continue to be effective or be reinstated, as the case may be, if at any time payment or other satisfaction of any of the Obligations is rescinded or must otherwise be restored or returned upon the bankruptcy, insolvency, or reorganization of the Borrower, or otherwise, as though such payment had not been made or other satisfaction occurred.  No invalidity, irregularity or unenforceability of the Obligations by reason of applicable bankruptcy laws or any other similar law, or by reason of any law or order of any government or agency thereof purporting to reduce, amend or otherwise affect the Obligations, shall impair, affect, be a defense to or claim against the obligations of the Subsidiary Guarantor under this Subsidiary Guaranty. 9.             Freedom of Bank to Deal with Borrower and Other Parties.  The Administrative Agent and each Bank shall be at liberty, without giving notice to or obtaining the assent of the Subsidiary Guarantor and without relieving the Subsidiary Guarantor of any liability hereunder, to I-4 -------------------------------------------------------------------------------- deal with the Borrower and with each other party who now is or after the date hereof becomes liable in any manner for any of the Obligations, in such manner as the Administrative Agent or such Bank in its sole discretion deems fit, and to this end the Subsidiary Guarantor gives to the Administrative Agent and each Bank full authority in its sole discretion to do any or all of the following things: (a) extend credit, make loans and afford other financial accommodations to the Borrower at such times, in such amounts and on such terms as the Administrative Agent or such Bank may approve, (b) vary the terms and grant extensions of any of the Obligations, any of the Loan Documents or any other present or future indebtedness or obligation of the Borrower or of any other party to the Administrative Agent or such Bank, (c) grant time, waivers and other indulgences in respect thereof, (d) vary, exchange, release or discharge, wholly or partially, or delay in or abstain from perfecting and enforcing, or impair, any security or guaranty or other means of obtaining payment of any of the Obligations which the Administrative Agent or any Bank now has or may acquire after the date hereof, (e) accept partial payments from the Borrower or any such other party, (f) release or discharge, wholly or partially, any endorser or guarantor, and (g) compromise or make any settlement or other arrangement with the Borrower or any such other party. 10.           Unenforceability of Obligations Against Borrower; Invalidity of Security or Other Guaranties.  If for any reason the Borrower has no legal existence or is under no legal obligation to discharge any of the Obligations undertaken or purported to be undertaken by it or on its behalf, or if any of the moneys included in the Obligations have become irrecoverable from the Borrower by operation of law or for any other reason, this Subsidiary Guaranty shall nevertheless be binding on the Subsidiary Guarantor to the same extent as if the Subsidiary Guarantor at all times had been the principal debtor on all such Obligations.  This Subsidiary Guaranty shall be in addition to any other guaranty or other security for the Obligations, and it shall not be prejudiced or rendered unenforceable by the invalidity of any such other guaranty or security. 11.           Waivers by Subsidiary Guarantor.  The Subsidiary Guarantor waives notice of acceptance hereof, notice of any action taken or omitted by the Administrative Agent or any Bank in reliance hereon, and any requirement that the Administrative Agent or any Bank be diligent or prompt in making demands hereunder, giving notice of any default by the Borrower or asserting any other rights of the Administrative Agent or any Bank hereunder.  The Subsidiary Guarantor also irrevocably waives, to the fullest extent permitted by law, all defenses in the nature of suretyship that at any time may be available in respect of the Subsidiary Guarantor’s obligations hereunder by virtue of any statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect. 12.           Restriction on Subrogation and Contribution Rights.  Notwithstanding any other provision to the contrary contained herein or provided by applicable law, unless and until all of the Obligations have been indefeasibly paid in full in cash and satisfied in full, the Subsidiary Guarantor hereby irrevocably defers and agrees not to enforce any and all rights it may have at any time (whether arising directly or indirectly, by operation of law or by contract) to assert any claim against the Borrower on account of payments made under this Subsidiary Guaranty, including, without limitation, any and all rights of or claim for subrogation, contribution, reimbursement, exoneration and indemnity, and further waives any benefit of and any right to participate in any collateral which may be held by the Administrative Agent or any Bank or any affiliate of the Administrative Agent or any Bank.  In addition, the Subsidiary Guarantor will not claim any set-off I-5 -------------------------------------------------------------------------------- or counterclaim against the Borrower in respect of any liability it may have to the Borrower unless and until all of the Obligations have been indefeasibly paid in full in cash and satisfied in full. Subject to the foregoing and the indefeasible performance and payment in full of the Obligations, the Subsidiary Guarantor acknowledges that all other guarantors of any of the Obligations shall have contribution rights against the Subsidiary Guarantor in accordance with applicable law and in accordance with each such Person’s benefits received under the Loan Agreement and in respect of the Loans and the Letters of Credit. 13.           Demands.  Any demand on or notice made or required to be given pursuant to this Subsidiary Guaranty shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, return receipt requested, sent by overnight courier, or sent by telegraph, telecopy, telefax or telex and confirmed by delivery via courier or postal service, addressed as follows: (a)           if to the Subsidiary Guarantor, at AvalonBay Communities, Inc. 100 Bridgeport Avenue, Suite 258 Shelton, CT 06484 or at such other address for notice as the Subsidiary Guarantor shall last have furnished in writing to the Administrative Agent; (b)           if to the Administrative Agent, at Bank of America, N.A. 777 Main Street Hartford, CT  06115 Attn:                                      or at such other address for notice as the Administrative Agent shall last have furnished in writing to the Subsidiary Guarantor; and (c)           if to any Bank, at such Bank’s address as set forth in its Administrative Questionnaire. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to the party to which it is directed, at the time of the receipt thereof by such party or the confirmed transmission of such facsimile or (ii) if sent by registered or certified first-class mail, postage prepaid, return receipt requested, on the fifth Business Day following the mailing thereof. 14.           Amendments, Waivers, Etc.  No provision of this Subsidiary Guaranty can be changed, waived, discharged or terminated except by an instrument in writing signed by the Administrative Agent (acting with the requisite consent of the Banks as provided in the Loan Agreement) and the Subsidiary Guarantor expressly referring to the provision of this Subsidiary I-6 -------------------------------------------------------------------------------- Guaranty to which such instrument relates; and no such waiver shall extend to, affect or impair any right with respect to any Obligation which is not expressly dealt with therein.  No course of dealing or delay or omission on the part of the Administrative Agent or the Banks or any of them in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. 15.           Further Assurances.  The Subsidiary Guarantor at its sole cost and expense agrees to do all such things and execute, acknowledge and deliver all such documents and instruments as the Administrative Agent from time to time may reasonably request in order to give full effect to this Subsidiary Guaranty and to perfect and preserve the rights and powers of the Administrative Agent and the Banks hereunder. 16.           Miscellaneous Provisions.  This Subsidiary Guaranty shall be governed by and construed in accordance with the laws of the State of New York and shall inure to the benefit of the Administrative Agent, each Bank and their respective successors in title and assigns permitted under the Loan Agreement, and shall be binding on the Subsidiary Guarantor and the Subsidiary Guarantor’s successors in title, assigns and legal representatives, provided that the Subsidiary Guarantor may not assign, transfer or delegate any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and all of the Banks (and any attempted such assignment without such consent shall be null and void).  The rights and remedies herein provided are cumulative and not exclusive of any remedies provided by law or any other agreement.  The invalidity or unenforceability of any one or more sections of this Subsidiary Guaranty shall not affect the validity or enforceability of its remaining provisions.  Captions are for ease of reference only and shall not affect the meaning of the relevant provisions.  The meanings of all defined terms used in this Subsidiary Guaranty shall be equally applicable to the singular and plural forms of the terms defined. 17.           WAIVER OF JURY TRIAL.  EXCEPT TO THE EXTENT SUCH WAIVER IS EXPRESSLY PROHIBITED BY LAW, THE SUBSIDIARY GUARANTOR HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY JURISDICTION AND IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS SUBSIDIARY GUARANTY, THE OBLIGATIONS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, AMONG THE SUBSIDIARY GUARANTOR, THE BORROWER, THE ADMINISTRATIVE AGENT AND/OR THE BANKS.  THIS WAIVER OF JURY TRIAL SHALL BE EFFECTIVE FOR EACH AND EVERY DOCUMENT EXECUTED BY THE SUBSIDIARY GUARANTOR, THE ADMINISTRATIVE AGENT OR THE BANKS AND DELIVERED TO THE ADMINISTRATIVE AGENT OR THE BANKS, AS THE CASE MAY BE, WHETHER OR NOT SUCH DOCUMENTS SHALL CONTAIN SUCH A WAIVER OF JURY TRIAL.  THE SUBSIDIARY GUARANTOR CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE. [Remainder of Page Intentionally Left Blank] I-7 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Subsidiary Guarantor has executed and delivered this Subsidiary Guaranty as of the date first above written.   [SUBSIDIARY GUARANTOR]                       By:             Name:         Title:                       I-8 --------------------------------------------------------------------------------

  Exhibit 10.1 DealerTrack Holdings, Inc. Form of Restricted Stock Agreement      THIS AGREEMENT, dated [                    ], [200     ] (the “Award Date”), is made between DealerTrack Holdings, Inc., a Delaware corporation hereinafter referred to as the “Company,” and [                    ], an employee of the Company or a Subsidiary of the Company, hereinafter referred to as the “Participant.” 1. Definitions. All capitalized terms used in this Agreement without definition shall have the meanings ascribed in the Company’s 2005 Incentive Award Plan, as amended from time to time (the “Plan”). 2. Award of Restricted Stock.      (a) Award. In consideration of the Participant’s agreement to remain in the employ of the Company, and for other good and valuable consideration which the Committee has determined exceeds the aggregate par value of the shares of Common Stock subject to the Award (as defined below), as of the Award Date, the Company issues to the Participant the Award described in this Agreement (the “Award”). The number of shares of Restricted Stock subject to the Award is set forth on the signature page hereof.      (b) Restricted Stock Form. At the sole discretion of the Committee, the Restricted Stock will be issued in either (i) uncertificated form, with the Restricted Stock recorded in the name of the Participant in the books and records of the Company’s transfer agent, and upon the lapsing or removal of all Restrictions, the Company shall cause certificates representing the shares to be issued to the Participant; or (ii) certificate form pursuant to the terms of Sections (3)(d) and (5).      (c) Plan. The Award granted hereunder is subject to the terms and provisions of the Plan, including without limitation, Article 11 thereof. 3. Restrictions.      (a) Forfeiture. Any Award which is not vested upon the Participant’s termination of employment or January 31, 2010 (the “Vesting Date”), whichever is earlier, shall thereupon be forfeited immediately and without any further action by the Company. For purposes of this Agreement, “Restrictions” shall mean the restrictions on sale or other transfer set forth in Section 6 and the exposure to forfeiture set forth in this Section 3(a).      (b) Vesting and Lapse of Restrictions. Subject to Sections 3(a) and 3(c), the Award shall vest and Restrictions shall lapse with respect to the number of shares of Restricted Stock determined below, provided that the Participant remains continuously employed in active service by the Company from the Award Date through the Vesting Date, and provided, further, that the Committee shall make a certification no later than the Vesting Date as to the extent to which the performance objectives set forth below have been attained:           (i) 16.67% of shares of Restricted Stock subject to the Award (rounded down to the next whole number of shares), if the Company’s EBITDA attains at least $[                    ] by December 31, 2007;           (ii) an additional 16.67% of shares of Restricted Stock subject to the Award (rounded down to the next whole number of shares), if the Company’s EBITDA attains at least $[                    ] by December 31, 2008;           (iii) an additional 16.67% of shares of Restricted Stock subject to the Award (rounded down to the next whole number of shares), if the Company’s EBITDA attains at least $[                    ] by December 31, 2009;           (iv) an additional 16.67% of shares of Restricted Stock subject to the Award (rounded down to the next whole number of shares), if the Aggregate Value of the Company’s outstanding Stock on December 31, 2007 is at least $[                    ];           (v) an additional 16.67% of shares of Restricted Stock subject to the Award (rounded down to the next whole number of shares), if the Aggregate Value of the Company’s outstanding Stock on December 31, 2008 is at least $[                    ]; and           (vi) an additional 16.67% of shares of Restricted Stock subject to the Award (rounded down to the next whole number of shares), if   --------------------------------------------------------------------------------   the Aggregate Value of the Company’s outstanding Stock on December 31, 2009 is at least $[                    ].           (vii) If any EBITDA or market capitalization goal set forth above is not achieved by a measurement date specified above, but the EBITDA or market capitalization goal of a later measurement date is met, then, subject to the Participant’s employment on the Vesting Date, the restrictions shall lapse with respect to the specified shares on the later measurement date as well as the specified shares on the earlier measurement date.      (c) For purposes hereof, “EBITDA” shall mean earnings before interest, taxes, depreciation and amortization. If prior to December 31, 2009, the Company acquires a new business from a third party (a “New Business”), then the Company’s EBITDA for the calendar year in which the New Business is acquired, shall be increased by the Pro-Rata New Business Additional EBITDA and each subsequent calendar year through 2009, shall be increased by the New Business Additional EBITDA. “New Business Additional EBITDA” shall mean the EBITDA for the New Business for the trailing 4 complete calendar quarters immediately preceding the acquisition. “Pro-Rata New Business Additional EBITDA” shall mean New Business EBITDA multiplied by a fraction, the numerator of which is the number of whole months remaining in the calendar year subsequent to the date the New Business is acquired and the denominator of which is 12.      (d) For purposes hereof, the Aggregate Value of the Company’s outstanding Stock on a measurement date shall be determined by multiplying the number of shares of Stock outstanding on such date by the Market Value. The Market Value as of any measurement date shall be based on the average closing market price of the Stock for the ten consecutive trading days immediately preceding the measurement date.      (e) Acceleration of Vesting.           (i) Notwithstanding Sections 3(a) and 3(b): Upon the occurrence of a Change in Control of the Company prior to the Vesting Date, the restrictions shall automatically lapse with respect to all shares of Restricted Stock.           (ii) Notwithstanding Sections 3(a) and 3(b), if the Participant’s employment with the Company terminates before the Vesting Date on account of death or Disability, the restrictions shall automatically lapse with respect to a number of shares of Restricted Stock determined by multiplying the number of shares of Restricted Stock that is the subject of this Award by a fraction, the numerator being the number of months (including partial) from the Award Date to the date of termination of employment and the denominator being 41; provided, however, that the Committee reserves the right to accelerate vesting in full in such an event. Disability for purposes hereof shall mean a physical or mental impairment that substantially limits a major life activity of the Participant and renders the Participant unable to perform the essential functions of his position with the Company even with reasonable accommodation (that does not impose an undue hardship on the Company) and which has lasted at least (i) 60 consecutive days, (ii) the balance of the Participant’s entitlement to leave, if any, under the Family and Medical Leave Act, or similar statute, or (iii) the balance of any election period under the Company’s long term disability program (without regard to whether Participant is awarded benefits under such program), whichever is longer.      (f) Legend. Certificates representing shares of Restricted Stock issued pursuant to this Agreement shall, until all Restrictions lapse or shall have been removed and new certificates are issued pursuant to Section 3(g), bear the following legend: “THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VESTING REQUIREMENTS AND MAY BE SUBJECT TO FORFEITURE UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT, DATED [                    ] [     ], [200     ], BY AND BETWEEN DEALERTRACK HOLDINGS, INC. AND THE REGISTERED OWNER OF SUCH SHARES, AND SUCH SHARES MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES, EXCEPT PURSUANT TO THE PROVISIONS OF SUCH AGREEMENT.”      (g) Issuance of Certificates; Tax Withholding.           (i) Subject to Section 3(g)(ii), upon the vesting of the shares of Restricted Stock as provided in Section 3(b), the Company shall cause new certificates to be issued with respect to such vested shares and delivered to the Participant or his legal representative, free from the legend provided for in 2 --------------------------------------------------------------------------------   Section 3(d) and any of the other Restrictions. Such vested shares shall cease to be considered Restricted Stock subject to the terms and conditions of this Agreement.           (ii) Notwithstanding Section 3(g)(i), no such new certificate shall be delivered to the Participant or his legal representative unless and until the Participant or his legal representative shall have paid to the Company the full amount of all federal and state withholding or other taxes applicable to the taxable income of Participant resulting from the grant of Restricted Stock or the lapse or removal of the Restrictions.      (h) Section 83(b) Election. Participant understands that Section 83(a) of the Code taxes as ordinary income the difference between the amount, if any, paid for the shares of Common Stock and the Fair Market Value of such shares at the time the Restrictions on such shares lapse. Participant understands that, notwithstanding the preceding sentence, Participant may elect to be taxed at the time of the Award Date, rather that at the time the Restrictions lapse, by filing an election under Section 83(b) of the Code (an “83(b) Election”) with the Internal Revenue Service within 30 days of the Award Date. In the event Participant files an 83(b) Election, Participant will recognize ordinary income in an amount equal to the difference between the amount, if any, paid for the shares of Common Stock and the Fair Market Value of such shares as of the Award Date. Participant further understands that an additional copy of such 83(b) Election form should be filed with his federal income tax return for the calendar year in which the date of this Agreement falls. Participant acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to the award of Restricted Stock hereunder, and does not purport to be complete. PARTICIPANT FURTHER ACKNOWLEDGES THAT THE COMPANY IS NOT RESPONSIBLE FOR FILING THE PARTICIPANT’S 83(b) ELECTION, AND THE COMPANY HAS DIRECTED PARTICIPANT TO SEEK INDEPENDENT ADVICE REGARDING THE APPLICABLE PROVISIONS OF THE CODE, THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH PARTICIPANT MAY RESIDE, AND THE TAX CONSEQUENCES OF PARTICIPANT’S DEATH. 5. Escrow. The Secretary of the Company or such other escrow holder as the Committee may appoint shall retain physical custody of the certificates representing Restricted Stock until all of the Restrictions lapse or shall have been removed; in no event shall the Participant retain physical custody of any certificates representing unvested Restricted Stock issued to him. 6. Restricted Stock Not Transferable. No Restricted Stock or any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 6 shall not prevent transfers by will or by applicable laws of descent and distribution. 7. Rights as Stockholder. Except as otherwise provided herein, upon delivery of the shares of Restricted Stock to the escrow holder pursuant to Section 5, the Participant shall have all the rights of a stockholder with respect to said shares, subject to the Restrictions herein, including the right to vote the shares and to receive all dividends or other distributions paid or made with respect to the shares of Restricted Stock; provided, however, that at the discretion of the Company, and prior to the delivery of shares of Restricted Stock, the Participant may be required to execute a stockholders agreement in such form as shall be determined by the Company. 8. Not a Contract of Employment. Nothing in this Agreement or in the Plan shall confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries or shall interfere with or restrict in any way the rights of the Company or its Subsidiaries, which are hereby expressly reserved, to discharge the Participant at any time for any reason whatsoever, with or without cause, except as may otherwise be provided by any written agreement entered into by and between the Company and the Participant. 9. Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws. 10. Conformity to Securities Laws. The Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any and 3 --------------------------------------------------------------------------------   all regulations and rules promulgated thereunder by the Securities and Exchange Commission, including without limitation Rule 16b-3 under the Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Awards are granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. 11. Amendment, Suspension and Termination. The Awards may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee or the Board, provided, that, except as may otherwise be provided by the Plan, neither the amendment, suspension nor termination of this Agreement shall, without the consent of the Participant, alter or impair any rights or obligations under any Award. 12. Notices. Notices required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the Participant to his address shown in the Company records, and to the Company at its principal executive office. 13. Conflict with Employment Agreement. In the event of any conflict between this Agreement and the Participant’s Employment Agreement with the Company, including any acceleration provisions that differ in terms, this Agreement shall control. For great clarity, this Award is not subject to accelerated vesting in any prior Employment Agreement.  * * * * *       The Participant represents that he has read this Agreement and the Plan and is familiar with the terms and provisions of each. The Participant acknowledges that the Award is issued pursuant to, and is subject to the terms and conditions of, the Plan, and the Participant will be bound by the terms of the Plan as if it were set forth verbatim in this Agreement. The Participant agrees to comply with all rules the Company may establish with respect to the Plan. The Participant further acknowledges and agrees that this Agreement (and the Plan) constitutes the entire agreement between the parties with respect to the Award and that this Agreement (and the Plan) supersedes any and all prior agreements, whether written or oral, between the parties with respect to the Award.      By execution of this Agreement, the Participant agrees to comply with the terms and conditions of the Company’s Stock Ownership and Retention Program, as in effect from time to time, and acknowledges that failure to comply with the Stock Ownership and Retention Program may result in penalties to the Participant.      IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first set forth above.                   DEALERTRACK HOLDINGS, INC.       PARTICIPANT                                         By:                                   Name:                 Title:                             Residence Address:                 «STREET1»                 «STREET2»                 «CITY», «STATE» «ZIP»                 «COUNTRY»                                   Aggregate number of shares of                 Restricted Stock subject to the                 Award:                          4

  Exhibit 10.1 [PRO-DEX, INC. LOGO] October 18, 2006 Dear Patrick, This will serve as a clarification of the resignation memo from you to the Company's Board of Directors dated April 12, 2006.  You will be employed in the position of Executive Vice President Business Development, to serve as Chief Business Development Officer with such other duties as may be assigned to you by the Company's Chief Executive Officer.  You will report directly to the Company's Chief Executive Officer.  This position will be based out of our Santa Ana, California office.  Your Indemnification Agreement and Directors & Officers Insurance with us will continue to be in effect. Your official start date will be effective as of April 12, 2006.  Your compensation package will include a bi-weekly salary of $6,923.08 which equals $180,000 per year.  This is an Exempt position.  You will retain your current PTO (paid time off) accrual and continue to accrue PTO per the schedule in the employee handbook.  You will continue your eligibility to participate in benefits including health, dental and life insurance and to participate in our optional employee benefits.  In the event you are terminated involuntarily by the Company without "cause" as defined below, the Company shall pay to you a severance payment equal four (4) times your then current monthly base salary less applicable withholding as required by law.  Such payment shall be made in equal incremental payments, consistent with the Company's usual payroll payment periods, over a period of four (4) months immediately following your last day of employment with the Company.  As used herein, the term "cause" means (i) your willful breach or gross neglect of the duties and obligations required of you either expressly or impliedly by the terms of this letter agreement; or (ii) your commission of fraud, embezzlement or misappropriation, involving the Company whether or not a criminal or civil charge is filed in connection with such activity. By accepting this offer, you again certify your understanding that your employment will be on an at-will basis, and that neither you nor the Company has entered into a contract regarding the terms or the duration of your employment.  Please sign and date both copies of this letter to indicate your acceptance of this offer and retain one copy for your records and return the second copy to us.   -1- -------------------------------------------------------------------------------- [PRO-DEX, INC. LOGO] Patrick Johnson October 18, 2006 Page two of two In consideration of this letter agreement, you release and forever discharge Pro-Dex, and each of its respective employees, shareholders, officers, directors, agents, attorneys, or affiliated corporations or organizations, and Pro-Dex releases and forever discharges you from any and all claims, whether or not now known by you or by Pro-Dex, up to the date of this letter.  Claims released by you hereunder include, but are not limited to, any claims relating to your compensation (including wage, salary, bonus, commission, incentive, vacation, medical insurance benefits, or other compensation); rights arising out of alleged violations of any contracts, express or implied; any covenant of good faith and fair dealing, express or implied; any tort; and, without limitation, any local, state, or federal statute, rule, regulation, ordinance, law, or constitutional provision, governing employment, employment termination, discrimination or harassment in employment, or the payment of wages or benefits, but do not include wages or benefits currently payable in the ordinary course of  your employment as provided herein. You and Pro-Dex each understand and agree that you and it are making a mutual general release of all claims, and that this release is intended to encompass all known and unknown, foreseen and unforeseen claims which you or any of your heirs, legal representatives, successors, or assigns may have against Pro-Dex or any other related person or entity, and all known and unknown, foreseen and unforeseen claims which Pro-Dex may have against you.  You and Pro-Dex each also expressly agree that you and it waive any rights either of you may have under Section 1542 of the California Civil Code, which reads:  "§ 1542.  (General Release - Claims Extinguished.)  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." Signed the date first set forth above. Sincerely,    /s/ Mark Murphy                                     /s/ Patrick Johnson                             Mark Murphy, Chief Executive Officer Patrick Johnson Pro-Dex, Inc.         -2- --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.4 BRESLER & REINER, INC. 2006 STOCK APPRECIATION RIGHTS INCENTIVE PLAN ARTICLE I PURPOSE         The purposes of this Bresler & Reiner, Inc. 2006 Stock Appreciation Rights Incentive Plan (the "Plan") are (a) to enhance the Company's ability to attract and retain the services of qualified employees, officers and directors (including non-employee officers and directors), and consultants and other service providers upon whose judgment, initiative and efforts the successful conduct and development of the Company's business largely depends, and (b) to provide additional incentives to such persons to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company. ARTICLE II DEFINITIONS         For purposes of this Plan, the following terms shall have the following meanings:         2.1   "Affiliated Company" means any "parent corporation" or "subsidiary corporation" of the Company, whether now existing or hereafter created or acquired, as those terms are defined in Sections 424(e) and 424(f) of the Code, respectively.         2.2   "Award" shall mean any award under this Plan of any Stock Appreciation Right. All Awards shall be confirmed by, and subject to the terms of, a written agreement executed by the Company and the Participant (an "Award Agreement").         2.3   "Base Value" shall mean the Fair Market Value of a share of Common Stock as of the date of grant of a Stock Appreciation Right, as set forth in the Award Agreement.         2.4   "Board" shall mean the Board of Directors of the Company.         2.5   "Cause" shall mean, with respect to a Participant's Termination of Employment or engagement, unless otherwise determined by the Committee at grant, or, if no rights of the Participant are reduced, thereafter: (i) in the case where there is no employment agreement or service agreement in effect between the Company and the Participant at the time of the grant of the Award (or where there is such an agreement but it does not define "cause" (or words of like import)), termination due to a Participant's dishonesty, fraud, insubordination, willful misconduct, or refusal to perform services (for any reason other than illness or incapacity; or (ii) in the case where there is an employment agreement or service agreement in effect between the Company and the Participant at the time of the grant of the Award that defines "cause" (or words of like import), as defined under such agreement.         2.6   "Code" shall mean the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any successor provision and any Treasury regulation thereunder.         2.7   "Committee" shall mean the Compensation Committee of the Board, which shall consist solely of two or more Independent Directors appointed by and holding office at the pleasure of the Board, each of whom is both a "non-employee director" as defined by Rule 16b-3. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board.         2.8   "Common Stock" shall mean the Company's common stock, par value $0.001 per share. --------------------------------------------------------------------------------         2.9   "Company" shall mean Bresler & Reiner, Inc., a Delaware corporation.         2.10 "Disability" shall mean total and permanent disability, as defined in Section 22(e)(3) of the Code.         2.11 "Distributable Amount" shall mean, as of the date of exercise of a Stock Appreciation Right, an amount in cash per share equal to the excess of the Fair Market Value as of the date of exercise over the Base Value.         2.12 "Eligible Employees" shall mean the employees of the Company and Affiliated Companies who are eligible pursuant to Article V to be granted Awards under this Plan.         2.13 "Fair Market Value" for purposes of this Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, shall mean, as of any given date, the value of one share of Common Stock, determined as follows:         (a)   If the Common Stock is then listed or admitted to trading on the Nasdaq National Market System or a stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of valuation on the Nasdaq National Market System or principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no closing sale price is quoted or no sale takes place on such day, then the Fair Market Value shall be the average of the closing sale prices of the Common Stock on the Nasdaq National Market system or such exchange for the thirty trading days prior to the date of valuation.         (b)   If the Common Stock is not then listed or admitted to trading on the Nasdaq National Market System or a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of the closing bid prices of the Common Stock in the over-the-counter market for the thirty trading days prior to the date of valuation.         (c)   If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market Value shall be determined by the Committee in good faith using any reasonable method of evaluation, which determination shall be conclusive and binding on all interested parties         2.14 "Participant" shall mean an Eligible Employee or Service Provider to whom an Award has been made pursuant to this Plan.         2.15 "Retirement" with respect to a Participant's Termination of Employment shall mean a Termination of Employment without Cause from the Company by a Participant who has attained (i) at least age sixty-five (65); or (ii) such earlier date after age fifty-five (55) as may be approved by the Committee with regard to such Participant.         2.16 "Section 162(m) of the Code" shall mean Section 162(m) of the Code and any Treasury regulations thereunder.         2.17 "Section 162(m) Participant" shall mean the Participant whose compensation for a fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code, as determined by the Committee in its sole discretion.         2.18 "Stock Appreciation Right" shall mean the right pursuant to an Award granted under Article VI, to receive an amount in cash equal to the Distributable Amount.         2.19 "Service Provider" means a consultant or other person who provides services to the Company or an Affiliated Company who the Committee authorizes to become a Participant in the Plan.         2.20 "Subsidiary" shall mean any corporation that is defined as a subsidiary corporation in Section 424(f) of the Code. 2 --------------------------------------------------------------------------------         2.21 "Termination of Employment," except as provided in the next sentence, shall mean a termination of employment or service (for reasons other than a military or personal leave of absence granted by the Company) of a Participant as an employee of or Service Provider to the Company or an Affiliated Company; or (ii) when an entity which is employing or retaining a Participant ceases to be an Affiliated Company, unless the Participant thereupon becomes employed by the Company or another Affiliated Company. The Committee may otherwise define Termination of Employment in the Award or, if no rights of the Participant are reduced, may otherwise define Termination of Employment thereafter, including, but not limited to, defining Termination of Employment with regard to entities controlling, under common control with or controlled by the Company rather than just the Company and its Affiliated Companies.         2.22 "Transfer" or "Transferred" shall mean anticipate, alienate, attach, sell, assign, pledge, encumber, charge or otherwise transfer. ARTICLE III ADMINISTRATION         3.1   ADMINISTRATION. The Plan shall be administered and interpreted by the Committee. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under this Plan except with respect to matters which under Rule 16b-3, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee.         3.2   AWARDS. The Committee shall have full authority to grant Stock Appreciation Rights pursuant to the terms of this Plan:         (a)   to select the Eligible Employees and/or Service Providers to whom Stock Appreciation Rights may from time to time be granted hereunder;         (b)   to determine whether and to what extent Stock Appreciation Rights are to be granted hereunder to one or more Eligible Employees and/or Service Providers;         (c)   to determine, in accordance with the terms of this Plan, the number of shares of Common Stock to be covered by each Award to a Participant hereunder;         (d)   to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder to a Participant;         (e)   to modify, extend or renew an Award, subject to Article VIII hereof; and         (f)    to grant Awards under the Plan as a conversion from, and replacement of, comparable rights held by employees of another entity who become Eligible Employees of a Affiliated Company as the result of a merger or consolidation of the employing entity with a Affiliated Company, or as the result of the acquisition by the Company or a Affiliated Company of property or stock of the employing corporation. The Company may direct that replacement Awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances.         3.3   AWARD AGREEMENT. Each Stock Appreciation Right shall be evidenced by a written Award Agreement, which shall be executed by the Participant and an authorized officer of the Company and which shall contain such terms and conditions as the Committee shall determine, consistent with this Plan.         3.4   GUIDELINES. Subject to Article VIII hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan and perform all acts, including the delegation of its administrative responsibilities, as it shall, from time to 3 -------------------------------------------------------------------------------- time, deem advisable; to construe and interpret the terms and provisions of this Plan and any Award issued under this Plan (and any agreements relating thereto); and to otherwise supervise the administration of this Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to carry this Plan into effect. The Committee may adopt special guidelines and provisions for persons who are residing in, or subject to the taxes of, countries other than the United States to comply with applicable tax and securities laws.         3.5   DECISIONS FINAL. Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company or the Committee (or any of its members) arising out of or in connection with the Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective heirs, executors, administrators, successors and assigns. The Committee shall not be bound to any standards of uniformity or similarity of action, interpretation or conduct in the discharge of its duties hereunder, regardless of the apparent similarity of the matters coming before it.         3.6   RELIANCE ON COUNSEL. The Company or the Committee may consult with legal counsel, who may be counsel for the Company or other counsel, with respect to its obligations or duties hereunder, or with respect to any action or proceeding or any question of law, and shall not be liable with respect to any action taken or omitted by it in good faith pursuant to the advice of such counsel.         3.7   PROCEDURES. The Board may designate one of the members of the Committee as chairman and the Committee shall hold meetings, subject to the By-Laws of the Company, at such times and places as it shall deem advisable. A majority of the Committee members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by all Board members in accordance with the By-Laws of the Company shall be fully effective as if it had been made by a vote at a meeting duly called and held. The Committee shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.         3.8   DESIGNATION OF CONSULTANTS—LIABILITY.         (a)   The Board may designate employees of the Company and professional advisors to assist the Committee in the administration of the Plan and may grant authority to employees to execute agreements or other documents on behalf of the Committee.         (b)   The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee or Board in the engagement of any such counsel, consultant or agent shall be paid by the Company. The Committee, its members and any person designated pursuant to paragraph above shall not be liable for any action or determination made in good faith with respect to the Plan.         (c)   To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under it. To the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of the Company and to the extent not covered by insurance, each employee of the Company and member or former member of the Board or of the Committee shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in 4 -------------------------------------------------------------------------------- connection with the Plan, except to the extent arising out of such officer's, member's or former member's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the employees, officers, directors or members or former officers, directors or members may have under applicable law or under the Certificate of Incorporation or By-Laws of the Company or Affiliated Company. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Awards granted to him or her under this Plan. ARTICLE IV SHARE AND OTHER LIMITATIONS         4.1   SHARES.         (a)   The aggregate number of shares of Common Stock which may be used for reference purposes under this Plan or with respect to which other Awards may be granted shall not exceed 280,000 shares (subject to any increase or decrease pursuant to Section 4.2).         (b)   If any Stock Appreciation Right granted under this Plan expires, terminates or is canceled for any reason without having been exercised in full, the number of shares of Common Stock underlying any unexercised Stock Appreciation Right shall again be available for the purposes of Awards under the Plan.         (c)   In the event Awards are granted to employees pursuant to Section 3.2(g), the aggregate number of shares of Common Stock available under the Plan for Awards shall be increased by the number of shares of Common Stock which may be used for reference with respect to those Awards granted pursuant to Section 3.2(g).         4.2   CHANGES.         (a)   The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company or its Affiliated Companies, any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting Common Stock, the dissolution or liquidation of the Company or its Affiliated Companies, any sale or transfer of all or part of its assets or business or any other corporate act or proceeding.         (b)   In the event of any such change in the capital structure or business of the Company by reason of any stock dividend or distribution, stock split or reverse stock split, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, distribution with respect to its outstanding Common Stock or capital stock other than Common Stock, sale or transfer of all or part of its assets or business, reclassification of its capital stock, or any similar change affecting the Company's capital structure or business and the Board determines an adjustment is appropriate under the Plan, then the aggregate number and kind of shares which thereafter may be used for reference under this Plan and the initial Fair Market Value thereof shall be appropriately adjusted consistent with such change in such manner as the Board may deem equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, Participants under this Plan or as otherwise necessary to reflect the change, and any such adjustment determined by the Board shall be binding and conclusive on the Company and all Participants and employees and their respective heirs, executors, administrators, successors and assigns.         (c)   In the event of a merger or consolidation in which the Company is not the surviving entity or in the event of any transaction that results in the acquisition of substantially all of the 5 -------------------------------------------------------------------------------- Company's outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all of the Company's assets (all of the foregoing being referred to as "Acquisition Events"), then the Board may, in its sole discretion, terminate all outstanding Stock Appreciation Rights, effective as of the date of the Acquisition Event, by delivering notice of termination to each such Participant at least twenty (20) days prior to the date of consummation of the Acquisition Event; provided, that during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, each such Participant shall have the right to exercise in full all of his or her Stock Appreciation Rights that are then outstanding (without regard to any limitations on exercisability otherwise contained in the Award Agreements) but contingent on occurrence of the Acquisition Event, and, provided that, if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise shall be null and void.         (d)   If an Acquisition Event occurs, to the extent the Board does not terminate the outstanding Stock Appreciation Rights pursuant to Section 4.2(c), then the provisions of Section 4.2(b) shall apply.         (e)   With respect to Stock Appreciation Rights which are granted to Section 162(m) Participants, no adjustment or action described in this Section 4.2 or in any other provision of this Plan shall be authorized to the extent that such adjustment or action would result in short-swing profits liability under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the Committee (or the Board, in the case of Stock Appreciation Rights granted to Independent Directors) determines that the Stock Appreciation Right is not to comply with such exemptive conditions. ARTICLE V ELIGIBILITY         The employees of the Company and of each Affiliated Company, regardless of title, as determined by the Board, and Service Providers, shall be eligible to be granted Stock Appreciation Rights under this Plan. ARTICLE VI STOCK APPRECIATION RIGHTS         6.1   TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time by the Committee, including Article X and the following:         (a)   The term of each Stock Appreciation Right shall be fixed by the Committee, but shall not be greater than ten (10) years after the date the Stock Appreciation Right is granted.         (b)   Stock Appreciation Rights shall be exercisable immediately upon grant; provided, that if at the time of exercise the Awardee is a Section 162(m) Participant, then the SAR may not be exercised for a number of shares of Common Stock that would yield a Distributable Amount that, when added to other compensation paid by the Company to the Awardee in the same fiscal year would exceed the limit on deductible compensation under Section 162(m) of the Code.         (c)   Stock Appreciation Rights may be exercised in whole or in part at any time during the term, by giving written notice of exercise to the Company specifying the number of Stock Appreciation Rights to be exercised. 6 --------------------------------------------------------------------------------         (d)   Upon the exercise of a Stock Appreciation Right a Participant shall be entitled to receive, for each right exercised, an amount in cash equal to the Distributable Amount per share of Common Stock.         6.2   LIMITED STOCK APPRECIATION RIGHTS. The Committee may, in its sole discretion, grant Stock Appreciation Rights either as a general Stock Appreciation Right or as a Limited Stock Appreciation Right. Limited Stock Appreciation Rights may be exercised only upon the occurrence of such event as the Board may, in its sole discretion, designate at the time of grant or thereafter. Upon the exercise of Limited Stock Appreciation Rights, except as otherwise provided in an Award Agreement, the Participant shall receive in cash an amount equal to the amount set forth in Section 6.1(d).         6.3   TERMINATION OF EMPLOYMENT. The following rules apply with regard to Stock Appreciation Rights upon the Termination of Employment of a Participant:         (a)   If a Participant's Termination of Employment is by reason of death, any Stock Appreciation Right held by such Participant, unless otherwise determined by the Committee at grant or if no rights of the Participant's estate are reduced, thereafter, may be exercised, to the extent exercisable at the Participant's death, by the legal representative of the estate, at any time within a period of one (1) year from the date of such death or until the expiration of the stated term of such Stock Appreciation Right, whichever period is the shorter.         (b)   If a Participant's Termination of Employment is by reason of Disability, any Stock Appreciation Right held by such Participant, unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, may be exercised, to the extent exercisable at the Participant's termination, by the Participant (or the legal representative of the Participant's estate if the Participant dies after termination) at any time within a period of one (1) year from the date of such termination or until the expiration of the stated term of such Stock Appreciation Right, whichever period is the shorter.         (c)   If a Participant's Termination of Employment is by reason of Retirement, any Stock Appreciation Right held by such Participant, unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, shall be fully vested and may thereafter be exercised by the Participant at any time prior to the expiration of the stated term of such right.         (d)   If a Participant's Termination of Employment is by involuntary termination without Cause, any Stock Appreciation Right held by such participant, unless otherwise determined by the Committee at grant or if no rights of the participant are reduced, thereafter, may be exercised, to the extent exercisable at termination, by the Participant at any time within a period of ninety (90) days from the date of such termination or until the expiration of the stated term of such right, whichever period is shorter.         (e)   Unless otherwise determined by the Committee at grant, or, if no rights of the Participant are reduced thereafter, if a Participant's Termination of Employment is for any reason other than death, Disability, Retirement or involuntary termination without Cause, any Stock Appreciation Right held by such Participant shall thereupon terminate or expire as of the date of termination, provided, that (unless the Committee determines a different period upon grant, or, if no rights of the Participant are reduced, thereafter) in the event the termination is for Cause or is a voluntary termination within ninety (90) days after occurrence of an event which would be grounds for Termination of Employment by the Company for Cause (without regard to any notice or cure period requirement), any Stock Appreciation Right held by the Participant at the time of the occurrence of the event which would be grounds for Termination of Employment by the Company 7 -------------------------------------------------------------------------------- for Cause shall be deemed to have terminated and expired upon occurrence of the event which would be grounds for Termination of Employment by the Company for Cause. ARTICLE VII NON-TRANSFERABILITY         Except as provided in the last sentence of this Article VII, no Stock Appreciation Right granted to an Employee shall be Transferable by the Participant otherwise than by will or by the laws of descent and distribution. All Stock Appreciation Rights granted to a Participant shall be exercisable, during the Participant's lifetime, only by the Participant. No Award shall, except as otherwise specifically provided by law or herein, be Transferable in any manner, and any attempt to Transfer any such Award shall be void, and no such Award shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such Award, nor shall it be subject to attachment or legal process for or against such person. ARTICLE VIII TERMINATION OR AMENDMENT OF THE PLAN         8.1   TERMINATION OR AMENDMENT.         (a)   Notwithstanding any other provision of this Plan, the Board may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan, or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Awards granted prior to such amendment, suspension or termination, may not be impaired without the consent of such Participant.         (b)   The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Article IV above or as otherwise specifically provided herein, no such amendment or other action by the Board or the Committee shall impair the rights of any holder without the holder's consent. ARTICLE IX UNFUNDED PLAN         This Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. ARTICLE X GENERAL PROVISIONS         10.1 OTHER PLANS. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.         10.2 NO RIGHT TO EMPLOYMENT. Neither this Plan nor the grant of any Award hereunder shall give any Participant or other employee or Service Provider any right with respect to continuance of employment or engagement by any Affiliated Company, nor shall there be a limitation in any way on the right of any Affiliated Company by which an employee is employed or a Service Provider is engaged to terminate his or her employment or engagement at any time. 8 --------------------------------------------------------------------------------         10.3 WITHHOLDING OF TAXES. The Company shall have the right to deduct from any payment to be made to a Participant, or to otherwise require payment by the Participant of, any Federal, state or local taxes required by law to be withheld. Upon making an election under Code Section 83(b), a Participant shall pay all required withholding to the Company.         10.4 GOVERNING LAW. This Plan shall be governed and construed in accordance with the laws of the state of incorporation of the Company (regardless of the law that might otherwise govern under applicable principles of conflict of laws).         10.5 CONSTRUCTION. Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. To the extent applicable, the Plan shall be limited, construed and interpreted in a manner so as to comply with the applicable requirements of Section 162(m) of the Code.         10.6 OTHER BENEFITS. No Award payment under this Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or any Affiliated Company nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.         10.7 COSTS. The Company shall bear all expenses incurred in administering this Plan.         10.8 NO RIGHT TO SAME BENEFITS. The provisions of Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years.         10.9 DEATH. The Committee may in its discretion require the transferee of a Participant to supply it with written notice of the Participant's death and to supply it with a copy of the will (in the case of the Participant's death) or such other evidence as the Committee deems necessary to establish the validity and permissibility of the transfer of an Award. The Committee may also require the agreement of the transferee to be bound by all of the terms and conditions of the Plan.         10.10 SEVERABILITY OF PROVISIONS. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.         10.11 HEADINGS AND CAPTIONS. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. ARTICLE XI TERM OF PLAN         No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the earlier of the date the Plan is adopted or the date of stockholder approval, but Awards granted prior to such tenth anniversary may extend beyond that date. ARTICLE XII NAME OF PLAN         This Plan shall be known as the Bresler & Reiner, Inc. 2006 Stock Appreciation Rights Incentive Plan. 9 -------------------------------------------------------------------------------- ARTICLE XIII NOTICES         Any communication or notice required or permitted to be given under the Plan shall be in writing, and mailed by certified mail, delivered by a national overnight delivery company or by hand, if to the Company, to its principal place of business and addressed to the attention of the Chief Executive Officer or the Chief Operating Officer, and if to the holder of a Stock Appreciation Right, to the address as appearing on the records of the Company.         Executed as of January 25, 2006.     BRESLER & REINER, INC.     /s/ Sidney M. Bresler -------------------------------------------------------------------------------- By: Sidney M. Bresler, Chief Executive Officer 10 -------------------------------------------------------------------------------- QuickLinks ARTICLE I PURPOSE ARTICLE II DEFINITIONS ARTICLE III ADMINISTRATION ARTICLE IV SHARE AND OTHER LIMITATIONS ARTICLE V ELIGIBILITY ARTICLE VI STOCK APPRECIATION RIGHTS ARTICLE VII NON-TRANSFERABILITY ARTICLE VIII TERMINATION OR AMENDMENT OF THE PLAN ARTICLE IX UNFUNDED PLAN ARTICLE X GENERAL PROVISIONS ARTICLE XI TERM OF PLAN ARTICLE XII NAME OF PLAN ARTICLE XIII NOTICES

CONFIRMATION TO: Wells Fargo Bank, N.A., not individually but solely as trustee for Carrington Mortgage Loan Trust, Series 2006-NC1 9062 Old Anapolis Road Columbia, Maryland 21045 Attention: Client Manager-Carrington Mortgage Loan Trust, 2006-NC1 Telephone: (410) 884-2000 Facsimile: (410) 715-2380 FROM: Swiss Re Financial Products Corporation 55 East 52nd Street New York, New York 10055 Attention: Head of Operations Facsimile. (212) 317-5335 CC: Attention: Head of Legal Facsimile: (212) 317-5474 DATE: February 8, 2006 Transaction Reference Number: 788491 Dear Sir/Madam, The purpose of this letter agreement is to confirm the terms and conditions of the transaction entered into between Wells Fargo Bank, N.A., not individually but solely as trustee for Carrington Mortgage Loan Trust, Series 2006-NC1, and Swiss Re Financial Products Corporation, a corporation organized under the laws of the State of Delaware (each a "party" and together "the parties") on the Trade Date specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified in paragraph 1 below. In this Confirmation, "Party A" means Swiss Re Financial Products Corporation, and "Party B" means Carrington Mortgage Loan Trust, Series 2006-NC1, by Wells Fargo Bank, N.A., not individually but solely as trustee for Carrington Mortgage Loan Trust, Series 2006-NC1. The definitions and provisions contained in the 2000 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc. (the "Definitions"), are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. Other capitalized terms used herein (but not otherwise defined) shall have the meaning specified in that certain Pooling and Servicing Agreement, dated as of February 1, 2006 (the "Pooling and Servicing Agreement"), among Stanwich Asset Acceptance Company, L.L.C., as Depositor, New Century Mortgage Corporation, as Servicer, and Wells Fargo Bank, N.A., as Trustee (the "Trustee). S-1 1. This Confirmation evidences a complete binding agreement between the parties as to the terms of the Transaction to which this Confirmation relates. In addition, the parties agree that for the purposes of this Transaction, this Confirmation will supplement, form a part of, and be subject to an agreement in the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) as if the parties had executed an agreement in such form (but without any Schedule except for the elections noted below) on the Trade Date of the Transaction (such agreement, the "Form Master Agreement"). In the event of any inconsistency between the provisions of the Form Master Agreement and this Confirmation, this Confirmation will prevail for the purpose of this Transaction. Each party represents to the other party and will be deemed to represent to the other party on the date on which it enters into this Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction): (a) NON-RELIANCE. Each party has made its own independent decisions to enter into this Transaction and as to whether this Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into this Transaction; it being understood that information and explanations related to the terms and conditions of this Transaction shall not be considered investment advice or a recommendation to enter into this Transaction. Further, such party has not received from the other party any assurance or guarantee as to the expected results of this Transaction. (b) EVALUATION AND UNDERSTANDING. It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Transaction. It is also capable of assuming, and assumes, the financial and other risks of this Transaction. (c) STATUS OF PARTIES. The other party is not acting as an agent, fiduciary or advisor for it in respect of this Transaction. 2. The terms of the particular Transaction to which this Confirmation relates are as follows: -------------------------------------------------------------------------- Notional Amount: As per Schedule A attached hereto -------------------------------------------------------------------------- Trade Date: January 27, 2006 -------------------------------------------------------------------------- Effective Date: February 8, 2006 -------------------------------------------------------------------------- Termination Date: November 25, 2008, subject to adjustment in accordance with the Following Business Day Convention. -------------------------------------------------------------------------- FIXED AMOUNTS: -------------------------------------------------------------------------- Fixed Rate Payer: Party B -------------------------------------------------------------------------- Payment Date: February 8, 2006 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Fixed Amount: USD 96,000 -------------------------------------------------------------------------- FLOATING AMOUNTS: -------------------------------------------------------------------------- Floating Rate Payer: Party A -------------------------------------------------------------------------- Cap Rate I: See attached Schedule A under the Column "Cap Rate (%)". -------------------------------------------------------------------------- Floating Rate Payer The 25th of each month, commencing on 25th March Period End Dates: 2006 in accordance with the Following Business Day Convention. -------------------------------------------------------------------------- Floating Rate Payer Early Payment shall be applicable. The Floating Payment Dates: Rate Payer Payment Dates shall be two Business Days prior to each Floating Rate Payer Period End Date, commencing on March 23, 2006 to and including the date which is two Business Days prior to the Termination Date. -------------------------------------------------------------------------- Floating Rate Option: USD-LIBOR-BBA, provided, however, for any Calculation Period, if the floating Rate Option is greater than the rate set forth opposite such Calculation Period as set forth in Schedule A under the heading Cap Rate II (%), then the Floating Rate for such Calculation Period shall be deemed to be such rate. -------------------------------------------------------------------------- Designated Maturity: One month -------------------------------------------------------------------------- Spread: None -------------------------------------------------------------------------- Floating Rate Day Actual/360 Count Fraction: -------------------------------------------------------------------------- Reset Date: First day of each Calculation Period -------------------------------------------------------------------------- Compounding: Inapplicable -------------------------------------------------------------------------- BUSINESS DAYS: New York -------------------------------------------------------------------------- CALCULATION AGENT: Party A; provided, however, if an Event of Default has occurred with respect to Party A, a Reference Market-maker, as designated by Party B, shall be the Calculation Agent. -------------------------------------------------------------------------- 3. FORM MASTER AGREEMENT. (a) "SPECIFIED ENTITY" means, in relation to Party A, for the purpose of Section 5(a)(v), Section 5(a)(vi), Section 5(a)(vii) and Section 5(b)(iv) of the Form Master Agreement: Not Applicable. (b) "SPECIFIED ENTITY" means, in relation to Party B, for the purpose of Section 5(a)(v), Section 5(a)(vi), Section 5(a)(vii) and Section 5(b)(iv) of the Form Master Agreement: Not Applicable. (c) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14 of the Form Master Agreement. (d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) of the Form Master Agreement will not apply to Party A or to Party B. (e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) of the Form Master Agreement will not apply to Party A or to Party B. (f) GOVERNING LAW. The Form Master Agreement will be governed by, and construed in accordance with, the laws of the State of New York without reference to its conflict of laws provisions (except for Sections 5-1401 and 5-1402 of the New York General Obligations Law). (g) The phrase "TERMINATION CURRENCY" means United States Dollars. (h) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of the Form Master Agreement, Market Quotation and Second Method will apply. (i) EVENTS OF DEFAULT. The Events of Default specified under Sections 5(a)(ii), 5(a)(iv), 5(a)(v) and 5(a)(vi) of the Form Master Agreement will not apply to Party A; 5(a)(ii), 5(a)(iii), 5(a)(iv), 5(a)(v) and 5(a)(vi) of the Form Master Agreement will not apply to Party B. With respect to Party B only, the provisions of Section 5(a)(vii) clause 2 will not be applicable. (j) TAX EVENT. The provisions of Section 2(d)(i)(4) and 2(d)(ii) of the printed Form Master Agreement shall not apply to Party B and Party B shall not be required to pay any additional amounts referred to therein. (k) NO SET-OFF. Without affecting the provisions of the Form Master Agreement requiring the calculation of certain net payment amounts, as a result of an Event of Default or Additional Termination Event or otherwise, all payments will be made without setoff or counterclaim. 4. RECORDING OF CONVERSATIONS. Each party to this Transaction acknowledges and agrees to the tape (and/or other electronic) recording of conversations between the parties to this Transaction whether by one or other or both of the parties or their agents, and that any such recordings may be submitted in evidence in any Proceedings relating to the Form Master Agreement and/or this Transaction. 5. CREDIT SUPPORT DOCUMENT. In relation to Party A: A Guaranty of Swiss Re dated as of the date hereof, in a form acceptable to Party B and, if Party A is required pursuant to Paragraph 8 of this Confirmation to post collateral, an ISDA Credit Support Annex. In relation to Party B: The Pooling and Servicing Agreement. Party B agrees that the security interests in collateral granted to Party A under the foregoing Credit Support Document shall secure the obligations of Party B to Party A hereunder. 6. CREDIT SUPPORT PROVIDER. In relation to Party A: Swiss Reinsurance Company ("Swiss Re"). In relation to Party B: Not Applicable. 7. ACCOUNT DETAILS. Account for payments to Party A: PAYMENT INSTRUCTION: JP Morgan Chase Bank Swift: CHASUS33 For the Account of Swiss Re Financial Products ACCT #: 066911184 Account for payments to Party B: NAME: Wells Fargo Bank, National Association ABA#: 121-000-248 ACCT #: 3970771416 ACCT NAME: Corporate Trust Clearing For further credit to ACCT #: 50890801 REF: Client Manager - Carrington Mortgage Loan Trust 2006-NC1 8. ADDITIONAL TERMINATION EVENTS. Downgrade of Party A. For the purpose of this section, a "Ratings Event" shall occur with respect to Party A (or its Credit Support Provider) if the long-term and short-term senior unsecured deposit ratings of Party A (or its Credit Support Provider) cease to be at least A and A-1 by Standard & Poor's Ratings Service or any successor thereto ("S&P") or at least A1 and P-1 by Moody's Investors Service, Inc. or any successor thereto ("Moody's") or at least A and F1 by Fitch, Inc. or any successor thereto ("Fitch"), to the extent such obligations are rated by S&P or Moody's or Fitch. The failure by Party A to comply with the provisions of Section 15 hereof shall constitute an Additional Termination Event for which Party A shall be the sole Affected Party. Swap Disclosure Event. Upon the occurrence of a Swap Disclosure Event (as defined below), if Party A has not, within 10 days after such Swap Disclosure Event (the "Response Period") complied with one of the solutions listed below, then an Additional Termination Event shall have occurred with respect to Party A and Party A shall be the sole Affected Party with respect to such Additional Termination Event. It shall be a swap disclosure event ("Swap Disclosure Event") if at any time after the date hereof Carrington Securities, LP ("Carrington Securities") and Stanwich Asset Acceptance Company, L.L.C. ("Stanwich") notify Party A that in the reasonable discretion of Carrington Securities or Stanwich acting in good faith, the "aggregate significance percentage" of all derivative instruments (as such term is defined in Item 1115(b)(2) of Regulation AB (as defined below)) provided by Party A and any of its affiliates to Carrington Mortgage Loan Trust, Series 2006-NC1 (the "Significance Percentage") is 10% or more. Following a Swap Disclosure Event, Party A shall take one of the following actions at its own expense: either (I) (a) if the Significance Percentage is 10% or more, Party A provide the information set forth in Item 1115(b)(1) of Regulation AB for Party A (or for the group of affiliated entities, if applicable) or (b) if the Significance Percentage is 20% or more, Party A provide the information set forth in Item 1115(b)(2) of Regulation AB for Party A (or for the group of affiliated entities, if applicable) (collectively, the "Reg AB Information"), to Carrington Securities or Stanwich or (II) cause a Reg AB Approved Entity (as defined below) to replace Party A as party to this Agreement on terms similar to this Agreement prior to the expiration of the Response Period and cause such Reg AB Approved Entity to provide the Reg AB Information prior to the expiration of the Response Period; provided however, that no such transfer to a Reg AB Approved Entity pursuant to (II) above shall occur unless the Reg AB Approved entity agrees to terms identical to those contained in Paragraph 16 of this Agreement. "Reg AB Approved Entity" means any entity that (i) has the ability to provide the Reg AB Information and (ii) meets or exceeds the Approved Rating Threshold. "Regulation AB" means Subpart 229.1100 - Asset Backed Securities (Regulation AB), 17 C.F.R. ss.ss.229.1100-229.1123, as such may be amended from time to time, and subject to such clarification and interpretation as have been provided by the Securities and Exchange Commission ("SEC") in the adopting release (Asset-Backed Securities, Securities Act Release No. 33-8518, 70 Fed. Reg. 1,506, 1,531 (Jan. 7, 2005)) or by the staff of the SEC, or as may be provided by the SEC or its staff from time to time. 9. LIMITATION ON EVENTS OF DEFAULT. Notwithstanding the terms of Sections 5 and 6 of the Form Master Agreement, if at any time and so long as Party B has satisfied in full all its payment obligations under Section 2(a)(i) of the Form Master Agreement and has at the time no future payment obligations, whether absolute or contingent, under such Section, then unless Party A is required pursuant to appropriate proceedings to return to Party B or otherwise returns to Party B upon demand of Party B any portion of any such payment, (a) the occurrence of an event described in Section 5(a) of the Form Master Agreement with respect to Party B shall not constitute an Event of Default or Potential Event of Default with respect to Party B as Defaulting Party and (b) Party A shall be entitled to designate an Early Termination Date pursuant to Section 6 of the Form Master Agreement only as a result of the occurrence of a Termination Event set forth in either Section 5(b)(i) with respect to either Party A or Party B as the Affected Party. 10. WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS TRANSACTION. 11. ELIGIBLE CONTRACT PARTICIPANT. Each party represents to the other party that it is an "eligible contract participant" as defined in Section 1a(12) of the U.S. Commodity Exchange Act, as amended. 12. NOTICE BY FACSIMILE TRANSMISSION. Section 12(a) of the Form Master Agreement is hereby amended by deleting the parenthetical "(except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system)." 13. MULTIBRANCH PARTY. For purpose of Section 10(c) of the Form Master Agreement: (a) Party A is not a Multibranch Party; and (b) Party B is not a Multibranch Party. 14. OTHER PROVISIONS. (a) Addresses for notices. As set forth on page 1 hereof. (b) For the purpose of Section 13(c) of the Form Master Agreement: (i) Party A appoints as its Process Agent, not applicable; and (ii) Party B appoints as its Process Agent, not applicable. (c) No transfer, amendment, waiver, supplement, assignment or other modification of this Transaction shall be permitted by either party unless (i) each of S&P, Fitch and Moody's have been provided notice of the same and (ii) S&P, Fitch and Moody's confirm in writing (including by facsimile transmission) within five Business Days after such notice is given that they will not downgrade, qualify, withdraw or otherwise modify their then-current rating of the Certificates. (d) PAYER REPRESENTATIONS. For the purpose of Section 3(e) of the Form Master Agreement, Party A and Party B make the following representation: It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any relevant jurisdiction to make any deduction or withholding for or on account of any tax from any payment (other than interest under Section 2(e), 6(d)(ii), or 6(e) of the Form Master Agreement) to be made by it to the other party under the Form Master Agreement. In making this representation, it may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of the Form Master Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of the Form Master Agreement, and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of the Form Master Agreement, and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of the Form Master Agreement, provided that it shall not be a breach of this representation where reliance is placed on clause (ii) and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position. (e) PAYEE REPRESENTATIONS. For the purpose of Section 3(f) of the Form Master Agreement, Party A and Party B make the following representations: (i) The following representation applies to Party A: Party A is a corporation organized under the laws of the State of Delaware. (ii) The following representation applies to Party B: Party B is a "U.S. person" as that term is used in section 1.1441-4(a)(3)(ii) of the United States Treasury Regulations (the "Regulations") for United States federal income tax purposes. (f) For the purpose of Section 4(a)(i) and (ii) of the Form Master Agreement, each Party agrees to deliver the following documents as applicable: (i) Tax forms, documents or certificates to be delivered are: -------------------------------------------------------------------------------- PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH DELIVER DOCUMENT CERTIFICATE TO DELIVERED -------------------------------------------------------------------------------- Party A and Party B An executed U.S. (i) Before the first Payment Internal Revenue Service Date hereunder, (ii) Form W-9 (or any promptly upon reasonable successor thereto). demand by the other party and (iii) promptly upon learning that any such form previously provided to the other party has become obsolete or incorrect. -------------------------------------------------------------------------------- (ii) Other documents to be delivered are: ---------------------------------------------------------------------------------------------------------------- PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH COVERED BY SECTION DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED 3(D) REPRESENTATION ---------------------------------------------------------------------------------------------------------------- Party A and Party B Credit Support Document, if any, Concurrently with the Yes specified herein, such Credit Support execution of this Document being duly executed if required. agreement. ---------------------------------------------------------------------------------------------------------------- Party A and Party B Incumbency certificate or other documents Concurrently with the Yes evidencing the authority of the party execution of this entering into this agreement or any other agreement or of any document executed in connection with this other documents agreement. executed in connection with this agreement. ---------------------------------------------------------------------------------------------------------------- Party B Copy of each report delivered under the Upon availability. Yes Pooling and Servicing Agreement and/or any other Transaction Document. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH COVERED BY SECTION DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED 3(D) REPRESENTATION ---------------------------------------------------------------------------------------------------------------- Party A and Party B Legal opinion from counsel for each party Concurrently with the No concerning due authorization, execution of this enforceability and related matters, agreement. addressed to the other party and acceptable to the other party. ---------------------------------------------------------------------------------------------------------------- Party A Certified copies of all corporate, Upon execution and Yes partnership, trust or membership delivery of this authorizations, as the case may be, and agreement any other documents with respect to the execution, delivery and performance of this agreement and any Credit Support Document ---------------------------------------------------------------------------------------------------------------- (g) "Affiliate" will have the meaning specified in Section 14 of the Form Master Agreement; provided, however, that Party B shall be deemed not to have any Affiliates for purposes of this Transaction. (h) NON PETITION. Party A hereby agrees that it will not, prior to the date that is one year and one day (or, if longer, the applicable preference period) after all Certificates (as such term is defined in the Pooling and Servicing Agreement) issued by Party B pursuant to the Pooling and Servicing Agreement have been paid in full, acquiesce, petition or otherwise invoke or cause Party B to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against Party B under any federal or state bankruptcy, insolvency or similar law or for the purpose of appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for Party B or any substantial part of the property of Party B, or for the purpose of ordering the winding up or liquidation of the affairs of Party B. Nothing herein shall prevent Party A from participating in any such proceeding once commenced. The provisions of this paragraph shall survive the termination of this Agreement. (i) NON-RECOURSE PROVISIONS. Notwithstanding anything to the contrary contained herein, none of Wells Fargo Bank, N.A. or any of its officers, directors, or shareholders (the "Non-recourse Parties") shall be personally liable for the payment by or on behalf of the Issuer hereunder, and Party A shall be limited to a proceeding against the Collateral or against any other third party other than the Non-recourse Parties, and Party A shall not have the right to proceed directly against the Issuer for the satisfaction of any monetary claim against the Non-recourse Parties or for any deficiency judgment remaining after foreclosure of any property included in such Collateral and following the realization of the Collateral, any claims of Party A shall be extinguished. The provisions of this paragraph shall survive the termination of this Agreement. (j) TRUSTEE LIABILITY LIMITATION. It is expressly understood and agreed by the parties hereto that (i) this confirmation is executed and delivered by Wells Fargo Bank, N.A. ("Wells Fargo"), not individually or personally but solely as trustee, (ii) each of the representations, undertakings and agreements herein made on the part of Party B is made and intended not as personal representations, undertakings and agreements by Wells Fargo but is made and intended for the purpose of binding only Party B, (iii) nothing herein contained shall be construed as creating any liability on Wells Fargo, individually or personally, to perform any covenant either expressed or implied contained herein, and (iv) under no circumstances shall Wells Fargo be personally liable for the payment of any indebtedness or expenses of Party B or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by Party B hereunder or any other related documents. Any resignation or removal of Wells Fargo as trustee under the Pooling and Servicing Agreement shall require the assignment of this confirmation to Wells Fargo's replacement. (k) The Form Master Agreement is hereby amended as follows: The word "third" shall be replaced by the word "second" in the third line of Section 5(a)(i) of the Form Master Agreement. (l) SEVERABILITY. If any term, provision, covenant, or condition of this Agreement, or the application thereof to any party or circumstance, shall be held to be invalid or unenforceable (in whole or in part) for any reason, the remaining terms, provisions, covenants, and conditions hereof shall continue in full force and effect as if this Agreement had been executed with the invalid or unenforceable portion eliminated, so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter of this Agreement and the deletion of such portion of this Agreement will not substantially impair the respective benefits or expectations of the parties. The parties shall endeavor to engage in good faith negotiations to replace any invalid or unenforceable term, provision, covenant or condition with a valid or enforceable term, provision, covenant or condition, the economic effect of which comes as close as possible to that of the invalid or unenforceable term, provision, covenant or condition. (m) Party A hereby agrees that, notwithstanding any provision of this agreement to the contrary, Party B's obligations to pay any amounts owing under this Agreement shall be subject to Sections 4.01 and 4.07 of the Pooling and Servicing Agreement and Party A's right to receive payment of such amounts shall be subject to Sections 4.01 and 4.07 of the Pooling and Servicing Agreement. 15. DOWNGRADE OF PARTY A. If a Ratings Event (as defined in Section 8 hereof) shall occur and be continuing with respect to Party A, then Party A shall (A) within 5 Business Days of such Ratings Event, give notice to Party B of the occurrence of such Ratings Event, and (B) use reasonable efforts to transfer (at its own cost) Party A's rights and obligations hereunder to another party, subject to satisfaction of the Rating Agency Condition (as defined below). Unless such a transfer by Party A has occurred within 20 Business Days after the occurrence of a Ratings Event, Party A shall no later than the end of such 20 Business Day period, post eligible collateral at its own cost and satisfactory to Party B ("Eligible Collateral"), to secure Party B's exposure or potential exposure to Party A, and such Eligible Collateral shall be provided in accordance with a Credit Support Annex to be attached hereto and made a part hereof. The Eligible Collateral to be posted and the Credit Support Annex to be executed and delivered shall be subject to the Rating Agency Condition. Valuation and Posting of Eligible Collateral shall occur weekly. Notwithstanding the addition of the Credit Support Annex and the posting of Eligible Collateral, Party A shall continue to use reasonable efforts to transfer its rights and obligations hereunder to an acceptable third party; provided, however, that Party A's obligations to find a transferee and to post Eligible Collateral under such Credit Support Annex shall remain in effect only for so long as a Ratings Event is continuing with respect to Party A. "Rating Agency Condition" means, with respect to any action to be taken, a condition that is satisfied when S&P, Moody's and Fitch have confirmed that such action would not result in the downgrade, qualification (if applicable) or withdrawal of the rating then assigned by such Rating Agency to the applicable class of Certificates. 16. COMPLIANCE WITH REGULATION AB. (a) Party A agrees and acknowledges that Carrington Securities and Stanwich may be required under Regulation AB, to disclose certain financial information regarding Party A and Swiss Re depending on the applicable "significance percentage" of this Agreement, as calculated from time to time in accordance with Item 1115 of Regulation AB. (b) Party A, or a Reg AB Approved Entity after a Swap Disclosure Event pursuant to Paragraph 8, as applicable, shall indemnify and hold harmless Carrington Securities, Stanwich, their respective directors or officers and any person controlling Carrington Securities or Stanwich, from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in the Reg AB Information that Party A or such Reg AB Approved Entity, as applicable, provides to Carrington Securities or Stanwich pursuant to Paragraph 8 (the "Party A Information") or caused by any omission or alleged omission to state in the Party A Information by Party A or the Reg AB Approved Entity, as applicable, 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. For the avoidance of doubt, Party A shall provide the indemnity described above with respect to any Party A Information it is required to provide pursuant to Paragraph 8 and any Reg AB Approved Entity which has replaced Party A pursuant to Paragraph 8 shall provide the indemnity described above with respect to any Party A Information it is required to provide from pursuant to Paragraph 8. Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by returning within three (3) Business Days via telecopier an executed copy of this Confirmation. Failure to respond within such period shall not affect the validity or enforceability of this Transaction. Yours sincerely, SWISS RE FINANCIAL PRODUCTS CORPORATION By: /s/ Linda H. Singer --------------------------------- Name: Linda H. Singer Title: Vice President Confirmed as of the date above: By: WELLS FARGO BANK, N.A., NOT INDIVIDUALLY BUT SOLELY AS TRUSTEE FOR CARRINGTON MORTGAGE LOAN TRUST, SERIES 2006-NC1 By: /s/ Peter A. Gobel --------------------------------- Name: Peter A. Gobel Title: Vice President SCHEDULE A to the Confirmation dated as of February 8, 2006, Re: Reference Number 788491 AMORTIZATION SCHEDULE, Floating Rate Payer Period End Dates shall be subject to adjustment in accordance with the Following Business Day Convention, however, Fixed Rate Payer Period End Dates will use No Adjustment. ------------------------------------------------------------------------------------------------------------ From and including To but excluding Notional Amount (USD) Cap Rate I (%) Cap Rate II (%) ------------------------------------------------------------------------------------------------------------ February 8, 2006 March 25, 2006 1,120,193,000.00 4.689 9.86 ------------------------------------------------------------------------------------------------------------ March 25, 2006 April 25, 2006 1,106,598,343.33 6.792 9.859 ------------------------------------------------------------------------------------------------------------ April 25, 2006 May 25, 2006 1,089,840,528.76 7.028 9.858 ------------------------------------------------------------------------------------------------------------ May 25, 2006 June 25, 2006 1,069,940,412.94 6.804 9.857 ------------------------------------------------------------------------------------------------------------ June 25, 2006 July 25, 2006 1,046,938,846.01 7.044 9.856 ------------------------------------------------------------------------------------------------------------ July 25, 2006 August 25, 2006 1,020,897,441.79 6.822 9.854 ------------------------------------------------------------------------------------------------------------ August 25, 2006 September 25, 2006 991,898,855.40 6.833 9.852 ------------------------------------------------------------------------------------------------------------ September 25, 2006 October 25, 2006 960,046,857.82 7.080 9.85 ------------------------------------------------------------------------------------------------------------ October 25, 2006 November 25, 2006 925,467,271.69 6.862 9.847 ------------------------------------------------------------------------------------------------------------ November 25, 2006 December 25, 2006 889,225,271.35 7.113 9.844 ------------------------------------------------------------------------------------------------------------ December 25, 2006 January 25, 2007 853,995,953.69 6.897 9.841 ------------------------------------------------------------------------------------------------------------ January 25, 2007 February 25, 2007 819,778,271.80 6.916 9.838 ------------------------------------------------------------------------------------------------------------ February 25, 2007 March 25, 2007 786,543,051.26 7.697 9.834 ------------------------------------------------------------------------------------------------------------ March 25, 2007 April 25, 2007 754,261,962.10 6.957 9.831 ------------------------------------------------------------------------------------------------------------ April 25, 2007 May 25, 2007 722,907,494.29 7.218 9.827 ------------------------------------------------------------------------------------------------------------ May 25, 2007 June 25, 2007 692,452,933.93 7.003 9.823 ------------------------------------------------------------------------------------------------------------ June 25, 2007 July 25, 2007 662,872,340.15 7.269 9.818 ------------------------------------------------------------------------------------------------------------ July 25, 2007 August 25, 2007 634,140,522.65 7.055 9.814 ------------------------------------------------------------------------------------------------------------ August 25, 2007 September 25, 2007 606,233,019.95 7.083 9.809 ------------------------------------------------------------------------------------------------------------ September 25, 2007 October 25, 2007 577,175,226.96 7.360 9.803 ------------------------------------------------------------------------------------------------------------ October 25, 2007 November 25, 2007 535,633,080.75 7.242 9.794 ------------------------------------------------------------------------------------------------------------ November 25, 2007 December 25, 2007 496,342,780.72 8.089 9.789 ------------------------------------------------------------------------------------------------------------ December 25, 2007 January 25, 2008 459,236,972.10 7.884 9.785 ------------------------------------------------------------------------------------------------------------ January 25, 2008 February 25, 2008 424,172,549.09 7.952 9.781 ------------------------------------------------------------------------------------------------------------ February 25, 2008 March 25, 2008 392,167,033.72 8.597 9.776 ------------------------------------------------------------------------------------------------------------ March 25, 2008 April 25, 2008 369,770,746.11 8.097 9.772 ------------------------------------------------------------------------------------------------------------ April 25, 2008 May 25, 2008 348,097,718.18 8.523 9.768 ------------------------------------------------------------------------------------------------------------ May 25, 2008 June 25, 2008 327,099,093.88 8.816 9.765 ------------------------------------------------------------------------------------------------------------ June 25, 2008 July 25, 2008 306,750,160.93 9.222 9.763 ------------------------------------------------------------------------------------------------------------ July 25, 2008 August 25, 2008 287,029,225.48 9.027 9.761 ------------------------------------------------------------------------------------------------------------ August 25, 2008 September 25, 2008 267,908,244.64 9.149 9.759 ------------------------------------------------------------------------------------------------------------ September 25, 2008 October 25, 2008 243,831,588.94 9.668 9.756 ------------------------------------------------------------------------------------------------------------ October 25, 2008 November 25, 2008 213,060,677.48 9.650 9.751 ------------------------------------------------------------------------------------------------------------

EXECUTIVE VICE PRESIDENTS Pennsylvania Real Estate Investment Trust 2006 Incentive Compensation Opportunity [Name] [Title] --------------------------------------------------------------------------------       2006 Incentive Opportunity3                       2006 Incentive Range4 - % of Salary                     Threshold5 Target5 Outperformance5 2006 Base Salary1                          $_______ -------------------------------------------------------------------------------- 2005 Incentive Compensation2     $_______ 25%  50% 75%                       Performance Measurement Allocation6                       Corporate       Individual       --------------------------------------------------------------------------------       65%       35%       CORPORATE – 65%       Measure7   Threshold   Target   Outperformance   FFO Per Share8                               TOTAL 2006 CORPORATE OPPORTUNITY:   $ ___   $ ___   $ ___                       INDIVIDUAL – 35%       Measure   Threshold   Target   Outperformance   Compensation Committee Discretion9   Committee Discretion   Committee Discretion   Committee Discretion                   TOTAL 2006 INDIVIDUAL OPPORTUNITY:   $ ___   $ ___   $ ___                   *   *   *   *                   TOTAL 2006 INCENTIVE OPPORTUNITY:*   $ ___   $ ___   $ ___                   * The amount payable under this award will be paid in cash on February 15, 2007. -------------------------------------------------------------------------------- Back to Contents EXECUTIVE VICE PRESIDENTS (1) “2006 Base Salary” means your regular, basic compensation from PREIT and/or PREIT Services, LLC for 2006, not including bonuses or other additional compensation, but including contributions made by PREIT and/or PREIT Services, LLC on your behalf, by salary reduction pursuant to your election, (i) to an arrangement described in section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), (ii) to a “cafeteria plan” (as defined in section 125(d) of the Code), and (iii) for a “qualified transportation fringe” (as defined in section 132(f) of the Code).   (2) “2005 Incentive Compensation” means the total amount of incentive compensation that you earned in 2005 pursuant to your 2005 Incentive Compensation Opportunity Award.   (3) “2006 Incentive Opportunity” means the opportunity to earn incentive compensation for 2006, up to 75% of your Base Salary, in the event certain corporate and/or individual performances are achieved (your “potential 2006 incentive compensation”). Corporate performance relates to PREIT’s cumulative performance with respect to one measure of its financial results for 2006, while individual performance relates to your performance within the scope of your responsibilities as an employee of PREIT and/or PREIT Services, LLC.   (4) “2006 Incentive Range” means, depending on the level of corporate and individual performance achieved (i.e., Threshold, Target or Outperformance), the percentage of your Base Salary that you may earn under this 2006 Incentive Compensation Opportunity Award. If the corporate performance is between the Target and the Threshold level, or between the Threshold and the Outperformance level, the percentage will be interpolated accordingly.   (5) With respect to corporate performance, “Threshold” signifies a solid achievement, but which may fall short of expectations, and which is expected to have a reasonably high probability of achievement. Threshold performance represents the level of performance that has to be achieved before any of your potential 2006 incentive compensation is earned. The Executive Compensation and Human Resources Committee of PREIT’s Board of Trustees (the “Committee”) will decide whether you have met what the Committee determines to be the “Threshold” level for purposes of your individual performance. If the Threshold performance level is achieved with respect to corporate or individual performance, as applicable, you will earn 25% of your potential 2006 Incentive Compensation allocated to such performance (see note 6). If the Threshold performance level is not met with respect to corporate performance or your individual performance, you will not receive any of your potential 2006 incentive compensation allocated to such corporate performance or individual performance, as applicable.   With respect to corporate performance, “Target” generally signifies that the business objectives for the year have been met and is expected to have a reasonable probability of achievement. In many situations, this represents approximately the budgeted level of performance. The Committee will decide whether you have met what the Committee determines to be the “Target” level for purposes of your individual performance. If the Target performance level is achieved with respect to corporate or individual performance, as applicable, you will earn 50% of your potential 2006 incentive compensation allocated to such performance (see note 6). With respect to corporate performance, “Outperformance” signifies an outstanding achievement, an extraordinary performance by industry standards, and which is expected to have a modest probability of achievement. The Committee will decide whether you have met what the Committee determines to be the “Outperformance” level for purposes of your individual performance. If the Outperformance level is achieved with respect to corporate or individual performance, as applicable, you will earn 75% of your potential 2006 incentive compensation allocated to such performance (see note 6).   (6) “Performance Measurement Allocation” means the percent by which your potential 2006 incentive compensation is allocated between corporate performance and your individual performance. For example, if your base salary is $200,000, and 65% of your potential 2006 incentive compensation is allocated to corporate performance and 35% is allocated to your individual performance, you will earn $97,500 (75% of 65% of $200,000) of your potential 2006 incentive compensation if the Outperformance level of the corporate performance is achieved and up to $52,500 (75% of 35% of $200,000) of your potential 2006 incentive compensation if the Outperformance level of your individual performance is achieved.   (7) The “Measure” is a business criterion on which performance is based.   (8) “FFO Per Share” means, with respect to each diluted share of beneficial interest in PREIT (a “Share”), “funds from operations” of PREIT, as reported to the public by PREIT for 2006. However, the Threshold, Target and Outperformance levels set forth in this award with respect to the achievement of specified levels of FFO Per Share may be modified by the Committee, after consultation with an independent compensation consultant selected by the Committee, in the event that PREIT acquires, directly or indirectly, by purchase or business combination, properties or businesses to a greater extent than contemplated in PREIT’s 2006 business plan.   (9) The Committee has the sole discretion to set the measure for your individual performance for 2006 and to determine the level of individual performance you have achieved. However, regardless of your individual performance, no 2006 incentive compensation based on your individual performance will be paid if FFO Per Share (see note 8) is less than $___.     In the event of a business combination or other transaction or event giving rise to a change of control of PREIT (as defined in your employment agreement), the Committee shall have the authority to adjust the corporate performance in such manner as it may deem appropriate in its sole discretion. (As noted above, the Committee already has the discretion to determine the level of your individual performance.) --------------------------------------------------------------------------------

  EXHIBIT 10.1 AMENDMENT TO SETTLEMENT AGREEMENT       This is an agreement between New York Health Care, Inc. and Emerald Asset Management, Inc. and Yitz Grossman (the Parties), relating to the March 6, 2006 settlement agreement between the Parties; wherein Emerald Asset and Grossman have, heretofore, agreed to not demand the cash portion of said settlement agreement, until such time as New York Health Care (or any future entity of New York Health Care) receives any additional monies from any source. /s/ Dennis O’Donnell                    04/17/06 New York Health Care, Inc.                  Date /s/ Yitz Grossman                      04/17/06 Individually and                                                                    Date on behalf of Emerald Asset Management, Inc. --------------------------------------------------------------------------------

  Exhibit 10.15 ZipRealty Inc. GARY M. BEASLEY EMPLOYMENT AGREEMENT      This Agreement is entered into effective as of May 2, 2006 (the “Effective Date”) by and between ZipRealty Inc. (the “Company”), and Gary M. Beasley (“Executive”).      1. Duties and Scope of Employment.           (a) Position and Duties. As of the Effective Date, Executive will serve as President and Chief Financial Officer (“CFO”) of the Company. Executive will render such business and professional services in the performance of his duties, consistent with Executive’s position within the Company, as shall reasonably be assigned to him by the Company’s Board of Directors (the “Board”) and/or as are contemplated by the Company’s bylaws. The period of Executive’s employment under this Agreement is referred to herein as the “Employment Term.”           (b) Obligations. During the Employment Term, Executive will perform his duties faithfully and to the best of his ability and will devote his full business efforts and time to the Company subject to the provisions of paragraph 5 (“Other Activities”). For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the Board.      2. At-Will Employment. The parties agree that Executive’s employment with the Company will be “at-will” employment and may be terminated at any time with or without cause or notice subject to the provisions set forth herein. Executive understands and agrees that neither his job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of his employment with the Company.      3. Compensation.           (a) Base Salary. For all services to be rendered by the Executive pursuant to this Agreement, the Company agrees to pay the Executive during the Employment Term a base salary (the “Base Salary”) at an annual rate of not less than $315,000. The Base Salary shall be paid in accordance with the Company’s regular payroll practices. The Company may review the Base Salary and make such increases therein as the Board may approve.           (b) Retention Bonus. Company will pay Executive a bonus in the amount of $75,000, less applicable withholding taxes (the “Retention Bonus”) on May 1, 2007, provided that Executive remains employed with the Company through May 1, 2007. The Retention Bonus is not earned compensation and is not paid in exchange for any duties or responsibilities performed by Executive. Company agrees to pay the Retention Bonus solely for purposes of retaining Executive’s employment through May 1, 2007. The Retention Bonus will be paid in addition to any other compensation or bonus to which Executive is entitled pursuant to the Company’s applicable bonus plans or policies.   --------------------------------------------------------------------------------        (c) Stock Option.           (i) Initial Option. Effective as of the Effective Date, the Company shall grant the Executive an option (the “Initial Option”) to purchase 250,000 shares of the Company’s common stock (the “Initial Option Shares”) at $8.55 per share. The Initial Option shall vest as described in paragraph 3(c)(1) below and shall be subject to such other terms and conditions as are described in paragraph 3(c)(ii) below.                (1) Vesting. Subject to the accelerated vesting provisions set forth herein and the 2004 Equity Incentive Plan (the “2004 Plan”), the Initial Option will vest as to 1/24th of the Initial Option Shares each month beginning on the first day of the month after the Effective Date, so that the Option will be fully vested and exercisable two (2) years from the Effective Date, subject to Executive continuing to be a “Service Provider” (as defined in the 2004 Plan) through the relevant vesting dates. In addition, in the event of a Change in Control Executive’s Options will vest in accordance with the terms of Executive’s Change of Control Agreement with the Company, which is attached hereto as Exhibit A.           (ii) Option Provisions. The Initial Option shall be granted under the Company’s 2004 Plan, and the Executive’s Stock Option Agreements.      4. Employee Benefits. During the Employment Term, the Executive shall be entitled to participate in employee benefit plans or programs of the Company, if any, to the extent that his position, tenure and other qualifications make him eligible to participate, subject to the rules and regulations applicable thereto. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time.      5. Other Activities. The Executive shall devote substantially all of his working time and efforts during the Company’s normal business hours to the business and affairs of the Company and its subsidiaries and to the diligent and faithful performance of the duties and responsibilities duly assigned to him pursuant to this Agreement, except for vacations, holidays and sickness. However, the Executive may devote a reasonable amount of his time to civic, community, or charitable activities and, with the prior written approval of the Board, to serve as a director of other corporations and to other types of business or public activities not expressly mentioned in this paragraph.      6. Severance.           (a) Involuntary Termination Not for Cause or Resignation for Good Reason. If Executive’s employment with the Company terminates other than for “Cause” (as defined herein) or Executive resigns for “Good Reason” as that term is defined herein, and Executive signs and does not revoke the Company’s severance and release agreement, then Executive shall be entitled to receive continuing payments of severance pay (less applicable withholding taxes) at a rate equal to his Base Salary rate, as then in effect, for a period of six (6) months from the date of such termination, to be paid in accordance with the Company’s normal payroll policies.           (b) Voluntary Termination; Termination for Cause. If Executive’s employment with the Company terminates voluntarily by Executive without Good Reason or for Cause by the Company, then (i) all vesting of the Option will terminate immediately and all payments of -2- --------------------------------------------------------------------------------   compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), and (ii) Executive will only be eligible for severance benefits in accordance with the Company’s established policies as then in effect.           (c) Cause. For all purposes under this Agreement, “Cause” shall mean (i) willful failure by the Executive to substantially perform his duties hereunder (other than a failure resulting from the Executive’s complete or partial incapacity due to physical or mental illness or impairment) after receipt of a written warning and failure to cure any such non-performance within ten (10) business days of receipt of such warning (ii) a willful act by the Executive which constitutes gross misconduct and which is injurious to the Company, (iii) a willful breach by the Executive of a material provision of this Agreement, or (iv) a material and willful violation of a federal or state law or regulation applicable to the business of the Company. No act, or failure to act, by the Executive shall be considered “willful” unless committed without good faith without a reasonable belief that the act or omission was in the Company’s best interest. No compensation or benefits will be paid or provided to the Executive under this Agreement on account of a termination for Cause, or for periods following the date when such a termination of employment is effective. The Executive’s rights under the benefit plans of the Company shall be determined under the provisions of those plans.           (d) Good Reason. For all purposes under this Agreement, “Good Reason” shall mean without the Executive’s express written consent (i) a significant reduction of the Executive’s duties, position or responsibilities; (ii) a significant reduction by the Company in the Base Salary of the Executive as in effect immediately prior to such reduction; (iii) a material reduction by the Company in the kind or level of employee benefits to which the Executive is entitled immediately prior to such reduction with the result that the Executive’s overall benefits package is significantly reduced; (iv) the relocation of the Executive to a facility or a location more than 50 miles from the Executive’s then present location; (v) a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the Executive immediately prior to such reduction; (vi) any material breach of this Agreement by the Company; or (vii) any failure or refusal of a successor company to assume the Company’s obligations under this Agreement. The Company’s hiring of a CEO will not amount to Good Reason under this Agreement. Executive’s loss of the title and duties associated with the position CFO will not amount to Good Reason under this Agreement provided that he maintains the title and duties associated with the position President or a higher level position.      7. Right to Advice of Counsel. The Executive acknowledges that he has consulted with counsel and is fully aware of his rights and obligations under this Agreement.      8. Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption agreement prior to the effectiveness of any such succession shall entitle the Executive to the benefits described in paragraph 6 of this Agreement, subject to the terms and conditions therein. -3- --------------------------------------------------------------------------------        9. Assignment. This Agreement and all rights under this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees, successors and assigns. This Agreement is personal in nature, and neither of the parties to this Agreement shall, without the written consent of the other, assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity; except that the Company may assign this Agreement to any of its affiliates or wholly-owned subsidiaries, provided, that such assignment will not relieve the Company of its obligations hereunder. If the Executive should die while any amounts are still payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.      10. Notices. All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given (i) on the date of delivery, or, if earlier, (ii) one (1) day after being sent by a well-established commercial overnight service, or (iii) three (3) 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 Executive:   Gary M. Beasley         148 Waldo Ave.         Piedmont, CA         94611         If to the Company:   Zip Realty Inc.         2000 Powell St., Suite 300         Emeryville, CA         94608 or to such other address or the attention of such other person as the recipient party has previously furnished to the other party in writing in accordance with this paragraph.      11. Waiver. Failure or delay on the part of either party hereto to enforce any right, power, or privilege hereunder shall not be deemed to constitute a waiver thereof. Additionally, a waiver by either party or a breach of any promise hereof by the other party shall not operate as or be construed to constitute a waiver of any subsequent waiver by such other party. -4- --------------------------------------------------------------------------------        12. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.      13. Arbitration.           (a) Arbitration. In consideration of Executive’s employment with the “Company”, its promise to arbitrate all employment-related disputes and Executive’s receipt of the compensation, pay raises and other benefits paid to Executive by the Company, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive’s employment with the Company or the termination of Executive’s employment with the Company, including any breach of this agreement, shall be subject to binding arbitration under the arbitration rules set forth in California Code of Civil Procedure Section 1280 through 1294.2, including Section 1283.05 (the “Rules”) and pursuant to California law. Disputes which Executive agrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include any statutory claims under State or Federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the California Fair Employment and Housing Act, the California Labor Code, claims of harassment, discrimination or wrongful termination and any statutory claims. Executive further understands that this agreement to arbitrate also applies to any disputes that the Company may have with Executive.           (b) Procedure. Executive agrees that any arbitration will be administered by the American Arbitration Association (“AAA”) and that a neutral arbitrator will be selected in a manner consistent with its national rules for the resolution of employment disputes. The arbitration proceedings will allow for discovery according to the rules set forth in the National Rules for the Resolution of Employment Disputes. Executive agrees that the arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. Executive agrees that the arbitrator shall issue a written decision on the merits. Executive also agrees that the arbitrator shall have the power to award any remedies, including attorneys’ fees and costs, available under applicable law. Executive understands the Company will pay for any administrative or hearing fees charged by the arbitrator or AAA except that Executive shall pay the first $125.00 of any filing fees associated with any arbitration Executive initiates. Executive agrees that the arbitrator shall administer and conduct any arbitration in a manner consistent with the rules and that to the extent that the AAA’s National Rules for the Resolution of Employment Disputes conflict with the rules, the rules shall take precedence.           (c) Remedy. Except as provided by the rules, arbitration shall be the sole, exclusive and final remedy for any dispute between Executive and the Company. Accordingly, except as provided for by the rules, neither Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not -5- --------------------------------------------------------------------------------   have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator shall not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted.           (d) Availability of injunctive relief. In accordance with Rule 1281.8 of the California Code of Civil Procedure, Executive agrees that any party may also petition the court for injunctive relief where either party alleges or claims a violation of the employment, confidential information, invention assignment agreement between Executive and the Company or any other agreement regarding trade secrets, confidential information, nonsolicitation or Labor Code §2870. In the event either party seeks injunctive relief, the prevailing party shall be entitled to recover reasonable costs and attorneys fees.           (e) Administrative relief. Executive understands that this agreement does not prohibit Executive from pursuing an administrative claim with a local, state or federal administrative body such as the department of fair employment and housing, the equal employment opportunity commission or the workers’ compensation board. This agreement does, however, preclude Executive from pursuing court action regarding any such claim.           (f) Voluntary Nature of Agreement. Executive acknowledges and agrees that Executive is executing this agreement voluntarily and without any duress or undue influence by the Company or anyone else. Executive further acknowledges and agrees that Executive has carefully read this agreement and that Executive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this agreement and fully understand it, including that Executive is waiving Executive’s right to a jury trial. Finally, Executive agrees that he/she has been provided an opportunity to seek the advice of an attorney before signing this agreement.      14. Integration. This Agreement, together with the 2004 Plan, the Executive’s Stock Option Agreement and the Zip Realty Employee Proprietary Information Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by the Company.      15. Headings. The headings of the paragraphs contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this Agreement.      16. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws, and not the choice of law rules, of the State of California. Executive hereby consents to the exclusive personal jurisdiction and venue of the courts of the federal and state courts in the State of California.      17. Counterparts. This Agreement may be executed in one or more counterparts, none of which need contain the signature of more than one party hereto, and each of which shall be deemed to be an original, and all of which together shall constitute a single agreement.      18. Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes. -6- --------------------------------------------------------------------------------        19. Acknowledgment. Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. -7- --------------------------------------------------------------------------------        IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by their duly authorized officers, as of the day and year first above written. COMPANY: ZipRealty Inc.                   By:    /s/ Donald F. Wood   Date:   5/15/06     Title:   Chairman of the Board       EXECUTIVE:     /s/ Gary M. Beasley   Date:   5/15/06 Gary M. Beasley -8- --------------------------------------------------------------------------------   EXHIBIT A ZIPREALTY, INC. CHANGE OF CONTROL AGREEMENT      This Change of Control Agreement (the “Agreement”) is made and entered into by and between ZipRealty, Inc., a Delaware corporation (the “Company”), and the individual whose name is set forth on the signature page to this Agreement (the “Executive”). R E C I T A L S      A.   It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control. The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Executive and can cause the Executive to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication and objectivity of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control of the Company.      B.   The Board believes that it is in the best interests of the Company and its shareholders to provide the Executive with an incentive to continue his employment and to motivate the Executive to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.      C.   Certain capitalized terms used in the Agreement are defined in Section 4 below.      NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereto agree as follows:      1.   Term of Agreement. This Agreement shall terminate upon the date that all obligations of the parties hereto with respect to this Agreement have been satisfied.      2.   At-Will Employment. The Company and the Executive acknowledge that the Executive’s employment is and shall continue to be at-will, as defined under applicable law. If the Executive’s employment terminates for any reason, including (without limitation) any termination prior to a Change of Control, the Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company’s established Executive plans and practices or pursuant to other agreements with the Company.      3.   Benefits.           (a)   Termination Following A Change of Control. In the event that a Change of Control of the Company occurs and during the period beginning on the closing date of the transaction giving rise to such Change of Control and ending 12 months after such closing date, the Executive’s employment with the Company (or the successor entity in such Change of Control transaction) is either (a) terminated by the Company (or its successor entity) without Cause or (b) is Constructively Terminated by the Executive, then fifty percent (50%) of all unvested Stock Rights as of such date shall become fully vested on the date of such termination. A-1 --------------------------------------------------------------------------------             (b)   Termination For Cause. If the Executive’s employment terminates by reason of the Executive’s voluntary resignation (and is not a Constructive Termination), or if the Executive is terminated for Cause, then the Executive shall not be entitled to receive the accelerated vesting of Stock Rights set forth in Section 3(a) above.           (c)   Termination Apart from Change of Control. In the event the Executive’s employment is terminated for any reason, either prior to the occurrence of a Change of Control or after the twelve (12)-month period following a Change of Control, then the Executive will be entitled to receive severance and any other benefits only as may then be established under the Company’s existing written severance and benefits plans and practices or pursuant to other written agreements with the Company.      4.   Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:           (a)   Cause. “Cause” means (i) the Executive’s failure to perform (other than due to mental or physical disability or death) the duties of Executive’s position (as they may exist from time to time) to the reasonable satisfaction of the Company (or the successor corporation) after receipt of a written warning and failure to cure any such non-performance within ten business days of receipt of such written warning; (ii) any act of dishonesty taken in connection with the Executive’s responsibilities as an Executive that is intended to result in such Executive’s personal enrichment; (iii) the Executive’s conviction or plea of no contest to a crime that negatively reflects on the Executive’s fitness to perform Executive’s duties or harms the Company’s (or the successor corporation’s) reputation or business; (iv) willful misconduct by the Executive that is injurious to the Company’s (or the successor corporation’s) reputation or business; or (v) the Executive’s willful violation of a material Company employment policy. For purposes of this definition, an act or failure to act will be deemed “willful” if effected not in good faith or without reasonable belief that such action or failure to act was in the best interests of the Company (or the successor corporation).           (b)   “Change in Control” means the occurrence of any of the following events:                     (i)   Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or                     (ii)   The approval by shareholders of the sale or disposition by the Company of all or substantially all of the Company’s assets;                     (iii)   A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who either (A) are Directors as of the effective date of the A-2 --------------------------------------------------------------------------------   Plan, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or                     (iv)   The approval by shareholders of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.      For purposes of clauses (i) and (iii) above, such Change of Control shall be deemed to have occurred on the date on which the transaction closes; for the purpose of clauses (ii) and (iv) above, such Change of Control shall be deemed to have occurred on the date on which the Company’s shareholders approve a transaction described in that clause. Notwithstanding the foregoing, the reincorporation of the Company in Delaware (or any other jurisdiction) shall not constitute a Change of Control for purposes of this Agreement.           (c)   Constructive Termination. “Constructive Termination” shall mean the occurrence of any of the following without the Executive’s express written consent (i) the assignment to the Executive of any duties or the reduction of the Executive’s duties, either of which results in a significant diminution in the Executive’s position or responsibilities in effect immediately prior to such assignment, or the removal of the Executive from such position and responsibilities, provided, however that changes in the circumstances of employment which are solely the result of changes in corporate legal structure resulting directly from the Change of Control shall not constitute a basis for Constructive Termination; (ii) a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the Executive immediately prior to such reduction; (iii) a material reduction by the Company in the cash compensation of the Executive as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of employee benefits to which the Executive is entitled immediately prior to such reduction with the result that the Executive’s overall benefits package is significantly reduced; or (v) the relocation of Executive’s principal place of employment to a facility or a location more than 50 miles from the Executive’s then present location.           (d)   Stock Rights. “Stock Rights” shall mean all options or rights to acquire shares of Company Common Stock, or stock appreciation rights, performance units or performance shares (whether such awards are payable in cash, shares of Company Common Stock or otherwise), under plans, agreements or arrangements which are compensatory in nature, including, without limitation, the Company’s 1999 Stock Plan and 2004 Equity Incentive Plan, and any restricted stock purchase agreement between the Company and the Executive. A-3 --------------------------------------------------------------------------------        5.   Successors.           (a)   Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this Section 5(a) or which becomes bound by the terms of this Agreement by operation of law.           (b)   Executive’s Successors. The terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.      6.   Notice.           (a)   General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to the Executive at his or her home address most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.           (b)   Notice of Termination. Any termination by the Company for Cause or by the Executive as a result of a voluntary resignation or a Constructive Termination shall be communicated by a notice of termination to the other party hereto given in accordance with Section 6(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than 30 days after the giving of such notice). The failure by the Executive to include in the notice any fact or circumstance which contributes to a showing of Constructive Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing Executive’s rights hereunder.      7.   Miscellaneous Provisions.           (a) No Duty to Mitigate. The Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source.           (b)   Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by A-4 --------------------------------------------------------------------------------              either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.           (c)   Headings. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.           (d)   Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement represents the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior arrangements and understandings regarding the same. No future agreements between the Company and the Executive may supersede this Agreement, unless they are in writing and specifically mention this Section 7(d).           (e)   Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California (with the exception of its conflict of laws provisions).           (f)   Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.           (g)   Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. * * * A-5 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, each of the parties has executed this Change in Control Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below.           COMPANY: ZIPREALTY, INC.       By:   /s/ Eric A. Danziger         Name:   Eric A. Danziger        Title:   President and Chief Executive Officer        Date:   August 30, 2004                 EXECUTIVE:  Name: Gary M. Beasley       /s/ Gary M. Beasley       (Signature)            A-6

  Exhibit 10.51 [Form of Supplemental Bonus Agreement (SVPs, EVPs & SVPOs] FISCAL YEAR 2007 SUPPLEMENTAL BONUS AGREEMENT      This FISCAL YEAR 2007 SUPPLEMENTAL BONUS AGREEMENT (this “Agreement”) was adopted by the Committee pursuant to the Sysco Corporation 2006 Supplemental Performance Based Bonus Plan (the “Plan”), and agreed to by the Company and Executive effective __________, 2006. This Agreement is for the Fiscal Year ending June 30, 2007 (the “Fiscal Year”). Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Plan.      1. Establishment of Performance Goals. Executive and the Company hereby agree to the goals and objectives set forth on Exhibit “A” attached hereto for the Fiscal Year (the “Performance Goals”). Executive acknowledges and agrees that for purposes of this Agreement Executive’s performance will be measured using the Performance Goals.      2. Evaluation of Performance. (a) Within 90 days after the end of the Fiscal Year, the Committee shall complete an evaluation of Executive’s performance for such Fiscal Year against the Performance Goals for the Fiscal Year. Executive will be evaluated, together with certain other designated Participants under the Plan, as a group (the “Management Team”), based on the Committee’s judgment of the Management Team’s alignment with (i) the Company’s Fiscal Year goals; and (ii) the strategy initiatives of the Company. In addition, Executive will be evaluated individually based on the Executive’s contribution to maximizing the Management Team’s collective performance.      3. Calculation of Bonus. Based upon the evaluation of the Management Team and Executive with respect to achievement of the Performance Goals, Executive’s compensation for the Fiscal Year will be adjusted, in the Committee’s sole discretion, as follows:                (i) Performance Exceeds Expectations. If Executive’s performance for the Fiscal Year “exceeds expectations,” Executive will be entitled to receive a cash bonus under the Plan of up to 25% (as determined by the Plan Committee in its sole and absolute discretion) of Executive’s MIP Bonus with respect to that Fiscal Year (a “Performance Bonus”).                (ii) Performance Meets Expectations. If Executive’s performance for the Fiscal Year “meets expectations,” Executive shall not be entitled to receive a cash bonus under the Plan as set forth in Section 3(a)(i) above, nor shall Executive’s MIP Bonus be subject to reduction as set forth in Section 3(a)(iii) below.                (iii) Performance Below Expectations. If Executive’s performance for the Fiscal Year is “below expectations,” Executive’s MIP Bonus for such Fiscal Year will be reduced by up to 25% of such MIP Bonus (as determined by the Committee in its sole discretion) (the “Forfeited Amount”). The amount of Additional Shares and Additional Cash Bonus awarded to the Executive under the MIP shall be determined after reducing the MIP Bonus by the Forfeited Amount. [For the agreements with Messrs. Stubblefield, Accardi and Spitler: Notwithstanding anything to the contrary contained herein, Executive shall not be entitled to a Performance Bonus under this Agreement unless Executive is otherwise eligible to receive a MIP Bonus for the Fiscal Year.][For the agreements with all other EVPs, SVPs and SVPOs: Notwithstanding anything to the contrary contained herein, Executive shall not be entitled to a Performance Bonus under this Agreement unless the Company achieves an Increase in Earnings per Share (as such terms are defined in the MIP) of at least ___% and a Return on Stockholders Equity of at least ___% for the Fiscal Year (as such terms are defined in the MIP).]   --------------------------------------------------------------------------------             (b) MIP Bonus. The term “MIP Bonus” means the bonus earned by Executive under the MIP for the Fiscal Year, without regard to any additional amounts the Executive may be entitled to receive under the MIP as a result of elections made by Executive. For the avoidance of doubt, the MIP Bonus shall not include any Company matching contributions resulting from the deferral of all or a portion of the MIP Bonus under the Sysco Corporation Executive Deferred Compensation Plan (“EDCP”).           (c) Committee Discretion. All determinations required pursuant to this Section 3 shall be made by the Committee in its sole and absolute discretion.      4. Performance Bonus. If earned in accordance with Section 3(a)(i) above, the Performance Bonus will be paid in cash as soon administratively feasible following the Company’s determination of Executive’s MIP Bonus amount; provided however, that the Performance Bonus must be paid before the later of (i) the date that is 2 1/2 months from the end of Executive’s first taxable year in which the Performance Bonus is no longer subject to a substantial risk of forfeiture or (ii) the date that is 2 1/2 months from the end of Company’s first taxable year in which the amount is no longer subject to a substantial risk of forfeiture, it being the intent of the parties that the compensation paid pursuant to this Agreement not in any way be subject to Section 409A of the Code (and this clause shall be interpreted in a manner that is consistent therewith). In addition, in no event will the Performance Bonus increase the amount of compensation earned by Executive under the MIP (by way of example, the Performance Bonus will not increase either the “Additional Shares” or the “Additional Cash Bonus” (as such terms are defined in the MIP) pursuant to Sections 6(A) and 6(B) of the MIP).      5. Termination of Employment. [For the agreements with Messrs. Stubblefield, Accardi and Spitler: If Executive’s employment with the Company terminates for any reason prior to the end of the Fiscal Year, including, without limitation, as a result of death, disability or following a change of control of the Company: (a) Section 3(a)(i) will be applied by treating the date Executive’s employment terminates as the end of the Fiscal Year for purposes of such Section if, under the terms of any Executive Severance Agreement by and between Executive and Company (the “Severance Agreement”), Executive is entitled to receive a MIP Bonus for the Fiscal Year, (b) Section 3(a)(i) will not apply for the Fiscal Year (i.e., Executive will not be eligible to receive a Performance Bonus under this Agreement) if, under the terms of any Severance Agreement, Executive is not entitled to receive a MIP Bonus for the Fiscal Year, (c) in no event will Section 3(a)(iii) apply to Executive (i.e., Executive’s MIP Bonus will not be subject to reduction regardless of whether his performance immediately prior to the date of his termination was “below expectations”).][For the agreements with all other EVPs, SVPs and SVPOs: If Executive’s employment with the Company terminates for any reason prior to the end of the Fiscal Year, including, without limitation, as a result of death, disability or following a change of control of the Company, Executive shall not be entitled to any Performance Bonus for such Fiscal Year.]      6. Waiver of Forfeited Amount. In consideration for the opportunity to earn the Performance Bonus, Executive hereby unconditionally waives his right to receive the Forfeited Amount.      7. Withholding Taxes. The Company may withhold from all payments due to Executive hereunder all taxes that, by applicable federal, state, local or other law, the Company is required to withhold therefrom.      8. Term of Agreement. This Agreement shall be effective only for this Fiscal Year (i.e., the fiscal year ending June 30, 2007). 2 --------------------------------------------------------------------------------        9. Successors; Binding Agreement.           (a) This Agreement shall be binding on the Company, its successors and assigns.           (b) This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts remain to be payable to Executive hereunder had Executive continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive’s estate.      10. Governing Law. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the state of Delaware without regard to the principle of conflicts of laws.      11. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.      12. Severability. Provided the other provisions of this Agreement do not frustrate the purpose and intent of the law, in the event that any portion of this Agreement shall be determined to be invalid or unenforceable to any extent, the same shall to that extent be deemed severable from this Agreement and the invalidity or unenforceability thereof shall not affect the validity and enforceability of the remaining portion of this Agreement.      13. Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Except as otherwise specifically provided herein, the rights of, and benefits payable to, Executive, Executive’s estate or Executive’s beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, Executive’s estate or Executive’s beneficiaries under any other employee benefit plan or compensation Agreement of the Company, except as herein specifically provided.      IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written.                         SYSCO CORPORATION   EXECUTIVE               By:                        Title:                      3 --------------------------------------------------------------------------------   Exhibit A Supplemental Performance-Based Bonus Agreement Between Sysco Corporation and Executive Fiscal 2007 Performance Goals 1.   Achieve Positive Results in Enterprise-Wide Goals (___%)   •   Achieve sales growth of greater than ___%     •   Reduce cost per case by more than ___cents per case     •   Achieve accident frequency of ___or less per 100 employees     •   Achieve a return on equity of at least ___% 2.   Develop Executive Leadership for Current and Future Needs (___%)   3.   Improve Communications between Operating Companies and between Operating Companies and the Corporate Office (___%)   4.   Contribute to the development and execution of the strategy initiatives and implement effectively throughout the enterprise. Executive/Senior Management team models a collaborative approach in implementing strategy. (___%) Note: Section 4(B) of the Plan allows the MIP Bonus to be increased or decreased by up to 25%. The percentages in parentheses at the end of each item represent the percentage points attributed to that particular goal included in the aggregate 25% by which the MIP Bonus may be increased or decreased.

Exhibit 10.3 [Smurfit-Stone Container Corporation Letterhead] May 10, 2006 Mr. John M. Riconosciuto 300 Oakwood Court Wheaton, IL  60187 Dear John: This letter will set forth our understanding regarding the termination of the Employment Agreement dated August 1, 2000 (the “Employment”) between Smurfit-Stone Container Corporation (the “Company”) and you. It is understood and agreed that you are voluntarily resigning as Chief Operating Officer, effective today, and are assuming a management position with the purchaser of the Company’s Consumer Packaging Division (the “Purchaser”). The Employment Agreement shall be terminated as of today, and all rights and obligations of both the Company and you thereunder shall be considered fully and forever released and discharged. Notwithstanding the termination of the Employment Agreement, however, (a) you will remain on the payroll of the Company at your current salary level and remain enrolled in all insurance plans as an active employee until the earlier of the date of the closing of the sale of the Consumer Packaging Division (the “Closing Date”) or June 30, 2006; and (b) provided that the sale of the Consumer Packaging Division is completed on the general terms presently contemplated, you will receive a payment on the Closing Date equal to 50% of your current salary, subject to applicable withholdings. The Company will also reimburse you for any incurred and unpaid business expenses through the date hereof, provided that such expenses are submitted in accordance with normal procedures prior to the Closing Date. The 250,000 outperformance stock options granted to you on March 2, 2006, 87,500 of the other stock options granted to you on March 2, 2006, the 50,000 restricted stock units granted to you on November 1, 2005, and 31,167 of the restricted stock units granted to you on March 2, 2006 will be forfeited on the date hereof. All other stock options and restricted stock units held by you will be treated in the same fashion as stock options and restricted stock units held by employees of the Consumer Packaging Division that are employed by the Purchaser. If the foregoing accurately sets forth our understanding, please execute the enclosed copy of the letter and return it to me.   Sincerely yours,               Smurfit-Stone Container Corporation                         By:   /s/ Patrick J. Moore         Patrick J. Moore         Chairman, President and         Chief Executive Officer           ACCEPTED AND AGREED         AS OF MAY 10, 2006                             /s/ John M. Riconosciuto             John M. Riconosciuto           --------------------------------------------------------------------------------