Exhibit 10.15

EXECUTION COPY

 

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U.S.$200,000,000

LOAN FUNDING AND SERVICING AGREEMENT

by and among

KOHLBERG CAPITAL FUNDING LLC I,

as the Borrower

KOHLBERG CAPITAL CORPORATION,

as the Servicer

EACH OF THE CONDUIT LENDERS AND INSTITUTIONAL LENDERS FROM TIME

TO TIME PARTY HERETO,

as the Lenders

EACH OF THE LENDER AGENTS FROM TIME TO TIME PARTY HERETO

as the Lender Agents

BMO CAPITAL MARKETS CORP.,

as the Agent

LYON FINANCIAL SERVICES, INC.

(D/B/A U.S. BANK PORTFOLIO SERVICES),

as the Backup Servicer

and

U.S. BANK NATIONAL ASSOCIATION,

as the Trustee

Dated as of February 14, 2007

 

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TABLE OF CONTENTS

 

         Page

ARTICLE I        DEFINITIONS

   1

        Section 1.1

  Certain Defined Terms    1

        Section 1.2

  Other Terms    51

        Section 1.3

  Computation of Time Periods    51

        Section 1.4

  Interpretation    51

        Section 1.5

  Section References    52

        Section 1.6

  Calculations    52

ARTICLE II        PURCHASE OF THE VARIABLE FUNDING NOTE

   52

        Section 2.1

  The Variable Funding Note    52

        Section 2.2

  Procedures for Advances by the Lenders    54

        Section 2.3

  Optional Changes in Facility Amount; Prepayments    55

        Section 2.4

  Deemed Collections    56

        Section 2.5

  Notations on Variable Funding Notes    57

        Section 2.6

  Principal Repayments    57

        Section 2.7

  Interest Payments    57

        Section 2.8

  Settlement Procedures    58

        Section 2.9

  Collections and Allocations    62

        Section 2.10

  Payments, Computations, Etc    63

        Section 2.11

  [Reserved]    63

        Section 2.12

  Fees    63

        Section 2.13

  Increased Costs; Capital Adequacy; Illegality    64

        Section 2.14

  Taxes    65

        Section 2.15

  Assignment of the Purchase Agreement    68

        Section 2.16

  Lien Release Dividend    68

        Section 2.17

  Appointment of Registrar and Duties    71

        Section 2.18

  Substitution of Loans; Repurchase or Substitution of Ineligible Loans    71

        Section 2.19

  Discretionary Sales of Loans    74

        Section 2.20

  Certain Trading Restrictions    76

ARTICLE III        CLOSING; CONDITIONS OF CLOSING AND ADVANCES

   76

        Section 3.1

  Conditions to Closing and Initial Advances    76

        Section 3.2

  Conditions Precedent to All Advances    77

ARTICLE IV        REPRESENTATIONS AND WARRANTIES

   79

        Section 4.1

  Representations and Warranties of the Borrower    79

        Section 4.2

  Representations and Warranties of the Borrower Relating to the Agreement and
the Loans    87

ARTICLE V        GENERAL COVENANTS OF THE BORROWER

   88

        Section 5.1

  Covenants of the Borrower    88

        Section 5.2

  Hedging Agreements    93

 

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         Page

        Section 5.3

  Delivery of Loan Files    95

ARTICLE VI        PERFECTION OF TRANSFER AND PROTECTION OF SECURITY INTERESTS

   96

        Section 6.1

  Custody of Transferred Loans    96

        Section 6.2

  Filing    96

        Section 6.3

  Changes in Name, Structure or Location    96

        Section 6.4

  Chief Executive Office    97

        Section 6.5

  Costs and Expenses    97

        Section 6.6

  Sale Treatment    97

        Section 6.7

  Separateness from the Borrower    97

ARTICLE VII        ADMINISTRATION AND SERVICING OF LOANS

   97

        Section 7.1

  Appointment of the Servicer    97

        Section 7.2

  Duties and Responsibilities of the Servicer    98

        Section 7.3

  Authorization of the Servicer    99

        Section 7.4

  Collection of Payments    100

        Section 7.5

  Servicer Advances    102

        Section 7.6

  Realization Upon Defaulted Loans    102

        Section 7.7

  Maintenance of Insurance Policies    103

        Section 7.8

  Representations and Warranties of the Servicer    103

        Section 7.9

  Covenants of the Servicer    106

        Section 7.10

  The Trustee    109

        Section 7.11

  Representations and Warranties of the Trustee    114

        Section 7.12

  Covenants of the Trustee    115

        Section 7.13

  The Backup Servicer    116

        Section 7.14

  Representations and Warranties of the Backup Servicer    119

        Section 7.15

  Covenants of the Backup Servicer    120

        Section 7.16

  Payment of Certain Expenses by the Servicer and the Borrower    121

        Section 7.17

  Reports    121

        Section 7.18

  Annual Statement as to Compliance    122

        Section 7.19

  Annual Independent Public Accountant’s Servicing Reports    122

        Section 7.20

  Limitation on Liability of the Servicer and Others    123

        Section 7.21

  The Servicer, the Backup Servicer and the Trustee Not to Resign    123

        Section 7.22

  Access to Certain Documentation and Information Regarding the Loans    124

        Section 7.23

  [Reserved]    124

        Section 7.24

  Identification of Records    124

        Section 7.25

  Servicer Termination Events    124

        Section 7.26

  Appointment of Successor Servicer    126

        Section 7.27

  Market Servicing Fee    128

ARTICLE VIII        SECURITY INTEREST

   129

        Section 8.1

  Grant of Security Interest    129

        Section 8.2

  Release of Lien on Loans    129

 

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         Page

        Section 8.3

  [Reserved]    130

        Section 8.4

  Further Assurances    130

        Section 8.5

  Remedies    130

        Section 8.6

  Waiver of Certain Laws    130

        Section 8.7

  Power of Attorney    131

ARTICLE IX        TERMINATION EVENTS

   131

        Section 9.1

  Termination Events    131

        Section 9.2

  Remedies    133

ARTICLE X        INDEMNIFICATION

   134

        Section 10.1

  Indemnities by the Borrower    134

        Section 10.2

  Indemnities by the Servicer    137

ARTICLE XI        THE AGENT

   138

        Section 11.1

  Authorization and Action    138

        Section 11.2

  Delegation of Duties    138

        Section 11.3

  Exculpatory Provisions    138

        Section 11.4

  Reliance    139

        Section 11.5

  Non-Reliance on Agent    139

        Section 11.6

  The Agent in its Individual Capacity    140

        Section 11.7

  Successor Agent    140

        Section 11.8

  Payments by the Agent    140

        Section 11.9

  Credit Decision with respect to the Agent    140

        Section 11.10

  Indemnification of the Agent    141

ARTICLE XII        MISCELLANEOUS

   141

        Section 12.1

  Amendments and Waivers    141

        Section 12.2

  Notices, Etc    142

        Section 12.3

  Liabilities to Obligors    142

        Section 12.4

  No Waiver, Rights and Remedies    142

        Section 12.5

  Binding Effect    142

        Section 12.6

  Term of this Agreement    143

        Section 12.7

  GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF OBJECTION TO VENUE    143

        Section 12.8

  WAIVER OF JURY TRIAL    143

        Section 12.9

  Costs, Expenses and Taxes    143

        Section 12.10

  No Proceedings    144

        Section 12.11

  Recourse Against Certain Parties    144

        Section 12.12

  Protection of Security Interest; Appointment of Attorney-in-Fact    145

        Section 12.13

  Confidentiality    146

        Section 12.14

  Third Party Beneficiaries    147

        Section 12.15

  Execution in Counterparts; Severability; Integration    147

        Section 12.16

  Waiver of Setoff    147

 

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         Page

        Section 12.17

  Assignments by the Lenders    148

        Section 12.18

  Heading and Exhibits    148

        Section 12.19

  Sharing of Payments on Transferred Loans Subject to the Retained Interest
Provisions    148

        Section 12.20

  Non-Confidentiality of Tax Treatment    149

        Section 12.21

  Representations and Warranties of the Lenders    149

        Section 12.22

  Lender Agents.    149

        Section 12.23

  Relationship    149

 

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ANNEXES

 

ANNEX A

  Notice Information

ANNEX B

  Commitments

ANNEX C

  Diversity Score

ANNEX D

  Lenders’ Accounts

EXHIBITS

 

EXHIBIT A-1

  Borrower Notice (Funding Request)

EXHIBIT A-2

  Borrower Notice (Reduction of Advances Outstanding and Reduction of Facility
Amount)

EXHIBIT B

  Form of Variable Funding Note

EXHIBIT C

  Form of Operating Agreement

EXHIBIT D

  Form of Assignment and Acceptance

EXHIBIT E

  Form of Monthly Report

EXHIBIT F

  Form of Servicer’s Certificate

EXHIBIT G

  Credit and Collection Policy

EXHIBIT H-1

  Form of Hedging Agreement (including Schedule and Confirmation) Relating to
Interest Rate Hedge Transactions

EXHIBIT H-2

  Form of Hedging Agreement (including Schedule and Confirmation) relating to
Currency Hedge Transactions

EXHIBIT I

  Form of Certificate of Borrower’s Counsel

EXHIBIT J

  Form of Trust Receipt and Initial Certification

EXHIBIT K

  Form of Trust Receipt and Final Certification

EXHIBIT L

  Form of Request for Release of Loan Files and Receipt

EXHIBIT M

  Form of Assignment of Mortgage

EXHIBIT N

  Form of Reinvestment Certification

EXHIBIT O-1

  Officer’s Certificate as to Solvency from Originator

EXHIBIT O-2

  Officer’s Certificate as to Solvency from Borrower

EXHIBIT P-1

  Officer’s Closing Certificate from Originator

EXHIBIT P-2

  Officer’s Closing Certificate from Borrower

EXHIBIT Q-1

  Power of Attorney from Servicer

EXHIBIT Q-2

  Power of Attorney from Borrower

EXHIBIT R

  Form of Joinder Supplement

EXHIBIT S

  [Reserved]

EXHIBIT T

  Form of Agent and Intercreditor Provisions for Agented Loans

EXHIBIT U

  [Reserved]

EXHIBIT V

  Form of Transferee Letter   SCHEDULES

SCHEDULE I

  Schedule of Documents

SCHEDULE II

  Advance Rate Matrices

SCHEDULE III

  [Reserved]

SCHEDULE IV

  Loan List

SCHEDULE V

  Location of Loan Files

 

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PREAMBLE

THIS LOAN FUNDING AND SERVICING AGREEMENT (such agreement as amended, modified,
waived, supplemented or restated from time to time, the “Agreement”) is made as
of this 14th day of February, 2007, by and among:

(1) KOHLBERG CAPITAL FUNDING LLC I, a Delaware limited liability company, as the
borrower (together with its successors and assigns in such capacity, the
“Borrower”);

(2) KOHLBERG CAPITAL CORPORATION, a Delaware corporation (“Kohlberg Capital”),
as the servicer (together with its successors and assigns in such capacity, the
“Servicer”);

(3) EACH OF THE CONDUIT LENDERS AND INSTITUTIONAL LENDERS, which may from time
to time become party hereto (each a “Lender”, and collectively, the “Lenders”);

(4) EACH OF THE LENDER AGENTS, which may from time to time become party hereto,
as Lender Agent;

(5) BMO CAPITAL MARKETS CORP., a Delaware corporation (“BMO”), as the Agent
(together with its successors and assigns in such capacity, the “Agent”);

(6) LYON FINANCIAL SERVICES, INC., (d/b/a U.S. Bank Portfolio Services), as the
backup servicer (together with its successors and assigns in such capacity, the
“Backup Servicer”; and

(7) U.S. BANK NATIONAL ASSOCIATION, a national banking association (“U.S.
Bank”), not in its individual capacity, but solely as the trustee (together with
its successors and assigns in such capacity, the “Trustee”).

IT IS AGREED as follows:

ARTICLE I

DEFINITIONS

 

  Section 1.1 Certain Defined Terms.

(a) Certain capitalized terms used throughout this Agreement are defined above
or in this Section 1.1.

(b) As used in this Agreement and its schedules, exhibits and other attachments,
unless the context requires a different meaning, the following terms shall have
the following meanings:

“1940 Act”: The Investment Company Act of 1940, as amended.

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“Accepted Servicing Practices”: The servicing practices and collection
procedures of the Servicer that are in accordance with Applicable Law and which
are consistent with whichever is the higher standard of (i) customary servicing
practices of prudent institutions which service loans and other financial assets
similar to the Transferred Loans for their own account or for the account of
others and (ii) the same care, skill, prudence and diligence with which the
Servicer services and administers loans or other financial assets which are
similar to the Transferred Loans serviced or administered pursuant to this
Agreement, for its own account or for the account of others.

“Account Control Agreement”: The Securities Account Control Agreement, dated as
of February 14, 2007, by and among U.S. Bank National Association as Trustee and
Securities Intermediary, the Borrower, the Servicer and the Agent.

“Accreted Interest”: The accrued interest on a PIK Loan that is added to the
principal amount of such PIK Loan instead of being paid as it accrues.

“Accrual Period”: With respect to each Advance (or portion thereof) (a) with
respect to the first Payment Date, the period from and including the Closing
Date to and including the last day of the calendar month in which the Closing
Date occurs and (b) with respect to any subsequent Payment Date, the calendar
month immediately preceding the month in which such Payment Date occurs.

“Add-On Loan”: Any additional loan or extension of credit made subsequent to any
Loan made by the Originator or one of its Subsidiaries to the Obligor of such
Loan in accordance with the Credit and Collection Policy.

“Adjusted Eurodollar Rate”: For any Accrual Period, an interest rate per annum
equal to a fraction, expressed as a percentage and rounded upwards (if
necessary), to the nearest 1/100 of 1%, (i) the numerator of which is equal to
the LIBOR Rate for such Accrual Period and (ii) the denominator of which is
equal to 100% minus the Eurodollar Reserve Percentage for such Accrual Period.

“Advance”: Defined in Section 2.1(b).

“Advance Rate”: A dynamic number that shall be determined on each Measurement
Date by application of the Advance Rate Matrices set forth in Schedule II based
on:

(a) in the case of the Weighted Average Moody’s Recovery Rate, (i) the actual
level thereof (if such level is equal to any of the Weighted Average Moody’s
Recovery Rate levels specified in the Advance Rate Matrices) or (ii) otherwise,
the Weighted Average Moody’s Recovery Rate indicated in the Advance Rate
Matrices that is arithmetically closest to, but less than the actual Weighted
Average Moody’s Recovery Rate level;

(b) in the case of the Diversity Score, (i) the actual level thereof (if such
level is equal to any of the Diversity Score levels specified in the Advance
Rate Matrices) or (ii) otherwise, the Diversity Score indicated in the Advance
Rate Matrices that is arithmetically closest to, but less than the actual
Diversity Score level; and

 

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(c) in the case of each of the Weighted Average Moody’s Rating Factor, (i) the
actual level thereof (if such level is equal to any of the Weighted Average
Moody’s Rating Factor levels specified in the Advance Rate Matrices) or
(ii) otherwise, the Weighted Average Moody’s Rating Factor indicated in the
Advance Rate Matrices that is arithmetically closest to, but less than the
actual Weighted Average Moody’s Rating Factor level, in each case as of such
Measurement Date.

“Advances Outstanding”: On any day, the aggregate principal amount of Advances
outstanding on such day, after giving effect to all repayments of Advances and
makings of new Advances on such day.

“Affected Party”: The Agent, each Lender, each Liquidity Bank, all assignees and
participants of each Lender and each Liquidity Bank, any successor to BMO as
Agent and any sub-agent of the Agent.

“Affiliate”: With respect to a Person, means any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, “control” when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms “controlling” or “controlled” have meanings correlative
to the foregoing; provided that (x) in the case of the Servicer or any
Subsidiary, “Affiliate” shall not include any Person that is a Portfolio
Investment and (y) the term Affiliate shall not include any Affiliate
relationship which may exist solely as a result of direct or indirect ownership
of, or control by (i) a Financial Sponsor, or (ii) a common owner which is a
financial institution, fund or other investment vehicle which is in the business
of making diversified investments.

“Agent”: Defined in the Preamble.

“Agented Loans”: Any Loan that has each of the following characteristics:
(a) the Loan is originated or purchased by the Originator in accordance with the
Credit and Collection Policy as a part of a syndicated loan transaction that has
been fully consummated prior to such Loan becoming part of the Collateral,
(b) upon an assignment of the Loan to the Borrower under the Purchase Agreement
and the grant of a security interest in such Loan under this Agreement, the
related Loan File shall have been delivered to the Trustee on behalf of the
Secured Parties, and held by the Trustee, on behalf of the Secured Parties,
(c) the Borrower, as assignee of the Loan, has all of the rights (but none of
the obligations) of the Originator with respect to such Loan and the Related
Property, including the right to receive and collect payments directly in its
own name or through the agent described in clause (e) below and to enforce its
rights against the Obligor thereof, (d) unless the Loan is an unsecured Loan,
the Loan is secured by an undivided interest in the Related Property that also
secures and is shared by, on a pro rata basis, all other holders of such
Obligor’s indebtedness of equal priority and (e) the Originator is the agent for
all lenders to such Obligor; provided that Agented Loans shall not include
(1) the obligations, if any, of any agents under the Loan Documents evidencing
such Agented Loans, and (2) the Retained Interests under the Loan Documents
evidencing such Agented Loans that are retained by the Originator or are owned
or owed by other lenders.

 

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“Aggregate Outstanding Loan Balance”: As of any date of determination, the sum
of the Outstanding Loan Balances of all Eligible Loans included as part of the
Collateral on such date that are not Defaulted Loans plus the Moody’s Collateral
Value of each Defaulted Loan included as part of the Collateral on such date.

“Aggregate Purchased Loan Balance”: As of any date of determination, the sum of
the Purchased Loan Balances of all Eligible Loans included as part of the
Collateral on such date minus (b) all amounts in excess of applicable
Concentration Limits on such date.

“Agreement”: Defined in the Preamble.

“Alternative Rate”: An interest rate per annum equal to the Adjusted Eurodollar
Rate; provided that the Alternative Rate shall be the Base Rate if a Eurodollar
Disruption Event occurs; provided further that the Alternative Rate for the
first two (2) Business Days following any Advance made by a Liquidity Bank shall
be the Base Rate unless such Liquidity Bank has received at least two Business
Days prior notice of such Advance.

“Amortization Period”: The period beginning on the Termination Date and ending
on the Collection Date.

“Applicable Law”: For any Person or property of such Person, all existing and
future applicable laws, rules, regulations (including proposed, temporary and
final income tax regulations), statutes, treaties, codes ordinances, permits,
certificates, orders and licenses of and interpretations by any Governmental
Authority (including, without limitation, usury laws, predatory lending laws,
the Federal Truth in Lending Act, and Regulation Z and Regulation B of the
Federal Reserve Board), and applicable judgments, decrees, injunctions, writs,
orders, or line action of any court, arbitrator or other administrative,
judicial, or quasi-judicial tribunal or agency of competent jurisdiction.

“Approved Pricing Service”: Any of LPC, LoanX, MarkIt or any other pricing
service selected by the Servicer that is Independent of the Servicer and any of
its Affiliates, such Approved Pricing Service to be confirmed by the Servicer to
the Agent within two Business Days of such selection.

“Assigned Moody’s Rating”: With respect to any Loan as of any date of
determination, the monitored publicly available rating or the estimated rating
expressly assigned to such Loan by Moody’s that addresses the full amount of the
principal and interest payable on such Loan.

“Assigned S&P Rating”: With respect to any Loan as of any date of determination,
the monitored publicly available rating or the estimated rating expressly
assigned to such Loan by S&P that addresses the full amount of the principal and
interest payable on such Loan.

“Assignment”: The Assignment entered into between the Originator and the
Borrower in substantially the form of Exhibit A to the Purchase Agreement.

“Assignment and Acceptance”: The Assignment and Acceptance, substantially in the
form of Exhibit D hereto.

 

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“Assignment of Mortgage”: As to each Agented Loan secured by an interest in real
property, one or more assignments, notices of transfer or equivalent
instruments, each in recordable form and sufficient under the laws of the
relevant jurisdiction to (a) reflect the transfer of the related mortgage, deed
of trust, security deed or similar security instrument and all other documents
related to such Loan and to the Borrower and (b) grant a perfected lien thereon
by the Borrower in favor of the Trustee for the benefit of the Secured Parties,
each such Assignment of Mortgage to be substantially in the form of Exhibit M
hereto; provided that with respect to Agented Loans, Assignment of Mortgage
shall mean such documents, including assignments, notices of transfer or
equivalent instruments, each in recordable form as necessary, as are sufficient
under the laws of the relevant jurisdiction to reflect the transfer to the
Originator, as collateral agent for all lenders to the Obligor, of the related
mortgage, deed of trust, security deed or other similar instrument securing such
loans and all other documents relating to such loans and to grant a perfected
lien thereon by the Obligor in favor of the Originator, as collateral agent for
all such lenders.

“Availability”: On any day, the excess, if any, of (a) the Maximum Availability
over (b) the sum of (i) Advances Outstanding on such day and (ii) the aggregate
outstanding principal amount of the unfunded portions of each of the Revolving
Loans included in the Collateral on such day.

“Available Funds”: With respect to any Payment Date, (a) all amounts in the
Collection Account (including, without limitation, any Collections on any of the
Collateral) as of the later of (i) the immediately preceding Determination Date
or (ii) the date of the calculations set forth in the most recent Borrower
Notice and (b) to the extent that the amounts in the preceding clause (a) of
this definition are insufficient on any Payment Date to make the payments
required by (A) Section 2.8(a)(1)(iii), (iv), (v), (vi), (vii) and (xvii), then
amounts on deposit in the Reserve Account on such date, (B) Section 2.8(b)(iii),
(iv), (v), (vi), (vii) and (x), then amounts on deposit in the Reserve Account
on such date.

“Backup Servicer”: Defined in the Preamble.

“Backup Servicer Expenses”: The reasonable out-of-pocket expenses to be paid to
the Backup Servicer under and in accordance with the Backup Servicer and Trustee
Fee Letter.

“Backup Servicer Fee”: The fee to be paid to the Backup Servicer under the terms
of the Backup Servicer and Trustee Fee Letter.

“Backup Servicer and Trustee Fee Letter”: The Backup Servicer and Trustee Fee
Letter, dated as of the date hereof, among the Servicer, the Backup Servicer,
the Trustee and the Agent.

“Bank of Montreal”: The Bank of Montreal, a Canadian chartered bank, acting
through its Chicago, Illinois branch.

“Bankruptcy Code”: The United States Bankruptcy Reform Act of 1978 (11 U.S.C. §§
101, et seq.), as amended from time to time.

“Base Rate”: On any date, a fluctuating rate of interest per annum equal to the
higher of (a) the Prime Rate or (b) the Federal Funds Rate plus 0.5%.

 

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“Benefit Plan”: Any employee benefit plan as defined in Section 3.1(3) of ERISA
in respect of which the Borrower or any ERISA Affiliate of the Borrower is, or
at any time during the immediately preceding six years was, an “employer” as
defined in Section 3.1(5) of ERISA.

“BMO”: Defined in the Preamble.

“Borrower”: Defined in the Preamble.

“Borrowing Base”: On any date of determination, an amount equal to (a) the sum
of (i) the Aggregate Purchased Loan Balance on such date and (ii) the Purchased
Loan Balance of all Eligible Loans to become included as part of the Collateral
on such date, minus (b) the aggregate outstanding principal amount of the
unfunded portions of each of the Revolving Loans included in the Collateral on
such date.

“Borrowing Base Certificate”: A certificate of a Responsible Officer of the
Servicer setting forth the current Borrowing Base as of the date set forth in
such certificate and the manner of calculation thereof, to be delivered to the
parties and at the times specified herein.

“Borrower Notice”: A written notice, in the form of Exhibit A-1 or A-2, as
applicable, to be used for each Advance, repayment of each Advance or
termination or reduction of the Facility Amount or Prepayments of Advances or
any reinvestment of Principal Collections under Section 2.8(a)(2).

“Breakage Costs”: With respect to any Lender, any amount or amounts as shall
compensate such Lender for any loss, cost or expense incurred by such Lender (as
reasonably determined by such Lender) as a result of a prepayment by the
Borrower of Advances Outstanding. All Breakage Costs shall be due and payable
upon demand. The determination by a Lender of the amount of any such loss or
expense shall be described and confirmed by such Lender to the Agent and set
forth in a written notice from the Agent to the Borrower and shall be conclusive
absent manifest error; provided that each Lender shall use commercially
reasonable efforts to minimize Breakage Costs incurred by it.

“Broadly Syndicated Loan”: Any Loan to an Obligor issued as part of a loan
facility with an original loan size (including any first and second lien loans
included in such facility) greater than $250,000,000, including for purposes of
this definition the maximum available amount of commitments under any Revolving
Loans.

“Business Day”: Any day of the year other than a Saturday or a Sunday on which
(a) banks are not required or authorized to be closed in Chicago, Illinois,
Minneapolis, Minnesota, Florence, South Carolina, New York, New York or Boston,
Massachusetts, and (b) if the term “Business Day” is used in connection with the
Adjusted Eurodollar Rate, means the foregoing only if such day is also a day of
year on which dealings in United States dollar deposits are carried on in the
London interbank market.

“Capital Expenditures”: With respect to any Person and for any period, the sum
of capital expenditures and payments under Capitalized Leases of such Person for
such period determined and consolidated in accordance with GAAP.

 

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“Capitalized Leases”: With respect to any Person, leases of (or other agreements
conveying the right to use) any property (whether real, personal or mixed) by
such Person as lessee that, in accordance with GAAP, either would be required to
be classified and accounted for as capital leases on a balance sheet of such
Person or otherwise be disclosed as such in a note to such balance sheet.

“Change in Control”: The date on which (a) in respect of the Originator or the
initial Servicer, (i) any Person or “group” acquires any “beneficial ownership”
(as such terms are defined under Rule 13d-3 of, and Regulation 13D under the
Exchange Act), either directly or indirectly, of stock or other equity interests
or any interest convertible into any such interest in the Originator or Servicer
having more than fifty percent (50%) of the voting power for the election of
directors of the Originator, or such Servicer, if any, under ordinary
circumstances or (ii) (except in connection with any Permitted Securitization
Transaction) the Originator or initial Servicer sells, transfers, conveys,
assigns or otherwise disposes of all or substantially all of the assets of the
Originator or Servicer or (b) in respect of the Borrower, Kohlberg Capital
ceases to own 100% of the stock or other equity interests or any interest
convertible into any such interest in the Borrower.

“Closing Date”: February 14, 2007.

“Code”: The Internal Revenue Code of 1986, as amended.

“Collateral”: All right, title and interest, whether now owned or hereafter
acquired or arising, and wherever located, of the Borrower in and to the
property described in clauses (i) through (x) below and all accounts, cash and
currency, chattel paper, tangible chattel paper, electronic chattel paper,
copyrights, copyright licenses, equipment, fixtures, contract rights, general
intangibles, instruments, certificates of deposit, certificated securities,
uncertificated securities, financial assets, securities entitlements, commercial
tort claims, deposit accounts, inventory, other goods, investment property,
letter-of-credit rights, documents, software, supporting obligations,
accessions, and all products and proceeds of any of the foregoing, and other
property consisting of, arising out of, or related to any of the following (in
each case excluding the Retained Interest and the Excluded Amounts):

(i) the Transferred Loans, and all monies due or to become due in payment of
such Transferred Loans on and after the related Cut-Off Date, including but not
limited to all Collections and all obligations owed to the Originator or, in the
case of a Third Party Acquired Loan, to the Borrower in connection with such
Loans;

(ii) any Related Property securing or purporting to secure the Transferred
Loans, including the related security interest granted by the Obligor under such
Transferred Loans, all proceeds from any sale or other disposition of such
Related Property;

(iii) all security interests, Liens, guaranties, warranties, letters of credit,
accounts, securities accounts, deposit accounts or other bank accounts,
mortgages or other encumbrances and property subject thereto from time to time
purporting to secure payment of any Transferred Loan, together with all UCC
financing statements or similar filings relating thereto;

 

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(iv) all claims (including “claims” as defined in Bankruptcy Code § 101(5)),
suits, causes of action, and any other right of the Borrower, whether known or
unknown, against the related Obligors, if any, or any of their respective
Affiliates, agents, representatives, contractors, advisors, or any other Person
that in any way is based upon, arises out of or is related to any of the
foregoing, including, to the extent permitted to be assigned under applicable
law, all claims (including contract claims, tort claims, malpractice claims, and
claims under any law governing the purchase and sale of, or indentures for,
securities), suits, causes of action, and any other right of the Borrower
against any attorney, accountant, financial advisor, or other Person arising
under or in connection with the related Loan Documents;

(v) all Insurance Policies, to the extent of the Borrower’s rights thereto;

(vi) all cash, securities, or other property, and all setoffs and recoupments,
received or effected by or for the account of the Borrower under such
Transferred Loans (whether for principal, interest, fees, reimbursement
obligations, or otherwise) after the related Cut-Off Date, including all
distributions obtained by or through redemption, consummation of a plan of
reorganization, restructuring, liquidation, or otherwise of any related Obligor
or the related Loan Documents, and all cash, securities, interest, dividends,
and other property that may be exchanged for, or distributed or collected with
respect to, any of the foregoing;

(vii) the Loan Documents with respect to such Transferred Loans;

(viii) the Master Participation Agreement with respect to the initial
Participations;

(ix) the Collection Account, the Reserve Account, and, to the extent that
amounts on deposit therein or credited thereto relate to the Transferred Loans,
the Concentration Account, together with all funds held in or credited to such
accounts, and all certificates and instruments, if any, from time to time
representing or evidencing each of the foregoing or such funds;

(x) any Hedging Agreement and any payment from time to time due thereunder;

(xi) the Purchase Agreement and the assignment to the Trustee on behalf of the
Secured Parties of all UCC financing statements filed by the Borrower against
the Originator under or in connection with the Purchase Agreement; and

(xii) all commitment fees received by or for the account of the Borrower under
any Transferred Loans that are Revolving Loans.

In no event shall Collateral include Warrant Assets.

 

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“Collateral Quality Test”: With respect to the Loans included in the Collateral,
on any Measurement Date, a test that is satisfied so long as:

(i) the Diversity Score equal to or is greater than 10 as of such date;

(ii) the Weighted Average Spread is equal to or greater than 3% as of such date;

(iii) the Weighted Average Moody’s Recovery Rate is equal to or greater than 25%
as of such date;

(iv) the Weighted Average Moody’s Rating Factor is equal to or less than 5000 as
of such date; and

(v) the Weighted Average Life is a date equal to or less than 84 months as of
such date.

“Collection Account”: An account established in accordance with Section 7.4(e).

“Collection Date”: The date following the Termination Date on which the
Obligations have been reduced to zero and indefeasibly paid in full other than
contingent indemnification obligations.

“Collection Period”: Each calendar month, except in the case of the first
Collection Period, the period beginning on the Closing Date to and including the
last day of the calendar month in which the Closing Date occurs.

“Collections”: (a) All cash collections or other cash proceeds received by the
Borrower or by the Servicer or Originator on behalf of the Borrower from any
source in payment of any amounts owed in respect of a Transferred Loan,
including, without limitation, Interest Collections, Principal Collections,
Deemed Collections, Insurance Proceeds, interest earnings in the Collection
Account, all Recoveries, finance charges and all other charges, (b) all amounts
received by the Borrower in connection with the repurchase of an Ineligible Loan
pursuant to Section 2.18(b), (c) any other funds received by or on behalf of the
Borrower with respect to any Transferred Loan or Related Property including,
without limitation, insurance payments and net proceeds of sale or other
disposition of repossessed goods, and (d) all payments received pursuant to any
Hedging Agreement or Hedge Transaction, but excluding, in the case of clauses
(a), (b) or (c), as applicable, amounts in respect of any Retained Interest and
Excluded Amounts.

“Commercial Paper Notes”: On any day, any short-term promissory notes issued by
the Conduit Lenders in the commercial paper market.

“Commitment”: With respect to each Conduit Lender or Institutional Lender, the
commitment of such Lender to make Advances in accordance herewith in an amount
not to exceed (a) prior to the Termination Date, the amount set forth opposite
such Lender’s name in Annex B of this Agreement, under the heading “Commitment,”
the amount set forth as such Lender’s “Commitment” on Schedule I to the
Assignment and Acceptance relating to such Lender, or the amount set forth as
such Lender’s “Commitment” on Schedule I to the Joinder

 

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Supplement relating to such Purchaser, as applicable, and (b) on and after the
Termination Date, the Pro Rata Share of such Conduit Lender or Institutional
Lender, as applicable, of the aggregate Advances Outstanding.

“Commitment Termination Date”: With respect to each Lender, February 14, 2012,
or such later date as to which the Commitment Termination Date for such Lender
may be extended, as confirmed by such Lender to the Agent and by the Agent to
the Borrower in writing following a request by the Borrower in accordance with
Section 2.1(c).

“Concentration Account”: Account number 1047-9006-3531 maintained in the name of
“Kohlberg Capital Corporation” with the Concentration Account Bank for the
purpose of receiving Collections.

“Concentration Account Agreement”: The Concentration Account Agreement, dated as
of February 14, 2007, by and among U.S. Bank, as Concentration Account Bank, and
Kohlberg Capital, as such agreement may be amended, modified, waived,
supplemented or restated from time to time.

“Concentration Account Bank”: U.S. Bank, as Concentration Account Bank.

“Concentration Limits”: On any day, each of the following (calculated on the
basis of a percentage of the Aggregate Outstanding Loan Balance):

(a) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral to any one Obligor shall not exceed $25,000,000;

(b) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral that have interest due and payable no less frequently than quarterly
shall not be less than 90%;

(c) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral that are secured by a security interest in a material portion or all
of the assets of the related Obligor shall not be less than 70%;

(d) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral which are Subordinated Loans shall not exceed 55%;

(e) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral the entire principal amount of which is due in a single installment
at the maturity of such Loan shall not exceed 80%;

(f) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral which are DIP Loans shall not exceed 10%;

(g) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral that have at least a portion of the monthly or quarterly interest
that is due under such Loans payable on a current basis by the Obligors thereof
in cash (or such Obligors shall have other Loans included as part of the
Collateral that pay current monthly or quarterly interest on a current basis in
cash) shall not be less than 100%;

 

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(h) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral which are Revolving Loans shall not exceed 20%;

(i) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral to Obligors in which the Originator holds a direct or indirect
ownership interest (on a fully-diluted basis) of 10% or greater shall not exceed
10%;

(j) the sum of the Outstanding Loan Balances of all Eligible Loans included in
the Collateral which are Unrated Loans shall not exceed 10%; provided that the
sum of the Outstanding Loan Balances of all Eligible Loans included in the
Collateral which are unrated pending shadow rating shall not exceed 30%;

(k) the sum of the Outstanding Loan Balances of all Eligible Loans included in
the Collateral which are purchased as part of a portfolio purchase of Loans and
re-underwritten by the Servicer shall not exceed 30%;

(l) the sum of the Outstanding Loan Balances of all Eligible Loans included in
the Collateral which have a Moody’s Rating below “Caa1” shall not exceed 20%;

(m) the sum of the Outstanding Loan Balances of all Eligible Loans included in
the Collateral which have original terms to maturity of greater than 8 years
shall not exceed 10%;

(n) the sum of the Outstanding Loan Balances of all Structured Finance
Obligations included in the Collateral shall not exceed 5%;

(o) the sum of the Outstanding Loan Balances of all High Yield Bonds included in
the Collateral shall not exceed 5%;

(p) the sum of the Outstanding Loan Balances of all Eligible Loans included in
the Collateral, the Obligors of which are organized in Canada, the Netherlands,
the Channel Islands or the United Kingdom shall not exceed 10%;

(q) the sum of the Outstanding Loan Balances of all Eligible Loans included in
the Collateral that are Non-USD Loans shall not exceed 10%; provided that all
Collections received on Non-USD Loans shall be converted into Dollars pursuant
to the terms of one or more Currency Hedges Transactions in accordance with
Section 5.2(b);

(r) the sum of the Outstanding Loan Balances of all Eligible Loans included in
the Collateral, the Obligor of which is organized in Bermuda, shall not exceed
5%;

(s) the sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral that are Real Estate Loans shall not exceed 25%; provided that the
sum of the Outstanding Loan Balances of Eligible Loans included in the
Collateral that are Real Estate Construction Loans shall not exceed 10%;

 

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(t) the sum of the Outstanding Loan Balances of all Participations (other than
the Initial Participations) included in the Collateral shall not exceed (i) 0%
at any time prior to the date that is the earlier of (A) the 60th day following
the Closing Date and (B) the date on which no Initial Participations remain in
the Collateral, and (ii) 5% at any time thereafter; and

(u) the sum of the Outstanding Loan Balances of all Initial Participations
included in the Collateral shall not exceed an amount equal to (i) $50,000,000
at any time during the 30-day period following the Closing Date,
(ii) $15,000,000 at any time during the 30-day period following the period
specified in clause (i) and (iii) $0 at any time thereafter;

“Conduit Lender”: Each Lender designated as such on its signature page hereto
and each financial institution, other than an Institutional Lender, which may
from time to time become a Lender hereunder by executing and delivering to the
Agent, the Borrower and the Servicer (a) an Assignment and Acceptance and a
Transferee Letter as contemplated by Section 12.17 or (b) a Joinder Supplement
as contemplated by Section 2.1(e).

“Contractual Obligation”: With respect to any Person, means any provision of any
securities issued by such Person or any indenture, mortgage, deed of trust,
contract, undertaking, agreement, instrument or other document to which such
Person is a party or by which it or any of its property is bound or is subject.

“Converted Coupon”: For each Loan (whether fixed or floating) that is a Non-USD
Loan, as of any date of determination, a ratio (expressed as a percentage) of
(a) the product of (i) the current cash interest coupon rate on such Loan,
(ii) the Outstanding Loan Balance of such Loan in the applicable currency) and
(iii) the Spot FX Exchange Rate to (b) the Outstanding Loan Balance of such Loan
(in Dollars converted at the Spot FX Exchange Rate).

“Converted Spread”: For each Floating Rate Loan that is a Non-USD Loan, as of
any date of determination, the excess of (a) the Converted Coupon over (b) the
Eurodollar Rate on the date of determination.

“CP Payment Date”: Any maturity date of a tranche of Commercial Paper Notes, the
proceeds of which are used by a Conduit Lender to fund Advances hereunder.

“CP Rate”: With respect to any Conduit Lender, for any Accrual Period, means
(a) the per annum rate equivalent to the weighted average of the per annum rates
paid or payable by such Conduit Lender from time to time as interest on or
otherwise in respect of those Commercial Paper Notes issued by such Conduit
Lender that are allocated, in whole or in part, by such Conduit Lender’s agent
to fund the purchase or maintenance of an Advance during an Accrual Period as
determined by such Conduit Lender’s agent and reported to the Agent, the
Borrower and the Servicer, which rates shall include and give effect to the
commissions of placement agents and dealers in respect of such Commercial Paper
Notes, incremental carrying costs incurred with respect to such Commercial Paper
Notes maturing on dates other than those on which corresponding funds are
received by such Conduit Lender, and any other costs associated with the
issuance of Commercial Paper Notes, in each case to the extent such commissions
and other costs are allocated, in whole or in part, to such Commercial Paper
Notes by such Conduit Lender’s agent); provided that if any component of such
rate is a discount rate,

 

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in calculating the “CP Rate” for such Accrual Period, the Conduit Lender (or its
agent on its behalf) shall for such component use the rate resulting from
converting such discount rate to an interest bearing equivalent rate per annum;
provided further that notwithstanding anything in this Agreement or any other
Transaction Document to the contrary, the Borrower agrees that any amounts
payable to any Conduit Lender in respect of Interest for any Accrual Period with
respect to any Advance funded by such Conduit Lender at the CP Rate shall
include an amount equal to the portion of the face amount of the outstanding
Commercial Paper Notes issued to fund or maintain such Advance that corresponds
to the portion of the proceeds of such Commercial Paper Notes that was used to
pay the interest component of maturing Commercial Paper Notes issued to fund or
maintain such Advance, to the extent that such Conduit Lender had not received
payments of interest in respect of such interest component prior to the maturity
date of such maturing Commercial Paper Notes (for purposes of the foregoing, the
“interest component” of promissory notes equals the excess of the face amount
thereof over the net proceeds received by such Conduit Lender from the issuance
of Commercial Paper Notes, except that if such Commercial Paper Notes are issued
on an interest-bearing basis its “interest component” will equal the amount of
interest accruing on such Commercial Paper Notes through maturity).

“Credit and Collection Policy”: Those credit, collection, customer relation and
service policies: (a) determined by the Borrower, the Originator and the initial
Servicer as of the date hereof relating to the Loans and related Loan Documents,
described in Exhibit G, as the same may be amended or modified from time to time
in accordance with Section 7.9(g); and (b) with respect to any Successor
Servicer, the collection procedures and policies of such person (as approved by
the Agent) at the time such Person becomes Successor Servicer.

“Currency Hedge Amount”: On any day, with respect to any Non-USD Loan being
hedged pursuant to a Currency Hedge Transaction, an amount equal to the
Outstanding Loan Balance of such Non-USD Loan.

“Currency Hedge Transaction”: Each currency swap transaction, index rate swap or
interest rate cap transaction or comparable derivative arrangements as the Agent
may approve in its discretion between the Borrower and a Hedge Counterparty that
is entered into pursuant to Section 5.2(b) and is governed by a Hedging
Agreement.

“Current Fixed Charges”: For any period, the sum of (i) total cash interest
expense of an Obligor and its Subsidiaries in connection with Indebtedness and
any other obligations required by GAAP to be shown as liabilities on the
consolidated balance sheet of an Obligor and its Subsidiaries, plus (ii) all
Scheduled Debt Amortization for such period plus (iii) all scheduled payments on
Capitalized Leases for such period determined in accordance with GAAP; but
including, in each case, as applicable, all commissions, discounts and other
fees and charges in connection with letters of credit and bankers’ acceptances
and net costs or benefits under Interest Rate Protection Agreements and
excluding any original issue discount related to the issuance of Indebtedness
pursuant to the applicable Loan Documents.

“Cut-Off Date”: With respect to each Transferred Loan, the date on and after
which Collections on such Transferred Loan become included as part of the
Collateral.

“Deemed Collection”: Defined in Section 2.4.

 

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“Defaulted Loan”: Any Transferred Loan:

(a) as to which (i) a default in the payment of principal and/or interest has
occurred and is continuing (having regard for any grace period applicable to
such Loan pursuant to the related Loan Documents, subject to a maximum grace
period of 30 days and without giving effect to any Servicer Advance thereon) or
(ii) a default other than a default specified in clause (a)(i) above has
occurred and payment of all or a portion of the principal of such Loan has been
accelerated as a result thereof;

(b) the Obligor of which is an obligor with respect to an outstanding loan that
is subject to a default as to the payment of principal and/or interest that is
continuing, and such loan is pari passu or senior in right of payment with
respect to the Transferred Loan;

(c) as to which an Insolvency Event has occurred with respect to the related
Obligor;

(d) that the Servicer has, in its reasonable commercial discretion declared a
“Defaulted Loan”;

(e) that is rated “Ca” or lower by Moody’s; or

(f) that has been assigned a risk rating of “Grade 5” on the Kohlberg Capital
standard credit rating scale in accordance with the Credit and Collection
Policy, or has been otherwise written off by the Servicer in accordance with the
Credit and Collection Policy, it being understood that for purposes of
determining the Weighted Average Rating Factor, Defaulted Loans shall be
assigned a rating of “Ca”.

“Default Ratio”: With respect to any Collection Period, the percentage
equivalent of a fraction, calculated as of the Determination Date for such
Collection Period, (a) the numerator of which is equal to the aggregate
Outstanding Loan Balance of all Defaulted Loans and (b) the denominator of which
is equal to the decimal equivalent of a fraction the numerator of which is equal
to the sum of (i) the aggregate Outstanding Loan Balance of all Eligible Loans
included as part of the Collateral as of the first day of such Collection Period
plus (ii) the aggregate Outstanding Loan Balance of all Eligible Loans included
as part of the Collateral as of the last day of such Collection Period and the
denominator of which is 2.

“Derivatives”: Any exchange-traded or over-the-counter (a) forward, future,
option, swap, cap, collar, floor, foreign exchange contract, any combination
thereof, whether for physical delivery or cash settlement, relating to any
interest rate, interest rate index, currency, currency exchange rate, currency
exchange rate index, debt instrument, debt price, debt index, depository
instrument, depository price, depository index, equity instrument, equity price,
equity index, commodity, commodity price or commodity index, (b) any similar
transaction, contract, instrument, undertaking or security, or (c) any
transaction, contract, instrument, undertaking or security containing any of the
foregoing.

“Determination Date”: The last day of each calendar month (whether or not a
Business Day).

 

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“DIP Loan”: A loan to an Obligor that is a “debtor-in-possession” as defined
under the Bankruptcy Code or a trustee organized under the laws of the United
States or any state thereof, the terms of which have been approved by a court of
competent jurisdiction, which order provides that such DIP Loan is secured by
liens of equal or senior priority on the property of the Obligor’s estate that
is otherwise subject to a lien or is secured by liens on the Obligor’s otherwise
unencumbered assets.

“Discount Loan” means any Loan that is not a Defaulted Loan and is acquired by
the Borrower for a purchase price of less than 90% of the outstanding principal
amount (excluding any amount of principal attributable to interest paid in the
form of additional principal in accordance with the terms of such Loan) of such
Loan.

“Discretionary Sale”: Defined in Section 2.19(a).

“Discretionary Sale Date”: The Business Day specified by the Borrower to the
Agent, the Trustee and each Hedge Counterparty in a Discretionary Sale Notice as
the proposed date of a Discretionary Sale.

“Discretionary Sale Notice”: Defined in Section 2.19(a).

“Diversity Score”: The single number that indicates collateral concentration for
Loans in terms of both Obligor and industry concentration, which is calculated
as described in Annex C attached hereto.

“Dollars”: Means, and the conventional “$” signifies, the lawful currency of the
United States.

“EBITDA”: For any period, EBIT plus the amount of all depreciation and
amortization expense deducted in determining net income for such period, which
will include adjustments deemed reasonable by the Servicer and in accordance
with the Servicer’s underwriting methodology and in accordance with the Credit
and Collection Policy.

“EBIT”: For any period, net income for such period plus the interest on
Indebtedness, provisions for taxes based on income, and any extraordinary losses
for such period, minus any extraordinary gains for such period, but without
adjustment for any noncash income or noncash charges that are classified as such
under GAAP.

“Eligible Loan”: On any date of determination, any Loan that satisfies each of
the following requirements (it being understood that the determination of
whether a Loan is an Eligible Loan shall be made on the Cut-Off Date for such
Loan):

(i) the Loan (other than in the case of a Noteless Loan) is evidenced by a
promissory note that has been duly authorized and that, together with the
related Loan Documents, is in full force and effect and constitutes the legal,
valid and binding obligation of the Obligor of such Loan to pay the stated
amount of the Loan and interest thereon, and the related Loan Documents are
enforceable against such Obligor in accordance with their respective terms;

 

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(ii) the Loan was (a) originated in accordance with the terms of the Credit and
Collection Policy and arose in the ordinary course of the Originator’s business,
(b) was purchased and re-underwritten by the Originator or (c) acquired by the
Originator or Borrower directly from a third party;

(iii) the Loan has an original term to maturity of no more than 10 years, and is
either fully amortizing in installments (which installments need not be in
identical amounts) over such term or the principal amount thereof is due in a
single installment at the end of such term, or the Loan is a Revolving Loan;

(iv) the Loan is not a loan or extension of credit made by the Originator or one
of its Affiliates to an Obligor for the purpose of making any principal,
interest (other than deferred interest) or other payment on a loan to the same
Obligor necessary in order to keep such loan from becoming delinquent and such
Loan is not being kept current by the Originator or one of its Affiliates making
other Loans to the Obligor. For the avoidance of doubt, nothing in this clause
(iv) shall restrict the Originator from refinancing Loans which it has
originated or underwritten if such refinancing is in the ordinary course of the
Originator’s business and does not result from the Originator’s inability to
make timely payments of principal of, or interest on, the Loans;

(v) other than in the case of a Third Party Acquired Loan, the Obligor of such
Loan has executed all appropriate documentation required by the Originator. The
Obligor of such Loan (including any Third Party Agented Loan) has met all of the
Originator’s eligibility requirements, in each case as required by, and in
accordance with, the Credit and Collection Policy;

(vi) no right of rescission, set off, counterclaim, defense or other material
dispute has been asserted with respect to such Loan;

(vii) the Loan was documented and closed (or, solely in the case of a Third
Party Acquired Loan, acquired) in accordance with the Credit and Collection
Policy, and, other than in the case of a Noteless Loan, there is only one
current original promissory note representing the portion of such Loan
constituting a Transferred Loan, which has been delivered to the Trustee, duly
endorsed as collateral;

(viii) the Loan has not been modified or extended in any way unless in the
normal course of business in accordance with the Originator’s or the Servicer’s
policies and procedures and unless such modification did not materially
adversely affect the Loan’s otherwise eligible status or its collectibility;

(ix) such Loan does not represent payment obligations relating to “put” rights
relating to Margin Stock;

(x) the Loan, together with the Loan Documents related thereto, was originated
(or, solely in the case of a Third Party Acquired Loan, acquired) in accordance
with and does not contravene in any material respect any Applicable Law
(including, without limitation, laws, rules and regulations relating to usury,
predatory lending, truth in lending, fair credit billing, fair credit reporting,
equal credit opportunity, fair debt

 

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collection practices and privacy) and with respect to which, to the Borrower’s
or the Servicer’s knowledge, no party to the Loan Documents related thereto is
in material violation of any such Applicable Law;

(xi) the Loan bears some current interest, which is due and payable monthly or
quarterly;

(xii) for purposes of each Advance made with respect to such Loan, no payment of
principal or interest or portion thereof is more than ten days past due as of
the applicable Cut-Off Date;

(xiii) the Loan is denominated and payable only in a Permitted Currency;

(xiv) the Obligor with respect to such Loan is an Eligible Obligor;

(xv) the Loan Documents with respect to such Loan require the related Obligor to
provide ongoing financial information to the Originator, including, without
limitation, quarterly financial statements, annual audited financial statements
audited by an Independent third-party auditor, and ongoing covenant compliance
certificates;

(xvi) a third party audit or due diligence has been performed with respect to
Agented Loans to the satisfaction of the Originator. With respect to all other
Loans (including Loans where Kohlberg Capital is a member of the initial lending
group), audit or due diligence has been performed by the relevant loan agent or
equity sponsor to the satisfaction of the Originator. The Obligor has agreed to
provide the Servicer or a Successor Servicer with rights to inspect any Records
or Related Property;

(xvii) the Loan, if it is a PIK Loan, has a current cash coupon of not less than
5%;

(xviii) the Loan does not by its terms permit the payment obligation of the
Obligor thereunder to be converted into or exchanged for equity capital of such
Obligor;

(xix) the Loan is not a security or obligation whose repayment is subject to
substantial non-credit related risk as determined by the Servicer in its
reasonable business judgment;

(xx) the Loan, together with the Loan Documents related thereto, is a “general
intangible”, an “instrument”, a “payment intangible”, an “account” or “chattel
paper” within the meaning of the UCC of all jurisdictions that govern the
perfection of the security interest granted therein;

(xxi) all material consents, licenses, approvals or authorizations of, or
registrations or declarations with, any Governmental Authority required to be
obtained, effected or given in connection with the making of such Loan have been
duly obtained, effected or given and are in full force and effect;

 

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(xxii) any applicable taxes in connection with the transfer of such Loan have
been paid and the Obligor has been given any assurances (including with respect
to the payment of transfer taxes and compliance with securities laws) required
by the Loan Documents in connection with the transfer of the Loan;

(xxiii) the Loan, together with the related Loan Documents, is fully assignable,
(and, if such Loan is secured by an interest in real property, an Assignment of
Mortgage has been delivered to the Trustee or to a collateral agent pursuant to
the terms of such Loan);

(xxiv) the Loan and the Borrower’s interest in all related Collateral and
Related Property are free of any Liens, except for Permitted Liens and all
filings and other actions required to perfect the security interest of (a) the
Trustee on behalf of the Secured Parties, in the Collateral have been made or
taken and (b) in the case of Agented Loans, the collateral agent, as agent for
all lenders to the related Obligor, in the Related Property, have been made or
taken;

(xxv) any Related Property with respect to such Loan is insured in accordance
with the Credit and Collection Policy;

(xxvi) the Obligor of such Loan is legally responsible for all taxes relating to
the Related Property, and all payments in respect of the Loan are required to be
made free and clear of, and without deduction or withholding for or on account
of, any taxes, unless such withholding or deduction is required by Applicable
Law in which case the Obligor thereof is required to make “gross-up” payments
that cover the full amount of any such withholding taxes on an after-tax basis
(taking into account all available credits or deductions attributable to the
payment or accrual of such taxes);

(xxvii) neither the Loan nor any portion of the Related Property constitute
Margin Stock;

(xxviii) the Obligor of such Loan has waived all rights of set-off and/or
counterclaim against the originator of the Loan and all assignees thereof;

(xxix) the Loan has been determined by the Servicer to be, or, in accordance
with the Credit and Collection Policy, should have been determined by the
Servicer to be, classified as having a risk rating of “Grade 4” or better;

(xxx) as of the date on which such Loan becomes part of the Collateral, the
Collateral Quality Test is satisfied; provided that if immediately prior to such
date, the Collateral Quality Test was not satisfied, such test is maintained or
improved after giving effect to the inclusion of such Loan in the Collateral;

(xxxi) the Loan is not a Project Finance Obligation;

(xxxii) in the case of a Real Estate Construction Loan, such Loan has a publicly
available Assigned Moody’s Rating or a publicly available Assigned S&P Rating as
of its Cut-Off Date;

 

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(xxxiii) with respect to Agented Loans, the related Loan Documents (a) shall
include a note purchase agreement or loan agreement containing provisions
relating to the appointment and duties of a payment agent and a collateral agent
and intercreditor and (if applicable) subordination provisions substantially
similar to the forms provided to and approved by the Agent and attached hereto
as Exhibit T, and (b) are duly authorized, fully and properly executed and are
the valid, binding and unconditional payment obligation of the Obligor thereof;

(xxxiv) with respect to Agented Loans, the Originator has been appointed the
collateral agent of the security (if any) and the payment agent for all such
loans prior to such Agented Loan becoming a part of the Collateral;

(xxxv) with respect to Agented Loans, if the entity serving as the collateral
agent of the security for all syndicated loans of the Obligor has or will change
from the time of the origination of the loans, all appropriate assignments of
the collateral agent’s rights in and to the collateral on behalf of the lenders
have been executed and filed or recorded as appropriate prior to such Agented
Loan becoming a part of the Collateral;

(xxxvi) with respect to Agented Loans, all required notifications, if any, have
been given to the collateral agent, the payment agent and any other parties
required by the Loan Documents, and all required consents, if any, have been
obtained with respect to, the Originator’s assignment of the Agented Loans and
the Originator’s right, title and interest in the Related Property to the
Borrower and the Trustee’s security interest therein on behalf of the Secured
Parties;

(xxxvii) with respect to Agented Loans, the right to control the actions of and
to replace the collateral agent and/or the paying agent of the syndicated loans
is by the Loan Majority;

(xxxviii) with respect to Agented Loans, all syndicated loans of the Obligor of
the same priority are cross-defaulted, the Related Property securing such loans
is held by the collateral agent for the benefit of all holders of the syndicated
loans and all holders of such loans (a) have an undivided interest in the
collateral securing such loans, (b) share in the proceeds of the sale or other
disposition of such collateral on a pro rata basis and (c) may transfer or
assign their right, title and interest in the Related Property; and

(xxxix) all information on the Loan List delivered to the Agent with respect to
such Loan is true, correct and complete.

“Eligible Obligor”: On any day, any Obligor that satisfies each of the following
requirements at all times:

(i) such Obligor’s primary business is not in the nuclear waste or bio-tech
industries;

(ii) such Obligor is not a natural person and is a legal operating entity, duly
organized and validly existing under the laws of a Moody’s Group I Country or
Bermuda;

 

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(iii) such Obligor is not an Affiliate of any of the parties hereto;

(iv) such Obligor’s principal office and any Related Property are located in a
Moody’s Group I Country;

(v) no other Loan of such Obligor with an Outstanding Loan Balance in excess of
$1,000,000 is more than 45 days past due;

(vi) such Obligor is not a Governmental Authority;

(vii) such Obligor is in compliance with all material terms and conditions of
its Loan Documents; and

(viii) either (a) such Obligor and/or its operating subsidiaries each have an
Operating History in its primary business of at least three years from the date
of its incorporation or formation or (b) the chief executive officer and/or
president of such Obligor has individually at least three years of
management-level experience in the primary business in which the Obligor
operates.

“Equity Contribution”: As of any date of determination, an amount equal to the
excess, if any, of (a) the sum of (i) the Aggregate Purchased Loan Balance on
such date plus (ii) all Principal Collections on deposit in the Principal
Collection Account on such date, over (b) the Advances Outstanding on such date.

“ERISA”: The U.S. Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated, and rulings and
interpretations issued thereunder.

“ERISA Affiliate”: (a) Any corporation that is a member of the same controlled
group of corporations (within the meaning of Section 414(b) of the Code) as the
Borrower; (b) a trade or business (whether or not incorporated) under common
control (within the meaning of Section 414(c) of the Code) with the Borrower or
(c) a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as the Borrower, any corporation described in clause
(a) above or any trade or business described in clause (b) above.

“Estimated Payment Amount”: As of each Determination Date, an amount (to be
calculated by the Servicer in good faith in its reasonable judgment) equal to
the sum of the following: (a) the Interest, (b) the Program Fee, (c) the
Facility Fee, (d) the Servicing Fee, (e) the Backup Servicer Fee and (f) the
Trustee Fee, each as estimated by the Servicer to be due and payable on the next
succeeding Payment Date; provided that, notwithstanding the foregoing, in no
event without the prior written approval of the Agent shall the Estimated
Payment Amount be less than the product of (i) 1.1 and (ii) the sum of the
Interest, the Program Fee, the Facility Fee, the Servicing Fee, the Backup
Servicer Fee and the Trustee Fee actually due and payable on the Payment Date
with respect to the preceding Collection Period.

“Euro”: The lawful currency of the Participating Member States.

 

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“Eurocurrency Liabilities”: Defined in Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time.

“Eurodollar Rate”: For any Accrual Period and any Advance, an interest rate per
annum equal to:

(a) the rate appearing on Reuters Page 248 and 249, as applicable, for deposits
in Euro as of 11:00 a.m. Brussels time two TARGET Days before the applicable
Funding Date (with respect to the initial Accrual Period for such Advance) and
two TARGET Days before the first day of the applicable Accrual Period (with
respect to all subsequent Accrual Periods for such Advance); or

(b) if no rate appears on Reuters Page 248 and 249, as applicable, at such time
and day, then the Eurodollar Rate shall be determined by the Agent as its rate
(each such determination, absent manifest error, to be conclusive and binding on
all parties hereto and their assignees) at which one-month deposits in Euro are
being, have been, or would be offered or quoted by the Agent to major banks in
the applicable interbank market for deposits in Euro at or about 11:00 a.m.
Brussels time on such day.

“Eurodollar Disruption Event”: The occurrence of any of the following: (a) any
Liquidity Bank or any Institutional Lender shall have notified the Agent of a
determination by such Liquidity Bank, any of its assignees or participants, or
such Institutional Lender, that it would be contrary to law or to the directive
of any central bank or other Governmental Authority (whether or not having the
force of law) to obtain Dollars in the London interbank market to fund any
Advance, (b) any Liquidity Bank or any Institutional Lender shall have notified
the Agent of the inability, for any reason, of such Liquidity Bank, any of its
assignees or participants, or such Institutional Lender, to determine the
Adjusted Eurodollar Rate, (c) any Liquidity Bank or any Institutional Lender
shall have notified the Agent of a determination by such Liquidity Bank, any of
its assignees or participants, or such Institutional Lender, that the rate at
which deposits of Dollars are being offered to such Liquidity Bank, any of its
assignees or participants or such Institutional Lender in the London interbank
market does not accurately reflect the cost to such Liquidity Bank, such
assignee or such participant, or such Institutional Lender, of making, funding
or maintaining any Advance or (d) any Liquidity Bank or Institutional Lender
shall have notified the Agent of the inability of such Liquidity Bank, any of
its assignees or participants, or such Institutional Lender, to obtain Dollars
in the London interbank market to make, fund or maintain any Advance.

“Eurodollar Reserve Percentage”: For any period, means the reserve percentage
(expressed as a decimal, rounded upward to the next 1/100th of one percent
(0.01%)), if any, applicable during such period (or, if more than one such
percentage shall be so applicable, the daily average of such percentages for
those days in such period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any basic, emergency,
supplemental, marginal or other reserve requirements) with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities having
a term of one, two or three months.

 

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“Exchange Act”: The Securities Exchange Act of 1934, as amended.

“Excluded Amounts”: Any Collections received with respect to Repurchased Loans,
Replaced Loans or Loans which are the subject of a Lien Release Dividend or a
Discretionary Sale to the extent such Collections are attributable to a time
after the effective date of such repurchase, substitution, Lien Release Dividend
or Discretionary Sale.

“Facility Amount”: $200,000,000, as such amount may vary from time to time upon
the written agreement of the parties hereto; provided that on or after the
Termination Date, the Facility Amount shall be $0.

“Facility Fee”: Defined in the Fee Letter.

“Fair Market Value”: As of any date of determination with respect to each
Eligible Loan included in the Collateral, if such Eligible Loan has been reduced
in value on such date of determination below the original principal amount
(other than as a result of the allocation of a portion of the original principal
amount to warrants), the fair market value of such Eligible Loan, as determined
in accordance with the quarterly loan grading and asset valuation functions
specified in the Credit and Collection Policy, and as required by, and in
accordance with, the 1940 Act and any orders of the Securities and Exchange
Commission issued to the Originator, to be determined by the Valuation Committee
and approved by the Board of Directors of the Originator and as may be reviewed
by its auditors.

“Fairway”: Fairway Finance Company, LLC, as Conduit Lender hereunder.

“FATF”: Defined in Section 4.1(jj).

“Federal Funds Rate”: For any period, a fluctuating interest rate per annum
equal for each day during such period to the weighted average of the federal
funds rates as quoted by the Agent and confirmed in Federal Reserve Board
Statistical Release H.15 (519) or any successor or substitute publication
selected by the Agent (or, if such day is not a Business Day, for the preceding
Business Day), or, if, for any reason, such rate is not available on any day,
the rate determined, in the sole opinion of the Agent to be the rate at which
federal funds are being offered for sale in the national federal funds market at
9:00 a.m. (New York City time)

“Fee Letter”: The Fee Letter, dated as of the date hereof, among the Borrower,
the Servicer, the Agent, as such letter may be amended, supplemented, modified,
waived or restated from time to time.

“Federal Reserve Board”: The Board of Governors of the Federal Reserve System.

“Financial Sponsor”: Any Person, including any subsidiary of such person, whose
principal business activity is acquiring, holding and selling investments
(including controlling interests) in otherwise unrelated companies that are
distinct legal entities with separate management, books, records and bank
accounts, whose operations are not integrated with one another and whose
financial condition and creditworthiness are independent of the other companies
owned by such Person.

 

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“Fixed Charge Coverage Ratio”: For any twelve-month period, the ratio of
(i) EBITDA of an Obligor and its Subsidiaries on a consolidated basis during
such period plus scheduled payments on Capitalized Leases included in the
computation of EBITDA for such period minus Capital Expenditures during such
period minus Taxes paid in cash during such period to (ii) the Current Fixed
Charges during such period.

“Fixed Rate Loan”: A Transferred Loan that is other than a Floating Rate Loan.

“Fixed Rate Loan Percentage”: As of any date of determination, the percentage
equivalent of a fraction (i) the numerator of which is equal to the sum of the
Outstanding Loan Balances of all Fixed Rate Loans as of such date and (ii) the
denominator of which is equal to the Aggregate Outstanding Loan Balance as of
such date.

“Floating Rate Loan”: A Transferred Loan where the interest rate payable by the
Obligor thereof is based on the prime interest rate (daily rate) or the London
interbank offered rate (one-month, two-month, three-month, six-month or
twelve-month rate) plus some specified interest percentage in addition thereto,
and such Transferred Loan provides that such interest rate will reset
periodically upon any change in the related prime interest rate or London
interbank offered rate.

“Funding Date”: Any Business Day on which an Advance is made.

“Funding Request”: A Borrower Notice requesting an Advance and including the
items required by Section 2.2.

“GAAP”: Generally accepted accounting principles in the United States of
America. All ratios and computations based on GAAP contained in this Agreement
shall be computed in conformity with GAAP as in effect on the date hereof.

“Governmental Authority”: Any nation or government, any state or other political
subdivision thereof, any central bank (or similar monetary or regulatory
authority) thereof, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, any court
or arbitrator and any accounting board or authority (whether or not a part of
the government) which is responsible for the establishment or interpretation of
national or international accounting principles.

“Grant”: To grant, bargain, sell, warrant, alienate, remise, demise, release,
convey, assign, transfer, mortgage, pledge, create and grant a security interest
in and right of set-off against, deposit, set over and confirm. A Grant of any
instrument, shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including without limitation, the
immediate and continuing right to claim for, collect, receive and give receipt
for principal and interest payments in respect thereof, and all other monies
payable thereunder, to give and receive notices and other communications, to
make waivers or other agreements, to exercise all rights and options, to bring
any suit in equity, action at law or other judicial or administrative proceeding
in the name of the granting party or otherwise, and generally to do and receive
anything that the granting party may be entitled to do or receive thereunder or
with respect thereto.

 

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“Hedge Breakage Costs”: With respect to each Hedge Counterparty upon the early
termination of any Hedge Transaction with such Hedge Counterparty, the net
amount, if any, payable by the Borrower to such Hedge Counterparty for the early
termination of that Hedge Transaction or any portion thereof.

“Hedge Collateral”: Defined in Section 5.2(c).

“Hedge Counterparty”: Means (a) Bank of Montreal and (b) any other entity that
(i) on the date of entering into any Hedge Transaction (x) is an interest rate
swap dealer that has been approved in writing by the Agent (which approval shall
not be unreasonably withheld), and (y) has a long-term unsecured debt rating of
not less than “A” by S&P and not less than “A2” by Moody’s (the “Long-term
Rating Requirement”) and a short-term unsecured debt rating of not less than
“A-1” by S&P and not less than “P-1” by Moody’s (the “Short-term Rating
Requirement”), (ii) in a Hedging Agreement (x) consents to the assignment of the
Borrower’s rights under the Hedging Agreement to the Trustee on behalf of the
Secured Parties pursuant to Section 5.2(c) and (y) agrees that in the event that
Moody’s or S&P reduces its long-term unsecured debt rating below the Long-term
Rating Requirement, it shall either collateralize its obligations in a manner
satisfactory to the Agent or transfer its rights and obligations under each
Hedging Agreement (excluding, however, any right to net payments or Hedge
Breakage Costs under any Hedge Transaction, to the extent accrued to such date
or to accrue thereafter and owing to the transferring Hedge Counterparty as of
the date of such transfer) to another entity that meets the requirements of
clauses (b)(i) and (b)(ii) hereof and has entered into a Hedging Agreement with
the Borrower on or prior to the date of such transfer, and (iii) is a QIB.

“Hedge Percentage”: On any day (a) prior to the occurrence of an Interest Rate
Hedge Trigger, 0%, and (b) on or after the day on which an Interest Rate Hedge
Trigger occurs, 100%.

“Hedge Transaction”: Each Interest Rate Hedge Transaction and each Currency
Hedge Transaction.

“Hedging Agreement”: Each agreement between the Borrower and a Hedge
Counterparty that governs one or more Hedge Transactions entered into by the
Borrower and such Hedge Counterparty pursuant to Section 5.2(a) or 5.2(b), as
applicable, which agreement shall consist of a “Master Agreement” in a form
published by the International Swaps and Derivatives Association, Inc., together
with a “Schedule” thereto substantially in the form of Exhibit H-1 or H-2 hereto
or such other forms as the Agent shall approve in writing, and each
“Confirmation” thereunder confirming the specific terms of each such Hedge
Transaction.

“High Yield Bond”: A high yield debt obligation of corporations, partnerships or
other entities that is unrated or rated below Investment Grade.

“Increased Costs”: Any amounts required to be paid by the Borrower to an
Affected Party pursuant to Section 2.13.

“Indebtedness”: With respect to any Person as of any date, whether or not
reflected on the balance sheet or comparable statement of financial position of
such Person, (a) all indebtedness of such Person as well as any special purpose
entity Subsidiaries of such Person for borrowed money or for the deferred
purchase price of property or services (other than current

 

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liabilities incurred in the ordinary course of business and payable in
accordance with customary trade practices) or that is evidenced by a note, bond,
debenture or similar instrument (including, without limitation, any note, bond,
debenture or similar instrument issued in connection with a securitization
transaction), (b) all obligations of such Person under capital leases, (c) all
obligations of such Person in respect of bank acceptances issued or created for
the account of such Person, (d) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof, and (e) all indebtedness,
obligations or liabilities of that Person in respect of Derivatives, determined
as of such date on a net mark to market basis in accordance with customary
market practice and (f) obligations under direct or indirect guaranties in
respect of obligations (contingent or otherwise) to purchase or otherwise
acquire, or to otherwise assure a creditor against loss in respect of, clauses
(a) through (f) above.

“Indemnified Amounts”: Defined in Section 10.1.

“Indemnified Parties”: Defined in Section 10.1.

“Independent”: As to any Person, any other Person (including, in the case of an
accountant, or lawyer, a firm of accountants or lawyers and any member thereof
or an investment bank and any member thereof) who (i) does not have and is not
committed to acquire any material direct or any material indirect financial
interest in such Person or in any Affiliate of such Person, and (ii) is not
connected with such Person as an Officer, employee, promoter, underwriter,
voting trustee, partner, director or Person performing similar functions.
“Independent”, when used with respect to any accountant, may include an
accountant who audited the books of such Person if in addition to satisfying the
criteria set forth above the accountant is independent with respect to such
Person within the meaning of Rule 101 of the Code of Ethics of the American
Institute of Certified Public Accountants.

“Independent Manager”: Defined in Section 4.1(t)(xxvii).

“Industry”: The industry of an Obligor as determined by reference to the four
digit standard industry classification (SIC) codes.

“Ineligible Loan”: Defined in Section 2.18(b)(i).

“Initial Advance”: The first Advance.

“Initial Participation”: A participation interest, granted on or about the
Closing Date by the Originator in all or a portion of an Eligible Loan held by
the Originator as of such date, which shall be converted into a full assignment
within 60 days following the Closing Date.

“Insolvency Event”: With respect to a specified Person, (a) the filing of a
decree or order for relief by a court having jurisdiction in the premises in
respect of such Person or any substantial part of its property in an involuntary
case under any applicable Insolvency Law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person’s affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (b) the commencement by

 

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such Person of a voluntary case under any applicable Insolvency Law now or
hereafter in effect, or the consent by such Person to the entry of an order for
relief in an involuntary case under any such law, or the consent by such Person
to the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.

“Insolvency Laws”: The Bankruptcy Code and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization, suspension of payments, or similar debtor relief
laws from time to time in effect affecting the rights of creditors generally.

“Insolvency Proceeding”: Any case, action or proceeding before any court or
Governmental Authority relating to an Insolvency Event.

“Institutional Lender”: Each Lender designated as such on its signature page
hereto and each financial institution, other than a Conduit Lender, which may
from time to time become a Lender hereunder by executing and delivering to the
Agent, the Borrower and the Servicer (a) an Assignment and Acceptance and a
Transferee Letter as contemplated by Section 12.17 or (b) a Joinder Supplement
to the Agent and the Borrower as contemplated by Section 2.1(e).

“Insurance Policy”: With respect to any Transferred Loan included in the
Collateral, an insurance policy covering physical damage to or loss to any
assets or Related Property of the Obligor securing such Transferred Loan.

“Insurance Proceeds”: Any amounts payable or any payments made to the Borrower
or to the Servicer on its behalf under any Insurance Policy.

“Intercreditor Agreement”: The Intercreditor and Concentration Account
Administration Agreement, dated as of February 14, 2007, among U.S. Bank, as the
Concentration Account Bank and as the account custodian, each securitization
agent that from time to time executes a joinder thereto, and Kohlberg Capital,
as Originator, Original Servicer and Concentration Account Servicer, as such
agreement may be amended, modified, waived, supplemented or restated from time
to time.

“Interest”: For each Accrual Period and each Advance outstanding during such
Accrual Period, the sum of the products (for each day during such Accrual
Period) of:

LOGO [g28971image.jpg]

where:

IR         =        the Interest Rate applicable on such day;

P          =        the principal amount of such Advance on such day; and

 

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D          =        360 or, to the extent the Interest Rate is based on the Base
Rate, 365 or 366 days, as applicable.

provided that (i) no provision of this Agreement shall require or permit the
collection of Interest in excess of the maximum permitted by Applicable Law and
(ii) Interest shall not be considered paid by any distribution if at any time
such distribution is rescinded or must otherwise be returned for any reason.

“Interest Collection Account”: The subaccount of the Collection Account into
which all Interest Collections are deposited by the Borrower or the Servicer on
behalf of the Borrower in accordance with Section 2.9.

“Interest Collections”: Any and all amounts (not constituting Principal
Collections) received on a Transferred Loan from or on behalf of any Obligors
that are deposited into the Collection Account, or received by the Borrower or
by the Servicer or Originator on behalf of the Borrower in respect of
Transferred Loans and, solely for purposes of calculating the Portfolio Yield,
any and all amounts accrued in respect of any fees and other charges (but only
to the extent such fees are not part of the Retained Interest or were not
received during such Collection Period) owed by any Obligor in respect of any
Eligible Loan (net of any payment owed by the Borrower to, and including any
receipts from, any Hedge counterparties).

“Interest Rate”: For each Accrual Period and for each Advance outstanding for
each day during such Accrual Period:

(a) to the extent the applicable Conduit Lender has funded the Advance through
the issuance of Commercial Paper Notes, a rate equal to the applicable CP Rate;
or

(b) to the extent the applicable Conduit Lender or Institutional Lender did not
fund the Advance through the issuance of Commercial Paper Notes, a rate equal to
the Alternative Rate;

provided that: (i) the Interest Rate shall be the Base Rate for any Accrual
Period for any Advance as to which a Conduit Lender has funded the making or
maintenance thereof by a sale of an interest therein to any Liquidity Bank under
the applicable Liquidity Purchase Agreement on any day other than the first day
of such Accrual Period and without giving such Liquidity Bank at least two
Business Days’ prior notice of such assignment; (ii) the Interest Rate shall be
the Base Rate if such Conduit Lender or Liquidity Bank shall have notified the
Agent that a Eurodollar Disruption Event has occurred; and (iii) the Interest
Rate shall be the applicable Prime Rate plus 0.75% for each day during any
Accrual Period following the occurrence of a Termination Event that is
continuing.

“Interest Rate Hedge Amount”: On any day, an amount equal to the excess, if any,
of (a) the aggregate Outstanding Loan Balance of all Eligible Loans in the
Collateral that are Fixed Rate Loans over (b) the product of (i) 10% and
(ii) the Aggregate Outstanding Loan Balance.

“Interest Rate Hedge Amount Notional Band”: As of any date of determination, the
maximum amount by which the Interest Rate Hedge Notional Amount may exceed or be
less than the product of the Hedge Percentage and the Interest Rate Hedge
Amount, as agreed by the

 

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Agent in its sole discretion; provided that such Interest Rate Hedge Amount
Notional Band shall in no event permit the Interest Rate Hedge Notional Amount
to exceed or be less than the product of the Hedge Percentage and the Interest
Rate Hedge Amount by an amount greater than 10% of the aggregate Outstanding
Loan Balance of all Eligible Loans in the Collateral that are Fixed Rate Loans
as of such date.

“Interest Rate Hedge Notional Amount”: The aggregate notional amount in effect
on any day under all Interest Rate Hedge Transactions entered into pursuant to
Section 5.2(a), that have not matured, been terminated or cancelled.

“Interest Rate Hedge Transaction”: Each interest rate swap, index rate swap or
interest rate cap transaction or comparable derivative arrangements as the Agent
may approve in its discretion between the Borrower and a Hedge Counterparty that
is entered into pursuant to Section 5.2(a) and is governed by an Interest Rate
Hedging Agreement.

“Interest Rate Hedge Trigger”: An event occurring when the Fixed Rate Loan
Percentage is greater than 10%.

“Interest Rate Protection Agreement”: Any interest rate swap, interest rate cap,
interest rate collar or other interest rate hedging agreement or arrangement.

“Investment”: With respect to any Person, any direct or indirect loan, advance
or investment by such Person in any other Person, whether by means of share
purchase, capital contribution, loan or otherwise, excluding the acquisition of
assets pursuant to the Purchase Agreement and excluding commission, travel and
similar advances to officers, employees and directors made in the ordinary
course of business.

“Investment Grade”: An S&P Rating of “BBB-” or better, or a Moody’s Rating of
“Baa3” or better.

“ISDA Definitions”: The 2000 ISDA Definitions, as published by the International
Swaps and Derivatives Association, Inc.

“Joinder Supplement”: An agreement among the Borrower, the Servicer, a Lender
and the Agent in the form of Exhibit R to this Agreement (appropriately
completed) delivered in connection with a Person becoming a Lender hereunder
after the Closing Date, as contemplated by Section 2.1(e).

“Junior Secured Loan”: Any Loan that (i) is secured by a second priority Lien on
substantially all the obligor’s assets constituting collateral for the Loan and
(ii) contains provisions that, upon the occurrence of an event of default under
the related Loan Documents or in the case of any liquidation or foreclosure on
the related collateral, the Borrower’s portion of such Loan would be paid only
after certain other lenders party to such Loan and having a first priority Lien
over the collateral securing such Loan are paid in full.

“Kohlberg Capital”: Defined in the Preamble.

 

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“Large Middle Market Loan”: Any Loan issued as part of a loan facility with an
original loan size (including any first and second lien loans included in the
facility) greater than $125,000,000 but less than $250,000,000, including for
purposes of this definition the maximum available amount of commitments under
any Revolving Loans.

“Lender” and “Lenders”: Defined in the Preamble.

“Lender’s Account”: The account specified by each Lender party hereto in Annex
D, in any Assignment and Acceptance or in any Joinder Supplement.

“Lender Agent”: With respect to (i) Fairway, BMO, (ii) Riverside Funding LLC, as
Conduit Lender hereunder, Deutsche Bank AG, New York Branch and (iii) each
Lender which may from time to time become a party hereto, the Person designated
as the “Lender Agent” with respect to such Lender in the applicable Assignment
and Acceptance or Joinder Supplement.

“Leverage Ratio”: With respect to any person, the ratio of Indebtedness of such
Person and its Affiliates to stockholders’ equity (as determined in accordance
with GAAP) of such Person.

“LIBOR Rate”: For any Accrual Period and any Advance, an interest rate per annum
equal to:

(a) the posted rate for one-month deposits in Dollars, appearing on Telerate
page 3750 as of 11:00 a.m. (London time) on the Business Day that is the second
Business Day immediately preceding the applicable Funding Date (with respect to
the initial Accrual Period for such Advance) and as of the second Business Day
immediately preceding the first (1st) day of the applicable Accrual Period (with
respect to all subsequent Accrual Periods for such Advance); or

(b) if no rate appears on Telerate page 3750 at such time and day, then the
LIBOR Rate shall be determined by the Agent as its rate (each such
determination, absent manifest error, to be conclusive and binding on all
parties hereto and their assignees) at which one-month deposits in Dollars are
being, have been, or would be offered or quoted by the Agent to major banks in
the applicable interbank market for Eurodollar deposits at or about 11:00 a.m.
(New York, New York time) on such day.

“Lien”: With respect to any Collateral, (a) any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such Collateral, or
(b) the interest of a vendor or lessor under any conditional sale agreement,
financing Loan or other title retention agreement relating to such Collateral.

“Lien Release Dividend”: Defined in Section 2.16(a).

“Lien Release Dividend Date”: The date specified by the Borrower, which date may
be any Business Day, provided written notice is given in accordance with
Section 2.16(a).

“Liquidation Expenses”: With respect to any Defaulted Loan, the aggregate amount
of all out-of-pocket expenses reasonably incurred by the Borrower or on behalf
of the Borrower by the Servicer (including amounts paid to any subservicer) in
connection with the repossession, refurbishing and disposition of any related
assets securing such Transferred Loan including the attempted collection of any
amount owing pursuant to such Transferred Loan.

 

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“Liquidity Bank”: Each liquidity bank that is a party to a Liquidity Purchase
Agreement.

“Liquidity Purchase Agreement”: Any agreement entered into in connection with
this Agreement pursuant to which a Liquidity Bank agrees to make purchases from
or advances to, or purchase assets from, any Conduit Lender in order to provide
liquidity support for such Conduit Lender’s Advances hereunder.

“Loan”: Any (a) Senior Secured Loan, Junior Secured Loan or Subordinated Loan
(i) arising from the extension of credit to an Obligor by the Originator,
(ii) purchased and re-underwritten in the ordinary course of the Originator’s
business or (iii) that is a Third Party Acquired Loan (which, in each case, may
be a Broadly Syndicated Loan, Traditional Middle Market Loan or Large Middle
Market Loan), including, without limitation, all Add-On Loans, Revolving Loans
and PIK Loans (or a Participation in any of the foregoing), (b) Securities (as
applicable) and (c) monies due and owing and all Interest Collections, Principal
Collections and other amounts received from time to time with respect to such
Security, loan or note receivable and all Proceeds thereof.

“Loan Checklist”: With respect to any Loan, the index prepared by the Servicer
identifying the type of Loan (including whether such Loan is a Noteless Loan or
an Agented Loan and the identity of the agent) and each of the Loan Documents
related thereto which are included in the related Loan File.

“Loan Documents”:

(a) For each Loan (other than those described in clause (b) below), originals
(except as otherwise indicated) of the following documents or instruments:

(i) other than in the case of a Noteless Loan or a Participation, the original
or, in the case of a lost note accompanied by an affidavit and indemnity, a copy
of the underlying promissory note, endorsed by the Borrower or the prior holder
of record either in blank or to the Trustee (and evidencing an unbroken chain of
endorsements from each prior holder thereof evidenced in the chain of
endorsements to the Agent), with any endorsement to the Trustee to be in the
following form: “U.S. Bank National Association, as Trustee”, (ii) in the case
of a Noteless Loan, (x) a copy of each transfer document or instrument relating
to such Noteless Loan evidencing the assignment of such Noteless Loan either
(1) from the Originator to the Borrower and from the Borrower either to the
Trustee or in blank, or (2) from the prior third party owner thereof directly to
the Borrower (at the direction of the Originator) and from the Borrower either
to the Trustee or in blank, and (y) a copy of the Loan Register with respect to
such Noteless Loan and (iii) in the case of a Participation, a participation
agreement;

(ii) originals or copies of each of the following, to the extent applicable to
the related Loan: any related loan agreement, credit agreement, note purchase
agreement, security agreement, sale and servicing agreement, acquisition
agreement, subordination agreement, intercreditor agreement or similar
instruments, guarantee, Insurance Policy

 

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(where applicable), assumption or substitution agreement or similar material
operative document, in each case together with any amendment or modification
thereto, as set forth on the Loan Checklist;

(iii) if any Loan is secured by real property, an Assignment of Mortgage and of
any other material recorded security documents in recordable form, executed by
the Borrower or the prior holder of record, in blank or to the Agent (and
evidencing an unbroken chain of assignments from the prior holder of record to
the Agent), with any assignment to the Agent to be in the following form: “U.S.
Bank National Association, as Trustee” unless such mortgage is held by a
collateral agent for the benefit of the Lenders;

(iv) either, in each case as indicated on the Loan Checklist, (i) copies of the
UCC-1 Financing Statements, if any, and any related continuation statements,
each showing the Obligor as debtor and each with evidence of filing thereon, or
(ii) copies of any such financing statements certified by the Servicer to be
true and complete copies thereof in instances where the original financing
statements have been sent to the appropriate public filing office for filing;

(b) for each Loan with respect to which the Originator does not act as Agent (or
in a comparable capacity), originals (except as otherwise indicated) of the
following documents or instruments:

(i) other than in the case of a Noteless Loan or a Participation, the original
or, in the case of a lost note accompanied by an affidavit and indemnity, a copy
of the underlying promissory note, endorsed by the Borrower or the prior holder
of record either in blank or to the Trustee (and evidencing an unbroken chain of
endorsements from each prior holder thereof evidenced in the chain of
endorsements to the Agent), with any endorsement to the Agent to be in the
following form: “U.S. Bank National Association, as Trustee”, (ii) in the case
of a Noteless Loan, (x) a copy of each transfer document or instrument relating
to such Noteless Loan evidencing the assignment of such Noteless Loan either
(1) from the Originator to the Borrower and from the Borrower either to the
Agent or in blank, or (2) from the prior third party owner thereof directly to
the Borrower (at the direction of the Originator) and from the Borrower either
to the Agent or in blank, and (y) a copy of the Loan Register with respect to
such Noteless Loan and (iii) in the case of a Participation, a participation
agreement;

(ii) copies or electronic versions of each of the following, to the extent
applicable to the related Loan: any related loan agreement, credit agreement,
note purchase agreement, participation agreement, security agreement, sale and
servicing agreement, acquisition agreement, subordination agreement,
intercreditor agreement or similar instruments, guarantee, Insurance Policy
(where applicable), assumption or substitution agreement or similar material
operative document, in each case together with any amendment or modification
thereto, as set forth on the Loan Checklist.

“Loan File”: With respect to any Loan, each of the Loan Documents related
thereto (as identified on the Loan List).

 

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“Loan List”: The Loan List provided by the Borrower to the Agent and the Trustee
in connection with each Advance or as new Eligible Loans are added to the
Collateral, initially as set forth in Schedule IV hereto (which shall set forth
a description of each Transferred Loan, including, without limitation, the name
of the Obligor of each such Transferred Loan, the related loan number (as set
forth in the Servicer’s internal records), the maturity date and type of each
such Transferred Loan), as the same may be amended, modified or supplemented
from time to time in accordance with the provisions hereof.

“Loan Majority”: With respect to Agented Loans, the holders of the loans
evidencing not less than 66-2/3% of the outstanding amount of all such loans
issued by the Obligor.

“Loan Rate”: For each Loan, in a Collection Period, the current cash pay
interest rate for such Loan in such period as specified in the related Loan
Documents.

“Loan Register”: Defined in Section 7.9(r).

“Margin Stock”: Means “Margin Stock” as defined in Regulation U issued by the
Board of Governors of the Federal Reserve System.

“Market Servicing Fee”: Defined in Section 7.27.

“Market Servicing Fee Differential”: On any date of determination, an amount
equal to the excess, if any, of the Market Servicing Fee over the Servicing Fee.

“Market Value”: As of any date of determination, for any Loan, the value of such
Loan (expressed in Dollars) calculated by the Servicer and based upon:

(a) the valuation for such Loan obtained by the Servicer from an Approved
Pricing Service; or

(b) if Market Value cannot be determined pursuant to clause (a) above because no
Approved Pricing Service is available, then the Market Value of such Loan shall
be determined as the average of the bid prices for such Loan obtained by the
Servicer from two nationally recognized broker/dealers Independent of each other
and of the Servicer and any of its Affiliates (provided that, in each case, any
such bid prices must be for an amount of the Loan equal to the amount of the
Loan to be sold or valued).

“Master Participation Agreement”: The Master Participation Agreement, dated as
of February 14, 2007, by and among Kohlberg Capital Corporation, as Seller, and
Kohlberg Capital Funding LLC I, as Participant.

“Material Adverse Change”: With respect to any Person, any material adverse
change in the business, financial condition, operations, performance or
properties of such Person.

“Material Adverse Effect”: With respect to any event or circumstance, means a
material adverse effect on, as applicable, (a) the business, financial
condition, operations, performance or properties of the Servicer, the Borrower,
the Backup Servicer or the Trustee, (b) the validity, enforceability or
collectibility of this Agreement or any other Transaction Document or the

 

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validity, enforceability or collectibility of the Loans, (c) the rights and
remedies of the Trustee on behalf of the Secured Parties, the Agent or any other
Secured Party under this Agreement or any Transaction Document or (d) the
ability of the Servicer, the Borrower, the Backup Servicer or the Trustee to
perform its obligations under this Agreement or any other Transaction Document,
or (e) the status, existence, perfection, priority, or enforceability of the
Trustee’s, for the benefit of the Secured Parties, interest in the Collateral.

“Maximum Availability”: On any day, the lesser of (i) the sum of (A) the excess
of (1) the Borrowing Base over (2) the Minimum Overcollateralization Amount plus
(B) the amount of Principal Collections on deposit in the Principal Collection
Account and (ii) the Facility Amount; provided that during the Amortization
Period, the Maximum Availability shall be equal to the Advances Outstanding.

“Maximum Lawful Rate”: Defined in Section 2.7(c).

“Measurement Date”: Each of the following: (i) the date of any Borrowing Notice;
(ii) any Lien Release Dividend Date; (iii) any Discretionary Sale Date; (iv) any
date on which a substitution or repurchase of a Loan occurs pursuant to
Section 2.18; (v) the date as of which any Monthly Report, as provided for in
Section 7.17(a), is calculated; and (vi) each Funding Date.

“Minimum Overcollateralization Amount”: As of any date of determination, an
amount equal to the greater of (a) the amount determined by multiplying (i) the
Borrowing Base on such date times (ii) one minus the Advance Rate and (b) the
Required Equity Contribution.

“Monthly Report”: Defined in Section 7.17(a).

“Moody’s”: Moody’s Investors Service, Inc., or any successor thereto.

“Moody’s Collateral Value”: With respect to any Defaulted Loan as of any date of
determination, (a) for a period not to exceed 18 months since the date such Loan
was determined to be a Defaulted Loan, the lesser of (i) the Moody’s Recovery
Amount of such Loan and (ii) the Market Value of such Loan and (b) zero
thereafter.

“Moody’s Derived Rating”: With respect to a Loan whose Moody’s Rating cannot
otherwise be determined pursuant to the definition thereof, such Moody’s Rating
shall be determined as set forth below:

(a) If the Obligor of such Loan has a long-term issuer rating by Moody’s, then
such long-term issuer rating.

(b) If not determined pursuant to clause (a) above, if another obligation of the
Obligor is rated by Moody’s, then by adjusting the rating of the related Moody’s
rated obligation of the related Obligor by the number of rating sub-categories
according to the table below:

 

Obligation Category of

Rated Obligation

 

Rating of

Rated Obligation

 

Number of

Subcategories Relative

to Rated Obligation

Rating

Senior secured obligation   greater than or equal to “B2”   -1 Senior secured
obligation   less than “B2”   -2 Subordinated obligation   greater than or equal
to “B3”   +1 Subordinated obligation   less than “B3”   0

 

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(c) If not determined pursuant to clause (a) or (b) above, if the Obligor of
such Loan has a corporate family rating by Moody’s, then one subcategory below
such corporate family rating;

(d) If not determined pursuant to clause (a), (b) or (c) above, then by using
any one of the methods provided below:

(1) (i) If such Loan is rated by S&P, then by adjusting the S&P Rating by the
number of rating sub-categories according to the table below:

 

S&P Rating

 

Obligation

Rated by S&P

 

Number of

Subcategories Relative

to Moody’s Equivalent

of S&P Rating

>“BBB-”   Security   -1 <“BB+”   Security   -2   Loan (other than a Security) or
Participation Interest in Loan   -2

(ii) if such Loan is not rated by S&P but another security or obligation of the
obligor is rated by S&P (a “parallel security”), then the rating of such
parallel security will at the election of the Servicer be determined in
accordance with the table set forth in clause (1)(i) above, and the Moody’s
Rating of such Loan will be determined in accordance with the methodology set
forth in clause (a) above (for such purposes treating the parallel security as
if it were rated by Moody’s at the rating determined pursuant to this clause
(1)(ii)); or

(iii) if such Loan is a DIP Loan, no Moody’s Rating may be determined based on a
rating by S&P or any other rating agency;

 

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(2) if such Loan is not rated by Moody’s or S&P and no other security or
obligation of the issuer of such Loan is rated by Moody’s or S&P, and if Moody’s
has been requested by the Borrower or the Servicer to assign a rating or rating
estimate with respect to such Loan but such rating or rating estimate has not
been received, pending receipt of such estimate, (A) “B3” for a period of up to
45 days from its Cut-Off Date if (x) the Servicer has certified to the Agent
that, based on facts and information available to it, it believes (which belief
shall not be called into question as a result of subsequent events or
circumstances) that the Loan shall receive a rating of at least “B3” and (y) the
issuer of such Loan is not in default under any of its debt or (B) otherwise,
“Caa2”;

(3) if such Loan is an Unrated Loan, the Moody’s Rating for such Loan shall be
deemed to be “Caa2”; provided that any such Loan shall be deemed to have a
Moody’s Rating of “B3” for so long as (I) the Obligor thereof is current on any
cumulative dividends, (II) the Fixed Charge Coverage Ratio for such Obligor
exceeds 125% for each of the past two fiscal years and for the most recent
quarter, (III) such Obligor recorded a net profit before tax for the immediately
preceding fiscal year and the most recent quarter and (IV) the annual financial
statements of such Obligor are unqualified and certified by a firm of
Independent accountants or international reputation and such Obligor’s quarterly
statements are unaudited but signed by a corporate officer of such Obligor;
provided further that if such financial statements are unavailable for a period
of more than 90 days, the Moody’s Rating of such Loan shall be deemed to be
“Caa2”.

(4) if a debt security or obligation of the Obligor has been in default during
the past two years, “Ca”;

provided that, for purposes of calculating a Moody’s Derived Rating, each
applicable rating on credit watch by Moody’s with negative implication at the
time of calculation will be treated as having been downgraded by one rating
subcategory; provided further that the Moody’s Facility Rating for a DIP Loan
may not be derived or implied but instead will be determined in accordance with
clause (d)(2) above.

“Moody’s Group I Country”: Any one of the United States, Canada, the
Netherlands, the Channel Islands or the United Kingdom.

“Moody’s Rating”: An Assigned Moody’s Rating or, if an Assigned Moody’s Rating
is not available, a Moody’s Derived Rating.

“Moody’s Rating Factor” means, for each Loan, the number set forth in the table
below opposite the Moody’s Rating of such Loan:

 

Moody’s Rating

 

Moody’s

Rating Factor

 

Moody’s Rating

 

Moody’s

Rating Factor

Aaa   1   Ba1   940 Aa1   10   Ba2   1,350 Aa2   20   Ba3   1,766 Aa3   40   B1
  2,220 A1   70   B2   2,720

 

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Moody’s Rating

 

Moody’s

Rating Factor

 

Moody’s Rating

 

Moody’s

Rating Factor

A2   120   B3   3,490 A3   180   Caa1   4,770 Baal   260   Caa2   6,500 Baa2  
360   Caa3   8,070 Baa3   610   Ca or lower   10,000

“Moody’s Recovery Amount”: With respect to any Loan as of any date of
determination, the product of (a) the Outstanding Loan Balance of such Loan on
such date and (b) the Moody’s Recovery Rate applicable to such Loan.

“Moody’s Recovery Rate”: With respect to any Loan, as of any date of
determination, the recovery rate for such Loan determined in accordance with the
following, in the following order of priority:

(a) if the Loan has been specifically assigned a recovery rate by Moody’s (for
example, in connection with the assignment by Moody’s of an estimated rating),
such recovery rate;

(b) if the preceding clause does not apply to the Loan, the rate determined
pursuant to the table set forth below:

 

Debt Obligation

 

Recovery Rate

Senior Secured Loan   45% Junior Secured Loan   35%
Subordinated Loans and Structured
Finance Obligations   15% High Yield Bonds   10%

“Moody’s Shadow Rating”: A corporate credit estimate applied for by the Borrower
within 10 days of (a) the Cut-Off Date of any Loan that does not have an
Assigned Moody’s Rating or (b) any amendment to the related Loan Documents that
is deemed material in the Servicer’s reasonable judgment.

“Multiemployer Plan”: A “multiemployer plan” as defined in Section 4001(a)(3) of
ERISA that is or was at any time during the current year or the immediately
preceding five years contributed to by the Borrower or any ERISA Affiliate on
behalf of its employees.

“Net Worth”: The total of stockholder’s equity (determined in accordance with
GAAP) plus Subordinated Debt.

“Non-Extending Lender”: Defined in Section 2.1(d).

 

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“Non-USD Loan”: Any Loan that is (a) denominated in a Permitted Currency other
than Dollars and (b) not convertible into or payable in, at the option of the
issuer thereof or the Obligor thereunder, any other currency (other than
Dollars).

“Non-USD Notional Amount”: Defined in Section 5.2(b).

“Non-U.S. Participant”: Defined in Section 2.14(d).

“Noteless Loan”: A Loan with respect to which the underlying Loan Documents
(i) do not require the Obligor to execute and deliver a promissory note to
evidence the indebtedness created under such Loan or (ii) do not require any
holder of the indebtedness created under such Loan to affirmatively request a
promissory note from the related Obligor.

“Obligations”: All loans, advances, debts, liabilities and obligations, for
monetary amounts owing by the Borrower to the Secured Parties, the Backup
Servicer and the Trustee or any of their assigns, as the case may be, whether
due or to become due, matured or unmatured, liquidated or unliquidated,
contingent or non-contingent, and all covenants and duties to pay such amounts,
of any kind or nature, present or future, arising under or in respect of any of
this Agreement, any fee letter (including, without limitation, the Fee Letter
and the Backup Servicer and Trustee Fee Letter) delivered in connection with the
transactions contemplated by this Agreement, any Transaction Document, or any
Hedging Agreement, as amended or supplemented from time to time, whether or not
evidenced by any separate note, agreement or other instrument. This term
Obligations includes, without limitation, all Advances Outstanding, Interest
(including interest that accrues after the commencement against the Borrower of
any action under the Bankruptcy Code), Breakage Costs, Hedge Breakage Costs,
fees, including, without limitation, any and all arrangement fees, loan fees,
facility fees, and any and all other fees, expenses, costs or other sums
(including attorney costs) chargeable to the Borrower under any of the
Transaction Documents or under any Hedging Agreement.

“Obligor”: With respect to any Loan, the Person or Persons obligated to make
payments pursuant to such Loan. For purposes of calculating any of the
Concentration Limits, all Loans included in the Collateral or to become part of
the Collateral the Obligor of which is an Affiliate of another Obligor shall be
aggregated with all Loans of such other Obligor, for example, if Corporation A
is an Affiliate of Corporation B; and the aggregate Outstanding Loan Balance of
all of Corporation A’s Loans in the Collateral constitutes 10% of the Aggregate
Outstanding Loan Balance and the aggregate Outstanding Loan Balance of all
Corporation B’s Loans in the Collateral constitute 10% of the Aggregate
Outstanding Loan Balance, the Obligor concentration for Corporation A would be
20% and the Obligor concentration for Corporation B would be 20%.

“Officer’s Certificate”: A certificate signed by any officer of the Borrower or
the Servicer, as the case may be, and delivered to the Backup Servicer, the
Trustee and the Agent.

“Operating History”: With respect to any specified Person, the time since the
date of such Person’s incorporation or formation that it has continuously
operated its business; provided that the Operating History of any Person, newly
formed as a result of a merger of two or more Persons or as a result of the
acquisition of one or more Persons by a newly formed Person

 

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(“Merged Parties”) shall be based on the weighted average (by relative sales) of
the Operating Histories of the Merged Parties (excluding for such purposes,
entities that are created only for the purpose of being acquisition entities),
for example, if Corporation A with sales of $10 million has an Operating History
of four years and Corporation B with sales of $20 million has an Operating
History of eight years, merge to form NEWCO, the Operating History of NEWCO will
be 6.67 years.

“Opinion of Counsel”: A written opinion of external counsel, who may be external
counsel for the Borrower or the Servicer, as the case may be, and who shall be
reasonably acceptable to the Agent.

“Originator”: Kohlberg Capital Corporation.

“Other Costs”: Defined in Section 12.9(c).

“Outstanding Loan Balance”: With respect to any Loan, as of any date of
determination, the total remaining amounts of principal payable by the Obligor
thereof exclusive of (a) interest payments and (b) Accreted Interest; provided
that (i) any principal previously covered by a Servicer Advance will be excluded
from the principal amounts payable for purposes of this definition, (ii) the
Outstanding Loan Balance of any Discount Loan shall be the Purchase Price
thereof and (iii) the Outstanding Loan Balance of any Revolving Loan shall
include the aggregate outstanding principal amount of the unfunded portion of
such Revolving Loan as of such date.

“Overcollateralization Amount”: As of any date of determination, the excess of
(a) the sum of the Borrowing Base plus the amount of Principal Collections on
deposit in the Collection Account on such date over (b) the Advances Outstanding
on such date.

“Overcollateralization Shortfall”: As of any date of determination, the excess,
if any, of (a) Minimum Overcollateralization Amount on such date over (b) the
Overcollateralization Amount on such date.

“Parent”: Defined in Section 4.1(t)(xxvii).

“Participating Member State”: A member state of the European Community in
accordance with the Treaty of Rome of March 25, 1957, as amended, inter alia, by
the Single European Act and the Treaty of European Union of February 7, 1992,
establishing the European Union and which has adopted the single currency in
accordance with legislation of the European Union relating to the European
Monetary Union.

“Participation”: (a) A participation interest that is acquired by the Originator
in all or a portion of a loan held by a Selling Institution and is documented in
a form that is commercially reasonable and consistent with the Credit and
Collection Policy or (b) an Initial Participation.

“Payment Date”: The 12th day of each calendar month or, if such day is not a
Business Day, the next succeeding Business Day, commencing March 12, 2007.

“Permitted Currency”: Dollars, Canadian dollars, Euro and Pounds Sterling.

 

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“Permitted Investments”: Negotiable instruments or securities or other
investments that, as of any date of determination, mature by their terms on or
prior to the Business Day immediately preceding the next Payment Date
immediately following such date of determination and which may include one or
more of the following types of investments:

(a) marketable obligations of the United States, the full and timely payment of
which are backed by the full faith and credit of the United States;

(b) marketable obligations, the full and timely payment of which are directly
and fully guaranteed by the full faith and credit of the United States;

(c) bankers’ acceptances and certificates of deposit and other interest-bearing
obligations denominated and payable in Dollars and issued by any bank with
capital, surplus and undivided profits aggregating at least $100,000,000, the
short-term obligations of which are rated “A-1” by S&P and “P-1” by Moody’s;

(d) repurchase obligations for underlying securities of the types described in
clauses (a), (b) and (c) above entered into with any bank of the type described
in clause (c) above;

(e) commercial paper rated at least “A-1” by S&P and “P-1” by Moody’s;

(f) investments in money market funds rated in the highest investment category
or otherwise approved in writing by S&P or Moody’s; and

(g) demand deposits, time deposits or certificates of deposit (having original
maturities of no more than 365 days of depository institutions or trust
companies incorporated under the laws of the United States or any state thereof
(or domestic branches of any foreign bank) and subject to supervision and
examination by federal or state banking or depository institution authorities;
provided that at the time such investment, or the commitment to make such
investment, is entered into, the short-term debt rating of such depository
institution or trust company shall be at least “A-1” by S&P and “P-1” by
Moody’s.

Each of the Permitted Investments may be purchased by or through the Backup
Servicer or Trustee or an Affiliate of the Backup Servicer or Trustee.

“Permitted Liens”: (a) With respect to the Loans, Liens in favor of the Trustee
on behalf of the Secured Parties, created pursuant to this Agreement, and
(b) with respect to the Borrower’s interest in the related Collateral, any of
the following: (i) materialmen’s, warehousemen’s, mechanics’ and other liens
arising by operation of law in the ordinary course of business for sums not due
or sums that are being contested in good faith, (ii) Liens for state, municipal
and other local taxes if such taxes are not at the time due and payable or if
the Obligor shall currently be contesting the validity thereof in good faith by
appropriate proceedings, (iii) Liens held by senior lenders with respect to
subordinated Loans, (iv) Liens created pursuant to this Agreement in favor of
the Trustee on behalf of the Secured Parties (v) the rights of a Hedge
Counterparty under its Hedging Agreement, (vi) with respect to Agented Loans,
Liens in favor of the collateral agent on behalf of all lenders to the related
Obligor and (vii) any Liens permitted under the terms of the related Loan
Documents.

 

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“Permitted Securitization Transaction”: Any financing transaction undertaken by
the Borrower or an Affiliate of the Borrower or the Originator (with the Agent’s
prior written consent) that is secured, directly or indirectly, by the
Collateral or any portion thereof or interest therein, including any sale,
lease, whole loan sale, asset securitization, secured loan or other transfer.

“Person”: An individual, partnership, corporation (including a business or
statutory trust), limited liability company, joint stock company, trust,
unincorporated association, sole proprietorship, joint venture, government (or
any agency or political subdivision thereof) or other entity.

“PIK Loan”: A Loan to an Obligor, which provides for a portion of the interest
that accrues thereon to be added to the principal amount of such Loan for some
period of the time prior to such Loan requiring the current cash payment of
interest on a monthly or quarterly basis, which cash payment shall be treated as
Interest Collections at the time it is received.

“Portfolio Investment”: Any investments made by the Originator in the ordinary
course of business in a Person that is accounted for under GAAP as a portfolio
investment of the Originator.

“Pounds Sterling”: The lawful currency of the United Kingdom.

“Prepaid Loan”: Any Loan that was terminated or has been prepaid in full or in
part prior to its scheduled maturity date.

“Pre-Positioned Loan”: Any Loan which will be funded at the closing of such Loan
or in connection with the Initial Advance with the proceeds of an Advance and
which is designated by the Borrower (or the Servicer on the Borrower’s behalf)
in writing to the Agent and the Trustee as a “Pre-Positioned Loan” shall
constitute a “Pre-Positioned Loan” for purposes of the conditions, obligations,
certifications and delivery requirements (as applicable) provided for in
Sections 2.2(b), 2.2(c), 3.2(e), 4.1(u)(ix), 5.3(a) and 7.10(a), and shall
constitute a Transferred Loan for all other purposes under this Agreement.
Subject to the foregoing, any Pre-Positioned Loan as to which each of the
above-referenced conditions, obligations, certifications and delivery
requirements (as applicable) shall have been satisfied (as confirmed in writing
by the Servicer to the Agent and the Trustee) shall no longer constitute a
Pre-Positioned Loan for any purpose under this Agreement.

“Prime Rate”: The rate announced by Bank of Montreal from time to time as its
prime rate in the United States, such rate to change as and when such designated
rate changes. The Prime Rate is not intended to be the lowest rate of interest
charged by Bank of Montreal in connection with extensions of credit to debtors.

“Principal Collection Account”: The subaccount of the Collection Account into
which all Principal Collections are deposited by the Borrower or by the Servicer
on its behalf in accordance with Section 2.9.

“Principal Collections”: Any and all amounts received in respect of any
principal due and payable under any Loan from or on behalf of Obligors that are
deposited into the Principal

 

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Collection Account, or received by the Borrower or the Servicer or Originator on
behalf of the Borrower in respect of Loans, in the form of cash, checks, wire
transfers, electronic transfers or any other form of cash payment and applied to
reduce the Outstanding Loan Balance of a Loan in accordance with the Credit and
Collection Policy.

“Proceeds”: With respect to any Collateral, whatever is receivable or received
when such Collateral is sold, collected, liquidated, foreclosed, exchanged, or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes all rights to payment with respect to any Insurance Policy relating to
such Collateral.

“Program Fee”: Defined in the Fee Letter.

“Project Finance Obligations”: Asset-backed securities that entitle the holders
thereof to receive payments that depend (except for rights or other assets
designed to assure the servicing or timely distribution of proceeds to holders
of the asset-backed securities) on the cash flow from (a) the sale of products,
such as electricity, nuclear energy, steam or water, in the utility industry by
a special purpose entity formed to own the assets generating or otherwise
producing such products and such assets were or are being constructed or
otherwise acquired primarily with the proceeds of debt financing made available
to such entity on a limited-recourse basis (including recourse to such assets
and the land on which they are located) or (b) fees or other usage charges, such
as tolls collected on a highway, bridge, tunnel or other infrastructure project,
collected by a special purpose entity formed to own one or more such projects
that were constructed or otherwise acquired primarily with the proceeds of debt
financing made available to such entity on a limited-recourse basis (including
recourse to such assets and the land on which it is located); provided that Real
Estate Loans shall not be considered as Project Finance Obligations.

“Pro Rata Share”: With respect to a Lender, the percentage obtained by dividing
the Commitment of such Lender (as determined under clause (a) of the definition
of Commitment) by the aggregate Commitments of all the Lenders (other than
Non-Extending Lenders), as determined under clause (a) of the definition of
Commitment.

“Purchase Agreement”: The Purchase and Sale Agreement, dated as of the date
hereof, by and between the Originator and the Borrower, as such agreement may be
amended, modified, waived, supplemented or restated from time to time.

“Purchased Loan Balance”: As of any date of determination, an amount equal to
(a)(i) for any Loan that is not a Defaulted Loan, the lesser of (A) the
Outstanding Loan Balance of such Loan on such date, and (B) the Fair Market
Value of such Loan on such date, and (ii) for any Defaulted Loan, the Moody’s
Collateral Value of such Defaulted Loan.

“Purchase Price”: With respect to any Loan, the cash purchase price paid by the
Borrower for such Loan.

“QIB”: A “qualified institutional buyer” within the meaning of Rule 144A under
the Securities Act.

“Qualified Institution”: Defined in Section 7.4(e).

 

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“Real Estate Construction Loan”: A Real Estate Loan with respect to which the
related construction activities, if any, have not been completed.

“Real Estate Loan”: A Loan that is (a)(i) underwritten primarily by a mortgage,
deed of trust or similar lien on commercial real estate (other than hotels,
restaurants and casinos) or residential real estate and (ii) primary repayment
of the payment obligations thereof is derived from rental or other real estate
related income or (b) a loan or debt obligation which falls within the Moody’s
Industry Classification Group “Buildings and Real Estate”.

“Records”: With respect to any Loans, all documents, books, records and other
information (including without limitation, computer programs, tapes, disks,
punch cards, data processing software and related property and rights)
maintained with respect to any item of Collateral and the related Obligors,
other than the Loan Documents.

“Recoveries”: With respect to any Defaulted Loan, proceeds of the sale of any
Related Property, proceeds of any related Insurance Policy, and any other
recoveries with respect to such Loan and Related Property, and amounts
representing late fees and penalties, net of Liquidation Expenses and amounts,
if any, received that are required to be refunded to the Obligor on such Loan.

“Registrar”: U.S. Bank, not in its individual capacity but solely as Registrar,
its successor or successors in interest and any Person which at any time may be
selected by the Borrower upon the resignation of U.S. Bank to act as Registrar.

“Related Property”: With respect to any Loan, any property or other assets of
the Obligor thereunder pledged or purported to be pledged as collateral to
secure the repayment of such Loan. In no event shall Related Property include
Warrant Assets.

“Released Amounts”: With respect to any payment or Collection received with
respect to any Loan on any Business Day (whether such payment or Collection is
received by the Servicer, the Originator or the Borrower), an amount equal to
that portion of such payment or collection constituting Excluded Amounts or
Retained Interest.

“Replaced Loan”: Defined in Section 2.18(a).

“Reporting Date”: The day of each calendar month that is three Business Days
prior to the Payment Date for such calendar month.

“Repurchased Loan”: Defined in Section 2.4.

“Required Advance Reduction Amount”: On any day, the amount of Advances
Outstanding required to be repaid to cause the Availability to equal or exceed
$0.

“Required Equity Contribution”: As of any date of determination prior to the
Termination Date, an Equity Contribution in an amount equal to the greater of
(a) $45,000,000 and (b) the sum, calculated for each of the Obligors of Loans
included in the Collateral as of such date with the largest, second-largest,
third-largest, fourth-largest and fifth-largest aggregate Outstanding Loan
Balance of Loans for each Obligor included in the Collateral as of such date, of
the Outstanding Loan Balances of such Loans.

 

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“Required Equity Shortfall”: On any day, the excess, if any, of the Required
Equity Contribution over the Equity Contribution on such day.

“Required Lenders”: At any time, two or more Lenders (including at least two
Conduit Lenders, if party hereto) representing in aggregate more than 50% of the
aggregate Commitments of the Lenders then in effect.

“Required Reports”: Collectively, the Monthly Report, the Servicer’s Certificate
and the quarterly financial statement of the Servicer required to be delivered
to the Borrower, the Agent and the Backup Servicer pursuant to Section 7.17.

“Reserve Account”: An account established in accordance with Section 7.4(f) for
the purpose of receiving deposits with respect to, and maintaining therein, the
Reserve Account Required Amount (including any amounts in excess of the Reserve
Account Required Amount, to the extent not distributed to the parties entitled
thereto pursuant to Section 2.8) and, to the extent required pursuant to
Section 2.8, to fund payments thereunder.

“Reserve Account Required Amount”: An amount payable on each Payment Date, as
determined on the related Determination Date, equal to the sum of (a) 2.0 times
the Estimated Payment Amount plus (b) for any Payment Date and the related
Determination Date during the Revolving Period on which the Default Ratio
exceeds 5.0%, an amount equal to 5.0% of the Aggregate Outstanding Loan Balance
plus (c) for any Payment Date and the related Determination Date following the
Termination Date, the aggregate outstanding principal amount of the unfunded
portion of each of the Revolving Loans included in the Collateral as of such
date. For the avoidance of doubt, at any time during the Revolving Period that
the Default Ratio is less than 5.0%, the Reserve Account Required Amount shall
be equal to the amount calculated pursuant to clause (a) of this definition.

“Responsible Officer”: As to any Person, any officer of such Person with direct
responsibility for the administration of this Agreement and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer’s knowledge of and familiarity with the particular
subject.

“Restricted Payments”: Defined in Section 5.1(z).

“Retained Interest”: With respect to each Loan, the following interests, rights
and obligations in such Loan and under the associated Loan Documents, which are
being retained by the Originator: (a) all of the rights and obligations, if any,
of the agent(s) under the documentation evidencing such Loan, (b) the applicable
portion of the interests, rights and obligations under the documentation
evidencing such Loan that relate to such portion(s) of the indebtedness that is
owned by another lender or is being retained by the Originator, (c) any agency
or similar fees associated with the rights and obligations of the agent that are
not being transferred in accordance with clause (a) of this definition and
(d) any advisory, consulting or similar fees due from the Obligor associated
with services provided by the agent that are not being transferred in accordance
with clause (a) of this definition.

 

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“Retransfer Price”: Defined in Section 2.18(b).

“Revolving Loan”: Any Loan that is a line of credit or other similar extension
of credit by the Originator where the Originator’s commitment under such Loan is
not fully funded and/or the proceeds of such Loan may be repaid and reborrowed.

“Revolving Period”: The period commencing on the Closing Date and ending on the
day immediately preceding the Termination Date.

“RIC/BDC Requirements”: The requirements (including, without limitation,
requirements pertaining to asset diversification) Kohlberg Capital must satisfy
to maintain its status as a “business development company,” within the meaning
of the Small Business Incentive Act of 1980, and its election to be treated as a
“registered investment company” under the Code.

“Rolling Three-Month Default Ratio”: As of any Determination Date, the
percentage equivalent of a fraction (a) the numerator of which equals the sum of
the Default Ratios for the Collection Period ending on such Determination Date
and each of the two preceding Determination Dates (or such lesser number of
Default Ratios as are available), and (b) the denominator of which equals three
(or the corresponding number of Default Ratios available if less than three).

“S&P”: Standard & Poor’s Ratings Services, a division of The McGraw-Hill
Companies, Inc., or any successor thereto.

“S&P Rating”: An Assigned S&P Rating or, if an Assigned S&P Rating is not
available, a S&P Shadow Rating; provided that for so long as any Loan has
neither an Assigned S&P Rating nor a S&P Shadow Rating, the S&P Rating of such
Loan shall be “CCC”; provided further that pending the receipt of a S&P Shadow
Rating, the S&P Rating of such Loan may be deemed to be “B-” for a period of up
to 45 days from the applicable Cut-Off Date if (a) the Servicer certifies to the
Agent that, based on facts and information available to it, it believes (which
belief shall not be called into question as a result of subsequent events or
circumstances) that S&P will assign to the Loan a S&P Rating of at least “B-”
and (b) the Obligor of such Loan is not in default under any of its outstanding
indebtedness. Any Loan which does not have an Assigned S&P Rating and for which
the Borrower has not requested a S&P Shadow Rating shall be deemed to have a S&P
Rating of “CCC”; provided that a Loan of an Obligor meeting the following
criteria as of each date of determination shall be deemed to have a S&P Rating
of “B-“:

(1) the Obligor is paying any cumulative dividends on a current basis;

(2) the Fixed Charge Coverage Ratio for the Obligor exceeds 125% for each of the
past two fiscal years and for the most recent quarter;

(3) the Obligor recorded a net profit before tax for the past fiscal year and
the most recent quarter; and

 

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(4) the annual financial statements of the Obligor are unqualified and certified
by a firm of internationally recognized Independent public accountants, and the
unaudited quarterly financial statements of the Obligor are signed by a
corporate officer of such Obligor; provided that if the financial statements of
the Obligor are unavailable when due (subject to any applicable cure period),
the financial statements of the preceding quarter shall be used; provided
further that if such financial statements are unavailable for a period of more
than 90 days, the S&P Rating of such Obligor shall be deemed to be “CCC”.

“S&P Shadow Rating”: A corporate credit estimate applied for by the Borrower
within 10 days of (a) the Cut-Off Date of any Loan that does not have an
Assigned S&P Rating or (b) any amendment to the related Loan Documents that is
deemed material in the Servicer’s reasonable judgment.

“Scheduled Debt Amortization”: The principal amount of Indebtedness scheduled to
be amortized in any period on Indebtedness other than revolving Indebtedness.

“Scheduled Payment”: On any Determination Date, with respect to any Loan, each
monthly or quarterly payment (whether principal, interest or principal and
interest) scheduled to be made by the Obligor thereof after such Determination
Date under the terms of such Loan.

“Secured Party”: (a) The Lenders, (b) each Lender Agent, (c) the Agent, (d) the
Trustee, (e) the Backup Servicer and (f) each Hedge Counterparty that is either
a Lender or an Affiliate of the Agent that executes a counterpart of this
Agreement agreeing to be bound by the terms of this Agreement applicable to a
Secured Party.

“Securities Act”: The Securities Act of 1933, as amended.

“Security”: Any Structured Finance Obligation or High Yield Bond.

“Selling Institution”: A financial institution from which the Originator
acquires a Participation with a public rating from (i) Moody’s of “A2” or better
and (ii) S&P of “A” or better.

“Senior Secured Loan”: Any Loan that (i) is secured by a first priority Lien on
the Related Property securing such Loan (subject to Permitted Liens) and
(ii) provides that the payment obligation of the related Obligor on such Loan is
either senior to, or pari passu with, all other loans or financings to such
Obligor.

“Servicer”: Defined in the Preamble.

“Servicer Advance”: Defined in Section 7.5.

“Servicer Termination Event”: Defined in Section 7.25.

“Servicer Termination Notice”: Defined in Section 7.25.

“Servicer’s Certificate”: Defined in Section 7.17(b).

 

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“Servicing Duties”: Defined in Section 7.2.

“Servicing Fee”: For each Payment Date, an amount equal to the sum of the
products, for each day during the related Collection Period, of (a) a fraction,
the numerator of which is the sum of (i) the Aggregate Outstanding Loan Balance
as of the first day of such Collection Period plus (ii) the Aggregate
Outstanding Loan Balance as of the last day of such Collection Period, and the
denominator of which is two, (b) the Servicing Fee Rate, and (c) a fraction, the
numerator of which is 1 and the denominator of which is 360.

“Servicing Fee Rate”: A rate equal to 1.0% per annum.

“Servicing Records”: All documents, books, records and other information
(including, without limitation, computer programs, tapes, disks, data processing
software and related property rights) prepared and maintained by the Servicer
with respect to the Loans and the related Obligors.

“Solvent”: As to any Person at any time, having a state of affairs such that all
of the following conditions are met: (a) the fair value of the property owned by
such Person is greater than the amount of such Person’s liabilities (including
disputed, contingent and unliquidated liabilities) as such value is established
and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy
Code; (b) the present fair salable value of the property owned by such Person in
an orderly liquidation of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured; (c) such Person is able to realize upon its
property and pay its debts and other liabilities (including disputed, contingent
and unliquidated liabilities) as they mature in the normal course of business;
(d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person’s ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in a business or a transaction, for
which such Person’s property would constitute unreasonably small capital.

“Spot FX Exchange Rate”: As of any date of determination, (a) a current market
rate of exchange for exchanging any currency into Dollars expressed as a ratio
of dollars to such currency or (b) an agreed upon exchange rate between the
Borrower and the relevant Hedge Counterparty under a Currency Hedge Transaction.

“Spread”: (a) With respect to any Floating Rate Loan denominated in Dollars,
(i) in the case of any such Loan accruing interest at a floating rate index
other than the prime rate (whether as published or set by a financial
institution from time to time), the cash interest spread over LIBOR of such
Loan, (ii) in the case of any such Loan accruing interest at the prime rate
(whether as published or set by a financial institution from time to time), the
cash interest spread over such prime rate, and (iii) with respect to any Loan
that is subject to an Interest Rate Protection Agreement, the percentage over
LIBOR paid on the notional amount of such Interest Rate Protection Agreement and
(b) with respect to any Floating Rate Loan that is a Non-USD Loan, the Converted
Spread.

“Structured Finance Obligation”: Any obligation or security the payment or
repayment of which is based primarily upon the collection of payments from a
specified pool of financial

 

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assets, either fixed or revolving, that by their terms convert into cash within
a finite time period, together with any rights or other assets designed to
assure the servicing or timely distribution of proceeds to security holders,
including, in any event, any project finance security, any asset-backed security
and any future flow security; provided that Structured Finance Obligations shall
not include any equity from collateralized debt obligation funds, any unrated
securities or any securities rated below “Baa2” by Moody’s and below “BB” by
S&P.

“Subordinated Debt”: Any debt that is subordinated in right of payment to
another class of indebtedness of a Person.

“Subordinated Loan”: Any Loan that (i) is unsecured, (ii) provides that the
payment obligation of the related Obligor on such Loan is subordinate to one or
more classes of lenders or (iii) contains provisions (x) blocking payments on
such Loan by the related Obligor for a period of greater than 60 days upon the
occurrence of a payment default on loans held by the senior lenders to such
Obligor or upon the exercise of remedies by such senior lenders upon a default
under such senior indebtedness and (y) prohibiting the holder of such Loan from
exercising remedies following a default under such Loan for a period of greater
than 60 days. For avoidance of doubt, all of an Obligor’s senior loans or
financings shall be considered one “class” for purposes of this definition.

“Subsidiary”: With respect to any Person, means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having ordinary
voting power to elect a majority of the Board of Directors of such entity
(irrespective of whether at the time capital stock of any other class or classes
of such entity shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
limited liability company or joint venture or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or controlled
by such Person, or such Person and one or more of its other Subsidiaries or by
one or more of such Person’s other Subsidiaries; provided that, with respect to
the Originator and the Servicer, “Subsidiary” shall not include any Person that
is a Portfolio Investment.

“Substitute Loan”: Defined in Section 2.18.

“Substitution Date”: The Business Day specified by the Borrower to the Agent,
the Trustee and each Hedge Counterparty in a Substitution Notice as the proposed
date of a replacement of a Replaced Loan with a Substitute Loan.

“Substitution Event”: Defined in Section 2.18(b)(i).

“Substitution Notice”: Defined in Section 2.18(a).

“Successor Servicer”: Defined in Section 7.26(a).

“Tangible Net Worth”: With respect to any Person, the Net Worth of such Person
after subtracting therefrom the aggregate amount of such Person’s intangible
assets, including, without limitation, goodwill, franchises, licenses, patents,
trademarks, tradenames, copyrights and service marks.

 

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“ Tape”: Defined in Section 7.13(b)(ii).

“TARGET Day”: A day on which the TARGET System is operating.

“TARGET System”: The Trans-European Automated Real-Time Gross Settlement Express
Transfer (TARGET) System or any successor thereto.

“Tax” or “Taxes”: Any present or future taxes, levies, imposts, duties, charges,
assessments or fees of any nature (including interest, penalties, and additions
thereto) that are imposed by any Government Authority.

“Termination Date”: The earliest to occur of (a) the Business Day designated by
the Borrower to the Agent as the Termination Date upon at least two Business
Days’ prior written notice, (b) the date of the occurrence of a Termination
Event pursuant to Section 9.1, (c) the date on which any Liquidity Purchase
Agreement shall expire in accordance with its terms and fail to be renewed for
an additional period of 364 days pursuant to Section 2.1(c) or shall otherwise
cease to be in full force and effect as in effect on the date hereof (without
giving effect to any amendment, modification, waiver, supplement or
restatement), and (d) the second Business Day prior to the Commitment
Termination Date.

“Termination Event”: Defined in Section 9.1.

“Third Party Acquired Loan”: Any Loan other than an Agented Loan acquired
(a) directly by the Borrower under the Purchase Agreement or (b) from a third
party in a syndicated loan transaction arranged and underwritten by the
Originator, or any transaction in which the Borrower is the designee of the
Originator under the instruments of conveyance relating to the applicable Loan.

“Traditional Middle Market Loan”: Any Loan issued as part of a loan facility
with an original loan size (including any first and second lien loans included
in the facility) of $125,000,000 or less, including for purposes of this
definition the maximum available amount of commitments under any Revolving
Loans.

“Transaction Documents”: This Agreement, the Purchase Agreement, the
Assignments, the Liquidity Purchase Agreement, all Hedging Agreements, the
Intercreditor Agreement, the Account Control Agreement, the Concentration
Account Agreement, the Master Participation Agreement, the Variable Funding
Note, any Joinder Supplement, the Fee Letter, the Backup Servicer and Trustee
Fee Letter, any UCC financing statements filed pursuant to the terms of this
Agreement, and any additional document, letter, fee letter, certificate,
opinion, agreement or writing the execution of which is necessary or incidental
to carrying out the terms of the foregoing documents.

“Transferee Letter”: The Transferee Letter substantially in the form of Exhibit
V hereto.

“Transferred Loans”: Each Loan that is acquired by the Borrower under the
Purchase Agreement or directly from a third party and all Loans received by the
Borrower in respect of the Required Equity Contribution; provided that the term
Transferred Loan shall not include any Retained Interests. For the avoidance of
doubt, the term “Transferred Loan” shall, for all purposes of this Agreement, be
deemed to include Third Party Acquired Loans.

 

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“Transition Costs”: The reasonable costs and expenses incurred by the Backup
Servicer in transitioning to Servicer; provided that in no event shall such
Transition Costs exceed $100,000 in the aggregate.

“Trustee”: Defined in the Preamble.

“Trustee Expenses”: The reasonable out-of-pocket expenses to be paid to the
Trustee under and in accordance with the Backup Servicer and Trustee Fee Letter.

“Trustee Fee”: The fee to be paid to the Trustee under the terms of the Backup
Servicer and Trustee Fee Letter, including the “Trustee Fee” and “Administration
Fee,” each as defined in the Backup Servicer and Trustee Fee Letter.

“UCC”: The Uniform Commercial Code as from time to time in effect in the
specified jurisdiction.

“Underlying Note”: The promissory note of an Obligor evidencing a Loan.

“United States”: The United States of America.

“Unmatured Servicer Termination Event”: An event that, with the giving of notice
or lapse of time, or both, would become a Servicer Termination Event.

“Unmatured Termination Event”: An event that, with the giving of notice or lapse
of time, or both, would become a Termination Event.

“Unrated Loan”: Any Loan which, as of its Cut-Off Date, does not have an
Assigned Moody’s Rating, a Moody’s Shadow Rating or a S&P Rating, and as to
which the Servicer has notified the Agent and the Trustee, not later than its
Cut-Off Date, of its intention not to procure a Moody’s Assigned Rating, a
Moody’s Shadow Rating or an S&P Rating.

“Unreimbursed Servicer Advances”: At any time, the amount of all previous
Servicer Advances (or portions thereof) as to which the Servicer has not been
reimbursed as of such time pursuant to Section 2.8(a)(1)(ii) and (b)(ii) and
that the Servicer has determined in its sole discretion will not be recoverable
from Collections with respect to the related Transferred Loan.

“U.S. Bank”: Defined in the Preamble.

“USD Notional Amount”: Defined in Section 5.2(b).

“Variable Funding Note”: Defined in Section 2.1(a).

“Warrant Asset”: With respect to any Transferred Loan, any equity purchase
warrants or similar rights convertible into or exchangeable or exercisable for
any equity interests received by the Originator or the Borrower as an “equity
kicker” from any Obligor in connection with such Transferred Loan.

 

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“Warranty Event”: Occurs as to any Loan included as part of the Collateral, if
any representation or warranty herein relating to such Loan was not true and
correct in any material respect when made and such breach is not cured within
the relevant cure period.

“Weighted Average Fixed Coupon”: As of any date of determination, the number,
expressed as a percentage, obtained by summing the products obtained by
multiplying the cash interest coupon, or, in the case of a Fixed Rate Loan that
is a Non-USD Loan, the Converted Coupon, of each Fixed Rate Loan (excluding
Defaulted Loans) as of such date by the Outstanding Loan Balance of such Loan as
of such date, dividing such sum by the aggregate Outstanding Loan Balance of al
such Fixed Rate Loans and rounding up to the nearest 0.01%. For the purpose of
calculating the Weighted Average Fixed Coupon, all Fixed Rate Loans that are not
currently paying cash interest shall have an interest rate of 0%.

“Weighted Average Floating Spread”: As of any date of determination, the number,
expressed as a percentage, obtained by summing the products obtained by
multiplying, in the case of each Floating Rate Loan (excluding Defaulted Loans),
the Spread of such Loan (including commitment, letter of credit and all other
fees), by the Outstanding Loan Balance of such Loan as of such date and dividing
such sum by the aggregate Loan Balance of all such Floating Rate Loans and
rounding the result up to the nearest 0.01%; provided that the spread of any
Revolving Loan which is not fully funded shall be the sum of:

(a) the product of (1) the Spread payable on the funded portion of such
Revolving Loan and (2) the percentage equivalent of a fraction the numerator of
which is equal to the funded portion of such Revolving Loan and the denominator
of which is equal to the commitment amount of such Revolving Loan; plus

(b) the product of (1) the scheduled amounts (other than interest) of commitment
fee and/or facility fee payable on the unfunded portion of such Revolving Loan
less any withholding tax, if any, on commitment fees and (2) the percentage
equivalent of a fraction the numerator of which is equal to the unfunded portion
of such Revolving Loan and the denominator of which is equal to the commitment
amount of such Revolving Loan.

“Weighted Average Life”: At any date of determination, with respect to any Loan,
is determined by: (a) multiplying the number of months from and including the
month in which such date of determination falls to but excluding the month when
each Scheduled Payment is to be received under such Loan by the amount of each
such Scheduled Payment, (b) summing said products, (c) dividing the sum total by
the total amount of all Scheduled Payments to be received under the Loan, and
(d) dividing the total by 12.

“Weighted Average Moody’s Rating Factor” means the number determined by summing
the products obtained by multiplying the Outstanding Loan Balance of each Loan
held in the Collateral by its Moody’s Rating Factor, dividing such sum by the
aggregate Outstanding Loan Balance of all such Loans and then rounding the
result down to the nearest whole number.

 

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“Weighted Average Moody’s Recovery Rate” means, as of any date of determination,
the fraction (expressed as a percentage) obtained by (A) summing the products
obtained by multiplying the Outstanding Loan Balance of each Loan by the Moody’s
Recovery Rate with respect to such Loan, (B) dividing such sum by the aggregate
Outstanding Loan Balance of all Loans included in the Collateral as of such
date, and (C) rounding down to the nearest tenth of a percent; provided that for
purposes of subsection (A) of this definition, after the initial calculation of
Weighted Average Moody’s Recovery Rate, the Moody’s Recovery Rate of any
particular Loan will be deemed not to have changed from its prior value unless
the Servicer has become aware of a material change affecting such value.

“Weighted Average Spread”: As of any date of determination, an amount (rounded
up to the next 0.01%) equal to the sum of (a) for Floating Rate Loans, the
excess of the Weighted Average Floating Spread of the Floating Rate Loans over
LIBOR and (b) for Fixed Rate Loans, the excess of the Weighted Average Fixed
Coupon of the Fixed Rate Loans over the then-current swap rate for the estimated
weighted average maturity of the underlying Loan.

“Withholding Certificate”: Defined in Section 2.14(d).

Section 1.2 Other Terms.

All accounting terms not specifically defined herein shall be construed in
accordance with GAAP. All terms used in Article 9 of the UCC in the State of New
York, and not specifically defined herein, are used herein as defined in such
Article 9.

Section 1.3 Computation of Time Periods.

Unless otherwise stated in this Agreement, in the computation of a period of
time from a specified date to a later specified date, the word “from” means
“from and including” and the words “to” and “until” each mean “to but
excluding.”

Section 1.4 Interpretation.

In each Transaction Document, unless a contrary intention appears:

(i) the singular number includes the plural number and vice versa;

(ii) reference to any Person includes such Person’s successors and assigns but,
if applicable, only if such successors and assigns are permitted by the
Transaction Documents;

(iii) reference to any gender includes each other gender;

(iv) reference to day or days without further qualification means calendar days;

(v) unless otherwise stated, reference to any time means New York City time;

(vi) references to “writing” include printing, typing, lithography, electronic
or other means of reproducing words in a visible form;

 

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(vii) reference to any agreement (including any Transaction Document), document
or instrument means such agreement, document or instrument as amended, modified,
waived, supplemented or restated and in effect from time to time in accordance
with the terms thereof and, if applicable, the terms of the other Transaction
Documents and reference to any promissory note includes any promissory note that
is an extension or renewal thereof or a substitute or replacement therefor; and

(viii) reference to any Applicable Law means such Applicable Law as amended,
modified, codified, replaced or reenacted, in whole or in part, and in effect
from time to time, including rules and regulations promulgated thereunder and
reference to any section or other provision of any Applicable Law means that
provision of such Applicable Law from time to time in effect and constituting
the substantive amendment, modification, codification, replacement or
reenactment of such section or other provision.

Section 1.5 Section References.

All Section references (including to the Recitals and the Preamble), unless
otherwise indicated, shall be to Sections (and the Recitals and the Preamble) in
this Agreement.

Section 1.6 Calculations.

Except as otherwise provided herein, all interest rate and basis point
calculations hereunder will be made on the basis of a 360-day year and the
actual days elapsed in the relevant period and will be carried out to at least
three decimal places.

ARTICLE II

PURCHASE OF THE VARIABLE FUNDING NOTE

Section 2.1 The Variable Funding Note.

(a) On the terms and conditions hereinafter set forth, on the Closing Date, the
Borrower shall deliver (i) to each Lender, at the applicable address set forth
on Annex A to this Agreement, and (ii) on the effective date of any Assignment
and Acceptance or Joinder Supplement, to each successor Lender or additional
Lender, as applicable, at the address set forth in the applicable Assignment and
Acceptance or Joinder Supplement, a duly executed variable funding note (each, a
“Variable Funding Note”), in substantially the form of Exhibit B, dated as of
the date of this Agreement, in a face amount equal to the applicable Lender’s
Commitment as of the Closing Date or the effective date of any Assignment and
Acceptance or Joinder Supplement, as applicable, and otherwise duly completed.
The Borrower shall deliver to the Trustee and the Registrar a copy of each such
Variable Funding Note issued. Each Variable Funding Note shall evidence each
Lender’s ratable share of the security interest in the Collateral granted
pursuant to Section 8.1 in an amount equal, at any time, to the percentage
equivalent of a fraction, (x) the numerator of which is the outstanding Advances
by such Lender under the applicable Variable Funding Note on such day and
(y) the denominator of which is the Advances Outstanding on such day. Interest
shall accrue, and each Variable Funding Note shall be payable, as described
herein.

 

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(b) During the Revolving Period, the Borrower may, at its option, request the
Lenders to make advances of funds (each, an “Advance”) under the Variable
Funding Notes, each such Funding Request to be substantially in the form of
Exhibit A-1 hereto, in an aggregate amount up to the Availability as of the
proposed Funding Date of the Advance. Following the receipt of a Funding
Request, subject to the terms and conditions hereinafter set forth, during the
Revolving Period, the Lenders shall fund such Advance. Notwithstanding anything
to the contrary contained herein, no Lender shall be obligated to provide the
Borrower with aggregate funds in connection with an Advance that would exceed
the least of (i) such Lender’s unused Commitment then in effect, (ii) the
aggregate unused Commitments then in effect or (iii) the Availability, in each
case on the proposed Funding Date of such Advance.

(c) The Borrower may, within 60 days but not less than 45 days prior to (x) the
date on which any Liquidity Purchase Agreement terminates, (in the case of an
extension of such Liquidity Purchase Agreement) or (y) the Termination Date then
in effect pursuant to clause (c) of the definition thereof, (in the case of an
extension of the Termination Date), request by written notice to the Agent that
(i) each applicable Liquidity Bank extend the term of its related Liquidity
Purchase Agreement for an additional period of 364 days and (ii) each Lender
extend the Termination Date then in effect pursuant to clause (c) of the
definition thereof for an additional period of 364 days. The Agent will give
prompt notice to each applicable Liquidity Bank, each applicable Lender and the
Trustee of its receipt of such request, and each such Liquidity Bank and Lender
shall make a determination, each in its respective sole discretion, prior to the
expiration of the Liquidity Purchase Agreement or the Termination Date, as
applicable, as to whether or not it will agree to the extension requested, and
shall notify the Agent thereof (who will thereupon notify the Trustee). The
failure of the Agent to provide timely notice of any Liquidity Bank’s or
Lender’s decision to the Borrower shall be deemed to constitute a refusal by
such Liquidity Bank or Lender to extend the Termination Date or the term of the
applicable Liquidity Purchase Agreement, respectively. Any Lender which fails to
extend the term of its Liquidity Purchase Agreement shall be a Non-Extending
Lender subject to Section 2.1(d). The Borrower confirms that each Liquidity Bank
and the Conduit Lenders, in their sole and absolute discretion, without regard
to the value or performance of the Collateral or any other factor, may elect not
to extend the term of any Liquidity Purchase Agreement, the date set forth in
clause (c) of the definition of Termination Date.

(d) If, during the Revolving Period, a Conduit Lender that funds the Advances to
be made hereunder through the issuance of Commercial Paper Notes under a 364-day
facility does not extend such facility (such Conduit Lender, a “Non-Extending
Lender”), the Borrower shall have the right to replace such Non-Extending Lender
with a new Lender by causing the Non-Extending Lender, at any time prior to the
next succeeding Payment Date, to assign its Variable Funding Note to such new
Lender in accordance with Section 12.17. Upon the effective date of such
assignment, the Commitment of each Non-Extending Lender shall immediately
terminate, and the Non-Extending Lender shall surrender its Variable Funding
Note to the Registrar. If a Non-Extending Lender is not replaced prior to the
next succeeding Payment Date, the Borrower shall, on such Payment Date, repay
the Advances outstanding to such Non-Extending Lender in accordance with
Section 2.8. The Borrower’s right to replace a Non-Extending Lender shall be
exercisable by the Borrower before and after the Termination Date for such
Non-Extending Lender.

 

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(e) The Borrower may, with the written consent of the Agent and each Lender, add
additional Persons as Lenders hereunder or cause an existing Lender to increase
its Commitment in connection with a corresponding increase in the Facility
Amount. Each additional Lender shall become a party hereto by executing and
delivering to the Agent, the Trustee and the Borrower a Joinder Supplement.

Section 2.2 Procedures for Advances by the Lenders.

(a) Subject to the limitations set forth in Section 2.1, the Borrower may
request an Advance from the Lenders by delivering to the Agent at the times set
forth below, the information and documents set forth in this Section 2.2.

(b) No later than 2:00 p.m. (New York City time) one Business Day prior to the
proposed Funding Date, the Borrower shall deliver:

(i) to the Trustee and the Agent, a duly completed Funding Request substantially
in the form of Exhibit A-1 hereto; and, to the extent applicable,

(ii) subject to its receipt of a written request from the Agent, to the Agent a
credit report and transaction summary for each Pre-Positioned Loan that is to be
funded with the proceeds of the proposed Advance setting forth the credit
underwriting by the Originator of such Pre-Positioned Loan, including, without
limitation, a description of the Obligor and the proposed Loan transaction in a
form reasonably acceptable to the Agent; provided that Pre-Positioned Loans with
an Aggregate Outstanding Loan Balance no greater than 10% of the Aggregate
Outstanding Loan Balance may be funded (in respect of all Advances Outstanding,
including the proposed Advance) as Pre-Positioned Loans at any one time.

Each Funding Request shall (i) specify the aggregate amount of the requested
Advance, which shall be in an amount equal to at least $1,000,000 or an integral
multiple of $100,000 in excess thereof, (ii) specify the proposed Funding Date
of the requested Advance, (iii) specify the amount of Advances Outstanding,
(iv) include a representation that all conditions precedent for a funding have
been met, (v) include a Borrowing Base Certificate calculated as of the date the
Advance is requested and after giving effect to the Advance requested therein
and the use of proceeds thereof, (vi) include a wire disbursement and
authorization form and (vii) include an updated Loan List including each
Pre-Positioned Loan to be funded with the proceeds of the requested Advance. Any
Funding Request shall be irrevocable. If any Funding Request is received by the
Agent after 2:00 p.m. (New York City time) on the Business Day that is one
Business Day prior to the Business Day for which such Advance is requested or on
a day that is not a Business Day, such Funding Request shall be deemed to be
received by the Agent at 9:00 a.m. on the next Business Day. The Agent shall
promptly notify the Lenders of the receipt of each Funding Request. Such notice
shall be given by telephone and shall be promptly confirmed in writing by
facsimile.

(c) No later than 2:00 p.m. (New York City time) on the proposed Funding Date,
the Borrower (or the Servicer on its behalf) shall deliver to the Agent and the
Trustee a certification substantially in the form of Exhibit I to the Borrower
concerning the Trustee’s receipt of certain documentation relating to each
Pre-Positioned Loan to be funded with the proceeds of such Advance.

 

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(d) On the Funding Date, subject to the limitations set forth in Section 2.1,
and upon satisfaction of the applicable conditions set forth in Article III,
each Lender (other than a Non-Extending Lender) shall make available to the
Borrower in same day funds, at such bank or other location reasonably designated
by the Borrower in the Funding Request given pursuant to this Section 2.2, an
amount equal to such Lender’s Pro Rata Share of the least of (x) the amount
requested by the Borrower for such Advance, (y) the aggregate unused Commitments
then in effect and (z) an amount equal to the Availability on such Funding Date.

(e) On each Funding Date, each Conduit Lender, to the extent such Conduit Lender
will fund the requested Advance through the issuance of Commercial Paper Notes,
will use commercially reasonable efforts to select maturities for such
Commercial Paper Notes which will correspond as nearly as practicable to the
periodic settlement date of any Hedge Transaction the Borrower may be required
to enter into on such Funding Date pursuant to Section 5.2; provided that prior
to the occurrence of an Interest Rate Hedge Trigger, the maturities of the
Commercial Paper Notes will be selected at the discretion of each Conduit
Lender; and provided further that no Conduit Lender shall incur any liability or
obligation to any party under this Agreement or any other Transaction Document
by reason of its failure or inability to cause the maturities of its Commercial
Paper Notes then issued to correspond to the tenor of any such Hedge Transaction
as described herein.

(f) On each Funding Date, the obligation of each Lender to remit its Pro Rata
Share of any Advance shall be several from that of each other Lender and the
failure of any Lender to make such amount available to the Borrower shall not
relieve any other Lender of its obligation hereunder.

(g) Subject to the limitations set forth in Section 2.1, on any day on which the
Availability is greater than zero, nothing in this Agreement shall prevent the
Borrower from requesting an Advance from the Lenders for the purpose of
distributing the proceeds of such Advance to Kohlberg Capital and for any other
purpose not prohibited by this Agreement.

Section 2.3 Optional Changes in Facility Amount; Prepayments.

(a) The Borrower shall be entitled at its option, at any time prior to the
occurrence of a Termination Event, to terminate in whole or reduce in part the
portion of the Facility Amount that exceeds the sum of the Advances Outstanding,
accrued Interest, Breakage Costs and Hedge Breakage Costs; provided that the
Borrower shall give prior written notice in the form of Exhibit A-2 of such
reduction to the Agent (with a copy to the Trustee) as provided in
Section 2.3(b) and that any partial reduction of the Facility Amount shall be in
an amount equal to $1,000,000 and integral multiples of $100,000 in excess
thereof. Any request for a reduction or termination pursuant to this
Section 2.3(a) shall be irrevocable. The Commitment of each Lender shall be
reduced by an amount equal to its Pro Rata Share (prior to giving effect to any
reduction of Commitments hereunder) of the aggregate amount of any reduction
under this Section 2.3(a).

 

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(b) Prior to the occurrence of a Termination Event, the Borrower may, upon one
Business Day’s prior written notice (such notice to be received by the Agent and
the Hedge Counterparty no later than 3:00 p.m. (New York City time) on such day)
to the Agent, the Trustee, the Backup Servicer and each applicable Hedge
Counterparty, reduce the Advances Outstanding by delivering to the Agent,
(i) for payment to each Lender immediately available funds in the amount of such
Lender’s Pro Rate Share, and (ii) instructions to reduce such Advances
Outstanding, and to pay accrued Interest, Breakage Costs and Hedge Breakage
Costs related to Advances Outstanding so reduced; provided that no such
reduction shall be given effect unless the Borrower has complied with the terms
of any Hedging Agreement requiring that one or more Hedge Transactions be
terminated in whole or in part as the result of any such reduction of the
Advances Outstanding, and the Borrower has paid in full all Hedge Breakage Costs
owing to the relevant Hedge Counterparty for any such termination. Any reduction
of the Advances Outstanding (other than (i) with respect to prepayments of
Advances Outstanding to be made by the Borrower to reduce Advances Outstanding
such that the Availability is greater than or equal to $0 or (ii) permanent
reductions in the Facility Amount) shall be in a minimum amount of $1,000,000
and integral multiples of $100,000 in excess thereof. Any such reduction will
occur only if sufficient funds have been remitted to pay all such amounts in the
succeeding sentence in full. Upon receipt of such amounts, the Agent shall apply
such amounts to the payment of any Hedge Breakage Costs, to the pro rata
reduction of the Advances Outstanding, to the payment of accrued Interest on the
amount of the Advances Outstanding to be repaid by paying such amounts to the
Lenders, and to the payment of any Breakage Costs. Any Advance so prepaid may,
subject to the terms and conditions hereof, be reborrowed during the Revolving
Period. Any Borrower Notice relating to any prepayment pursuant to this
Section 2.3(b) shall be irrevocable.

Section 2.4 Deemed Collections.

If on any day (a) the Trustee on behalf of the Secured Parties does not own or
have a valid and perfected first priority security interest in any Loan and
Related Property (subject to Permitted Liens) or (b) any representation or
warranty that such Loan was an Eligible Loan was not true when made, then upon
the earlier of the Borrower’s receipt of notice from the Agent or the Borrower
becoming aware thereof and the Borrower’s failure to cure such breach within 30
days (if cure is reasonably possible and otherwise immediately upon receipt of
such notice or the Borrower becoming aware), the Borrower shall be deemed to
have received on such day a collection (a “Deemed Collection”) of such Loan in
full and shall on such day pay to the Trustee on behalf of the Secured Parties
an amount equal to (x) the sum of (i) the amount determined by multiplying the
percentage set forth in the definition of Advance Rate herein applicable to such
Loan times the Outstanding Loan Balance of such Loan on the date of repurchase,
plus (ii) accrued Interest to be applied to the pro rata reduction of the
Advances Outstanding, plus (y) any Breakage Costs and Hedge Breakage Costs and
any other payments owing to the applicable Hedge Counterparty in respect of the
termination of any Hedge Transaction required as a result of the Deemed
Collection, plus (z) any other costs and expenses related to the retransfer of
such Loan and any Related Property contemplated by this Section 2.4. In
connection with any such Deemed Collection, the Trustee on behalf of the Secured
Parties shall automatically and without further action (unless otherwise
necessary or requested by the Borrower or Servicer, in which event the Trustee
is hereby authorized to execute and deliver such instruments and documents as
may be requested by the Borrower or the Servicer) be deemed to release the Lien
on such Loan

 

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and any Related Property created by this Agreement in favor of the Trustee on
behalf of the Secured Parties and transfer to the Borrower, free and clear of
any Lien created by the Trustee on behalf of the Secured Parties, all of the
right, title and interest of the Trustee on behalf of the Secured Parties in,
to, and under the Loan and any Related Property with respect to which the Agent
has received such Deemed Collection (such Loan a “Repurchased Loan”), but
without any recourse, representation and warranty of any kind, express or
implied.

Section 2.5 Notations on Variable Funding Notes.

Each Lender (or its agent on its behalf) is hereby authorized to enter on a
schedule attached to the Variable Funding Note with respect to such Lender a
notation (which may be computer generated) or to otherwise record in its
internal books and records or computer system with respect to each Advance under
the Variable Funding Note made by the applicable Lender of: (a) the date and
principal amount thereof and (b) each payment and repayment of principal
thereof. Any such recordation shall, absent manifest error, constitute prima
facie evidence of the accuracy of the information so recorded. The failure of
the Agent to make any such notation on the schedule attached to the applicable
Variable Funding Note shall not limit or otherwise affect the obligation of the
Borrower to repay the Advances under the Variable Funding Note in accordance
with the terms set forth herein.

Section 2.6 Principal Repayments.

(a) Unless sooner prepaid pursuant to Section 2.3(b) or Section 9.1, the
Advances Outstanding shall be repaid in full on the date that occurs twenty-four
(24) months following the Termination Date. In addition, Advances Outstanding
shall be repaid as and when necessary to cause the Availability to equal or
exceed $0, and any amount so repaid may, subject to the terms and conditions
hereof, be reborrowed hereunder during the Revolving Period.

(b) All repayments of any Advance or any portion thereof shall be made together
with payment of (i) all Interest accrued and unpaid on the amount repaid to (but
excluding) the date of such repayment, (ii) any and all Breakage Costs, and
(iii) all Hedge Breakage Costs and any other amounts payable by the Borrower
under or with respect to any Hedging Agreement.

Section 2.7 Interest Payments.

(a) Interest shall accrue on each Advance during each Accrual Period at the
applicable Interest Rate. The Borrower shall pay Interest on the unpaid
principal amount of each Advance for the period commencing on and including the
Funding Date of such Advance, as applicable, through but excluding the date that
such Advance, as applicable, shall be paid in full. Interest shall accrue during
each Accrual Period and be payable on each Advance on each Payment Date, unless
earlier paid pursuant to or in connection with (i) a prepayment in accordance
with Section 2.3, (ii) a reimbursement or repayment in accordance with
Section 2.4 or (iii) a CP Payment Date.

(b) Each Lender shall determine the Interest Rate and Interest (including unpaid
Interest, if any, due and payable on a prior Payment Date) to be paid by the
Borrower with respect to each Advance on each Payment Date for the related
Accrual Period and shall advise the Servicer on behalf of the Borrower and the
Trustee thereof three Business Days prior to such Payment Date.

 

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(c) Anything in this Agreement or the other Transaction Documents to the
contrary notwithstanding, if at any time the rate of interest payable by any
Person under this Agreement and the Transaction Documents exceeds the highest
rate of interest permissible under Applicable Law (the “Maximum Lawful Rate”),
then, so long as the Maximum Lawful Rate would be exceeded, the rate of interest
under this Agreement and the Transaction Documents shall be equal to the Maximum
Lawful Rate. If at any time thereafter the rate of interest payable under this
Agreement and the Transaction Documents is less than the Maximum Lawful Rate,
such Person shall continue to pay interest under this Agreement and the
Transaction Documents at the Maximum Lawful Rate until such time as the total
interest received from such Person is equal to the total interest that would
have been received had Applicable Law not limited the interest rate payable
under this Agreement and the Transaction Documents. In no event shall the total
interest received by any Lender under this Agreement and the Transaction
Documents exceed the amount that such Lender could lawfully have received, had
the interest due under this Agreement and the Transaction Documents been
calculated since the Closing Date at the Maximum Lawful Rate.

Section 2.8 Settlement Procedures.

(a)        (1) During the Revolving Period. On each Payment Date during the
Revolving Period, the Servicer on behalf of the Borrower shall pay to the
following Persons pursuant to the Monthly Report, to the extent of Available
Funds, from the Collection Account and, to the extent of Available Funds, as
applicable, from the Reserve Account, the following amounts in the following
order of priority:

(i) First, pro rata to each Hedge Counterparty, any amounts, excluding any Hedge
Breakage Costs and any payments due in respect of the termination of any Hedge
Transactions, owing to that Hedge Counterparty under its respective Hedging
Agreement in respect of any Hedge Transaction(s), for the payment thereof;

(ii) Second, to the Servicer, to the extent of Collections received with respect
to the specific Loans and Obligors for which such Servicer Advances were made,
in an amount equal to any Unreimbursed Servicer Advances on such Loans, for the
payment thereof;

(iii) Third, to the Backup Servicer, in amount equal to any accrued and unpaid
currently due Backup Servicer Fee, all unpaid Backup Servicer Fees due from a
prior Payment Date, any unpaid Backup Servicer Expenses and amounts due to the
Backup Servicer as an Indemnified Party, and any Transition Costs, for the
payment thereof; provided that the amount of Transition Costs payable under this
clause Third shall not exceed $100,000 in the aggregate with respect to such
Payment Date;

(iv) Fourth, to the Trustee in an amount equal to any accrued and unpaid
currently due Trustee Fee, all unpaid Trustee Fees due from a prior Payment
Date, all unpaid Trustee Expenses, and any other amounts due to the Trustee as
an Indemnified Party, for the payment thereof;

 

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(v) Fifth, to the Servicer, in an amount equal to its accrued and unpaid
Servicing Fees and, to any Successor Servicer, Market Servicing Fee Differential
to the end of the preceding Collection Period, for the payment thereof; provided
that the amount of Market Servicing Fee Differential payable in any 12-month
period under this clause Fifth shall not exceed 1.0% of the Aggregate
Outstanding Loan Balance;

(vi) Sixth, pro rata to each Lender in an amount equal to any accrued and unpaid
Interest and Breakage Costs, for the payment thereof;

(vii) Seventh, pro rata to each Lender in an amount equal to any accrued and
unpaid Program Fee and Facility Fee, for the payment thereof;

(viii) Eighth, to the Agent for the account of the applicable Affected Party, to
be paid pro rata to such Affected Party in accordance with the amount owed to
such Person under this clause Eighth, in an amount equal to any unpaid Increased
Costs, Taxes and any Other Costs, for the payment thereof;

(ix) Ninth, pro rata to each Lender, if the Required Advance Reduction Amount is
greater than zero, an amount necessary to reduce the Required Advance Reduction
Amount to zero;

(x) Tenth, to the Reserve Account, an amount, if necessary, required for the
amount on deposit in the Reserve Account to equal the Reserve Account Required
Amount;

(xi) Eleventh, to the Agent, the Lenders, the Affected Parties and the
Indemnified Parties, pro rata in accordance with the amount owed to such Person
under this clause Eleventh, all other amounts (other than Advances Outstanding)
then due under this Agreement, for the payment thereof;

(xii) Twelfth, pro rata to each Hedge Counterparty, any Hedge Breakage Costs,
any payments due in respect of the termination of any Hedge Transactions owing
that Hedge Counterparty under its respective Hedging Agreement in respect of any
Hedge Transaction(s), for the payment thereof;

(xiii) Thirteenth, to the extent not paid by the Servicer, to the Backup
Servicer, to the Trustee, and to any Successor Servicer, as applicable, pro rata
in accordance with the amount owed to such Person under this clause Thirteenth,
in an amount equal to any accrued and unpaid Backup Servicer Expenses, Trustee
Expenses and, to the extent not previously paid pursuant to (x) clause Third
above, the Market Servicing Fee Differential, and (y) clause Fourth above,
Transition Costs, for the payment thereof;

(xiv) Fourteenth, pro rata in accordance with the amount owed to such Persons
under this clause Fourteenth, in an amount equal to all Advances outstanding
made by each Non-Extending Lender, together with any accrued and unpaid interest
thereon (to the extent not paid in clause Sixth above).

 

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(xv) Fifteenth, to the extent of remaining Available Funds representing
Principal Collections, for reinvestment in additional Eligible Loans that shall
become part of the Collateral within two Business Days thereafter;

(xvi) Sixteenth, to the extent of remaining Available Funds representing
Principal Collections, to deposit in the Principal Collection Account;

(xvii) Seventeenth, any amounts on deposit in the Reserve Account in excess of
the Reserve Account Required Amount and all remaining amounts shall be
distributed to the Borrower.

(2) On the terms and conditions hereinafter set forth, at any time during the
Revolving Period, the Servicer may, to the extent of any Principal Collections
on deposit in the Principal Collection Account:

(i) withdraw such funds for the purpose of reinvesting in additional Eligible
Loans, provided the following conditions are satisfied:

a. all conditions precedent set forth in Section 3.2(a) have been satisfied;

b. the Servicer provides same day written notice to the Agent and Trustee by
facsimile (to be received no later than 1:00 p.m. (New York time) on such day)
of the request to withdraw Principal Collections and the amount thereof;

c. the notice required in clause (b) above shall be accompanied by a Borrower
Notice in the form of Exhibit A-2 and a Borrowing Base Certificate and the same
are executed by the Borrower and at least one Responsible Officer of the
Servicer;

d. the Trustee provides to the Agent by facsimile or email (to be received no
later than 2:00 p.m. (New York time) on that same date) a statement reflecting
the total amount on deposit on such day (and as of the time noted on such
statement) in the Principal Collection Account; and

e. upon confirmation by the Agent of the satisfaction of the conditions set
forth in clauses (a) through (d) above, the Trustee shall release funds from the
Principal Collection Account to the Servicer in an amount not to exceed the
lesser of (A) the amount requested by the Servicer and (B) the amount on deposit
in the Principal Collection Account on such day; or

(ii) withdraw such funds for the purpose of making payments in respect of the
Advances Outstanding at such time in accordance with and subject to the terms of
Section 2.3(b).

 

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(b) During the Amortization Period. On each Payment Date during the Amortization
Period, the Servicer on behalf of the Borrower shall pay to the following
Persons pursuant to the Monthly Report, to the extent of Available Funds, from
the Collection Account and, to the extent of Available Funds, as applicable,
from the Reserve Account, the following amounts in the following order of
priority:

(i) First, pro rata to each Hedge Counterparty, any amounts, including any Hedge
Breakage Costs and any payments due in respect of the termination of any Hedge
Transactions owing to that Hedge Counterparty under its respective Hedging
Agreement in respect of any Hedge Transaction(s), for the payment thereof;
provided that the amount of Hedge Breakage Costs payable under this clause First
shall not exceed $250,000 in the aggregate;

(ii) Second, to the Servicer, to the extent of Collections received with respect
to the specific Loans and Obligors for which such Servicer Advances were made,
in an amount equal to any Unreimbursed Servicer Advances on such Loans, for the
payment thereof;

(iii) Third, to the Backup Servicer, in amount equal to any accrued and unpaid
currently due Backup Servicer Fee, all unpaid Backup Servicer Fees due from a
prior Payment Date, any unpaid Backup Servicer Expenses and amounts due to the
Backup Servicer as an Indemnified Party, and any Transition Costs, for the
payment thereof; provided that the amount of Transition Costs payable under this
clause Third shall not exceed $100,000 in the aggregate with respect to such
Payment Date;

(iv) Fourth, to the Trustee in an amount equal to any accrued and unpaid
currently due Trustee Fee, all unpaid Trustee Fees due from a prior Payment
Date, all unpaid Trustee Expenses, and any other amounts due to the Trustee as
an Indemnified Party, for the payment thereof;

(v) Fifth, to the Servicer, in an amount equal to its accrued and unpaid
Servicing Fees and, to any Successor Servicer, Market Servicing Fee Differential
to the end of the preceding Collection Period, for the payment thereof; provided
that the amount of Market Servicing Fee Differential payable in any 12-month
period under this clause Third shall not exceed 1.0% of the Aggregate
Outstanding Loan Balance;

(vi) Sixth, pro rata to each Lender, in an amount equal to any accrued and
unpaid Interest and Breakage Costs, for the payment thereof;

(vii) Seventh, pro rata to each Lender, in an amount equal to any accrued and
unpaid Program Fee and Facility Fee, for the payment thereof;

(viii) Eighth, to the Agent, for the account of the applicable Affected Party,
to be paid pro rata to such Affected Party in accordance with the amount owed to
such Person under this clause Eighth, in an amount equal to any unpaid Increased
Costs, Taxes and any Other Costs, for the payment thereof;

 

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(ix) Ninth, to the Reserve Account, an amount, if necessary, required for the
amount on deposit in the Reserve Account to equal the Reserve Account Required
Amount;

(x) Tenth, to the extent of all remaining Available Funds and any amounts on
deposit in the Reserve Account in excess of the Reserve Account Required Amount,
pro rata to the Lenders, in an amount necessary to reduce the Advances
Outstanding and Obligations to zero, for the payment thereof;

(xi) Eleventh, to the extent not previously paid pursuant to clause First above,
pro rata to each Hedge Counterparty, any Hedge Breakage Costs owing to that
Hedge Counterparty under its respective Hedging Agreement in respect of any
Hedge Transaction(s), for the payment thereof;

(xii) Twelfth, to the Agent, the Lenders, the Affected Parties and the
Indemnified Parties, pro rata in accordance with the amount owed to such Person
under this clause Twelfth, all other amounts (other than Advances Outstanding)
then due under this Agreement, for the payment thereof;

(xiii) Thirteenth, to the extent not paid by the Servicer, to the Backup
Servicer, to the Trustee, and to any Successor Servicer, as applicable, pro rata
in accordance with the amount owed to such Person under this clause Thirteenth,
in an amount equal to any accrued and unpaid Backup Servicer Expenses, Trustee
Expenses and, to the extent not previously paid pursuant to (x) clause Third
above, the Market Servicing Fee Differential, and (y) clause Fourth above,
Transition Costs, for the payment thereof;

(xiv) Fourteenth, any remaining amounts shall be distributed to the Borrower.

Section 2.9 Collections and Allocations.

(a) The Borrower or the Servicer on behalf of the Borrower shall promptly (but
in no event later than by the close of business on the second Business Day after
the receipt thereof) identify any Collections received by it as being Interest
Collections or Principal Collections and deposit all such Interest Collections
or Principal Collections received directly by it into the Collection Account and
corresponding Interest Collection Account or Principal Collection Account. The
Servicer on behalf of the Borrower shall make such deposits or payments on the
date indicated by wire transfer, in immediately available funds.

(b) Until the occurrence of a Termination Date, to the extent there are
uninvested amounts deposited in the Collection Account or the Reserve Account,
all amounts shall be invested in Permitted Investments selected by the Servicer
on behalf of the Borrower, and from and after the occurrence of a Termination
Date, to the extent there are uninvested amounts deposited in the Collection
Account all amounts may be invested in Permitted Investments selected by the
Agent that mature no later than the next Business Day.

(c) Notwithstanding anything to the contrary contained herein or in any other
Transaction Document, all payments required to be made by the Borrower hereunder
shall be made by the Borrower or the Servicer acting on its behalf, directing
the Trustee to make such

 

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payments. The Trustee shall make such payments to the Secured Parties and any
other Persons pursuant to this Agreement based solely on the information set
forth in instructions, including the Monthly Report, furnished by the Servicer
acting on behalf of the Borrower, and shall be entitled to conclusively rely on
such information and reports, and on the calculations contained therein when
making such payments.

Section 2.10 Payments, Computations, Etc.

(a) Unless otherwise expressly provided herein, all amounts to be paid or
deposited by the Borrower or the Servicer on behalf of the Borrower hereunder
shall be paid or deposited in accordance with the terms hereof no later than
12:00 p.m. (New York City time) on the day when due in lawful money of the
United States in immediately available funds to each Lender’s Account of the
Lenders entitled to such amounts. The Borrower shall, to the extent permitted by
law, pay to the Secured Parties interest on all amounts not paid or deposited
when due hereunder at 2% per annum above the Base Rate, and in the case of any
amounts not paid or deposited under any Hedging Agreement, interest at the
“rate” specified in the applicable Hedging Agreement, in each case, payable on
demand; provided that such interest rate shall not at any time exceed the
Maximum Lawful Rate. All computations of interest and all computations of the
Interest Rate and other fees hereunder shall be made on the basis of a year of
360 (other than calculations with respect to the Base Rate which shall be based
on a year consisting of 365 or 366 days, as applicable) days for the actual
number of days (including the first but excluding the last day) elapsed.

(b) Whenever any payment hereunder shall be stated to be due on a day other than
a Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
payment of Interest, other interest or any fee payable hereunder, as the case
may be.

(c) To the extent permitted under Applicable Law, all payments hereunder shall
be made without set-off or counterclaim and in such amounts as may be necessary
in order that all such payments shall not be less than the amounts otherwise
specified to be paid under this Agreement (after withholding for or on account
of any Taxes). Promptly following the Collection Date, the Agent and each Lender
(or any agent acting on any Lender’s behalf) shall mark each applicable Variable
Funding Note “Paid” and return it to the Borrower.

Section 2.11 [Reserved].

Section 2.12 Fees.

(a) The Borrower shall pay to each Lender, to the extent of Available Funds,
from the Collection Account and, as applicable, from the Reserve Account, on
each Payment Date, monthly in arrears, in accordance with Section 2.8(a)(1)(vii)
and Section 2.8(b)(vii), the Program Fee and Facility Fee.

(b) The Borrower shall pay to the Servicer, to the extent of Available Funds,
from the Collection Account and, as applicable, from the Reserve Account, on
each Payment Date, monthly in arrears, in accordance with Section 2.8(a)(1)(iii)
and Section 2.8(b)(iii), (i) the Servicing Fee and, as applicable to any
Successor Servicer, the Market Servicing Fee Differential and (ii) ongoing fees
of Independent public accountants in connection with performance of certain
agreed-upon procedures and the duties set forth in Section 7.19.

 

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(c) The Backup Servicer shall be entitled to receive, to the extent of Available
Funds, from the Collection Account and, as applicable, from the Reserve Account,
on each Payment Date, monthly in arrears, in accordance with
Section 2.8(a)(1)(iii) and Section 2.8(b)(iii), an amount equal to the sum of
the Backup Servicer Fee, its reasonable out-of-pocket fees and expenses, and
other amounts due to it under this Agreement.

(d) The Trustee shall be entitled to receive, to the extent of Available Funds,
from the Collection Account and, as applicable, from the Reserve Account, on
each Payment Date, monthly in arrears, in accordance with Section 2.8(a)(1)(iv)
and Section 2.8(b)(iv), the Trustee Fee, its reasonable out-of-pocket fees and
expenses, and other amounts due to it under this Agreement.

(e) The Borrower shall pay to Dechert LLP, as counsel to the Agent, in
accordance with Section 12.9, (i) the estimated legal fees and itemized
out-of-pocket expenses of such counsel as of such date, and (ii) all additional
reasonable fees and out-of-pocket expenses of such counsel within 30 days
Business Days after receiving an invoice for such amounts; provided that all
such fees shall be broken down by time and hourly rates and not value billed,
and shall in any event not exceed the amount set forth in the Fee Letter.

 

  Section 2.13 Increased Costs; Capital Adequacy; Illegality.

(a) If either (i) the introduction of or any change (including, without
limitation, any change by way of imposition or increase of reserve requirements)
in or in the interpretation of any Applicable Law or regulation or (ii) the
compliance by an Affected Party with any guideline or request from any central
bank or other Governmental Authority (whether or not having the force of law),
(A) shall subject an Affected Party to any Tax (except for Taxes on the overall
net income of such Affected Party), duty or other charge with respect to an
Advance hereunder, or on any payment made hereunder or (B) shall impose, modify
or deem applicable any reserve requirement (including, without limitation, any
reserve requirement imposed by the Federal Reserve Board, but excluding any
reserve requirement, if any, included in the determination of Interest), special
deposit or similar requirement against assets of, deposits with or for the
amount of, or credit extended by, any Affected Party or (C) shall impose any
other condition affecting an Advance or any Affected Party’s rights hereunder
(or of maintaining a Lender’s obligation to make any such Advance), the result
of which is to increase the cost to any Affected Party or to reduce the amount
of any sum received or receivable by an Affected Party under this Agreement,
then within ten days after demand by such Affected Party (which demand shall be
accompanied by a statement setting forth the basis for such demand), the
Borrower shall pay directly to such Affected Party such additional amount or
amounts as will compensate such Affected Party for such additional or increased
cost incurred or such reduction suffered.

(b) If either (i) the introduction of or any change in or in the interpretation
of any Applicable Law, guideline, rule, regulation, directive or request or
(ii) compliance by any Affected Party with any Applicable Law, guideline, rule,
regulation, directive or request from any central bank or other Governmental
Authority (whether or not having the force of law),

 

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including, without limitation, compliance by an Affected Party with any request
or directive regarding capital adequacy, has or would have the effect of
reducing the rate of return on the capital of any Affected Party as a
consequence of its obligations hereunder or arising in connection herewith to a
level below that which any such Affected Party could have achieved but for such
introduction, change or compliance (taking into consideration the policies of
such Affected Party with respect to capital adequacy) by an amount deemed by
such Affected Party to be material, then from time to time, within ten days
after demand by such Affected Party (which demand shall be accompanied by a
statement setting forth the basis for such demand), the Borrower shall pay
directly to such Affected Party such additional amount or amounts as will
compensate such Affected Party for such reduction. For avoidance of doubt, any
interpretation of Accounting Research Bulletin No. 51 by the Financial
Accounting Standards Board shall constitute an adoption, change, request or
directive subject to this Section 2.13(b)

(c) If as a result of any event or circumstance similar to those described in
Sections 2.13(a) and (b), any Affected Party is required to compensate a bank or
other financial institution providing liquidity support, credit enhancement or
other similar support to such Affected Party in connection with this Agreement
or the funding or maintenance of Advances hereunder, then within ten days after
demand by such Affected Party, the Borrower shall pay to such Affected Party
such additional amount or amounts as may be necessary to reimburse such Affected
Party for any such amounts paid by it.

(d) In determining any amount provided for in this Section 2.13, the Affected
Party may use any reasonable averaging and attribution methods. Any Affected
Party making a claim under this section shall submit to the Borrower a
certificate as to such additional or increased cost or reduction, which
certificate shall calculate in reasonable detail any such charges and shall be
conclusive absent demonstrable error.

(e) If a Eurodollar Disruption Event as described in clause (a) of the
definition of “Eurodollar Disruption Event” occurs, each affected Lender shall
notify the Agent thereof and the Agent shall in turn so notify the Borrower,
whereupon all Advances funded by the affected Lender in respect of which
Interest accrues at the LIBOR Rate shall immediately be converted into Advances
in respect of which Interest accrues at the Base Rate.

(f) Failure or delay on the part of any Affected Party to demand compensation
pursuant to this Section 2.13 shall not constitute a waiver of such Affected
Party’s right to demand such compensation.

Section 2.14 Taxes.

(a) All payments made by the Borrower to or for the account of the Agent or
another Secured Party in respect of any Advance and all payments made by the
Borrower or the Servicer on behalf of the Borrower under this Agreement will be
made free and clear of and without deduction or withholding for or on account of
any Taxes, unless such withholding or deduction is required by law. In such
event, the Borrower shall pay to the appropriate taxing authority any such Taxes
required to be deducted or withheld and the amount payable to the Agent and each
other Secured Party (as the case may be) will be increased (such increase, the
“Additional Amount”) such that every net payment made under this Agreement after
deduction or

 

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withholding for or on account of any Taxes (including, without limitation, any
Taxes on such increase) is not less than the amount that would have been paid
had no such deduction or withholding been deducted or withheld. The foregoing
obligation to pay Additional Amounts, however, will not apply with respect to,
and the term “Additional Amount” shall be deemed not to include any
(i) franchise (and similar) taxes imposed on the Agent or another Secured Party
or (ii) taxes on or measured by the net income or gross income (including branch
profits) of the Agent or another Secured Party, imposed by the jurisdiction (or
any political subdivision thereof), as a result of the Agent or another Secured
Party, as the case may be, being organized or having its principal office or
offices or lending office or offices located in such jurisdiction or as a result
of a present or former connection between the Agent or the other Secured Party
and the jurisdiction (other than a connection arising solely as a result of the
Agent or other Secured Party having performed its obligations or received
payment hereunder). If the Agent or another Secured Party pays any Taxes in
respect of which the Borrower is obligated to pay Additional Amounts under this
Section 2.14(a), the Borrower shall promptly reimburse such Secured Party or the
Agent, as applicable, in full.

(b) The Borrower will indemnify each Secured Party and the Agent for the full
amount of Taxes in respect of which the Borrower is required to pay Additional
Amounts (including, without limitation, any Taxes imposed by any jurisdiction on
such Additional Amounts) paid by such Secured Party or the Agent (as the case
may be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto; provided that such Secured Party or the
Agent, as appropriate, making a demand for indemnity payment, shall provide the
Borrower, at its address set forth under its name on Annex A hereto, with a
certificate from the relevant taxing authority or from a Responsible Officer of
such Secured Party or the Agent stating or otherwise evidencing that such
Secured Party or the Agent has made payment of such Taxes and will provide a
copy of or extract from documentation, if available, furnished by such taxing
authority evidencing assertion or payment of such Taxes. This indemnification
shall be made within ten days from the date the Secured Party or the Agent (as
the case may be) makes written demand therefor.

(c) Within 30 days after the date of any payment by the Borrower of any Taxes,
the Borrower will furnish to the Agent, at its address set forth on Annex A
hereto, appropriate evidence of payment thereof.

(d) If the Secured Party is not a United States Person within the meaning of
Code Section 7701(a)(3) (a “Non-U.S. Participant”), the Secured Party shall
deliver to the Borrower with a copy to the Agent and the Trustee (i) within 15
days after the date hereof, or, if later, the date on which the Secured Party
becomes a Secured Party hereunder two (or such other number as may from time to
time be prescribed by Applicable Laws) accurate and duly completed original
signed copies of IRS Form W-8ECI, Form W-8IMY or Form W-8BEN (or any successor
forms or other certificates or statements that may be required from time to time
by the relevant United States taxing authorities or Applicable Laws), as
appropriate, to permit the Borrower to make payments hereunder for the account
of such Secured Party, as the case may be, without deduction or withholding of
United States federal income or similar Taxes and (ii) upon the obsolescence
(including by reason of a lapse in time) of or after the occurrence of any event
requiring a change in, any form or certificate previously delivered pursuant to
this Section 2.14(d), two accurate and duly completed original signed copies (or
such other number as may

 

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from time to time be prescribed by Applicable Laws) of such additional, amended
or successor forms, certificates or statements as may be required under
Applicable Laws to permit the Borrower to make payments hereunder for the
account of such Secured Party, without deduction or withholding of United States
federal income or similar Taxes. If the Secured Party is a Non-U.S. Participant
and is claiming a complete exemption from withholding on interest pursuant to
Code Sections 871(h) or 881(c), the Secured Party shall deliver (along with two
accurate and complete original signed copies of IRS Form W-8BEN) a certificate
in form and substance reasonably acceptable to the Borrower (any such
certificate, a “Withholding Certificate”) certifying to the effect that the
Secured Party is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of
the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of
Section 881(c)(3)(B) of the Code, or (C) a controlled foreign corporation
receiving interest from a related person within the meaning of
Section 881(c)(3)(C) of the Code. In addition, if the Secured Party is a
Non-U.S. Participant, it agrees that from time to time after the Closing Date,
(or in the case of a Secured Party that is an assignee, after the date of the
assignment to such Secured Party), when a lapse in time (or change in
circumstances) renders the prior Withholding Certificates hereunder obsolete or
inaccurate in any material respect, the Secured Party shall, to the extent
permitted under Applicable Law and, if applicable, a new Withholding
Certificate, to confirm or establish the entitlement of the Secured Party to an
exemption from United States withholding tax on interest payments to be made
hereunder or under any Loan.

(e) If the Secured Party is not a Non-U.S. Participant, it shall provide two
accurate, properly completed and duly executed copies of IRS Form W-9 (or any
successor or other applicable form) to the Borrower, with a copy to the Agent
and the Trustee, certifying that the Secured Party is exempt from United States
backup withholding tax. To the extent that a form provided pursuant to this
section is rendered obsolete or inaccurate in any material respects as result of
change in circumstances with respect to the status of the Secured Party, the
Secured Party shall, to the extent permitted by applicable law, deliver to the
Borrower revised forms necessary to confirm or establish the entitlement to such
Secured Party’s exemption from United States backup withholding tax.

(f) The Borrower shall not be required to compensate any Secured Party pursuant
to Section 2.14(b) or indemnify any Secured Party pursuant to Section 10.1 for
any Taxes to the extent that such obligations would not have arisen but for the
fact that (i) such Secured Party failed to comply with Sections 2.14(d) or (e),
as applicable, (ii) the form or forms and/or Withholding Certificate delivered
by the Lender or Agent pursuant to Section 2.1(e) or (e) do not establish a
complete exemption from U.S. federal withholding tax or the information or
certifications made therein by the Secured Party are untrue or inaccurate on the
date delivered in any material respect, or (iii) the Secured Party designated a
successor lending office at which it maintains the Advances which has the effect
of causing such Secured Party to become obligated for Tax payments in excess of
those in effect immediately prior to such designation.

(g) In the event the Borrower (i)(A) compensates any Secured Party for any Taxes
pursuant to Section 2.1(f) or (B) makes an indemnification payment for Taxes
pursuant to Section 8.1 and (ii) makes a written request to such Secured Party
for its cooperation, the Secured Party shall cooperate with the Borrower in
challenging such Taxes, provided that (x) the Secured Party reasonably
determines in good faith that it will not suffer any adverse effect as a result
thereof, (y) all costs of such challenge are at the expense of the Borrower and
(z) the Borrower determines in good faith that there is reasonable basis to
prevail in a challenge of such taxes.

 

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(h) If a Secured Party determines that it has received a refund in respect of
any Taxes for which the Borrower has compensated it pursuant to Section 2.1(f)
or indemnified it pursuant to Section 8.1, it shall promptly remit the portion
of such refund to the Borrower as it reasonably determines will leave it in no
better or worse after-tax financial position (taking into account all
out-of-pocket expenses of such Secured Party and without interest (other than
any interest paid by the relevant taxing authority with respect to such refund))
than it would have been in if the Taxes giving rise to such refund had never
been imposed in the first instance; provided that the Borrower, upon the request
of such Secured Party, agrees promptly to return such refund to such Secured
Party in the event such Secured Party is required to repay such refund to the
relevant taxing authority (including any interest or penalties).

(i) If, in connection with an agreement or other document providing liquidity
support, credit enhancement or other similar support to any Lender in connection
with this Agreement or the funding or maintenance of Advances hereunder, such
Lender is required to compensate a bank or other financial institution in
respect of Taxes under circumstances similar to those described in this
Section 2.14, then within ten days after demand by such Lender, the Borrower
shall pay to such Lender such additional amount or amounts as may be necessary
to reimburse such Lender for any amounts paid by them.

Section 2.15 Assignment of the Purchase Agreement.

The Borrower hereby assigns to the Trustee, for the ratable benefit of the
Secured Parties hereunder, all of the Borrower’s right, and title and interest
in and to (but none of its obligations under) the Purchase Agreement. In
furtherance and not in limitation of the foregoing, the Borrower hereby assigns
to the Trustee on behalf of the Secured Parties, its right to Indemnification
under Section 10.18 of the Purchase Agreement. The Borrower confirms that
following a Termination Event the Agent shall have the sole right to enforce the
Borrower’s rights and remedies under the Purchase Agreement for the benefit of
the Secured Parties, but without any obligation on the part of the Trustee, the
Secured Parties or any of their respective Affiliates, to perform any of the
obligations of the Borrower under the Purchase Agreement. Each of the Borrower
and the Agent further confirms and agrees that such assignment to the Trustee
shall terminate upon the Collection Date; provided that the rights of the
Trustee and the Secured Parties pursuant to such assignment with respect to
rights and remedies in connection with any indemnities and any breach of any
representation, warranty or covenants made by the Originator pursuant to the
Purchase Agreement, which rights and remedies survive the termination of the
Purchase Agreement, shall be continuing and shall survive any termination of
such assignment.

Section 2.16 Lien Release Dividend.

(a) Notwithstanding any provision contained in this Agreement to the contrary,
provided there is not then existing an Unmatured Termination Event, a
Termination Event, an Unmatured Servicer Termination Event or a Servicer
Termination Event, on a Lien Release Dividend Date, the Borrower may dividend to
the Originator all or a portion of the Transferred Loans (the “Lien Release
Dividend”), subject to the following terms and conditions:

(i) The Borrower and the Originator shall have given the Agent (with a copy to
the Trustee) at least two (2) Business Days’ prior written notice of their
intent to effectuate a Lien Release Dividend, unless such notice is waived by
the Agent;

 

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(ii) Any Lien Release Dividend shall only be in connection with a Permitted
Securitization Transaction;

(iii) After giving effect to the Lien Release Dividend and the transfer to the
Originator of the Transferred Loans or portions thereof on the Lien Release
Dividend Date, (A) the Availability is greater than or equal to $0, (B) the
representations and warranties contained in Sections 4.1 and 4.2 shall continue
to be correct in all material respects, except to the extent relating to an
earlier date, (C) the eligibility of any Transferred Loan remaining as part of
the Collateral after the Lien Release Dividend will be redetermined as of the
Lien Release Dividend Date, (D) the Concentration Limits will be redetermined as
of the Lien Release Dividend Date, (E) neither an Unmatured Termination Event, a
Termination Event, an Unmatured Servicer Termination Event nor a Servicer
Termination Event shall have resulted; and (F) the Collateral Quality Test shall
be satisfied after giving effect to the Lien Release Dividend;

(iv) Such Lien Release Dividend must be in compliance with Applicable Law and
may not (A) be made with the intent to hinder, delay or defraud any creditor of
the Borrower or (B) leave the Borrower, immediately after giving effect to the
Lien Release Dividend, (i) insolvent, (ii) with insufficient funds to pay its
obligations as and when they become due or (iii) with inadequate capital for its
present and anticipated business and transactions;

(v) On or prior to the Lien Release Dividend Date, the Borrower shall have
(A) delivered to the Agent a list specifying all Transferred Loans or portions
thereof to be transferred pursuant to such Lien Release Dividend and the Agent
shall have approved same in its sole discretion and (B) obtained all
authorizations, consents and approvals required to effectuate the Lien Release
Dividend;

(vi) A portion of a Transferred Loan may be transferred pursuant to a Lien
Release Dividend provided that (A) such transfer does not have an adverse effect
on the portion of the Loan remaining as a part of the Collateral, any other
Collateral or the Secured Parties, (B) the Loan Documents for such portion of
the Transferred Loan remaining as a part of the Collateral have been amended to
contain customary pro rata sharing, intercreditor and, if applicable,
subordination, provisions and (C) a new promissory note for the portion of the
Transferred Loan remaining as a part of the Collateral has been executed by the
Obligor, and the original thereof has been endorsed in blank or to the Trustee
on behalf of the Secured Parties and delivered to the Trustee; and

 

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(vii) The Borrower shall deliver a Borrowing Base Certificate (including a
calculation of the Borrowing Base after giving effect to such Lien Release
Dividend) to the Agent; and

(viii) The Borrower shall have paid in full an aggregate amount equal to the sum
of all amounts due and owing to the Agent, the Trustee, the Backup Servicer, the
Lenders and the Hedge Counterparty, as applicable, under this Agreement and the
other Transaction Documents, to the extent accrued to such date (including,
without limitation, Breakage Costs and Hedge Breakage Costs) with respect to the
Transferred Loans to be transferred pursuant to a Lien Release Dividend and
incurred in connection with the transfer of such Transferred Loans pursuant to
such Lien Release Dividend and the termination of any Hedge Transactions, in
whole or in part, in connection therewith.

(b) In connection with the Lien Release Dividend, there shall be sold and
assigned to the Borrower, without recourse, representation or warranty, all of
the right, title and interest of the Trustee on behalf of the Secured Parties
in, to and under the Transferred Loans or portions thereof so transferred
(together with, in the case of the transfer of the Transferred Loans but not
portions thereof, any related Collateral) and such Transferred Loans or portions
thereof so transferred (together with, in the case of the transfer of the
Transferred Loans but not portions thereof, any related Collateral) shall be
released from the Lien of this Agreement (subject to the requirements of
Section 2.16(a)(iii) above).

(c) The Borrower hereby agrees to pay the reasonable legal fees and expenses of
the Agent, the Trustee and the other Secured Parties in connection with any Lien
Release Dividend (including, but not limited to, expenses incurred in connection
with the release of the Lien of the Trustee on behalf of the Secured Parties and
any other party having an interest in the Transferred Loans in connection with
such Lien Release Dividend).

(d) In connection with any Lien Release Dividend, on the related Lien Release
Dividend Date, the Trustee at the written direction of the Secured Parties
shall, at the expense of the Borrower (1) execute such instruments of release
with respect to the Transferred Loans or portions thereof to be transferred to
the Borrower (together with, in the case of the transfer of the Transferred
Loans, any related Collateral, and in the case of a portion of a Transferred
Loan, the related Collateral with respect to such portion), in recordable form
if necessary, in favor of the Borrower as the Borrower may reasonably request,
(2) deliver any portion of the Transferred Loans or portions thereof to be
transferred to the Borrower (together with, in the case of the transfer of the
Transferred Loans, any related Collateral, and in the case of a portion of a
Transferred Loan, the related Collateral with respect to such portion) in its
possession to the Borrower and (3) otherwise, at and in accordance with the
written direction of the Borrower (to the extent not inconsistent with the
aforementioned direction of the Secured Parties) take such actions, as are
necessary and appropriate to release the Lien of the Trustee on behalf of the
Secured Parties on the Transferred Loans or portions thereof to be transferred
to the Borrower (together with, in the case of the transfer of the Transferred
Loans, any related Collateral) and release and deliver to the Borrower such
Transferred Loans or portions thereof to be transferred to the Borrower
(together with, in the case of the transfer of the Transferred Loans, any
related Collateral, and in the case of a portion of a Transferred Loan, the
related Collateral with respect to such portion).

 

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Section 2.17 Appointment of Registrar and Duties.

(a) U.S. Bank is hereby appointed by the Borrower to act as Registrar under this
Agreement and hereby accepts such appointment and agrees to perform the duties
and obligations with respect thereto set forth in the Agreement.

(b) As long as any Advances remain outstanding under the Variable Funding Notes,
the Borrower shall maintain a Registrar therefor.

(c) The Borrower shall cause to be kept a register (the “Note Register”) that
contains an accurate and complete list of those Persons who from time to time
shall be holders of the Variable Funding Notes (as reported to the Registrar by
the Borrower). The Note Register shall be maintained by the Registrar, and so
long as U.S. Bank is the Registrar, the Registrar may not be removed by the
Borrower in the absence of gross negligence, bad faith or willful misconduct on
the part of the Registrar. Upon the resignation of any Registrar, the Borrower
shall promptly appoint a successor or, if it elects not to make such an
appointment, assume the duties of Registrar. So long as U.S. Bank is the
Registrar, the Note Register shall be kept at One Federal Street, Third Floor,
Boston, Massachusetts 02110, or such other office as the Registrar may designate
by written notice to the Borrower, the Servicer and the Agent.

(d) Upon the resignation of U.S. Bank as Registrar, the Borrower will give the
Agent prompt written notice of the appointment of a successor Registrar and of
the location, and any change in the location, of the Note Register, and the
Agent shall have the right to inspect the Note Register at all reasonable times
and to obtain copies thereof, and the Agent shall have the right to rely upon a
certificate executed on behalf of the Registrar by a Responsible Officer thereof
as to the names and addresses of the holder(s) of the Variable Funding Notes and
the principal amounts and the amounts and number of the Variable Funding Notes.

Section 2.18 Substitution of Loans; Repurchase or Substitution of Ineligible
Loans.

(a) Substitution of Loans. On any Substitution Date prior to the occurrence of a
Termination Event (and after the Termination Date at the discretion of the
Agent), the Borrower may, subject to the conditions set forth in this
Section 2.18 and subject to the other restrictions contained herein (including,
without limitation, the restrictions set forth in Section 2.20), replace any
Transferred Loan with one or more Eligible Loans (each, a “Substitute Loan”),
provided that no such replacement shall occur unless each of the following
conditions is satisfied as of such Substitution Date:

(i) at least two Business Days prior to each Substitution Date, the Borrower
shall have given to the Agent, the Trustee, the Backup Servicer and each Hedge
Counterparty written notice of its intent to replace one or more Transferred
Loans (each such notice, a “Substitution Notice”), specifying the Substitution
Date and including a list of all Transferred Loans to be replaced on such
Substitution Date (each a “Replaced Loan”);

(ii) each Substitute Loan is an Eligible Loan on the Substitution Date;

 

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(iii) the aggregate Outstanding Loan Balance of such Substitute Loans shall be
equal to or greater than the aggregate Outstanding Loan Balance of the Replaced
Loans;

(iv) all representations and warranties of the Borrower contained in Sections
4.1 and 4.2 shall be true and correct as of the Substitution Date of any such
Substitute Loan;

(v) the substitution of any Substitute Loan does not cause a Termination Event
or Unmatured Termination Event to occur;

(vi) no adverse selection procedures shall have been employed in the selection
of such Substitute Loan from the Originator’s portfolio;

(vii) all actions or additional actions (if any) necessary to perfect the
security interest and assignment of such Substitute Loan and related Collateral
to the Borrower and the Agent shall have been taken as of or prior to the
Substitution Date;

(viii) the Collateral Quality Test shall have been satisfied; and

(ix) the Borrower shall deliver to the Agent (with a copy to the Trustee) on the
date of such substitution (a) a certificate of a Responsible Officer certifying
that each of the foregoing is true and correct as of the applicable Substitution
Date and (b) a Borrowing Base Certificate (including a calculation of Borrowing
Base after giving effect to such substitution).

In addition, the Borrower shall in connection with such substitution deliver to
the Trustee the related Loan Documents and shall pay to the Lenders and each
Hedge Counterparty, as applicable, all Hedge Breakage Costs, if any, incurred in
connection with the substitution of such Loan pursuant to this Section 2.18 and
the termination of any Hedge Transactions, in whole or in part, in connection
therewith. In connection with any such substitution, the Trustee on behalf of
the Secured Parties shall, automatically and without further action (unless
otherwise necessary or requested by the Borrower or the Servicer), be deemed to
transfer to the Borrower, free and clear of any Lien created by the Trustee on
behalf of the Secured Parties, all of the right, title and interest of the
Trustee on behalf of the Secured Parties in, to and under such Replaced Loan,
but without any representation and warranty of any kind, express or implied.

(b) Repurchase or Substitution of Ineligible Loans.

(i) In the event of a breach of any representation or warranty set forth in
Section 4.2 with respect to a Transferred Loan, Related Property and other
related Collateral (each such Loan, Related Property and other related
Collateral, an “Ineligible Loan”), no later than 30 days after the earlier of
(x) knowledge of such breach on the part of the Borrower and (y) receipt by the
Borrower of written notice thereof given by the Agent or the Trustee (each such
event, a “Substitution Event”), the Borrower shall either (1) repay Advances
Outstanding in an amount equal to the aggregate Retransfer Price of such
Ineligible Loan(s) to which such breach relates on the terms and conditions set
forth below, or (2) substitute for such Ineligible Loan a Substitute Loan;
provided that no such repayment shall be required to be made with respect to
such Ineligible Loan (and such

 

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Loan shall cease to be an Ineligible Loan) if, on or before the expiration of
such 30 day period, the representations and warranties in Section 4.2 with
respect to such Ineligible Loan shall be made true and correct in all material
respects with respect to such Ineligible Loan as if such Ineligible Loan had
become part of the Collateral on such day. Notwithstanding anything contained in
this Section 2.18(b) to the contrary, in the event of a breach of any
representation and warranty set forth in Section 4.2 with respect to each
Transferred Loan, Related Property and other related Collateral having been
(A) granted to the Trustee on behalf of the Secured Parties free and clear of
any Lien of any Person claiming through or under the Borrower and its Affiliates
and (B) in compliance, in all material respects, with all requirements of
Applicable Law applicable to the Borrower, the Borrower shall, not later than
one Business Day following the earlier to occur of (I) the discovery of such
breach by the Borrower or (II) receipt by the Borrower of written notice of such
breach given by the Agent or the Trustee, repay Advances Outstanding in an
amount equal to the sum of (i) the amount determined by multiplying the
percentage set forth in the definition of Advance Rate herein applicable to such
Loan times the Outstanding Loan Balance of such Loan on the date of repurchase,
plus (ii) any accrued and unpaid Interest thereon, plus (iii) all Hedge Breakage
Costs owed to any relevant Hedge Counterparty for any termination of one or more
Hedge Transactions, in whole or in part, as required by the terms of any Hedge
Agreement, plus (iv) any Breakage Costs incurred in connection with the
retransfer of such Loan pursuant to this Section 2.18(b) and the termination of
any Hedge Transactions in whole or in part in connection therewith
(collectively, the “Retransfer Price”), and the Trustee on behalf of the Secured
Parties shall release to the Borrower any such Ineligible Loan(s) and any Lien
created pursuant to this Agreement or otherwise shall be automatically released,
and the Secured Parties shall, in connection with such conveyance and without
further action, be deemed to represent and warrant that they have the corporate
authority and have taken all necessary corporate action to accomplish such
release, but without any other representation or warranty, express or implied.
In the foregoing instances, the Borrower shall make such repayment and on and
after the date of such repayment, each Ineligible Loan so repaid shall not be
included in the Collateral. In consideration of any such release by the Secured
Parties, the Borrower shall, on the date of such repayment, remit to the Agent,
on behalf of the Secured Parties, in immediately available funds an amount equal
to the Retransfer Price therefor. Upon each such repayment, the Trustee on
behalf of the Secured Parties shall automatically and without further action be
deemed to release to the Borrower all the right, title and interest of the
Secured Parties in, to and under such Ineligible Loan(s) and all monies due or
to become due with respect thereto, all proceeds thereof and all rights to
security for any such Ineligible Loan, and all proceeds and products of the
foregoing. The Agent and the Trustee shall, at the request and sole expense of
the Borrower, execute such documents and instruments of transfer as may be
prepared by the Borrower and take such other actions as shall reasonably be
requested by the Borrower to effect the transfer of such Ineligible Loan
pursuant to this Section 2.18(b).

(ii) The Borrower hereby agrees that (x) if the Borrower or the Servicer has
knowledge that any real property collateral securing any Transferred Loan that
is the primary collateral with respect to which such Transferred Loan is
principally underwritten becomes the subject of any claims, proceedings, Liens
or encumbrances

 

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with respect to any material violation or claimed material violation of any
federal or state environmental laws or regulations or (y) in the event of a
breach of the representation and warranty in Section 4.1(ee), such Transferred
Loan shall for all purposes hereunder be, at and following the time of discovery
by the Servicer, the Borrower, the Agent or any other Secured Party of such
fact, deemed an Ineligible Loan and the Borrower shall either repay Advances
Outstanding in an amount equal to the aggregate Retransfer Price of such
Ineligible Loan or substitute for such Ineligible Loan a Substitute Loan. Such
Ineligible Loan shall otherwise be treated in accordance with this
Section 2.18(b) and shall be subject to the same remedial and recourse
provisions hereunder as other Transferred Loans determined to be Ineligible
Loans hereunder.

(iii) Without prejudice to the provisions of clause (i) of this Section 2.18(b),
the Borrower may, in lieu of effecting a repurchase or substitution of any Third
Party Acquired Loan that is an Ineligible Loan, sell such Loan in accordance
with Section 2.19 for a purchase price not less than the Retransfer Price of
such Loan; provided that if the Borrower fails to sell such Ineligible Loan
within 15 days after the applicable Substitution Event for a purchase price not
less than the Retransfer Price of such Loan, the Borrower shall effect a
repurchase or substitution of such Ineligible Loan within the next 15 days.

Section 2.19 Discretionary Sales of Loans.

(a) On any Discretionary Sale Date during the Revolving Period, and prior to the
occurrence of a Termination Event, the Borrower shall have the right to prepay
all or a portion of the Advances Outstanding in connection with the sale and
assignment to an unaffiliated third party purchaser by the Borrower of, and the
release of the Lien by the Trustee over, one or more Transferred Loans, in whole
but not in part, (a “Discretionary Sale”), subject to the following terms and
conditions and subject to the other restrictions contained herein (including,
without limitation, the restrictions set forth in Section 2.20):

(i) at least two Business Days prior to each Discretionary Sale Date, the
Servicer on behalf of the Borrower shall have given to the Agent, the Trustee,
the Backup Servicer and each Hedge Counterparty written notice of its intent to
effect a Discretionary Sale (each such notice, a “Discretionary Sale Notice”),
specifying the Discretionary Sale Date, including a list of all Transferred
Loans to be sold and assigned pursuant to such Discretionary Sale and
demonstrating that after such Discretionary Sale, the RIC/BDC Requirements shall
be satisfied;

(ii) any Discretionary Sale shall be made by the Borrower to an unaffiliated
third party purchaser in a transaction (A) in accordance with Accepted Servicing
Practices, (B) reflecting arm’s-length market terms and (C) in which the
Borrower makes no representations, warranties or covenants and provides no
indemnification for the benefit of any other party to the Discretionary Sale
(other than any representations, warranties or covenants relating to the
Borrower’s ownership of or title to the Transferred Loan that is the subject of
the Discretionary Sale that are standard and customary in connection with such a
sale or for which the Originator has agreed to fully indemnify the Borrower);

 

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(iii) immediately after giving effect to the Discretionary Sale and the
assignment to the Borrower of the Collateral on any Discretionary Sale Date,
(A) the remaining Advances Outstanding shall not exceed the lesser of the
Facility Amount and the Maximum Availability, (B) all representations and
warranties of the Borrower contained in Sections 4.1 and 4.2 shall be true and
correct as of the Discretionary Sale Date, (C) neither a Termination Event nor
an Unmatured Termination Event shall have occurred, (D) the Required Advance
Reduction Amount is zero, (E) the Collateral Quality Test shall have been
satisfied and (F) the RIC/BDC Requirements are satisfied;

(iv) on the Discretionary Sale Date, the Servicer shall have delivered to the
Agent (with a copy to the Trustee) (A) a completed Borrowing Base Certificate
(including a calculation of the Borrowing Base after giving effect to such
Discretionary Sale), and (B) a certificate of a Responsible Officer certifying
that (x) after such Discretionary Sale the RIC/BDC Requirements shall be
satisfied or the extent of compliance with the RIC/BDC Requirements will be
improved and (y) the requirements of Section 2.19(a)(iii) shall have been
satisfied as of the related Discretionary Sale Date after giving effect to the
contemplated Discretionary Sale; and

(v) on the related Discretionary Sale Date, the Trustee on behalf of the Agent
shall have received into the Collection Account, in immediately available funds,
an amount equal to the sum of (A) the portion of the Advances Outstanding to be
prepaid that are attributable to the Collateral to be sold by the Borrower
pursuant to this Section 2.19 plus (B) an amount equal to all unpaid Interest to
the extent reasonably determined by the Agent to be attributable to that portion
of the Advances Outstanding to be paid in connection with the Discretionary Sale
plus (C) an aggregate amount equal to the sum of all other amounts due and owing
to the Agent, the Trustee, the Backup Servicer, the Indemnified Parties and the
Hedge Counterparties, as applicable, under this Agreement and the other
Transaction Documents, to the extent accrued to such date and to accrue to the
next Payment Date (including, without limitation, Hedge Breakage Costs and any
other payments owing to the Hedge Counterparties in respect of the termination
of any Hedge Transaction) in each case, to the extent attributable to the
Collateral to be sold by the Borrower pursuant to this Section 2.19; provided
that the Agent shall have the right to determine whether the amount paid (or
proposed to be paid) by the Borrower on the Discretionary Sale Date is
sufficient to satisfy the requirements in clauses (A) through (C) of this clause
(v) and is sufficient to reduce the Advances Outstanding to the extent requested
by the Borrower in connection with the Discretionary Sale.

(b) In connection with any Discretionary Sale, following receipt by the Agent of
the amounts referred to in Section 2.19(a)(v) above (receipt of which shall be
confirmed to the Trustee), there shall be released to the Borrower (for further
sale to an unaffiliated third party purchaser) without recourse, representation
or warranty of any kind all of the right, title and interest of the Trustee and
the Agent in, to and under the portion of the Collateral so released and such
portion of the Collateral so released shall be released from any Lien and the
Loan Documents (subject to the requirements of Sections 2.19(a)(iii) and
(iv) above).

(c) In connection with any Discretionary Sale, on the related Discretionary Sale
Date, the Trustee on behalf of the Agent shall (i) execute such instruments of
release with respect to

 

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the portion of the Collateral to be released to the Borrower, in recordable form
if necessary, in favor of the Borrower as the Servicer on behalf of the Borrower
may reasonably request, (ii) deliver any portion of the Collateral to be
released to the Borrower in its possession to the Borrower and (iii) otherwise
take such actions, and cause or permit the Trustee to take such actions, as are
determined by the Borrower or Servicer to be reasonably necessary and
appropriate to release the Lien on the portion of the Collateral to be released
to the Borrower and release and deliver to the Borrower such portion of the
Collateral to be released to the Borrower.

Section 2.20 Certain Trading Restrictions.

Notwithstanding anything in Section 2.17, 2.18 or 2.19, the Borrower shall not,
and the Servicer shall not on the Borrower’s behalf, acquire, sell or substitute
any Loan with the primary purpose of recognizing gain or decreasing losses
resulting from market value changes on such Loan or take any other action if
such action would cause the Borrower not to be in compliance with the
requirements of Rule 3a-7 under the 1940 Act.

ARTICLE III

CLOSING; CONDITIONS OF CLOSING AND ADVANCES

Section 3.1 Conditions to Closing and Initial Advances.

No Lender shall be obligated to make any Advance hereunder on the occasion of
the Initial Advance, nor shall any Lender, the Agent, the Backup Servicer or the
Trustee be obligated to take, fulfill or perform any other action hereunder,
until the following conditions have been satisfied, in the sole discretion of,
or waived in writing by, the Agent and each Lender:

(a) This Agreement and all other Transaction Documents or counterparts hereof or
thereof shall have been duly executed by, and delivered to, the parties hereto
and thereto and the Agent and each Lender shall have received such other
documents, instruments, agreements and legal opinions as the Agent and each
Lender shall request in connection with the transactions contemplated by this
Agreement, including all those listed in the Schedule of Documents, attached
hereto as Schedule I, as due on the Closing Date, each in form and substance
satisfactory to the Agent and each Lender.

(b) The Originator, the Borrower and the Servicer shall have obtained all
required consents and approvals of all Persons, including all requisite
Governmental Authorities, and all authority necessary to the execution, delivery
and performance of this Agreement and other Transaction Documents to which each
is a party and the consummation of the transactions contemplated hereby or
thereby; provided that, with respect to any consents or approvals which are not
obtained by the Borrower and the Servicer, the Agent shall have received an
Officer’s Certificate from each of the Borrower and the Servicer in form and
substance satisfactory to the Agent, affirming that failure to obtain such
consents or approvals will not have a Material Adverse Effect.

(c) The Borrower and the Servicer shall each be in compliance in all material
respects with all Applicable Laws.

 

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(d) The Agent shall have received acknowledgment copies of proper financing
statements filed in all jurisdictions required by the Lender.

(e) The Agent shall have become a party to the Intercreditor Agreement by its
execution of a joinder thereto and such agreement shall be in full force and
effect.

(f) The Agent and the Backup Servicer shall have received a copy of the Credit
and Collection Policy from the initial Servicer.

(g) The Agent shall have received Opinions of Counsel to the Borrower and the
Company, as to matters relating to (A) enforceability, (B) due organization,
valid existence and good standing, (C) due authorization, (D) true sale,
(E) non-consolidation and (F) validity, perfection and priority of liens on the
Collateral.

(h) All outstanding structuring fees and legal fees shall have been paid by the
Borrower and received by the parties entitled thereto.

Section 3.2 Conditions Precedent to All Advances.

Each Advance (including the Initial Advance) and each reinvestment of Principal
Collections made pursuant to Section 2.8(a)(1)(xv) or Section 2.8(a)(2) shall be
subject to the further conditions precedent that:

(a) On the related Funding Date or date of reinvestment, the Borrower or the
Servicer, as the case may be, shall have certified in the related Borrower
Notice that:

(i) the representations and warranties set forth in Sections 4.1, 4.2 and 7.8
are true and correct on and as of such date, before and after giving effect to
such borrowing and to the application of the proceeds therefrom, as though made
on and as of such date;

(ii) no event has occurred, or would result from such Advance or from the
application of the proceeds therefrom, that constitutes a Termination Event or
Unmatured Termination Event;

(iii) such Person is in material compliance with each of its covenants set forth
herein;

(iv) no event has occurred that constitutes a Servicer Termination Event or
Unmatured Servicer Termination Event; and

(v) the Collateral Quality Test is satisfied.

(b) with respect to the initial Funding Date, the Agent shall have received all
Transaction Documents listed on the Schedule of Documents, attached hereto as
Schedule I, as due on the initial Funding Date, or counterparts thereof, each of
which has been duly executed by, and delivered to, the parties hereto and each
shall be in form and substance satisfactory to the Agent and (ii) on any date on
which Principal Collections are reinvested pursuant to Section 2.8(a)(1)(xv), or
Section 2.8(a)(2), the Agent shall have received a certification in the form of
Exhibit N;

 

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(c) the Termination Date shall not have occurred;

(d)        (i) in the case of any Advance, on and as of the applicable Funding
Date, before and after giving effect to such Advance and to the application of
proceeds therefrom, the Availability is greater than or equal to $0;

(ii) in the case of each Advance, each Loan submitted by the Borrower for
funding on the related Funding Date or date of reinvestment of Available Funds
pursuant to Section 2.8(a)(1)(xv) or Section 2.8(a)(2) is an Eligible Loan;

(e) with respect to each Pre-Positioned Loan that is funded with the proceeds of
such Advance, the Agent, the Lenders and the Trustee shall have received a faxed
copy of the executed Underlying Note (other than in the case of a Noteless Loan)
and the Certificate of Borrower in the form of Exhibit I, and, if requested in
writing by the Agent, the Agent shall have received a copy of the credit report
and transaction summary for each such Pre-Positioned Loan;

(f) no claim has been asserted or proceeding commenced challenging
enforceability or validity of any of the Loan Documents, excluding any
instruments, certificates or other documents relating to Loans that were funded
with the proceeds of prior Advances;

(g) there shall have been no Material Adverse Change as to the Servicer or as to
the Borrower since the preceding Advance, as applicable;

(h) the Servicer and Borrower shall have taken such other action, including
delivery of approvals, consents, documents, and instruments to the Secured
Parties and the Agent as each may reasonably request;

(i) no law, rule, regulation, judgment, order or decree applicable to any party
shall prohibit such purchase or any transaction contemplated by any Transaction
Document;

(j) [Reserved.]

(k) [Reserved.]

(l) the Borrower shall have delivered an Officer’s Certificate to the Agent and
the Trustee (and on which the Trustee may conclusively rely) stating that, after
giving effect to such Advance or reinvestment of Available Funds, as applicable,
each of the foregoing conditions precedent has been satisfied;

(m) [Reserved.]

(n) the Reserve Account shall contain an amount greater than or equal to the
Reserve Account Required Amount;

 

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(o) solely in the case of the Initial Advance, the Borrower shall have paid all
fees required to be paid by it hereunder, including all fees payable pursuant to
the Fee Letter, and shall have reimbursed the Lenders, the Agent, the Trustee
and the Backup Servicer for all fees, costs and expenses of closing the
transactions contemplated hereunder and under the other Transaction Documents,
including the legal and other document preparation costs incurred by the Lenders
and the Agent.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.1 Representations and Warranties of the Borrower.

The Borrower represents and warrants as follows:

(a) Organization and Good Standing; Power and Authority. The Borrower is a
Delaware limited liability company duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its formation, and has full
limited liability company power, authority and legal right to own or lease its
properties and conduct its business as such business is presently conducted and
to enter into and perform its obligations under this Agreement each other
Transaction Document to which it is a party.

(b) Due Qualification. The Borrower is qualified to do business as a limited
liability company, is in good standing, and has obtained all licenses and
approvals as required under the laws of all jurisdictions in which the ownership
or lease of its property and or the conduct of its business (other than the
performance of its obligations hereunder) requires such qualification, standing,
license or approval, except to the extent that the failure to so qualify,
maintain such standing or be so licensed or approved would not have a material
adverse effect on the interests of the Lenders.

(c) Due Authorization. The execution and delivery of this Agreement and each
Transaction Document to which the Borrower is a party and the consummation of
the transactions provided for herein and therein have been duly authorized by
the Borrower by all necessary limited liability company action on the part of
the Borrower.

(d) No Conflict. The execution and delivery of this Agreement and each
Transaction Document to which the Borrower is a party, the performance by the
Borrower of the transactions contemplated hereby and thereby and the fulfillment
of the terms hereof and thereof will not conflict with or result in any breach
of any of the material terms and provisions of, and will not constitute (with or
without notice or lapse of time or both) a default under, the Borrower’s
operating agreement or any material Contractual Obligation of the Borrower.

(e) No Violation. The execution and delivery of this Agreement and each
Transaction Document to which the Borrower is a party, the performance of the
transactions contemplated hereby and thereby and the fulfillment of the terms
hereof and thereof will not conflict with or violate, in any material respect,
any Applicable Law.

 

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(f) No Proceedings. Except as previously disclosed to the Agent and each Lender
in writing, there are no proceedings or investigations (formal or informal)
pending or, to the best knowledge of the Borrower, threatened against the
Borrower, before any Governmental Authority (i) asserting the invalidity of this
Agreement or any Transaction Document to which the Borrower is a party,
(ii) seeking to prevent the consummation of any of the transactions contemplated
by this Agreement or any Transaction Document to which the Borrower is a party
or (iii) seeking any determination or ruling that could reasonably be expected
to have a Material Adverse Effect.

(g) All Consents Required. All approvals, authorizations, consents, orders or
other actions of any Person or of any Governmental Authority (if any) required
in connection with the due execution, delivery and performance by the Borrower
of this Agreement and any Transaction Document to which the Borrower is a party,
have been obtained.

(h) Bulk Sales. The execution, delivery and performance of this Agreement do not
require compliance with any “bulk sales” law by Borrower.

(i) Solvency. The transactions contemplated under this Agreement and each
Transaction Document to which the Borrower is a party do not and will not render
the Borrower not Solvent.

(j) Selection Procedures. No procedures believed by the Borrower to be
materially adverse to the interests of the Secured Parties were utilized by the
Borrower in identifying and/or selecting the Loans that are part of the
Collateral.

(k) Taxes. Except as disclosed to the Agent in writing, the Borrower has filed
(on a consolidated basis or otherwise) or caused to be filed all Tax returns
required to be filed by it. The Borrower has paid or made adequate provisions
for the payment of all material Taxes and all assessments made against it or any
of its property (other than any amount of Tax or assessment the validity of
which is currently being contested in good faith by appropriate proceedings and
with respect to which reserves in accordance with GAAP have been provided on the
books of the Borrower), and no Tax lien has been filed and, to the Borrower’s
knowledge, no claim is being asserted, with respect to any such Tax, fee or
other charge that could reasonably be expected to have a material adverse effect
on the Collateral, the Agent or any other Secured Party.

(l) Agreements Enforceable. This Agreement and each Transaction Document to
which the Borrower is a party constitute the legal, valid and binding obligation
of the Borrower enforceable against the Borrower in accordance with their
respective terms, except as such enforceability may be limited by Insolvency
Laws and except as such enforceability may be limited by general principles of
equity (whether considered in a suit at law or in equity).

(m) [Reserved].

(n) Reports Accurate. All Monthly Reports (if prepared by the Borrower, or to
the extent that information contained therein is supplied by the Borrower),
information, exhibits, financial statements, documents, books, records or
reports furnished or to be furnished by the Borrower to the Agent, the Trustee
or the Lenders in connection with this Agreement are accurate, true and correct
in all material respects.

 

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(o) Location of Offices. The Borrower’s name is “Kohlberg Capital Funding LLC I”
and its location (within the meaning of Article 9 of the UCC) is the State of
Delaware. The Borrower has not changed its name, identity, structure, existence
or state of formation, whether by amendment of its certificate of formation, by
reorganization or otherwise, and has not changed its location (within the
meaning of Article 9 of the UCC) within the four months preceding the Closing
Date.

(p) Tradenames. The Borrower has no trade names, fictitious names, assumed names
or “doing business as” names or other names under which it has done or is doing
business.

(q) Purchase Agreement. The Purchase Agreement is the only agreement pursuant to
which the Borrower acquires Collateral (other than the Hedge Collateral).

(r) Value Given. The Borrower gave reasonably equivalent value to the Originator
in consideration for the transfer to the Borrower of the Loans under the
Purchase Agreement, no such transfer was made for or on account of an antecedent
debt owed by the Originator to the Borrower, and no such transfer is voidable or
subject to avoidance under any Insolvency Law.

(s) Special Purpose Entity. The operating agreement of the Borrower is in the
form attached as Exhibit C hereto.

(t) Separate Entity. The Borrower has not and shall not:

(i) engaged in any business or activity other than the purchase and receipt of
Loans and related Collateral from the Originator under the Purchase Agreement,
the sale of Loans and related Collateral under the Transaction Documents, and
such other activities as are incidental or related thereto;

(ii) acquired or owned any material assets other than (a) the Loans and related
Collateral from the Originator under the Purchase Agreement, (b) any Third Party
Acquired Loans and (c) incidental property as may be necessary for the operation
of the Borrower;

(iii) merged into or consolidated with any Person or dissolved, terminated or
liquidated in whole or in part, transferred or otherwise disposed of all or
substantially all of its assets or changed its legal structure, without in each
case first obtaining the consent of the Agent and each Lender;

(iv) failed to preserve its existence as an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization or formation, or without the prior written consent of the Agent and
each Lender, amended, modified, terminated or failed to comply with the
provisions of its operating agreement, or failed to observe limited liability
company formalities;

(v) owned any Subsidiary or made any investment (other than the purchase of
Loans pursuant to the Transaction Documents) in any Person without the consent
of the Agent;

 

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(vi) except as permitted by this Agreement, the Concentration Account Agreement
and the other Transaction Documents, commingled its assets with the assets of
any of its Affiliates, or of any other Person;

(vii) incurred any debt, secured or unsecured, direct or contingent (including
guaranteeing any obligation), other than (A) indebtedness to the Secured Parties
hereunder or in conjunction with a repayment of all Advances owed to the
Lenders, (B) obligations in respect of Hedging Agreements, (C) trade payables in
the ordinary course of its business and (D) other operating expenses; provided
that such debt is not evidenced by a note and is paid when due;

(viii) become insolvent or failed to pay its debts and liabilities from its
assets as the same shall have become due;

(ix) failed to maintain its records, books of account and bank accounts separate
and apart from those of any other Person;

(x) entered into any contract or agreement with any Person other than as
contemplated by the Transaction Documents, except upon terms and conditions that
are commercially reasonable and intrinsically fair and substantially similar to
those that would be available on an arms–length basis with third parties other
than such Person;

(xi) sought its dissolution or winding up in whole or in part;

(xii) failed to correct any known misunderstandings regarding the separate
identity of Borrower and the Originator or any principal or Affiliate thereof or
any other Person;

(xiii) guaranteed, become obligated for, or held itself out to be responsible
for the debt of another Person;

(xiv) made any loan or advances to any third party, including any principal or
Affiliate, or, except as otherwise contemplated by the Transaction Documents,
held evidence of indebtedness issued by any other Person (other than cash and
investment–grade securities);

(xv) failed either to hold itself out to the public as a legal entity separate
and distinct from any other Person or to conduct its business solely in its own
name in order not (a) to mislead others as to the identity with which such other
party is transacting business, or (b) to suggest that it is responsible for the
debts of any third party (including any of its principals or Affiliates);

(xvi) failed to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations;

 

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(xvii) filed or consented to the filing of any petition, either voluntary or
involuntary, to take advantage of any applicable insolvency, bankruptcy,
liquidation or reorganization statute, or made an assignment for the benefit of
creditors;

(xviii) except as may be required by the Code and regulations, shared any common
logo with or held itself out as or been considered as a department or division
of (a) any of its principals or Affiliates, (b) any Affiliate of a principal or
(c) any other Person;

(xix) permitted any transfer (whether in any one or more transactions) of any
direct or indirect ownership interest in the Borrower to any other Person to the
extent that such Person would, as a result of such transfer, have the ability to
control the Borrower, unless the Borrower shall have delivered to the Agent an
Opinion of Counsel as to matters relating to non-consolidation, in form and
substance acceptable to the Agent, and the Agent shall have consented to such
transfer;

(xx) failed to maintain separate financial statements, showing its assets and
liabilities separate and apart from those of any other Person; provided that the
inclusion of such financial information in the consolidated financial statements
of Kohlberg Capital shall not be deemed a breach of this clause (xx);

(xxi) failed to pay its own liabilities and expenses only out of its own funds;

(xxii) failed to pay the salaries of its own employees in light of its
contemplated business operations;

(xxiii) acquired the obligations or securities of its Affiliates or
stockholders;

(xxiv) failed to allocate fairly and reasonably any overhead expenses that are
shared with an Affiliate, including paying for office space and services
performed by any employee of an Affiliate;

(xxv) failed to use separate invoices and checks bearing its own name;

(xxvi) pledged its assets for the benefit of any other Person, other than with
respect to payment of the indebtedness to the Secured Parties hereunder;

(xxvii) failed at any time to have at least one independent manager (each, an
“Independent Manager”), each of which is not and, for the immediately preceding
two year period, was not (a) a director or manager (other than an Independent
Manager), officer of employee of the Borrower; (b) a director, officer or
employee of Kohlberg Capital Corporation (the “Parent”) or any of its
affiliates; (c) a supplier, independent contractor or any other person who
derives more than 15% of its gross revenues from its activities with the
Borrower, the Parent and/or any affiliate of the foregoing; (d) a holder
(directly or indirectly) of more than 5% of any voting securities of the
Borrower, the Parent or any affiliate of the foregoing; (e) a person controlling
any such director, officer, employee, supplier, independent contractor, holder
or any other person meeting the criteria set forth in clauses (a), (b), (c) or
(d) of this Section 4.1(t)(xxvii) or (f) a member

 

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of the immediate family of any person meeting the criteria set forth in clauses
(a), (b), (c), (d) or (e) of this Section 4.1(t)(xxvii); provided that such
independent directors may be an independent director or director of another
special purpose entity affiliated with the Originator;

(xxviii) failed to provide in its operating agreement that the unanimous consent
of all directors (including the consent of the Independent Managers) is required
for the Borrower to (a) dissolve or liquidate, in whole or part, or institute
proceedings to be adjudicated bankrupt or insolvent, (b) institute or consent to
the institution of bankruptcy or insolvency proceedings against it, (c) file a
petition seeking or consent to reorganization or relief under any applicable
federal or state law relating to bankruptcy or insolvency, (d) seek or consent
to the appointment of a receiver, liquidator, assignee, trustee, sequestrator,
custodian or any similar official for the Borrower, (e) make any assignment for
the benefit of the Borrower’s creditors, (f) admit in writing its inability to
pay its debts generally as they become due, or (g) take any action in
furtherance of any of the foregoing; and

(xxix) taken or refrained from taking, as applicable, each of the activities
specified in the non–consolidation opinion of Ropes & Gray LLP, dated as of the
Closing Date, upon which the conclusions expressed therein are based.

(u) Security Interest.

(i) This Agreement creates a valid, continuing and enforceable security interest
(as defined in the applicable UCC) in the Collateral in favor of the Trustee on
behalf of the Secured Parties which security interest is prior to all other
Liens (except for Permitted Liens), and is enforceable as such against creditors
of and purchasers from the Borrower;

(ii) the Loans, along with the related Loan Files, constitute either a “general
intangible,” an “instrument,” an “account,” “investment property,” or “chattel
paper,” within the meaning of the applicable UCC;

(iii) the Borrower is the lawful owner of and has good and marketable title to
the Transferred Loans and all related Collateral free and clear of any Lien
(other than Permitted Liens);

(iv) the Borrower has received all consents and approvals required by the terms
of the Collateral to the grant of a security interest in the Collateral
hereunder to the Agent, on behalf of the Secured Parties;

(v) the Borrower has caused the filing of all appropriate financing statements
in the proper filing office in the appropriate jurisdictions under Applicable
Law in order to perfect the security interest in such Collateral granted to the
Trustee on behalf of the Secured Parties under this Agreement;

 

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(vi) other than the security interest granted to the Trustee on behalf of the
Secured Parties pursuant to this Agreement, the Borrower has not pledged,
assigned, sold, granted a security interest in or otherwise conveyed any of such
Collateral;

(vii) the Borrower has not authorized the filing of and is not aware of any
financing statements against the Borrower that include a description of
collateral covering such Collateral other than any financing statement
(A) relating to the security interest granted to the Trustee on behalf of the
Secured Parties under this Agreement, or (B) that has been terminated and/or
fully and validly assigned to the Trustee on behalf of the Secured Parties on or
prior to the date hereof;

(viii) the Borrower is not aware of the filing of any judgment or tax Lien
filings against the Borrower;

(ix) other than in the case of Pre-Positioned Loans and Noteless Loans (and
subject to Sections 3.2(f), 4.1(u)(x), 5.3(a) and 7.10(a) in the case of
Pre-Positioned Loans), all original executed Underlying Notes that constitute or
evidence any Transferred Loans have been delivered to the Trustee;

(x) the Borrower has received a written acknowledgment from the Trustee that the
Trustee or its bailee is holding the Underlying Notes that constitute or
evidence the Transferred Loans (other than Noteless Loans) solely on behalf of
and for the benefit of the Secured Parties; provided that notwithstanding the
foregoing, with respect to any Pre-Positioned Loan (that is not a Noteless Loan)
to be funded with the proceeds of an Advance, the Borrower shall have received a
written acknowledgment from the Trustee (A) that the Trustee has received a
faxed copy of the Underlying Note and (B) within two Business Days after such
Funding Date, that the Trustee or its bailee is holding the Underlying Note that
constitutes or evidences the Loans included in the Collateral solely on behalf
of the Secured Parties; and

(xi) none of the Underlying Notes that constitute or evidence any Transferred
Loans has any marks or notations indicating that it has been pledged, assigned
or otherwise conveyed to any Person other than the Borrower and the Agent.

(v) Taxable Mortgage Pool. The consummation of the transactions contemplated by
this Agreement and the other Transaction documents do not and will not cause the
Borrower to be classified as a taxable mortgage pool within the meaning of
Section 7701(i) of the Code.

(w) [Reserved].

(x) [Reserved].

(y) ERISA. The Borrower is in compliance with ERISA and has not incurred and
does not expect to incur any liabilities (except for premium payments arising in
the ordinary course of business) payable to the Pension Benefit Guaranty
Corporation under ERISA.

(z) No Broker. No broker or finder acting on behalf of the Borrower was employed
or utilized in connection with this Agreement or the other Transaction Documents
or the transactions contemplated hereby or thereby and the Borrower has no
obligation to any Person in respect of any finder’s or brokerage fees in
connection therewith.

 

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(aa) Investment Company Act.

(i) The Borrower is not an “investment company” within the meaning of the 1940
Act.

(ii) The Borrower represents and warrants that, if the Borrower operates in such
a manner as to be an “investment company” within the meaning of the 1940 Act,
the Borrower will register as an “investment company” under the 1940 Act
immediately upon being required to do so under the 1940 Act and will conduct its
business and other activities in compliance with the provisions of the 1940 Act
and any rules, regulations or orders issued by the SEC thereunder.

(iii) The business and other activities of the Borrower, including but not
limited to, the making of the Advances by the Lenders, the application of the
proceeds and repayment thereof by the Borrower and the consummation of the
transactions contemplated by the Transaction Documents to which the Borrower is
a party do not now and will not at any time result in any violations, with
respect to the Borrower, of the provisions of the 1940 Act or any rules,
regulations or orders issued by the SEC thereunder.

(bb) Accuracy of Representations and Warranties. Each representation or warranty
by the Borrower contained herein or in any certificate or other document
furnished by the Borrower pursuant hereto or in connection herewith is true and
correct.

(cc) Government Regulations. The Borrower is not engaged in the business of
extending credit for the purpose of “purchasing” or “carrying” any Margin Stock.
The Borrower owns no Margin Stock, and no portion of the proceeds of any Advance
hereunder will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any
Indebtedness that was originally incurred to purchase or carry any Margin Stock
or for any other purpose that might cause any portion of such proceeds to be
considered a “purpose credit” within the meaning of Regulation T, U or X of the
Federal Reserve Board. The Borrower will not take or permit to be taken any
action that might cause any Transaction Document to violate any regulation of
the Federal Reserve Board.

(dd) [Reserved].

(ee) Environmental. At the time of origination or acquisition of any Loan and on
the Cut-Off Date on which any real property that is material to the operations
of the related business constitutes Related Property securing such Loan that is
the primary collateral with respect to which such Loan is principally
underwritten, the related mortgaged property was to the Borrower’s or the
Servicer’s knowledge free of contamination from toxic substances or hazardous
wastes requiring action under Applicable Law or is subject to ongoing
environmental rehabilitation approved by the Servicer, and, as of the related
Cut-Off Date of such Loan, the Borrower has no knowledge of any such
contamination from toxic substances or hazardous waste material on any such real
property unless such items are below action levels.

 

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(ff) Material Adverse Change. Since the Closing Date, there has been no Material
Adverse Change with respect to the Borrower.

(gg) Credit and Collection Policy. Since the Closing Date, there have been no
material changes in the Credit and Collection Policy other than in accordance
with this Agreement. Since such date, the Borrower has at all times complied
with the Credit and Collection Policy with respect to each Loan.

(hh) Coverage Requirement. The Availability is greater than or equal to $0.

(ii) No Termination Event. No event has occurred and is continuing and no
condition exists, or would result from any Advance or from the application of
the proceeds therefrom, which constitutes or may be reasonably expected to
constitute a Termination Event.

(jj) USA PATRIOT Act. Neither the Borrower nor any Affiliate of the Borrower is
(1) a country, territory, organization, person or entity named on an OFAC list,
(2) a Person that resides or has a place of business in a country or territory
named on such lists or which is designated as a Non-Cooperative Jurisdiction by
the Financial Action Task Force on Money Laundering (“FATF”), or whose
subscription funds are transferred from or through such a jurisdiction; (3) a
“Foreign Shell Bank” within the meaning of the USA PATRIOT Act, i.e., a foreign
bank that does not have a physical presence in any country and that is not
affiliated with a bank that has a physical presence and an acceptable level of
regulation and supervision; or (4) a person or entity that resides in or is
organized under the laws of a jurisdiction designated by the United States
Secretary of the Treasury under Section 311 or 312 of the USA PATRIOT Act as
warranting special measures due to money laundering concerns.

The representations and warranties in Section 4.1 shall survive the termination
of this Agreement.

Section 4.2 Representations and Warranties of the Borrower Relating to the
Agreement and the Loans.

The Borrower hereby represents and warrants to the Agent and each Secured Party,
as of the Closing Date and as of each Funding Date, that:

(a) Security Interest. This Agreement constitutes a Grant of a security interest
by the Borrower in all Collateral to the Trustee on behalf of the Secured
Parties. The Trustee on behalf of the Secured Parties, has a first priority
perfected security interest in the Collateral, except for Permitted Liens.
Neither the Borrower nor any Person claiming through or under the Borrower shall
have any claim to or interest in the Collection Account or the Reserve Account,
except for the interest of the Borrower in such property as a debtor for
purposes of the UCC.

(b) Eligibility of Loans. As of the Closing Date, (i) the Loan List and the
information contained in the Borrower Notice delivered pursuant to Section 2.2
is a true and correct listing in all material respects of all the Loans that are
part of the Collateral as of the Closing Date, and the information contained
therein with respect to the identity of such Transferred Loans and the amounts
owing thereunder is true and correct in all material respects as of such date,
(ii) each such Transferred Loan is an Eligible Loan, (iii) each such Transferred
Loan and the Related

 

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Property is free and clear of any Lien (other than Permitted Liens) and in
compliance with all Applicable Laws and (iv) with respect to each such Loan, all
consents, licenses, approvals or authorizations of or registrations or
declarations with any Governmental Authority or other Person required to be
obtained, effected or given by the Borrower in connection with the transfer of
an interest in such Loan and the Related Property to the Trustee on behalf of
the Secured Parties, have been duly obtained, effected or given and are in full
force and effect. On each Funding Date, the Borrower shall be deemed to
represent and warrant that (i) any additional Transferred Loan referenced on the
related Borrower Notice delivered pursuant to Section 2.2 is an Eligible Loan,
(ii) each such Transferred Loan and the associated Related Property is free and
clear of any Lien (other than Permitted Liens) and in compliance with all
Applicable Laws, (iii) with respect to each such Transferred Loan, all consents,
licenses, approvals, authorizations, registrations or declarations with any
Governmental Authority or other Person required to be obtained, effected or
given by the Borrower in connection with the addition of such Transferred Loan
and the Related Property to the Collateral have been duly obtained, effected or
given and are in full force and effect and (iv) the representations and
warranties set forth in Section 4.2(a) are true and correct with respect to each
Loan transferred on such day as if made on such day.

(c) No Fraud. Each Loan was originated without any fraud or material
misrepresentation by the Originator or, to the best of the Borrower’s knowledge,
on the part of the Obligor.

ARTICLE V

GENERAL COVENANTS OF THE BORROWER

Section 5.1 Covenants of the Borrower.

The Borrower hereby covenants that:

(a) Compliance with Laws. The Borrower will comply in all material respects with
all Applicable Laws, including those with respect to the Loans in the Collateral
and any Related Property.

(b) Preservation of Existence. The Borrower will preserve and maintain its
existence, rights, franchises and privileges in the jurisdiction of its
formation, and qualify and remain qualified in good standing in each
jurisdiction where the failure to maintain such existence, rights, franchises,
privileges and qualification could reasonably be expected to have a Material
Adverse Effect.

(c) Loans Not to Be Evidenced by Promissory Notes. The Borrower will not take
any action to cause any Transferred Loan not originally evidenced by an
Underlying Note to be evidenced by an instrument (as defined in the UCC), except
in connection with the enforcement or collection of such Loan.

(d) Security Interests. Except as contemplated in this Agreement and except in
the case of any Permitted Lien, the Borrower will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or suffer to exist
any Lien on any part of the Collateral, whether now existing or hereafter
transferred hereunder, or any interest therein. The Borrower

 

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will promptly notify the Trustee and the Agent of the existence of any Lien on
any part of the Collateral and the Borrower shall defend the right, title and
interest of the Trustee on behalf of the Secured Parties in, to and under any
part of the Collateral, against all claims of third parties; provided that
nothing in this Section 5.1(d) shall prevent or be deemed to prohibit the
Borrower from suffering to exist Permitted Liens upon any part of the
Collateral.

(e) Delivery of Collections. The Borrower shall deposit in the Collection
Account promptly (but in no event later than two Business Days after receipt)
all Collections (including any Deemed Collections) received (or deemed received)
by Borrower in respect of the Loans that are part of the Collateral.

(f) Activities of Borrower. The Borrower shall not engage in any business or
activity of any kind, or enter into any transaction or indenture, mortgage,
instrument, agreement, contract, Loan or other undertaking, which is not
incidental to the transactions contemplated and authorized by this Agreement or
the Purchase Agreement.

(g) Indebtedness. The Borrower shall not create, incur, assume or suffer to
exist any Indebtedness or other liability whatsoever, except (i) obligations
incurred under this Agreement, under any Hedging Agreement required by
Section 5.2(a), or the Purchase Agreement, or (ii) liabilities incident to the
maintenance of its existence in good standing.

(h) Guarantees. The Borrower shall not become or remain liable, directly or
indirectly, in connection with any Indebtedness or other liability of any other
Person, whether by guarantee, endorsement (other than endorsements of negotiable
instruments for deposit or collection in the ordinary course of business),
agreement to purchase or repurchase, agreement to supply or advance funds, or
otherwise.

(i) Investments. The Borrower shall not make or suffer to exist any loans or
advances to, or extend any credit to, or make any investments (by way of
transfer of property, contributions to capital, purchase of stock or securities
or evidences of indebtedness, acquisition of the business or assets, or
otherwise) in, any Person except for purchases of Loans pursuant to the Purchase
Agreement, or for investments in Permitted Investments in accordance with the
terms of this Agreement.

(j) Merger; Sales. The Borrower shall not enter into any transaction of merger
or consolidation, or liquidate or dissolve itself (or suffer any liquidation or
dissolution), or acquire or be acquired by any Person, or convey, sell, loan or
otherwise dispose of all or substantially all of its property or business,
except as provided for in this Agreement.

(k) Distributions. The Borrower may not declare or pay or make, directly or
indirectly, any distribution (whether in cash or other property) with respect to
the assets of the Borrower or any Person’s interest therein (collectively, a
“Distribution”); provided that if no Termination Event has occurred or will
occur as a result thereof, the Borrower may make Distributions to its members on
their membership interests.

(l) Agreements. The Borrower shall not become a party to, or permit any of its
properties to be bound by, any indenture, mortgage, instrument, contract,
agreement, loan or other undertaking, except the Transaction Documents or amend
or modify the provisions of its operating agreement, without the consent of the
Agent, or issue any power of attorney except to the Agent or the Servicer.

 

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(m) Separate Existence. The Borrower shall not take any action or permit or
acquiesce in any action to be taken which would have the effect, directly or
indirectly, of causing (i) its representations and warranties made pursuant to
Section 4.1(t)(i)-(xxix) to be inaccurate in any respect, or (ii) any breach of
the covenants of the Borrower set forth in Section 9(d) of the Borrower’s
operating agreement.

(n) ERISA Matters. The Borrower will not (a) engage or permit any ERISA
Affiliate to engage in any prohibited transaction for which an exemption is not
available or has not previously been obtained from the United States Department
of Labor; (b) permit to exist any accumulated funding deficiency, as defined in
Section 302(a) of ERISA and Section 412(a) of the Code, or funding deficiency
with respect to any Benefit Plan other than a Multiemployer Plan; (c) fail to
make any payments to a Multiemployer Plan that the Borrower or any ERISA
Affiliate may be required to make under the agreement relating to such
Multiemployer Plan or any law pertaining thereto; (d) terminate any Benefit Plan
so as to result in any liability; or (e) permit to exist any occurrence of any
reportable event described in Title IV of ERISA.

(o) Protection of Interests in Collateral. With respect to each item of
Collateral granted to the Trustee, for the benefit of the Secured Parties, the
Borrower will (i) acquire such Collateral pursuant to and in accordance with the
terms of the Purchase Agreement or, with respect to Third Party Acquired Loans,
another comparable instrument in form and substance acceptable to the Agent,
(ii) take all action necessary to perfect, protect and more fully evidence the
Trustee’s, for the benefit of the Secured Parties, ownership of such Collateral,
including, without limitation, (A) filing and maintaining, at the Servicer’s
expense, effective financing statements against the Borrower in all necessary or
appropriate filing offices, and filing continuation statements, amendments or
assignments with respect thereto in such filing offices and (B) executing or
causing to be executed such other instruments or notices as may be necessary or
appropriate, and (iii) take all additional action that the Agent or the Trustee
may reasonably request to perfect, protect and more fully evidence the
respective interests of the parties to this Agreement in the Collateral.

(p) Transactions with Affiliates. The Borrower will not enter into, or be a
party to, any transaction with any of its Affiliates, except (i) the
transactions permitted or contemplated by this Agreement, the Purchase Agreement
and any Hedging Agreements and (ii) other transactions (including, without
limitation, transactions related to the use of office space or computer
equipment or software by the Borrower to or from an Affiliate) (A) in the
ordinary course of business, (B) pursuant to the reasonable requirements of the
Borrower’s business, (C) upon fair and reasonable terms that are no less
favorable to the Borrower than could be obtained in a comparable arm’s-length
transaction with a Person not an Affiliate of the Borrower, and (D) not
inconsistent with the factual assumptions set forth in the “substantive
non-consolidation” legal opinion letter issued by Ropes & Gray LLP and delivered
to the Agent as a condition to the Initial Advance. It is understood that any
compensation arrangement for any trustee shall be permitted under clauses
(ii)(A) through (C) above if such arrangement has been expressly approved by the
directors of the Borrower in accordance with the Borrower’s operating agreement.

 

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(q) Change in the Transaction Documents. The Borrower shall provide notice of
any proposed amendment, modification, waiver or termination of any terms or
conditions of the Transaction Documents other than this Agreement to the Agent
and the Lenders. The Borrower will not amend, modify, waive or terminate any
terms or conditions of any of the Transaction Documents other than this
Agreement to which it is a party, without the prior written consent of the Agent
and the Lenders and, if so requested by the Agent, the opinions of counsel
delivered pursuant to Section 3.1(a) with respect to (x) the creation,
perfection and priority of the security interest of the Secured Parties in the
Collateral, (y) the sale of the Transferred Loans and Related Property from
Kohlberg Capital to the Borrower constituting a true sale, and (z) the assets of
the Borrower not constituting property of the estate of Kohlberg Capital
following an Insolvency Event with respect to Kohlberg Capital can be confirmed,
after giving effect to the proposed amendment, modification, waiver or
termination. For the avoidance of doubt, the amendment, modification or waiver
of this Agreement is governed by Section 12.1.

(r) Credit and Collection Policy. The Borrower will (i) comply in all material
respects with the Credit and Collection Policy in regard to each Loan and the
Related Property included in the Collateral, and (ii) furnish to the Agent and
each Lender, prior to its effective date, prompt notice of any changes in the
Credit and Collection Policy. The Borrower will not agree to or otherwise
(x) permit any change in the Credit and Collection Policy which would materially
and adversely affect or impair the collectibility of any Loan, or (y) any
material change in the Credit and Collection Policy without the prior written
consent of the Agent and each Lender (in their sole discretion).

(s) Termination Events. The Borrower will furnish to the Agent and each Lender,
as soon as possible and in any event within three Business Days after any
officer of the Borrower becoming aware of the occurrence of each Termination
Event and each Unmatured Termination Event, a written statement setting forth
the details of such event and the action that the Borrower proposes to take with
respect thereto.

(t) Extension or Amendment of Loans. The Borrower will not, except as otherwise
permitted in Section 7.4(a), extend, amend or otherwise modify, or permit the
Servicer on its behalf to extend, materially amend or otherwise modify, the
terms of any Transferred Loan.

(u) Other Information. The Borrower will furnish to the Agent and the Lenders
such other information, documents, records or reports respecting the Loans or
the condition or operations, financial or otherwise, of the Borrower or
Originator as the Agent or any Lender may from time to time reasonably request
in order to protect the interests of the Trustee on behalf of the Secured
Parties, the Agent and the other Secured Parties under or as contemplated by
this Agreement.

(v) Notices Under the Purchase Agreement. The Borrower will promptly, but in no
event later than two Business Days after its receipt furnish to the Agent copies
of any and all notices, certificates, documents, or reports delivered to it by
the Originator under the Purchase Agreement.

(w) Inspection of Records. The Borrower will, at any time and from time to time
during regular business hours, as requested by the Agent, the Trustee, the
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Lender upon two Business Days’ advance notice (which shall not be required if an
Unmatured Termination Event or a Termination Event shall have occurred and be
continuing), permit the Agent or such Lender, as applicable, or their respective
agents or representatives, (i) to examine and make copies of and take abstracts
from all books, records and documents (including computer tapes and disks)
relating to the Transferred Loans and the related Loan Documents and (ii) to
visit the offices and properties of the Borrower, the Originator or the
Servicer, as applicable, for the purpose of examining such materials described
in clause (i), and to discuss matters relating to the Transferred Loans or the
Borrower’s, the Originator’s or the Servicer’s performance hereunder, under the
Loan Documents and under the other Transaction Documents to which such Person is
a party with any of the officers, directors, employees or independent public
accountants of the Borrower, the Originator or the Servicer, as applicable,
having knowledge of such matters.

(x) Keeping of Records. The Borrower will maintain and implement administrative
and operating procedures (including an ability to recreate records evidencing
Transferred Loans and the related Loan Documents in the event of the destruction
of the originals thereof), and keep and maintain, all documents, books, computer
tapes, disks, records and other information reasonably necessary or advisable
for the collection of all Transferred Loans (including records adequate to
permit the daily identification of each new Transferred Loan and all Collections
of and adjustments to each existing Loan). The Borrower shall give the Agent,
each Lender and the Backup Servicer prompt notice of any material change in its
administrative and operating procedures referred to in the previous sentence.

(y) Compliance with Loans. The Borrower will (i) at its own expense, timely and
fully perform and comply with all material provisions, covenants and other
promises required to be observed by it under the Transferred Loans and the
related Loan Documents; and (ii) timely and fully comply in all material
respects with the Credit and Collection Policy with respect to each Loan and the
related Transferred Loan Document.

(z) Restricted Payments. The Borrower shall not (i) purchase or redeem any
shares of its capital stock or interests, (ii) prepay, purchase or redeem any
Indebtedness (other than Outstanding Advances), (iii) lend or advance any funds
or (iv) repay any loans or advances to, for or from any of its Affiliates (the
amounts described in clauses (i) through (iv) being referred to as “Restricted
Payments”), except that the Borrower may (a) make Restricted Payments out of
funds received pursuant to Article II and (b) make other Restricted Payments
(including the payment of dividends and Lien Release Dividends) if, after giving
effect thereto, no Termination Event shall have occurred and be continuing.

(aa) Notice of Litigation. The Borrower will promptly, but in no event later
than two Business Days after any officer of the Borrower becoming aware thereof,
deliver written notice to the Agent, each Lender, the Trustee and the Backup
Servicer regarding any claim, action, investigation or proceeding pending or
threatened against the Borrower and shall provide copies of any and all notices,
certificates or documents delivered to it in connection therewith.

(bb) Ratings. The Borrower will ensure that each Transferred Loan shall have as
of its Cut-Off Date a Moody’s Rating; provided that if any Transferred Loan does
not have a Moody’s Assigned Rating or a Moody’s Shadow Rating as of its Cut-Off
Date, the Borrower (or the

 

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Servicer on its behalf) will apply for a Moody’s Rating to be assigned to such
Transferred Loan (i) no later than the Cut-Off Date for each such Transferred
Loan and (ii) within 10 Business Days of any amendment to the related Loan
Documents that is deemed material in the Servicer’s reasonable judgment;
provided further that at any time up to 10% of the Aggregate Outstanding Loan
Balance may consist of Transferred Loans that have a S&P Shadow Rating in lieu
of a Moody’s Rating. The Borrower shall re-apply at least once every 12 months
for a new Moody’s Shadow Rating or S&P Shadow Rating, as applicable, with
respect to each Loan having a Moody’s Shadow Rating or S&P Shadow Rating,
respectively, and shall pay all expenses associated with such application.
Notwithstanding the foregoing, at any time up to 10% of the Aggregate
Outstanding Loan Balance may consist of Unrated Loans.

(cc) Collateral Quality Test. Except as otherwise specified in this Agreement,
on each Measurement Date the Borrower will ensure that the Collateral Quality
Test is satisfied.

Section 5.2 Hedging Agreements.

(a) Immediately upon the occurrence of an Interest Rate Hedge Trigger and on or
prior to each Funding Date following the occurrence of an Interest Rate Hedge
Trigger, the Borrower shall enter into one or more Interest Rate Hedge
Transactions, provided that each such Interest Rate Hedge Transaction shall:

(i) be entered into with a Hedge Counterparty and governed by a Hedging
Agreement;

(ii) have a schedule of periodic monthly (or quarterly, as applicable)
calculation periods which settle on a Payment Date, the first of which commences
on the Funding Date and the last of which ends on the date of the last Scheduled
Payment due to occur under the Loans to which it relates;

(iii) have an amortizing notional amount (a) corresponding to a prepayment speed
not to exceed a constant prepayment rate determined by the Agent and notified by
it to the Borrower prior to the Borrower’s entry into the Interest Rate Hedge
Transaction and (b) such that the Interest Rate Hedge Notional Amount in effect
on each day during the term of such Interest Rate Hedge Transactions shall be no
less than the product of the Hedge Percentage and the Interest Rate Hedge
Amount, subject to any permitted excess or shortfall in the Interest Rate Hedge
Amount as may be allowed by an Interest Rate Hedge Amount Notional Band; and

(iv) provide, in the case of any interest rate swap, for two series of quarterly
payments to be netted against each other, one such series being payments to be
made by the Borrower to a Hedge Counterparty by reference to a fixed rate for
that Interest Rate Hedge Transaction, and the other such series being payments
to be made by the Hedge Counterparty at a floating rate equal to “USD-LIBOR-BBA”
(as defined in the ISDA Definitions), the net amount of which shall be paid into
the Collection Account (if payable by the Hedge Counterparty) or, to the extent
of Available Funds and from the Collection Account, under Sections 2.8(a)(1)(i),
2.8(b)(i) and 2.8(b)(xii) of this Agreement (if payable by the Borrower).

 

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(b) Immediately upon the purchase of a Non-USD Loan, the Borrower shall enter
into a Currency Hedge Transaction, provided that each such Currency Hedge
Transaction shall:

(i) be entered into with a Hedge Counterparty and governed by a Hedging
Agreement;

(ii) have a schedule of periodic quarterly calculation periods which settle on a
Payment Date, the first of which commences on the applicable Funding Date
associated with such purchase, and the last of which ends on the date of the
last Scheduled Payment due to occur under the Non-USD Loans to which it relates;

(iii) have (A) a notional amount denominated in the Permitted Currency of the
related Non-USD Obligation (the “Non-USD Notional Amount”), (B) a notional
amount denominated in Dollars (the “USD Notional Amount”), (C) a floating
payment relating to the index applicable to such Non-USD Obligation payable by
the Borrower, (D) a floating payment relating to LIBOR payable by the Hedge
Counterparty, and (E) a scheduled termination date equal to the date which the
Servicer reasonably expects to be the scheduled final payment date of such
Non-USD Obligation or, at the option of the Servicer, the date on which the
average life or duration for the Non-USD Obligation being hedged expires; and

(iv) provide that (A)(x) the Borrower shall pay to the Hedge Counterparty, in
the Permitted Currency in which the related Non-USD Loan is denominated, a
floating rate coupon on the Non-USD Notional Amount of such Currency Hedge
Transaction and (y) in exchange, the Hedge Counterparty shall pay to the
Borrower, in Dollars, a floating rate coupon on the USD Notional Amount of such
Currency Hedge Transaction; (B)(x) the Borrower shall pay to the Hedge
Counterparty, in the Permitted Currency in which the related Non-USD Obligation
is denominated, a specified portion of the Non-USD Notional Amount as a final
principal exchange amount and (y) in exchange, the Hedge Counterparty shall pay
to the Borrower, in Dollars, a specified portion of the USD Notional Amount as a
final principal exchange amount; and

(v) have a Non-USD Notional Amount equal to Outstanding Loan Balance of the
Non-USD Loan being hedged;

(c) Subject to, and without limiting the provisions of, Article VIII of this
Agreement, the Borrower hereby assigns to the Trustee on behalf of the Secured
Parties, all right, title and interest of the Borrower in, but none of the
obligations of the Borrower under, each Hedging Agreement, each Hedge
Transaction, and all present and future amounts payable by a Hedge Counterparty
to Borrower under or in connection with the respective Hedging Agreement and
Hedge Transaction(s) with that Hedge Counterparty (“Hedge Collateral”), and
grants a security interest to the Trustee on behalf of the Secured Parties, in
the Hedge Collateral; provided that so long as the Hedge Counterparty is the
Agent or any Affiliate thereof, the Trustee hereby grants to the Servicer a
non-exclusive license (which shall be deemed revoked upon the occurrence of a
Termination Event) to exercise any rights under any related Hedging Agreement or
Hedge Transaction. The Borrower acknowledges that as a result of such assignment
the Borrower may not, except as set forth in the proviso to the immediately
preceding sentence, without the prior

 

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written consent of the Agent (or the Trustee, acting at the direction of the
Agent), exercise any rights under any Hedging Agreement or Hedge Transaction,
except for the Borrower’s right under any Hedging Agreement to enter into Hedge
Transactions in order to meet the Borrower’s obligations under Sections 5.2(a)
and 5.2(b) hereof. Nothing herein shall have the effect of releasing the
Borrower from any of its obligations under any Hedging Agreement or any Hedge
Transaction, nor be construed as requiring the consent of the Agent, the Trustee
or any other Secured Party for the performance by Borrower of any such
obligations.

Section 5.3 Delivery of Loan Files

(a) The Borrower, or the Servicer on its behalf, shall deliver possession of all
“instruments” (within the meaning of Article 9 of the UCC) not constituting part
of “chattel paper” (within the meaning of Article 9 of the UCC) that evidence
any Transferred Loan set forth on a Loan List, including all Underlying Notes
(other than in the case of Noteless Loans), and all portions of the Loan Files
to the Trustee on behalf of the Secured Parties prior to the applicable Funding
Dates, in each case endorsed in blank or to the Agent, without recourse;
provided that notwithstanding the foregoing, with respect to any Pre-Positioned
Loan, the Borrower shall (i) (other than in the case of a Noteless Loan) have a
copy of the executed Underlying Note faxed to the Trustee on the applicable
Funding Date and cause the original to be received by the Trustee within two
Business Days after such Funding Date and (ii) within ten Business Days of the
Funding Date deliver all other portions of the Loan File in each case endorsed
in blank without recourse, where applicable. Pursuant to Section 7.10, the
Borrower is required to deliver such instruments and Loan Files to the Trustee
for the benefit of the Secured Parties. Accordingly, the Borrower hereby
authorizes and directs the Servicer to deliver possession of all such
instruments and Loan Files to the Trustee on behalf of the Secured Parties, and
agrees that such delivery shall satisfy the condition set forth in the first
sentence of this Section 5.3(a). The Servicer shall also identify on the Loan
List (including any amendment thereof), whether by attached schedule or marking
or other effective identifying designation, all Transferred Loans that are not
evidenced by such instruments.

(b) Prior to the occurrence of a Termination Event or Servicer Termination
Event, the Trustee shall not record the Assignments of Mortgage delivered
pursuant to Section 5.3(a) and the definition of Loan Documents. Upon the
occurrence of a Termination Event or a Servicer Termination Event, the Trustee
shall, if so directed by the Agent, cause to be recorded in the appropriate
offices each Assignment of Mortgage delivered to it with respect to all
Transferred Loans except those Transferred Loans covered by the proviso to the
definition of Assignment of Mortgage. Each such recording shall be at the
expense of the Servicer; provided that to the extent the Servicer does not pay
such expenses, the Trustee shall be reimbursed pursuant to the provisions of
Section 2.8.

 

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ARTICLE VI

PERFECTION OF TRANSFER AND

PROTECTION OF SECURITY INTERESTS

Section 6.1 Custody of Transferred Loans.

The contents of each Loan File relating to a Transferred Loan (other than a
Non-USD Loan) shall be held in the custody of the Trustee under the terms of the
Purchase Agreement and this Agreement for the benefit of the Secured Parties.

Section 6.2 Filing.

On or prior to the Closing Date, the Borrower and Servicer shall cause the UCC
financing statement(s) referred to in Section 4.1(u)(v) hereof to be filed, and
from time to time the Servicer shall take and cause to be taken such actions and
execute such documents as are necessary or desirable or as the Agent may
reasonably request to perfect and protect the first priority perfected security
interest of the Trustee on behalf of the Secured Parties in the Collateral
against all other Persons, including, without limitation, the filing of
financing statements, amendments thereto and continuation statements, the
execution of transfer instruments and the making of notations on or taking
possession of all records or documents of title. Notwithstanding the obligations
of the Borrower and the Servicer set forth in the preceding sentence, the
Borrower and the Servicer hereby authorize the Agent to prepare and file, at the
expense of the Servicer, UCC financing statements (including but not limited to
renewal, continuation or in lieu statements) and amendments or supplements
thereto or other instruments as the Agent may from time to time deem necessary
or appropriate in order to perfect and maintain the security interest granted
hereunder in accordance with the UCC.

Section 6.3 Changes in Name, Structure or Location.

(a) During the term of this Agreement, neither the Servicer nor the Borrower
shall change its name, identity, structure, existence or location (as defined in
Article 9 of the UCC) without first giving at least 30 days’ prior written
notice to the Agent and each other Secured Party.

(b) If any change in either the Originator’s or the Borrower’s name, identity,
structure, existence, location (as defined in Article 9 of the UCC) or other
action would make any financing or continuation statement or notice of ownership
interest or Lien relating to any Collateral seriously misleading within the
meaning of applicable provisions of the UCC, the initial Servicer, or, at the
Borrower’s expense, any Successor Servicer, if applicable, no later than five
Business Days after the effective date of such change, shall file such
amendments as may be required to preserve and protect the security interest of
the Trustee on behalf of the Secured Parties in the Collateral and the proceeds
thereof. Promptly after taking any of the foregoing actions, the initial
Servicer or, at the Borrower’s expense, any Successor Servicer, if applicable,
shall deliver to the Agent, the Trustee and each other Secured Party an Opinion
of Counsel reasonably acceptable to the Agent stating that, in the opinion of
such counsel, all financing statements or amendments necessary to preserve and
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on behalf of the Secured Parties in the Collateral have been filed, and reciting
the details of such filing, and the Trustee on behalf of the Secured Parties has
a perfected security interest in the Collateral.

Section 6.4 Chief Executive Office.

During the term of this Agreement, and subject to the other terms and provisions
herein relating to changes in location, the Originator will maintain its chief
executive office in one of the States of the United States.

Section 6.5 Costs and Expenses.

The Servicer agrees to pay all reasonable costs and disbursements in connection
with the perfection and the maintenance of perfection, as against all third
parties, of the Borrower’s and the Trustee’s (on behalf of the Secured Parties)
right, title and interest in and to the Collateral (including, without
limitation, the security interest in the Collateral related thereto and the
security interests provided for herein).

Section 6.6 Sale Treatment.

The Borrower shall treat the transfer of Collateral made hereunder for all
purposes (other than for financial accounting purposes) as a sale and purchase
on all of its relevant books, records, financial statements and other applicable
documents. Notwithstanding the preceding sentence, for federal income tax
purposes, the grant of a security interest in the Collateral by the Borrower
hereunder shall not be treated as a sale and purchase for federal income tax
purposes.

Section 6.7 Separateness from the Borrower.

The Borrower agrees to take or refrain from taking or engaging in with respect
to the Originator each of the actions or activities specified in the
“substantive non-consolidation” opinion of Ropes & Gray LLP (including any
certificates of the Originator attached thereto), delivered on the Closing Date,
upon which the conclusions therein are based.

ARTICLE VII

ADMINISTRATION AND SERVICING OF LOANS

Section 7.1 Appointment of the Servicer.

The Borrower hereby appoints Kohlberg Capital as the Servicer hereunder to
service the Transferred Loans and enforce its respective rights and interests in
and under each Transferred Loan in accordance with the terms and conditions of
this Article VII and to serve in such capacity until the termination of its
responsibilities pursuant to Section 7.25. Kohlberg Capital hereby accepts such
appointment and agrees to perform the duties and obligations with respect
thereto set forth herein. The Servicer and the Borrower hereby acknowledge that
the Agent and the other Secured Parties are third party beneficiaries of the
obligations undertaken by the Servicer hereunder.

 

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Section 7.2 Duties and Responsibilities of the Servicer.

(a) The Servicer shall conduct the servicing, administration and collection of
the Transferred Loans and shall take, or cause to be taken, all such actions as
may be reasonably necessary or advisable to service, administer and collect
Transferred Loans from time to time on behalf of the Borrower and as the
Borrower’s agent. The Servicer will service, administer and make collections on
the Transferred Loans with reasonable care, using that degree of skill and
attention that the Servicer exercises with respect to all comparable loans that
it services for itself or others.

(b) The duties of the Servicer (the “Servicing Duties”), as the Borrower’s
agent, shall include, without limitation:

(i) preparing and submitting of claims to, and post-billing liaison with,
Obligors on Transferred Loans;

(ii) maintaining all necessary Servicing Records with respect to the Transferred
Loans and providing such reports to the Borrower, the Agent and each Lender in
respect of the servicing of the Transferred Loans (including information
relating to its performance under this Agreement) as may be required hereunder
or as the Borrower, the Agent and each Lender may reasonably request;

(iii) maintaining and implementing administrative and operating procedures
(including, without limitation, an ability to re-create Servicing Records
evidencing the Transferred Loans in the event of the destruction of the
originals thereof) and keeping and maintaining all documents, books, records and
other information reasonably necessary or advisable for the collection of the
Transferred Loans (including, without limitation, records adequate to permit the
identification of each new Transferred Loan and all Collections of and
adjustments to each existing Transferred Loan); provided that any Successor
Servicer shall only be required to re-create the Servicing Records of each prior
Servicer to the extent such records have been delivered to it in a format
reasonably acceptable to such Successor Servicer;

(iv) promptly delivering to the Borrower, the Agent, each Lender, the Trustee
and the Backup Servicer, from time to time, such information and Servicing
Records (including information relating to its performance under this Agreement)
as the Borrower, the Agent, each Lender and the Trustee may from time to time
reasonably request;

(v) identifying each Transferred Loan clearly and unambiguously in its Servicing
Records to reflect that such Transferred Loan is owned by the Borrower and
pledged to the Trustee on behalf of the Secured Parties;

(vi) complying in all material respects with the Credit and Collection Policy in
regard to each Transferred Loan;

 

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(vii) complying in all material respects with all Applicable Laws with respect
to it, its business and properties and all Transferred Loans and Collections
with respect thereto;

(viii) preserving and maintaining its existence, rights, licenses, franchises
and privileges as a corporation in the jurisdiction of its organization, and
qualifying and remaining qualified in good standing as a foreign corporation and
qualifying to and remaining authorized and licensed to perform obligations as
Servicer (including enforcement of collection of Transferred Loans on behalf of
the Borrower, the Agent and the other Secured Parties) in each jurisdiction
where the failure to preserve and maintain such existence, rights, franchises,
privileges and qualification would materially adversely affect (A) the rights or
interests of the Borrower, the Agent and the other Secured Parties in the
Transferred Loans, (B) the collectibility of any Transferred Loan, or (C) the
ability of the Servicer to perform its obligations hereunder; and

(ix) notifying the Borrower, the Agent and each Lender of any material action,
suit, proceeding, dispute, offset deduction, defense or counterclaim that (1) is
or is threatened to be asserted by an Obligor with respect to any Transferred
Loan; or (2) would reasonably be expected to have a Material Adverse Effect.

(c) The Borrower and Servicer hereby acknowledge that none of the Agent, any
other Secured Party or the Trustee shall have any obligation or liability with
respect to any Transferred Loans, nor shall any of them be obligated to perform
any of the obligations of the Servicer hereunder.

Section 7.3 Authorization of the Servicer.

(a) Each of the Borrower and the Trustee on behalf of the Secured Parties hereby
authorizes the Servicer (including any successor thereto) to take any and all
reasonable steps in its name and on its behalf necessary or desirable and not
inconsistent with the pledge of the Transferred Loans to the Secured Parties, in
the determination of the Servicer, to collect all amounts due under any and all
Transferred Loans, including, without limitation, endorsing any of their names
on checks and other instruments representing Collections, executing and
delivering any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable instruments, with
respect to the Transferred Loans and, after the delinquency of any Transferred
Loan and to the extent permitted under and in compliance with Applicable Law, to
commence proceedings with respect to enforcing payment thereof, to the same
extent as the Originator could have done if it had continued to own such Loan.
The Borrower shall furnish the Servicer (and any successors thereto) with any
powers of attorney and other documents necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties hereunder, and
shall cooperate with the Servicer to the fullest extent in order to ensure the
collectibility of the Transferred Loans. In no event shall the Servicer be
entitled to make the Borrower, the Trustee, the Agent or any other Secured Party
a party to any litigation without such party’s express prior written consent, or
to make the Borrower a party to any litigation (other than any routine
foreclosure or similar collection procedure) without the Agent’s and each
Lender’s consent.

 

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(b) After a Termination Event has occurred and is continuing, at the Agent’s
direction, the Servicer shall take such action as the Agent may deem necessary
or advisable to enforce collection of the Transferred Loans; provided that
(i) the Servicer shall not be required to take any action hereunder at the
request of the Agent if the taking of such action, in the reasonable
determination of the Servicer (after consultation with the Agent) would be in
violation of any Applicable Law; and (ii) the Agent may, at any time after a
Termination Event has occurred and is continuing, notify any Obligor with
respect to any Transferred Loans of the assignment of such Transferred Loans to
the Agent and direct that payments of all amounts due or to become due to the
Borrower thereunder be made directly to the Agent or any servicer, collection
agent or lock-box or other account designated by the Agent and, upon such
notification and at the expense of the Borrower, the Agent may enforce
collection of any such Transferred Loans and adjust, settle or compromise the
amount or payment thereof. The Agent shall give written notice to any Successor
Servicer of the Agent’s actions or directions pursuant to this Section 7.3(b),
and no Successor Servicer shall take any actions pursuant to this Section 7.3(b)
that are outside of its Credit and Collection Policy.

Section 7.4 Collection of Payments.

(a) Collection Efforts, Modification of Loans. The Servicer will make reasonable
efforts to collect all payments called for under the terms and provisions of the
Transferred Loans as and when the same become due, and will follow those
collection procedures which it follows with respect to all comparable Loans that
it services for itself or others. The Servicer may not waive, modify or
otherwise vary any provision of a Transferred Loan, except as may be in
accordance with the provisions of the Credit and Collection Policy and
Section 5.1(a), which permits, among other things, the waiver of any late
payment charge or any other fees that may be collected in the ordinary course of
servicing any Loan included in the Collateral.

(b) [Reserved].

(c) Taxes and other Amounts. To the extent provided for in any Transferred Loan,
the Servicer will use its best efforts to collect all payments with respect to
amounts due for taxes, assessments and insurance premiums relating to such
Transferred Loans or the Related Property and remit such amounts to the
appropriate Governmental Authority or insurer on or prior to the date such
payments are due.

(d) Payments to Concentration Account. On or before the Cut-Off Date with
respect to each Transferred Loan, the Servicer shall have instructed all
Obligors to make all payments in respect of all Transferred Loans included in
the Collateral to the Concentration Account Bank for deposit in the
Concentration Account. All proceeds in the Concentration Account shall be
distributed into the Collection Account within two Business Days as provided in
the Concentration Account Agreement and the Intercreditor Agreement.

(e) Establishment of the Collection Account. The Borrower or the Servicer on its
behalf shall cause to be established, on or before the Closing Date, and
maintained in the name of the Borrower but subject to the lien of the Trustee on
behalf of the Secured Parties, with an office or branch of a depository
institution or trust company organized under the laws of the United States or
any one of the States thereof or the District of Columbia (or any domestic

 

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branch of a foreign bank) a segregated corporate trust account, which may be a
securities account or a deposit account (the “Collection Account”) with
subaccounts thereof, including the Principal Collections Account and the
Interest Collections Account, for the purpose of receiving Collections from the
Collateral; provided that at all times such depository institution or trust
company shall be a depository institution organized under the laws of the United
States or any one of the States thereof or the District of Columbia (or any
domestic branch of a foreign bank), (i) (A) that has either (1) a long-term
unsecured debt rating of “A-” or better by S&P and “A-3” or better by Moody’s or
(2) a short-term unsecured debt rating or certificate of deposit rating of “A-1”
or better by S&P or “P-1” or better by Moody’s, (B) the parent corporation of
which such depository institution is a Subsidiary has either (1) a long-term
unsecured debt rating of “A-” or better by S&P and “A-3” or better by Moody’s or
(2) a short-term unsecured debt rating or certificate of deposit rating of “A-1”
or better by S&P and “P-1” or better by Moody’s or (C) is otherwise acceptable
to the Agent and (ii) whose deposits are insured by the Federal Deposit
Insurance Corporation (any such depository institution or trust company, a
“Qualified Institution”) which Qualified Institution has agreed with the
Borrower, the Servicer, the Agent and the Trustee to comply with any and all
orders, notices, requests and other instructions originated by the Agent or the
Trustee acting on the instructions of the Agent directing disposition of the
funds in the Collection Account without any further consent from the Borrower or
the Servicer. In order to provide the Trustee with control over the Collection
Account within the meaning of Section 9-104(a) or Section 9-106(c) of the UCC
and any other Applicable Law, the Borrower and the Servicer hereby agree that
the Trustee, acting on the instructions of the Agent, may at any time provide
U.S. Bank or any successor Person that maintains the Collection Account with
instructions as to the disposition of funds in the Collection Account,
entitlement orders with respect to financial assets in the Collection Account or
instructions as to any other matters relating to the Collection Account without
any further consent from the Borrower or the Servicer. U.S. Bank, to the extent
and for so long as the Collection Account is maintained with it, agrees with the
Borrower, the Servicer and the Agent to comply with any and all orders,
entitlement orders, notices, requests and other instructions originated by the
Trustee, acting on the instructions of the Agent, directing disposition of the
funds in the Collection Account without any further consent from the Borrower or
the Servicer. Subject in every respect to the foregoing, U.S. Bank and any
successor Person that maintains the Collection Account shall only comply with
such orders, notices, requests and other instructions originated by the Borrower
or the Servicer as the Borrower or the Servicer shall expressly deliver and
cause U.S. Bank to effectuate pursuant to the terms of the Transaction
Documents, it being understood and acknowledged that neither the Borrower nor
the Servicer shall give any orders, notices, requests or instructions not
authorized or permitted by the Transaction Documents. The Agent and the other
Secured Parties shall not cause the Trustee to issue, and the Trustee shall not
issue a Notice of Exclusive Control (as defined in the Account Control
Agreement), or any entitlement orders or other instructions to U.S. Bank (or any
successor Person that then maintains the Collection Account) unless a
Termination Event has occurred and is continuing; provided that none of the
Originator, the Servicer or the Borrower shall have any right of withdrawal over
the Collection Account (including any subaccounts thereof) except in accordance
with Section 2.8.

(f) Establishment of Reserve Account. The Borrower or the Servicer on its behalf
shall cause to be established, on or before the Closing Date, and maintained in
the name of the Borrower but under the control of the Trustee on behalf of the
Secured Parties with an office or branch of a Qualified Institution a segregated
corporate trust account, which may be a securities account or a deposit account
(the “Reserve Account”); provided that at all times such depository institution
or trust company shall be a Qualified Institution.

 

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(g) Adjustments. If (i) the Servicer makes a deposit into the Collection Account
in respect of a Collection of a Loan in the Collateral and such Collection was
received by the Servicer in the form of a check that is not honored for any
reason or (ii) the Servicer makes a mistake with respect to the amount of any
Collection and deposits an amount that is less than or more than the actual
amount of such Collection, the Servicer shall appropriately adjust the amount
subsequently deposited into the Collection Account to reflect such dishonored
check or mistake. Any Scheduled Payment in respect of which a dishonored check
is received shall be deemed not to have been paid.

(h) Released Amounts. The Agent and the other Secured Parties hereby agree (and
the Trustee is hereby authorized) to release to the Borrower from the
Collateral, and the Borrower hereby agrees to release to the Originator, an
amount equal to the Released Amounts immediately upon identification thereof and
upon receipt of an Officer’s Certificate of the Servicer, which release shall be
automatic and shall require no further act by the Trustee on behalf of the
Secured Parties, or the other Secured Parties; provided that the Trustee on
behalf of the Secured Parties and the other Secured Parties shall execute and
deliver such instruments of release and assignment, or otherwise confirm the
foregoing release, as may reasonably be requested by the Originator in writing.
Upon such release, such Released Amounts shall not constitute and shall not be
included in the Collateral.

Section 7.5 Servicer Advances.

(a) For each Collection Period, if the Servicer determines that any Scheduled
Payment (or portion thereof) that was due and payable pursuant to a Loan
included in the Collateral during such Collection Period was not received prior
to the end of such Collection Period, the Servicer may, but shall not be
obligated to, make an advance in an amount up to the amount of such delinquent
Scheduled Payment (or portion thereof) if the Servicer reasonably believes that
the advance will be reimbursed by the related Obligor; in addition, if on any
day there are not sufficient funds on deposit in the Interest Collection Account
to pay accrued Interest and Program Fees on any Advance the Collection Period of
which ends on such day, the Servicer may make an advance in the amount necessary
to pay such Interest and Program Fees if the Servicer reasonably believes that
the advance will be reimbursed by the related Obligor (in either case, any such
advance, a “Servicer Advance”).

(b) The Servicer will deposit any Servicer Advances into the Collection Account
on or prior to 11:00 a.m. (New York City time) on the related Payment Date, in
immediately available funds. A Servicer Advance for a delinquent payment on a
Loan will not constitute a reclassification of the delinquency status of such
Loan for reporting purposes and the delinquent payment with respect to such Loan
will continue to age as if no payment has been made.

Section 7.6 Realization Upon Defaulted Loans.

The Servicer will use its reasonable efforts to repossess or otherwise
comparably convert the ownership of any Related Property with respect to a
Defaulted Loan and will act as sales and

 

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processing agent for Related Property that it repossesses. The Servicer will
follow the practices and procedures set forth in the Credit and Collection
Policy in order to realize upon such Related Property; provided that the
Servicer shall not be required to pay or incur any Liquidation Expense in
connection with the realization of such Related Property unless, in the
reasonable opinion of the Servicer, such Liquidation Expenses will be
recoverable by the Servicer from the proceeds of sale or other disposition of
such Related Property or otherwise. Without limiting the foregoing, unless the
Agent has specifically given instruction to the contrary, the Servicer may sell
any such Related Property with respect any Defaulted Loan to the Servicer or its
Affiliates for a purchase price equal to the then fair market value thereof; any
such sale to be evidenced by a certificate of a Responsible Officer of the
Servicer delivered to the Agent identifying the Defaulted Loan and the Related
Property, setting forth the sale price of the Related Property and certifying
that such sale price is the fair market value of such Related Property; provided
that if after giving effect to such sale (a) the Availability is not greater
than or equal to $0 or (b) an Unmatured Termination Event, a Termination Event
or a Servicer Termination Event would occur, then the Servicer prior to selling
any Related Property with respect a Defaulted Loan shall obtain the prior
written consent of the Agent. In any case in which any such Related Property has
suffered damage, the Servicer will not expend funds in connection with any
repair or toward the repossession of such Related Property unless it reasonably
determines that such repair and/or repossession will increase the Recoveries by
an amount greater than the amount of such expenses. The Servicer will remit to
the Collection Account the Recoveries received in connection with the sale or
disposition of Related Property with respect to a Defaulted Loan.

Section 7.7 Maintenance of Insurance Policies.

The Servicer will require that each Obligor with respect to a Transferred Loan
maintain an Insurance Policy with respect to each Transferred Loan and the
Related Property in accordance with the Credit and Collection Policy. In
connection with its activities as Servicer, the Servicer agrees to present, on
behalf of the Borrower and the Trustee on behalf of the Secured Parties, with
respect to the respective interests, claims to the insurer under each Insurance
Policy and any such liability policy, and to settle, adjust and compromise such
claims, in each case, consistent with the terms of each related Loan.

Section 7.8 Representations and Warranties of the Servicer.

The Servicer hereby represents and warrants as follows (provided that the
representations and warranties set forth in clauses (m) and (o) below shall be
delivered only by the initial Servicer or any Successor Servicer that is an
Affiliate of the Initial Servicer or the Borrower, and certain other
representations and warranties shall be delivered only by the initial Servicer,
as expressly provided therein):

(a) Organization and Good Standing; Power and Authority. The Servicer is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation with all requisite corporate power and
authority to own its properties and to conduct its business as presently
conducted and to enter into and perform its obligations pursuant to this
Agreement and each other Transaction Document to which it is a party.

 

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(b) Due Qualification. The Servicer is qualified to do business as a
corporation, is in good standing, and has obtained all licenses and approvals as
required under the laws of all jurisdictions in which the ownership or lease of
its property and or the conduct of its business (other than the performance of
its obligations hereunder) requires such qualification, standing, license or
approval, except to the extent that the failure to so qualify, maintain such
standing or be so licensed or approved would not have an adverse effect on the
interests of the Borrower or of the Lenders.

(c) Authorization. The Servicer has duly authorized the execution, delivery and
performance of this Agreement by all requisite corporate action.

(d) No Violation. The consummation of the transactions contemplated by, and the
fulfillment of the terms of, this Agreement by the Servicer (with or without
notice or lapse of time) will not (i) conflict with, result in any breach of any
of the terms or provisions of, or constitute a default under, the articles of
incorporation or by-laws of the Servicer, or any material Contractual Obligation
to which the Servicer is a party or by which it or any of its property is bound,
(ii) result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such Contractual Obligation (other than this
Agreement or the Purchase Agreement), or (iii) violate any Applicable Law if
such violation of Applicable Law could reasonably be expected to have a Material
Adverse Effect.

(e) No Consents. All approvals, authorizations, consents, orders or other
actions of any Person or of any Governmental Authority (if any) required in
connection with the due execution, delivery and performance by the Servicer of
this Agreement and any Transaction Document to which the Servicer is a party,
have been obtained.

(f) Binding Obligation. This Agreement constitutes a legal, valid and binding
obligation of the Servicer, enforceable against the Servicer in accordance with
its terms, except as such enforceability may be limited by (i) applicable
Insolvency Laws and (ii) general principles of equity (whether considered in a
suit at law or in equity).

(g) No Proceedings. Except as previously disclosed to the Agent and each Lender
in writing, there are no proceedings or investigations (formal or informal)
pending or, to the best knowledge of the Servicer, threatened against the
Servicer, before any Governmental Authority (i) asserting the invalidity of this
Agreement, (ii) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or (iii) seeking any determination or ruling that
would (in the reasonable judgment of the Servicer) be expected to have a
Material Adverse Effect.

(h) Reports Accurate. All Servicer Certificates, information, exhibits,
financial statements, documents, books, Servicer Records or reports furnished or
to be furnished by the Servicer to the Agent, each Lender, the Trustee or any
other Secured Party in connection with this Agreement are and will be accurate,
true and correct in all material respects.

(i) No Servicer Default. No event has occurred and is continuing and no
condition exists, or would result from the inclusion of any Loan in the
Collateral or from the application of the proceeds therefrom, which constitutes
or may reasonably be expected to constitute a Servicer Termination Event.

 

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(j) Material Adverse Change. Since December 11, 2006, there has been no Material
Adverse Change with respect to the initial Servicer.

(k) Credit and Collection Policy. Since the Closing Date or, in the case of any
Successor Servicer, the date of its appointment as such, there have been no
material changes in any Credit and Collection Policy other than in accordance
with this Agreement. Since such date, the Servicer has at all times complied
with the Credit and Collection Policy with respect to each Loan.

(l) RIC/BDC Requirements. The initial Servicer is in compliance with the RIC/BDC
Requirements.

(m) Selection Procedures. No procedures believed by the Servicer to be
materially adverse to the interests of the Secured Parties were utilized by the
Borrower in identifying and/or selecting the Loans that are part of the
Collateral.

(n) Reports Accurate. All Monthly Reports (if prepared by the Borrower or the
Servicer on its behalf, or to the extent that information contained therein is
supplied by the Borrower or the Servicer), information, exhibits, financial
statements, documents, books, records or reports furnished or to be furnished by
the Borrower or the Servicer on its behalf to the Agent, the Trustee or any
Lender in connection with this Agreement are accurate, true and correct in all
material respects.

(o) Security Interest. The representations and warranties made by the Borrower
pursuant to Section 4.1(u) are accurate, true and correct in all material
respects.

(p) Eligibility of Loans. As of the Closing Date or, in the case of any
Successor Servicer, the date of its appointment as such, (i) the Loan List and
the information contained in the Borrower Notice delivered pursuant to
Section 2.2 is a true and correct listing in all material respects of all the
Loans that are part of the Collateral as of the Closing Date, and the
information contained therein with respect to the identity of such Transferred
Loans and the amounts owing thereunder is true and correct in all material
respects as of such date, (ii) each such Transferred Loan is an Eligible Loan,
(iii) each such Transferred Loan and the Related Property is free and clear of
any Lien (other than Permitted Liens) and in compliance with all Applicable Laws
and (iv) with respect to each such Loan, all consents, licenses, approvals or
authorizations of or registrations or declarations with any Governmental
Authority or other Person required to be obtained, effected or given by the
Borrower in connection with the transfer of an interest in such Loan and the
Related Property to the Trustee on behalf of the Secured Parties, have been duly
obtained, effected or given and are in full force and effect. On each Funding
Date, the Borrower shall be deemed to represent and warrant that (i) any
additional Transferred Loan referenced on the related Borrower Notice delivered
pursuant to Section 2.2 is an Eligible Loan, (ii) each such Transferred Loan and
the related Property is free and clear of any Lien (other than Permitted Liens)
and in compliance with all Applicable Laws, (iii) with respect to each such
Transferred Loan, all consents, licenses, approvals, authorizations,
registrations or

 

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declarations with any Governmental Authority or other Person required to be
obtained, effected or given by the Borrower in connection with the addition of
such Transferred Loan and the Related Property to the Collateral have been duly
obtained, effected or given and are in full force and effect and (iv) the
representations and warranties set forth in Section 4.2(a) are true and correct
with respect to each Loan transferred on such day as if made on such day.

Section 7.9 Covenants of the Servicer.

The Servicer (which may, as specified in certain covenants set out below, be the
initial Servicer only) hereby covenants that:

(a) Compliance with Law. The Servicer will comply in all material respects with
all Applicable Laws, including those with respect to the Transferred Loans, the
Related Property and Loan Documents or any part thereof.

(b) Preservation of Corporate Existence. The Servicer will preserve and maintain
its corporate existence, rights, franchises and privileges in the jurisdiction
of its formation, and qualify and remain qualified in good standing as a foreign
corporation in each jurisdiction where the failure to maintain such existence,
rights, franchises, privileges and qualification could reasonably be expected to
have a Material Adverse Effect.

(c) Obligations with Respect to Loans. The Servicer will duly fulfill and comply
with all obligations on the part of the Borrower to be fulfilled or complied
with under or in connection with each Loan and will do nothing to impair the
rights of the Borrower, the Agent, as agent for the Secured Parties, or the
Trustee on behalf of the Secured Parties in, to and under the Collateral.

(d) Preservation of Security Interest. The Borrower or the Servicer on behalf of
the Borrower will execute and file (or cause the execution and filing of) such
financing and continuation statements and any other documents and take such
other actions that may be required by any law or regulation of any Governmental
Authority to preserve and protect fully the interest of the Trustee on behalf of
the Secured Parties in, to and under the Collateral.

(e) RIC/BDC Requirements. The initial Servicer shall at all times maintain
compliance with the RIC/BDC Requirements.

(f) Change of Name or Location; Records. The Servicer (i) shall not change its
name, move the location of its principal executive office or change its
jurisdiction of incorporation, without 30 days’ prior written notice to the
Borrower, the Agent and each Lender, and (ii) shall not move, or consent to the
Trustee moving the Loan Documents without 30 days’ prior written notice to the
Borrower, the Agent and (iii) will promptly take all actions required of each
relevant jurisdiction in order to continue the first priority perfected security
interest of the Trustee on behalf of the Secured Parties, in all Collateral
including delivery of an Opinion of Counsel.

(g) Credit and Collection Policy. The initial Servicer will (i) comply in all
material respects with the Credit and Collection Policy in regard to each Loan
and the Related Property included in the Collateral, including, without
limitation, performing the Loan grading and asset

 

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valuation functions specified in the Credit and Collection Policy on a quarterly
basis, and (ii) furnish to the Agent, prior to its effective date, prompt notice
of any change in the Credit and Collection Policy. The initial Servicer will not
agree or otherwise permit (x) any change in the Credit and Collection Policy
that would materially and adversely affect or impair the collectibility of any
Loan, or (y) any change in the Credit and Collection Policy that would be
materially adverse to the Lenders or the Agent (as determined in the Agent’s
sole discretion) without the prior written consent of the Lenders and the Agent.

(h) Termination Events. The Servicer will furnish to the Agent, as soon as
possible and in any event within three Business Days after an officer of the
Servicer becomes aware of the occurrence of each Termination Event or Unmatured
Termination Event, a written statement setting forth the details of such event
and the action that the Servicer proposes to take with respect thereto.

(i) Extension or Amendment of Loans. The Servicer will not, except as otherwise
permitted in Section 7.4(a), extend, amend or otherwise modify the terms of any
Transferred Loan.

(j) Other. The Servicer will furnish to the Borrower, the Agent and each Lender
such other information, documents records or reports respecting the Loans or the
condition or operations, financial or otherwise of the Servicer as the Borrower,
the Agent and each Lender may from time to time reasonably request in order to
protect the respective interests of the Borrower, the Trustee on behalf of the
Secured Parties or the other Secured Parties under or as contemplated by this
Agreement.

(k) Agented Loans. Except as provided in Section 7.4(a), the Servicer and the
Originator covenant that they shall not without the prior written consent of the
Agent and each Lender (i) make or consent to any amendment or alteration of the
terms of any Agented Loan or related Loan Documents, including without
limitation the payments due thereunder, (ii) undertake to release or authorize
or consent to the release of any collateral or security for the Agented Loans,
(iii) accelerate or extend the maturity of any Agented Loan or (iv) waive any
claim against the Obligor or any applicable guarantor thereof, where the effect
of any of the foregoing would have a material adverse effect on the Collateral,
the Agent or any other Secured Party.

(l) [Reserved.]

(m) Inspection of Records. The Servicer will, at any time and from time to time
during regular business hours, as requested by the Agent, any Lender, the
Trustee, the Backup Servicer or any Lender, permit the Agent, such Lender, the
Trustee, the Backup Servicer or their respective agents or representatives,
(i) to examine and make copies of and take abstracts from all books, records and
documents (including computer tapes and disks) relating to the Loans and the
related Loan Documents and (ii) to visit the offices and properties of the
Borrower, the Originator or the Servicer, as applicable, for the purpose of
examining such materials described in clause (i), and to discuss matters
relating to the Loans or the Borrower’s, the Originator’s or the Servicer’s
performance hereunder, under the Loan Documents and under the other Transaction
Documents to which such Person is a party with such officers, directors,
employees

 

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or independent public accountants of the Borrower, the Originator or the
Servicer, as applicable, as might reasonably be determined to have knowledge of
such matters; provided that at all times prior to the occurrence of a
Termination Event, the Agent and any requesting Lender will give the Servicer at
least two Business Days’ notice of any examination or audit to be undertaken
pursuant to this Section 7.9(m). Such examination or audit shall be reasonable
in scope and shall be completed in a reasonable period of time. The Borrower
shall bear the cost of such examination or audit; provided that prior to the
Termination Date, the Borrower shall not be required to bear the cost of more
than one audit or examination in any 12-month period.

(n) Keeping of Records. The Servicer will maintain and implement administrative
and operating procedures (including an ability to recreate records evidencing
Loans and the related Loan Documents in the event of the destruction of the
originals thereof), and keep and maintain, all documents, books, computer tapes,
disks, records and other information reasonably necessary or advisable for the
collection of all Loans (including records adequate to permit the daily
identification of each new Loan and all Collections of and adjustments to each
existing Loan). The Borrower shall give the Agent, each Lender and the Backup
Servicer prompt notice of any material change in its administrative and
operating procedures referred to in the previous sentence.

(o) Compliance with Loans. The Servicer will (i) at its own expense, timely and
fully perform and comply with all material provisions, covenants and other
promises required to be observed by it under the Loans and the related Loan
Documents; and (ii) timely and fully comply in all material respects with the
Credit and Collection Policy with respect to each Loan and the related Loan
Document.

(p) Consolidation or Merger of the Servicer. The initial Servicer shall not
consolidate or merge with or into, or sell, lease or transfer all or
substantially all of its assets to, any other Person, unless, in the case of any
such action (i) no Termination Event or Material Adverse Effect would occur or
be reasonably likely to occur as a result of such transaction, (ii) the Agent
and each Lender provides its prior written consent to such transaction and
(iii) such Person executes and delivers to the Agent and each Lender an
agreement by which such Person assumes the obligations of the Servicer hereunder
and under the other Transaction Documents to which it is a party, or confirms
that such obligations remain enforceable against it, together with such
certificates and opinions of counsel as the Agent may reasonably request.

(q) Compliance with Operating Agreement Accounting/Recordkeeping Requirements.
The initial Servicer shall comply with, and not take any action, or permit or
acquiesce in any action being taken which would have the effect, directly, or
indirectly, of causing any breach of, the covenants of the initial Servicer set
forth in the Borrower’s operating agreement.

(r) Maintenance of Loan Register.

(i) The Servicer shall maintain with respect to each Noteless Loan a register
(each, a “Loan Register”) in which it will record (v) the amount of such Loan,
(w) the amount of any principal or interest due and payable or to become due and
payable from the Obligor thereunder, (x) the amount of any sum in respect of
such Loan received from the Obligor, (y) the date of origination of such Loan
and (z) the maturity date of such Loan.

 

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(ii) At any time a Noteless Loan is included as part of the Collateral pursuant
to this Agreement, the Servicer shall deliver to the Trustee a copy of the
related Loan Register, together with a certificate of a Responsible Officer of
the Servicer certifying to the accuracy of such Loan Register as of the Funding
Date of such Loan.

(s) Indebtedness. Until the date that is the earlier of (i) the 60th day
following the Closing Date and (ii) the date on which no Initial Participations
remain in the Collateral, the initial Servicer shall not create, incur or
assume, after the Closing Date, any new Indebtedness in excess of $2,500,000
outstanding at any time, except (A) liabilities incident to the maintenance of
its existence in good standing and (B) any obligations which are unsecured,
except with respect to cash collateral, of the Servicer as a first loss provider
in connection with (x) its warehouse facility, entered into as of February 7,
2006 with Bear Stearns & Co., as further described in the engagement letter
dated as of February 7, 2006 between Bear Stearns & Co. and Katonah Debt
Advisers, L.L.C., and (y) any other arrangements substantially similar to those
specified in clause (x) above; provided that the aggregate principal amount of
all unsecured obligations incurred by the Servicer pursuant to clause (B) above
shall not exceed $15,000,000 at any one time outstanding.

Section 7.10 The Trustee.

(a) Appointment; Custodial Duties. The Borrower and the Agent each hereby
appoints U.S. Bank to act as Trustee hereunder, for the benefit of the Agent and
the Secured Parties, as provided herein. U.S. Bank hereby accepts such
appointment and agrees to perform the duties and responsibilities with respect
thereto set forth herein; provided that notwithstanding anything herein to the
contrary the parties hereto acknowledge and agree that U.S. Bank shall have no
duties or responsibilities hereunder with respect to any non-USD Loan or the
proceeds thereof, any related Hedge Agreement or any other asset denominated in
a currency other than Dollars. The Borrower acknowledges and agrees that the
Trustee is agent solely for the Secured Parties and shall have no obligation to
the Borrower.

The Trustee shall act as collateral agent for the Secured Parties and as
custodian for, and take and retain custody of the Loan Files delivered by, the
Borrower or on its behalf pursuant to Section 5.3 in accordance with the terms
and conditions of this Agreement, all for the benefit of the Secured Parties and
subject to the Lien thereon in favor of the Secured Parties. Within one Business
Day of receipt of any such Loan File, the Trustee shall deliver to the Agent a
custodial receipt in form of Exhibit J hereto. Within five Business Days of its
receipt of any Loan File and the related Loan Checklist, the Trustee shall
review the related Loan Documents to verify that each Loan Document listed on
the Loan Checklist has been received, is executed (where applicable) and has no
missing or mutilated pages and that each Underlying Note with respect to each
Loan (other than a Noteless Loan) is an original note (except that with respect
to any Pre-Positioned Loan (other than a Noteless Loan), the Trustee shall have
received a faxed copy of each Underlying Note and within two Business Days after
the related Funding Date, the Trustee shall have received an original of each
Underlying Note), and to confirm (in reliance on the related Loan number and
Obligor name as listed on the Loan List) that such Loan is referenced

 

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on the related Loan List and shall, at the expiration of such period, deliver to
the Agent a certification in the form of Exhibit K hereto. Except as described
in the preceding sentence with respect to Underlying Notes, the Trustee may
fulfill its obligations hereunder by accepting and reviewing copies of all Loan
Documents in a Loan File. In order to facilitate the foregoing review by the
Trustee, in connection with each delivery of Loan Files hereunder to the
Trustee, the Servicer shall provide to the Trustee an electronic file in a
mutually acceptable electronic format that contains the related Loan List. If,
at the conclusion of such review, the Trustee shall determine that any such Loan
Document is not executed (where applicable), is missing pages or has mutilated
pages, that any Underlying Note is not an original as required, that any Loan
Document listed on the Loan Checklist is missing from the Loan File or that any
such Loan Document received in the Loan File is not listed on the related Loan
Checklist, the Trustee shall promptly notify the Borrower and the Agent of such
determination by providing an exception report to such Persons setting forth,
with particularity, such of the foregoing defects as may exist. In addition,
unless instructed otherwise in writing by the Borrower and the Agent within ten
days of the Trustee’s delivery of such report, the Trustee shall return any Loan
File not referenced on such Loan List to the Borrower. Other than the foregoing,
the Trustee shall not have any responsibility for reviewing any Loan File.

In taking and retaining custody of the Loan Files, the Trustee shall be acting
as the agent of the Agent and the other Secured Parties; provided that the
Trustee makes no representations as to the existence, perfection or priority of
any Lien on the Loan Files or the instruments therein; provided further that the
Trustee’s duties as agent shall be limited to those expressly contemplated
herein. All Loan Files shall be kept in fire-resistant vaults or cabinets at the
locations specified on Schedule V attached hereto, or at such other office as
shall be specified to the Agent and the Borrower by the Trustee in a written
notice delivered at least 45 days prior to such change. All Loan Files shall be
segregated with an appropriate identifying label and maintained in such a manner
so as to permit retrieval and access. All Loan Files shall be clearly segregated
from any other documents or instruments maintained by the Trustee. The Trustee
shall clearly indicate that such Loan Files are the sole property of Borrower,
subject to the security interest of the Trustee on behalf of the Secured
Parties. In performing its duties, the Trustee shall use the same degree of care
and attention as it employs with respect to similar loan files that it holds as
custodian for others. Except as otherwise provided herein, the Trustee shall
have no power or authority to assign, hypothecate or otherwise dispose of Loan
Files.

(b) Concerning the Trustee.

(i) Except for its willful misconduct, gross negligence or bad faith, the
Trustee may conclusively rely on and shall be fully protected in acting upon any
certificate, instrument, opinion, notice, letter, telegram or other document
delivered to it and that in good faith it reasonably believes to be genuine and
that has been signed by the proper party or parties. Except for its willful
misconduct, gross negligence or bad faith, the Trustee may rely conclusively on
and shall be fully protected in acting upon the written instructions of any
designated officer of the Agent.

(ii) The Trustee may consult counsel satisfactory to it and the advice or
opinion of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.

 

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(iii) The Trustee shall not be liable for any error of judgment, or for any act
done or step taken or omitted by it, in good faith, or for any mistakes of fact
or law, or for anything that it may do or refrain from doing in connection
herewith except in the case of its willful misconduct, gross negligence or bad
faith.

(iv) The Trustee makes no warranty or representation and shall have no
responsibility (except as expressly set forth in this Agreement) as to the
content, enforceability, completeness, validity, sufficiency, value,
genuineness, ownership or transferability of the Loans or the Loan Documents,
and will not be required to and will not make any representations as to the
validity, collectibility, sufficiency or value of any of the Loans. The Trustee
shall not be obligated to take any legal action hereunder that might in its
judgment involve any expense or liability unless it has been furnished with an
indemnity reasonably satisfactory to it.

(v) The Trustee shall have no duties or responsibilities except such duties and
responsibilities as are specifically set forth in this Agreement and no
covenants or obligations shall be implied in this Agreement against the Trustee.

(vi) The Trustee shall not be required to expend or risk its own funds in the
performance of its duties hereunder.

(vii) It is expressly agreed and acknowledged that the Trustee is not
guaranteeing performance of or assuming any liability for the obligations of the
other parties hereto or any parties to the Loans.

(viii) In case any reasonable question arises as to its duties hereunder, the
Trustee may request instructions from the Agent, and shall be entitled at all
times to refrain from taking any action unless it has received instructions from
the Agent. Notwithstanding the preceding sentence, and subject to
Section 7.10(c), the Agent hereby instructs the Trustee, prior to the occurrence
of the Termination Date, to take any action in respect of the Loans and the Loan
Documents solely in accordance with instructions of the Servicer unless and
until a Notice of Exclusive Control has been delivered and is in effect pursuant
to the terms of the Account Control Agreement, and thereafter to take any action
in respect of the Loans and the Loan Documents solely in accordance with
instructions of the parties specified in such Notice of Exclusive Control. The
Trustee shall in all events have no liability, risk or cost for any action taken
pursuant to and in compliance with the instruction of the Agent or, prior to the
occurrence of the Termination Date, the Servicer.

(c) Release for Servicing. From time to time and as appropriate for the
enforcement or servicing of any of the Transferred Loans, the Trustee is hereby
authorized, upon receipt from the Servicer on behalf of the Borrower, of a
written request for release of Loan Files substantially in the form annexed
hereto as Exhibit L and upon receipt from the Agent of its written consent to
such request and receipt, to release to the Servicer the related Loan File set

 

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forth in such request and receipt to the Servicer; provided that notwithstanding
the foregoing or any other provision of this Agreement, upon its receipt of
written instructions from the Agent, the Trustee shall cease releasing Loan
Files to the Servicer. All Loan Files so released to the Servicer on behalf of
the Borrower shall be held by the Servicer in trust for the benefit of the
Borrower, the Agent, the Trustee and the other Secured Parties, with respect to
their respective interests, in accordance with the terms of this Agreement. The
Servicer, on behalf of the Borrower, shall return to the Trustee the Loan File
when the Servicer’s need therefor in connection with such foreclosure or
servicing no longer exists, unless the Loan shall be liquidated, in which case,
upon receipt of an additional request for release of Loan Files and
certification as to such liquidation from the Servicer to the Trustee
substantially in the form annexed hereto as Exhibit L, the Servicer’s request
and receipt submitted pursuant to the first sentence of this Section 7.10(c),
such Loan File shall be released by the Trustee to the Servicer. Notwithstanding
anything in this Section 7.10(c) to the contrary, in no event shall the Trustee
release any Loan File or part thereof to the Servicer for any reason (other than
in connection with a final payment or repurchase pursuant to Section 7.10(d))
without the Agent’s prior written consent, not to be unreasonably withheld.

(d) Release for Payment. Upon receipt by the Trustee (with a copy to the Agent)
of the Servicer’s request for release of Loan Files and receipt in the form
annexed hereto as Exhibit L (which certification shall include a statement to
the effect that all amounts received in connection with such payment or
repurchase have been credited to the Collection Account as provided in this
Agreement), the Trustee shall promptly release the related Loan File to the
Servicer, on behalf of the Borrower.

(e) Trustee Compensation. As compensation for its activities hereunder, the
Trustee shall be entitled to a Trustee Fee and any unpaid Trustee Expenses to
the extent of funds available therefor pursuant to the provision of Sections
2.8(a)(1)(iv) and 2.8(b)(iv). The Trustee’s entitlement to receive the Trustee
Fee (other than due and unpaid Trustee Fees owed through such date) shall cease
on the earlier to occur of: (i) its removal as Trustee or (ii) the termination
of this Agreement.

(f) Replacement of the Trustee. The Trustee may be replaced by the Borrower with
the prior consent of the Agent; provided that no such replacement shall be
effective until a replacement Trustee has been appointed, has agreed to act as
Trustee hereunder and has received all Loan Files held by the previous Trustee.

(g) Release of Loan Documents Following a Lien Release Dividend or Discretionary
Sale. To the extent that portions of Transferred Loans are transferred pursuant
to a Lien Release Dividend or Discretionary Sale under Section 2.16 or 2.19,
respectively, the Trustee may, but only with the Agent’s prior written consent,
and upon terms and conditions satisfactory to the Agent, including without
limitation the execution by the servicer of such Transferred Loans of all such
documents as the Agent may require, release the original Loan Documents
(excluding the related original Underlying Note(s) (if any) evidencing the
portions of any Transferred Loans remaining as part of the Collateral) to the
servicer of such sold Transferred Loans for the purposes of enforcing or
servicing such Loans.

 

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(h) The Agent and the Lenders hereby appoint U.S. Bank, in its capacity as
Trustee hereunder, as their agent for the purposes of perfection of a security
interest in the Loans. U.S. Bank, in its capacity as Trustee hereunder, hereby
accepts such appointment and agrees to perform the express duties set forth in
this Section 7.10 and subject to the provisions hereof.

(i) The Trustee shall provide to the Servicer and the Backup Servicer (if the
Backup Servicer is not the Trustee) a copy of all written notices and
communications identified as being sent to it in connection with the Loans and
the other Collateral held hereunder which it receives from the related Obligor,
participating bank and/or agent bank. In no instance shall the Trustee be under
any duty or obligation to take any action on behalf of the Servicer or the
Borrower in respect of the exercise of any voting or consent rights, or similar
actions, unless it receives specific and timely written instructions from the
Agent, in which event the Trustee shall vote, consent or take such other action
in accordance with such instructions. The Agent hereby instructs the Trustee to
take any such action solely in accordance with the written instructions of the
Servicer unless and until a Notice of Exclusive Control has been delivered to
the Trustee and is in effect pursuant to the terms of the Account Control
Agreement, and thereafter to take any such action solely in accordance with the
written instructions of the parties specified in such Notice of Exclusive
Control.

(j)(i) Each of the Agent and each other Secured Party further authorizes the
Trustee to take such action as agent on its behalf and to exercise such powers
under this Agreement and the other Transaction Documents as are expressly
delegated to the Trustee by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. In furtherance, and without
limiting the generality of the foregoing, each Secured Party hereby appoints the
Trustee as its agent to execute and deliver all further instruments and
documents, and take all further action that the Agent deems necessary or
desirable in order to perfect, protect or more fully evidence the security
interests granted by the Borrower hereunder, or to enable any of them to
exercise or enforce any of their respective rights hereunder, including, without
limitation, the execution by the Trustee as secured party/assignee of such
financing or continuation statements, or amendments thereto or assignments
thereof, relative to all or any of the Loans now existing or hereafter arising,
and such other instruments or notices, as may be necessary or appropriate for
the purposes stated hereinabove. Nothing in this Section 7.10(j) shall be deemed
to relieve the Borrower of its obligation to protect the interest of the Trustee
(for the benefit of the Secured Parties) in the Collateral, including to file
financing and continuation statements in respect of the Collateral in accordance
with this Agreement.

(ii) The Agent may direct the Trustee to take any such incidental action
hereunder. With respect to other actions which are incidental to the actions
specifically delegated to the Trustee hereunder, the Trustee shall not be
required to take any such incidental action hereunder, but shall be required to
act or to refrain from acting (and shall be fully protected in acting or
refraining from acting) upon the direction of the Agent; provided that the
Trustee shall not be required to take any action hereunder at the request of the
Agent, any Secured Parties or otherwise if the taking of such action, in the
reasonable determination of the Trustee, (x) shall be in violation of any
Applicable Law or contrary to any provisions of this Agreement or (y) shall
expose the Trustee to liability hereunder or otherwise (unless it has received
indemnity which it reasonably deems to be satisfactory with respect thereto). In
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Agent and the Trustee does not receive a consent (either positive or negative)
from the Agent with 10 Business Days of its receipt of such request, then the
Agent shall be deemed to have declined to consent to the relevant action.

(iii) Except as expressly provided herein, the Trustee shall not be under any
duty or obligation to take any affirmative action to exercise or enforce any
power, right or remedy available to it under this Agreement or any of the Loan
Documents (i) unless and until (and to the extent) expressly so directed by the
Agent or (ii) prior to the occurrence of the Termination Date pursuant to clause
(b) of the definition of “Termination Date” (and upon such occurrence, the
Trustee shall act in accordance with the written instructions of the Agent
pursuant to clause (i)). The Trustee shall not be liable for any action taken,
suffered or omitted by it in accordance with the request or direction of any
Secured Party, to the extent that this Agreement provides such Secured Party the
right to so direct the Trustee or the Agent. The Trustee shall not be deemed to
have notice or knowledge of any matter hereunder, including a Termination Event,
unless a Responsible Officer of the Trustee has actual knowledge of such matter
or written notice thereof is received by the Trustee.

(k) Any Person (i) into which the Trustee may be merged or consolidated,
(ii) that may result from any merger or consolidation to which the Trustee shall
be a party or (iii) that may succeed to the properties and assets of the Trustee
substantially as a whole, which Person in any of the foregoing cases executes an
agreement of assumption to perform every obligation of the Trustee hereunder,
shall be the successor to the Trustee under this Agreement without further act
of any of the parties to this Agreement.

(l) The parties hereunder further acknowledge and agree that U.S. Bank also
serves in the capacity of custodian for Kohlberg Capital and all assets
belonging to Kohlberg Capital are held in the custody of U.S. Bank subject to
agreement thereof, to the extent they are required to be held in custody
pursuant to the 1940 Act. Nothing in this Agreement shall be interpreted to
jeopardize Kohlberg Capital’s compliance with Applicable Law and requirements to
maintain assets with such custodian.

Section 7.11 Representations and Warranties of the Trustee.

The Trustee represents and warrants as follows:

(a) Organization and Good Standing. It is a national banking association duly
organized, validly existing and in good standing under the laws of the United
States with all requisite power and authority to own its properties and to
conduct its business as presently conducted and to enter into and perform its
obligations pursuant to this Agreement.

(b) Due Qualification. It is duly qualified to do business as a national banking
association and is in good standing, has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its property
or the conduct of its business requires such qualification, licenses or approval
except where the failure to so qualify or have such licenses or approvals has
not had, and would not be reasonably expected to have, a Material Adverse
Effect.

 

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(c) Power and Authority. It has the power and authority to execute and deliver
this Agreement and each other Transaction Document to which it is a party and to
carry out their respective terms. It has duly authorized the execution, delivery
and performance of this Agreement and each other Transaction Document to which
it is a party by all requisite action.

(d) No Violation. The consummation of the transactions contemplated by, and the
fulfillment of the terms of, this Agreement and each other Transaction Document
to which it is a party by it will not (i) conflict with, result in any breach of
any of the terms or provisions of, or constitute a default under, its articles
of association, or any Contractual Obligation to which it is a party or by which
it or any of its property is bound, (ii) result in the creation or imposition of
any Lien upon any of its properties pursuant to the terms of any Contractual
Obligation, or (iii) violate any Applicable Law.

(e) No Consents. No consent, approval, authorization, order, registration,
filing, qualification, license or permit (collectively, the “Consents”) of or
with any Governmental Authority having jurisdiction over it or any of its
respective properties is required to be obtained in order for it to enter into
this Agreement or perform its obligations hereunder.

(f) Binding Obligation. This Agreement constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) applicable Insolvency Laws and (ii) general
principles of equity (whether considered in a suit at law or in equity).

(g) No Proceedings. There are no proceedings or investigations pending or, to
the best of its knowledge, threatened, against it before any Governmental
Authority (i) asserting the invalidity of this Agreement, (ii) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or (iii) seeking any determination or ruling that might (in its
reasonable judgment) have a Material Adverse Effect.

(h) Non-Affiliation. The Trustee is not affiliated, as that term is defined in
Rule 405 under the Securities Act, with the Borrower or the Servicer or with any
Person involved in the organization or operation of the Borrower and does not
provide credit or credit enhancement to the Borrower.

Section 7.12 Covenants of the Trustee.

The Trustee hereby covenants that:

(a) Compliance with Law. The Trustee will comply in all material respects with
all Applicable Laws.

(b) Preservation of Existence. The Trustee will preserve and maintain its
existence, rights, franchises and privileges as a national banking association
in good standing under the laws of the United States.

(c) No Bankruptcy Petition. With respect to each Conduit Lender and each
Liquidity Bank, 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 all
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Commercial Paper Notes issued by such Conduit Lender and, with respect to the
Borrower, prior to the date that is one year and one day (or such longer
preference period as shall then be in effect) after the Collection Date, it will
not institute against the Borrower, such Conduit Lender or such Liquidity Bank,
or join any other Person in instituting against the Borrower, such Conduit
Lender or such Liquidity Bank, any Insolvency Proceedings or other similar
proceedings under the laws of the United States or any state of the United
States. This Section 7.12(c) will survive the termination of this Agreement.

(d) Loan Files. The Trustee will not dispose of any documents constituting the
Loan Files in any manner that is inconsistent with the performance of its
obligations as the Trustee pursuant to this Agreement and will not dispose of
any Loan except as contemplated by this Agreement.

(e) Location of Loan Files. The Loan Files shall remain at all times in the
possession of the Trustee at the address set forth on Annex A hereto unless
notice of a different address is given in accordance with the terms hereof.

(f) No Changes in Trustee Fee. The Trustee will not make any changes to the
Trustee Fee set forth in the Backup Servicer and Trustee Fee Letter without the
prior written approval of the Agent.

Section 7.13 The Backup Servicer.

(a) Appointment. The Borrower and the Agent hereby appoint Lyon Financial
Services, Inc. (“USBPS”) to act as Backup Servicer for the benefit of the
Borrower, the Agent and the other Secured Parties in accordance with the terms
of this Agreement. USBPS hereby accepts such appointment and agrees to perform
the duties and responsibilities with respect thereto set forth herein.

(b) Duties. On or before the initial Funding Date, and until such time (if
applicable) as it shall become the Successor Servicer, the Backup Servicer shall
perform, on behalf of the Borrower and the Agent and the other Secured Parties,
the following duties and obligations:

(i) On or before the Closing Date, the Backup Servicer shall accept from the
Servicer delivery of the information required to be set forth in the Monthly
Reports in hard copy and in an agreed upon electronic format.

(ii) Not later than 1:00 p.m. (New York City time) on the third Business Day
prior to each Reporting Date, the Servicer shall provide to the Backup Servicer
and the Backup Servicer shall accept delivery of tape in an agreed upon
electronic format (the “Tape”) from the Servicer, which shall include but not be
limited to the following information: (x) for each Transferred Loan, the name
and number of the related Obligor, the collection status, the Loan status, the
date of each Scheduled Payment, the Outstanding Loan Balance and the Purchased
Loan Balance, (y) the Aggregate Purchased Loan Balance, and (z) the Aggregate
Outstanding Loan Balance.

(iii) Prior to the related Payment Date, the Backup Servicer shall review the
Monthly Report to ensure that it is complete on its face and that the following
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such Monthly Report have been accurately calculated, if applicable, and
reported: (A) the Availability, (B) the Aggregate Purchased Loan Balance,
(C) the Aggregate Outstanding Loan Balance, (D) the Backup Servicer Fee, (E) the
Defaulted Loans, (F) the Portfolio Yield, (G) the Rolling Three-Month Default
Ratio, (H) the Estimated Payment Amount and (I) the Reserve Account Required
Amount. The Backup Servicer shall notify the Agent, the Borrower and the
Servicer of any disagreements with the Monthly Report based on such review not
later than the Business Day preceding such Payment Date to such Persons.

(iv) If the Borrower or the Servicer disagrees with the report provided under
Section 7.13(b)(iii) by the Backup Servicer or if the Borrower or the Servicer
or any subservicer has not reconciled such discrepancy, the Backup Servicer
agrees to confer with the Borrower or the Servicer to resolve such disagreement
on or prior to the next succeeding Determination Date and shall settle such
discrepancy with the Borrower or the Servicer if possible, and notify the Agent
of the resolution thereof. The Borrower or the Servicer hereby agree to
cooperate at their own expense, with the Backup Servicer in reconciling any
discrepancies herein. If within 20 days after the delivery of the report
provided under Section 7.13(b)(iii) by the Backup Servicer, such discrepancy is
not resolved, the Backup Servicer shall promptly notify the Borrower and the
Agent of the continued existence of such discrepancy. Following receipt of such
notice by the Agent, the Servicer shall deliver to the Borrower, the Agent, the
Secured Parties and the Backup Servicer no later than the related Payment Date a
certificate describing the nature and amount of such discrepancies and the
actions the Servicer proposes to take with respect thereto.

With respect to the duties described in this Section 7.13(b), in the absence of
bad faith or gross negligence, the Backup Servicer, in the performance of its
duties and obligations hereunder, is entitled to rely conclusively, and shall be
fully protected in so relying, on the contents of each Tape, including, but not
limited to, the completeness and accuracy thereof, provided by the Servicer. The
parties acknowledge that the Backup Servicer’s ability to perform hereunder is
subject to its timely receipt of the Tape and Monthly Report, if applicable.

(c) Transition to Servicer Role. After the receipt by the Servicer of an
effective Servicer Termination Notice, all authority, power, rights and
responsibilities of the Servicer, under this Agreement, whether with respect to
the Loans or otherwise, shall pass to and be vested in the Backup Servicer,
subject to and in accordance with the provisions of Section 7.26, as long as the
Backup Servicer is not prohibited by Applicable Law from fulfilling the same, as
evidenced by an Opinion of Counsel, or is unwilling to accept such appointment.

(d) Merger or Consolidation. Any Person (i) into which the Backup Servicer may
be merged or consolidated, (ii) that may result from any merger or consolidation
to which the Backup Servicer shall be a party, or (iii) that may succeed to the
properties and assets of the Backup Servicer substantially as a whole, which
Person in any of the foregoing cases executes an agreement of assumption to
perform every obligation of the Backup Servicer hereunder, shall be the
successor to the Backup Servicer under this Agreement without further act on the
part of any of the parties to this Agreement.

 

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(e) Backup Servicing Compensation. As compensation for its backup servicing
activities hereunder, the Backup Servicer shall be entitled to receive the
Backup Servicer Fee and any unpaid Backup Servicer Expenses to the extent of
funds available therefor pursuant to the provision of Sections 2.8(a)(1)(iii)
and 2.8(b)(iii). The Backup Servicer’s entitlement to receive the Backup
Servicer Fee (other than due and unpaid Backup Servicer Fees owed through such
date) shall cease on the earliest to occur of: (i) it becoming the Successor
Servicer, (ii) its removal as Backup Servicer, or (iii) the Termination of this
Agreement.

(f) Backup Servicer Removal. The Backup Servicer may be removed with or without
cause by the Agent, or by the Borrower with the prior written approval of the
Agent, by notice given in writing to the Backup Servicer. In the event of any
such removal, a replacement Backup Servicer may be appointed by (i) the
Borrower, acting with the written consent of the Agent or (ii) if no such
replacement is appointed within 30 days following such removal, by the Agent.

(g) Scope of Backup Servicing Duties. The Backup Servicer undertakes to perform
only such duties and obligations as are specifically set forth in this
Agreement, it being expressly understood by all parties hereto that there are no
implied duties or obligations of the Backup Servicer hereunder. Without limiting
the generality of the foregoing, the Backup Servicer, except as expressly set
forth herein, shall have no obligation to supervise, verify, monitor or
administer the performance of the Servicer or the Trustee. The Backup Servicer
may act through its agents, attorneys and custodians in performing any of its
duties and obligations under this Agreement, it being understood by the parties
hereto that the Backup Servicer will be responsible for any misconduct or
negligence on the part of such agents, attorneys or custodians acting on the
routine and ordinary day-to-day operations for and on behalf of the Backup
Servicer. Neither the Backup Servicer nor any of its officers, directors,
employees or agents shall be liable, directly or indirectly, for any damages or
expenses arising out of the services performed under this Agreement other than
damages or expenses that result from the gross negligence or bad faith of it or
them or the failure to perform materially in accordance with this Agreement.

(h) Limitation on Liability. Except for its willful misconduct, gross negligence
or bad faith, the Backup Servicer shall not be liable for any obligation of the
Servicer contained in this Agreement or for any errors of the Servicer contained
in any computer tape, certificate or other data or document delivered to the
Backup Servicer hereunder or on which the Backup Servicer must rely in order to
perform its obligations hereunder, and the Borrower, the Agent, the Trustee, the
Backup Servicer and the other Secured Parties each agree to look only to the
Servicer to perform such obligations. Except for its willful misconduct, gross
negligence or bad faith, the Backup Servicer shall have no responsibility and
shall not be in default hereunder or incur any liability for any failure, error,
malfunction or any delay in carrying out any of their respective duties under
this Agreement if such failure or delay results from the Backup Servicer acting
in accordance with information prepared or supplied by a Person other than the
Backup Servicer or the failure of any such other Person to prepare or provide
such information. Except for its gross negligence or bad faith, the Backup
Servicer shall have no responsibility, shall not be in default and shall incur
no liability for (i) any act or failure to act of any third party, including the
Servicer or the Borrower (ii) any inaccuracy or omission in a notice or
communication received by the Backup Servicer from any third party, (iii) the
invalidity or unenforceability of any Loan or Loan Document under Applicable
Law, (iv) the breach or

 

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inaccuracy of any representation or warranty made with respect to any Loan, or
(v) the acts or omissions of any successor Backup Servicer. No provision of this
Agreement shall require the Backup Servicer to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights and powers, if, in its sole
judgment, it shall believe that repayment of such funds or adequate indemnity
against such risk or liability is not assured to it. In the absence of bad
faith, gross negligence or willful misfeasance on the part of the Backup
Servicer, the Backup Servicer may conclusively rely, as to the truth of the
statements and correctness of the opinions expressed therein upon any request,
instructions, certificate, opinion or other document furnished to the Backup
Servicer, reasonably believed by it to be genuine and to have been signed or
presented by the proper party or parties and conforming to the requirements of
this Agreement.

(i) Possible Dual Capacity. The parties expressly acknowledge and consent to
U.S. Bank acting in the possible dual capacity of Backup Servicer or Successor
Servicer and in the capacity of Trustee. U.S. Bank may, in such dual capacity,
discharge its separate functions fully, without hindrance or regard to conflict
of interest principles, duty of loyalty principles or other breach of fiduciary
duties to the extent that any such conflict or breach arises from the
performance by U.S. Bank of express duties set forth in this Agreement in any of
such capacities, all of which defenses, claims or assertions are hereby
expressly waived by the other parties hereto except in the case of negligence,
acts of bad faith and willful misconduct by U.S. Bank.

(j) Subservicers. The Backup Servicer may, with the prior written consent of the
Agent, subservice any and all of its duties and responsibilities hereunder,
including but not limited to its duties as Successor Servicer hereunder should
the Backup Servicer become the Successor Servicer pursuant to Section 7.26.
Notwithstanding any subservicing agreement or other delegation of duties to a
subservicer, so long as this Agreement shall remain effective, the Backup
Servicer (solely in its capacity as Successor Servicer, if applicable) shall
remain obligated and primarily liable to the Trustee and the other Secured
Parties, for the servicing and administering of the Loans in accordance with the
provisions of this Agreement, and, to the extent applicable, the Credit and
Collection Policy, without diminution of such obligation or liability by virtue
of such subservicing agreement or other arrangements with third parties pursuant
to this clause (j) or by virtue of indemnification from any subservicer and to
the same extent and under the same terms and conditions as if the Backup
Servicer alone were, as applicable, servicing and administering the Loans.

Section 7.14 Representations and Warranties of the Backup Servicer.

The Backup Servicer hereby represents and warrants as follows:

(a) Organization and Good Standing. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Minnesota with all
requisite power and authority to own its properties and to conduct its business
as presently conducted and to enter into and perform its obligations pursuant to
this Agreement.

(b) Due Qualification. The Backup Servicer is duly qualified to do business as a
Minnesota corporation and is in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or lease of
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its business requires such qualification, licenses or approvals except where the
failure to so qualify or have such licenses or approvals has not had, and would
not be reasonably expected to have, a Material Adverse Effect.

(c) Power and Authority. It has the power and authority to execute and deliver
this Agreement and to carry out its terms. It has duly authorized the execution,
delivery and performance of this Agreement by all requisite action.

(d) No Violation. The consummation of the transactions contemplated by, and the
fulfillment of the terms of, this Agreement by it will not (i) conflict with,
result in any breach of any of the terms or provisions of, or constitute a
default under, its articles of association or any Contractual Obligation by
which it or any of its property is bound, (ii) result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of any
Contractual Obligation (other than the Agreement), or (iii) violate any
Applicable Law.

(e) No Consents. No Consents of or with any Governmental Authority having
jurisdiction over it or any of its respective properties is required to be
obtained in order for it to enter into this Agreement or perform its obligations
hereunder.

(f) Binding Obligation. This Agreement constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) applicable Insolvency Laws and (ii) general
principles of equity (whether considered in a suit at law or in equity).

(g) No Proceedings. There are no proceedings or investigations pending or, to
the best of its knowledge, threatened, against it before any Governmental
Authority (i) asserting the invalidity of this Agreement, (ii) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or (iii) seeking any determination or ruling that might (in its
reasonable judgment) have a Material Adverse Effect.

Section 7.15 Covenants of the Backup Servicer.

The Backup Servicer hereby covenants that:

(a) Compliance with Law. The Backup Servicer will comply in all material
respects with all Applicable Laws.

(b) Preservation of Existence. The Backup Servicer will preserve and maintain
its existence, rights, franchises and privileges as a corporation in good
standing under the laws of the State of Minnesota.

(c) No Bankruptcy Petition. With respect to each Conduit Lender and each
Liquidity Bank, 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 all
amounts owing in respect of all outstanding Commercial Paper Notes issued by
such Conduit Lender and with respect to the Borrower, prior to the date that is
one year and one day (or such longer preference period as shall then be in
effect) after the Collection Date, the Backup Servicer will not institute
against the Borrower, such Conduit Lender or such Liquidity Bank, or join any
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Borrower, such Conduit Lender or such Liquidity Bank, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceedings under the laws of the United States or any state of the
United States. This Section 7.15(c) will survive the termination of this
Agreement.

(d) No Changes in Backup Servicer Fee. The Backup Servicer will not make any
changes to Backup Servicer Fee set forth in the Backup Servicer and Trustee Fee
Letter without the prior written approval of the Agent.

Section 7.16 Payment of Certain Expenses by the Servicer and the Borrower.

(a) The Servicer will be required to pay all fees and expenses incurred by it in
connection with the transactions and activities contemplated by this Agreement
(subject, as applicable, to the conditions set forth in Section 7.6), including
fees and disbursements of legal counsel and Independent accountants, Taxes
imposed on the Servicer, expenses incurred in connection with payments and
reports pursuant to this Agreement, and all other fees and expenses not
expressly stated under this Agreement for the account of the Borrower. In
consideration for the payment by the Borrower of the Servicing Fee, the Servicer
will be required to pay all reasonable fees and expenses owing to any bank or
trust company in connection with the maintenance of the Collection Accounts and
the Reserve Account and the Backup Servicer Fee and Trustee Fee pursuant to the
Backup Servicer and Trustee Fee Letter. The Servicer shall be required to pay
such expenses for its own account and shall not be entitled to any payment
therefor other than the Servicing Fee.

(b) The Borrower will be required to pay all fees and expenses incurred by the
Agent, the Lenders, the Trustee and the Backup Servicer in connection with the
transactions and activities contemplated by this Agreement, including reasonable
fees and disbursements of legal counsel and Independent accountants.

Section 7.17 Reports.

(a) Monthly Report. With respect to each Determination Date and the related
Collection Period, the Servicer will provide to the Borrower, the Backup
Servicer, the Trustee, the Agent and each Lender, on the related Reporting Date,
a monthly statement (a “Monthly Report”), signed by a Responsible Officer of the
Servicer and substantially in the form of Exhibit E. Except as otherwise set
forth herein, the Backup Servicer shall have no obligation to review any
information in the Monthly Report.

(b) Servicer’s Certificate. Together with each Monthly Report, the Servicer
shall submit to the Borrower, the Backup Servicer, the Trustee, the Agent and
each Lender a certificate substantially in the form of Exhibit F (a “Servicer’s
Certificate”), signed by a Responsible Officer of the Servicer, which shall
include a certification by such Responsible Officer that no Termination Event or
Unmatured Termination Event has occurred and is continuing (or if a Termination
Event or Unmatured Termination Event has occurred and is continuing, specifying
each such event, the nature and status thereof and the steps necessary to remedy
such event). Except as otherwise set forth herein, the Backup Servicer shall
have no duty to review any information set forth in the Servicer’s Certificate.

 

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(c) Financial Statements.

(i) The initial Servicer will submit to the Borrower, the Backup Servicer, the
Trustee, the Agent and each Lender, (A) within 45 days following the end of each
of the initial Servicer’s fiscal quarters (other than the final fiscal quarter),
commencing for the fiscal quarter ending on March 31, 2007, unaudited
consolidated financial statements of the Servicer (including an analysis of
delinquencies and losses for each fiscal quarter) as of the end of each such
fiscal quarter, and (B) within 90 days following the end of the initial
Servicer’s fiscal year, commencing with the fiscal year ending on December 31,
2007, annual audited consolidated financial statements as of the end of such
fiscal year. Except as otherwise set forth herein, neither the Trustee nor the
Backup Servicer shall have any duty to review any of the financial information
set forth in such financial statements.

(ii) The Borrower will submit to the Servicer, the Backup Servicer, the Trustee,
the Agent and each Lender, (A) within 45 days following the end of each of the
Borrower’s fiscal quarters (other than the final fiscal quarter), commencing for
the fiscal quarter ending on March 31, 2007, unaudited financial statements of
the Borrower as of the end of each such fiscal quarter, and (B) within 90 days
following the end of the Borrower’s fiscal year, commencing with the fiscal year
ending on December 31, 2007, annual unaudited financial statements of the
Borrower as of the end of such fiscal year. Except as otherwise set forth
herein, neither the Trustee nor the Backup Servicer shall have any duty to
review any of the financial information set forth in such financial statements.

Section 7.18 Annual Statement as to Compliance.

The Servicer will provide to the Borrower, the Trustee, the Backup Servicer, the
Agent and each Lender within 90 days following the end of each fiscal year of
the Servicer, commencing with the fiscal year ending on December 31, 2007, an
annual report signed by a Responsible Officer of the Servicer certifying that
(a) a review of the activities of the Servicer, and the Servicer’s performance
pursuant to this Agreement, for the period ending on the last day of such fiscal
year has been made under such Responsible Officer’s supervision and (b) the
Servicer has performed or has caused to be performed in all material respects
all of its obligations under this Agreement throughout such year and no Servicer
Termination Event has occurred and is continuing (or if a Servicer Termination
Event has so occurred and is continuing, specifying each such event, the nature
and status thereof and the steps necessary to remedy such event.

Section 7.19 Annual Independent Public Accountant’s Servicing Reports.

At its own expense, the Servicer will cause a firm of nationally recognized
Independent public accountants acceptable to the Agent in its reasonable
discretion (who may also render other services to the Servicer) to furnish to
the Borrower, the Agent and each Lender (with a copy to the Backup Servicer and
the Trustee), within 120 days following December 31 of each year, (i) a report
relating to such fiscal year to the effect that (A) such firm has reviewed
certain documents and records relating to the servicing of the Loans, and
(B) based on such

 

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examination, such firm is of the opinion that the Monthly Reports for such year
were prepared in compliance with this Agreement, except for such exceptions as
it believes to be immaterial and such other exceptions as will be set forth in
such firm’s report and (ii) a report covering such fiscal year to the effect
that such accountants have applied certain agreed-upon procedures (which
procedures shall not be amended from those procedures in effect as of the
Closing Date without the prior approval of the Borrower and Agent) to certain
documents and records relating to the servicing of Loans under this Agreement,
compared the information contained in the Monthly Reports and the Servicer’s
Certificates delivered during the period covered by such report with such
documents and records and that no matters came to the attention of such
accountants that caused them to believe that such servicing was not conducted in
compliance with this Article VII of this Agreement, except for such exceptions
as such accountants shall believe to be immaterial and such other exceptions as
shall be set forth in such statement.

Section 7.20 Limitation on Liability of the Servicer and Others.

Except as provided herein, neither the Servicer nor any of the directors or
officers or employees or agents of the Servicer shall be under any liability to
the Borrower, the Agent, the Secured Parties or any other Person for any action
taken or for refraining from the taking of any action expressly provided for in
this Agreement; provided that this provision shall not protect the Servicer or
any such Person against any liability that would otherwise be imposed by reason
of its willful misfeasance, bad faith or gross negligence in the performance of
duties or by reason of its failure to perform materially in accordance with this
Agreement.

The Servicer shall not be under any obligation to appear in, prosecute or defend
any legal action that is not incidental to its duties to service the Loans in
accordance with this Agreement that in its reasonable opinion may involve it in
any expense or liability. The Servicer may, in its sole discretion, undertake
any legal action relating to the servicing, collection or administration of
Loans and the Related Property that it may reasonably deem necessary or
appropriate for the benefit of the Borrower and the Secured Parties with respect
to this Agreement and the rights and duties of the parties hereto and the
respective interests of the Borrower and the Secured Parties hereunder.

Section 7.21 The Servicer, the Backup Servicer and the Trustee Not to Resign.

None of the Servicer, the Backup Servicer or the Trustee shall resign from the
obligations and duties hereby imposed on such Person except upon such Person’s
determination that (i) the performance of its duties hereunder is or becomes
impermissible under Applicable Law and (ii) there is no reasonable action that
such Person could take to make the performance of its duties hereunder
permissible under Applicable Law. Any such determination permitting the
resignation of the Servicer, the Backup Servicer or the Trustee shall be
evidenced as to clause (i) above by an Opinion of Counsel to such effect
delivered to the Borrower, the Agent and each Lender. No such resignation shall
become effective until a successor shall have assumed the responsibilities and
obligations of such Person in according with the terms of this Agreement.
Notwithstanding anything in this Agreement to the contrary, no successor Trustee
may be appointed unless such successor Trustee meets the requirements of
Section 26(a)(1) of the 1940 Act and provides a representation to this effect,
reasonably satisfactory to the Borrower and the Servicer.

 

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Section 7.22 Access to Certain Documentation and Information Regarding the
Loans.

The Borrower, the Servicer or the Trustee, as applicable, shall provide to the
Agent and each Lender access to the Loan Documents and all other documentation
regarding the Loans included as part of the Collateral and the Related Property
in such cases where the Agent or such Lender is required in connection with the
enforcement of the rights or interests of the Lenders, or by applicable statutes
or regulations, to review such documentation, such access being afforded without
charge (in respect of the Borrower or the initial Servicer) but only (i) upon
two Business Days’ prior written request, (ii) during normal business hours and
(iii) subject to the Servicer’s and the Trustee’s normal security and
confidentiality procedures. From and after the Closing Date and periodically
thereafter at the discretion of the Agent and each Lender, the Agent, each
Lender or their respective agents may review the Borrower’s and the Servicer’s
collection and administration of the Loans in order to assess compliance by the
Servicer with the Servicer’s written policies and procedures, as well as with
this Agreement and may conduct an audit of the Loans, Loan Documents and Records
in conjunction with such a review. Such review shall be reasonable in scope and
shall be completed in a reasonable period of time. The Borrower shall bear the
cost of such audits; provided that prior to the date on which a Termination
Event shall have occurred and be continuing, the Borrower shall not be required
to bear the cost of more than one audit in any 12-month period.

Section 7.23 [Reserved].

Section 7.24 Identification of Records.

The Servicer shall clearly and unambiguously identify each Loan that is part of
the Collateral and the Related Property in its computer or other records to
reflect that the interest in such Loans and Related Property have been
transferred to and are owned by the Borrower and that the Trustee on behalf of
the Secured Parties has the interest therein Granted by Borrower pursuant to
this Agreement.

Section 7.25 Servicer Termination Events.

If any one of the following events (a “Servicer Termination Event”) shall occur
and be continuing on any date:

(a) any failure by the Servicer to make any payment, transfer or deposit or to
give instructions or notice to the Borrower, the Agent or any Lender as required
by this Agreement on or before the date such payment, transfer, deposit,
instruction or notice is required to be made or given, as the case may be, under
the terms of this Agreement and such failure is not cured or waived within three
Business Days following the occurrence thereof;

(b) any failure on the part of the Servicer duly to observe or perform in any
material respect any other covenants or agreements of the Servicer set forth in
this Agreement or any other Transaction Document to which it is a party as
Servicer that continues unremedied (if susceptible to remedy) for a period of 30
days after the first to occur of (i) the date on which written notice of such
failure requiring the same to be remedied shall have been given to the Servicer
by the Agent, any Lender or the Borrower and (ii) the date on which the Servicer
becomes aware thereof;

 

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(c) an Insolvency Event shall occur with respect to the Servicer;

(d) the Servicer shall fail in any material respect to service the Transferred
Loans in accordance with the Credit and Collection Policy;

(e) the Servicer agrees to or otherwise permits any amendment, modification,
change, supplement or rescission of or to the Credit and Collection Policy, in
whole or in part, that could reasonably be expected to have a material adverse
effect upon the Loans or to be materially adverse to the interests of the Lender
without the prior written consent of the Agent and each Lender;

(f) any Change in Control of the Servicer is made without the prior written
consent of the Agent;

(g) as of any date after the date of the Initial Funding, the Servicer fails to
maintain a minimum Net Worth of at least $200,000,000 plus seventy-five
(75%) percent of any new equity issued after December 11, 2006;

(h) the Servicer shall fail to maintain its status as a business development
company or as a registered investment company under the 1940 Act;

(i) the Servicer’s Leverage Ratio shall exceed 1.0:1.0;

(j) any failure by the Servicer to deliver any Required Reports hereunder on or
before the date occurring five Business Days after the date such report is
required to be made or given, as the case may be, under the terms of this
Agreement;

(k) any representation, warranty or certification made by the Servicer in this
Agreement or in any certificate delivered pursuant to this Agreement shall prove
to have been incorrect when made, and such incorrect representation, warranty or
certification can reasonably be expected to have a material adverse effect on
the interests of any party hereto, and such incorrect representation, warranty
or certification, if capable of being remedied, shall continue for 30 days
without being remedied or cured after the earlier of (i) receipt by the Servicer
of written notice with respect thereto from the Agent or the Trustee and
(ii) notice thereof to the Servicer by an officer of the Servicer with actual
knowledge of such incorrect representation, warranty or certification;

(l) the rendering against the Servicer of one or more final judgments, decrees
or orders for the payment of money in excess of 10% of the Tangible Net Worth of
the Servicer (individually or in the aggregate);

(m) any default by the Servicer in the making of any payment required to be made
with respect to any material recourse debt or other obligation to which it is a
party and such default is not cured within the relevant cure period or any such
recourse debt or other obligation shall be declared to be due and payable or
required to be prepaid (other than by scheduled payment) prior to its maturity;
or

 

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(n) any two of Christopher Lacovara, Dayl Pearson and R. Jon Corless shall cease
to be employed by Kohlberg Capital in the capacity of executive officers thereof
unless within 120 days of the cessation of such employment, Kohlberg Capital
hires reputable experienced replacements for such officers, reasonably
satisfactory to the Agent;

then notwithstanding anything herein to the contrary, so long as any such
Servicer Termination Events shall not have been remedied at the expiration of
any applicable cure period, the Agent, by written notice to the Servicer, the
Trustee and the Backup Servicer (a “Servicer Termination Notice”), may, subject
to the provisions of Section 7.26, terminate all of the rights and obligations
of the Servicer as Servicer under this Agreement. The Borrower shall pay all
reasonable set-up and conversion costs associated with the transfer of servicing
rights to the Successor Servicer.

Section 7.26 Appointment of Successor Servicer.

(a) On and after the receipt by the Servicer of a Servicer Termination Notice
pursuant to Section 7.25, the Servicer shall continue to perform all servicing
functions under this Agreement until the date specified in the Servicer
Termination Notice or otherwise specified by the Agent to the Servicer and the
Backup Servicer in writing. The Agent may at the time described in the
immediately preceding sentence, in its sole discretion, appoint the Backup
Servicer as the Servicer hereunder, and the Backup Servicer, if it is willing to
accept such appointment, shall on such date assume all servicing obligations of
the Servicer hereunder, and all authority and power of the Servicer under this
Agreement shall pass to and be vested in the Backup Servicer; provided that any
Successor Servicer shall not (i) be responsible or liable for any past actions
or omissions of the outgoing Servicer, (ii) be obligated to make Servicer
Advances, (iii) have any obligation to pay any taxes required to be paid by the
Servicer, if any, (iv) have no obligation to pay the fees and expenses of any
other party involved in this transaction or any third party, (v) have any
liability or obligation with respect to any Servicer indemnification obligations
of, or any representations and warranties given by any prior servicer (including
the initial Servicer). In the event that the Agent does not so appoint the
Backup Servicer, there is no Backup Servicer or the Backup Servicer is unwilling
or unable to assume such obligations on such date, the Agent shall as promptly
as possible appoint a successor servicer (in such capacity, the “Successor
Servicer”), and such Successor Servicer shall accept its appointment by a
written assumption in a form acceptable to the Agent. In the event that a
Successor Servicer has not been appointed and has not accepted its appointment
at the time when the Servicer ceases to act as Servicer, the Agent shall
petition a court of competent jurisdiction to appoint any established financial
institution having a net worth of not less than U.S. $100,000,000 and whose
regular business includes the servicing of Loans as the Successor Servicer
hereunder.

(b) Upon its appointment as successor to the Servicer, the Backup Servicer
(subject to Section 7.26(a)) or the Successor Servicer, as applicable, shall be
the successor in all respects to the Servicer (except as otherwise expressly
provided for herein or as otherwise expressly agreed to by the Successor
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Agreement, shall assume all Servicing Duties hereunder and shall be subject to
all the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof, and all references in this
Agreement to the Servicer shall be deemed to refer to the Backup Servicer or the
Successor Servicer, as applicable. Any Successor Servicer shall be entitled,
with the prior consent of the Agent, to appoint agents to provide some or all of
its duties hereunder, provided that no such appointment shall relieve such
Successor Servicer of the duties and obligations of the Successor Servicer
pursuant to the terms hereof and that any such subcontract may be terminated
upon the occurrence of a Servicer Termination Event.

(c) All authority and power granted to the Servicer under this Agreement shall
automatically cease and terminate upon termination of the Servicer under this
Agreement and shall pass to and be vested in the Successor Servicer, and,
without limitation, the Successor Servicer is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, all documents and other instruments, and to do and accomplish all
other acts or things necessary or appropriate to effect the purposes of such
transfer of servicing rights. The Servicer agrees to cooperate with the
Successor Servicer in effecting the termination of the responsibilities and
rights of the Servicer to conduct servicing on the Collateral.

(d) Upon the Backup Servicer receiving notice that it is to be appointed to
serve as the Servicer hereunder pursuant to the foregoing provisions of this
Section 7.26, and provided it is willing to accept such appointment, the Backup
Servicer will promptly begin the transition to its role as Servicer. In
connection with such appointment, the Agent and the Backup Servicer will
negotiate the servicing terms to be applicable to it on the effective date of
such appointment.

(e) The Backup Servicer shall be entitled to receive its reasonable costs
incurred in transitioning to Servicer.

(f) Notwithstanding anything contained in this Agreement to the contrary, any
Successor Servicer is authorized to accept and rely on all of the accounting,
records (including computer records) and work of the prior Servicer relating to
the Loans (collectively, the “Predecessor Servicer Work Product”) without any
audit or other examination thereof, except, in all cases, where audit,
examination or other inquiry would be required in the exercise of reasonable
care or the degree of skill and attention the Successor Servicer exercises with
respect to all comparable loans that it services for itself and others, and the
Successor Servicer shall have no liability for the acts and omissions of the
prior Servicer; provided that if any Successor Servicer discovers any error,
inaccuracy, omission or incorrect or non-standard practice or procedure
(collectively, “Errors”) in any Predecessor Servicer Work Product, then such
Successor Servicer shall use its best commercially reasonable efforts to correct
such Errors. U.S. Bank agrees to use its best efforts to prevent further errors,
inaccuracies or omissions relating to Errors (collectively, “Continued Errors”)
previously discovered by the Successor Servicer and shall, with the prior
consent of the Agent, use its best commercially reasonable efforts to
reconstruct and reconcile such data to correct such Errors and Continued Errors
and to prevent future Continued Errors. The Successor Servicer shall be entitled
to recover its costs incurred pursuant to this Section 7.26(f) in accordance
with Section 2.8.

 

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(g) The terminated Servicer agrees to cooperate and use its best efforts in
effecting the transition of the responsibilities and rights of servicing of the
Loans including, without limitation, the transfer to the Successor Servicer for
the administration by it of all cash amounts that shall at the time be held by
the Servicer for deposit, or have been deposited by the Servicer, or thereafter
received with respect to the Loans and the delivery to the Successor Servicer in
an orderly and timely fashion of all files and records with respect to the Loans
and a computer tape in readable form (consistent with the Tape) containing all
information necessary to enable the Successor Servicer to service the Loans. In
addition, the Servicer agrees to cooperate and use its best efforts in
providing, at the Borrower’s expense, to the Successor Servicer, with reasonable
access (including at the premises of the Servicer) to the Servicer’s employees,
and any and all of the books, records (in electronic or other form) or other
information reasonably requested by it to enable the Successor Servicer, to
assume the servicing functions hereunder and to maintain a list of key servicing
personnel and contact information. The Successor Servicer is authorized and
empowered to execute and deliver, on behalf of Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do so or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination or to perform the servicing duties of the
Servicer. At the request of the Successor Servicer, the Servicer will provide
the Successor Servicer, with a Power of Attorney consistent with the preceding
sentence.

(h) The Servicer hereby agrees to grant to each Successor Servicer (and its
permitted assigns) an irrevocable license to access all Records relating to the
Loans from time to time. In connection with such license, the Servicer hereby
agrees to grant to each Successor Servicer an irrevocable, non-exclusive license
(subject to the restrictions contained in any license with respect thereto) to
use, without royalty or payment of any kind, all software used by the Servicer
to account for the Loans from time to time, to the extent necessary to
administer the same, whether such software is owned by the Servicer or is owned
by others and used by Servicer under license agreements with respect thereto;
provided that should the consent of any licensor of Servicer to such grant of
the license described herein be required, the Servicer hereby agrees that upon
the request of the Successor Servicer or any permitted assignee thereof to use
its best efforts to obtain the consent of such third-party licensor. The license
granted by the Servicer pursuant to this Section 7.26(h) shall be irrevocable
and shall terminate on the date on which all Obligations have been paid in full.
The Servicer shall take all actions reasonably requested by the Successor
Servicer and/or any of its permitted assignees, from time to time hereafter,
which may be necessary to ensure that such Successor Servicer and its assignees
have an enforceable license to access the Records relating to the Loans from
time to time.

Section 7.27 Market Servicing Fee.

Notwithstanding anything to the contrary herein, in the event that a Successor
Servicer is appointed, the Servicing Fee shall equal the market rate for
comparable servicing duties to be fixed upon the date of such appointment by
such Successor Servicer with the consent of the Agent; in the event that the
Backup Servicer becomes the Successor Servicer, the Backup Servicer shall
solicit three bids, with a copy to the Borrower and the Agent, from not less
than three entities experienced in the servicing of loans similar to the Loans
and that are not Affiliates of the Backup Servicer, the Servicer or the
Borrower, and the Servicing Fee shall be equal to the average of the fees
proposed as determined by the Backup Servicer with the consent of the Agent (the
“Market Servicing Fee”).

 

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ARTICLE VIII

SECURITY INTEREST

Section 8.1 Grant of Security Interest.

(a) The parties hereto intend that this Agreement constitute a security
agreement and the transactions effected hereby constitute secured loans by the
Secured Parties to the Borrower under Applicable Law. For such purpose, the
Borrower hereby Grants as of the Closing Date to the Trustee, as agent, on
behalf of the Secured Parties, a lien and continuing security interest in all of
the Borrower’s right, title and interest in, to and under (but none of the
obligations under) all Collateral (including any Hedging Agreements), whether
now existing or hereafter arising or acquired by the Borrower, and wherever the
same may be located, to secure the prompt, complete and indefeasible payment and
performance in full when due, whether by lapse of time, acceleration or
otherwise, of the Obligations of the Borrower owed to the Secured Parties. The
Grant of a security interest under this Section 8.1 does not constitute and is
not intended to result in a creation or an assumption by the Trustee, the Agent
or any of the other Secured Parties of any obligation of the Borrower or any
other Person in connection with any or all of the Collateral or under any
agreement or instrument relating thereto. Anything herein to the contrary
notwithstanding, (a) the Originator and the Borrower shall remain liable under
the Transferred Loans and related Collateral to the extent set forth therein to
perform all of their respective duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Trustee on behalf of the Secured Parties or the Agent, as agent for the Secured
Parties, of any of its rights in the Collateral shall not release the Originator
and the Borrower from any of their respective duties or obligations under the
Transferred Loans and other Collateral, and (c) none of the Trustee, the Agent
nor any other Secured Party shall have any obligations or liability under the
Loans and other Collateral by reason of this Agreement, nor shall the Trustee,
the Agent or any other Secured Party be obligated to perform any of the
obligations or duties of the Borrower thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.

(b) The Borrower, the Trustee and the Agent, on behalf of the Secured Parties,
hereby acknowledge and agree that the security interest Granted hereby in the
Collateral constitutes continuing collateral security for all of the
Obligations, whether now existing or hereafter arising.

Section 8.2 Release of Lien on Loans.

If (a) there is no Overcollateralization Shortfall, and (b) no Termination Event
or Unmatured Termination Event has occurred and is continuing, at the same time
as (i) any Transferred Loan in the Collateral expires by its terms and all
amounts in respect thereof have been paid in full by the related Obligor and
deposited in the Collection Account, (ii) any Transferred Loan becomes a Prepaid
Loan and all amounts in respect thereof have been paid in full by the related
Obligor and deposited in the Collection Account, (iii) any Transferred Loan is
replaced in accordance with Section 2.18(a), (iv) any Transferred Loan is
repurchased in accordance with Section 2.18(b), (v) any Transferred Loan is
subject to a Lien Release Dividend in accordance with Section 2.16, or (vi) this
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12.6, the Trustee, on behalf of the Secured Parties, will be deemed to
automatically release its interest in such Loan without representation or
warranty express or implied. In connection with any such prepayment, release or
substitution, the Trustee, on behalf of the Secured Parties, will, after the
deposit by the Servicer of the Proceeds of such event into the Collection
Account, at the sole expense of the initial Servicer or any Affiliate of the
initial Servicer if appointed as Successor Servicer hereunder, and otherwise at
the expense of the Borrower, execute and deliver to the Servicer any
assignments, bills of sale, termination statements and any other releases and
instruments as the Servicer may reasonably request in order to effect the
release and transfer the Related Property if such Related Property is not also
serving as Collateral to secure the repayment of another Transferred Loan;
provided that the Trustee on behalf of the Secured Parties will make no
representation or warranty, express or implied, with respect to any such Related
Property in connection with such prepayment, release or substitution. Nothing in
this Section 8.2 shall diminish the Servicer’s obligations pursuant to
Section 7.6 with respect to the Proceeds of any such sale.

Section 8.3 [Reserved].

Section 8.4 Further Assurances.

The provisions of Section 12.12 shall apply to the security interest granted
under Section 8.1 as well as to the Advances hereunder.

Section 8.5 Remedies.

Upon the occurrence of a Termination Event, the Trustee, on behalf of the
Secured Parties, the Agent and other Secured Parties shall have, with respect to
the Collateral granted pursuant to Section 8.1, and in addition to all other
rights and remedies available to the Trustee on behalf of the Secured Parties,
the Agent and the other Secured Parties under this Agreement or other Applicable
Law, all rights and remedies of a secured party upon default under the UCC.

Section 8.6 Waiver of Certain Laws.

Each of the Borrower and the Servicer agrees, to the full extent that it may
lawfully so agree, that neither it nor anyone claiming through or under it will
set up, claim or seek to take advantage of any appraisement, valuation, stay,
extension or redemption law now or hereafter in force in any locality where any
Collateral may be situated in order to prevent, hinder or delay the enforcement
or foreclosure of this Agreement, or the absolute sale of any of the Collateral
or any part thereof, or the final and absolute putting into possession thereof,
immediately after such sale, of the Secured Parties thereof, and each of the
Borrower and the Servicer, for itself and all who may at any time claim through
or under it, hereby waives, to the full extent that it may be lawful so to do,
the benefit of all such laws, and any and all right to have any of the
properties or assets constituting the Collateral marshaled upon any such sale,
and agrees that the Trustee, on behalf of the Secured Parties, the Agent on its
behalf or any court having jurisdiction to foreclose the security interests
granted in this Agreement may sell the Collateral as an entirety or in such
parcels as the Trustee on behalf of the Secured Parties, the Agent or such court
may determine.

 

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Section 8.7 Power of Attorney.

Each of the Borrower and the Servicer, upon the occurrence and during the
continuance of a Termination Event, hereby irrevocably appoints the Trustee on
behalf of the Secured Parties its true and lawful attorney (with full power of
substitution) in its name, place and stead and at its expense, in connection
with the enforcement of the rights and remedies provided for in this Agreement,
including without limitation the following powers: (a) to give any necessary
receipts or acquittance for amounts collected or received hereunder, (b) to make
all necessary transfers of the Collateral in connection with any such sale or
other disposition made pursuant hereto, (c) to execute and deliver for value all
necessary or appropriate bills of sale, assignments and other instruments in
connection with any such sale or other disposition, the Borrower and the
Servicer hereby ratifying and confirming all that such attorney (or any
substitute) shall lawfully do hereunder and pursuant hereto, and (d) to sign any
agreements, orders or other documents in connection with or pursuant to any
Transaction Document or Hedging Agreement. Nevertheless, if so requested by the
Trustee, the Borrower shall ratify and confirm any such sale or other
disposition by executing and delivering to the Trustee and the Agent all proper
bills of sale, assignments, releases and other instruments as may be designated
in any such request. The appointment by each of the Servicer and the Borrower of
the Trustee on behalf of the Secured Parties as its attorney-in-fact shall be
evidenced by its execution and delivery of a Power of Attorney substantially in
the form of Exhibits Q-1 and Q-2, respectively.

ARTICLE IX

TERMINATION EVENTS

Section 9.1 Termination Events.

The occurrence of any of the following events shall constitute a “Termination
Event”:

(a) the Borrower or the Servicer shall default in the payment of any amount
required to be made under the terms of this Agreement and such default is not
cured or waived within three Business Days following the occurrence thereof;

(b)(i) the Borrower shall fail to perform or observe in any material respect any
other covenant or other agreement of the Borrower set forth in this Agreement
and any other Transaction Document to which it is a party, or (ii) the
Originator shall fail to perform or observe in any material respect any term,
covenant or agreement of the Originator set forth in any other Transaction
Document to which it is a party, in each case when such failure continues
unremedied for more than 20 days after written notice thereof shall have been
given by the Agent or any Secured Party to such Person;

(c) an Insolvency Event shall occur with respect to the Borrower or the
Originator;

(d) a Servicer Termination Event occurs;

(e) any representation, warranty or certification made or deemed made by the
Borrower or the Originator hereunder shall prove to be incorrect as of the time
when the same shall have been made, and such incorrect representation, warranty
or certification can reasonably

 

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be expected to have a material adverse effect on the interests of any party
hereto, and such incorrect representation, warranty or certification, if capable
of being remedied, shall continue for 30 days without being remedied or cured
after the earlier of (i) receipt by the Servicer of written notice with respect
thereto from the Agent or the Trustee and (ii) notice thereof to the Borrower or
the Originator by an officer of the Borrower or the Originator with actual
knowledge of such incorrect representation, warranty or certification;

(f) the amount of Advances Outstanding shall exceed the Maximum Availability,
for more than three consecutive Business Days;

(g) an Overcollateralization Shortfall exists and continues unremedied for a
period of three Business Days;

(h) a Required Equity Shortfall exists and continues unremedied for a period of
three Business Days;

(i) the Borrower or the Originator agrees or consents to, or otherwise permits
any amendment, modification, change, supplement or rescission of or to the
Credit and Collection Policy in whole or in part that could reasonably be
expected to have a material adverse effect upon the Loans or the interests of
the Lenders without the prior written consent of the Agent and each Lender;

(j) any Change in Control of the Borrower or Originator occurs;

(k) on each day during a period of five consecutive Business Days, (i) the
aggregate Interest Rate Hedge Notional Amount is less than the product of the
Hedge Percentage on such day and the Interest Rate Hedge Amount on that day,
(ii) the Non-USD Notional Amount of any Non-USD Loan being hedged is less than
the Outstanding Loan Balance of such Non-USD Loan on that day or (iii) any
Interest Rate Hedge Transaction or Currency Hedge Transaction fails to meet the
requirements set forth in Section 5.2(a) or 5.2(b), respectively;

(l) the Trustee on behalf of the Secured Parties, shall fail for any reason to
have a valid and perfected first priority security interest in any of the
Collateral and such failure continues unremedied for more than five Business
Days after written notice thereof shall have been given to the Trustee, the
Servicer and the Borrower by the Agent or any Lender;

(m) the Rolling Three-Month Default Ratio is less than 7% for a period of 15
consecutive days;

(n) the Borrower or the Originator defaults in making any payment required to be
made with respect to any material recourse debt or other obligation to which
either is a party and such default is not cured within the relevant cure period,
or any such recourse debt or other obligation shall be declared to be due and
payable or required to be prepaid (other than by scheduled payment) prior to its
maturity;

(o)(i) a final judgment for the payment of money in excess of 10% of the
Tangible Net Worth of the Originator shall have been rendered against the
Originator or $250,000 against the Borrower by a court of competent jurisdiction
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the Originator shall not have either: (1) discharged or provided for the
discharge of such judgment in accordance with its terms, or (2) perfected a
timely appeal of such judgment and caused the execution thereof to be stayed (by
supersedes or otherwise during the pendency of such appeal or (ii) the
Originator or the Borrower, as the case may be, shall have made payments of
amounts in excess of $2,500,000 or $250,000, respectively, in settlement of any
litigation;

(p) the Borrower shall become required to register as an “investment company”
under the 1940 Act or the arrangements contemplated by the Transaction Documents
shall require registration as an “investment company” within the meaning of the
1940 Act or any rules, regulations or orders issued by the SEC thereunder;

(q) the business and other activities of the Borrower or the Originator,
including but not limited to, the acceptance of the Advances by the Borrower
made by the Lenders, the application and use of the proceeds thereof by the
Borrower and the consummation and conduct of the transactions contemplated by
the Transaction Documents to which the Borrower or the Originator is a party
result in a violation by the Originator, the Borrower, or any other person or
entity of the 1940 Act or the rules and regulations promulgated thereunder;

(r) a Material Adverse Change in the operations of the Originator, the Servicer
or the Borrower shall occur; or

(s) a change in any binding law or any rule or regulation having the force of
law shall occur, which would cause the legal conclusions made in the true sale,
non-consolidation and perfection opinions delivered in connection with the
Transaction Documents to be incorrect.

Section 9.2 Remedies.

(a) Upon the occurrence of a Termination Event, the Agent may, by notice to the
Borrower, declare the Termination Date to have occurred, without demand, protest
or further notice of any kind, all of which are hereby expressly waived by the
Borrower, and all Obligations owing by the Borrower under this Agreement shall
be accelerated and become immediately due and payable; provided that in the
event that the Termination Event described in Section 9.1(c) herein has
occurred, the Termination Date shall automatically occur, without demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.

(b) Upon any such declaration or automatic occurrence of the Termination Date,
no Advances will be made, and the Trustee, the Agent and the other Secured
Parties shall have, in addition to all other rights and remedies under this
Agreement or otherwise, all rights and remedies provided under the UCC of each
applicable jurisdiction and other Applicable Laws, including the right to sell
the Collateral, which rights and remedies shall be cumulative.

(c) At any time on and after the Termination Date, the Borrower and the Servicer
hereby agree that they will, at the expense of Borrower or, if such Termination
Date occurred as a result of a Servicer Termination Event, at the expense of the
initial Servicer or any Affiliate of the initial Servicer if appointed as
Successor Servicer hereunder, and upon request of the Trustee (acting at the
request of the Agent), or the Agent on its behalf, forthwith, (i) assemble all
or any part of the Collateral as directed by the Trustee, or the Agent on its
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available to the Trustee, or the Agent on its behalf, at a place to be
designated by the Trustee, or the Agent on its behalf, and (ii) without notice
except as specified below, sell the Collateral or any part thereof in one or
more parcels at a public or private sale, at any of the Agent’s offices or
elsewhere, for cash, on credit or for future delivery, and upon such other terms
as the Agent may deem commercially reasonable. The Borrower agrees that, to the
extent notice of sale shall be required by law, at least ten days’ notice to the
Borrower of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The Trustee
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Trustee, if so requested by the Agent, shall adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned. All cash Proceeds received by the
Trustee in respect of any sale of, collection from, or other realization upon,
all or any part of the Collateral (after payment of any amounts incurred by the
Trustee or any of the Secured Parties in connection with such sale) shall be
deposited into the Collection Account and to be applied against all or any part
of the Obligations pursuant to Section 2.09(b) or otherwise in such order as the
Trustee shall elect in its discretion.

(d) If the Trustee, or the Agent on its behalf, proposes to sell the Collateral
or any part thereof in one or more parcels at a public or private sale, the
Borrower shall have the right of first refusal to repurchase the Collateral, in
whole but not in part, prior to such sale at a price not less than the
Obligations as of the date of such proposed repurchase. The aforementioned
rights and remedies shall be without limitation, and shall be in addition to all
other rights and remedies of the Agent and the Secured Parties otherwise
available under any provision of this Agreement by operation of law, at equity
or otherwise, each of which are expressly preserved.

ARTICLE X

INDEMNIFICATION

Section 10.1 Indemnities by the Borrower.

(a) Without limiting any other rights that any such Person may have hereunder or
under Applicable Law, the Borrower hereby agrees to indemnify the Agent, the
Backup Servicer (including in its capacity as Successor Servicer, if
applicable), the Trustee, any other Secured Party or its assignee and each of
their respective Affiliates and officers, directors, employees and agents
thereof (collectively, the “Indemnified Parties”), forthwith on demand, from and
against any and all damages, losses, claims, liabilities and related costs and
expenses, including reasonable attorneys’ fees and disbursements (all of the
foregoing being collectively referred to as “Indemnified Amounts”) awarded
against or incurred by, any such Indemnified Party or other non-monetary damages
of any such Indemnified Party any of them arising out of or as a result of this
Agreement, excluding, however, (a) Indemnified Amounts to the extent resulting
from fraud, gross negligence or willful misconduct on the part of any
Indemnified Party, and (b) under any Federal, state or local income or franchise
taxes or any other Tax imposed on or measured by income (or any interest or
penalties with respect thereto or arising from a failure to comply therewith)
required to be paid by such Indemnified Party in connection herewith to any
taxing authority. The provisions of this indemnity shall run directly to and be
enforceable by the applicable Indemnified Party subject to the limitations
hereof. If the Borrower has made any

 

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indemnity payment pursuant to this Section 10.1 and such payment fully
indemnified the recipient thereof and the recipient thereafter collects any
payments from others in respect of such Indemnified Amounts, the recipient shall
repay to the Borrower an amount equal to the amount it has collected from others
in respect of such indemnified amounts. Without limiting the foregoing, the
Borrower shall indemnify the Indemnified Parties for Indemnified Amounts
relating to or resulting from:

(i) any Transferred Loan treated as or represented by the Borrower to be an
Eligible Loan that is not at the applicable time an Eligible Loan;

(ii) reliance on any representation or warranty made or deemed made by the
Borrower, the Servicer or any of their respective officers under or in
connection with this Agreement, which shall have been false or incorrect in any
material respect when made or deemed made or delivered;

(iii) the failure by the Borrower or the Servicer to comply with any term,
provision or covenant contained in this Agreement or any agreement executed in
connection with this Agreement, or with any Applicable Law with respect to any
Transferred Loan comprising a portion of the Collateral, or the nonconformity of
any Transferred Loan, the Related Property with any such Applicable Law or any
failure by the Originator, the Borrower or any Affiliate thereof to perform its
respective duties under the Transferred Loans included as a part of the
Collateral;

(iv) the failure to vest and maintain vested in the Trustee on behalf of the
Secured Parties a first priority perfected security interest in the Collateral;

(v) the failure to file, or any delay in filing, financing statements or other
similar instruments or documents under the UCC of any applicable jurisdiction or
other Applicable Laws with respect to any Collateral whether at the time of any
Advance or at any subsequent time and as required by the Transaction Documents;

(vi) any dispute, claim, offset or defense (other than the discharge in
bankruptcy of the Obligor) of an Obligor to the payment of any Transferred Loan
included as part of the Collateral that is, or is purported to be, an Eligible
Loan (including, without limitation, a defense based on the Transferred Loan not
being a legal, valid and binding obligation of such Obligor enforceable against
it in accordance with its terms);

(vii) any failure of the Borrower or the Servicer (if the Originator or one of
its Affiliates) to perform its duties or obligations in accordance with the
provisions of this Agreement or any failure by the Originator, the Borrower or
any Affiliate thereof to perform its respective duties under the Transferred
Loans;

(viii) any products liability claim or environmental liability claim or personal
injury or property damage suit or other similar or related claim or action of
whatever sort arising out of or in connection with the Related Property,
merchandise or services that are the subject of any Transferred Loan included as
part of the Collateral or the Related Property included as part of the
Collateral;

 

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(ix) the failure by Borrower to pay when due any Taxes for which the Borrower is
liable, including without limitation, sales, excise or personal property taxes
payable in connection with the Collateral;

(x) any repayment by the Agent or another Secured Party of any amount previously
distributed in reduction of Advances Outstanding or payment of Interest or any
other amount due hereunder or under any Hedging Agreement, in each case which
amount the Agent or another Secured Party believes in good faith is required to
be repaid;

(xi) any investigation, litigation or proceeding related to this Agreement or
the use of proceeds of Advances or in respect of any Transferred Loan included
as part of the Collateral or the Related Property included as part of the
Collateral;

(xii) any failure by the Borrower to give reasonably equivalent value to the
Originator in consideration for the transfer by the Originator to the Borrower
of any Transferred Loan or the Related Property or any attempt by any Person to
void or otherwise avoid any such transfer under any statutory provision or
common law or equitable action, including, without limitation, any provision of
the Bankruptcy Code; or

(xiii) the failure of the Borrower, the Originator or any of their respective
agents or representatives to remit to the Servicer or the Agent, Collections on
the Collateral remitted to the Borrower or any such agent or representative in
accordance with the terms hereof or the commingling by the Borrower or any
Affiliate of any collections.

(b) Any amounts subject to the indemnification provisions of this Section 10.1
shall be paid by the Borrower to the applicable Indemnified Party within 10
Business Days following such Person’s demand therefor.

(c) If for any reason the indemnification provided above in this Section 10.1 is
unavailable to the Indemnified Party or is insufficient to hold an Indemnified
Party harmless, then the Borrower, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by such Indemnified Party on the one hand and the Borrower, on
the other hand but also the relative fault of such Indemnified Party as well as
any other relevant equitable considerations.

(d) The obligations of the Borrower under this Section 10.1 shall survive the
removal of the Agent, the Backup Servicer or the Trustee and the execution,
delivery, performance and termination of this Agreement for a period of three
years following the Termination Date, regardless of any investigation made by
the Lenders or the Agent.

(e) The parties hereto agree that the provisions of this Section 10.1 shall not
be interpreted to provide recourse to the Borrower against loss by reason of the
bankruptcy, insolvency or lack of creditworthiness of an Obligor on any
Transferred Loan.

 

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Section 10.2 Indemnities by the Servicer.

(a) Without limiting any other rights that any such Person may have hereunder or
under Applicable Law, the Servicer hereby agrees to indemnify each Indemnified
Party, forthwith on demand, from and against any and all Indemnified Amounts
awarded against or incurred by any such Indemnified Party by reason of any acts
or omissions or alleged acts or omissions of the Servicer under the Transaction
Documents, including, but not limited to (i) any representation or warranty made
by the Servicer under or in connection with any Transaction Documents to which
it is a party, any Monthly Report, Servicer’s Certificate or any other
information or report delivered by or on behalf of the Servicer pursuant hereto,
which shall have been false, incorrect or misleading in any material respect
when made or deemed made, (ii) the failure by the Servicer to comply with any
Applicable Law, (iii) the failure of the Servicer to comply with its duties or
obligations in accordance with this Agreement or any other Transaction Document,
or (iv) any litigation, proceedings or investigation against the Servicer,
excluding, however, (a) Indemnified Amounts to the extent resulting from fraud,
gross negligence or willful misconduct on the part of such Indemnified Party,
and (b) under any Federal, state or local income or franchise taxes or any other
Tax imposed on or measured by income (or any interest or penalties with respect
thereto or arising from a failure to comply therewith) required to be paid by
such Indemnified Party in connection herewith to any taxing authority.
Notwithstanding anything contained in this Section 10.2, (x) no Successor
Servicer shall be liable for the actions or omissions (or claims arising out of
the alleged acts or omissions) of a predecessor Servicer, and (y) no Servicer
shall be so required to indemnify an Indemnified Party or to otherwise be liable
to an Indemnified Party for any losses in respect of the non-performance of the
Transferred Loans, the creditworthiness of the Obligors with respect to the
Transferred Loans, changes in the market value of the Transferred Loans or other
similar investment risks associated with the Transferred Loans arising from a
breach of any representation or warranty if the effect of such indemnity would
be to provide credit recourse for the performance of the Transferred Loans. The
provisions of this indemnity shall run directly to and be enforceable by the
applicable Indemnified Party subject to the limitations hereof. If the Servicer
has made any indemnity payment pursuant to this Section 10.2 and such payment
fully indemnified the recipient thereof and the recipient thereafter collects
any payments from others in respect of such Indemnified Amounts, the recipient
shall repay to the Servicer an amount equal to the amount it has collected from
others in respect of such indemnified amounts.

(b) Any amounts subject to the indemnification provisions of this Section 10.2
shall be paid by the Servicer within 10 Business Days following such Person’s
demand therefor.

(c) If for any reason the indemnification provided above in this Section 10.2 is
unavailable to the Indemnified Party or is insufficient to hold an Indemnified
Party harmless, then Servicer shall contribute to the amount paid or payable to
such Indemnified Party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect not only the relative benefits
received by such Indemnified Party on the one hand and Servicer on the other
hand but also the relative fault of such Indemnified Party as well as any other
relevant equitable considerations.

(d) The obligations of the Servicer under this Section 10.2 shall survive the
resignation or removal of the Agent, the Backup Servicer or the Trustee and the
execution, delivery, performance and termination of this Agreement for a period
of three years following the Termination Date, regardless of any investigation
made by the Lenders or the Agent.

 

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(e) The parties hereto agree that the provisions of this Section 10.2 shall not
be interpreted to provide recourse to the Servicer against loss by reason of the
bankruptcy or insolvency (or other credit condition) of, or default by, related
Obligor on, any Loan.

(f) Any indemnification pursuant to this Section 10.2 shall not be payable from
the Collateral.

ARTICLE XI

THE AGENT

Section 11.1 Authorization and Action.

Each Lender and each other Secured Party hereby designates and appoints BMO as
its Agent hereunder, and authorizes the Agent to take such actions as agent on
its behalf and to exercise such powers as are delegated to the Agent by the
terms of this Agreement together with such powers as are reasonably incidental
thereto. The Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender or
other Secured Party, and no implied covenants, functions, responsibilities,
duties, obligations or liabilities on the part of the Agent shall be read into
this Agreement or otherwise exist for the Agent. In performing its functions and
duties hereunder, the Agent shall act solely as agent for the Lenders and the
other Secured Parties and does not assume nor shall be deemed to have assumed
any obligation or relationship of trust or agency with or for the Borrower or
any of its successors or assigns. The Agent shall not be required to take any
action that exposes the Agent to personal liability or that is contrary to this
Agreement, any other Transaction Document or Applicable Law. The appointment and
authority of the Agent hereunder shall terminate at the indefeasible payment in
full of the Obligations.

Section 11.2 Delegation of Duties.

The Agent may execute any of its duties under this Agreement by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.

Section 11.3 Exculpatory Provisions.

Neither the Agent nor any of its directors, officers, agents or employees shall
be (i) liable for any action lawfully taken or omitted to be taken by it or them
under or in connection with this Agreement (except for its, their or such
Person’s own gross negligence or willful misconduct or, in the case of the
Agent, the breach of its obligations expressly set forth in this Agreement), or
(ii) responsible in any manner to any Lender or the other Secured Parties for
any recitals, statements, representations or warranties made by the Borrower
contained in Article IV of, any other Transaction Document or in any
certificate, report, statement or other document referred to or provided for in,
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Transaction Document, for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other document furnished
in connection herewith, for any failure of the Borrower to perform its
obligations hereunder, or for the satisfaction of any condition specified in
Article III. The Agent shall not be under any obligation to any Lender or the
other Secured Parties to ascertain or to inquire as to the observance or
performance of any of the agreements or covenants contained in, or conditions
of, this Agreement or any other Transaction Document, or to inspect the
properties, books or records of the Borrower. The Agent shall not be deemed to
have knowledge of any Unmatured Termination Event, Termination Event, Unmatured
Servicer Termination Event or Servicer Termination Event unless the Agent has
received notice from the Borrower or a Secured Party.

Section 11.4 Reliance.

The Agent shall in all cases be entitled to rely, and shall be fully protected
in relying, upon any document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including, without limitation,
counsel to the Borrower), Independent accountants and other experts selected by
the Agent. The Agent shall in all cases be fully justified in failing or
refusing to take any action under this Agreement or any other document furnished
in connection herewith unless it shall first receive such advice or concurrence
of each Secured Party, as it deems appropriate, or it shall first be indemnified
to its satisfaction by each Secured Party, provided that unless and until the
Agent shall have received such advice, the Agent may take or refrain from taking
any action as the Agent shall deem advisable and in the best interests of the
Secured Parties. The Agent shall in all cases be fully protected in acting, or
in refraining from acting, in accordance with any notice (including notice by
telephone), consent, certificate or other instrument or writing (which may be by
facsimile) believed by it to be genuine and signed by the proper party or
parties, and such notice, consent, certificate, instrument or writing, and any
action taken or failure to act pursuant thereto shall be binding upon the
signatory thereof.

Section 11.5 Non-Reliance on Agent.

Neither the Agent nor any of its directors, officers, agents or employees shall
be liable for any action taken or omitted to be taken by it or them as Agent
under or in connection with this Agreement or any of the other Transaction
Documents, except for its or their own gross negligence, bad faith or willful
misconduct. Without limiting the foregoing, the Agent: (i) may consult with
legal counsel (including counsel for the Borrower or the Originator),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (ii) makes
no warranty or representation and shall not be responsible for any statements,
warranties or representations made in or in connection with this Agreement;
(iii) shall not have any duty to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions of this Agreement or
any of the other Transaction Documents on the part of the Borrower, the
Originator or the Servicer or to inspect the property (including the books and
records) of the Borrower, the Originator or the Servicer; (iv) shall not be
responsible for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, any of the other
Transaction Documents or any other instrument or document furnished pursuant
hereto or thereto; and (v) shall incur no liability under or in respect

 

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of this Agreement or any of the other Transaction Documents by acting upon any
notice (including notice by telephone), consent, certificate or other instrument
or writing (which may be by facsimile) believed by it to be genuine and signed
or sent by the proper party or parties.

Section 11.6 The Agent in its Individual Capacity.

The Agent and any of its Affiliates may make loans to, accept deposits from and
generally engage in any kind of business with the Borrower or any Affiliate of
the Borrower as though the Agent were not the Agent hereunder. With respect to
the Advances made pursuant to this Agreement, the Agent and each of its
Affiliates shall have the same rights and powers under this Agreement as the
Lenders and may exercise the same as though it were not the Agent and in such
context the term “Lenders” shall include the Agent in its individual capacity.

Section 11.7 Successor Agent.

The Agent may, upon five days’ written notice to the Borrower (with a copy to
the Trustee) and each Lender, and the Agent will, upon the direction of the
Required Lenders, resign as Agent. If the Agent shall resign, then the Required
Lenders, during such five day period, shall appoint a successor agent. If for
any reason no successor Agent is appointed by the Required Lenders during such
five day period, then effective upon the expiration of such five day period, the
Agent may, on behalf of the Secured Parties, appoint a successor Agent, which
successor Agent shall be either (i) a commercial bank organized under the laws
of the United States or of any territory thereof and have a combined capital and
surplus of at least $50,000,000 or (ii) an Affiliate of such a bank. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement; provided that, after any
retiring Agent’s resignation hereunder as Agent, the provisions of Article X and
this Article XI shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was the Agent under this Agreement. Notwithstanding the
resignation or removal of BMO as the Agent, BMO, as the Hedge Counterparty,
shall continue to be a Secured Party hereunder.

Section 11.8 Payments by the Agent.

Unless specifically allocated to a specific Lender pursuant to the terms of this
Agreement, all amounts received by the Agent on behalf of the Lenders shall be
paid by the Agent to the Lenders in accordance with their respective Pro Rata
Shares in the applicable Advances Outstanding, or if there are no Advances
Outstanding in accordance with their most recent Commitments, on the Business
Day received by the Agent, unless such amounts are received after 12:00 noon on
such Business Day, in which case the Agent shall use its reasonable efforts to
pay such amounts to each Lender on such Business Day, but, in any event, shall
pay such amounts to such Lender not later than the following Business Day.

Section 11.9 Credit Decision with respect to the Agent.

Each Lender, and each other Secured Party represents and warrants to the Agent
that it has and will, independently and without reliance upon the Agent, and
based on such documents and information as it has deemed appropriate, made its
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the business, operations, property, prospects, financial and other conditions
and creditworthiness of the Borrower and made its own decision to enter into
this Agreement, the other Transaction Documents and all other documents related
hereto or thereto.

Section 11.10 Indemnification of the Agent.

Each Lender agrees to indemnify the Agent (to the extent not reimbursed by the
Borrower or the Servicer), ratably in accordance its Pro Rata Share, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or any of the
other Transaction Documents, or any action taken or omitted by the Agent
hereunder or thereunder; provided that the Lenders shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent’s
fraud, gross negligence or willful misconduct. Without limitation of the
foregoing, each Lender agrees to reimburse the Agent, ratably in accordance with
its Pro Rata Share, promptly upon demand, for any out-of-pocket expenses
(including counsel fees) incurred by the Agent in connection with the
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement and the other Transaction
Documents, to the extent that such expenses are incurred in the interests of or
otherwise in respect of the Lenders, or the Lenders hereunder and/or thereunder
and to the extent that the Agent is not reimbursed for such expenses by the
Borrower or the Servicer.

ARTICLE XII

MISCELLANEOUS

Section 12.1 Amendments and Waivers.

(a) Except as provided in this Section 12.1, no amendment, waiver or other
modification of any provision of this Agreement shall be effective without the
written agreement of the Borrower, the Agent, the Required Lenders and the
Servicer; provided that any amendment of this Agreement that is solely for the
purpose of adding a Lender may be effected with the written consent of the
Agent; provided further that any amendment to this Agreement which would
(i) reduce or impair Collections or the payment of Interest or fees to any
Lender, (ii) modify any provisions of this Agreement relating to the timing of
payments required to be made by the Borrower or the application of the proceeds
of such payments, including, without limitation, any provisions of Section 2.8,
(iii) release any Collateral from the Lien of this Agreement (other than as
provided herein), (iv) increase the Facility Amount, any Conduit Lender’s
Commitment or extend the Commitment Termination Date, (v) modify the provisions
of this Section 12.1 or (vi) make any modification to the definitions of
“Advance”, “Advance Rate”, “Advances Outstanding”, “Availability”, “Borrowing
Base”, “Collateral Quality Test”, “Concentration Limits”, “Eligible Loan”,
“Eligible Obligor” “Facility Amount”, “Fair Market Value”, “Maximum
Availability”, “Minimum Overcollateralization Amount”, “Permitted Securitization
Transaction”, “Required Equity Contribution”, “Required Lenders”, “Reserve
Account Required Amount”, “Termination Date” or “Termination Event”, and any
definitions

 

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referenced thereby, shall not be effective without the written agreement of the
Borrower, the Agent, each Lender and the Servicer. Any waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.

(b) No amendment, waiver or other modification (i) affecting the rights or
obligations of any Hedge Counterparty or (ii) having a material effect on the
rights or obligations of the Trustee or the Backup Servicer (including any
duties of the Servicer that the Backup Servicer would have to assume as
Successor Servicer) shall be effective against such Person without the written
agreement of such Person. The Borrower or the Servicer on its behalf will
deliver a copy of all waivers and amendments to the Trustee and the Backup
Servicer.

Section 12.2 Notices, Etc.

All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including telex communication and
communication by facsimile copy) and mailed, telexed, transmitted or hand
delivered, as to each party hereto, at its address set forth on Annex A hereto
or specified in such party’s Assignment and Acceptance or at such other address
as shall be designated by such party in a written notice to the other parties
hereto. All such notices and communications shall be effective, upon receipt, or
in the case of (a) notice by mail, five days after being deposited in the United
States mail, first class postage prepaid, (b) notice by telex, when telexed
against receipt of answer back, or (c) notice by facsimile copy, when verbal
communication of receipt is obtained, except that notices and communications
pursuant to this Section 12.2 shall not be effective until received with respect
to any notice sent by mail or telex or hand-delivered.

Section 12.3 Liabilities to Obligors.

No obligation or liability to any Obligor under any of the Transferred Loans is
intended to be assumed by the Agent and the other Secured Parties under or as a
result of this Agreement and the transactions contemplated hereby.

Section 12.4 No Waiver, Rights and Remedies.

No failure on the part of the Agent or any other Secured Party or any assignee
of any Secured Party to exercise, and no delay in exercising, any right or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right. The rights and remedies
herein provided are cumulative and not exclusive of any rights and remedies
provided by law.

Section 12.5 Binding Effect.

This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Agent, the Secured Parties, the Backup Servicer and their respective
successors and permitted assigns and, in addition, the provisions of
Section 2.8(a)(1)(i) and Section 2.8(b)(i) and (xii) shall inure to the benefit
of each Hedge Counterparty, whether or not that Hedge Counterparty is a Secured
Party.

 

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Section 12.6 Term of this Agreement.

This Agreement, including, without limitation, the Borrower’s obligation to
observe its covenants set forth in Article V and VI, and the Servicer’s
obligation to observe its covenants set forth in Article VII, shall remain in
full force and effect until the Collection Date; provided that the rights and
remedies with respect to any breach of any representation and warranty made or
deemed made by the Borrower pursuant to Article IV and the indemnification and
payment provisions of Article X and the provisions of Section 12.10 and
Section 12.11 shall be continuing and shall survive any termination of this
Agreement. For the avoidance of doubt, amounts remaining on deposit in the
Reserve Account, the Collection Account, the Principal Collection Account and
the Interest Collection Account after the Collection Date shall be the property
of the Borrower.

Section 12.7 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF OBJECTION TO
VENUE.

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO AND THE HEDGE COUNTERPARTY
HEREBY AGREES TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT LOCATED
WITHIN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO AND THE HEDGE
COUNTERPARTY HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

Section 12.8 WAIVER OF JURY TRIAL.

TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO AND THE
HEDGE COUNTERPARTY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES
HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

Section 12.9 Costs, Expenses and Taxes.

(a) In addition to the rights of indemnification granted to the Agent, the other
Secured Parties, the Backup Servicer, any Successor Servicer and the Trustee and
its or their Affiliates and officers, directors, employees and agents thereof
under Article X hereof, the Borrower agrees to pay on demand all reasonable
costs and expenses of the Agent and the other Secured Parties incurred in
connection with the preparation, execution, delivery, administration including
periodic auditing), amendment or modification of, or any waiver or consent
issued in connection with, this Agreement and the other documents to be
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herewith, (including any Hedging Agreement) including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent and the
other Secured Parties with respect thereto and with respect to advising the
Agent and the other Secured Parties as to their respective rights and remedies
under this Agreement and the other documents to be delivered hereunder or in
connection herewith (including any Hedging Agreement) and all costs and
expenses, if any (including reasonable counsel fees and expenses), incurred by
the Agent or the other Secured Parties in connection with the enforcement of
this Agreement and the other documents to be delivered hereunder or in
connection herewith (including any Hedging Agreement).

(b) The Borrower shall pay on demand any and all stamp, sales, excise and other
taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing and recording of this Agreement, the other documents
to be delivered hereunder or any agreement or other document providing liquidity
support, credit enhancement or other similar support to any Lender in connection
with this Agreement or the funding or maintenance of Advances hereunder.

(c) The Borrower shall pay within 10 Business Days of demand all other costs,
expenses and taxes (excluding income taxes) (“Other Costs”), including, without
limitation, all reasonable costs and expenses incurred by the Agent in
connection with periodic audits of the Borrower’s or the Servicer’s books and
records (subject to the limitations set forth in Section 7.22), and the amount
of any taxes and insurance (to the extent that maintenance of insurance with
respect to the applicable Related Property would be commercially reasonable and
consistent with prudent servicing practices) due and unpaid by an Obligor with
respect to any Transferred Loan or Related Property.

Section 12.10 No Proceedings.

(a) Each of the parties hereto (other than Fairway and any other Conduit Lender)
and each Hedge Counterparty hereby agrees that it will not institute against, or
join any other Person in instituting against, any Conduit Lender, the Agent or
any Liquidity Banks any Insolvency Proceeding so long as any Commercial Paper
Notes issued by Fairway shall be outstanding and there shall not have elapsed
one year and one day (or such longer preference period as shall then be in
effect) since the last day on which any such Commercial Paper Notes shall have
been outstanding.

(b) Each of the parties hereto (other than the Agent) hereby agrees that it will
not institute against, or join any other Person in instituting against the
Borrower any Insolvency Proceeding so long as there shall not have elapsed one
year and one day (or such longer preference period as shall then be in effect)
since the Collection Date.

Section 12.11 Recourse Against Certain Parties.

(a) No recourse under or with respect to any obligation, covenant or agreement
(including, without limitation, the payment of any fees or any other
obligations) of the Borrower, the Servicer, the Agent or any other Secured Party
as contained in this Agreement or any other agreement, instrument or document
entered into by it pursuant hereto or in connection herewith shall be had
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incorporator, affiliate, stockholder, officer, employee or director of such
Person or of the Borrower or of any such manager or administrator, as such, by
the enforcement of any assessment or by any legal or equitable proceeding, by
virtue of any statute or otherwise.

(b) Notwithstanding anything in this Agreement or any other Transaction Document
to the contrary, no Conduit Lender shall have any obligation to pay any amount
required to be paid by it hereunder or thereunder in excess of any amount
available to such Conduit Lender after paying or making provision for the
payment of its Commercial Paper Notes. All payment obligations of any Conduit
Lender hereunder are contingent upon the availability of funds in excess of the
amounts necessary to pay Commercial Paper Notes; and each of the other parties
hereto agree that they shall not have a claim under Section 101(5) of the
Bankruptcy Code if and to the extent that any such payment obligation exceeds
the amount available to such Conduit Lender to pay such amounts after paying or
making provision for the payment of its Commercial Paper Notes.

(c) The provisions of this Section 12.11 shall survive the termination of this
Agreement.

Section 12.12 Protection of Security Interest; Appointment of Attorney-in-Fact.

(a) The Borrower shall, or shall cause the Servicer to, cause this Agreement,
all amendments hereto and/or all financing statements and continuation
statements and any other necessary documents covering the right, title and
interest of the Trustee, on behalf of for the Secured Parties, and of the
Secured Parties to the Collateral to be promptly recorded, registered and filed,
and at all time to be kept recorded, registered and filed, all in such manner
and in such places as may be required by law fully to preserve and protect the
right, title and interest of the Trustee, on behalf of the Secured Parties,
hereunder to all property comprising the Collateral. The Borrower shall deliver
or, shall cause the Servicer to deliver, to the Trustee (with a copy to the
Agent) file-stamped copies of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as available following such
recording, registration or filing. The Borrower and the Servicer shall cooperate
fully in connection with the obligations set forth above and will execute any
and all documents reasonably required to fulfill the intent of this
Section 12.12.

(b) The Borrower agrees that from time to time, at its expense, it will promptly
execute and deliver all instruments and documents, and take all actions, that
may reasonably be necessary or desirable, or that the Agent may reasonably
request, to perfect, protect or more fully evidence the security interest
Granted to the Trustee, on behalf of the Secured Parties, in the Collateral, or
to enable the Trustee, on behalf of the Secured Parties, the Agent or the
Secured Parties to exercise and enforce their rights and remedies hereunder.

(c) If the Borrower or the Servicer fails to perform any of its obligations
hereunder after five Business Days’ notice from the Trustee, on behalf of the
Secured Parties, the Agent or any other Secured Party, the Trustee, on behalf of
the Secured Parties, the Agent or any other Secured Party may (but shall not be
required to) perform, or cause performance of, such obligation; and the
Trustee’s, the Agent’s or such other Secured Party’s reasonable costs and
expenses incurred in connection therewith shall be payable by the Borrower (if
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failed to perform, or by the Servicer that fails to so perform if it is an
Affiliate of the Borrower) as provided in Article X, as applicable. The Borrower
irrevocably authorizes the Trustee and appoints the Trustee as its
attorney-in-fact to act on behalf of the Borrower, (i) to file financing
statements necessary or desirable in either of the Agent’s or the Trustee’s sole
discretion to perfect and to maintain the perfection and priority of the
interest of the Secured Parties in the Collateral and (ii) to file a carbon,
photographic or other reproduction of this Agreement or any financing statement
with respect to the Collateral as a financing statement in such offices as
either of the Trustee or the Agent in its sole discretion deems necessary or
desirable to perfect and to maintain the perfection and priority of the
interests of the Secured Parties in the Collateral. This appointment is coupled
with an interest and is irrevocable.

(d) Without limiting the generality of the foregoing, Borrower will, on or prior
to February 28 of each year commencing in 2008 unless the Collection Date shall
have occurred, if requested by the Agent in its reasonable discretion, deliver
or cause to be delivered to the Agent and the Trustee an Opinion of the Counsel
for Borrower, in form and substance reasonably satisfactory to the Agent,
confirming and updating the opinion delivered pursuant to Section 3.1 with
respect to perfection and otherwise to the effect that the Collateral hereunder
continues to be subject to a perfected security interest in favor of the Trustee
on behalf of the Secured Parties, subject to no other Liens of record except as
provided herein or otherwise permitted hereunder, which opinion may contain
usual and customary assumptions, limitations and exceptions.

Section 12.13 Confidentiality.

(a) Each of the Agent, the Secured Parties and the Borrower shall maintain and
shall cause each of its employees and officers to maintain the confidentiality
of this Agreement and the other confidential proprietary information with
respect to the other parties hereto and their respective businesses obtained by
it or them in connection with the structuring, negotiating and execution of the
transactions contemplated herein, except that each such party and its officers
and employees may (i) disclose such information to its external accountants,
investigators, auditors, attorneys, investors, potential investors or other
agents engaged by such party in connection with any due diligence or comparable
activities with respect to the transactions and Collateral contemplated herein
and the agents of such Persons, (ii) disclose any information as required to be
publicly filed with or furnished to the Securities and Exchange Commission, or
as required by Applicable Law, (iii) disclose the existence of this Agreement,
but not the financial terms thereof and (iv) disclose the Agreement and such
information in any suit, action, proceeding or investigation (whether in law or
in equity or pursuant to arbitration) involving any of the Transaction Documents
or any Hedging Agreement for the purpose of defending itself, reducing its
liability, or protecting or exercising any of its claims, rights, remedies, or
interests under or in connection with any of the Transaction Documents or any
Hedging Agreement.

(b) Anything herein to the contrary notwithstanding, the Borrower hereby
consents to the disclosure of any nonpublic information with respect to it for
use in connection with the transactions contemplated herein and in the
Transaction Documents (i) to the Agent or the Secured Parties by each other,
(ii) by the Agent or the other Secured Parties to any prospective or actual
Eligible Assignee or participant of any of them or (iii) by the Agent or the
Lenders to any rating agency, commercial paper dealer or provider of a surety,
guaranty or credit or liquidity enhancement to any Lender and to any officers,
directors, employees, outside accountants and

 

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attorneys of any of the foregoing, provided each such Person is informed of the
confidential nature of such information and agree to be bound hereby. In
addition, any Lender, the Agent and the Hedge Counterparty may disclose any such
nonpublic information pursuant to any law, rule, regulation, direction, request
or order of any Governmental Authority to any Person, its external accountants,
investigators, auditors, attorneys, any investors, any potential investors or
other agents engaged by such parties; provided that such Persons, external
accountants, investigators, auditors, attorneys, investors, potential investors
and agents are informed of the confidential nature of such information.

(c) The Borrower and the Servicer each agrees that it shall not (and shall not
permit any of its Affiliates to) issue any news release or make any public
announcement pertaining to the transactions contemplated by this Agreement and
the Transaction Documents without the prior written consent of the Agent (which
consent shall not be unreasonably withheld) unless such news release or public
announcement is required by law, in which case the Borrower or the Servicer
shall consult with the Agent prior to the issuance of such news release or
public announcement. The Borrower and the Servicer each may, however, disclose
the general terms of the transactions contemplated by this Agreement and the
Transaction Documents to trade creditors, suppliers and other similarly situated
Persons so long as such disclosure is not in the form of a news release or
public announcement.

Section 12.14 Third Party Beneficiaries.

Except as otherwise specifically provided herein, the parties hereto hereby
manifest their intent that no third party, other than the Hedge Counterparties,
shall be deemed a third party beneficiary of this Agreement, and specifically
that the Obligors are not third party beneficiaries of this Agreement.

Section 12.15 Execution in Counterparts; Severability; Integration.

This 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 when taken together shall constitute
one and the same agreement. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby. This Agreement contains the
final and complete integration of all prior expressions by the parties hereto
with respect to the subject matter hereof and shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof,
superseding all prior oral or written understandings other than any fee letter
delivered to the Agent, the Lenders and the Secured Parties.

Section 12.16 Waiver of Setoff.

Each of the parties hereto hereby waives any right of setoff it may have or
which it may be entitled under this Agreement from time to time against any
Lender or its assets.

 

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Section 12.17 Assignments by the Lenders.

With the prior written consent of the Borrower (which consent shall not be
unreasonably withheld), each Lender may at any time assign, or grant a security
interest or sell a participation interest in, any Advance (or portion thereof)
to any Person; provided that (i) no such consent of the Borrower shall be
required following the occurrence of a Termination Event; (ii) in the case of an
assignment of the Variable Funding Note with respect to such Lender, the
assignee (other than any assignee described in the following provision) executes
and delivers to the Servicer, the Agent and the Trustee a fully-executed
Assignment and Acceptance and a Transferee Letter); and (iii) any Conduit Lender
shall not need prior consent to at any time assign, or grant a security interest
or sell a participation interest in, any Advance (or portion thereof) to a
Liquidity Bank or any commercial paper conduit sponsored by a Liquidity Bank.
The Borrower shall not assign or delegate, or grant any interest in, or permit
any Lien to exist upon, any of the Borrower’s rights, obligations or duties
under this Agreement without the prior written consent of the Agent and the
Hedge Counterparty.

Section 12.18 Heading and Exhibits.

The headings of the various Articles and Sections herein are for purposes of
references only and shall not otherwise affect the meaning or interpretation of
any provision hereof. The schedules and exhibits attached hereto and referred to
herein shall constitute a part of this Agreement and are incorporated into this
Agreement for all purposes.

Section 12.19 Sharing of Payments on Transferred Loans Subject to the Retained
Interest Provisions.

(a) With respect to any Transferred Loan where the Originator holds a Retained
Interest, the Borrower will own only the principal portion of such Transferred
Loans outstanding as of the applicable Cut-off Date. Principal Collections
received by the Servicer on any such Transferred Loan will be allocated first to
the portion of such Transferred Loan owned by the Borrower, until the principal
amount of such portion is reduced to zero, and then to the portion not owned by
the Borrower; provided that if a payment with respect to such Transferred Loan
is delinquent beyond any applicable grace period, then Principal Collections
received on the applicable Transferred Loan will be allocated between the
portion owned by the Borrower and the portion not owned by the Borrower, pro
rata based upon the outstanding principal amount of each such portion.

(b) With respect to any Transferred Loan subject to the Retained Interest
provisions of this Agreement, Interest Collections received by the Servicer on
those Transferred Loans will be allocated between the portion not owned by the
Borrower and the portion owned by the Borrower on a pro rata basis according to
the outstanding principal amount of each such portion.

(c) Notwithstanding the foregoing or anything to the contrary contained herein
or any Transaction Document, any payments made by any Hedge Counterparty
pursuant to the terms of the Hedge Agreements shall be solely for the benefit of
the Borrower, subject to the lien of the Trustee on behalf of the Secured
Parties, and shall not be subject to the pro rata sharing provisions of
Section 12.19(a). In furtherance of the foregoing clause of this paragraph, the
Originator hereby releases any right, title, or interest it may have in or to
any payment made or to be made at any time by any Hedge Counterparty pursuant to
the terms of any Hedge Agreement.

 

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Section 12.20 Non-Confidentiality of Tax Treatment.

All parties hereto agree that each of them and each of their employees,
representatives, and other agents may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the transaction
and all materials of any kind (including, without limitation, opinions or other
tax analyses) that are provided to any of them relating to such tax treatment
and tax structure. “Tax treatment” and “tax structure” shall have the same
meaning as such terms have for purposes of Treasury Regulation Section 1.6011-4;
provided that with respect to any document or similar item that in either case
contains information concerning the tax treatment or tax structure of the
transaction as well as other information, the provisions of this Section 12.20
shall only apply to such portions of the document or similar item that relate to
the tax treatment or tax structure of the transactions contemplated hereby.

Section 12.21 Representations and Warranties of the Lenders.

By entering into this Agreement (including by means of an Assignment and
Acceptance or a Joinder Supplement, as applicable), each Lender represents and
warrants that it is (a) a QIB purchasing for its own account or for the account
of a QIB purchasing its interest in a Variable Funding Note in reliance on Rule
144A, (b) an institutional “accredited investor” (within the meaning of Rule
501(a)(1)–(3) or (7) under the Securities Act, (c) not a U.S. person and is
purchasing its interest in a Variable Funding Note in an offshore transaction
within the meaning of, and in accordance with Rule 903 or Rule 904 of,
Regulation S under the Securities Act, or (d) purchasing its interest in a
Variable Funding Note pursuant to another exemption available under the
Securities Act and in accordance with any applicable state securities laws.

Section 12.22 Lender Agents.

Each Lender Agent that is a party hereto shall be entitled to act on behalf of
its respective Lender in all matters which such Lender could or is entitled to
undertake pursuant to the terms of this Agreement, and shall be entitled to
exercise any of the rights and powers of such Lender to the same extent as such
Lender, including, without limitation, the right to receive any payments due to
such Lender hereunder, to exercise any consent rights on behalf of such Lender
and to receive any reports, notices and other information on behalf of such
Lender.

Section 12.23 Relationship.

It is the intent of the parties that during the term of this Agreement, all
services performed by the Backup Servicer will be rendered as agent for the
Agent and the other Secured Parties. Nothing set forth herein shall be deemed to
render the parties as joint ventures or partners and the parties shall take no
action or make any representations that the Backup Servicer is anything other
than agent of the Agent and Secured Parties in performing the Servicing Duties.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto, duly authorized, as of the date first above
written.

 

KOHLBERG CAPITAL FUNDING LLC I, as

the Borrower

By:   /s/ Michael I. Wirth Name:   Michael I. Wirth Title:   Authorized Person

KOHLBERG CAPITAL CORPORATION, as

the Originator and the Servicer

By:   /s/ Michael I. Wirth Name:   Michael I. Wirth Title:   Chief Financial
Officer

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

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RIVERSIDE FUNDING LLC,

as a Conduit Lender

By:   /s/ Andrew L. Stidd Name:   Andrew L. Stidd Title:   Vice President
Acknowledged:

DEUTSCHE BANK AG, NEW YORK BRANCH,

as Lender Agent for Riverside Funding LLC

By:   /s/ Daniel Pietrzak Name:   Daniel Pietrzak Title:   Vice President By:  
/s/ Peter Kim Name:   Peter Kim Title:   Vice President

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

151

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FAIRWAY FINANCE COMPANY, LLC,

as a Conduit Lender

By:   /s/ Amy S. Keith Name:   Amy S. Keith Title:   Vice President

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

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BMO CAPITAL MARKETS CORP., as the Agent By:   /s/ David J. Kucera Name:   David
J. Kucera Title:   Managing Director

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

153

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LYON FINANCIAL SERVICES, INC.,

d/b/a U.S. Bank Portfolio Services,

as the Backup Servicer

By:   /s/ Joseph Andries Name:   Joseph Andries Title:   Senior Vice President

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

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U.S. BANK NATIONAL ASSOCIATION,

as the Trustee

By:   /s/ Scott Holmes Name:   Scott Holmes Title:   Assistant Vice President

 

155