Exhibit 10.8

 

EXECUTION VERSION

 

PLEDGE AND ADMINISTRATION AGREEMENT

 

 

Dexia SA

 

Dexia Crédit Local S.A.

 

Dexia Bank Belgium SA

 

Dexia FP Holdings Inc.

 

Financial Security Assurance Inc.

 

FSA Asset Management LLC

 

FSA Portfolio Asset Limited

 

FSA Capital Markets Services LLC

 

FSA Capital Management Services LLC

 

FSA Capital Markets Services (Caymans) Ltd.

 

The Bank of New York Mellon Trust Company, National Association

 

 

Dated as of June 30, 2009

 

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TABLE OF CONTENTS

 

 

 

PAGE

 

 

 

RECITALS

 

 

 

ARTICLE I

DEFINED TERMS; RULES OF CONSTRUCTION

Section 1.1.

Definitions

 

3

Section 1.2.

Rules of Construction

 

3

Section 1.3.

UCC Definitions

 

3

 

 

 

ARTICLE II

SECURITY INTEREST PROVISIONS; SUBORDINATION

Section 2.1.

Grant of Security Interests

 

4

Section 2.2.

Rights of Rehypothecation

 

7

Section 2.3.

Protection of Dexia Collateral, FSAM Sovereign Guarantee Collateral, FSAM
Collateral, GIC Issuers Collateral, Dexia FP Collateral, FSAM PAL Collateral and
FSA PAL Collateral

 

8

Section 2.4.

Delivery of Assets

 

9

Section 2.5.

Release of Security Interest

 

9

Section 2.6.

Changes in Locations, Name, etc.

 

11

 

 

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES; COVENANTS

Section 3.1.

Representations and Warranties

 

12

Section 3.2.

Representations with Respect to the GIC Business

 

18

Section 3.3.

Representations and Warranties With Respect to the Collateral

 

20

Section 3.4

Affirmative Covenants of FSAM

 

26

Section 3.5.

Negative Covenants of FSAM

 

28

Section 3.6.

Affirmative Covenants of the GIC Issuers

 

30

Section 3.7

Negative Covenants of the GIC Issuers

 

32

Section 3.8.

Affirmative Covenants of FSA PAL

 

35

Section 3.9

Negative Covenants of FSA PAL

 

36

Section 3.10.

Affirmative Covenants of Dexia FP

 

37

Section 3.11

Negative Covenants of Dexia FP

 

38

Section 3.12

Covenants of the Dexia Parties

 

38

Section 3.13.

Affirmative Covenants of FSA

 

40

 

 

 

ARTICLE IV

GUARANTEES

Section 4.1.

Put Options

 

41

Section 4.2.

Sovereign Guarantees

 

42

 

 

 

ARTICLE V

EVENTS OF DEFAULT; REMEDIES

Section 5.1.

Events of Default

 

43

Section 5.2.

Remedies

 

43

Section 5.3.

Application of Funds Collected; Subordination

 

49

Section 5.4.

Control by the Secured Party Representative

 

50

Section 5.5.

Waiver of Past Defaults

 

51

Section 5.6

Replacement of Insurance Agreement Remedies

 

51

 

 

 

ARTICLE VI

COLLATERAL AGENT

Section 6.1.

Certain Duties and Rights of the Collateral Agent

 

51

 

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Section 6.2.

Compensation and Reimbursement

 

54

Section 6.3.

Eligibility

 

54

Section 6.4.

Resignation and Removal; Appointment of Successor

 

55

Section 6.5.

Merger, Conversion, Consolidation or Succession to Business of Collateral Agent

 

55

Section 6.6.

Put Settlement Arrangements

 

56

Section 6.7.

Additional Duties of the Collateral Agent

 

56

 

 

 

ARTICLE VII

ADMINISTRATION

Section 7.1.

Administrative Services Agreement

 

56

Section 7.2.

Assignment of the Administrative Agreement

 

57

Section 7.3.

ALM Procedures

 

57

Section 7.4.

ALM Dispute Resolution

 

58

Section 7.5.

Post-Default Management of Assets and Liabilities

 

59

Section 7.6.

Indemnification

 

62

 

 

 

ARTICLE VIII

HEDGE AGREEMENTS

Section 8.1.

Balancing Hedging Arrangements

 

62

Section 8.2.

Collateral Posting Under Hedge Agreements

 

63

Section 8.3.

Certain Actions Under Hedge Agreements

 

63

Section 8.4.

Hedge Agreement Register

 

64

 

 

 

ARTICLE IX

GUARANTEED LIQUIDITY FACILITIES

Section 9.1.

Draw Requests

 

64

 

 

 

ARTICLE X

ACCOUNTS; REPORTING; INSPECTION RIGHTS

Section 10.1.

Establishment of Accounts

 

64

Section 10.2.

Dexia Collateral Account; Custody Account; Collateral Agent Cash Account;
Collateral Agent Custodial Account; FSA PAL Brussels Cash Account; FSA PAL
Brussels Collateral Account

 

66

Section 10.3.

FSAM Cash Account; FSAM Collateral Account; FSA Capital Management Collateral
Account; FSA Capital Markets Collateral Account; FSA PAL Cash Account; FSA PAL
Collateral Account

 

68

Section 10.4

Reporting Agent

 

70

Section 10.5.

Reporting

 

71

Section 10.6.

Inspection Rights

 

74

 

 

 

ARTICLE XI

PRIORITY OF PAYMENTS; CASH MANAGEMENT

Section 11.1.

Priority of Payments

 

74

Section 11.2.

Management of Short Term Liabilities

 

78

 

 

 

ARTICLE XII

DIRECTING PARTIES; VOTING RIGHTS

Section 12.1.

Secured Party Representative

 

80

Section 12.2.

Voting Rights

 

80

Section 12.3.

Effect of a Senior Release Date

 

81

 

 

 

ARTICLE XIII

MISCELLANEOUS PROVISIONS

Section 13.1.

Binding on Successors, Transferees and Assigns

 

81

Section 13.2.

Amendments; Waivers

 

81

Section 13.3.

Notices

 

81

 

iii

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Section 13.4.

No Waiver; Remedies

 

82

Section 13.5.

Captions

 

82

Section 13.6.

Severability

 

82

Section 13.7.

Entire Agreement, etc.

 

82

Section 13.8.

Governing Law

 

82

Section 13.9.

Waiver of Jury Trial

 

82

Section 13.10

Sovereign Immunity

 

83

Section 13.11.

Counterparts

 

83

Section 13.12.

Third Party Beneficiaries

 

83

Section 13.13.

Limited Recourse

 

83

Section 13.14.

Non-Petition

 

84

Section 13.15.

Stamp Taxes

 

84

 

 

 

 

APPENDIX I

Definitions

 

86

 

 

 

 

SCHEDULE A

Notice Contact Details

 

111

 

 

 

 

SCHEDULE B

Disclosure Schedule

 

117

 

 

 

 

SCHEDULE C

ALM Arbiter Candidate List

 

120

 

 

 

 

SCHEDULE D

Portfolio Manager List

 

121

 

 

 

 

EXHIBIT A-1

Form of Securities Account Control Agreement

 

122

 

 

 

 

EXHIBIT A-2

Form of Account Agreement

 

136

 

 

 

 

EXHIBIT B

Form of Power of Attorney

 

144

 

 

 

 

ANNEX A

Put Portfolio Assets and Excluded Assets

 

145

 

 

 

 

ANNEX B

List of GIC Contracts

 

146

 

 

 

 

ANNEX C

FP Business-Related FSA Policies

 

147

 

 

 

 

ANNEX D

Hedge Agreements

 

148

 

 

 

 

ANNEX E

ALM Procedures

 

149

 

 

 

 

ANNEX F

Secondary Policies

 

150

 

 

 

 

ANNEX G

Collateral Agent Fee Arrangement

 

152

 

 

 

 

ANNEX H

Form of Payment Failure Notice

 

153

 

 

 

 

ANNEX I

Form of Amendment to Third Party Hedge Agreements

 

154

 

 

 

 

ANNEX J

Form of DCL Guarantee

 

155

 

 

 

 

ANNEX K

Dexia Sovereign Guarantee Reimbursement Agreement Undertakings

 

160

 

 

 

 

ANNEX L

Schedule of Specified Diligence Items

 

165

 

 

 

 

ANNEX M

Lien Search Results

 

167

 

 

 

 

ANNEX N

Private Placement Notes

 

168

 

 

 

 

ANNEX O

Form of Confirmation Request

 

169

 

iv

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PLEDGE AND ADMINISTRATION AGREEMENT

 

THIS PLEDGE AND ADMINISTRATION AGREEMENT (as further amended, supplemented, or
otherwise modified from time to time, this “Agreement”), dated as of June 30,
2009, is entered into among Dexia SA, a Belgian share company (“Dexia”), Dexia
Crédit Local S.A., a French share company licensed as a bank under French law
(“DCL”), Dexia Bank Belgium SA, a Belgian bank (“DBB”), Dexia FP Holdings Inc.,
a Delaware corporation (“Dexia FP”), Financial Security Assurance Inc., a
corporation organized and existing under the laws of the State of New York
(“FSA”), FSA Asset Management LLC, a Delaware limited liability company
(“FSAM”), FSA Portfolio Asset Limited, a company incorporated under the laws of
England and Wales (“FSA PAL”), FSA Capital Markets Services LLC, a Delaware
limited liability company (“FSA Capital Markets”), FSA Capital Markets Services
(Caymans) Ltd., an exempted company incorporated under the laws of the Cayman
Islands with limited liability (“FSA Capital Markets Cayman”), FSA Capital
Management Services LLC, a Delaware limited liability company (“FSA Capital
Management”), and The Bank of New York Mellon Trust Company, National
Association, a national banking association, as collateral agent (the
“Collateral Agent”). Capitalized terms not otherwise defined herein have the
meanings specified in Appendix I.

 

W I T N E S S E T H:

 

WHEREAS, pursuant to a Purchase Agreement, dated as of November 14, 2008 (as
amended, modified or otherwise supplemented from time to time, the “Purchase
Agreement”), among Dexia Holdings Inc. (“DHI”), DCL, and Assured Guaranty Ltd.
(“Assured”), DHI has agreed to sell and transfer to Assured all of the Shares
(as defined in the Purchase Agreement) owned by DHI of Financial Security
Assurance Holdings Ltd. (“FSAH”);

 

WHEREAS, the parties desire to amend and restate the Amended and Restated Pledge
and Intercreditor Agreement dated as of February 23, 2009 (the “Existing P&I
Agreement”) and wish to set forth the priorities of the Secured Parties with
respect to the Lien in favor of the Collateral Agent for the benefit of the
Secured Parties in the FSAM Collateral and the circumstances that will determine
the relative priorities of the Secured Parties to direct the Collateral Agent;

 

WHEREAS, pursuant to the Amended and Restated Insurance and Indemnity Agreement
dated as of October 21, 2008, between FSA and FSAM (the “FSAM Insurance
Agreement”), FSAM granted FSA a security interest (the “FSA Lien”) in all of the
assets of FSAM to secure the obligations of FSAM under the FSAM Insurance
Agreement, including the reimbursement of amounts paid by FSA under the Hedge
Policies;

 

WHEREAS, pursuant to the Insurance and Indemnity Agreement dated as of
October 29, 2001, between FSA and FSA Capital Management (the “FSA Capital
Management Insurance Agreement”), FSA Capital Management granted FSA a security
interest (the “FSA Capital Management Lien”) in all of the assets of FSA Capital
Management to secure the obligations of FSA Capital Management under the FSA
Capital Management Insurance Agreement, including the reimbursement of amounts
paid by FSA under the relevant GIC Policies;

 

WHEREAS, pursuant to the Insurance and Indemnity Agreement dated as of
October 29, 2001, between FSA and FSA Capital Markets (the “FSA Capital Markets
Insurance Agreement”), FSA Capital Markets granted FSA a security interest (the
“FSA Capital Markets Lien”) in all of the assets of FSA Capital Markets to
secure the obligations of FSA Capital Markets under the FSA Capital Markets
Insurance Agreement, including the reimbursement of amounts paid by FSA under
the relevant GIC Policies;

 

1

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WHEREAS, pursuant to the intercompany loan agreement dated as of September 25,
2006, between FSAM and FSA PAL (as amended as of June 30, 2009, and as further
amended, modified or supplemented thereafter, the “FSA PAL Loan”), FSA PAL
granted a security interest (the “FSA PAL Lien”) over the FSA PAL Collateral in
favor of FSAM;

 

WHEREAS, pursuant to the Existing P&I Agreement, FSAM granted a security
interest (the “First Credit Agreement Lien”) over the “collateral” as defined
therein to DBB and DCL (together, the “Lenders”) in connection with their
agreement to provide financing under the terms of a Revolving Credit Agreement
dated June 30, 2008, among FSAM, DBB and DCL (the “First Credit Agreement”),
which security interest is junior in priority to the FSA Lien;

 

WHEREAS, pursuant to the Existing P&I Agreement, FSAM granted a security
interest (the “Second Credit Agreement Lien”) over the “collateral” as defined
therein to DCL in connection with its agreement to provide financing under the
terms of a Second Revolving Credit Agreement dated February 20, 2009, between
FSAM and DCL (the “Second Credit Agreement”), which security interest is junior
in priority to the FSA Lien and the First Credit Agreement Lien;

 

WHEREAS, the First Credit Agreement and the Second Credit Agreement are being
amended and restated through the Amended and Restated Revolving Credit
Agreement, dated as of the Closing Date, among FSAM, DCL, and DBB (the
“Liquidity Facility”);

 

WHEREAS, pursuant to the Existing P&I Agreement, FSAM granted a security
interest (the “GIC Issuers’ Lien”) over the “collateral” as defined therein to
FSA Capital Markets and FSA Capital Management;

 

WHEREAS, FSAM, FSA, FSA PAL, DCL, DBB, FSA Capital Markets and FSA Capital
Management intend to amend and restate the FSA Lien, the FSA PAL Lien, the FSA
Capital Markets Lien, the FSA Capital Management Lien, the First Credit
Agreement Lien, the Second Credit Agreement Lien, and the GIC Issuers’ Lien (the
“Previous Liens”) with the Lien in favor of the Collateral Agent for the benefit
of the Secured Parties under this Agreement;

 

WHEREAS, DCL and FSAM have entered into the master repurchase agreement, dated
as of June 30, 2009; (the “Repurchase Facility Agreement”);

 

WHEREAS, pursuant to the Dexia CSAs, the Dexia Guarantors have granted a
security interest over the “posted credit support” defined therein (the “Dexia
CSA Collateral”) to the Collateral Agent for the benefit of FSAM to secure the
obligations of the Dexia Guarantors under the Put Contracts (and which will be
pledged by FSAM to the Collateral Agent for the benefit of the Secured Parties
under this Agreement), and the Dexia Guarantors wish to grant a security
interest in certain other collateral in favor of the Collateral Agent for the
benefit of FSAM and Secured Parties;

 

WHEREAS, pursuant to the FSAM Belgian Pledge Agreement, FSA PAL has granted a
security interest over the “collateral” defined therein (the “FSA PAL Belgian
Collateral”) to the Collateral Agent for the benefit of FSAM to secure the
obligations of FSA PAL under the FSA PAL Loan (and which will be pledged by FSAM
to the Collateral Agent for the benefit of the Secured Parties under this
Agreement), and FSA PAL wishes to grant a security interest in certain other
collateral in favor of the Collateral Agent for the benefit of FSAM and Secured
Parties;

 

WHEREAS, FSA and FSA Capital Markets Cayman have entered into an Insurance and
Indemnity Agreement dated as of June 30, 2009 (the “FSA Capital Markets Cayman
Insurance Agreement”).

 

2

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NOW THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, each party hereto agrees as follows:

 

ARTICLE I

DEFINED TERMS; RULES OF CONSTRUCTION

 

Section 1.1             Definitions.

 

Capitalized terms used herein and not defined herein will have the meanings
provided in Appendix I or Section 1.3, unless the context otherwise requires.

 

Section 1.2             Rules of Construction.

 

(a)           The terms “hereby,” “hereof,” “hereto,” “herein,” “hereunder” and
any similar terms will refer to this Agreement as a whole and not to any
particular provision of this Agreement.

 

(b)           Unless otherwise indicated in context, the terms “Article,”
“Section,” “Annex,” “Exhibit,” “Schedule” or “Appendix” will refer to an
Article or Section of, or an Annex, Exhibit, Schedule or Appendix to, this
Agreement.

 

(c)           Words of the masculine, feminine or neuter gender will mean and
include the correlative words of other genders, and words importing the singular
number will mean and include the plural number and vice versa.

 

(d)           The terms “include,” “including” and similar terms will be
construed as if followed by the phrase “without limitation.”

 

(e)           All terms defined in this Agreement or in Appendix I will have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto or in connection herewith unless otherwise defined
therein.

 

(f)            Any agreement, instrument or statute defined or referred to
herein or in Appendix I or in any certificate or other document made or
delivered pursuant hereto or in connection herewith means such agreement,
instrument or statute as from time to time amended, modified or supplemented and
includes (in the case of agreements or instruments) references to all
attachments thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.

 

Section 1.3             UCC Definitions. When used herein and capitalized the
terms “Account,” “Adverse Claim,” “Bank,” “Certificate of Title,” “Certificated
Security,” “Chattel Paper,” “Commercial Tort Claim,” “Commodity Account,”
“Commodity Contract,” “Control,” “Deposit Account,” “Document,” “Electronic
Chattel Paper,” “Entitlement Order,” “Equipment,” “Financial Asset,” “Goods,”
“Instruction,” “Instrument,” “Inventory,” “Investment Property,”
“Letter-of-Credit Rights,” Money,” “Payment Intangible,” “Proceeds,” “Promissory
Note,” “Securities Account,” “Securities Intermediary,” “Security,” “Security
Entitlement,” “Supporting Obligation,” “Tangible Chattel Paper” and
“Uncertificated Security” have meanings specified in Article 8 or Article 9, as
applicable, of the UCC. “Letter of Credit” has the meaning specified in
Section 5-102 of the UCC.

 

3

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ARTICLE II

SECURITY INTEREST PROVISIONS; SUBORDINATION

 

Section 2.1.            Grants of Security Interests.

 

(a)           Dexia Guarantors’ Grants of Security Interests. Each Dexia
Guarantor hereby Grants to the Collateral Agent, for the benefit and security of
FSAM (which security interest is Granted by FSAM to the Collateral Agent for the
benefit of the Secured Parties pursuant to clause (d)), all of its right, title
and interest in, to and under the Administrative Services Agreement and the
Dexia Guarantee Reimbursement Agreement to secure the Dexia Guarantors’ joint
and several obligations under the Dexia Guarantees and this Agreement (the
“Dexia Additional Collateral” and, together with the Dexia CSA Collateral, the
“Dexia Collateral”); provided, however, that such security interest in the Dexia
Additional Collateral will not extend to any right of such Dexia Guarantor
constituting an Excluded Contract Right.

 

(b)           GIC Issuers’ Grants of Security Interests. Subject to the
priorities and the exclusions, if any, specified in this Section 2.1, each of
the GIC Issuers hereby Grants to the Collateral Agent, for the benefit and
security of each Secured Party, all of its right, title and interest in, to and
under, in each case, whether now owned or existing, or hereafter acquired or
arising, and regardless of where located, all Accounts, Chattel Paper, Financial
Assets, General Intangibles, Instruments, Investment Property, Letter-of-Credit
Rights, Money and other Supporting Obligations, including the following:

 

(i)            the FSAM Collateral;

 

(ii)           all rights of such GIC Issuer under the relevant GIC Issuers
Insurance Agreement, the Master Repurchase Agreement, this Agreement, the GIC
Contracts, any other Material Agreement and any other agreement executed in
connection with the foregoing to which it is a party or third-party beneficiary
(including the right to the return of any posted collateral);

 

(iii)          with respect to FSA Capital Markets Cayman, all of its rights in
the notes issued by FSA Global Funding Ltd. which it owns (the “FSA Capital
Markets Cayman Notes”);

 

(iv)          in the case of a GIC Issuer that is the FSAM Hedging Successor,
all rights of such GIC Issuer under any Hedge Agreements to which it is a party,
including all of the collateral posted by the Hedge Counterparty thereunder;

 

(v)           all rights of such GIC Issuer in and to each FP Account and all
amounts on deposit therein and all investments held through such account; and

 

(vi)          all distributions, revenues, products, substitutions, benefits,
profits and Proceeds in whatever form, of any of the foregoing (collectively,
the items of collateral listed in this clause (b), and subject to the exclusions
noted below, being the “GIC Issuers Collateral”);

 

provided, however, that such security interest will not extend to any property
or right of such GIC Issuer in the FSAM Sovereign Guarantee Collateral or any
property or right constituting Excluded Contract Rights or Excluded GIC Issuer
Collateral. Such Grants are made in trust to secure the payment of all amounts
due on all of the indebtedness, liabilities and obligations owed from time to
time by such GIC Issuer to (x) reimburse FSA for payments under the GIC Policies
related to GIC Contracts which such GIC Issuer issued (including, obligations
under the GIC Issuers Insurance Agreements) and (y) reimburse the Dexia
Guarantors under the Dexia Guarantee Reimbursement Agreement (including all
amounts which would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code and the operation of Sections 502(b) and
506(b) thereof or any analogous provisions of any similar laws) in accordance
with their terms (“GIC Issuer Secured Obligations”).

 

4

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(c)           FSA PAL‘s Grants of Security Interests. Subject to the priorities
and the exclusions, if any, specified below in this Section 2.1, FSA PAL hereby
Grants to the Collateral Agent, for the benefit and security of FSAM (which
security interest is Granted by FSAM to the Collateral Agent for the benefit of
the Secured Parties pursuant to clause (d)), all of its right, title and
interest in, to and under (i) the FSA PAL Loan (for the avoidance of doubt,
excluding all “permitted investments” (as defined in the FSA PAL Loan) that are
subject to the scope of the FSAM Belgian Pledge Agreement), this Agreement and
any other agreement executed in connection therewith, (ii) the FSA PAL Cash
Account and FSA PAL Collateral Account and all amounts on deposit therein and
all investments held through such account and (iii) all distributions, revenues,
products, substitutions, benefits, profits and Proceeds in whatever form, of any
of the foregoing (collectively, the items listed in this clause (c), and subject
to the exclusions noted below, being the “FSA PAL Additional Collateral” and,
together with the FSA PAL Belgian Collateral, the “FSA PAL Collateral”);
provided, however, that such security interest will not extend to any property
or right of FSA PAL constituting Excluded Contract Rights or Excluded FSAM
Collateral. Such Grants are made in trust to secure the payment of all amounts
due on all of the indebtedness, liabilities and obligations owed from time to
time by FSA PAL under the FSA PAL Loan.

 

(d)           FSAM Grants of Security Interests.

 

(i)            Subject to any exclusions specified in this Section 2.1, FSAM
hereby Grants to the Collateral Agent for the benefit and security of each GIC
Issuer all of its right, title and interest in, to and under the Sovereign
Guarantee (the “FSAM Sovereign Guarantee Collateral”). Such Grant is made in
trust to secure the payment of all amounts due on all of the indebtedness,
liabilities and obligations owed from time to time to the GIC Issuers under the
Master Repurchase Agreement whether for principal, interest, fees, costs,
expenses or otherwise (including all amounts which would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code and
the operation of Sections 502(b) and 506(b) thereof or any analogous provisions
of any similar laws) in accordance with their terms;

 

(ii)           FSAM hereby Grants to the Collateral Agent for the benefit of FSA
and the GIC Issuers all of its right, title and interest in, to and under the
certificates representing the ordinary shares of FSA PAL, including any and all
management, voting, approval and other rights of FSAM under the Organizational
Document of FSA PAL and the law of England and Wales (the “FSAM PAL
Collateral”). Such Grant is made in trust to secure the payment of all amounts
due on all of the indebtedness, liabilities and obligations owed from time to
time by FSAM to FSA under the FSAM Insurance Agreement and to the GIC Issuers
under the Master Repurchase Agreement whether for principal, interest, fees,
costs, expenses or otherwise (including all amounts which would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code and the operation of Sections 502(b) and 506(b) thereof or any analogous
provisions of any similar laws) in accordance with their terms; and

 

(iii)          subject to the priorities and the exclusions, if any, specified
in this Section 2.1, FSAM hereby Grants to the Collateral Agent for the benefit
and security of each Secured Party, all of its right, title and interest in, to
and under, in each case, whether now owned or existing, or hereafter acquired or
arising, and regardless of where located, all Accounts, Chattel Paper, Financial
Assets, General Intangibles, Instruments, Investment Property, Letter-of-Credit
Rights, Money and other Supporting Obligations including the following:

 

(A)          all rights of FSAM under this Agreement, the FSAM Insurance
Agreement, the Master Repurchase Agreement, the Administrative Services
Agreement, the FSA PAL Loan, the Guaranteed Liquidity Facilities, any other
agreement executed in connection with the foregoing and any other Material
Agreements to which it is a party or

 

5

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a third-party beneficiary (including all such collateral constituting Excluded
FSAM Collateral);

 

(B)           all rights of FSAM under the Put Contracts (including the right to
cause the exercise of a Put Option and to identify Put Settlement Assets);

 

(C)           all rights of FSAM in the Dexia Collateral and the FSA PAL
Collateral (including, for the avoidance of doubt, any right, title and benefit
of the FSAM Belgian Pledge Agreement and any other security Granted in
connection therewith);

 

(D)          all rights of FSAM in and to each FP Account and all amounts on
deposit therein and all investments held through such account;

 

(E)           all rights of FSAM under the Hedge Agreements, including all of
the collateral posted by the Hedge Counterparties thereunder and the right to
receive the return of any collateral posted by FSAM (including all such
collateral constituting Excluded FSAM Collateral);

 

(F)           all rights of FSAM in relation to any Temporary Funding
Transactions; and

 

(G)           all distributions, revenues, products, substitutions, benefits,
profits and Proceeds, in whatever form, of any of the foregoing (collectively,
the items of collateral listed in this clause (d), and subject to the exclusions
noted below, being the “FSAM Collateral”);

 

provided, however, that such security interest will not extend to any property
or right of FSAM constituting the FSAM Sovereign Guarantee Collateral, Excluded
Contract Rights or Excluded FSAM Collateral. Such Grants are made in trust to
secure the payment of all amounts due on all of the indebtedness, liabilities
and obligations owed from time to time by FSAM to any of the Secured Parties
whether for principal, interest, fees, costs, expenses or otherwise (including
all amounts which would become due but for the operation of the automatic stay
under Section 362(a) of the Bankruptcy Code and the operation of Sections
502(b) and 506(b) thereof or any analogous provisions of any similar laws) in
accordance with their terms (“FSAM Secured Obligations”).

 

(e)           Dexia FP Grant of Security Interest. Dexia FP hereby Grants to the
Collateral Agent for the benefit of FSA all of its right, title and interest in,
to and under its sole membership interest in HF Services LLC under the Delaware
Limited Liability Company Act, 6 Del. C. § 18 101 et seq. (the “Delaware Act”),
and under the “limited liability company agreement” (as such term is defined in
Section 18-101(7) of the Delaware Act) of HF Services LLC, including without
limitation its “limited liability company interest” (as such term is defined in
Section 18-101(8) of the Delaware Act), Dexia FP’s status as a member (as such
term is defined in Section 18-101(11) of the Delaware Act), the right to
participate in the management of the business and affairs of HF Services LLC,
and the right to elect, appoint and remove directors and officers from time to
time (the “Dexia FP Collateral”). Such Grant is made in trust to secure the
payment of all amounts due on all of the indebtedness, liabilities and
obligations owed from time to time by FSAM and the GIC Issuers to FSA whether
for principal, interest, fees, costs, expenses or otherwise (including all
amounts which would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code and the operation of Sections 502(b) and
506(b) thereof or any analogous provisions of any similar laws) in accordance
with their terms.

 

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(f)            Each of the parties hereto acknowledges that the Grants of FSAM
Collateral, FSA PAL Collateral and GIC Issuers Collateral hereunder amend,
restate and represent a continuation of the Previous Liens.

 

(g)           The Collateral Agent acknowledges such Grants and agrees to act as
collateral agent with respect to the Dexia Collateral, the FSA PAL Collateral,
the FSAM Sovereign Guarantee Collateral, the FSAM Collateral, the Dexia FP
Collateral, the FSAM PAL Collateral and the GIC Issuers Collateral as provided
herein.

 

(h)           Notwithstanding the security interest in favor of the Collateral
Agent, FSA (to the extent provided in the Put Contracts, the Sovereign Guarantee
or the Guaranteed Liquidity Facilities or after a Dexia Event of Default, in
each case, either directly or as representative of the Collateral Agent) shall
have the right to (A) cause the exercise of a Put Option and identify Put
Settlement Assets as provided in Section 4.1, (B) make, or cause to be made,
claims on the Sovereign Guarantee as provided in Section 4.2, (C) request funds
under the Guaranteed Liquidity Facilities as provided in Section 9.1,
(D) consent to any amendment of the Sovereign Guarantee in accordance with
Article 8 thereof as representative of the Collateral Agent, (E) consent, as
representative of the Collateral Agent, to any amendment of the Sovereign
Guarantee Reimbursement Letter Agreement and/or to any agreement to amend,
modify, waive or otherwise cause the alteration of any of their rights or
obligations under any of the Sovereign Guarantee Reimbursement Agreement, the
Pledge Agreement (as defined in the Sovereign Guarantee Reimbursement Agreement)
and/or the Organizational Documents of FSAM where such amendment, variation,
waiver or alteration would result in any of the requirements set forth in the
Authorization Law (as defined in the Sovereign Guarantee Reimbursement Letter
Agreement) no longer being met (any such agreement, a “Proscribed Amendment”),
and (F) exercise any other rights expressly given to FSA under the Put
Contracts.

 

(i)            On or before the Closing Date, FSAM shall provide to the
Collateral Agent an irrevocable power of attorney to make claims under the
Sovereign Guarantee in the form of Exhibit B. The Collateral Agent hereby
assigns its rights under such power of attorney to FSA as its representative to
make claims under the Sovereign Guarantee and hereby agrees to execute such
irrevocable power of attorney in such form.

 

Section 2.2.            Rights of Rehypothecation.

 

(a)           For the avoidance of doubt, FSAM may, subject to Section 11.2,
repledge and rehypothecate FSAM Collateral (including any Dexia CSA Collateral
and FSA PAL Collateral) to secure its obligations in relation to (x) the Master
Repurchase Agreement, subject to the GIC Issuers being permitted to repledge or
rehypothecate such FSAM Collateral only in accordance with clause (b) below,
(y) the Repurchase Facility Agreement and (z) any Senior Third Party Hedge
Agreement. In the event that Excluded FSAM Collateral (including any Dexia CSA
Collateral and FSA PAL Collateral that is Excluded FSAM Collateral) is returned
to FSAM or the related GIC Issuer, FSAM or such GIC Issuer, as applicable, will
take such steps (if any) as are necessary for the release of the returned
Excluded FSAM Collateral from the Lien of such GIC Holder or Unaffiliated
Counterparty, as applicable, and cause such Excluded FSAM Collateral to be
Delivered to the relevant Intermediary free of such Lien, whereupon it will
cease to be Excluded FSAM Collateral and will be FSAM Collateral.

 

(b)           For the avoidance of doubt, to secure their obligations in
relation to the GIC Contracts and any Hedge Agreements to which it is a party,
each GIC Issuer may, subject to Section 11.2, pledge Excluded GIC Issuers
Collateral as follows:

 

(i)            in the case of GIC Contracts, if such pledge is subject to the
related GIC Holder not being permitted to repledge or rehypothecate such
Excluded GIC Issuers Collateral (except

 

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that GIC Holders will have all the rights of a secured party to exercise
remedies with respect to such Excluded GIC Issuers Collateral following an event
of default, to the extent set forth in the related GIC Contract); and

 

(ii)           in the case of any Hedge Agreement to which it is a party
(including any Hedge Agreements that have been assigned, transferred or novated
to such GIC Issuer as the FSAM Hedging Successor or that have been entered into
by the GIC Issuer after a Transition Date), to secure such Hedge Agreement.

 

In the event that Excluded GIC Issuers Collateral is returned to the related GIC
Issuer, such GIC Issuer will take such steps (if any) as are necessary for the
release of the returned Excluded GIC Issuers Collateral from the Lien of such
GIC Holder or Hedge Counterparty and cause such Excluded GIC Issuers Collateral
to be Delivered to the relevant Intermediary free of such Lien, whereupon it
will cease to be Excluded GIC Issuers Collateral or Excluded FSAM Collateral and
will be FSAM Collateral or GIC Issuers Collateral, as applicable.

 

(c)           For the avoidance of doubt, the GIC Issuers shall not pledge,
repledge, hypothecate or rehypothecate any of its rights, title, or interest in,
to or under the FSAM Sovereign Guarantee Collateral.

 

Section 2.3.            Protection of Dexia Collateral, FSAM Sovereign Guarantee
Collateral, FSAM Collateral, GIC Issuers Collateral, Dexia FP Collateral, FSAM
PAL Collateral and FSA PAL Collateral.

 

(a)           Each of FSAM, each GIC Issuer, each Dexia Guarantor, Dexia FP and
FSA PAL (each, a “Grantor”) agrees that, from time to time, it shall promptly
give, authorize, execute, deliver, file and/or record all further instruments
and documents, and take all further action, that may be necessary or desirable,
as requested by the Collateral Agent or that is required by applicable law, in
order to create, preserve, perfect, validate and protect any Lien Granted or
purported to be Granted, amended, restated or continued hereunder or to enable
the Collateral Agent to exercise and enforce its rights and remedies hereunder
with respect to any Collateral, Dexia FP Collateral or FSAM PAL Collateral, as
applicable. Without limiting the generality of the foregoing, each Grantor will:

 

(i)            deliver and file or cause to be filed, in the appropriate
offices, appropriate UCC financing statements describing the applicable
Collateral, Dexia FP Collateral or FSAM PAL Collateral, and naming such Grantor
as debtor and the Collateral Agent as secured party;

 

(ii)           from time to time authorize and, if applicable, execute such
other financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, in order to
perfect and preserve the Liens granted or purported to be granted hereunder; and

 

(iii)          promptly furnish or cause to be furnished to the Collateral Agent
any information which the Collateral Agent may reasonably request concerning the
applicable Collateral, Dexia FP Collateral or FSAM PAL Collateral.

 

Each Grantor hereby appoints the Administrator its agent and attorney-in-fact
for the purpose of any action required under this Section 2.3(a) and hereby
authorizes FSA to file financing statements or continuation statements or
amendments thereto with respect to the Collateral. Such Grantor will promptly
deliver or cause to be delivered acknowledged, file-stamped copies of each
filing made pursuant to clause (i) or (ii) as applicable, to the Collateral
Agent and FSA. FSA will promptly deliver or cause to be delivered an
acknowledged, file-stamped copy of any such filing that it has made or caused to
be made to the Collateral Agent and the related Grantor.

 

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(b)           The interest of the Collateral Agent in (i) the FSAM Sovereign
Guarantee Collateral and FSAM Collateral will be marked conspicuously on the
books and records of FSAM, (ii) the GIC Issuers Collateral will be marked
conspicuously on the books and records of the respective GIC Issuer, (iii) the
Dexia Collateral will be marked conspicuously on the books and records of the
respective Dexia Guarantor, (iv) the FSA PAL Collateral will be marked
conspicuously on the books and records of FSA PAL, (v) the Dexia FP Collateral
will be marked conspicuously on the books and records of Dexia FP and (vi) the
FSAM PAL Collateral will be marked conspicuously on the books and records of
FSAM.

 

(c)           Each Grantor will endorse, cause to be Delivered to the relevant
Intermediary (or, in the case of the FSA Capital Markets Cayman Notes, the FSAM
PAL Collateral and the Private Placement Notes, the Collateral Agent) and will
pledge to the Collateral Agent hereunder each item of the Collateral, Dexia FP
Collateral or FSAM PAL Collateral, as applicable, that is a security, and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Collateral Agent and the Intermediary.

 

(d)           Each Grantor shall cause, on or prior to the Closing Date, the
filing of all appropriate financing statements in the proper filing office in
the appropriate jurisdictions under applicable law in order to perfect the
security interest in the Collateral, Dexia FP Collateral or FSAM PAL Collateral,
Granted to the Collateral Agent by it hereunder (and shall provide a copy of
each such statement, with filing numbers noted thereon, to the Collateral
Agent).

 

Section 2.4.            Delivery of Assets.

 

(a)           Each time that FSAM directs or causes the acquisition of any
asset, FSAM shall, if such asset has not already been transferred to the FSAM
Collateral Account, cause such asset to be Delivered to the FSAM Collateral
Account. The security interest of the Collateral Agent in funds or other
property utilized in connection with such acquisition will, immediately and
without further action on the part of the Collateral Agent, be released. The
Collateral Agent’s Lien will continue in such asset so acquired, including all
rights of FSAM in and to any contracts related to and proceeds of such asset.

 

(b)           Each time a Dexia Guarantor posts Eligible Collateral under the
Dexia CSAs, such Dexia Guarantor shall cause such asset to be Delivered to the
Dexia Collateral Account. The security interest of the Collateral Agent will
come into existence and continue with respect to such asset so posted, including
all rights of such Dexia Guarantor in and to any contracts related to and
proceeds of such asset. The security interest of the Collateral Agent with
respect to any Dexia Collateral being released to the Dexia Guarantors in
accordance with the applicable Dexia CSA will, immediately and without further
action on the part of the Collateral Agent, be released from the Collateral
Agent’s Lien.

 

(c)           If a Dexia Event of Default occurs and the Secured Party
Representative so directs, each time the FSAM Successor directs or causes the
acquisition of any asset, such asset will be Delivered to the Collateral Agent
Custodial Account. The security interest of the Collateral Agent in funds or
other property utilized in connection with such acquisition will, immediately
and without further action on the part of the Collateral Agent, be released. The
Collateral Agent’s Lien will nevertheless come into existence and continue in
such asset so acquired, including all rights of the FSAM Successor in and to any
contracts related to and proceeds of such asset.

 

Section 2.5.            Release of Security Interest.

 

(a)           Prior to a Dexia Event of Default without prior notice to the
Collateral Agent, FSAM or FSA (in the case of clause (i)), and, following a
Dexia Event of Default, the Secured Party Representative, will have the right at
any time to withdraw or dispose of FSAM Assets that are subject to the Lien of
the Collateral Agent hereunder in order to be (i) delivered as Put Settlement
Assets in

 

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accordance with the Put Contracts or the Sovereign Guarantee or (ii) applied as
Excluded FSAM Collateral in accordance with the definition thereof. The security
interest in respect of any such FSAM Assets will automatically terminate and be
released upon transfer of the relevant FSAM Assets in accordance with the terms
of this Agreement without the need for further action or consent by the
Collateral Agent.

 

(b)           Prior to a Transition Date, FSAM will have the right at any time
with prior notice to the Collateral Agent to sell, transfer, participate,
subparticipate or otherwise dispose of any (i) FSAM Asset (A) in connection with
a Permitted Asset Sale (including the exercise by a Dexia Guarantor of a Call
Option), (B) pursuant to Section 11.2(b) or (C) with the consent of FSA, or
(ii) any Dexia CSA Collateral constituting FSAM Collateral (A) pursuant to
Section 11.2(b) or (B) with the consent of FSA. The Collateral Agent’s Lien in
respect of any such FSAM Asset or Dexia CSA Collateral will automatically
terminate and be released upon transfer of such FSAM Asset or Dexia CSA
Collateral against receipt of payment therefor in accordance with such notice
without the need for further action or consent by the Collateral Agent.

 

(c)           Each instruction by FSAM to the relevant Account Bank or the
Collateral Agent for the withdrawal of any FSAM Assets included in the FSAM
Collateral will constitute a representation and warranty by FSAM to the
Collateral Agent upon which the Collateral Agent may rely, without inquiry, that
in connection with such instruction the relevant FSAM Collateral is being
delivered as a Put Settlement Asset, applied as Excluded FSAM Collateral or sold
to in connection with a Permitted Asset Sale (including in connection with
exercise of a Call Option) or pursuant to Section 11.2(b)(i).

 

(d)           On the FSAM Lien Release Date (if any), the Master Repurchase
Agreement will be settled and the Put Portfolio Assets, Excluded Assets, Other
Assets, Sovereign Guarantee, Dexia Guaranteed Put Contract and Dexia
Non-Guaranteed Put Contract will be released from the Collateral Agent’s Lien on
the FSAM Collateral, Dexia Collateral and FSA PAL Collateral. The Administrator
will provide a Confirmation Request with Section III completed by email to the
Collateral Agent and FSA, with confirmation of receipt by telephone. If the
Confirmation Request is incomplete, the Collateral Agent will promptly inform
the Administrator. If the Confirmation Request is complete, the Collateral Agent
shall return the executed Confirmation Request to the Administrator with a copy
to FSA by 4:00 P.M. (New York time) on the same Business Day if such
Confirmation Request is received by 10:00 A.M. (New York time) and by 4:00 P.M.
(New York time) on the following Business Day if received after 10:00 A.M. (New
York time). The Collateral Agent will promptly deliver to the Sovereign
Guarantors an executed notice substantially in the form of the notice attached
to the Confirmation Request. For the avoidance of doubt, the Collateral Agent’s
Lien on any remaining GIC Issuers Collateral will not be released on the FSAM
Lien Release Date.

 

(e)           Following a Dexia Event of Default, FSA, as Secured Party
Representative, will have the right at any time with prior notice to the
Collateral Agent and subject to Section 5.2, Section 7.5 and
Section 12.1(d) hereof, to sell, transfer, participate, subparticipate or
otherwise dispose of any FSAM Asset. The Collateral Agent’s Lien for the benefit
of the FSAM Collateral Secured Parties in respect of any such FSAM Asset will
automatically terminate and be released upon transfer of the relevant FSAM Asset
against receipt of payment therefor in accordance with such notice without the
need for further action or consent by the Collateral Agent.

 

(f)            Following any Dexia Event of Default, the GIC Issuers will, at
the direction of FSA pursuant to Section 5.2(a)(i), have the right at any time
to terminate all or any portion of the Master Repurchase Agreement and transfer
the FSAM Assets to the Collateral Agent Custodial Account or Collateral Agent
Cash Account, as applicable, if FSA has directed such action pursuant to
Section 5.2(a)(i). The Collateral Agent’s Lien for the benefit of the FSAM
Collateral Secured Parties in respect of such FSAM Assets will automatically
terminate and be released upon such action.

 

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(g)                                 Following a Transition Date and prior to any
Dexia Event of Default, the applicable GIC Issuers or FSAM Successor will have
the right at any time with prior notice to the Collateral Agent to sell,
transfer, participate, subparticipate or otherwise dispose of any Permitted
Investments securing the GIC Issuer Repurchase Agreement (A) pursuant to
Section 11.2(b) or (B) with the consent of FSA. The Collateral Agent’s Lien in
respect of any such Permitted Investments will automatically terminate and be
released upon transfer of such Permitted Investments against receipt of payment
therefor in accordance with such notice without the need for further action or
consent by the Collateral Agent.

 

(h)                                 The Collateral Agent’s Lien on the Dexia FP
Collateral will automatically terminate and be released upon the transfer of the
membership interest in HF Services LLC (i) after a Dexia Event of Default has
occurred upon the direction of FSA with notice to Collateral Agent or (ii) on or
after the Senior Release Date or at any time that HF Services LLC is not acting
as Administrator, at the direction of Dexia FP with notice to Collateral Agent.

 

(i)                                     The Collateral Agent’s Lien on the FSAM
PAL Collateral will automatically terminate and be released upon the transfer of
the ordinary shares of FSA PAL (i) if a Dexia Event of Default has occurred,
upon the direction of FSA with notice to Collateral Agent or (ii) on or after
the Senior Release Date, at the direction of FSAM with notice to Collateral
Agent.

 

(j)                                     The Collateral Agent’s Lien on property
on deposit in the FSA PAL Collateral Account and FSA PAL Cash Account will
automatically terminate and be released upon the transfer of such property to
the FSA PAL Brussels Collateral Account and the FSA PAL Brussels Cash Account,
respectively, and the attachment thereto of FSAM’s Lien thereon pursuant to the
FSAM Belgian Pledge Agreement.

 

Section 2.6.                                   Changes in Locations, Name, etc.

 

(a)                                  FSAM shall not (i) change the location of
its chief executive office/chief place of business unless it is to the offices
of DCL’s New York Branch, (ii) change its name (other than to remove “FSA” from
its name, with respect to which name change notice has been given to the
Collateral Agent and each Secured Party), identity, form of organization or
corporate structure (or the equivalent) or change the location where it
maintains its books and records with respect to the FSAM Sovereign Guarantee
Collateral, and FSAM Collateral or (iii) reorganize or reincorporate under the
laws of any other jurisdiction, unless, in each case, it (w) has given the
Collateral Agent and each Secured Party at least 30 days prior written notice
thereof, (x) has delivered to the Collateral Agent and each Secured Party all
Uniform Commercial Code financing statements and amendments thereto as the
Collateral Agent or any Secured Party requests or that are required by
applicable law, (y) with respect to a change of jurisdiction, has delivered an
Opinion of Counsel that such change will not adversely affect the Collateral
Agent’s Lien or the interest of the Secured Parties herein and (z) has taken all
other reasonable actions deemed necessary or desirable by the Collateral Agent
or any Secured Party or that are required by applicable law to continue the
Collateral Agent’s perfected status in the FSAM Sovereign Guarantee Collateral,
FSAM PAL Collateral and FSAM Collateral with the same or better priorities.

 

(b)                                 No GIC Issuer shall (i) change the location
of its chief executive office/chief place of business unless it is to the
offices of DCL’s New York Branch, (ii) change its name (other than to remove
“FSA” from its name, with respect to which name change notice has been given to
the Collateral Agent and each Secured Party), identity, form of organization or
corporate structure (or the equivalent) or change the location where it
maintains its books and records with respect to the GIC Issuers Collateral
related to such GIC Issuer or (iii) reorganize or reincorporate under the laws
of any other jurisdiction, unless, in each case, it (w) has given the Collateral
Agent and each Secured Party at least 30 days prior written notice thereof,
(x) has delivered to the Collateral Agent and each Secured Party all Uniform
Commercial Code financing statements and amendments thereto as the Collateral
Agent, FSA and the

 

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Dexia Parties request or that are required by applicable law (y) with respect to
a change of jurisdiction, has delivered an Opinion of Counsel that such change
will not adversely affect the Collateral Agent’s Lien or the interest of the
Secured Parties therein and (z) has taken all other reasonable actions deemed
necessary or desirable by the Collateral Agent and the Secured Parties or that
are required by applicable law to continue the Collateral Agent’s perfected
status in such GIC Issuers Collateral with the same or better priorities.

 

(c)                                  FSA PAL shall not (i) change the location
of its chief executive office/chief place of business unless it is to the
offices of DCL’s London Branch, (ii) change its name (other than to remove “FSA”
from its name, with respect to which name change notice has been given to the
Collateral Agent and each Secured Party), identity, form of organization or
corporate structure (or the equivalent) or change the location where it
maintains its books and records with respect to the FSA PAL Collateral or (iii)
reorganize or reincorporate under the laws of any other jurisdiction, unless, in
each case, (w) has given the Collateral Agent and each Secured Party at least 30
days prior written notice thereof, (x) has delivered to the Collateral Agent and
each Secured Party all Uniform Commercial Code financing statements and
amendments thereto as the Collateral Agent and each Secured Party request or
that are required by applicable law and (y) with respect to a change of
jurisdiction, has delivered an Opinion of Counsel that such change will not
adversely affect the Collateral Agent’s Lien or the interest of the Secured
Parties therein and (z) has taken all other reasonable actions deemed necessary
or desirable by the Collateral Agent and the Secured Parties or that are
required by applicable law to continue the Collateral Agent’s perfected status
in such FSA PAL Collateral with the same or better priorities.

 

(d)                                 Dexia FP shall not (i) change the location
of its chief executive office/chief place of business unless it is to the
offices of DCL’s New York Branch, (ii) change its name, identity, form of
organization or corporate structure (or the equivalent) or change the location
where it maintains its books and records with respect to the Dexia FP Collateral
or (iii) reorganize or reincorporate under the laws of any other jurisdiction,
unless, in each case, it (w) has given the Collateral Agent and each Secured
Party at least 30 days prior written notice thereof, (x) has delivered to the
Collateral Agent and each Secured Party all Uniform Commercial Code financing
statements and amendments thereto as the Collateral Agent or any Secured Party
requests or that are required by applicable law, (y) with respect to a change of
jurisdiction, has delivered an Opinion of Counsel that such change will not
adversely affect the Collateral Agent’s Lien or the interest of the Secured
Parties herein and (z) has taken all other reasonable actions deemed necessary
or desirable by the Collateral Agent or any Secured Party or that are required
by applicable law to continue the Collateral Agent’s perfected status in the
Dexia FP Collateral with the same or better priorities.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES; COVENANTS

 

Section 3.1.                                   Representations and Warranties.

 

(a)                                  Each GIC Business Entity and Dexia FP
represents and warrants as to itself as of the date hereof that, except as
disclosed in the Disclosure Schedule:

 

(i)                                     Due Organization and Qualification. Such
party is duly organized and validly existing under the laws of the jurisdiction
of its organization, and is duly qualified to do business, is in good standing
and has obtained all necessary licenses, permits, charters, registrations and
approvals necessary for the performance of its obligations under this Agreement
and any other Transaction Document to which it is a party.

 

(ii)                                  Power and Authority. Such party has all
necessary power and authority to conduct its business as currently conducted and
as proposed to be conducted, to execute, deliver

 

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and perform its obligations under this Agreement and any other Transaction
Document to which it is a party and to consummate the transactions contemplated
hereby and thereby and to perform all its obligations hereunder and thereunder
and to deliver and pledge any Collateral, Dexia FP Collateral or FSAM PAL
Collateral (as applicable) as provided herein

 

(iii)                               Due Authorization. The execution, delivery
and performance of this Agreement and any other Transaction Document to which it
is a party have been duly authorized by such party and do not require any
additional approvals or consents or other action by or any notice to or filing
with any Person, including any Governmental Authority.

 

(iv)                              Noncontravention. Neither the execution and
delivery by it of this Agreement by such party and any other Transaction
Document to which it is a party, the consummation of the transactions
contemplated hereby or thereby nor the satisfaction of the terms and conditions
of this Agreement and any other Transaction Document to which it is a party,

 

(A)                              conflicts with or results in any breach or
violation of any provision of such party’s Organizational Documents or any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award currently in effect having applicability to such party or any of its
properties, including regulations issued by a Governmental Authority having
supervisory powers over such party;

 

(B)                                constitutes a default by such party under or
a breach of any provision of any loan agreement, mortgage, indenture or other
agreement or instrument to which such party is a party or by which it or any of
its properties is or may be bound or affected; or

 

(C)                                results in or requires the creation of any
Lien upon or in respect of any of such party’s assets except as contemplated in
the Transaction Documents.

 

(v)                                 Legal Proceedings. Other than as disclosed
in the Annual Report on Form 10-K for the year ended December 31, 2008, or the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, as filed by
FSAH with the SEC, there is no litigation, action, proceeding, suit or
investigation by or before any Governmental Authority against or affecting such
party or any of its properties or rights or any of the Collateral, Dexia FP
Collateral or FSAM PAL Collateral it has Granted hereunder either pending or, to
such party’s knowledge after reasonable inquiry, threatened that, if determined
adversely to such party, would reasonably be likely to result in a Material
Adverse Change with respect to such party.

 

(vi)                              Valid and Binding Obligations. This Agreement
and any other Transaction Document to which it is a party, when executed and
delivered by such party, will constitute the legal, valid and binding obligation
of such party, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights generally.

 

(vii)                           Compliance With Law, Etc. No practice, procedure
or policy currently employed or proposed to be employed by such party in the
conduct of its business violates any law, rule, regulation, judgment, agreement,
order or decree applicable to such party or by which such party or its assets
may be bound, which violation would be reasonably likely to result in a Material
Adverse Change with respect to such party. Such party is not in breach of or in
default under any applicable law or administrative regulation of the
jurisdiction of its organization, or any Governmental Authority thereof or any
applicable judgment or decree or any note, resolution, certificate, agreement or
other instrument to which such party is a party or is otherwise subject

 

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which, if enforced, would reasonably be likely to result in a Material Adverse
Change with respect to such party.

 

(viii)                        No Investment Company Act Registration. Such party
is not required to be registered as an “investment company” under the Investment
Company Act.

 

(ix)                                Taxes. Such party has filed all tax returns
which are required to be filed and timely paid all taxes (including stamp
taxes), if applicable, including any assessments received by it, to the extent
that such taxes have become due, the non-filing or non-payment of which would
result in a claim against such party in excess of $10,000,000. Any taxes, fees
and other governmental charges payable by such party in connection with its
execution and delivery of and performance under the Transaction Documents to
which it is a party have been paid or shall have been paid at or prior to the
Closing Date if such taxes, fees or other governmental charges were due on or
prior to the Closing Date, to the extent non-payment would result in a claim
against such party in excess of $10,000,000.

 

(x)                                   Solvency. Such party is solvent and will
not be rendered insolvent by the transactions contemplated by the Transaction
Documents and, after giving effect to such transactions, such party does not
believe that it has incurred, and does not intend to incur, debts beyond its
ability to pay such debts as they mature. Such party does not contemplate the
commencement of insolvency, bankruptcy, liquidation or consolidation proceedings
or the appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of such party or any substantial part of its assets. Such
party has not charged or assigned and is not charging or assigning its interest
in Collateral, Dexia FP Collateral or FSAM PAL Collateral Granted by it
hereunder with any intent to hinder, delay or defraud any of such party’s
creditors.

 

(xi)                                Transaction Documents. Each of the
representations and warranties of such party contained in the Transaction
Documents (other than the Insurance Agreements) is true and correct in all
material respects and such party hereby makes each such representation and
warranty to, and for the benefit of, FSA as if the same were set forth in full
herein.

 

(xii)                             Employees. No such party has or has had any
employees nor has or has owned, rented, leased or been in possession of any
building or other real property.

 

(xiii)                          In the case of FSA Capital Markets and FSA
Capital Management, such party is a “qualified institutional buyer” within the
meaning of Rule 144A under the United States Securities Act of 1933, as amended,
and a “qualified purchaser” for purposes of the Investment Company Act.

 

(b)                                 FSA represents and warrants as of the date
hereof that, except as disclosed in the Disclosure Schedule:

 

(i)                                     Due Organization and Qualification. It
is duly organized and validly existing under the laws of the jurisdiction of its
organization, and is duly qualified to do business, is in good standing and has
obtained all necessary licenses, permits, charters, registrations and approvals
necessary for the performance of its obligations under this Agreement and any
other Transaction Document to which it is a party.

 

(ii)                                  Power and Authority. It has all necessary
power and authority to conduct its business as currently conducted and as
proposed to be conducted, to execute, deliver and perform its obligations under
this Agreement and any other Transaction Document to which it is a party and to
consummate the transactions contemplated hereby and thereby and to perform all
its

 

14

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obligations hereunder and thereunder and to deliver and pledge any Collateral,
Dexia FP Collateral or FSAM PAL Collateral (as applicable) as provided herein.

 

(iii)                               Due Authorization. The execution, delivery
and performance of this Agreement and any other Transaction Document to which it
is a party have been duly authorized by it and do not require any additional
approvals or consents or other action by or any notice to or filing with any
Person, including any Governmental Authority.

 

(iv)                              Noncontravention. Neither the execution and
delivery by it of this Agreement and any other Transaction Document to which it
is a party, the consummation of the transactions contemplated hereby or thereby
nor the satisfaction of the terms and conditions of this Agreement and any other
Transaction Document to which it is a party,

 

(A)                              conflicts with or results in any breach or
violation of any provision of its Organizational Documents or any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
currently in effect having applicability to it or any of its properties,
including regulations issued by a Governmental Authority having supervisory
powers over it; or

 

(B)                                constitutes a material default by it under or
a breach of any provision of any loan agreement, mortgage, indenture or other
agreement or instrument to which it is a party or by which it or any of its
properties is or may be bound or affected.

 

(v)                                 Legal Proceedings. Other than as disclosed
in the Annual Report on Form 10-K for the year ended December 31, 2008, or the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, as filed by
FSAH with the SEC, there is no litigation, action, proceeding, suit or
investigation by or before any Governmental Authority against or affecting it or
any of its properties or rights either pending or, to its knowledge after
reasonable inquiry, threatened that, if determined adversely to it, would
reasonably be likely to result in a Material Adverse Change with respect to it.

 

(vi)                              Valid and Binding Obligations. This Agreement
and any other Transaction Document to which it is a party, when executed and
delivered by it, will constitute the legal, valid and binding obligation of it,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors’ rights generally.

 

(vii)                           Compliance With Law, Etc. It is not in breach of
or in default under any applicable law or administrative regulation of the
jurisdiction of its organization, or any Governmental Authority thereof or any
applicable judgment or decree or any note, resolution, certificate, agreement or
other instrument to which it is a party or is otherwise subject which, if
enforced, would reasonably be likely to result in a Material Adverse Change with
respect to it.

 

(viii)                        Taxes. It has filed all tax returns which are
required to be filed and timely paid all taxes (including stamp taxes), if
applicable, including any assessments received by it, to the extent that such
taxes have become due, the non-filing or non-payment of which would result in a
Material Adverse Change to it. Any taxes, fees and other governmental charges
payable by it in connection with its execution and delivery of and performance
under the Transaction Documents to which it is a party have been paid or shall
have been paid at or prior to the Closing Date if such taxes, fees or other
governmental charges were due on or prior to the Closing Date, to the extent
non-payment would reasonably be likely to result in a Material Adverse Change.

 

15

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(ix)                                Solvency. It does not contemplate the
commencement of insolvency, bankruptcy, liquidation or consolidation proceedings
or the appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of such party or an of its assets. Such party has not
charged or assigned and is not charging or assigning its interest in Collateral,
Dexia FP Collateral or FSAM PAL Collateral applicable to it with any intent to
hinder, delay or defraud any of such party’s creditors.

 

(x)                                   Financial Participant. It is a “financial
participant” as defined in the United States Bankruptcy Code.

 

(c)                                  Each of the Dexia Guarantors represents and
warrants as of the date hereof that, except as disclosed in the Disclosure
Schedule:

 

(i)                                     Due Organization and Qualification. It
is duly organized and validly existing under the laws of the jurisdiction of its
organization, and is duly qualified to do business, is in good standing and has
obtained all necessary licenses, permits, charters, registrations and approvals
necessary for the performance of its obligations under this Agreement and any
other Transaction Document to which it is a party.

 

(ii)                                  Power and Authority. It has all necessary
power and authority to conduct its business as currently conducted and as
proposed to be conducted, to execute, deliver and perform its obligations under
this Agreement and any other Transaction Document to which it is a party and to
consummate the transactions contemplated hereby and thereby and to perform all
its obligations hereunder and thereunder and to deliver and pledge any
Collateral, Dexia FP Collateral or FSAM PAL Collateral (as applicable) as
provided herein.

 

(iii)                               Due Authorization. The execution, delivery
and performance of this Agreement and any other Transaction Document to which it
is a party have been duly authorized by it and do not require any additional
approvals or consents or other action by or any notice to or filing with any
Person, including any Governmental Authority.

 

(iv)                              Noncontravention. Neither the execution and
delivery by it of this Agreement and any other Transaction Document to which it
is a party, the consummation of the transactions contemplated hereby or thereby
nor the satisfaction of the terms and conditions of this Agreement and any other
Transaction Document to which it is a party,

 

(A)                         conflicts with or results in any breach or violation
of any provision of its Organizational Documents or any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award currently in
effect having applicability to it or any of its properties, including
regulations issued by a Governmental Authority having supervisory powers over
it; or

 

(B)                           constitutes a material default by it under or a
breach of any provision of any loan agreement, mortgage, indenture or other
agreement or instrument to which it is a party or by which it or any of its
properties is or may be bound or affected.

 

(v)                                 Legal Proceedings. Other than as disclosed
in the annual reports of the Dexia Guarantors with respect to fiscal year 2008
and any subsequent quarterly or semi-annual financial reports (or updates
thereto) of either Dexia Guarantor prior to the date hereof, there is no
litigation, action, proceeding, suit or investigation by or before any
Governmental Authority against or affecting it or any of its properties or
rights either pending or, to its knowledge after

 

16

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reasonable inquiry, threatened that, if determined adversely to it, would
reasonably be likely to result in a Material Adverse Change with respect to it.

 

(vi)                              Valid and Binding Obligations. This Agreement
and any other Transaction Document to which it is a party, when executed and
delivered by it, will constitute the legal, valid and binding obligation of it,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors’ rights generally.

 

(vii)                           Compliance With Law, Etc. It is not in breach of
or in default under any applicable law or administrative regulation of the
jurisdiction of its organization, or any Governmental Authority thereof or any
applicable judgment or decree or any note, resolution, certificate, agreement or
other instrument to which it is a party or is otherwise subject which, if
enforced, would reasonably be likely to result in a Material Adverse Change with
respect to it.

 

(viii)                        Taxes. It has filed all tax returns which are
required to be filed and timely paid all taxes (including stamp taxes), if
applicable, including any assessments received by it, to the extent that such
taxes have become due, the non-filing or non-payment of which would result in a
Material Adverse Change to it. Any taxes, fees and other governmental charges
payable by it in connection with its execution and delivery of and performance
under the Transaction Documents to which it is a party have been paid or shall
have been paid at or prior to the Closing Date if such taxes, fees or other
governmental charges were due on or prior to the Closing Date, to the extent
non-payment would reasonably be likely to result in a Material Adverse Change.

 

(ix)                                Solvency. It does not contemplate the
commencement of insolvency, bankruptcy, liquidation or consolidation proceedings
or the appointment of a received, liquidator, conservator, trustee or similar
official in respect of such party or an of its assets. Such party has not
charged or assigned and is not charging or assigning its interest in Collateral,
Dexia FP Collateral or FSAM PAL Collateral with any intent to hinder, delay or
defraud any of such party’s creditors.

 

(d)                                 The Collateral Agent represents and warrants
as of the date hereof that:

 

(i)                                     Due Organization and Qualification. It
is duly organized and validly existing as a national banking association, and is
duly qualified to do business and has obtained all necessary licenses, permits,
charters, registrations and approvals necessary for the performance of its
obligations under this Agreement and any other Transaction Document to which it
is a party.

 

(ii)                                  Power and Authority. It has all necessary
power and authority to conduct its business as currently conducted and as
proposed to be conducted, to execute, deliver and perform its obligations under
this Agreement and any other Transaction Document to which it is a party and to
consummate the transactions contemplated hereby and thereby.

 

(iii)                               Due Authorization. The execution, delivery
and performance of this Agreement and any other Transaction Document to which it
is a party have been duly authorized by it and do not require any additional
approvals or consents by or any notice to or registration or filing with any
Person, including any Governmental Authority.

 

(iv)                              Noncontravention. Neither the execution and
delivery by it of this Agreement and any other Transaction Document to which it
is a party, the consummation of the transactions contemplated hereby or thereby
nor the satisfaction of the terms and conditions of this Agreement and any other
Transaction Document to which it is a party conflicts with or results in any
breach

 

17

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or violation of any provision of its Organizational Documents or any law, rule,
regulation, order, writ, judgment, injunction or decree currently in effect
having applicability to it or any of its properties, including regulations
issued by a Governmental Authority having supervisory powers over it.

 

(v)                                 Valid and Binding Obligations. This
Agreement and any other Transaction Document to which it is a party, when
executed and delivered by it, will constitute the legal, valid and binding
obligation of it, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights generally and
subject to equitable principles of general application.

 

(vi)                              Eligibility. It is eligible under Section 6.3
to serve as Collateral Agent hereunder.

 

Section 3.2.                                   Representations with Respect to
the GIC Business. The Dexia Guarantors represent and warrant that as of the date
hereof:

 

(a)                                  Termination of Master Repurchase
Agreements. Each master repurchase agreement between FSAM and Unaffiliated
Counterparties, whether or not guaranteed by FSA, have been terminated on or
prior to the Closing Date and any and all amounts due and payable to any
counterparty thereunder have been fully paid on or prior to October 31, 2008,
and the related FSA Policies (if any) have been terminated in accordance with
their terms.

 

(b)                                 Termination of Securities Lending Facility.
The Securities Lending Facility has been terminated on or prior to the Closing
Date and no “loans” (as defined therein) were made thereunder and no amounts
remain due and payable thereunder.

 

(c)                                  List of GIC Contracts. The list of GIC
Contracts set forth in Annex B includes all GIC Contracts outstanding as of
June 26, 2009 that produce liabilities to (x) FSA under related GIC Policies,
(y) a GIC Issuer under a GIC Contract or (z) FSAM under a master repurchase
agreement. All information set forth in the list of GIC Contracts with respect
to any GIC Contract is true, correct, accurate and complete in all material
respects as to such GIC Contract; provided that the parties hereto acknowledge
and agree that no representation or warranty is made regarding the subcategories
of data in Annex B for which no information is provided with respect to GIC
Contracts having an unpaid principal balance of $5,000,000 or less.

 

(d)                                 List of FSA Policies. The list of FSA
Policies set forth in Annex C includes all FSA Policies outstanding as of
June 26, 2009 and identifies which of such policies constitute (i) GIC Policies
related to GIC Contracts owned by Unaffiliated Parties; (ii) GIC Policies
related to GIC Contracts owned by FSA Global Funding Limited; (iii) Hedge
Policies related to Third Party Hedge Agreements and (iv) Secondary Policies.
The list set forth in Annex C is true, correct, accurate and complete in all
material respects. All FSA Policies have been terminated on or prior to the
Closing Date except for the Retained FSA Policies and the parties hereto agree
that any FSA Policies solely benefiting FSAM or the Dexia Guarantors that are
not Retained FSA Policies have been terminated. To their knowledge, after
reasonable inquiry, no financial guarantees issued by FSA or any of its
Affiliates remain outstanding with respect to the GIC Business, the GIC Business
Entities or any Material Agreement except Retained FSA Policies.

 

(e)                                  List of Hedge Agreements. The list of Hedge
Agreements set forth in Annex D (i) includes all Hedge Agreements outstanding on
June 26, 2009 that produce liabilities to FSA under related Hedge Policies or
that produce liabilities of FSAM with respect thereto, and (ii) such list is
true, correct, accurate and complete in all material respects.

 

18

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(f)                                    FSAM Assets.

 

(i)                                     To their knowledge after reasonable
inquiry, each FSAM Asset (A) is either (1) a note, (2) stock, (3) treasury
stock; (4) a bond; (5) a debenture; (6) a collateral trust certificate; (7) a
pre-organization certificate or subscription; (8) a transferable share; (9) a
voting-trust certificate; (10) a certificate of deposit; (11) a certificate of
deposit for security; (12) an investment contract or certificate of interest or
participation in a profit-sharing agreement or in an oil, gas, or mineral
royalty or lease, if such contract or interest is required to be the subject of
a registration statement filed with the Securities and Exchange Commission under
the provisions of the Securities Act of 1933, or is exempt under section 3(b) of
such Act from the requirement to file such a statement; (14) an interest of a
limited partner in a limited partnership; (15) an other claim or interest
commonly known as “security”; and (16) a certificate of interest or
participation in, temporary or interim certificate for, receipt for, or warrant
or right to subscribe to or purchase or sell, a security; but (B) it is not
(1) currency, a check, draft, bill of exchange, or bank letter of credit; (2) a
leverage transaction, as defined in section 761 of this title; (3) a commodity
futures contract or forward contract; (4) an option, warrant, or right to
subscribe to or purchase or sell a commodity futures contract; (5) an option to
purchase or sell a commodity; (6) a contract or certificate of a kind specified
in subclause (A)(12) that is not required to be the subject of a registration
statement filed with the Securities and Exchange Commission and is not exempt
under section 3(b) of the Securities Act of 1933 from the requirement to file
such a statement; or (7) a debt or evidence of indebtedness for goods sold and
delivered or services rendered.

 

(ii)                                  The terms of each FSAM Asset do not
prohibit such FSAM Asset from being sold or transferred to one or more of the
Dexia Guarantors or, other than with respect to assets owned by FSA PAL, one or
more GIC Issuers and such sale or transfer would not be prohibited by any
applicable law, including federal or state securities laws.

 

(iii)                               Each FSAM Asset has a principal balance
(which in some cases accretes over time or is subject to increases or decreases
based on an increase or decrease in a designated index), accrues and pays
interest (other than zero coupon assets) and converts by its terms into cash
within a finite period of time.

 

(g)                                 The reports, memoranda and data relating to
the GIC Business listed in Annex L (collectively, the “Specified Diligence
Items”) are true, correct, accurate and complete as of the date of each
Specified Diligence Item stated therein in all material respects, subject to the
qualifications set forth on Annex L.

 

(h)                                 The entire commitment amount under the
Capital Commitment Agreement, dated November 13, 2008, between DHI, FSAH and
FSAM, as amended, modified or supplemented through the date hereof, has been
contributed.

 

(i)                                     The Dexia Guarantors have reviewed each
of the UCC financing statements referenced in the lien search results attached
hereto as Annex M and hereby represent that none of the Liens referenced therein
are against the Collateral, the Dexia FP Collateral or the FSAM PAL Collateral,
other than Previous Liens.

 

(j)                                     The guarantee provided by FSAH with
respect to the obligations of FSA PAL under the FSA PAL Clearing and Custody
Agreement has been terminated.

 

19

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Section 3.3.                                   Representations and Warranties
With Respect to the Collateral.

 

(a)                                  Each Dexia Guarantor represents, warrants
and agrees on its own behalf with respect to the Dexia Collateral related to it
as of the Closing Date and on any date on which Dexia Collateral is Delivered to
the relevant Intermediary, and without limitation of the representations made
under the Dexia CSAs, that:

 

(i)                                     This Agreement creates a valid and
continuing security interest (as defined in the UCC) in such Dexia Collateral in
favor of the Collateral Agent, which security interest is prior to all other
Liens (except for any Permitted Liens), and is enforceable as such as against
creditors of and purchasers from such Dexia Guarantor. The security interest of
the Collateral Agent in such Dexia Collateral will, until the obligations and
indebtedness secured hereunder have been Paid in Full and termination of this
Agreement, be a perfected security interest in such Dexia Collateral, senior to
all other security interests in such Dexia Collateral.

 

(ii)                                  It owns such Dexia Collateral free and
clear of any Lien, claim or encumbrance of any Person and it has acquired its
ownership in such Dexia Collateral in good faith without notice of any Adverse
Claim, except for any Permitted Lien.

 

(iii)                               Other than any Permitted Lien, it has not
pledged, assigned, sold, granted a Lien on or security interest in, or otherwise
conveyed any of such Dexia Collateral. It has not authorized the filing of and
is not aware of any financing statements against it that include a description
of such Dexia Collateral.

 

(iv)                              None of the Instruments, Tangible Chattel
Paper or Certificated Securities that constitute or evidence such Dexia
Collateral has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Collateral Agent, or
in connection with any Permitted Lien.

 

(v)                                 It has received all consents and approvals
required by the terms of such Dexia Collateral to the transfer to the Collateral
Agent of its interest and rights in such Dexia Collateral hereunder and it has
full right to Grant a security interest in and assign and pledge all of its
right, title and interest in such Dexia Collateral to the Collateral Agent.

 

(vi)                              It has not consented to the Intermediary’s
complying with Entitlement Orders or other instructions originated by any Person
other than the Collateral Agent in connection with any Securities Account or any
instructions of any Person other than the Collateral Agent with respect to the
disposition of funds credited to any Deposit Account. All of such Dexia
Collateral consisting of Security Entitlements and Financial Assets has been
credited to the Dexia Collateral Account. The Intermediary for the Dexia
Collateral Account has agreed to treat all “collateral” (as defined in the
related Securities Account Control Agreement) other than cash credited to the
Dexia Collateral Account as Financial Assets. The Intermediary has agreed that
the Dexia Collateral Account consists of a Securities Account to the extent of
Financial Assets credited thereto and a Deposit Account to the extent of any
cash or uninvested funds deposited therein or credited thereto. It acknowledges
that the Intermediary has agreed, pursuant to the related Securities Account
Control Agreement, to comply with all Entitlement Orders and other instructions
originated by the Collateral Agent in relation to the Dexia Collateral Account,
without its further consent and that the Dexia Collateral Account has been
opened by the Intermediary outside the State of New York.

 

(vii)                           Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organizational documents as filed with its

 

20

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jurisdiction of organization and on the signature page hereof, and each is an
organization of the type set forth in the introductory statement and organized
in the jurisdiction set forth in the introductory statement to this Agreement.
It has not, during the past five years, been known by or used any other
corporate or fictitious name, been a party to any merger or consolidation or
changed its organizational legal entity designation or jurisdiction of
organization.

 

(b)                                 FSAM represents, warrants and agrees as of
the Closing Date and on any date on which FSAM Collateral or Excluded FSAM
Collateral is Delivered to the relevant Intermediary that:

 

(i)                                     This Agreement creates a valid and
continuing security interest (as defined in the UCC) in the FSAM Sovereign
Guarantee Collateral and the FSAM Collateral in favor of the Collateral Agent,
which security interest is prior to all other Liens (except for any Permitted
Liens), and is enforceable as such as against creditors of and purchasers from
FSAM. The security interest of the Collateral Agent in the FSAM Collateral will,
until the obligations and indebtedness secured hereunder have been Paid in Full
and termination of this Agreement, be a perfected security interest in the FSAM
Collateral, senior to all other security interests in the FSAM Collateral,
except for a Permitted Lien.

 

(ii)                                  It owns the FSAM Collateral free and clear
of any Lien, claim or encumbrance of any Person and it has acquired its
ownership in the FSAM Collateral in good faith without notice of any Adverse
Claim, except for any Permitted Lien and any Previous Liens (which have been
amended and restated herein).

 

(iii)                               Other than any Permitted Lien and any
Previous Liens (which have been amended and restated herein) and other than as
permitted by 2.2, it has not pledged, assigned, sold, granted a Lien on or
security interest in, or otherwise conveyed any of the FSAM Collateral. It has
not authorized the filing of and is not aware of any financing statements
against it that include a description of the FSAM Collateral.

 

(iv)                              None of the Instruments, Chattel Paper or
Certificated Securities that constitute or evidence the FSAM Collateral has any
marks or notations indicating that they have been pledged, assigned or otherwise
conveyed to any Person other than the Collateral Agent, or in connection with
any Permitted Lien.

 

(v)                                 It has received all consents and approvals
required by the terms of the FSAM Collateral to the transfer to the Collateral
Agent of its interest and rights in the FSAM Collateral hereunder and it has
full right to Grant a security interest in and assign and pledge all of its
right, title and interest in the FSAM Collateral to the Collateral Agent.

 

(vi)                              Other than pursuant to the Previous Liens
(which have been amended and restated herein), it has not consented to the
Intermediary’s complying with Entitlement Orders or other instructions
originated by any Person other than the Collateral Agent in connection with any
Securities Account or any instructions of any Person other than the Collateral
Agent with respect to the disposition of funds credited to any Deposit Account.
All of such FSAM Collateral consisting of Security Entitlements and Financial
Assets has been credited to the FSAM Collateral Account. The Intermediary for
the FSAM Collateral Account has agreed to treat all “collateral” (as defined in
the related Securities Account Control Agreement) other than cash credited to
the FSAM Collateral Account as Financial Assets. The Intermediary has agreed
that the FSAM Collateral Account consists of a Securities Account to the extent
of Financial Assets credited thereto and a Deposit Account to the extent of any
cash or uninvested funds deposited therein or credited thereto. It acknowledges
that the Intermediary has agreed, pursuant to the related Securities Account
Control Agreement, to comply with all Entitlement Orders and other

 

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instructions originated by the secured party named therein in relation to the
FSAM Collateral Account, without its further consent and that the Intermediary’s
jurisdiction with respect to the FSAM Collateral Account is the State of New
York.

 

(vii)                           Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organizational documents as filed with its jurisdiction of organization and
on the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, during the past five years, been known by or used
any other corporate or fictitious name, been a party to any merger or
consolidation or changed its organizational legal entity designation or
jurisdiction of organization.

 

(c)                                  Each GIC Issuer represents, warrants and
agrees on its own behalf with respect to the GIC Issuers Collateral as of the
Closing Date and on any date on which GIC Issuers Collateral or Excluded GIC
Issuers Collateral is Delivered to the relevant Intermediary that:

 

(i)                                     This Agreement creates a valid and
continuing security interest (as defined in the UCC) in such GIC Issuers
Collateral in favor of the Collateral Agent, which security interest is prior to
all other Liens (except for any Permitted Liens), and is enforceable as such as
against creditors of and purchasers from such GIC Issuer. The security interest
of the Collateral Agent in such GIC Issuers Collateral will, until the
obligations and indebtedness secured hereunder have been Paid in Full and
termination of this Agreement, be a perfected security interest in such GIC
Issuers Collateral senior to all other security interests in such GIC Issuers
Collateral, except for any Permitted Lien.

 

(ii)                                  It owns such GIC Issuers Collateral free
and clear of any lien, claim or encumbrance of any Person and it has acquired
its ownership in such GIC Issuers Collateral in good faith without notice of any
Adverse Claim, except for any Permitted Lien and any Previous Liens (which have
been amended and restated herein).

 

(iii)                               Other than any Permitted Lien and any
Previous Liens (which have been amended and restated herein), it has not
pledged, assigned, sold, granted a Lien on or security interest in, or otherwise
conveyed any of such GIC Issuers Collateral. It has not authorized the filing of
and is not aware of any financing statements against it that include a
description of such GIC Issuers Collateral.

 

(iv)                              None of the Instruments, Tangible Chattel
Paper or Certificated Securities that constitute or evidence such GIC Issuers
Collateral has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Collateral Agent, or
in connection with any Permitted Lien.

 

(v)                                 It has received all consents and approvals
required by the terms of such GIC Issuers Collateral to the transfer to the
Collateral Agent of its interest and rights in such GIC Issuers Collateral
hereunder and it has full right to Grant a security interest in and assign and
pledge all of its right, title and interest in such GIC Issuers Collateral to
the Collateral Agent.

 

(vi)                              Other than pursuant to the Previous Liens
(which have been amended and restated herein), it has not consented to the
Intermediary’s complying with Entitlement Orders or other instructions
originated by any Person other than the Collateral Agent in connection with any
Securities Account or any instructions of any Person other than the Collateral
Agent with respect to the disposition of funds credited to any Deposit Account.
All of such GIC Issuers Collateral consisting of Security Entitlements and
Financial Assets has been credited to the related GIC

 

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Issuers Collateral Account. The Intermediary for the related GIC Issuers
Collateral Account has agreed to treat all “collateral” (as defined in the
related Securities Account Control Agreement) other than cash credited to the
related GIC Issuers Collateral Account as Financial Assets. The Intermediary has
agreed that the related GIC Issuers Collateral Account consists of a Securities
Account to the extent of Financial Assets credited thereto and a Deposit Account
to the extent of any cash or uninvested funds deposited therein or credited
thereto. It acknowledges that the Intermediary has agreed, pursuant to the
related Securities Account Control Agreement, to comply with all Entitlement
Orders and other instructions originated by the secured party named therein in
relation to the related GIC Issuers Collateral Account, without its further
consent and that the Intermediary’s jurisdiction with respect to the related GIC
Issuers Collateral Account is the State of New York.

 

(vii)                           Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organization documents as filed with its jurisdiction of organization and on
the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, during the past five years, been known by or used
any other corporate or fictitious name, been a party to any merger or
consolidation or changed its organizational legal entity designation or
jurisdiction of organization.

 

(d)                                 FSA PAL represents, warrants and agrees as
of the Closing Date and on any date on which FSA PAL Collateral is Delivered to
the relevant Intermediary that:

 

(i)                                     This Agreement creates a valid and
continuing security interest (as defined in the UCC) in the FSA PAL Collateral
in favor of the Collateral Agent, which security interest is prior to all other
Liens (except for any Permitted Liens), and is enforceable as such as against
creditors of and purchasers from FSA PAL. The security interest of the
Collateral Agent in the FSA PAL Collateral will, until the obligations and
indebtedness secured hereunder have been Paid in Full and termination of this
Agreement, be a perfected security interest in the FSA PAL Collateral senior to
all other security interests in the FSA PAL Collateral, except for a Permitted
Lien.

 

(ii)                                  It owns the FSA PAL Collateral free and
clear of any Lien, claim or encumbrance of any Person and it has acquired its
ownership in the FSA PAL Collateral in good faith without notice of any Adverse
Claim, except for any Permitted Lien and any Previous Liens (which have been
amended and restated herein).

 

(iii)                               Other than any Permitted Lien and any
Previous Liens (which have been amended and restated herein), it has not
pledged, assigned, sold, granted a Lien on or security interest in, or otherwise
conveyed any of the FSA PAL Collateral. It has not authorized the filing of and
is not aware of any financing statements against it that include a description
of the FSA PAL Collateral.

 

(iv)                              None of the Instruments, Tangible Chattel
Paper or Certificated Securities that constitute or evidence the FSA PAL
Collateral has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Collateral Agent, or
in connection with any Permitted Lien.

 

(v)                                 It has received all consents and approvals
required by the terms of the FSA PAL Collateral to the transfer to the
Collateral Agent of its interest and rights in the FSA PAL Collateral hereunder
and it has full right to Grant a security interest in and assign and pledge all
of its right, title and interest in the FSA PAL Collateral to the Collateral
Agent.

 

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(vi)                              Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organization documents as filed with its jurisdiction of organization and on
the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, during the past five years, been known by or used
any other corporate or fictitious name, been a party to any merger or
consolidation or changed its organizational legal entity designation or
jurisdiction of organization.

 

(vii)                           Other than pursuant to the Previous Liens (which
have been amended and restated herein), it has not consented to the
Intermediary’s complying with Entitlement Orders or other instructions
originated by any Person other than the Collateral Agent in connection with any
Securities Account or any instructions of any Person other than the Collateral
Agent or FSA with respect to the disposition of funds credited to any Deposit
Account. All of such FSA PAL Collateral consisting of Security Entitlements and
Financial Assets has been credited to the FSA PAL Collateral Account. The
Intermediary for the FSA PAL Collateral Account has agreed to treat all
“collateral” (as defined in the related Securities Account Control Agreement)
other than cash credited to the FSA PAL Collateral Account as Financial Assets.
The Intermediary has agreed that the FSA PAL Collateral Account consists of a
Securities Account to the extent of Financial Assets credited thereto and a
Deposit Account to the extent of any cash or uninvested funds deposited therein
or credited thereto. It acknowledges that the Intermediary has agreed, pursuant
to the related Securities Account Control Agreement, to comply with all
Entitlement Orders and other instructions originated by the secured party named
therein in relation to the FSA PAL Collateral Account, without its further
consent and that the Intermediary’s jurisdiction with respect to the FSA PAL
Collateral Account is the State of New York.

 

(e)                                  Dexia FP represents, warrants and agrees
with respect to the Dexia FP Collateral as of the Closing Date that:

 

(i)                                     This Agreement creates a valid and
continuing security interest (as defined in the UCC) in such Dexia FP Collateral
in favor of the Collateral Agent, which security interest is prior to all other
Liens.

 

(ii)                                  It has not pledged, assigned, sold,
granted a Lien on or security interest in, or otherwise conveyed the Dexia FP
Collateral. It has not authorized the filing of and is not aware of any
financing statements against it that include a description of the Dexia FP
Collateral.

 

(iii)                               It has received all consents and approvals
required for the transfer of the Dexia FP Collateral to the Collateral Agent of
its interest and rights in the Dexia FP Collateral hereunder and it has full
right to Grant a security interest in and assign and pledge all of its right,
title and interest in such Dexia FP Collateral to the Collateral Agent.

 

(iv)                              Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organizational documents as filed with its jurisdiction of organization and
on the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, since its incorporation, been known by or used any
other corporate or fictitious name, been a party to any merger or consolidation
or changed its organizational legal entity designation or jurisdiction of
organization except that it changed its name from “FSA Financial Products Inc.”
to “Dexia FP Holdings Inc.” on or before the Closing Date.

 

(v)                                 It acknowledges that the Dexia FP Collateral
(A) is not dealt in or traded on securities exchanges or in securities markets,
(B) is not investment company securities and (C)

 

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the terms of HF Services LLC’ s Organizational Documents do not expressly
provide that the Dexia FP Collateral is a security governed by Article 8 of the
of the Delaware Uniform Commercial Code. It will not: (x) amend or modify HF
Services LLC’s Organizational Documents, or permit any Person to amend or modify
the Organizational Documents of HF Services LLC, to provide that the Dexia FP
Collateral is securities governed by Article 8 of the Delaware Uniform
Commercial Code or otherwise constitutes “securities” under Article 8 of the
Delaware Uniform Commercial Code or (y) provide for the Dexia FP Collateral to
be dealt in or traded on securities exchanges or in securities markets, in each
of (A) and (B) above, without the prior written consent of FSA.

 

(vi)                              By virtue of the execution and delivery by it
of this Agreement, upon the filing of a UCC financing statement indicating the
Dexia FP Collateral in the offices of the Secretary of State of the State of
Delaware (naming it as the debtor and the Collateral Agent as the secured
party), the Collateral Agent will have a valid and perfected first priority
security interest in the Dexia FP Collateral for the benefit of FSA under the
law of any State of the United States as security for the payment and
performance of all obligations of FSAM and the GIC Issuers to FSA.

 

(vii)                           The Dexia FP Collateral is (i) duly authorized
and validly existing and (ii) not subject to any options to purchase or other
similar rights or subject to any legal or contractual restriction other than
those arising under the Organizational Documents of HF Services LLC, the
Securities Act and this Agreement. All information set forth herein relating to
Dexia FP Collateral is accurate and complete in all material respects.

 

(f)                                    FSAM represents, warrants and agrees with
respect to the FSAM PAL Collateral as of the Closing Date that:

 

(i)                                     This Agreement creates a valid and
continuing security interest (as defined in the UCC) in such FSAM PAL Collateral
in favor of the Collateral Agent, which security interest is prior to all other
Liens.

 

(ii)                                  It has not pledged, assigned, sold,
granted a Lien on or security interest in, or otherwise conveyed the FSAM PAL
Collateral. It has not authorized the filing of and is not aware of any
financing statements against it that include a description of the FSAM PAL
Collateral.

 

(iii)                               It has received all consents and approvals
required for the transfer of the FSAM PAL Collateral to the Collateral Agent of
its interest and rights in the FSAM PAL Collateral hereunder and it has full
right to Grant a security interest in and assign and pledge all of its right,
title and interest in such FSAM PAL Collateral to the Collateral Agent.

 

(iv)                              Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organization documents as filed with its jurisdiction of organization and on
the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, since its incorporation, been known by or used any
other corporate or fictitious name, been a party to any merger or consolidation
or changed its organizational legal entity designation or jurisdiction of
organization.

 

(v)                                 It acknowledges that the FSAM PAL Collateral
(A) is not dealt in or traded on securities exchanges or in securities markets,
(B) is not investment company securities and (C) the terms of FSA PAL’s
Organizational Documents do not expressly provide that the FSAM PAL

 

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Collateral is a security governed by Article 8 of the of the Delaware Uniform
Commercial Code. It will not (x) amend or modify FSA PAL Organizational
Documents, or permit any Person to amend or modify the Organizational Documents
of FSA PAL, to provide that the FSAM PAL Collateral is securities governed by
Article 8 of the Delaware Uniform Commercial Code or otherwise constitutes
“securities” under Article 8 of the Delaware Uniform Commercial Code or
(y) provide for the FSAM PAL Collateral to be dealt in or traded on securities
exchanges or in securities markets, in each of clauses (A) and (B) above,
without the prior written consent of FSA.

 

(vi)                              The FSAM PAL Collateral is (i) duly authorized
and validly existing and (ii) not subject to any options to purchase or other
similar rights or subject to any legal or contractual restriction other than
those arising under the Organizational Documents of FSA PAL, the Securities Act
and this Agreement. All information set forth herein relating to FSAM PAL
Collateral is accurate and complete in all material respects.

 

Section 3.4.                                   Affirmative Covenants of FSAM.
FSAM hereby agrees that during the term of this Agreement, except as otherwise
provided in the GIC Business Documents, unless each of (x) Dexia and (y) prior
to the FSAM Lien Release Date, FSA, shall otherwise expressly consent in
writing:

 

(a)                                  FSAM shall perform each of its obligations
under the GIC Business Documents to which it is party and comply with all
material requirements of any law, rule or regulation applicable to it, its
material properties, the FSAM Sovereign Guarantee Collateral and the FSAM
Collateral.

 

(b)                                 FSAM shall comply in all material respects
with the requirements and limitations of its powers set forth in, and will
observe all procedures required by, its Organizational Documents, including that
it shall not amend certain sections of its Organizational Documents as provided
therein. FSAM shall take all appropriate action necessary to maintain its
existence and good standing under the laws of the State of Delaware.

 

(c)                                  FSAM shall keep or cause to be kept in
reasonable detail books and records of account of FSAM’s assets and business,
including books and records relating to the GIC Business Documents to which it
is party, which shall be made available to FSA as described in clause (e). Such
books and records of account shall include statements of account with respect to
transactions involving the FSAM Sovereign Guarantee Collateral and the FSAM
Collateral. The books of FSAM will be kept on an accrual basis. The fiscal year
of FSAM will end on December 31 of each year.

 

(d)                                 Compliance Certificate. If requested by FSA,
FSAM shall deliver to FSA concurrently with the delivery of any financial
statements required pursuant to Section 3.12(e), a certificate signed by FSAM
stating that:

 

(i)                                a review of the performance by each GIC
Business Entity, each Dexia Guarantor and each Lender under the GIC Business
Documents during such period has been made; and

 

(ii)                             to its knowledge, following reasonable inquiry,
no Dexia Event of Default has occurred or if a Dexia Event of Default has
occurred, specifying the nature thereof.

 

(e)                                  FSAM shall, upon the request of FSA, permit
FSA or its authorized agents (x) to inspect the books and records of FSAM as
they may relate to the Master Repurchase Agreement, the FSAM Sovereign Guarantee
Collateral, the FSAM PAL Collateral, the FSAM Collateral and the obligations of
FSAM under the GIC Business Documents and the GIC Business; (y) to discuss the
affairs, finances and accounts of FSAM with the managers or authorized agents of
FSAM; and (z) to discuss the affairs, finances and accounts of FSAM with FSAM’s
independent accountants (if any), provided that FSAM

 

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shall have the right to be present during such discussions. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably or unduly disrupt the business of FSAM. The books and records of
FSAM shall be maintained at the address of FSAM designated herein for receipt of
notices, unless FSAM shall otherwise advise the parties hereto in writing.
Following any such inspection, FSAM will reasonably cooperate with FSA to
provide any additional information that FSA may reasonably request.

 

(f)                                    FSAM shall promptly (and in any event,
within five Business Days) after receiving actual notice or becoming aware of
the occurrence of any of the following inform FSA in writing:

 

(i)                                     the submission of any claim or the
initiation of any legal process, litigation or administrative or judicial
investigation against FSAM;

 

(ii)                                  the commencement of any rule making or
commencement or written threat of any disciplinary proceedings or any
proceedings instituted by or against FSAM in any court or before any
governmental body or agency, or before any arbitration board, or the
promulgation of any proceeding or any proposed or final rule which, if adversely
determined, may result in a Material Adverse Change with respect to FSAM;

 

(iii)                               the commencement of any proceedings by or
against FSAM under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect or of
any proceeding in which a receiver, liquidator, conservator, trustee or similar
official shall have been, or may be, appointed or requested for FSAM or any of
its assets;

 

(iv)                              the receipt of notice that (A) FSAM is placed
under regulatory supervision or (B) any license, permit, charter, registration
or approval material to the conduct of FSAM’s business is to be, or reasonably
likely to be, suspended or revoked, or (C) FSAM is to cease and desist any
practice, procedure or policy employed by FSAM in the conduct of its business,
and such regulatory supervision, suspension, revocation or cessation would
reasonably be likely to result in a Material Adverse Change with respect to
FSAM; or

 

(v)                                 the receipt of notice (A) of any claim or
order by any taxing authority that taxes are owed by FSAM or (B) that any
withholding or backup withholding taxes are to be imposed with respect to any
FSAM Collateral, in each case in an amount exceeding $10,000,000.

 

(g)                                 FSAM shall comply with the provisions of
Section 11(j) of its Organizational Document relating to “special purpose
entity” restrictions.

 

(h)                                 FSAM shall maintain all licenses, permits,
charters and registrations that are material to the conduct of its business.

 

(i)                                     FSAM shall apply available funds towards
the purchase of the FSAM Collateral, the payment of amounts due under the
Secured Obligations and towards the other sums payable by FSAM under the GIC
Business Documents to which it is party and for no other purpose.

 

(j)                                     FSAM shall, from time to time, pay or
prepay all or such portion of the Master Repurchase Agreement as required by,
and in accordance with, the terms of the Master Repurchase Agreement.

 

(k)                                  FSAM will pay all and any stamp tax and
other taxes or duties, including any interest and penalties, payable by FSAM on,
or in connection with, the Retained FSA Policies and the Master Repurchase
Agreement; or the GIC Business Documents to which it is a party, and FSAM will
also pay

 

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all franchise taxes and all other taxes of whatever nature payable in connection
with the conduct of its business, the non-payment of which would result in a
Material Adverse Change with respect to FSAM.

 

(l)                                     FSAM shall comply in all material
respects with all applicable provisions of state and federal securities laws,
including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated thereunder for
which non-compliance would reasonably be likely to result in a Material Adverse
Change with respect to FSAM.

 

(m)                               FSAM will promptly exercise its rights to
obtain the return of Excluded FSAM Collateral in accordance with the Master
Repurchase Agreement and Third Party Hedge Agreements, as applicable.

 

(n)                                 FSAM will promptly, and in any event no
later than six (6) months prior to the expiration of any D&O Insurance for its
Independent directors, renew and prepay in advance for a minimum of three
(3) years, the premium for such D&O Insurance or will provide such other
protection or indemnity arrangements that are consistent with rating agency
policies related to bankruptcy remote entities in securitization transactions
that are rated investment grade.

 

The foregoing affirmative covenants will supersede and replace the affirmative
covenants of FSAM set forth in the FSAM Insurance Agreement and shall be binding
on the FSAM Successor and the FSAM Hedging Successor (if any) as if made by it.

 

Section 3.5.                                   Negative Covenants of FSAM. FSAM
hereby agrees that during the term of this Agreement, except as otherwise
permitted under the GIC Business Documents, unless each of (x) Dexia and
(y) prior to the FSAM Lien Release Date, FSA, shall otherwise expressly consent
in writing:

 

(a)                                  FSAM shall not amend, supplement or
otherwise modify its Organizational Document (or permit any of the foregoing).

 

(b)                                 FSAM shall not create, incur or suffer to
exist any Indebtedness other than the FSAM Secured Obligations and any Permitted
Indebtedness.

 

(c)                                  FSAM shall not form or acquire, or cause to
be formed or acquired, any Subsidiaries, other than FSA PAL.

 

(d)                                 FSAM shall neither repurchase any of its
membership interests nor make any distributions to its members, including any
distribution of dividends, except as permitted under the Priority of Payments.

 

(e)                                  FSAM shall not (i) create, incur or suffer
to exist, or agree to create, incur or suffer to exist, or consent to cause or
permit in the future (upon the happening of a contingency or otherwise) the
creation, incurrence or existence of any Lien on the FSAM Sovereign Guarantee
Collateral, FSAM PAL Collateral or the FSAM Collateral except for (A) Liens to
which each of Dexia and FSA has consented in writing or (B) Permitted Liens, or
(ii) sign or file or authorize the filing under the applicable law of any
jurisdiction any notice or financing statement that names FSAM as a debtor, or
sign any security agreement authorizing any secured party thereunder to file
such notice or financing statement, except in each case any such instrument
solely securing the rights and preserving the Lien of the Collateral Agent.

 

(f)                                    FSAM shall not issue any membership
interests of any kind or rights, warrants or options in respect of membership
interests of any kind or securities convertible into or exchangeable for
membership interests of any kind except for the common membership interest
previously issued to FSAH and transferred to Dexia FP.

 

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(g)                                 FSAM shall not (i) take any action, or fail
to take any action, if such action or failure to take action may interfere with
the enforcement of any rights under the GIC Business Documents that are material
to the rights, benefits or obligations of the Collateral Agent or any Secured
Party (other than with the consent of the relevant Secured Party), (ii) waive or
alter any rights with respect to the FSAM Sovereign Guarantee Collateral, FSAM
PAL Collateral and the FSAM Collateral (or any agreement or instrument relating
thereto); (iii) except to the extent expressly permitted hereunder with respect
to a repledge, rehypothecation or use of the FSAM Collateral, take any action,
or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights with respect to the FSAM Sovereign
Guarantee Collateral and the FSAM Collateral; or (iv) fail to pay any tax,
assessment, charge or fee with respect to the FSAM Sovereign Guarantee
Collateral, the FSAM PAL Collateral and the FSAM Collateral, or fail to defend
any action, if such failure to pay or defend may adversely affect the priority
or enforceability of the Collateral Agent’s Lien on or security interest in the
FSAM Sovereign Guarantee Collateral and the FSAM Collateral or FSAM’s right,
title or interest in the FSAM Sovereign Guarantee Collateral, the FSAM PAL
Collateral and the FSAM Collateral.

 

(h)                                 FSAM shall not consolidate with or merge
with or into any Person or transfer all or substantially all of its assets to
any Person or liquidate or dissolve in whole or in part.

 

(i)                                     FSAM shall not waive, modify or amend,
or consent to any waiver, modification or amendment of, any material provisions
of any of the GIC Business Documents.

 

(j)                                     FSAM shall not

 

(i)                                     sell, transfer, exchange or otherwise
dispose of any of its assets except as permitted under this Agreement, or engage
in any business or activity other than as contemplated by this Agreement and its
Organizational Document,

 

(ii)                                  institute against, or join any other
Person in instituting against, any party hereto any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or other proceeding under any
bankruptcy or similar law, until the Senior Release Date,

 

(iii)                               exercise the right, if any, under or consent
to any FSAM Asset to be paid other than in cash without the consent of FSA, or

 

(iv)                              on or after the Closing Date, acquire any
assets other than Permitted Investments without the written consent of FSA.

 

(k)                                  FSAM shall not take or permit to be taken
any action which would have the effect, directly or indirectly, of causing any
amount to be deducted or withheld from any payment on the FSAM Collateral to
FSAM for or on account of a tax, and will perform all its obligations under the
GIC Business Documents to prevent or cure any default by, or other condition or
event with respect to FSAM which would have the effect, directly or indirectly,
of causing any amount to be deducted or withheld from any payment on the FSAM
Collateral for or on account of a tax. FSAM shall not fail to timely pay any
tax, assessment, charge or fee imposed on it or with respect to the FSAM
Collateral, or fail to defend any action, if such failure to pay or defend would
reasonably be expected to adversely affect the priority or enforceability of the
Collateral Agent’s security interest in the FSAM Collateral created by this
Agreement or FSAM’s right, title or interest in the FSAM Collateral.

 

(l)                                     FSAM shall not take, or permit to be
taken, any action that could cause FSAM to be required to (i) register as an
“investment company” under the Investment Company Act, or (ii) register any of
its issued and outstanding securities under the Securities Act or any United
States state securities laws.

 

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(m)                               FSAM shall not deny that the Material
Agreements to which it is a party constitute the legal, valid and binding
obligations of FSAM.

 

(n)                                 FSAM shall not terminate, amend, modify or
supplement any of the Material Agreements (other than Hedge Agreements) to which
it is a party without the prior written consent of FSA, which consent will not
be unreasonably withheld or delayed.

 

(o)                                 FSAM will not enter into any new Hedge
Agreements and will not write any other new business without the consent of FSA
unless the relevant Hedge Agreement or obligation is not insured or guaranteed
by FSA and is entered into by the Administrator on behalf of FSAM, acting in the
ordinary course of managing the existing GIC Business in accordance with the
Administrative Services Agreement and the ALM Procedures. Notwithstanding the
foregoing, FSAM may, without consent of FSA (unless a Dexia Event of Default has
occurred and FSA has elected to become the Secured Party Representative), at the
direction of Dexia terminate, replace or amend existing or enter into new
transactions under existing Hedge Agreements in accordance with the ALM
Procedures.

 

(p)                                 FSAM shall neither have any employees nor
own, rent, lease or be in possession of any building or other real property.

 

(q)                                 FSAM shall not take any action that would
cause it to be treated as (i) an association (or a publicly traded partnership)
taxable as a corporation or (ii) a taxable mortgage pool.

 

(r)                                    FSAM will not, prior to the FSAM Lien
Release Date, without the consent of FSA (i) terminate the Put Contracts or the
Sovereign Guarantee or (ii) settle any litigation, action, proceeding, suit or
investigation unless the costs of such settlement will be borne or funded by the
Dexia Guarantors or their Affiliates (other than any of the GIC Business
Entities or the Administrator).

 

(s)                                  FSAM will not acquire or dispose of any
asset if such acquisition or disposition is for the primary purpose of
recognizing gains or decreasing losses resulting from market value changes.

 

The foregoing negative covenants will supersede and replace the negative
covenants of FSAM set forth in the FSAM Insurance Agreement and shall be binding
on the FSAM Successor and the FSAM Hedging Successor (if any) as if made by it.

 

Section 3.6.                                   Affirmative Covenants of GIC
Issuers. Each GIC Issuer hereby agrees that during the term of this Agreement,
except as otherwise provided in the GIC Business Documents, unless Dexia and FSA
shall otherwise expressly consent in writing:

 

(a)                                  Such GIC Issuer shall perform each of its
obligations under the GIC Business Documents to which it is a party and comply
with all material requirements of any law, rule or regulation applicable to it,
its material properties and the GIC Issuers Collateral.

 

(b)                                 Such GIC Issuer shall comply in all material
respects with the requirements and limitations of its powers set forth in, and
will observe all procedures required by, its Organizational Documents, including
that it shall not amend certain sections of its Organizational Documents as
provided therein. Such GIC Issuer shall take all appropriate action necessary to
maintain its existence and good standing under the laws of the State of Delaware
or, in case of FSA Capital Markets Cayman, the laws of the Cayman Islands.

 

(c)                                  Such GIC Issuer shall keep or cause to be
kept in reasonable detail books and records of account of such GIC Issuer’s
assets and business, including books and records relating to the GIC Business
Documents to which it is party, which shall be made available to FSA as
described in clause (d).

 

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Such books and records of account shall include statements of account with
respect to transactions involving the GIC Issuers Collateral Granted by it. The
books of such GIC Issuer shall be kept on an accrual basis. The fiscal year of
each GIC Issuer will end on December 31 of each year.

 

(d)                                 Such GIC Issuer shall, upon the request of
FSA, permit FSA or its authorized agents (x) to inspect the books and records of
such GIC Issuer as they may relate to the Master Repurchase Agreement (in the
case of FSA Capital Markets and FSA Capital Management), the GIC Contracts, the
GIC Issuers Collateral and the obligations of such GIC Issuer under the GIC
Business Documents to which it is party and the GIC Business; (y) to discuss the
affairs, finances and accounts of such GIC Issuer with the managers or
authorized agents of such GIC Issuer; and (z) to discuss the affairs, finances
and accounts of such GIC Issuer with such GIC Issuer’s independent accountants
(if any), provided that such GIC Issuer shall have the right to be present
during such discussions. Such inspections and discussions shall be conducted
during normal business hours and shall not unreasonably disrupt the business of
such GIC Issuer. The books and records of such GIC Issuer shall be maintained at
the address of such GIC Issuer designated herein for receipt of notices, unless
such GIC Issuer shall otherwise advise the parties hereto in writing. Following
any such inspection, such GIC Issuer will reasonably cooperate with FSA to
provide any additional information that FSA may reasonably request.

 

(e)                                  Such GIC Issuer shall promptly (and in any
event within five Business Days) after receiving actual notice or becoming aware
of the occurrence of any of the following inform FSA in writing:

 

(i)                                     the submission of any claim or the
initiation of any legal process, litigation or administrative or judicial
investigation against such GIC Issuer;

 

(ii)                                  the commencement of any rule making or
commencement or written threat of any disciplinary proceedings or any
proceedings instituted by or against such GIC Issuer in any court or before any
governmental body or agency, or before any arbitration board, or the
promulgation of any proceeding or any proposed or final rule which, if adversely
determined, may result in a Material Adverse Change with respect to such GIC
Issuer;

 

(iii)                               the commencement of any proceedings by or
against such GIC Issuer under any applicable bankruptcy, reorganization,
liquidation, rehabilitation, insolvency or other similar law now or hereafter in
effect or of any proceeding in which a receiver, liquidator, conservator,
trustee or similar official shall have been, or may be, appointed or requested
for such GIC Issuer or any of its assets;

 

(iv)                              the receipt of notice that (A) such GIC Issuer
is placed under regulatory supervision, (B) any license, permit, charter,
registration or approval material to the conduct of such GIC Issuer’s business
is to be, or reasonably likely to be, suspended or revoked, or (C) such GIC
Issuer is to cease and desist any practice, procedure or policy employed by such
GIC Issuer in the conduct of its business and such regulatory supervision,
suspension, revocation or cessation would reasonably be likely to result in a
Material Adverse Change with respect to such GIC Issuer, or (D) such GIC Issuer
is to cease and desist any practice, procedure or policy employed by such GIC
Issuer in the conduct of its business; or

 

(v)                                 the receipt of notice (A) of any claim or
order by any taxing authority that taxes are owed by such GIC Issuer or (B) that
any withholding or backup withholding taxes are to be imposed with respect to
any GIC Issuers Collateral, in each case in an amount exceeding $10,000,000.

 

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(f)                                    In the case of FSA Capital Markets and
FSA Capital Management, it shall comply with the provisions of Section 11(j) of
its Organizational Document relating to “special purpose entity” restrictions.

 

(g)                                 Such GIC Issuer shall maintain all licenses,
permits, charters and registrations that are material to the conduct of its
business.

 

(h)                                 Such GIC Issuer shall apply its available
funds towards the purchase of the GIC Issuers Collateral, the payment of amounts
due under the related GIC Issuer Secured Obligations and towards the other sums
payable by such GIC Issuer under the GIC Business Documents and for no other
purpose.

 

(i)                                     Such GIC Issuer shall, from time to
time, pay or prepay all or such portion of any GIC Contract as required by, and
in accordance with, the terms of such GIC Contract.

 

(j)                                     Such GIC Issuer will pay all and any
stamp tax and other taxes or duties, including any interest and penalties,
payable by such GIC Issuer on, or in connection with, the Retained FSA Policies
and the Master Repurchase Agreement; or the GIC Business Documents to which it
is a party, and such GIC Issuer will also pay all franchise taxes and all other
taxes of whatever nature payable in connection with the conduct of its business,
the non-payment of which would result in a Material Adverse Change. with respect
to such GIC Issuer

 

(k)                                  Such GIC Issuer shall comply in all
material respects with all applicable provisions of state and federal securities
laws, including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated thereunder (or,
in the case of FSA Capital Markets Cayman, any equivalent laws in the Cayman
Islands) for which non-compliance would reasonably be likely to result in a
Material Adverse Change with respect to such GIC Issuer.

 

(l)                                     Such GIC Issuer will promptly exercise
its rights to obtain the return of Excluded GIC Issuer Collateral in accordance
with the GIC Contracts.

 

(m)                               In the case of FSA Capital Markets and FSA
Capital Management, such GIC Issuer will promptly, and in any event no later
than six (6) months prior to the expiration of any D&O Insurance for its
Independent directors, renew and prepay in advance for a minimum of three (3)
years, the premium for such D&O Insurance or will provide such other protection
or indemnity arrangements that are consistent with rating agency policies
related to bankruptcy remote entities in securitization transactions that are
rated investment grade.

 

(n)                                 Such GIC Issuer will promptly reimburse FSA
pursuant to the Priority of Payments for all claims paid by FSA under a
financial guarantee of the obligations of any GIC Issuer or the FSAM Hedging
Successor in respect of Hedge Agreements, entered into after the occurrence of a
Dexia Event of Default.

 

The foregoing affirmative covenants will supersede and replace the affirmative
covenants, if any, of such GIC Issuer set forth in the relevant GIC Issuers
Insurance Agreements.

 

Section 3.7.                                   Negative Covenants of GIC
Issuers. Each GIC Issuer hereby agrees that during the term of this Agreement,
except as otherwise permitted under the Material Agreements, unless Dexia and
FSA shall otherwise expressly consent in writing:

 

(a)                                  Such GIC Issuer shall not amend, supplement
or otherwise modify its Organizational Document (or permit any of the
foregoing).

 

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(b)                                 Such GIC Issuer shall not create, incur or
suffer to exist any Indebtedness other than the related GIC Issuer Secured
Obligations, any Permitted Indebtedness and its respective GIC Contracts.

 

(c)                                  Such GIC Issuer shall not form or acquire,
or cause to be formed or acquired, any Subsidiaries.

 

(d)                                 Such GIC Issuer shall neither repurchase any
of its membership interests nor make any distributions to its members, including
any distribution of dividends, except as permitted under the Priority of
Payments.

 

(e)                                  Such GIC Issuer shall not (i) create, incur
or suffer to exist, or agree to create, incur or suffer to exist, or consent to
cause or permit in the future (upon the happening of a contingency or otherwise)
the creation, incurrence or existence of any Lien on the GIC Issuers Collateral
except for (A) Liens to which each of Dexia and FSA has consented in writing or
(B) Permitted Liens or (ii) sign or file or authorize the filing under the
applicable law of any jurisdiction any notice or financing statement that names
such GIC Issuer as a debtor, or sign any security agreement authorizing any
secured party thereunder to file such notice or financing statement, except in
each case any such instrument solely securing the rights and preserving the Lien
of the Collateral Agent.

 

(f)                                    Such GIC Issuer shall not issue any
membership interests, ordinary shares or equity interests of any kind or rights,
warrants or options in respect of membership interests, ordinary shares or
equity interests of any kind or securities convertible into or exchangeable for
membership interests of any kind except for the common membership interest
previously issued to FSAH and transferred to Dexia FP with respect to FSA
Capital Management and FSA Capital Markets.

 

(g)                                 Such GIC Issuer shall not (i) take any
action, or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under the GIC Business Documents
that are material to the rights, benefits or obligations of the Collateral Agent
or any Secured Party (other than with the consent of the relevant Secured
Party), (ii) waive or alter any rights with respect to the GIC Issuers
Collateral or the FSAM Sovereign Guarantee Collateral (or any agreement or
instrument relating thereto); (iii) except to the extent expressly permitted
hereunder with respect to repledge, rehypothecation or use of the GIC Issuers
Collateral, take any action, or fail to take any action, if such action or
failure to take action may interfere with the enforcement of any rights with
respect to the GIC Issuers Collateral; or (iv) fail to pay any tax, assessment,
charge or fee with respect to the GIC Issuers Collateral, or fail to defend any
action, if such failure to pay or defend may adversely affect the priority or
enforceability of the Collateral Agent’s Lien on or security interest in the GIC
Issuers Collateral or such GIC Issuer’s right, title or interest in the GIC
Issuers Collateral.

 

(h)                                 Such GIC Issuer shall not consolidate with
or merge with or into any Person or transfer all or substantially all of its
assets to any Person or liquidate or dissolve in whole or in part.

 

(i)                                     Such GIC Issuer shall not waive, modify
or amend, or consent to any waiver, modification or amendment of, any material
provisions of any of the GIC Business Documents to which it is party.

 

(j)                                     Such GIC Issuer shall not

 

(i)                                     sell, transfer, exchange or otherwise
dispose of any of its assets except as permitted under this Agreement, or engage
in any business or activity other than as contemplated by this Agreement and its
Organizational Document,

 

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(ii)                                  institute against, or join any other
Person in instituting against, any party hereto any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or other proceeding under any
bankruptcy or similar law, or

 

(iii)                               on or after the Closing Date, acquire any
assets other than Permitted Investments without the written consent of FSA.

 

(k)                                  Such GIC Issuer shall not take or permit to
be taken any action which would have the effect, directly or indirectly, of
causing any amount to be deducted or withheld from any payment on the GIC
Issuers Collateral to such GIC Issuer for or on account of a tax, and will
perform all its obligations under the GIC Business Documents to prevent or cure
any default by, or other condition or event with respect to such GIC Issuer
which would have the effect, directly or indirectly, of causing any amount to be
deducted or withheld from any payment on the GIC Issuers Collateral for or on
account of a tax. Such GIC Issuer shall not fail to timely pay any tax,
assessment, charge or fee imposed on it or with respect to the GIC Issuers
Collateral, or fail to defend any action, if such failure to pay or defend would
reasonably be expected to adversely affect the priority or enforceability of the
Collateral Agent’s security interest in the GIC Issuers Collateral created by
this Agreement or such GIC Issuer’s right, title or interest in the GIC Issuers
Collateral.

 

(l)                                     Such GIC Issuer shall not take, or
permit to be taken, any action that could cause such GIC Issuer to be required
to (i) register as an “investment company” under the Investment Company Act, or
(ii) register any of its issued and outstanding securities under the Securities
Act or any United States state securities laws.

 

(m)                               Such GIC Issuer shall not deny that the
Material Agreements to which it is a party constitute the legal, valid and
binding obligations of such GIC Issuer.

 

(n)                                 Such GIC Issuer shall not terminate, amend,
modify or supplement any GIC Contract except in accordance with its terms, the
ALM Procedures and this Agreement or terminate, amend, modify or supplement any
Material Agreements (other than Hedge Agreements) to which it is a party without
the prior written consent of FSA, which consent will not be unreasonably
withheld or delayed.

 

(o)                                 Such GIC Issuer (i) shall not enter into any
new GIC Contracts and shall not write any other new business and (ii) shall not
enter into any Hedge Agreements without the consent of FSA unless such Hedge
Agreement is not insured or guaranteed by FSA and is entered into by the
Administrator on behalf of such GIC Issuer, acting in the ordinary course of
managing the existing GIC Business in accordance with the Administrative
Services Agreement. Notwithstanding the foregoing, such GIC Issuer may, at the
direction of FSA following a Dexia Event of Default, terminate, replace or
amend, or enter into new transactions under, existing Hedge Agreements in
accordance with the ALM Procedures.

 

(p)                                 Such GIC Issuer shall not take any action
that would cause it to be treated as (i) an association (or a publicly traded
partnership) taxable as a corporation or (ii) a taxable mortgage pool.

 

(q)                                 Such GIC Issuer shall not have any employees
nor own, rent, lease or be in possession of any building or other real property.

 

(r)                                    Such GIC Issuer shall not prior to the
Senior Release Date without the prior written consent of FSA settle any
litigation, action, proceeding, suit or investigation unless the costs of such
settlement will be borne or funded by the Dexia Guarantors or their Affiliates
(other than any of the GIC Business Entities or the Administrator).

 

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(s)                                  Such GIC Issuer shall not take any action
to enforce its rights as a Secured Party with respect to the Sovereign Guarantee
Collateral other than with the consent of FSA as representative of the
Collateral Agent.

 

The foregoing negative covenants will supersede and replace the negative
covenants, if any, of such GIC Issuer set forth in the GIC Issuers Insurance
Agreements.

 

Section 3.8.                                   Affirmative Covenants of FSA PAL.
FSA PAL hereby agrees that during the term of this Agreement, except as
otherwise provided in the Material Agreements, unless Dexia and FSA shall
otherwise expressly consent in writing:

 

(a)                                  It shall maintain its corporate existence
in good standing;

 

(b)                                 It shall comply in all material respects
with all applicable laws, rules, regulations and orders of any governmental
authority;

 

(c)                                  It shall conduct its business and affairs
such that, at all times, its center of main interests for the purposes of the EU
Insolvency Regulation (EC) No. 1346/2000 of May 29, 2000 (the “Insolvency
Regulation”) shall be and remain in England and Wales;

 

(d)                                 It shall deliver to FSA, as soon as they are
available and in any event within 15 Business Days after the same are delivered
to appropriate regulatory authorities, a balance sheet and a profit and loss
account for each fiscal year certified by independent public accountants of
recognized standing;

 

(e)                             It shall ensure with respect to itself that:

 

(i)                                     separate financial statements in
relation to its financial affairs are maintained;

 

(ii)                                  all corporate formalities with respect to
its affairs are observed;

 

(iii)                               separate stationary, invoices and checks are
used;

 

(iv)                              it always holds itself out as a separate
entity;

 

(v)                                 any known misunderstandings regarding its
separate identity are corrected promptly;

 

(vi)                              pay its own liabilities out of its own funds;

 

(vii)                           not guaranty or become obligated for debts of
any other person or entity or hold out its credit as being available to satisfy
the obligations of others;

 

(viii)                        not acquire any obligations or securities of its
shareholders;

 

(ix)                                maintain adequate capital in light of its
contemplated business operations;

 

(x)                                   maintain at all times two Independent
directors;

 

(f)                                    It shall conduct business in its own
name;

 

(g)                                 It shall strictly observe and maintain
separate financial records which are and will continue to be maintained to
reflect its assets and liabilities which will be subject to audit by independent
public accountants;

 

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(h)                                 It shall properly reflect in its financial
records all monetary transactions between it and FSAM or any other Affiliate of
FSAM;

 

(i)                                     It shall at all times carry on and
conduct its affairs in a proper and efficient manner;

 

(j)                                     It shall at all times keep such books of
accounts as may be necessary to comply with all applicable laws and so as to
enable its financial statements to be prepared and allow FSAM and FSA and any
person appointed by FSAM or FSA free access to the same at all times during
normal business hours and to discuss the same with its responsible officers; and

 

(k)                                  It shall promptly, and in any event no
later than six (6) months prior to the expiration of any D&O Insurance, for its
Independent directors renew and prepay in advance for a minimum of three (3)
years, the premium for such D&O Insurance or provide such other protection or
indemnity arrangements that are consistent with rating agency policies related
to bankruptcy remote entities in securitization transactions that are rated
investment grade.

 

The foregoing affirmative covenants will supersede and replace the affirmative
covenants of FSA PAL set forth in the FSA PAL Loan.

 

Section 3.9.                                   Negative Covenants of FSA PAL.
FSA PAL hereby agrees that during the term of this Agreement, except as
otherwise permitted under the Transaction Documents and the FSA PAL Loan, unless
Dexia and FSA shall otherwise expressly consent in writing:

 

(a)                                  It shall not incur or permit to subsist any
indebtedness in respect of borrowed money whatsoever or any financial
obligations other than (i) the “loans” under the FSA PAL Loan, (ii) financial
obligations owed by it to BNY Mellon, as Borrower’s clearing and custody agent,
pursuant to the FSA PAL Clearing and Custody Agreement, (iii) custody fees paid
solely from interest proceeds on custodied assets and (iv) Permitted
Indebtedness.

 

(b)                                 It shall not give any guarantee or indemnity
in respect of any indebtedness or of any obligation of any person other than
under the FSA PAL Clearing and Custody Agreement, indemnities with regard to
custodial agreements and Permitted Indebtedness;

 

(c)                                  It shall not create or permit to subsist
any mortgage, sub-mortgage, standard security, assignment, assignation, charge,
sub-charge, pledge, lien (unless arising by operation of law), hypothecation,
assignment by way of security or any other security interest whatsoever over any
of its assets, present or future, (including any uncalled capital) other than
Account Bank Liens and Permitted Liens;

 

(d)                                 It shall not engage in any activity
whatsoever which is not incidental to or necessary in connection with any of the
activities which this Agreement provide or envisage that it will engage in;

 

(e)                                  It shall not have any subsidiaries or any
employees or own, rent, lease or be in possession of any buildings or equipment;

 

(f)                                    It shall not amend, supplement or
otherwise modify its Organizational Documents;

 

(g)                                 It shall not transfer, sell, lend, part with
or otherwise dispose of, or deal with, or grant any option or present or future
right to acquire any Permitted Investment or any of its other assets or
undertaking or any interest, estate, right, title or benefit therein other than
as expressly contemplated by the this Agreement and the FSA PAL Note;

 

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(h)                                 It shall not pay any dividend or make any
other distribution to its shareholders or issue any further shares, warrants or
options or securities exchangeable into shares;

 

(i)                                     It shall not make any loan or advance to
any other person or entity, or purchase or otherwise acquire equity interests in
any other entity or substantially all the assets of any other Person;

 

(j)                                     It shall not merge or consolidate with,
or sell, assign, lease, convey, transfer or otherwise dispose of all or
substantially all of its assets to, any other Person;

 

(k)                                  It shall not permit any of this Agreement,
the FSA PAL Loan and the Note thereto (the “FSA PAL Note”) to become invalid or
ineffective, or the priority of the security interests created thereby to be
reduced, amended, terminated, postponed or discharged, or permit any party to
any of FSA PAL’s “permitted investments” (as defined in the FSA PAL Loan) or any
other person whose obligations form part of FSA PAL’s Permitted Investments to
be released from such obligations or dispose of all or any part of FSA PAL’s
Permitted Investments;

 

(l)                                     It shall not own assets other than those
representing its share capital, the funds arising from the issue of the FSA PAL
Note, “permitted investments” (as defined in the FSA PAL Loan) and associated
and ancillary rights and interests thereto, the benefit of this Agreement, the
FSA PAL Loan and the FSA PAL Note and any other rights or interests created or
acquired thereunder, as all of the same may vary from time to time;

 

(m)                               It shall not permit any person other than FSAM
to have any equitable or beneficial interest in any of its assets or
undertakings or any interest, estate, right, title, benefit therein except as
otherwise provided for in this Agreement, the FSA PAL Loan and the FSA PAL Note;

 

(n)                                 It shall not maintain an “establishment” (as
that expression is used in the Insolvency Regulation) or branch office in any
jurisdiction other than England and Wales.

 

(o)                                 It shall not permit or consent to any of the
following occurring:

 

(i)                                     its books and records being maintained
with or co-mingled with those of any other person or entity;

 

(ii)                                  its bank accounts and the debts
represented thereby being co-mingled with those of any other person or entity;

 

(iii)                               its assets or revenues being co-mingled with
those of any other person or entity; or

 

(iv)                              its business being conducted other than in its
own name; or

 

(p)                                 It shall not hold out its credit or assets
as being available to satisfy the obligations of others.

 

The foregoing negative covenants will supersede and replace the negative
covenants of FSA PAL set forth in the FSA PAL Loan.

 

Section 3.10.                             Affirmative Covenants of Dexia FP.
Dexia FP hereby agrees that during the term of this Agreement, except as
otherwise provided in the Transaction Documents, unless Dexia and FSA shall
otherwise expressly consent in writing:

 

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(a)                                  Dexia FP shall comply in all material
respects with the requirements and limitations of its powers set forth in, and
will observe all procedures required by, its Organizational Documents, including
that it shall not amend certain sections of its Organizational Documents as
provided therein. Dexia FP shall take all appropriate action necessary to
maintain its existence and good standing under the laws of the State of
Delaware.

 

(b)                                 Dexia FP shall comply with the provisions of
Article VI of its By-Laws.

 

(c)                                  Dexia FP will promptly, and in any event no
later than six (6) months prior to the expiration of any D&O Insurance for its
Independent directors, renew and prepay in advance for a minimum of three (3)
years, the premium for such D&O Insurance or provide such other protection or
indemnity arrangements that are consistent with rating agency policies related
to bankruptcy remote entities in securitization transactions that are rated
investment grade.

 

Section 3.11.                             Negative Covenants of Dexia FP. Dexia
FP hereby agrees that during the term of this Agreement, except as otherwise
permitted under the Transaction Documents, unless Dexia and FSA shall otherwise
expressly consent in writing:

 

(a)                                  Dexia FP shall not amend, supplement or
otherwise modify its Organizational Document (or permit any of the foregoing).

 

(b)                                 Dexia FP shall neither repurchase any of its
membership interests nor make any distributions to its members, including any
distribution of dividends, except as permitted under the Priority of Payments.

 

(c)                                  Dexia FP shall not issue any ordinary
shares, common stock or equity interests of any kind or rights, warrants or
options in respect ordinary shares or equity interests of any kind or securities
convertible into or exchangeable for equity interests of any kind except for the
equity interests previously issued to DHI.

 

(d)                                 Dexia FP shall not consolidate with or merge
with or into any Person or transfer all or substantially all of its assets to
any Person or liquidate or dissolve in whole or in part.

 

(e)                                  Dexia FP shall not deny that this Agreement
constitutes the legal, valid and binding obligations of Dexia FP.

 

Section 3.12.                             Covenants of the Dexia Parties.

 

(a)                                  Prior to a Dexia Event of Default, to the
extent FSAM or the Administrator enters into agreements with service providers
(including any Account Bank) that require future payments by FSAM and/or the
Administrator and do not contain non-petition and limited recourse provisions
(each, a “Non-Conforming Agreement”), DCL agrees that it will issue a Required
Guarantee.

 

(b)                                 To the extent that any Dexia Guarantor
receives notice from FSA or otherwise becomes aware of an outstanding FSA Policy
that is not a Retained FSA Policy, the relevant Dexia Guarantor will give notice
of such circumstance to FSA (if notice was not received from FSA) and, if a
Dexia Affiliate is the beneficiary thereunder, will enter into, or cause such
Dexia Affiliate to enter into, a customary termination agreement with respect to
such policy and will agree (or cause the Dexia Affiliate) not to make a claim
thereunder.

 

(c)                                  Each Dexia Guarantor shall take reasonable
actions deemed necessary or desirable by the Collateral Agent or FSA or that are
required by applicable law to continue the Collateral Agent’s

 

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preferred status in the Dexia Collateral with the same or with better priorities
in relation to such Dexia Guarantor.

 

(d)                                 Each Dexia Party hereby agrees that during
the term of this Agreement, such Dexia Party shall not terminate, amend, modify
or supplement any of the Material Agreements to which it is a party without the
prior written consent of FSA, which consent will not be unreasonably withheld or
delayed.

 

(e)                                  The Dexia Guarantors shall cause to be
furnished to FSA, unless a Senior Release Date has occurred:

 

(i)                                     Annual Financial Statements.

 

(A)                              Until such time as the aggregate outstanding
principal balance of the GIC Contracts is less than $5,000,000,000, within the
later of 90 days after (x) the close of each fiscal year of Dexia FP or (y) the
receipt by FSAM of a request for such statements from FSA, the audited
consolidated financial statements of Dexia FP as of the end of such fiscal year,
in reasonable detail and stating in comparative form the respective figures for
the corresponding date and period in the preceding fiscal year, prepared in
accordance with generally accepted accounting principles, as determined by
Dexia, consistently applied. The financial statement will include, in a
footnote, condensed consolidating financial information for the same period for
FSAM, FSA Capital Markets and FSA Capital Management.

 

(B)                                After the aggregate outstanding principal
balance of the GIC Contracts is less than $5,000,000,000, FSAM shall furnish to
FSA within the later of 90 days after (x) the close of the fiscal year of Dexia
FP or (y) the receipt by FSAM of a request from FSA, the audited consolidated
annual financial statements described in the preceding sentence, in each case
only if (1) such audited consolidated financial statements are reasonably
requested by FSA or Assured in connection with the preparation of its financial
statements and (2) the reasonable costs of such audited consolidated financial
statements are paid by FSA. The financial statement will include, in a footnote,
condensed consolidating financial information for the same period for FSAM, FSA
Capital Markets and FSA Capital Management.

 

(ii)                                  Unaudited Financial Statements.

 

(A)                              Until such time as the aggregate outstanding
principal balance of the GIC Contracts is less than $5,000,000,000, within 60
days after the close of each of the first three quarters of each fiscal year of
Dexia FP commencing with the quarter ending September 30, 2009, the unaudited
consolidated statement of financial condition of Dexia FP, as of the end of the
first three quarters of each fiscal year of Dexia FP, in reasonable detail and
stating in comparative form the respective figures for the corresponding date
and period in the preceding fiscal year, prepared in accordance with generally
accepted accounting principles, as determined by Dexia, consistently applied
(subject to normal year-end adjustments).

 

(B)                                After the aggregate outstanding principal
balance of the GIC Contracts is less than $5,000,000,000, FSAM shall furnish to
FSA within 60 days after the close of each quarter of each fiscal year of Dexia
FP commencing with the quarter after which the balance falls below
$5,000,000,000, financial statements or internal management reports for the
portion of the fiscal year then ended for the first three quarters, or for the
fiscal year in the case of the fourth quarter, in each case only if (1)
reasonably requested by

 

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FSA or Assured in connection with the preparation of its financial statements
and (2) such financial statements have otherwise been prepared by Dexia FP.

 

(iii)                               Certificate. Each delivery of any financial
statements required pursuant to Section 3.12(e)(i) or (ii) will be accompanied
by a certificate stating that the financial reports delivered present fairly the
financial condition and results of operation of Dexia FP as of the dates and for
the periods indicated in accordance with the generally identified accounting
principles identified therein, consistently applied (subject to interim
statements to normal year-end adjustments, if applicable).

 

(iv)                              FSA PAL and FSA Capital Markets Cayman.

 

(A)                              Annual financial reports of FSA Pal will be
delivered as required by Section 3.8(d).

 

(B)                                Within the later of 90 days after (x) the
close of each fiscal year of Dexia FP or (y) the receipt by FSAM of a request
for such statements from FSA, the balance sheet of FSA Capital Markets Cayman as
of the end of such fiscal year and the consolidated statements of income,
changes in owners’ equity and cash flows for such fiscal year, prepared in
accordance with generally accepted accounting principles, as determined by
Dexia, consistently applied, only if (1) reasonably requested by FSA or Assured
in connection with the preparation of its financial statements and (2) such
financial statements have otherwise been prepared by FSA Capital Markets Cayman.

 

(C)                                Within the later of 60 days after (x) after
the close of each of each quarter of each fiscal year of Dexia FP commencing
with the quarter ending September 30, 2009, or (y) the receipt by FSAM of a
request from FSA, the unaudited quarterly financial statements of FSA Capital
Markets Cayman, in each case only if (1) reasonably requested by FSA or Assured
in connection with the preparation of its financial statements and (2) such
financial statements have otherwise been prepared by FSA Capital Markets Cayman

 

(f)                                    Prior to a Transition Date, the Dexia
Guarantors shall cause the portfolio of Permitted Investments (including FSAM
Assets that consist of Permitted Investments) and Dexia CSA Collateral,
considered as a whole, to be reasonably diversified as to specific issuers and
categories of investment.

 

(g)                                 If such Dexia Guarantor shall (i) change the
location of its chief executive office (for purposes of the UCC), (ii) change
its name, corporate form change the location where it maintains its books and
records with respect to the Dexia Collateral or (iii) reorganize or
reincorporate under the laws of any other jurisdiction, it shall take all other
reasonable actions deemed necessary or desirable by the Collateral Agent or any
Secured Party or that are required by applicable law to continue the Collateral
Agent’s perfected status in the Dexia Collateral with the same or better
priorities.

 

Section 3.13.                             Affirmative Covenants of FSA. FSA
hereby agrees that after a Dexia Event of Default, FSA will use good faith,
commercially reasonable efforts to (i) cause the GIC Issuers to continue to
comply with GIC collateralization requirements and other requirements of the GIC
Contracts that if not met or complied with could result in a default under or
early termination of the GIC Contract (except where termination of the GIC
Contract would meet the standards of Section 11.2(c)) and (ii) not enter into
agreements with the GIC Issuer that would reduce or eliminate rights of
subrogation that would be available to FSA upon payment of a claim on the
relevant FSA Policy or waive, reduce, or terminate any payment obligations of
the GIC Issuer or release any security therefor, in each case where such action
would be inconsistent with FSA’s ordinary risk management policies that would
apply if FSA were not

 

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protected against the risk of loss on such GIC Contract under the Dexia FP
Guarantee and FSA’s exposure under the related FSA Policy were retained for
FSA’s own account.

 

ARTICLE IV
GUARANTEES

 

Section 4.1.                                   Put Options.

 

(a)                                  Upon the occurrence of a Put Trigger
arising from an Asset Default Trigger (unless FSAM reasonably determines that a
dispute or error exists with respect to the relevant servicer information and is
actively pursuing resolution of such dispute or error), FSAM shall within three
Business Days after the Administrator receives information from the relevant
servicer demonstrating that an Asset Default Trigger has occurred, (i) exercise
a Put Option in accordance with the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, as applicable, and (ii) shall provide notice of the
occurrence of such Put Trigger and the exercise of the related Put Option to the
Collateral Agent, FSA and the Sovereign Guarantors.

 

(b)                                 If exercise of the Put Option described in
clause (a) is not made by FSAM within five Business Days after the occurrence of
the relevant Asset Default, the Collateral Agent shall, at the direction of the
Secured Party Representative, or FSA may, as representative for the Collateral
Agent, deliver the relevant Exercise Notice (with a copy to the Collateral
Agent) in accordance with the terms of the relevant Put Contract.

 

(c)                                  Upon the occurrence of a Put Trigger
arising from a Liquidity Default Trigger, Collateral Default Trigger or
Bankruptcy Trigger, FSAM shall immediately upon the occurrence thereof (i)
exercise the related Put Option in accordance with the Dexia Guaranteed Put
Contract and the Dexia Non- Guaranteed Put Contract, as applicable, and (ii)
shall provide notice of the occurrence of such Put Trigger and the exercise of
the related Put Option to the Collateral Agent, FSA and the Sovereign
Guarantors.

 

(d)                                 If exercise of the Put Option described in
clause (c) is not made by FSAM immediately after the occurrence of the relevant
Liquidity Default Trigger, Collateral Default Trigger or Bankruptcy Trigger, the
Collateral Agent shall, at the direction of the Secured Party Representative, or
FSA may, deliver the relevant Exercise Notice (with a copy to the Collateral
Agent) in accordance with the terms of the relevant Put Contract.

 

(e)                                  The Administrator will prepare and deliver
the Shortfall Information and, if required under the definition thereof, obtain
written confirmation from the Collateral Agent of non-receipt of payments in the
FSAM Cash Account or the Collateral Agent Cash Account, in each case in
accordance with the Put Contract and the Sovereign Guarantee. For the avoidance
of doubt FSA (either directly or as representative of the Collateral Agent) may
prepare the Shortfall Information and obtain written confirmation from the
Collateral Agent of non-receipt of payments in the FSAM Cash Account or the
Collateral Agent Cash Account, specify the related Put Exercise Amounts in
relation to any Liquidity Default Trigger, any Collateral Default Trigger or any
Bankruptcy Trigger and may deliver the related Shortfall Information and/or an
Exercise Notice as provided in the relevant Put Contract, without regard to
which Person delivered the related Exercise Notice. Copies of any such notices
will be provided to the Collateral Agent and, if applicable FSA, in addition to
any Persons specified in the relevant Put Contract. The Collateral Agent shall
not specify the related Put Exercise Amount with respect to any exercise of a
Put Option except upon direction from FSA.

 

(f)                                    The failure of FSAM or FSA, as
applicable, to make or exercise any claim or option shall not impair or prevent
the making of such claim or the exercising of such option at any later date in
relation to such Put Trigger, or any other Put Trigger as provided under the
relevant Put Contract.

 

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(g)                                 FSA may act directly or as the
representative of the Collateral Agent to make demands and may request and
dispute valuations as provided in the Put Contracts.

 

(h)                                 In connection with delivery of an Exercise
Notice, FSAM or FSA as representative of the Collateral Agent, will deliver a
Settlement Instruction (as defined in the applicable Put Settlement Procedures
Agreement) to the Account Bank with a copy to the Collateral Agent.

 

Section 4.2.                                   Sovereign Guarantee.

 

(a)                                  So long as the Dexia Guaranteed Put
Contract and the Sovereign Guarantee are in effect:

 

(i)                                     In relation to any Put Settlement Date
arising from an Asset Default Trigger under the Dexia Guaranteed Put Contract,
in the event that the Dexia Guarantors (i) fail to pay the relevant Shortfall
Amounts, if applicable, on or after such date or (ii) fail to pay the Put
Settlement Amount on the Put Settlement Date, FSAM shall promptly submit a
Guarantee Call under the Sovereign Guarantee in accordance with its terms.

 

(ii)                                  In relation to any Put Settlement Date
arising from a Liquidity Default Trigger or Collateral Default Trigger or a
Bankruptcy Trigger under the Dexia Guaranteed Put Contract in the event that any
Dexia Guarantor fails to pay the relevant Put Settlement Amount on the related
Put Settlement Date, FSAM shall promptly submit a Guarantee Call with respect to
such event under the Sovereign Guarantee in accordance with its terms.

 

(iii)                               If any claim described in clauses (i) or
(ii) is not made by FSAM in accordance with the Sovereign Guarantee, the
Collateral Agent shall, at the detailed direction of the Secured Party
Representative, or FSA, as representative for the Collateral Agent, may promptly
submit a Guarantee Call in accordance with the terms of the Sovereign Guarantee
which shall be described in detail by the Secured Party Representative. Copies
of any such claims will be provided to the Collateral Agent and, if applicable
FSA, in addition to any Persons specified in the Sovereign Guarantee.

 

(iv)                              The failure of FSAM or FSA, as applicable, to
make any claim shall not impair or prevent the making of such claim at any later
date in relation to such Put Trigger, or any other Put Trigger to the extent
permitted by the Put Contracts.

 

(v)                                 The Collateral Agent will only consent to an
amendment of the Sovereign Guarantee or to a Proscribed Amendment to which FSA
has directed it to consent.

 

(b)                            FSAM agrees to promptly repay to Dexia (as
provided in Section 11.1 and the definition of Dexia Reimbursement Payments) any
amounts paid by the Sovereign Guarantors under the Sovereign Guarantee in
circumstances where such amounts were not due by Dexia as a Shortfall Amount or
Put Settlement Amount under the Dexia Guaranteed Put Contract.

 

(c)                             FSAM or FSA, as applicable, will make a
Guarantee Call by email or facsimile, with confirmation of receipt by the
Sovereign Guarantors by email or facsimile.

 

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ARTICLE V

EVENTS OF DEFAULT; REMEDIES

 

Section 5.1.                                   Events of Default.

 

A “Dexia Event of Default” will mean the occurrence of any of the following
events:

 

(a)                                  the occurrence of any ISDA Event of Default
under either the Dexia Guaranteed Put Contract or the Dexia Non-Guaranteed Put
Contract;

 

(b)                                 the non-payment by any Dexia Party or any
Affiliate of any required payment in accordance with the terms of any Dexia
Guarantee, the Put Contracts or the Dexia GIC Indemnity (the “Dexia Payment
Obligations”) where (i) the amount of such non-payment, taken together with any
other outstanding and uncured failures to make payments or deliveries by any
Dexia Party or any Affiliate in relation to Uncovered Dexia Payment Obligations,
exceeds USD 10,000,000 (the “Default Threshold”) and (ii) such non-payment is
not remedied by an Account Transfer Cure within the Cure Period following
delivery of a Payment Failure Notice to the relevant addressees of such notice
by FSA; provided that such amount is not a Good Faith Contested Payment or a
collateral posting requirement in relation to the GIC Contracts; or

 

(c)                                  a Lender Bankruptcy occurs with respect to
any Lender prior to such time as the Liquidity Facility is fully drawn or such
Lenders commitment thereunder has been terminated in accordance with its terms,
or

 

(d)                                 an SPV Bankruptcy occurs with respect to
FSAM or any GIC Issuer which is not predominately the result of action by FSA or
its Affiliates or any person acting on their behalf.

 

The Dexia Guarantors or FSAM will notify the Collateral Agent, the Reporting
Agent and FSA within one Business Day following the occurrence of a Dexia Event
of Default described in clause (a) or (b) of the definition thereof. The Dexia
Guarantors or FSAM will notify the Collateral Agent, the Reporting Agent and FSA
within five Business Days following the occurrence of a Dexia Event of Default
described in clause (c) or (d) of the definition thereof.

 

Section 5.2.                                   Remedies.

 

(a)                                  Upon a Dexia Event of Default (subject to
Section 7.5 and the further provisions of this Section 5.2 below), FSA, in its
capacity as Secured Party Representative (or, after the Senior Release Date, the
Dexia Guarantors), may take any or all of the following actions at any time and
in any order:

 

(i)                                     cause the repurchase date to occur in
respect of all or any part of the transactions entered into under the Master
Repurchase Agreement, exercise the rights of a secured party in relation to the
Collateral, and direct the Collateral Agent to exercise all rights to vote or
give directions or consents as a holder of such collateral following enforcement
of its security interest;

 

(ii)                                  terminate the Administrative Services
Agreement or replace the Administrator thereunder and direct the management of
the Administrator, including consenting to new Hedge Agreements by the FSAM
Hedging Successor Entity, a GIC Issuer or the FSAM Successor to be entered into
in accordance with the ALM Procedures;

 

(iii)                               with respect to the Dexia Non-Guaranteed Put
Contract, designate an “early termination date,” liquidate the Dexia Collateral
posted under the Dexia Non-Guaranteed Put

 

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CSA, demand payment of any related early termination payments and exercise the
rights of a secured party in relation to the Collateral posted under the Dexia
Non-Guaranteed Put CSA;

 

(iv)                              with respect to the Dexia Guaranteed Put
Contract, if the Dexia Event of Default also constitutes an ISDA Event of
Default, designate an “early termination date,” liquidate the Dexia Collateral
posted under the Dexia Guaranteed Put CSA, demand payment of any related early
termination payments and exercise the rights of a secured party in relation to
the Collateral posted under the Dexia Guaranteed Put CSA;

 

(v)                                 maintain any Dexia Guarantees in force, make
claims in accordance with the terms of any Dexia Guarantee, any Liquidity
Facility or the Sovereign Guarantee and apply any Collateral to unpaid
liabilities of FSAM;

 

(vi)                              either (1) cause FSAM and the GIC Issuers to
enter into a transfer and novation of the Master Repurchase Agreement such that
an FSAM Successor shall succeed to the rights and obligations of FSAM under the
Master Repurchase Agreement or (2) cause the GIC Issuers to enter into a
Financed FSAM Collateral Purchase and/or a GIC Issuer Repurchase Agreement with
an FSAM Successor; and/or

 

(vii)                           cause any FSAM Successor and/or any FSAM Hedging
Successor to enter into an amendment to this Agreement in which such FSAM
Successor and/or FSAM Hedging Successor shall Grant a security interest in its
assets to the Collateral Agent in a manner substantially similar to the Grants
provided by FSAM and the GIC Issuers in Article II.

 

Notwithstanding the foregoing, (x) the Collateral Agent and the Secured Party
Representative shall cause all proceeds from the sale of Collateral to be
deposited in the Collateral Agent Cash Account and reinvested solely in
Permitted Investments, as instructed in writing by the Secured Party
Representative, to be applied by the Administrator to satisfy the obligations of
FSAM and the GIC Issuers, respectively, in accordance with the Priority of
Payments; (y) no Person (including the Collateral Agent or the Secured Party
Representative acting on its behalf) may make any claim under and enforce the
Sovereign Guarantee after termination of the Dexia Guaranteed Put Contract and
(z) at any time that the Subordinated Claims Payment Condition is met or would
be met taking into account the liquidation proceeds from sales of Put Portfolio
Assets, Excluded Assets and Other Assets effected to date (and all other cash
and Permitted Investments then available to the Collateral Agent), no further
liquidation of Put Portfolio Assets, Excluded Assets or Other Assets will be
effected pursuant to subsection (d) or otherwise, it being understood that
settlement of any pending sales is permitted and the Secured Party
Representative may recommence liquidation of Put Portfolio Assets or Excluded
Assets in accordance with subsection (d) at any time that the Subordinated
Claims Payment Condition is not satisfied, subject to Section 11.2.

 

(b)                                 If a Dexia Event of Default has occurred,
the Collateral Agent will, at the direction of the Secured Party Representative,
exercise all rights available at law, including the rights and remedies
available to a secured party under the Uniform Commercial Code in effect in any
applicable jurisdiction and without limiting the generality of the foregoing,
the Collateral Agent may without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law or expressly required under this Agreement) to or upon any
Grantor or any other Person (each and all of which demands, presentments,
protests, advertisements and notices are hereby waived), collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels or as an entirety at public or private
sale or sales, at any exchange, broker’s board or office of the Collateral Agent

 

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or elsewhere, for cash or on credit or for future delivery without assumption of
any credit risk, subject in the case of the Put Portfolio Assets, to the
Liquidation Procedures set forth below.

 

(c)                                  With respect to a public or private
disposition of the Collateral, the Secured Party Representative may take such
steps as it shall determine are necessary or appropriate to conduct a
disposition of Collateral. The Portfolio Manager will, or if the Portfolio
Manager has not yet been retained as provided in Section 7.5 (or has not yet
been replaced after a resignation or removal), a third party agent hired by the
Collateral Agent at the direction of the Secured Party Representative will,
serve as liquidation agent (the “Liquidation Agent”) to conduct such public or
private disposition of the Collateral, provided that the Secured Party
Representative may elect not to retain a Liquidation Agent if it determines such
retention would impede the timing of the liquidation of the Collateral. The
Secured Party Representative and other Secured Parties shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the FSAM
Collateral so sold, free of any right or equity of redemption in FSAM, any Dexia
Guarantor, any GIC Issuer, FSA PAL or any other Person, which right or equity is
hereby waived or released so long as in the case of the Put Portfolio Assets,
such sale is in material compliance with the Liquidation Procedures below and
the purchaser is the highest bidder.

 

(d)                                 If a Portfolio Manager has not been
appointed pursuant to Section 7.5 (other than pursuant to Section 7.5(c)) and
subject to Section 11.2, the Secured Party Representative or Liquidation Agent,
as applicable, will liquidate Collateral pursuant to this Section 5.2 in the
following order: (x) first, liquidate the Excluded Assets and Other Assets
(other than Permitted Investments) with the highest Mark to Market Value as of
the date of the relevant bid list in priority to Excluded Assets and Other
Assets (other than Permitted Investments) of lower Mark to Market Value as of
such date and, then (y) liquidate the Put Portfolio Assets with the highest Mark
to Market Value as of the date of the relevant bid list in priority to Put
Portfolio Assets of lower Mark to Market Value as of such date, subject at all
times to subclause (z) under Section 5.2(a) above. In addition, the following
additional criteria will apply with respect to the Put Portfolio Assets (the
“Liquidation Procedures”):

 

(i)                                     the Secured Party Representative or
Liquidation Agent, as applicable, will use commercially reasonable efforts to
identify amounts or types of Put Portfolio Assets to be sold separately (each a
“Collateral Lot”) where such separate sales of Collateral Lots may increase the
overall liquidation proceeds of the Put Portfolio Assets, and in any event no
Collateral Lot including Put Portfolio Assets of more than $500 million in
aggregate Mark to Market Value (as most recently determined prior to the date of
sale) will be sold on a date that is fewer than five Business Days apart (a
“Disposition Period”) from another date on which another Collateral Lot of Put
Portfolio Assets is sold, unless the aggregate liquidation proceeds from such
sale would be at least equal to 95% of the aggregate Mark to Market Value (as
most recently determined prior to the date of sale) of the Put Portfolio Assets
included in the relevant Collateral Lot;

 

(ii)                                  the Secured Party Representative or
Liquidation Agent, as applicable, will give the Dexia Guarantors reasonable
advance notice of each sale of a Collateral Lot of Put Portfolio Assets and a
reasonable opportunity to identify parties who should receive the bid package in
relation to any Collateral Lot, and access to any information that would be
required for Dexia to communicate details of the bid package to potential
bidders; provided, however, that each Dexia Guarantor hereby acknowledges and
agrees that it shall have received reasonable advance notice of any sale and a
reasonable opportunity to identify parties described herein to the extent such
Dexia Guarantor has been given three Business Days’ advance notice of any sale
(which notice period may be concurrent with a Disposition Period applicable
under clause (i)).

 

(iii)                               the Secured Party Representative or
Liquidation Agent, as applicable, will solicit a quotation in relation to each
Collateral Lot of Put Portfolio Assets from at least four

 

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Unaffiliated Eligible Bidders and two other Unaffiliated Eligible Bidders
identified by the Dexia Guarantors with respect to any Collateral Lot so long as
the Dexia Guarantors have provided the Secured Party Representative or the
Liquidation Agent, as applicable, the names and contact details of at least two
such Unaffiliated Eligible Bidders within the three Business Day period
described in clause (ii), and the Dexia Guarantors (so long as the relevant
Dexia Event of Default was not a Dexia Bankruptcy) shall have the right to
submit a bid in relation to each Collateral Lot of Put Portfolio Assets (a
“Dexia Bid”);

 

(iv)                              none of the Secured Party Representative, the
Liquidation Agent or the Dexia Parties shall have any “last look” or similar
option to match bids provided by Eligible Bidders;

 

(v)                                 in relation to each Collateral Lot of Put
Portfolio Assets, the Secured Party Representative or Liquidation Agent, as
applicable, will not sell the relevant Collateral Lot of Put Portfolio Assets
unless either (A) at least two bids have been obtained from Unaffiliated
Eligible Bidders for the relevant Collateral Lot of Put Portfolio Assets on the
relevant date and the aggregate liquidation proceeds from such sale would be at
least equal to the relevant Liquidity Percentage times the aggregate Mark to
Market Value (as most recently determined prior to the date of sale) of the Put
Portfolio Assets included in the relevant Collateral Lot, where “Liquidity
Percentage” in relation to any Collateral Lot and any date means (1) to the
extent there are four or more bids from Unaffiliated Eligible Bidders for such
Collateral Lot, 80% and (2) to the extent there are two or three bids from
Unaffiliated Eligible Bidders for such Collateral Lot, 90%; (B) at least one bid
has been obtained from an Unaffiliated Eligible Bidder and an attempt to obtain
bids for the relevant Collateral Lot has been made on three different Business
Days each separated by at least two Business Days; or (C) the Dexia Bid is the
highest bid.

 

(vi)                              the sale must occur at the highest cash bid
price received for the relevant Collateral Lot of any Put Portfolio Assets,
including any Dexia Bid;

 

(vii)                           the Put Portfolio Assets with the highest Mark
to Market Value as of the date of the relevant bid list will be sold first; and

 

(viii)                        for the avoidance of doubt, the parties hereby
acknowledge and agree that the Liquidation Procedures will (A) not apply to (x)
any sale, liquidation or other disposition of Collateral other than Put
Portfolio Assets or (y) any sale, liquidation or other disposition of Put
Portfolio Assets conducted at the direction of the Portfolio Manager appointed
pursuant to Section 7.5; and (B) will not prejudice the rights of the Secured
Party Representative or the Administrator to sell or otherwise dispose of Put
Portfolio Assets pursuant to Section 11.2.

 

(e)                                  The parties agree and acknowledge that any
sale of Put Portfolio Assets in respect of which the Liquidation Agent or the
Secured Party Representative, as applicable, is in material compliance with the
Liquidation Procedures is commercially reasonable under the applicable UCC. The
parties agree and acknowledge that any sale of (i) Put Portfolio Assets
conducted at the direction of the Portfolio Manager appointed pursuant to
Section 7.5 or conducted at a time when no Portfolio Manager has been appointed
as a result of the procedures set forth in Section 7.5(c), (ii) Collateral other
than Put Portfolio Assets or (iii) Put Portfolio Assets by the Secured Party
Representative or the Liquidation Agent where the Liquidation Procedures are not
required to apply is commercially reasonable under the applicable UCC in each
case, to the extent (x) the Secured Party Representative or Liquidation Agent,
as applicable, shall have contacted (by mail, electronic mail, facsimile or
otherwise) and solicited bids from, without duplication, at least four
Unaffiliated Eligible Bidders or other Persons in the business of purchasing or
originating securities similar to the Collateral, (y) the Secured Party
Representative or Liquidation Agent has provided the Dexia Guarantors with three
Business Days’ prior notice of such sale, and (z) such sale is made at a price
at least equal to the highest of such bids, including any Dexia Bid (the
procedures in

 

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described in clauses (x) and (y), the “Minimum Liquidation Procedures”). The
Collateral Agent and each of FSAM, each Dexia Guarantor, each GIC Issuer and FSA
PAL agree to assemble the Collateral applicable to it and under its control, at
the request of the Liquidation Agent or Collateral Agent, and make such
Collateral available to the Liquidation Agent at places and times that the
Liquidation Agent shall reasonably select.

 

(f)                                    The Collateral Agent shall not be liable
to any other Secured Party for any action it takes or omits to take in good
faith, in its capacity as Collateral Agent, that it reasonably and prudently
believes to be authorized or within its rights or powers hereunder. The parties
agree that alternative liquidation procedures that differ from those described
in this paragraph may also be commercially reasonable under the applicable UCC.

 

(g)                                 No right or remedy herein conferred upon or
reserved to the Collateral Agent or the Secured Party Representative is intended
to be exclusive of any other right or remedy, and every right and remedy will,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, will not prevent the concurrent or subsequent assertion
or employment of any other appropriate right or remedy.

 

(h)                                 No delay or omission of the Collateral Agent
or the Secured Party Representative to exercise any right, power or remedy
accruing upon any Dexia Event of Default will impair any such right, power or
remedy or constitute a waiver of any such Dexia Event of Default or an
acquiescence therein. Every right, power and remedy given by this Agreement or
by law to the Secured Party Representative or Collateral Agent may be exercised
from time to time, and as often as may be deemed expedient, by the Secured Party
Representative or Collateral Agent, as the case may be.

 

(i)                                     The Collateral Agent hereby expressly
waives its rights to any amount fixed by law as compensation for any sale;
provided that the Collateral Agent may deduct the reasonable costs, charges and
expenses incurred by it in connection with such sale (including all costs of
publication, Collateral assemblage costs, and Liquidation Agent and legal fees
and expenses, notwithstanding the provisions of Section 6.2 hereof) in
accordance with the Priority of Payments.

 

(j)                                     Without limitation of, and in addition
to, the power of attorney contemplated by Section 2.1(i) and any other power of
attorney provided to the Collateral Agent or FSA under any other Material
Agreement, each Grantor hereby irrevocably constitutes and appoints the
Collateral Agent, and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, from time to time in their discretion, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement,
following a Dexia Event of Default. Without limiting the generality of the
foregoing, each Grantor hereby gives the Collateral Agent the power and right,
on behalf of such Grantor and following a Dexia Event of Default, without notice
to or assent by such Grantor to do the following:

 

(i)                                     receive, take, endorse, assign and
deliver any checks, drafts, notes, acceptances, documents and other negotiable
and non-negotiable instruments, documents and chattel paper taken or received by
the Secured Party Representative or the Collateral Agent in connection herewith
and therewith for the payment of moneys due with respect to any Collateral and
to file any claim or to take any other action or proceeding in any court of law
or equity or otherwise deemed appropriate by the Secured Party Representative or
the Collateral Agent for the purpose of collecting any and all such moneys due
with respect to any Collateral whenever payable;

 

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(ii)           pay or discharge taxes and Liens levied or placed on or
threatened against any Collateral; and

 

(iii)          (A) direct any party liable for any payment under any Collateral
to make payment of any and all moneys due or to become due thereunder directly
to the Collateral Agent or as the Collateral Agent shall direct upon receipt of
written instructions from the Secured Party Representative; (B) ask or demand
for, collect, receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral; (C) sign and endorse any invoices, assignments, verifications,
notices and other documents in connection with any of the Collateral;
(D) commence and prosecute any suits, actions or proceedings at law or in equity
in any court of competent jurisdiction to collect the Collateral or any part
thereof and enforce any other right in respect of any Collateral; (E) defend any
suit, action or proceeding with respect to any Collateral; (F) settle,
compromise or adjust any suit, action or proceeding described in clause
(E) above and, in connection therewith, give such discharges or releases as the
Secured Party Representative may deem appropriate; and (G) generally, sell,
transfer, pledge or assign and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though the Collateral
Agent were the absolute owner thereof for all purposes, and do, at the option of
the Secured Party Representative and at FSAM’s expense, at any time, and from
time to time, all acts and things that the Secured Party Representative deems
necessary to protect, preserve or realize upon the Collateral and the Collateral
Agent’s Liens thereon; and

 

(iv)          execute, in connection with any sale of Collateral, any
endorsements, assignments, stock powers or other instruments of conveyance or
transfer with respect to such Collateral; and

 

(v)           at the direction of FSA, as Secured Party Representative, to enter
into one or more GIC Issuer Repurchase Agreements, a Financed FSAM Collateral
Purchase and/or a transfer and novation of the Master Repurchase Agreement.

 

Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. All powers, authorizations and agencies herein
contained with respect to the Collateral are irrevocable and powers coupled with
an interest. No purchaser or transferee at such a sale shall be bound to
ascertain the Collateral Agent’s authority, to inquire into the satisfaction of
any conditions precedent or see to the application of any payment.

 

(k)           All rights of action and rights to assert claims upon or under
this Agreement may be enforced by the Collateral Agent without the possession of
any Collateral or the production thereof in any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Collateral
Agent shall be brought in its name as Collateral Agent and any recovery of
judgment will be held as part of the Collateral.

 

(l)            Each Grantor, to the extent it may lawfully do so, on behalf of
itself and all who may claim through or under it, including any and all
subsequent creditors, vendees, assignees and lienors, expressly waives and
releases any, every and all rights to presentment, demand, protest or any notice
(to the extent permitted by applicable law and except as to notices to such
Grantor expressly provided for in this Agreement) of any kind in connection with
this Agreement or any Collateral or to have any marshalling of the Collateral
upon any sale, whether made under any power of sale granted hereunder or any
other agreement or instrument, or pursuant to judicial proceedings or upon any
foreclosure or any enforcement of this Agreement or any other Secured Obligation
and consents and agrees that all the Collateral may at any such sale be offered
and sold as an entirety or in lots or otherwise as the Collateral

 

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Agent may be directed by the Secured Party Representative hereunder, subject in
each case to Section 7.5 and the Liquidation Procedures.

 

(m)          Upon a Dexia Event of Default, FSA may directly exercise all rights
available to it under applicable law to enforce its security interest in the
Dexia FP Collateral by giving written notice thereof to the Collateral Agent
(with a copy to Dexia FP), and thereafter shall have all rights with respect to
such membership interests including any and all management, voting, approval and
other rights under the Organizational Documents of HF Services LLC and Delaware
law. Dexia FP acknowledges and agrees that any such direction to deliver the
membership interest of HF Services LLC to, or at FSA’s direction, is
commercially reasonable under the applicable UCC.

 

(n)           Upon a Dexia Event of Default, FSA may directly exercise all
rights available to it under applicable law to enforce its security interest in
the FSAM PAL Collateral by giving written notice thereof to the Collateral Agent
(with a copy to FSAM), and thereafter shall have all rights with respect to the
FSA PAL ordinary shares including any and all management, voting, approval and
other rights under the Organizational Documents of FSA PAL and the law of
England and Wales. FSAM acknowledges and agrees that any such direction to
deliver the ordinary shares of FSA PAL to, or at FSA’s direction, is
commercially reasonable under the applicable UCC.

 

(o)           All the provisions of this Section 5.2 are intended to be subject
to all applicable mandatory provisions of law which may be controlling in the
premises and to be limited to the extent necessary so that they will not render
this Agreement invalid, unenforceable in whole or in part or not entitled to be
recorded, registered, or filed under the provisions of any applicable law. For
the avoidance of doubt, the provisions of this Section 5.2 are intended only to
grant rights to the Secured Party Representative (upon a Dexia Event of Default)
to enforce its rights over the Collateral. They are not intended to grant any
rights to the Secured Party Representative (upon a Dexia Event of Default) that
would result in a change of control over FSAM. Without limitation of the
foregoing, the Secured Party Representative will have no right to cause FSAM to
purchase new assets, incur new liabilities, enter into any new transactions or
otherwise manage the business of FSAM without the consent of Dexia and the
Sovereign Guarantors. The foregoing does not limit (i) the rights of the
Collateral Agent or FSA to make a “default termination draw” or a “default repo
termination request” as defined in and under the Guaranteed Liquidity
Facilities, (ii) the rights of the Collateral Agent and FSA to deliver Put
Exercise Notices and otherwise to enforce the obligations of the Dexia
Guarantors under the Put Contracts or the Sovereign Guarantors under the
Sovereign Guarantee or (iii) the rights of FSA to manage the assets and
liabilities of the FSAM Successor, the FSAM Hedging Successor and the GIC
Issuers following a Dexia Event of Default and to take or cause to be taken any
or all of the measures set forth in Section 7.5 or (iv) the other express
remedies of the Secured Party Representative under this Agreement.

 

Section 5.3.            Application of Funds Collected; Subordination.

 

(a)           Any proceeds (net of any reasonable liquidation expenses) that the
Collateral Agent or Secured Party Representative receives from the exercise of
its rights and remedies with respect to the Collateral (including from the sale
thereof) will be deposited in the Collateral Agent Cash Account and applied in
accordance with the Priority of Payments.

 

(b)           If at any time following notice of any Dexia Event of Default any
party hereto will have received any payment or distribution (whether voluntary,
involuntary, through the exercise of any rights of set-off, or otherwise, and
whether in cash, property or securities) in excess of the payments or
distributions such party would have received through the operation of
Section 5.3(a) (such excess payments or distributions being referred to as
“Excess Payments”), then the relevant party shall promptly pay over such Excess
Payments in the form received (duly endorsed, if necessary, to the Collateral
Agent)

 

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to the Collateral Agent, for deposit to the Collateral Agent Cash Account and
distribution by the Administrator in accordance with the Priority of Payments.

 

(c)           The subordinations, agreements and priorities set forth in this
Agreement will remain in full force and effect, regardless of whether any Person
in the future seeks to rescind, amend, terminate or reform, by litigation or
otherwise, its respective agreements with FSAM.

 

(d)           Nothing herein will impair, as between FSAM and the GIC Issuers,
on the one hand, and FSA, on the other hand, the obligations of FSAM and the GIC
Issuers, which are irrevocable, unconditional and absolute, to pay to FSA the
amounts due under the relevant Insurance Agreements.

 

Section 5.4.            Control by the Secured Party Representative.

 

(a)           Notwithstanding any other provision of this Agreement, each
Secured Party agrees (notwithstanding the rights it may have under applicable
law) that after a Dexia Event of Default the Secured Party Representative shall
have the sole right to cause the institution of and direct the time, method and
place of conducting any proceeding for any remedy available to the Collateral
Agent and for exercising any trust, right, remedy or power conferred on the
Collateral Agent herein; provided that:

 

(i)            such direction will not conflict with any rule of law or this
Agreement; and

 

(ii)           the Collateral Agent may take any other action deemed proper by
the Collateral Agent that is not inconsistent with any direction by the Secured
Party Representative; provided, however, that, subject to Section 6.1, the
Collateral Agent need not take any action that it determines might involve it in
liability (unless the Collateral Agent has received satisfactory indemnity with
respect to such direction).

 

(b)           The Secured Parties each agree that, so long as any obligations to
the Secured Parties (or to the Collateral Agent, on behalf of the Secured
Parties) under this Agreement remain outstanding and a Dexia Event of Default
has occurred, the Secured Parties (other than FSA in its capacity as the Secured
Party Representative):

 

(i)            will have no right to (x) direct the Collateral Agent to exercise
any right, remedy or power with respect to the Collateral or (y) consent or
object to the exercise by the Collateral Agent of any right, remedy or power
with respect to the Collateral or to the timing or manner in which any such
right is exercised or not exercised or, to the extent it may have any such
right, each Secured Party (other than the Secured Party Representative) hereby
irrevocably waives such right;

 

(ii)           will not institute any suit or other proceeding or assert in any
suit, bankruptcy or similar insolvency or other proceeding any claim against the
Secured Party Representative or the Collateral Agent seeking damages from or
other relief by way of specific performance, instructions or otherwise, with
respect to, and none of the Secured Party Representative, the Collateral Agent
or the other Secured Parties shall be liable for, any action taken or omitted to
be taken by the Secured Party Representative or the Collateral Agent with
respect to the Collateral, except that such provisions shall be without
prejudice to any remedies available to Dexia at law or equity for a breach of
Section 5.2(c), (d) and (e) or Section 7.5;

 

(iii)          will not commence judicial or nonjudicial foreclosure proceedings
with respect to, seek to have a trustee, receiver, liquidator or similar
official appointed for or over the Collateral, attempt any action to take
possession of the Collateral to the exclusion of the

 

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Collateral Agent, exercise any right, remedy or power with respect to, or
otherwise take any action to enforce its interest in or realize upon, the
Collateral;

 

(iv)          will not contest, oppose, object to, interfere with, hinder or
delay, in any manner, whether by judicial proceedings or otherwise, any
foreclosure, sale, exchange, transfer or other disposition of the Collateral by
the Secured Party Representative, the Collateral Agent or the Liquidation Agent,
except that such provisions shall be without prejudice to any remedies available
to Dexia at law or equity for a breach of Section 5.2(c), (d) and (e) or
Section 7.5; and

 

(v)           will not seek, and hereby waive any right, to have the Collateral
marshaled upon any foreclosure or other disposition of the Collateral.

 

(c)           So long as any obligations to the Secured Parties (or to the
Collateral Agent, on behalf of the Secured Parties) under this Agreement remain
outstanding, each Secured Party agrees that it shall not, in or in connection
with any bankruptcy or similar insolvency proceeding, file any pleadings or
motions, take any position at any hearing or proceeding of any nature, or
otherwise take any action whatsoever, in each case in respect of the Collateral,
including, with respect to the determination of any liens or claims held by the
Collateral Agent (including the validity and enforceability thereof) or the
value of any claims of the Collateral Agent under Section 506(a) of the
Bankruptcy Code or otherwise, or file any pleadings or motions, take any
position at any hearing or proceeding of any nature, or otherwise take any
action whatsoever, in each case in respect of the Collateral, which would be
inconsistent with the provisions of this Agreement.

 

Section 5.5.            Waiver of Past Defaults.

 

(a)           Prior to the time a judgment or decree for payments due has been
obtained by the Collateral Agent, as provided in this Article V, FSA (or, after
the Senior Release Date, the Secured Party Representative) may waive any Dexia
Event of Default and its consequences by written notice to FSAM and the
Collateral Agent. Unless so set forth in such written notice, waiver by FSA of a
Dexia Event of Default hereunder will not constitute a waiver of any event of
default under the Put Contracts.

 

(b)           In the case of any such waiver, FSAM, the Collateral Agent and the
Secured Parties will be restored to their former positions and rights hereunder,
respectively, but no such waiver will extend to any subsequent or other Dexia
Event of Default or impair any right consequent thereto. The Collateral Agent
will promptly forward copies of any such waiver to each Secured Party.

 

Section 5.6.            Replacement of Insurance Agreement Remedies.

 

The Dexia Events of Default and remedies set forth in this Article V will
supersede and replace the “events of default” and remedies (including
indemnities), if any, set forth in the Insurance Agreements.

 

ARTICLE VI

COLLATERAL AGENT

 

Section 6.1.            Certain Duties and Rights of the Collateral Agent.

 

(a)           The Collateral Agent hereby agrees to act as collateral agent
(including as custodian and bailee with respect to Collateral, Dexia FP
Collateral or FSAM PAL Collateral in its possession) for the Secured Parties
with respect thereto, and accepts appointment by FSAM as its agent for purposes
of the FSAM Belgian Pledge Agreement, in accordance with the terms of this
Agreement and undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement, no implied or

 

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fiduciary duties, covenants or obligations will be read into this Agreement
against the Collateral Agent and the Collateral Agent shall have no duty to take
any discretionary action or exercise any discretionary powers.

 

(b)           No provision of this Agreement will be construed to relieve the
Collateral Agent from liability for its own actions, or omissions constituting
gross negligence or its own willful misconduct, except that:

 

(i)            the Collateral Agent shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Secured Party Representative (as required or permitted
hereunder) pursuant to Section 5.4; and

 

(ii)           no provision of this Agreement will require the Collateral Agent
to expend or risk its own funds or otherwise incur any liability, financial or
otherwise, in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers contemplated hereunder, including under Article V
of this Agreement, if it will have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it unless such risk or liability relates to its
ordinary services (if any).

 

(c)           After the occurrence of a Dexia Event of Default, the Collateral
Agent agrees that it shall, subject to the provisions of this Section 6.1,
comply with all instructions of the Secured Party Representative, and shall
assist the Secured Party Representative in pursuing all available remedies under
Article V as and to the extent requested by the Secured Party Representative.
Following a Transition Date, and at the direction of FSA, the Collateral Agent
will enter into an amendment to this Agreement in which any FSAM Successor
and/or any FSAM Hedging Successor shall Grant a security interest in its assets
to the Collateral Agent in a manner substantially similar to the Grants provided
by FSAM and the GIC Issuers in Article II.

 

(d)           The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys; provided that the Collateral Agent shall not be responsible for any
misconduct or negligence on the part of any agent (other than an Affiliate) or
attorney appointed with due care by it hereunder; provided, further, that such
appointment will not relieve the Collateral Agent of responsibility for
performance of the obligations hereunder.

 

(e)           Without limiting the foregoing, and notwithstanding any provision
to the contrary elsewhere, the Collateral Agent, its affiliates and their
respective officers, directors, employees and agents:

 

(i)            shall be entitled to rely upon, and shall not incur any liability
for relying upon, any notice, request, certificate, consent, statement,
instrument, document or other writing delivered to the Collateral Agent under or
in connection with this Agreement and believed by it in good faith to be genuine
and to have been signed or sent by the proper Person, and shall not be bound to
make any investigation into the facts or matters stated in any notice, request,
certificate, consent, statement, instrument, document or other writing;
provided, that if a Confirmation Request is delivered to the Collateral Agent by
the Administrator, the Collateral Agent shall be responsible to receive and
examine the documentation delivered therewith to determine whether (A) such
Confirmation Request is complete and (B) that each item described in such
Confirmation Request is attached thereto and the Collateral Agent shall either
notify the Administrator that such Confirmation Request is incomplete or that
one or more items are missing or sign and return such Confirmation Request as
required by this Agreement;

 

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(ii)           may consult with legal counsel as to any provisions hereof or its
duties hereunder and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel;

 

(iii)          shall not be deemed to have or be charged with notice or
knowledge of any fact or matter unless a written notice thereof has been
received by the Collateral Agent at the address and to the person designated in
(or as subsequently designated pursuant to) this Agreement;

 

(iv)          with the exception of this Agreement, is not responsible for or
chargeable with knowledge of any terms or conditions contained in any agreement
referred to herein;

 

(v)           will have no duty to ascertain or inquire as to the performance or
observance by the Grantors of any of the terms, conditions or covenants of any
security agreement with the Collateral Agent or to determine the existence,
validity, enforceability or perfection of any security interest granted to the
Collateral Agent (or the adequacy or sufficiency of the Collateral, Dexia FP
Collateral or FSAM PAL Collateral;

 

(vi)          may in any instance where the Collateral Agent reasonably
determines in good faith that it lacks or is uncertain as to its authority to
take or refrain from taking certain action, or as to the requirements of this
Agreement under any circumstance before it, delay or refrain from taking action
unless and until it has received instructions from the appropriate party or
advice from legal counsel, as the case may be;

 

(vii)         shall not be liable for any error of judgment in any action taken,
suffered or omitted, or for any act done or step taken, suffered or omitted, or
for any mistake of fact or law, unless such action constitutes gross negligence,
bad faith or willful misconduct;

 

(viii)        will not incur any liability by acting or not acting in reliance
upon any notice, consent, certificate, direction, statement or other instrument
or writing believed by it in good faith to be genuine and signed or sent by the
proper party or parties;

 

(ix)           will not incur liability for any notice, consent, certificate,
statement, wire instruction, telecopy, or other writing which is delayed,
cancelled or changed without the actual knowledge of the Collateral Agent or for
the failure to, or any defect in, any forwarded notice or information;

 

(x)            shall not incur any liability for acts or omissions of any
domestic or foreign depository or book-entry system for the central handling of
assets or any domestic or foreign custodian or subcustodian; and

 

(xi)           shall not incur any liability for any claims, losses,
liabilities, damages or expenses (including attorneys’ fees and expenses) due to
forces beyond the control of Collateral Agent, including without limitation
strikes, work stoppages, acts of war or terrorism, insurrection, revolution,
nuclear or natural catastrophes or acts of God, and interruptions, loss or
malfunctions of utilities, or, with respect to third party providers,
communications or computer (software and hardware) services.

 

(f)            All funds received by the Collateral Agent under or pursuant to
any provision of this Agreement (other than pursuant to Sections 5.2(i) and 6.2
hereof) shall be held for the purposes for which they were paid or are held.

 

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Section 6.2.            Compensation and Reimbursement.

 

(a)           FSAM agrees, subject to the Priority of Payments:

 

(i)            to pay or cause to be paid to the Collateral Agent compensation
relating to services rendered by it hereunder as set forth in a fee arrangement
with FSAM attached as Annex G; and

 

(ii)           except as otherwise expressly provided herein, to reimburse the
Collateral Agent (subject to any written agreement between FSAM and the
Collateral Agent) in a timely manner upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Collateral Agent at
the direction of or with the consent of the Secured Party Representative or
otherwise as required pursuant to any provision of this Agreement (including
securities transaction charges and the reasonable compensation and expenses and
disbursements of its agents and legal counsel employed by the Collateral Agent
pursuant to this Agreement, except any such expense, disbursement or advance as
may be attributable to its gross negligence, willful misconduct or bad faith).

 

(b)           The Dexia Guarantors and FSAM agree, jointly and severally,
subject to the Priority of Payments, to indemnify the Collateral Agent and the
Reporting Agent and their respective officers, directors, employees and agents
for, and to hold them harmless against, any loss, claim, damage, liability or
expense (including reasonable counsel fees and expenses) incurred without gross
negligence, willful misconduct or bad faith on their part, arising out of or in
connection with the acceptance or administration of this Agreement, including
the costs and expenses of defending themselves against any such claim or
liability in connection with the exercise or performance of any of their powers
or duties hereunder. This indemnification will survive the termination of this
Agreement and, if applicable, the earlier removal or resignation of the
Collateral Agent or Reporting Agent, as applicable.

 

(c)           No claim may be made against the Collateral Agent or any of its
officers, agents, directors or employees for any special, indirect,
consequential or punitive damages (including but not limited to lost profits) in
respect of any claim for breach of contract or any other theory of liability
arising out of or relating to this Agreement or the transactions contemplated
hereby or any act, omission or event occurring in connection therewith, even if
the Collateral Agent has been advised of such loss or damage and regardless of
the form of action and parties hereto hereby waive, release and agree not to sue
upon any claim for any such damages, whether or not accrued and whether or not
known or suspected to exist.

 

Section 6.3.            Eligibility.

 

There will at all times be a Collateral Agent hereunder which will be a
nationally recognized banking corporation or association or a trust company
organized and doing business under the laws of the United States of America or
of any state thereof, having a combined capital, surplus and undivided profits
of at least $500,000,000 (or the equivalent in any other currency) Independent
of FSA, Assured and Dexia. If the Collateral Agent publishes reports of
condition annually, or more frequently, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section, the combined capital and surplus of such corporation, association
or trust company will be deemed to be the respective amount set forth in its
most recently published report of condition. If at any time the Collateral Agent
will cease to be eligible in accordance with the provisions of this Section, the
Collateral Agent shall resign immediately in the manner and with the effect
hereinafter specified in this Article VI.

 

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Section 6.4.            Resignation and Removal; Appointment of Successor.

 

(a)           No resignation or removal of the Collateral Agent will become
effective until the acceptance of appointment by the successor Collateral Agent.
The indemnification in favor of the Collateral Agent in Section 6.2 will survive
any resignation or removal of the Collateral Agent (to the extent of any
indemnified loss, liability or expense arising or incurred prior to, or arising
as a result of action or omissions occurring prior to, such resignation or
removal).

 

(b)           The Collateral Agent may resign at any time by giving written
notice thereof to FSAM, the Dexia Parties and FSA.

 

(c)           The Collateral Agent may be removed at any time by FSAM with the
prior written consent of FSA and the Dexia Parties or, at any time when a Dexia
Event of Default will have occurred, by the Secured Party Representative
directly, by notice delivered to the Collateral Agent, the Dexia Parties and
FSAM.

 

(d)           If at any time (i) the Collateral Agent ceases to be eligible
under Section 6.3 and fails to resign after written request therefor by FSAM
(with the prior written consent of the Dexia Parties and FSA) or the Secured
Party Representative (with the consent of FSA or the Dexia Guarantors, as
applicable); (ii) the Collateral Agent becomes incapable of acting or will be
adjudged as bankrupt or insolvent or a receiver or liquidator of the Collateral
Agent or a substantial part of its property will be appointed or any public
officer will take charge or control of the Collateral Agent or of a substantial
part of its property or affairs for the purpose of rehabilitation, conservation
or liquidation; or (iii) if the Collateral Agent resigns, or if a vacancy occurs
in the office of the Collateral Agent for any reason, then, in any such case,
(A) prior to the occurrence of a Dexia Event of Default, FSAM may remove (if
applicable) the Collateral Agent and, in each case shall promptly appoint a
successor with the prior written consent of FSA and the Dexia Parties and
(B) following the occurrence of a Dexia Event of Default, the Secured Party
Representative may remove (if applicable) the Collateral Agent and, in each
case, may promptly appoint a successor without the consent of the Dexia Parties
so long as (x) it provides the Dexia Parties with prior notice of any proposed
removal of the Collateral Agent, (y) the Secured Party Representative does not
appoint as successor collateral agent any of the Persons identified on a list
provided by the Dexia Parties (which list will not include more than three
names) no later than the second Business Day after receipt by the Dexia Parties
of such notice and (z) such successor Collateral Agent meets the eligibility
criteria set forth in Section 6.3. If no successor has been so appointed and has
accepted appointment in the manner hereinafter provided, the Collateral Agent
may, on behalf of itself, petition any court of competent jurisdiction for the
appointment of a successor.

 

(e)           FSAM shall give prompt notice of each resignation and each removal
of the Collateral Agent and each appointment of a successor by providing written
notice of such event, to each Secured Party. Each notice will include the name
of the successor and the address of its principal office. If FSAM fails to
provide such notice within ten days after acceptance of appointment by the
successor, the successor shall cause such notice to be given at the expense of
FSAM.

 

(f)            Any successor collateral agent shall assume the responsibilities
of the Collateral Agent under each Put Settlement Procedures Agreement.

 

Section 6.5.            Merger, Conversion, Consolidation or Succession to
Business of Collateral Agent.

 

Any Person into which the Collateral Agent may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Collateral Agent shall be a party, or
any Person succeeding to all or substantially all of the corporate

 

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business of the Collateral Agent, shall be the successor of the Collateral Agent
hereunder; provided such Person will be otherwise eligible and qualified under
this Article VI, without the execution or filing of any document or any further
act on the part of any of the parties hereto.

 

Section 6.6.            Put Settlement Arrangements. The Collateral Agent shall
enter into one or more agreements (each, a “Put Settlement Procedures
Agreement”) under which it will, in connection with the exercise of a Put Option
or a claim under the Sovereign Guarantee, effect (x) the transfer of FSAM Assets
that are Excluded FSAM Collateral to the Dexia Guarantors under the Put
Contracts or the Sovereign Guarantee (including, for the avoidance of doubt, any
such FSAM Assets held by Wells Fargo as custodian for a GIC Holder), (y) the
substitution of cash for such Excluded FSAM Collateral under the relevant
collateral posting account and (z) deposit of any excess over the substitution
amount from the Put Settlement Amount or payment under the Sovereign Guarantee,
as applicable, into the FSAM Cash Account as directed by the Administrator or
the Secured Party Representative.

 

Section 6.7.            Additional Duties of the Collateral Agent.

 

(a)           Upon request of the Administrator, provide confirmation as
described in Sections 11.1(c) and 11.2 (e).

 

(b)           Upon request of the Administrator, FSAM or FSA, the Collateral
Agent will verify the balance in the relevant FP Account and, if applicable,
provide the confirmation of non-receipt of funds described in the definition of
Shortfall Information.

 

(c)           Upon request of the Administrator, the Collateral Agent will, in
accordance with a Confirmation Request (which contains all of the information
required in Section III thereof to be completed by the Administrator), notify
the Sovereign Guarantors and FSA that “the FSAM Lien Release Date” has occurred,
and accordingly the restriction on optional termination of the Sovereign
Guarantee set forth in Part 5 (p) of the schedule to the Dexia Guaranteed Put
Contract shall no longer apply.

 

ARTICLE VII

ADMINISTRATION

 

Section 7.1.            Administrative Services Agreement.

 

(a)           Each GIC Business Entity, in furtherance of the covenants of this
Agreement and its performance and observance of the provisions hereof, has
entered into the Administrative Services Agreement to retain the Administrator
to take all actions to be performed by such GIC Business Entity under this
Agreement, supervise and direct the administration of the Collateral and
administer the GIC Business. For the avoidance of doubt, it is understood and
agreed that in no event shall the Collateral Agent have any responsibility or
liability whatsoever to assume the operation of or to perform any aspect of the
GIC Business.

 

(b)           FSA and the Dexia Parties acknowledge and agree that the
Administrator will be engaged under the Administrative Services Agreement on or
before the Closing Date and may resign or be replaced only upon satisfaction of
all conditions set forth in the Administrative Services Agreement. The
Administrative Services Agreement may be terminated only in accordance with its
terms.

 

(c)           If the Administrative Services Agreement is terminated, each GIC
Business Entity will enter into a services agreement with a new service provider
in accordance with the terms of the Administrative Services Agreement. The terms
of the Administrative Services Agreement made with that new service provider
shall expressly provide that, notwithstanding any other provision thereof and so
long as the Sovereign Guarantee is in effect, the new service provider (x) shall
provide Dexia with access to

 

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such information as it may require to meet the undertakings by Dexia attached as
Annex K under the Sovereign Guarantee Reimbursement Agreement, and shall provide
reasonable assistance to Dexia with a view to its complying with those
undertakings regardless of whether a Dexia Event of Default has occurred (other
than with respect to information for which Dexia is fully capable of accessing
or compiling independently notwithstanding the occurrence of a Dexia Event of
Default), and (y) upon receipt of a request by Dexia or a Sovereign Guarantor
explaining the relevant conflict, refrain from taking any action which would
prevent Dexia from complying with such undertakings.

 

Section 7.2.            Assignment of the Administrative Services Agreement.

 

(a)           Each GIC Business Entity, in furtherance of the covenants of this
Agreement and as security for the Secured Obligations and the performance and
observance of the provisions hereof, hereby assigns, transfers, conveys and sets
over to the Collateral Agent, for the benefit of the Secured Parties, all of its
right, title and interest in, to and under the Administrative Services
Agreement, including (i) the right to give all notices, consents and releases
thereunder, (ii) the right to give all notices of termination and to take any
legal action upon the breach of an obligation of the Administrator (or its
successor thereunder), including the commencement, conduct and consummation of
proceedings at law or in equity, (iii) the right to receive all notices,
accountings, consents, releases and statements thereunder and (iv) the right to
do any and all other things whatsoever that it is or may be entitled to do
thereunder; provided, however, that each GIC Business Entity may exercise any of
its rights under the Administrative Services Agreement without notice to or the
consent of the Collateral Agent (except as otherwise expressly required by this
Agreement), so long as a Dexia Event of Default has not occurred.

 

(b)           The assignment made hereby is executed as collateral security, and
the execution and delivery hereof will not in any way impair or diminish the
obligations of each GIC Business Entity under the provisions of the
Administrative Services Agreement, nor will any of the obligations contained in
the Administrative Services Agreement be imposed on the Collateral Agent. Upon
the release of the Collateral from the lien of this Agreement, this assignment
and all rights herein assigned to the Collateral Agent will cease and terminate
and all of the estate, right, title and interest of the Collateral Agent in, to
and under the Administrative Services Agreement will revert to each GIC Business
Entity and no further instrument or act will be necessary to evidence such
termination and reversion.

 

(c)           Each GIC Business Entity represents that as of the date hereof it
has not executed any other assignment of the Administrative Services Agreement.

 

(d)           Each GIC Business Entity agrees that this assignment is
irrevocable, and that it shall not take any action which is inconsistent with
this assignment or make any other assignment inconsistent herewith. Each GIC
Business Entity shall, from time to time, execute all instruments of further
assurance and all such supplemental instruments with respect to this assignment
as the Collateral Agent may specify or as required by applicable law.

 

Section 7.3.            ALM Procedures.

 

(a)           The assets and liabilities of the GIC Business will, at all times
before and after a Dexia Event of Default, be managed in accordance with the ALM
Procedures. If the ALM Procedures are inconsistent with any provision of this
Agreement then this Agreement (other than the ALM Procedures attached hereto)
will control.

 

(b)           FSAM, FSA and the Dexia Guarantors agree that (i) prior to the
occurrence of a Dexia Event of Default, FSAM may amend any provision of the ALM
Procedures without the consent of FSA, and (ii) following a Dexia Event of
Default, FSA may amend any provision of the ALM Procedures without consent of
the Dexia Guarantors, in each case subject to dispute resolution as described in
Section

 

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7.4; provided that Sections 2, 3, 4.2, 4.3, 5.1, 6, 8.2, 8.3, 9 and 10 and
Appendices I, II, III and VI (such provisions, the “Protected Provisions”) of
the ALM Procedures may not be amended at any time without the prior written
consent of FSA and the Dexia Guarantors, irrespective of whether a Dexia Event
of Default has occurred; provided that the valuation procedures set forth in
Appendix IV will be deemed to be amended (and no consent shall be required) to
conform to any revisions made by the valuation agent from time to time to the
procedures that the valuation agent generally applies to accounts maintained by
it with respect to assets of the same type.

 

(c)           Following a Dexia Event of Default, the Dexia Guarantors will have
all rights to reports and access to information to the same extent as such
reports and information would have been available to FSA prior to such Dexia
Event of Default.

 

(d)           Prior to entering into any derivative transaction in implementing
a hedging strategy for the GIC Business pursuant to the ALM Procedures following
a Dexia Event of Default, FSA agrees that it will provide the Dexia Guarantors
with reasonable advance notice and an opportunity to introduce a bid quotation
from an Unaffiliated Hedge Counterparty for the relevant transaction in order to
implement its hedging strategy in a cost effective manner; provided, however,
that the Dexia Guarantors hereby acknowledge and agree that it shall have
received reasonable advance notice of the entrance into any derivative
transaction and a reasonable opportunity to introduce a bid quotation from an
Unaffiliated Hedge Counterparty to the extent the Dexia Guarantors have been
given five Business days’ advance notice of the entrance into any such
derivative transaction.

 

Section 7.4.            ALM Dispute Resolution.

 

(a)           A dispute resolution with an ALM Arbiter may be invoked by FSA or
the Dexia Guarantors in respect of any ALM Noncompliance or any GIC Business
Costs Amount Dispute. Prior to a Dexia Event of Default, FSA may notify the
Dexia Guarantors, with a copy to Administrator and FSAM (or, if applicable, the
FSAM Successor or the FSAM Hedging Successor), and following a Dexia Event of
Default, the Dexia Guarantors may notify FSA, with a copy to the Administrator
and FSAM (or, if applicable, the FSAM Successor or the FSAM Hedging Successor)
that it believes ALM Noncompliance or a GIC Business Costs Amount Dispute has
occurred.

 

(b)           In each notice invoking the dispute resolution process, the
notifying party will provide a description of the ALM Procedures or a
calculation of the GIC Business Costs Amount, as applicable, in reasonable
detail and a copy of the ALM Procedures or Schedule B to Dexia CSA related to
the Put Contracts and will propose an arbiter from the ALM Arbiter Candidate
List. The Dexia Guarantors or FSA, as the party receiving such notice, will have
the right to object to the proposed ALM Arbiter selection within two Business
Days of notice, and upon any such objection the notifying party will within two
Business Days select an alternate from the ALM Arbiter Candidate List and such
alternate will serve as the ALM Arbiter unless FSA and the Dexia Guarantors
agree otherwise. Any arbiter selected pursuant to this clause (b) is referred to
as an “ALM Arbiter.” Upon identification of the ALM Arbiter for any dispute, the
notifying party will promptly provide the information in the first sentence of
this section to such ALM Arbiter.

 

(c)           The ALM Arbiter will determine disputes within five Business Days
of its receipt of the information described in subsection (b), based on the
following standard: (i) in the case of an ALM Noncompliance (Derivative), such
hedging transaction was required to have been effected or not to have been
terminated in order to comply with a standard of reasonable and prudent hedging
activity in compliance with the ALM Procedures, (ii) in the case of ALM
Noncompliance (Operational), such action did not comply with the ALM Procedures,
(iii) in the case of amendments to the ALM Procedures, such amendment is not a
Dexia Policy Amendment prior to a Dexia Event of Default or an Assured Risk
Policy Amendment after a Dexia Event of Default and either (x) such amendment is
an amendment

 

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directly or indirectly, of any Protected Provision or (y) such amended ALM
Procedures do not constitute a reasonable and prudent asset and liability
management policy in accordance with prevailing market standards for portfolio
management activities of the same type with the same investment objectives, and
(iv) in the case of a GIC Business Costs Amount Dispute, that any Administrative
Expenses or any increase in the annual budget provided by the Administrator in
accordance with the Administrative Services Agreement was an Unanticipated
Recurring Expense (as defined in Schedule B to the Dexia CSAs) or that any
savings of Administrative Expense or reduction of the annual budget provided by
the Administrator in accordance with the Administrative Services Agreement was
an Unanticipated Recurring Savings (as defined in Schedule B to the Dexia CSAs).

 

(d)           The Administrator or the notifying party will coordinate the
dispute resolution process by providing parties with any requested information
to which it has access, communicating any submission deadlines and forwarding
any notices or requests in connection with such arbitration to appropriate
parties.

 

(e)           The non-prevailing party as concluded by the ALM Arbiter will pay
all costs, fees and expenses associated with a dispute submitted for resolution.
The Dexia Guarantors and FSA hereby acknowledge and agree that the conclusions
of the ALM Arbiter with respect to a dispute will be final and binding on all
parties.

 

Section 7.5.            Post-Default Management of Assets and Liabilities.

 

(a)           If a Dexia Event of Default occurs and FSA elects to become the
Secured Party Representative, FSA shall, as promptly as is reasonably
practicable, initiate the process of appointing an Independent portfolio manager
(the “Portfolio Manager”) that will supervise and direct the operations of the
Administrator in managing the assets and liabilities (including any asset sales
or liquidation of Collateral contemplated by Section 5.2) of the GIC Business
(and for the avoidance of doubt the Administrator will act not on behalf of FSAM
but on behalf of the GIC Issuers). Pending such appointment, FSA will direct the
Administrator in the management of the GIC Business on behalf of the GIC Issuers
in a commercially reasonable and prudent manner, subject to the Liquidation
Procedures and substantially in accordance with the Investment Objectives and
the ALM Procedures.

 

(i)            Upon giving notice pursuant to Section 12.1 (b) of its election
to become the Secured Party Representative (the “Notice Date”), FSA shall use
commercially reasonable efforts to (x) obtain proposals from two or more firms
listed on the Portfolio Manager List (each, a “Proposal”) and (y) use reasonable
efforts to cause the proposed candidates to be reasonably available for meetings
with, and to respond to questions from, the Dexia Guarantors. Each Proposal
shall identify the candidate for portfolio manager and include a fee proposal
from the candidate for providing the services described in clause (b)(i).

 

(ii)           “Portfolio Manager List” means the list of portfolio managers
prepared by mutual agreement of FSA and the Dexia Guarantors attached hereto as
Schedule D, as the same may be amended from time to time by consent of FSA and
the Dexia Guarantors. If FSA or either Dexia Guarantor provides notice to the
others of a conflict of interest with any firm on the list, that firm’s name
will be deemed to be removed. FSA and the Dexia Guarantors will use commercially
reasonable efforts to ensure that the names of at least three firms appear on
the Portfolio Manager List at all times. If no names are included on the
Portfolio Manager List upon a Dexia Event of Default, FSA will provide the Dexia
Guarantors a list of three Portfolio Managers and the Dexia Guarantors may
remove one portfolio manager from such list within five Business Days.

 

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(iii)          The Dexia Guarantors may provide notice to FSA within 15 days of
receipt of the Proposal that it objects to the appointment of one of the two
proposed candidates, in which case, the other proposed candidate, or if more
than two candidates are proposed, the candidate selected by FSA, will become the
Portfolio Manager.

 

(iv)          If FSA does not make at least two Proposals within 60 days of the
Notice Date, then the Dexia Guarantors may make a Proposal to FSA, and FSA shall
not unreasonably withhold or delay its consent to such Proposal.

 

(v)           If no Portfolio Manager has been appointed within 90 days after
the Notice Date, either FSA or the Dexia Guarantors may petition any court of
competent jurisdiction for the appointment of the Portfolio Manager from the
Portfolio Manager List.

 

(b)           The Portfolio Manager will be appointed under a management
agreement (the “Portfolio Management Agreement),” on customary market terms for
such agreements with respect to assets of this type and subject to following
additional terms:

 

(i)            The Portfolio Manager shall agree to perform its obligations
under the Portfolio Management Agreement with reasonable care and in good faith,
using its best judgment in rendering its services and a degree of skill and
attention no less than that which the Portfolio Manager exercises with respect
to comparable assets that it manages for itself, its Affiliates or others, and
in a manner reasonably consistent with practices and procedures followed by
reasonable and prudent institutional managers of assets of the nature and
character of the FSAM Assets. To the extent consistent with the foregoing, the
Portfolio Manager may follow its customary standards, policies and procedures in
performing its duties under the Portfolio Management Agreement and hereunder.

 

(ii)           In performing its duties and functions hereunder, the Portfolio
Manager shall act in a manner consistent with the following objectives: (A)
having sufficient funds available in accordance with the Priority of Payments
(1) to preserve liquidity resources and hedge interest rate and currency risk
such that FSA shall not be subject to claims under any FSA Policy, (2) to repay
the principal of the GIC Contracts in full on or prior to their respective
maturity dates and (3) to reimburse FSA for any amounts paid on a claim under
any FSA Policy and (B) to the extent consistent with the foregoing, mitigating
losses on the FSAM Assets and preserving the residual value of the FSAM Assets
as a whole for the benefit of the Dexia Parties. The objectives described in
clauses (A) and (B) are collectively referred to as the “Investment
Objectives”).

 

(iii)          The Portfolio Manager shall agree to comply with the ALM
Procedures and shall implement (or, if applicable, assume the implementation of)
the FSA Defeasance Plan that is set forth in the ALM Procedures.

 

(iv)          In the event the Portfolio Manager is subject to removal for cause
or resigns, FSA shall have the right to replace the Portfolio Manager by
repeating the procedures set forth in clause (a) above.

 

(v)           The Dexia Guarantors shall be party to or be a third party
beneficiary of the Portfolio Management Agreement.

 

(c)           Notwithstanding any other provision of this Section 7.5 (x) if the
expenses component of the GIC Business Costs Amount would be insufficient to pay
the reasonably estimated present value of the scheduled fees of the Portfolio
Manager in addition to the present value of the other expected operational
expenses included in the GIC Business Costs Amount, FSA need not accept the
relevant

 

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Proposal unless the Dexia Guarantors provide additional collateral equal to the
excess over the available amount of the operational expenses component of the
GIC Business Costs Amount and (y) the Dexia Guarantors shall waive the retention
of a Portfolio Manager if such scheduled fees of the Portfolio Manager are not
acceptable to the Dexia Guarantors and, in each case, the Secured Party
Representative and the Liquidation Agent shall not be required to comply with
the Liquidation Procedures; provided that it complies with the Minimum
Liquidation Procedures.

 

(d)           FSA may elect to terminate the Portfolio Management Agreement
other than for cause or elect not to replace a resigning Portfolio Manager if
the following conditions are satisfied:

 

(i)            at least one year has elapsed since the effective date of the
initial Portfolio Management Agreement;

 

(ii)           except for FSAM Assets with a Mark to Market Value of up to
$200,000,000, the only remaining FSAM Assets are cash or Permitted Investments;

 

(iii)          the Dexia FP Guarantee is terminated and FSA irrevocably releases
and waives any and all rights it may have under such Dexia FP Guarantee; and

 

(iv)          the amount (if any) by which (I) the aggregate FSAM Asset Value of
Permitted Investments and other FSAM Assets then held as Collateral hereunder
(whether held by FSAM or the GIC Issuers or the Collateral Agent following
enforcement of its security interest hereunder, and including any Permitted
Investments that were initially pledged as Eligible Collateral under the Put
Contracts (whether or not the Put Contracts have been terminated)) exceeds (II)
the Subordinated Claims Payment Threshold has been released to the Dexia
Guarantors.

 

(e)           The Portfolio Manager will be required to agree that (i) the
Portfolio Manager will in no event fail to comply with the Minimum Liquidation
Procedures and (ii) prior to entering into any derivative transaction in
implementing a hedging strategy for the GIC Business, the Dexia Guarantors will
be provided reasonable advance notice and an opportunity to introduce a bid
quotation from an Unaffiliated Hedge Counterparty for the relevant transaction
in order to implement the relevant hedging strategy in a cost effective manner;
provided, however, that each Dexia Guarantor hereby acknowledges and agrees that
it shall have received reasonable advance notice of the entrance into any
derivative transaction and a reasonable opportunity to introduce a bid quotation
from an Unaffiliated Hedge Counterparty to the extent such Dexia Guarantor has
been given five Business Days’ advance notice of the entrance into any such
derivative transaction.

 

(f)            Dexia and FSA agree, and each Administrator or Portfolio Manager
shall be required to agree, that notwithstanding any Dexia Event of Default and
for so long as the Sovereign Guarantee is in effect, they will not direct
actions in connection with the GIC Business that would violate in any material
respect the following requirements applicable to Dexia and FSAM under the
Sovereign Guarantee Reimbursement Agreement:

 

(i)            FSAM shall neither repurchase any of its membership interests nor
make any distributions to its members, including any distribution of dividends,
or make any Restricted Payment.

 

(ii)           None of FSAM, the FSAM Successor, the FSAM Hedging Successor and
the GIC Issuers shall issue new GIC Contracts (but shall be permitted to
refinance or enter into amendments or modifications in relation to existing GIC
Contracts (in each case without increasing the outstanding principal amount
thereof or interest rate applicable thereto)) or engage in any business or
activity other than the Wind Down Business. Dexia will not consent to any

 

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transfer of the GIC Contracts by the GIC Holders and will cause the GIC Issuers
not to consent to any transfer of the GIC Contracts by the GIC Holders.

 

“Wind Down Business” means the management of the Collateral and the exercise of
its rights and performance of its obligations under (i) the Master Repurchase
Agreement issued or entered into by FSAM with the GIC Issuers (to the extent
still outstanding) and any other Material Agreement, (ii) interest rate and
currency derivatives and any other hedging transactions entered into by FSAM
(prior to a Dexia Event of Default), the FSAM Hedging Successor or the FSAM
Successor to hedge exposures relating to the Collateral and the GIC Contracts,
(iii) other repurchase agreements, securities lending agreements or other
liquidity arrangements for the purpose of enabling any GIC Issuer to satisfy its
collateral posting requirements and termination and repayment requirements under
GIC Contracts, (iv) financing obtained for the purpose of meeting such
collateral posting requirements or otherwise for the payments described in
(i) through (iii), (v) any security arrangements entered into in connection with
the items described in (i) through (iv), the Guaranteed Put Contract or the
Sovereign Guarantee, (vi) taking any other actions as are contemplated by the
Material Agreements and comply with the restrictions on the activities of FSAM
and the GIC Issuers set forth in this Agreement and (vii) amendments or
modifications (provided that such amendments or modifications contribute to or
are not inconsistent with the progressive winding down of FSAM’s activities and
exposures) to, and agreements or transactions ancillary or incidental to, the
items described in (i) through (v).

 

(iii)          FSAM shall not amend or modify the terms of the Put Portfolio
Assets or the terms of the Guaranteed Put Contract without the consent of the
Sovereign Guarantors.

 

(g)           FSA and the Dexia Guarantors shall, upon the request of the other
party, reasonably cooperate in selecting a Portfolio Manager prior to a Dexia
Event of Default, the appointment of which would be effective only upon a Dexia
Event of Default and the election of FSA to be the Secured Party Representative.
Either FSA or the Dexia Guarantors may provide a proposal from a candidate that
appears on the Portfolio Manager Candidate List for this purpose and the other
agrees to respond to such Proposal within a reasonable period of time.

 

Section 7.6.            Indemnification

 

In consideration of the Dexia Guarantors’ entering into the Dexia FP Indemnity
and the terms of the Dexia FP Indemnity which supersede the indemnification
obligations of FSAM and the GIC Issuers under the Insurance Agreements, FSAM and
the GIC Issuers agree, jointly and severally, that in the event that a Dexia
Event of Default has occurred and the Dexia Guarantors have not made a payment
required to be made by the Dexia Guarantors to an Indemnified Party under the
Dexia FP Indemnity (other than Good Faith Contested Payments), FSAM and the GIC
Issuers will make such payment to the Indemnified Party under the terms of the
Dexia FP Indemnity as if they were Indemnifying Parties thereunder.

 

ARTICLE VIII

HEDGE AGREEMENTS

 

Section 8.1.            Balancing Hedging Arrangements.

 

(a)           FSAM may, without the consent of FSA (unless a Dexia Event of
Default has occurred and FSA has elected to become the Secured Party
Representative) at the direction of Dexia terminate, replace or amend existing,
or enter into, new transactions under existing Hedge Agreements in accordance
with the ALM Procedures, but shall not enter into any new Hedge Agreements
unless such Hedge Agreement (other than futures account agreements) is a
Subordinated Third Party Hedge Agreement.

 

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(b)           FSAM will take action to exercise its right to designate an early
termination date as soon as practicable under a Hedge Agreement with regard to
which an “event of default” (as defined therein) has occurred as a result of a
payment failure, a failure to post required collateral or bankruptcy, except in
respect of a failure to pay or post collateral where FSAM reasonably determines
that a dispute exists and is actively pursuing resolution of such dispute.

 

(c)           The Dexia Parties and FSA will cooperate reasonably and the Dexia
Parties will use commercially reasonable efforts to enter into an amendment to
each Third Party Hedge Agreement in the form attached as Annex I, subject to the
requirements of the Hedging Letter Agreement. Such amendment will include the
issuance of a guarantee by DCL (the “Dexia Counterparty Guarantor”) of FSAM’s
obligations under the Hedge Agreement in the form of Annex I, with such
variations in the terms of individual amendments based on such form either (i)
that do not impair in any material respect the direct or indirect benefits to
FSAM and FSA of the amendment contemplated by such form or (ii) to which FSA has
given its consent not to be unreasonably withheld or delayed. Each such amended
Third Party Hedge Agreement is referred to as a “Subordinated Third Party Hedge
Agreement.”

 

(d)           The Lenders agree that with respect to any Senior Third Party
Hedge Agreement, one of the Lenders will comply with the requirements of the
Hedging Letter Agreement.

 

Section 8.2.            Collateral Posting Under Hedge Agreements.

 

(a)           On any date FSAM shall ensure that any collateral posting
requirements applicable to FSAM under the Senior Third Party Hedge Agreements
which have been satisfied by posting any required collateral under such Third
Party Hedge Agreements.

 

(b)           On any date the Dexia Guarantors shall ensure that any collateral
posting requirements applicable to FSAM under the Senior Third Party Hedge
Agreements have been satisfied by posting such collateral on behalf of FSAM in
their capacity as guarantor of FSAM under such Third Party Hedge Agreements.

 

Section 8.3.            Certain Actions Under Hedge Agreements.

 

(a)           If a Transition Date occurs, FSA (as representative of the
Collateral Agent) or the Dexia Counterparty Guarantor, if applicable, will
exercise the rights set forth in the relevant Subordinated Third Party Hedge
Agreements and the Dexia Hedge Agreement with DCL to (i) cause an assignment of
the Subordinated Third Party Hedge Agreement to DCL such that DCL shall be
responsible for the rights and obligations of FSAM under such Subordinated Third
Party Hedge Agreement and FSAM shall be deemed to have entered into offsetting
transactions with DCL such that FSAM may either (A) terminate one or more such
transactions and/or (B) cause an assignment and novation of such transactions to
an FSAM Hedging Successor and/or (ii) cause an assignment and novation of such
Subordinated Third Party Hedge Agreement to an FSAM Hedging Successor.

 

(b)           Following (x) a Transition Date and actions contemplated by this
Section 8.3, hedging transactions will be effected only by an FSAM Hedging
Successor, and not by FSAM, in accordance with the ALM Procedures and (y) a
Dexia Event of Default, FSA may issue financial guarantees of the obligations of
the FSAM Hedging Successor under Hedge Agreements, provided that such guarantees
are on customary market terms and the premium is no more than the minimum amount
required by law for such guarantee to be enforceable.

 

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Section 8.4.            Hedge Agreement Register.

 

FSAM shall maintain the Hedge Agreement Register in which will be recorded all
outstanding Hedge Agreements (with each identified as an Asset Swap or a
Liability Swap as applicable) and collateral posted thereunder. The Hedge
Agreement Register will also (x) identify any Hedge Policy, (y) identify any GIC
Contract related to each Liability Swap to the extent feasible, other than any
basis swaps or other derivatives related to the portfolio and not to any
individual GIC Contract, and (z) to the extent applicable, identify the FSAM
Asset or FSAM Assets (or portions thereof) related to each Asset Swap. The
Administrator is hereby initially appointed registrar for the purpose of
maintaining the Hedge Agreement Register. If FSA notifies the Administrator that
it believes a Hedge Policy is outstanding that is not listed on the Hedge
Agreement Register, the Administrator will consult with FSA to resolve any such
dispute.

 

ARTICLE IX

GUARANTEED LIQUIDITY FACILITIES

 

Section 9.1.            Draw Requests.

 

(a)           If the Administrator determines at or prior to 3:45 P.M. (Paris
time) on any Business Day that FSAM does not have, or expects not to have,
sufficient funds to pay any Senior Priority Payments or any other obligations to
an Unaffiliated Party described in Section 11.1 on the following Business Day,
FSAM shall promptly, and in no event later than 4:30 P.M. (Paris time) on that
day (i) request a loan or transaction under the Guaranteed Liquidity Facilities
in accordance with Section 11.2 and (ii) provide notice of such Liquidity Draw
Request to the Collateral Agent and FSA. If the Administrator makes such
determination after 3:45 P.M. (Paris time), FSAM shall promptly, and in no event
later than 4:30 P.M.(Paris time) on the following Business Day make such request
under the Guaranteed Liquidity Facilities in accordance with Section 11.2 and
provide a copy of such request to the Collateral Agent and FSA.

 

(b)           In the event that FSAM has failed to make a Liquidity Draw Request
under the Guaranteed Liquidity Facilities required to satisfy Sections 11.2(a)or
11.2(b), the Collateral Agent will at the direction of the Secured Party
Representative, or FSA, as representative of the Collateral Agent (with a copy
to the Collateral Agent), may make a Liquidity Draw Request on behalf of FSAM in
accordance with the terms of the relevant Guaranteed Liquidity Facility on the
following Business Day.

 

(c)           On the day funds are required to be paid under a Liquidity Draw
Request, the Collateral Agent shall verify, as of its close of business in New
York on such day, whether the requested funds have been received in the FSAM
Cash Account or the Collateral Agent Cash Account. If the Collateral Agent
determines, based solely upon the information provided to the Collateral Agent
that such funds were not received, the Collateral Agent will notify the
Administrator and FSA in writing.

 

ARTICLE X

ACCOUNTS; REPORTING; INSPECTION RIGHTS

 

Section 10.1.          Establishment of Accounts.

 

(a)           Each FP Account will be governed by (x) an agreement substantially
in the form of Exhibit A-1 with the Intermediary of each such account, (y) in
the case of accounts established by the Collateral Agent, an agreement
substantially in the form of Exhibit A-2 or (z) a global custody agreement with
respect to the FSA PAL Brussels Cash Account and the FSA PAL Brussels Collateral
Account (each such agreement as amended, supplemented or otherwise modified, a
“Securities Account Control Agreement”), which will require the relevant
Intermediary to segregate and hold all assets received by it

 

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in an FP Account. The maintenance of such FP Account will be governed by the law
of the jurisdiction set forth in such Securities Account Control Agreement.

 

(b)           Prior to the Closing Date, FSAM shall cause the Collateral Agent
to establish the Custody Account, the Collateral Agent Cash Account and the
Collateral Agent Custodial Account and after the Closing Date, the Collateral
Agent may, and at the direction of the Secured Party Representative will,
establish with an Intermediary one or more additional accounts pursuant to this
Article X, each of which will be non-interest bearing segregated account and may
include any number of sub-accounts, which may be held by sub-custodians for
convenience in administering the Collateral (including sub-accounts for
different currencies and for different assets). Each such account will be
established with an Intermediary and maintained pursuant to a Securities Account
Control Agreement.

 

Promptly following the Closing Date and in no event later than 10 Business Days
thereafter, FSA PAL shall cause the establishment of the FSA PAL Brussels Cash
Account and the FSA PAL Brussels Collateral Account, each of which will be
non-interest bearing segregated account and may include any number of
sub-accounts, which may be held by sub-custodians for convenience in
administering the Collateral (including sub-accounts for different currencies
and for different assets). Each such account will be established with an
Intermediary with respect to the FSA PAL Belgian Collateral and maintained
pursuant to a Securities Account Control Agreement. The establishment of the FSA
PAL Brussels Cash Account and the FSA PAL Brussels Collateral Account, and the
grant of a security interest in the related property as FSA PAL Belgian
Collateral pursuant to the FSAM Belgian Pledge Agreement, shall be in
substitution for the FSA PAL Cash Account and the FSA PAL Collateral Account,
and the grant of a security interest in the related property as FSA PAL
Collateral pursuant to Section 2.1(c).

 

(c)           Each Existing Account has been established as a segregated account
with an Intermediary. The FSAM Cash Account and FSAM Collateral Account are
maintained pursuant to a securities account control agreement dated as of
July 31, 2003 (the “Existing Control Agreement”), among BNY Mellon, FSAM and FSA
that among other things evidences FSA’s “Control” with respect to the Security
Entitlements in the FSAM Cash Account and FSAM Collateral Account, respectively.
FSAM and FSA shall, on or prior to the Closing Date, enter into a Securities
Account Control Agreement with respect to the FSAM Collateral Account and the
FSAM Cash Account that will supersede the Existing Control Agreement. Each other
Existing Account will be subject to a Securities Account Control Agreement with
the relevant Grantor. Each Existing Account will be maintained by the relevant
Intermediary in the State of New York for the benefit of the Secured Parties.
Existing Accounts may include sub-accounts for different currencies and for
different assets.

 

(d)           The relevant Grantor shall cause the Intermediary (or in the case
of the FSA Capital Markets Cayman Notes, the Collateral Agent) to hold any
Certificated Securities and Instruments that are in physical form in accordance
with its standard custodial procedures. Any custodian for such Certificated
Securities and Instruments will not be an Affiliate of Dexia and must satisfy
the eligibility requirements set forth in Section 6.3. Dexia CSA Collateral will
be held through one or more Intermediaries outside the State of New York.

 

(e)           FSAM (or, following a Transition Date, the FSAM Successor) shall
take all commercially reasonable efforts to cause the transfer of all
Collections from each FP Account (other than the Dexia Collateral Account) at
least daily to the FSAM Cash Account or the Collateral Agent Cash Account, as
applicable.

 

(f)            FSAM (or, following a Transition Date, the FSAM Successor) will
manage the FSAM Assets in accordance with the ALM Procedures, collect any
proceeds of the FSAM Assets and apply Available Funds consistent with the
Priority of Payments. Any proceeds received in connection with the

 

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sale of FSAM Assets will be applied pursuant to the Priority of Payments or
invested solely in Permitted Investments.

 

(g)           Any cash on deposit in any Account shall be invested at the
direction of the Administrator in Permitted Investments.

 

(h)           Upon establishment of the FSA PAL Brussels Cash Account and FSA
PAL Brussels Collateral Account (the “Brussels Account Establishment”), FSA PAL
or the Administrator will (x) immediately notify FSA (with a copy to the
Collateral Agent) of the establishment of such accounts and (y) within two
Business Days of the Brussels Account Establishment transfer all property from
the FSA PAL Cash Account and FSA PAL Collateral Account, respectively, to such
accounts (the “FSA PAL Accounts Transfer”). Upon the occurrence of a Brussels
Account Failure, FSA will have the right to deliver a notice of sole control
pursuant to the Securities Account Control Agreement related to the FSA PAL Cash
Account and FSA PAL Collateral Account and following delivery of such notice, to
cause the FSA PAL Brussels Cash Account and FSA PAL Brussels Collateral Account
to be established and/or cause the transfer of all property from the FSA PAL
Cash Account and FSA PAL Collateral Account, respectively, to such accounts.
Following the transfer of all property from each of the FSA PAL Cash Account and
the FSA PAL Collateral Account to the FSA PAL Brussels Cash Account and FSA PAL
Brussels Collateral Account, respectively, the FSA PAL Cash Account and FSA PAL
Collateral Account will be closed.

 

Section 10.2.          Dexia Collateral Account; Custody Account; Collateral
Agent Cash Account; Collateral Agent Custodial Account; FSA PAL Brussels Cash
Account; FSA PAL Brussels Collateral Account.

 

(a)           On or prior to the Closing Date, FSAM will cause the custodian
under the Dexia CSAs to establish with an Intermediary a non-interest bearing
segregated account pursuant to the Dexia CSAs designated as the “Dexia
Collateral Account” for the benefit of the Secured Parties which may include any
number of sub-accounts which may be held by sub-custodians for convenience in
administering the Dexia CSA Collateral and which will be administered in
accordance with the Dexia CSAs.

 

(i)            Deposits. Promptly upon receipt, all Dexia CSA Collateral will be
deposited in the Dexia Collateral Account.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the Dexia Collateral Account will be in
accordance with the provisions of this Agreement and the relevant Dexia CSA (A)
to post collateral under a GIC Contract or a Hedge Agreement, (B) to sell or
otherwise dispose of posted collateral or to obtain financing pursuant to a
Temporary Funding Transaction, in each case, in accordance with Section 11.2 and
the relevant Dexia CSA, or (C) to pay any “return amount” or “interest amount”
due under, and as defined in, the relevant Dexia CSA.

 

(iii)          Any non-USD denominated Dexia Collateral will be held under the
relevant Dexia CSA in a special designated pledged account held outside the
United States, which will be considered a subaccount of the Dexia Collateral
Account for purposes of this Agreement.

 

(b)           The “Custody Account” will be maintained to hold FSA Capital
Markets Cayman Notes, the FSAM PAL Collateral and the Private Placement Notes
and will be administered as follows:

 

(i)            Deposits. The FSA Capital Markets Cayman Notes, the FSAM PAL
Collateral and the Private Placement Notes will be credited to the Custody
Account.

 

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(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property credited to the Custody Account will be in accordance with the
provisions of this Agreement to deliver the certificates representing (A) the
FSA Capital Markets Cayman Notes to the trustee or other paying agent in
connection with (x) the final payment, maturity or redemption of such FSA
Capital Markets Cayman Notes or (y) a sale or other disposition of such FSA
Capital Markets Cayman Notes in connection with the occurrence of a Dexia Event
of Default, (B) as and at the direction of the Administrator or the Secured
Party Representative, the Private Placement Notes to the trustee or other paying
agent in connection with (x) the final payment, maturity or redemption of such
Private Placement Notes or (y) a sale or other disposition of such Private
Placement Notes in connection with the occurrence of a Dexia Event of Default or
a Permitted Asset Sale and (C) the FSAM PAL Collateral to FSA at FSA’s direction
following the occurrence of a Dexia Event of Default or on or after the Senior
Release Date, FSAM.

 

(c)           The “Collateral Agent Cash Account” will be administered as
follows:

 

(i)            Deposits. On a daily basis (A) all Collections designated for
deposit in the Collateral Agent Cash Account by the Administrator or Secured
Party Representative, (B) any amounts transferred from the FSAM Cash Account or
the FSA PAL Brussels Cash Account at the direction of the Secured Party
Representative and (C) any amounts designated for deposit in such account by the
Dexia Guarantors pursuant to the Hedging Letter Agreement will be deposited in
the Collateral Agent Cash Account.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the Collateral Agent Cash Account will be as
directed by the Secured Party Representative in accordance with the provisions
of this Agreement (A) to make payments in accordance with the Priority of
Payments, (B) to purchase Permitted Investments in accordance with the Priority
of Payments, (C) to post collateral (by posting cash or purchasing Permitted
Investments that are qualifying assets) under a GIC Contract or Senior Third
Party Hedge Agreement in accordance with Section 11.2 or (D) with respect to
amounts deposited into such account by the Dexia Guarantors, pursuant to the
Hedging Letter Agreement, for application as designated by the Dexia Guarantors
at the time of the withdrawal or for transfer to them at their request with
notice to FSA that the terms of the Hedging Letter Agreement have been
satisfied.

 

(d)           The “Collateral Agent Custodial Account” will be administered as
follows:

 

(i)            Deposits. At the direction of the Secured Party Representative,
all FSAM Assets transferred from FSAM Collateral Account, all Dexia Collateral
transferred from the Dexia Collateral Account and thereafter any Permitted
Investment not applied to secure any secured or collateralized GIC Contracts or
Senior Third Party Hedge Agreements will be deposited in the Collateral Agent
Custodial Account.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the Collateral Agent Custodial Account will be
as directed by the Secured Party Representative in accordance with the
provisions of this Agreement (A) to post collateral under a GIC Contract or
Senior Third Party Hedge Agreement in accordance with Section 11.2, (B) to
transfer Collections to the Collateral Agent Cash Account or (C) to Deliver a
Permitted Investment in connection with a Permitted Asset Sale.

 

(e)           “FSA PAL Brussels Cash Account.”

 

(i)            Deposits. Following the FSA PAL Accounts Transfer, all
Collections received with respect to the FSA PAL Collateral will be deposited in
the FSA PAL Brussels Cash Account

 

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promptly upon receipt thereof. All property transferred from the FSA PAL Cash
Account pursuant to Section 10.1(h) will be deposited in the FSA PAL Brussels
Cash Account immediately upon such transfer.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the FSA PAL Brussels Cash Account will be in
accordance with the provisions of this Agreement to transfer amounts due and
payable under the FSA PAL Loan to the FSAM Cash Account or transfer funds to the
Collateral Agent Cash Account.

 

(f)            “FSA PAL Brussels Collateral Account.”

 

(i)            Deposits. Following the FSA PAL Accounts Transfer, all sterling
and other non-USD denominated FSAM Assets that cannot be held in the FSAM
Collateral Account and that are not applied to secure any secured or
collateralized GIC Contracts will be deposited in the FSA PAL Brussels
Collateral Account promptly upon receipt thereof. All property transferred from
the FSA PAL Collateral Account pursuant to Section 10.1(h) will be deposited in
the FSA PAL Brussels Collateral Account immediately upon such transfer.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the FSA PAL Brussels Collateral Account will be
applied in accordance with the provisions of this Agreement (A) to post
collateral under a GIC Contract or a Senior Third Party Hedge Agreement in
accordance with Section 11.2, (B) to transfer Collections to the FSA PAL
Brussels Cash Account, the FSAM Cash Account or the Collateral Agent Cash
Account, (C) to deliver Collateral in connection with a Permitted Asset Sale or
(D) to deliver as a Put Settlement Asset under either Put Contract, as
applicable.

 

Section 10.3.          FSAM Cash Account; FSAM Collateral Account; FSA Capital
Management Collateral Account; FSA Capital Markets Collateral Account; FSA PAL
Cash Account; FSA PAL Collateral Account.

 

The Existing Accounts will be administered as follows:

 

(a)           “FSAM Cash Account.”

 

(i)            Deposits. On a daily basis prior to a Transition Date (A) all
Collections and (B) any amounts paid from the FSA PAL Brussels Cash Account or
the FSA PAL Cash Account will be deposited in the FSAM Cash Account.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the FSAM Cash Account will be in accordance with
the provisions of this Agreement (A) to make payments in accordance with the
Priority of Payments, (B) to repay the Master Repurchase Agreement on an
accelerated basis, (C) to purchase Permitted Investments in accordance with the
Priority of Payments, or (D) to post collateral (by posting cash or purchasing
qualifying assets) under a GIC Contract or Senior Third Party Hedge Agreement in
accordance with Section 11.2; provided that if a Dexia Event of Default occurs,
upon the direction of the Secured Party Representative, funds on deposit in the
FSAM Cash Account will be transferred to the Collateral Agent Cash Account.

 

(b)           “FSAM Collateral Account.”

 

(i)            Deposits. Promptly upon receipt, all FSAM Assets (other than
non-USD assets, which will be deposited in a sub-account or held in the FSA PAL
Account, as applicable) not

 

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applied to secure any secured or collateralized GIC Contracts or Senior Third
Party Hedge Agreements will be deposited in the FSAM Collateral Account.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the FSAM Collateral Account will be in
accordance with the provisions of this Agreement (A) to post collateral under a
GIC Contract or Senior Third Party Hedge Agreement in accordance with
Section 11.2, (B) to transfer Collections to the FSAM Cash Account, (C) to
deliver Collateral in connection with a Permitted Asset Sale or (D) to deliver
as a Put Settlement Asset under either Put Contract, as applicable; provided
that if a Dexia Event of Default occurs, upon the direction of the Secured Party
Representative, FSAM Assets will be transferred to the Collateral Agent
Custodial Account.

 

(c)           “FSA Capital Management Collateral Account.”

 

(i)            Deposits. Promptly upon receipt all funds including any Excluded
GIC Issuers Collateral received by or on behalf of FSA Capital Management will
be deposited in the FSA Capital Management Collateral Account.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the FSA Capital Management Collateral Account
will be in accordance with the provisions of this Agreement (A) transfers
pursuant to the Master Repurchase Agreement or (B) transfers to the FSAM Cash
Account, FSAM Collateral Account, FSA PAL Collateral Account or FSA PAL Brussels
Collateral Account.

 

(d)           “FSA Capital Markets Collateral Account.”

 

(i)            Deposits. Promptly upon receipt all funds received by or on
behalf of FSA Capital Markets including (A) any Excluded GIC Issuers Collateral
and (B) any collateral posted under the Hedge Agreements, will be deposited in
the FSA Capital Markets Collateral Account.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the FSA Capital Markets Collateral Account will
be in accordance with the provisions of this Agreement will be in accordance
with the provisions of this Agreement (A) transfers pursuant to the Master
Repurchase Agreement or (B) transfers to the FSAM Cash Account, FSAM Collateral
Account, FSA PAL Collateral Account or FSA PAL Brussels Collateral Account.

 

(e)           “FSA PAL Cash Account.”

 

(i)            Deposits. Prior to the FSA PAL Accounts Transfer, all Collections
received with respect to the FSA PAL Collateral will be deposited in the FSA PAL
Cash Account promptly upon receipt thereof.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the FSA PAL Cash Account will be in accordance
with the provisions of this Agreement to (A) transfer amounts due and payable
under the FSA PAL Loan to the FSAM Cash Account or transfer funds to the
Collateral Agent Cash Account or (B) transfer all property in the FSA PAL Cash
Account to the FSA PAL Brussels Cash Account pursuant to Section 10.1(h).

 

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(f)            “FSA PAL Collateral Account.”

 

(i)            Deposits. Prior to the FSA PAL Accounts Transfer, all sterling
and other non-USD denominated FSAM Assets that cannot be held in the FSAM
Collateral Account and that is not applied to secure any secured or
collateralized GIC Contracts will be deposited in the FSA PAL Collateral Account
promptly upon receipt thereof.

 

(ii)           Withdrawals. The only permitted withdrawal from or application of
funds or property on deposit in the FSA PAL Collateral Account will applied be
in accordance with the provisions of this Agreement (A) to post collateral under
a GIC Contract or a Senior Third Party Hedge Agreement in accordance with
Section 11.2, (B) to transfer Collections to the FSA PAL Cash Account, the FSAM
Cash Account or the Collateral Agent Cash Account, (C) to deliver Collateral in
connection with a Permitted Asset Sale (D) to deliver as a Put Settlement Asset
under either Put Contract, as applicable or (E) transfer all property in the FSA
PAL Collateral Account to the FSA PAL Brussels Collateral Account pursuant to
Section 10.1(h).

 

Section 10.4.          Reporting Agent.

 

(a)           The GIC Business Entities hereby agree to maintain an agent to
prepare certain reports (the “Reporting Agent”) for FSA and hereby appoint BNY
Mellon as the initial Reporting Agent pursuant to the terms and conditions of
the Reporting Service Agreement. The Reporting Agent may be removed by the GIC
Business Entities at any time. If the Reporting Agent is unable or unwilling to
act as such or is removed by the GIC Business Entities, the GIC Business
Entities will promptly appoint a replacement Reporting Agent; provided that five
Business Days notice will be provided to FSA, and if FSA objects to the proposed
replacement, the GIC Business Entities will appoint a different replacement
Reporting Agent. The resignation or removal of the Reporting Agent will not be
effective without a successor having been duly appointed. The Reporting Agent
will be entitled to indemnification to the extent set forth in Section 6.2(b).

 

(b)           The Reporting Service Agreement will require that, commencing no
later than August 1, 2009, and until the Senior Release Date or, if earlier,
such time as the Reporting Agent is notified by FSA that such report is no
longer required, on each Business Day, the Reporting Agent shall compile and
deliver to FSA and the Administrator (and to the Dexia Guarantors, FSAM, the
FSAM Successor, the FSAM Hedging Successor or any GIC Issuer upon its request):

 

(i)            a daily report, with information from the Information Sources as
of the close of business on the preceding Business Day, which report will
contain the principal balance and Mark to Market Value of each FSAM Asset.

 

(ii)           a calculation of the amount of available cash in the FP Accounts
and of the overnight Permitted Investments and an indication whether the
Required Reserve is satisfied;

 

(iii)          cash balances as reported by the Account Banks showing the cash
balances in the accounts in the most recent Information Source (which is
intended to be as of close of business on the preceding Business Day).

 

(c)           The Reporting Service Agreement will require that, commencing no
later than August 1, 2009, and until the Senior Release Date or, if earlier,
such time as the Reporting Agent is notified by FSA that such report is no
longer required, on the first Business Day of each calendar week, the Reporting
Agent shall provide a report to FSA and the Administrator (and to the Dexia
Guarantors, FSAM, the FSAM Successor, the FSAM Hedging Successor or any GIC
Issuer upon its request) containing the following information as of the last
Business Day of the prior calendar week.

 

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(i)            the “collateral value” (as defined in each Put Contract) and,
based on the relevant Information Source, whether such collateral value is less
than the Exposure;

 

(ii)           whether the Subordinated Claims Payment Condition is met, setting
forth. and based on, the following information for each clauses of the
definition thereof:

 

(A)          with respect to clause (a), a statement whether the Reporting Agent
has received notice of a Dexia Default or Dexia Event of Default,

 

(B)           with respect to clause (b), if the Reporting Agent has received a
notice of a Dexia Event of Default, the calculation in reasonable detail
described in clause (b) of the definition, based on data from the relevant
Information Sources, and

 

(C)           with respect to clause (c), if the Reporting Agent has received a
notice from the Administrator that the GIC Contracts have been Paid In Full.

 

(iii)          with respect to each FSAM Asset that is a Put Portfolio Asset
(including FSAM Assets that have been posted as collateral under a Hedge
Agreement of GIC Contract), (A) the principal balance and Mark to Market Value
of each such FSAM Asset and (B) based upon information provided by the
Administrator an indication of whether it is posted as collateral under a Hedge
Agreement or GIC Contract.

 

(d)           The Reporting Agent has been appointed Valuation Agent under the
Dexia CSAs and will perform the duties specified thereunder, subject to its
receipt of the information required for calculations required thereunder from
the Information Sources.

 

(e)           “Information Sources” means (i) the relevant Account Bank, with
respect to the FSAM Assets and the collateral posting accounts held by the
Account Bank for the benefit of GIC Holders, (ii) the custodian of the Dexia
Collateral pursuant to the Dexia CSAs, with respect to the Dexia Collateral.
(iii) The Royal Bank of Scotland plc, with respect to the FSA PAL Collateral as
forwarded by the Administrator, (iv) the custodian of each collateral posting
account not held by the Account Bank for the benefit of GIC Holders with respect
to the securities and cash held in such accounts, and (v) the Administrator,
with respect to (x) the Private Placement Notes and (y) the items described in
clause (1) of the applicable definition of “Exposure,” including the principal
balance of the GIC Contracts, the GIC Business Cost Amount and information
related to the valuation of Hedge Agreements, and with respect to the list of
the overnight Permitted Investments on any Business Day. The Administrator shall
assist the Reporting Agent in obtaining data from the Information Sources.

 

The Administrator or FSAM will, at the request of FSA, request from either
Account Bank a copy of (i) its then current valuation procedures for valuing
securities held by it and/or (ii) its “Operational Procedures” (as defined in
the applicable Put Settlement Procedures Agreement) and if provided, forward
such procedures to FSA and to the extent that FSAM or the Administrator receives
notice of any changes in any such procedures it will forward a copy of such
notice to FSA.

 

Section 10.5.          Reporting.

 

(a)           On the first Business Day of each calendar week and each calendar
month based on the most recent data available to it, the Administrator will
provide a report to the Dexia Guarantors, the Collateral Agent and FSA (and to
FSAM, the FSAM Successor, the FSAM Hedging Successor, or any GIC Issuer upon its
request) setting forth the following items for the next seven calendar days and
calendar month, as applicable:

 

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(i)            anticipated cash expenditures that will come due over the next
seven calendar days and calendar month, as applicable;

 

(ii)           a reconciliation of actual cash expenditures from the previous
seven calendar days and calendar month, as applicable, to the anticipated cash
expenditures for such period; and

 

(iii)          aggregate payments from FSAM to any single Hedge Counterparty in
excess of $1 million over the course of the next seven calendar days and
calendar month, as applicable.

 

(b)           The Administrator will provide to the ALCO on a quarterly basis, a
comparison of actual cash expenditures with respect to each category of
Administrative Expenses with the budget.

 

(c)           The Administrator will forward within two Business Days of receipt
to FSA (other than reports or notices with respect to FSAM Assets for which FSA
has obtained access to the relevant website) and the Dexia Parties copies of any
servicer and trustee reports, or notices (in the form and format received) with
respect to FSAM Assets and other information received in relation to the Dexia
Guarantees, the Dexia GIC Indemnity, the Guaranteed Liquidity Facilities, this
Agreement, the GIC Contracts, the Administrative Services Agreement, the
Sovereign Guarantee, the Hedge Agreements, the FSA PAL Loan, the Master
Repurchase Agreement, the FSAM Assets and other Collateral. With respect to such
reports, notices and other information available to the Administrator through a
website, the Administrator will, at the request of FSA, use reasonable efforts
to assist FSA in obtaining access to such website.

 

(d)           Dexia shall provide daily reporting of the liquidity position of
FSAM to the Sovereign Guarantors and FSA in such manner as may be agreed with
the Sovereign Guarantors and FSA. Such report will include notice of any Dexia
Default that has occurred prior to the date of such report.

 

(e)           Without limitation of the foregoing, and in addition to any other
reporting obligations of FSAM or the Reporting Agent set forth herein, FSAM
shall provide to Dexia and FSA, with a copy to the Sovereign Guarantors:

 

(i)            within 15 Business Days of the end of each month, a risk report
in the form provided to the Sovereign Guarantors pursuant to the Sovereign
Guarantee Reimbursement Agreement.

 

(ii)           within 30 days of the end of each month, updated lists of the
FSAM Assets as of the end of such month, showing for each FSAM Asset (organized
by Put Portfolio Asset, Excluded Asset and Other Asset) (A) its identification,
(B) its Outstanding Principal Amount, (C) its most recently determined Mark to
Market Value calculated with respect thereto in relation to the Dexia CSAs, (D)
its current book value in the accounts of FSAM, (E) its economic value, both in
an expected and stress case loss projection as determined by the Administrator
based on then-current market conditions, (F) its public rating by Moody’s, S&P
and Fitch, if any and (G) whether it is fully performing and, if not, the
relevant details of any non-performance (based on any reports available to FSAM;

 

(iii)          within 15 days of the end of each month, projected economic and
accreted balances of the GIC liabilities, both in an expected and stress case as
determined by the Administrator based on then-current market conditions;

 

(iv)          within 90 days of the end of each year and 45 days of the end of
each half-year, a consolidated balance sheet, profit and loss account, and cash
flow statement of FSAM;

 

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(v)           not later than 30 days before the commencement of each year,
FSAM’s budget for that period;

 

(vi)          within 15 Business Days of the end of each month, the estimated
liquidity needs of FSAM, both in an expected and stress case as determined by
the Administrator based on then-current market conditions;

 

(vii)         statements of account with respect to transactions involving the
Put Portfolio Assets, which shall be furnished to Dexia, the Sovereign
Guarantors and FSA within 30 Business Days from June 30 and within 60 Business
Days from December 31 each year;

 

(viii)        to the extent available and applicable, upon request of the
Sovereign Guarantors or FSA, to the requesting party, copies of all periodic
payment date reports delivered to or by the issuers of the Put Portfolio Assets,
and upon the reasonable request of the Sovereign Guarantors or FSA, to the
requesting party such other data in relation to the Put Portfolio Assets which
is made available to the holders of such Put Portfolio Asset from time to time;

 

(ix)           upon reasonable notice, any other information reasonably
requested by the Sovereign Guarantors or FSA, to the requesting party in
particular as it may relate to the GIC Business, including the amounts of the
sums owed by the Sovereign Guarantors under the Sovereign Guarantee and any
other information reasonably required or appropriate in connection with for the
performance or implementation of the Sovereign Guarantee or otherwise related to
the GIC Business.

 

(x)            on or prior to the fifth Business Day prior to each January 31
and July 31 (a “Semi-Annual Reporting Date”) (A) a calculation of the average
aggregate Outstanding Principal Amount of the FSAM Assets (decreased for any
Principal Shortfall Amounts) in relation to which a Put Settlement Date has not
yet occurred over the period from and including the preceding December 31 or
June 30, respectively (or in the case of the first such period, the date of
issuance of the Sovereign Guarantee) to, but excluding, the June 30 or
December 31, as applicable and plus (B) a calculation of the average aggregate
outstanding principal amount of the GIC Contracts over the period from and
including the preceding June 30 or December 31, as applicable (or in the case of
the first such period, the date of issuance of the Sovereign Guarantee) to, but
excluding the December 31 or June 30, as applicable, immediately preceding the
relevant Semi-Annual Reporting Date (or in the case of the last such period, the
last day of such period).

 

All information contemplated by this Section 10.5(e) shall be provided to such
address and notice details as the Sovereign Guarantors and FSA provide from time
to time for purposes of this provision; provided, that each such report may be
provided by making it electronically available through the Administrator’s
“website” so long as the Administrator has provided the designated recipient
with prior written instructions (delivered by email or facsimile to such
recipient) with directions for accessing such website. So long as the Dexia
Guarantors are the Secured Party Representative, Dexia shall be solely
responsible for providing a copy to the Sovereign Guarantors of the information
contemplated by this Section 10.5(e). If the Dexia Guarantors are not the
Secured Party Representative and the Sovereign Guarantors give notice to the
Secured Party Representative that Dexia and/or FSAM have failed to deliver one
or more items of information required by this Section 10.5(e), the Secured Party
Representative shall direct the Administrator to prepare such information (with
any costs associated therewith to be included as an Administrative Expense) and
to provide such information to the Sovereign Guarantors.

 

(f)            Promptly upon becoming aware of a Dexia Default, the
Administrator will give notice to the Reporting Agent, the Collateral Agent, the
Dexia Guarantors and FSA.

 

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Section 10.6.          Inspection Rights.

 

(a)           Each of FSAM, FSA, the Sovereign Guarantors, the Dexia Parties,
the FSAM Successor, the FSAM Hedging Successor and Assured (collectively, each,
an “Inspecting Party”) shall have the right to inspect the books and records of
the Collateral Agent related to this Agreement and the other Material Agreements
to which it is a party at any time during normal business hours (but no more
than once during any 12-month period) upon reasonable advance notice and without
undue and unreasonable disruption of its normal business activities.

 

(b)           The Inspecting Parties will have the right (x) to inspect the
books and records of the Administrator related to the GIC Business and the
Material Agreements at any time during normal business hours upon reasonable
advance notice, and (y) to consult with the officers, employers, directors and
managers of the Administrator and FSAM, as applicable, related to the GIC
Business to discuss the GIC Business, the management and collections of the
assets related thereto and any necessary revisions to the ALM Procedures at any
time during normal business hours upon reasonable advance notice. Dexia and the
Administrator shall use reasonable best efforts to cooperate with FSA, the
Sovereign Guarantors and Assured in connection with any such consultation or
inspection of books and records by them.

 

(c)           Each Inspecting Party shall be entitled to permit the Rating
Agencies and any of its applicable regulators to inspect such books and records
and to consult with officers, employers and managers of the Administrator. In
connection with any such inspection, FSAM will provide any additional
information as such Inspecting Party may reasonably request in connection with
its inspection rights.

 

ARTICLE XI

PRIORITY OF PAYMENTS; CASH MANAGEMENT

 

Section 11.1.          Priority of Payments.

 

(a)           FSAM shall apply Available Funds (including any proceeds of FSAM
Assets that may be sold by FSAM from time to time and any payments received by
FSAM under the Dexia Guaranteed Put Contract, the Dexia Non-Guaranteed Put
Contract, the Sovereign Guarantee or any other Collections) in accordance with
the Priority of Payments. Any Available Funds not otherwise allocated pursuant
to such Priority of Payments will be reinvested in Permitted Investments,
pursuant to the ALM Procedures.

 

(b)           On each Business Day, the Administrator will cause Available Funds
to be applied as follows (the “Priority of Payments”):

 

(i)            First, to pay the following amounts (collectively, the “Senior
Priority Payments”), it being acknowledged and agreed that no individual Senior
Priority Payment will have priority over any other Senior Priority Payment:

 

(A)          to pay Administrative Expenses then due; provided, that such
payments (together with any payments previously made pursuant to this clause
during the calendar year) shall not exceed the Annual Expense Cap;

 

(B)           to pay unpaid interest in respect of FSA GIC Contracts (through
payment of any unpaid price differential under the Master Repurchase Agreement
and/or GIC Issuer Repurchase Agreement, as applicable, in relation to any prior
payment date in an amount equal to any unpaid interest payable in respect of FSA
GIC Contracts on such date), with such payments being made directly to the GIC
Holder of the related GIC Contract;

 

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(C)           to pay any current interest in respect of FSA GIC Contracts
(through payment of any price differential under the Master Repurchase Agreement
and/or GIC Issuer Repurchase Agreement, as applicable, in relation to any prior
payment date in an amount equal to any current interest payable in respect of
FSA GIC Contracts on such date), with such payments being made directly to the
GIC Holder of the related GIC Contract;

 

(D)          to pay principal in respect of FSA GIC Contracts (through payment
of repurchase price and other amounts in respect of the Master Repurchase
Agreement and/or GIC Issuer Repurchase Agreement, as applicable, in connection
with FSA GIC Contract withdrawals or terminations then due (for the avoidance of
doubt, without regard to whether a termination has occurred automatically, at
the option of the holder of the FSA GIC Contract, or through a negotiated
process pursuant to Section 11.2(c) and in accordance with the ALM Procedures)),
which for the avoidance of doubt will include any termination costs payable by a
GIC Issuer in connection with any such GIC Contract termination, with such
payments being made directly to the GIC Holder of the related GIC Contract;

 

(E)           to pay futures variation margin amounts due for exchange traded
futures contracts;

 

(F)           to pay current net payments (including any termination payments
and collateral posting requirements) owed to Unaffiliated Counterparties under
the Senior Third Party Hedge Agreements;

 

(G)           following a Dexia Event of Default, to pay Hedge Counterparties
periodic payments and amounts paid in consideration of the initial value of new
Hedge Agreements and/or derivatives transactions thereunder in accordance with
the ALM Procedures, and to pay any accrued Portfolio Manager fees and expenses
payable under the Portfolio Management Agreement;

 

(H)          to pay to the Dexia Guarantors, Dexia Reimbursement Payments;

 

(I)            to reimburse FSA for any unreimbursed claims it has paid under
any FSA Policies related to the GIC Business and to pay any other amounts owed
to FSA under the Insurance Agreements;

 

(J)            to the extent collateral was not posted as required under an FSA
GIC Contract, unless in its discretion, the Administrator has determined in
accordance with Section 11.2(c) that failure to do so would not result in a Net
Loss, an amount required to satisfy any such posting requirement which has not
been satisfied, either by posting cash or buying Permitted Investments eligible
to be posted under such FSA GIC Contract;

 

(K)          to the extent FSAM is required to post collateral in relation to a
Senior Third Party Hedge Agreement and such requirement has not been satisfied,
an amount equal to any such posting requirement which has not been satisfied;

 

(L)           to repay amounts advanced by an Account Bank under its securities,
banking and clearing arrangements with FSAM and the GIC Issuers, together with
any accrued interest due thereon (which would include any amount then due with
respect to such Account Bank’s “daylight overdraft” arrangement); and

 

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(M)         to reserve an amount of immediately available funds that, together
with overnight Permitted Investments is not less than the Required Reserve;

 

(ii)           Second, to pay any other Administrative Expenses then due and
payable;

 

(iii)          Third, prior to any Dexia Event of Default, to reserve an amount
determined by the Administrator to be reserved in excess of the Required Reserve
in consideration of possible liquidity needs for the following two Business
Days;

 

(iv)          Fourth, to the extent not otherwise provided for above, to pay any
Permitted Indebtedness to an Unaffiliated Party;

 

(v)           Fifth, following a Dexia Event of Default, to pay to FSA any
indemnities (other than Good Faith Contested Payments) payable by FSAM or any
GIC Issuer pursuant to Section 7.6;

 

(vi)          Sixth, if the Subordinated Claims Payment Condition is met, to pay
current swap payments and any termination payments owed under any Subordinated
Third Party Hedge Agreement,

 

(vii)         Seventh, if the Subordinated Claims Payment Condition is met,
current swap payments and any termination payments owed under Dexia Hedge
Agreements;

 

(viii)        Eighth, if the Subordinated Claims Payment Condition is met, the
lesser of (I) 50% of the amount of remaining Available Funds and (II) the amount
required to pay amounts due, or which are capable of being optionally prepaid,
(without regard to whether any applicable notice period required in connection
with any such prepayment has been complied with), to the applicable Dexia
Parties in relation to the Guaranteed Liquidity Facilities in the following
order of priority: (A) interest and fees, and then (B) principal or repurchase
price until all principal or repurchase price has been paid in full; and then
(C) any Additional Costs (as defined in the Guaranteed Liquidity Facility) to
the extent such Additional Costs were taken into consideration on the preceding
“weekly assessment point” (as defined in the Guaranteed Liquidity Facilities);

 

(ix)           Ninth, if the Subordinated Claims Payment Condition is met, to
pay any taxes incurred in relation to the GIC Business, including any taxes
imposed on DHI or any DHI Affiliate with respect to the GIC Business and any
withholding tax, capital charges and other similar charges;

 

(x)            Tenth, if an Early Termination Date was designated in relation to
either of the Put Contracts following a Dexia Event of Default and the
Subordinated Claims Payment Condition is met, to pay to the Dexia Guarantors (or
if the Master Repurchase Agreement has been terminated early and the GIC Issuers
have retained the corresponding Additional Securities Collateral upon such
termination, to pay to FSAM for payment to the Dexia Guarantors), an amount
equal to the Mark to Market Value of the Additional Securities Collateral under
the relevant Put Contract (s) as of the date such Early Termination Date was
designated.

 

(xi)           Eleventh, if the Subordinated Claims Payment Condition is met, to
pay the following amounts, it being acknowledged and agreed that no such
individual payment will have priority over any other payment:

 

(A)          to the Dexia Guarantors an amount equal to any reimbursements due
and payable under the Dexia Guarantee Reimbursement Agreement;

 

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(B)           to pay required principal and other amounts in respect of Dexia
Only GIC Contracts withdrawals or terminations then due (for the avoidance of
doubt, without regard to whether a termination has occurred automatically, at
the option of the holder of the Dexia Only GIC Contract, through a negotiated
process in accordance with the ALM Procedures, or otherwise) in relation to the
Master Repurchase Agreement, which for the avoidance of doubt will include any
termination costs payable by a GIC Issuer in connection with any such GIC
termination;

 

(C)           to reimburse the Dexia Counterparty Guarantors for any novation
fees, termination payments or similar amounts paid by them to Unaffiliated
Counterparties in respect of Third Party Hedge Agreements;

 

(D)          to the extent not otherwise provided for above, to pay any
Permitted Indebtedness to any Affiliate of any Dexia Party; and

 

(E)           to pay any Covered Persons Indemnification Payments;

 

(xii)          Twelfth, if the Subordinated Claims Payment Condition is met, if
the relevant date is a quarterly payment date for the Dexia Guarantee Fee due
under the Dexia Guaranteed Put Contract, Dexia Non-Guaranteed Put Contract and
the Dexia FP Guarantee, to pay to the Dexia Guarantors any accrued and unpaid
Dexia Guarantee Fee;

 

(xiii)         Thirteenth, if the Subordinated Claims Payment Condition is met,
to pay amounts due, or which are capable of being optionally prepaid, to the
applicable Dexia Parties in relation to the Guaranteed Liquidity Facilities and
which have not been paid under Eighth above;

 

(xiv)        Fourteenth, to be invested in Permitted Investments (with
maturities determined in accordance with the ALM Procedures), or after the
Senior Release Date, towards payment to the equity holders of FSAM;

 

provided, however, that no payments may be made pursuant to clauses Sixth
through Thirteenth above if after giving effect to any such payment, the Dexia
Guarantors would be required to transfer a Delivery Amount (assuming for this
purpose that the “threshold” and “minimum transfer amount” as defined in the
applicable Dexia CSA is zero) under either of the Dexia Guaranteed Put CSA or
the Dexia Non-Guaranteed Put CSA (based on the then current Mark to Market Value
of any Put Portfolio Asset, Excluded Asset, Other Asset and Dexia Collateral).

 

(c)           The Administrator will obtain either (x) confirmation from the
Collateral Agent through a Confirmation Request (with Section I completed) or
(y) consent of FSA prior to any single payment or transfer prior to the Senior
Release Date in an amount equal to $100 million or more, or in the case of a
payment to any Dexia Party, in an amount equal to $50 million or more, in each
case, other than in respect of (A) a termination payment or collateral posting
(either by posting cash or purchasing qualifying assets) with respect to a
Senior Third Party Hedge Agreement or a GIC Contract or a withdrawal under a GIC
Contract, (B) an overnight investment that constitutes a Permitted Investment,
or (C) a repurchase or principal payment under the Guaranteed Liquidity
Facilities.

 

The Administrator will provide such Confirmation Request by email to the
Collateral Agent (with a copy to FSA), receipt of which will be confirmed by the
Administrator by telephone. The Collateral Agent shall provide notice to the
Administrator if the Confirmation Request is incomplete or will provide
confirmation by returning Section I of the Confirmation Request to the
Administrator (with a copy to FSA) by 4:00 P.M. (New York time) of the same
Business Day if such Confirmation Request has been

 

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received by 10:00 A.M. (New York time) and by 4:00 P.M. (New York time) on the
following Business Day if received after 10:00 A.M. (New York time).

 

(d)           In the event that on any Business Day there are insufficient
amounts available to fully fund all the Senior Priority Payments, FSAM shall
apply a portion or all of the Required Reserve to pay any Senior Priority
Payments due on such Business Day in accordance with Section 11.1(a).

 

Section 11.2.          Management of Short Term Liabilities.

 

(a)           FSAM shall take, or cause to be taken, actions to generate cash or
liquid assets with the intent that Available Funds on each Business Day will be
sufficient to fund in full all Senior Priority Payments due on such Business
Day.

 

(b)           On the first Business Day of each calendar week, FSAM will
evaluate the balance of Available Funds at the opening of business on such day,
the scheduled or expected payments to be received over the next seven calendar
days and, with respect to collateral posting requirements, the amount of
qualifying assets otherwise available to satisfy such posting requirements and
compare such required amount to the scheduled or expected Senior Priority
Payments required to be paid during the next seven calendar days.

 

To the extent the expected cash balance for any Business Day during the next
seven calendar days would not be sufficient to pay each days’ Senior Priority
Payments (including required collateral postings as described in
Section 11.1(b)(i)(J)) during such period, FSAM will take actions,

 

(i)            in case of requirements for cash other than for collateral
postings, to generate cash for availability on the relevant day or days in the
amount of such shortage related to payments in the following order of priority:

 

(A)          First, by making a draw under the Guaranteed Liquidity Facilities
to the extent of any remaining availability thereunder;

 

(B)           Second, by selling Permitted Investments that are not Put
Portfolio Assets, which sales will not require the prior consent of FSA;

 

(C)           Third, by selling Dexia CSA Collateral or financing Dexia CSA
Collateral in connection with a Temporary Funding Transaction;

 

(D)          Fourth, by selling Excluded Assets and/or Other Assets, with such
assets being identified for sale based on their most recently determined market
price (expressed as a percentage of par) and with FSAM using commercially
reasonable efforts to sell the assets with the highest market prices first,
which sales will not require the prior consent of FSA; and

 

(E)           Fifth, by selling Put Portfolio Assets, with such assets being
identified for sale based on their most recently determined market price and
with FSAM using commercially reasonable efforts to sell the assets with the
highest market prices first; provided that the prior consent of FSA and Dexia
(so long as no Dexia Event of Default will have occurred) will be required with
respect to the sale of any Put Portfolio Assets other than a Permitted Asset
Sale (including in connection with the exercise of a Call Option); and

 

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(ii)           in the case of requirements for qualifying assets to satisfy a
collateral posting requirement, to generate qualifying assets on the relevant
day or days in the amount of such shortage related to payments in the following
order of priority:

 

(A)          First, direct a transfer of Eligible Collateral from the Dexia
Collateral Account to the relevant collateral posting account for the GIC
Contract or Senior Third Party Hedge Agreement if such Eligible Collateral would
be eligible to meet the relevant collateral posting requirement; and

 

(B)           Second, transfer under the Repurchase Facility Agreement
collateral owned by FSAM that is not eligible to meet the related posting
obligations in the amount of such unsatisfied posting requirement (with the
securities identified for transfer under the Repurchase Facility Agreement being
selected in accordance with the priority described in clauses Fourth and Fifth
in clause (i) and the identification priority described in Section 3(b)(iv) of
the Repurchase Facility Agreement);

 

(C)           Third, make a Liquidity Draw Request under the Liquidity Facility
to the extent of any remaining availability thereunder to generate funds for
cash collateral posting;

 

(D)          Fourth, take one of the actions specified in accordance with
clauses Third through Fifth of clause (i) above.

 

For the avoidance of doubt, no assets may be sold pursuant to clause (i)(C) to
the extent that FSAM owns Permitted Investments that are not Put Portfolio
Assets that could be sold pursuant to clause (i)(B).

 

(c)           FSAM, with notice to FSA (or after a Dexia Event of Default, the
FSAM Successor at FSA’s direction and with notice to the Dexia Guarantors), in
its discretion, may elect in accordance with the ALM Procedures not to post
collateral to a GIC Holder if it has determined that failing to do so may result
in acceleration of the principal due under the related GIC Contract and such
acceleration would not result in a Net Loss.

 

(d)           Prior to a Dexia Event of Default, to the extent that an optional
termination of a GIC Contract requires a termination payment in an amount in
excess of the unpaid principal balance of such GIC Contract, plus accrued
interest thereon, plus any cash payments actually received by FSAM from the
termination of any related Hedge Agreement, the Dexia Guarantors, in their
capacity as guarantors of the obligations of the GIC Issuers under the GIC
Contracts and the payment obligations of FSAM under Third Party Hedge
Agreements, will deposit an amount equal to such excess into the FSAM Cash
Account within two (2) Business Days following such termination.

 

(e)           On any date on which FSA is not the Secured Party Representative,
the Administrator will obtain either confirmation from the Collateral Agent
through a Confirmation Request (with Section II completed) or consent of FSA
prior to a sale of an FSAM Asset with a principal balance equal to $100 million
or more to which FSA has not consented. The Administrator will provide such
Confirmation Request (containing supporting evidence) by email to the Collateral
Agent (with a copy to FSA) receipt of which will be confirmed by the
Administrator by telephone. The Collateral Agent shall provide notice to the
Administrator if the Conformation Request is incomplete or confirmation by
returning Section II of the Confirmation Request to the Administrator with a
copy to FSA by 4:00 P.M. (New York time) of the same Business Day if such
Confirmation Request has been received by 10:00 A.M. (New York time) and by 4:00
P.M. (New York time) on the following Business Day if received after 10:00 A.M.
(New York time).

 

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ARTICLE XII

DIRECTING PARTIES; VOTING RIGHTS

 

Section 12.1.          Secured Party Representative.

 

(a)           Prior to any Dexia Event of Default, the Dexia Guarantors, in
their capacity as Secured Party Representative and on behalf of the Sovereign
Guarantors, shall direct the day to day operations of the GIC Business Entities
and the Administrator and shall direct in accordance with the ALM Procedures the
management of the assets and liabilities of the GIC Business Entities and the
Administrator, including cash management, asset and liability management and
other normal day to day operations of the GIC Issuers, FSA PAL and the
Administrator.

 

(b)           If a Dexia Event of Default has occurred, FSA may elect (with a
copy to the Dexia Guarantors) to become the Secured Party Representative,
accelerate the Master Repurchase Agreement and enforce its rights over the
Collateral, Dexia FP Collateral or FSAM PAL Collateral, assume control over the
Administrator and direct the activities of the GIC Business Entities through the
Administrator and exercise any other rights and remedies as set forth in
Section 5.2, subject to Sections 5.4 and 7.5. Upon notice to the Collateral
Agent of such election, the Collateral Agent shall follow solely the
instructions of FSA with respect to the exercise of such rights.

 

(c)           Each Dexia Guarantor may pledge or assign its rights as Secured
Party Representative to the Sovereign Guarantors.

 

(d)           Notwithstanding any other provision thereof and so long as the
Sovereign Guarantee is in effect, the Secured Party Representative shall (x) (1)
not take any action to restrict the Administrator in any respect from providing
Dexia with access to such information as it may require to meet the undertakings
by Dexia under the sections of the Sovereign Guarantee Reimbursement Agreement
attached as Annex K and providing reasonable assistance to Dexia with a view to
its complying with those undertakings regardless of whether a Dexia Event of
Default has occurred (other than with respect to information for which Dexia is
fully capable of accessing or compiling independently notwithstanding the
occurrence of a Dexia Event of Default) and (2) in the event the Administrator
fails to provide such access or reasonable assistance, and upon request by Dexia
and at Dexia’s expense, take all reasonable steps to exercise any applicable
rights of the Secured Party Representative to cause the Administrator to provide
such access and reasonable assistance and (y) upon receipt of a request by Dexia
or a Sovereign Guarantor explaining the relevant conflict, refrain from taking
any action which would prevent Dexia from complying with such undertakings.

 

Section 12.2.          Voting Rights.

 

For so long as the Dexia Guarantors are the Secured Party Representative and the
Sovereign Guarantee is in effect, the Dexia Guarantors agree to exercise any
Voting Rights in relation to the Put Portfolio Assets only taking into account
the interests of the Sovereign Guarantors in relation to the Sovereign
Guarantee. On and after the occurrence of a Dexia Event of Default and the
election of FSA to become the Secured Party Representative, so long as the
Sovereign Guarantee is no longer in effect or an early termination date has been
designated under the Dexia Guaranteed Put Contract, the Collateral Agent shall
follow solely the instructions of FSA with respect to the exercise of such
Voting Rights until the Senior Release Date. For so long as the Sovereign
Guarantee is in effect, FSA (if it is the Secured Party Representative) agrees
to exercise any such Voting Rights related to the Put Portfolio Assets taking
into account in good faith the interests of the Sovereign Guarantors as
guarantors under the Sovereign Guarantee in relation to such exercise.

 

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Section 12.3.          Effect of a Senior Release Date. Upon the occurrence of a
Senior Release Date, all rights of FSA under this Agreement will terminate and
any rights of FSA to take any action will be deemed to be rights of action of
the Dexia Parties.

 

ARTICLE XIII

MISCELLANEOUS PROVISIONS

 

Section 13.1.          Binding on Successors, Transferees and Assigns.

 

(a)           This Agreement and any interest or obligation in or under this
Agreement may be transferred by FSA to any of its successors, transferees or
assignees in connection with any consolidation, amalgamation, merger, transfer
of all or substantially all its assets or liabilities, or any other type of
corporate reorganization, where such successor or assign succeeds to FSA’s
obligations under the Retained FSA Policies; provided, that the prior written
consent of Dexia will be required for any other assignment or transfer of this
Agreement or any interest or obligation in or under this Agreement by FSA.

 

(b)           This Agreement and any interest or obligation in or under this
Agreement will be binding on any successor, transferee or assignee of any Dexia
Party in connection with any consolidation, merger, transfer of all or
substantially all its assets or liabilities, or any other type of corporate
reorganization of such Dexia Party; provided that the prior written consent of
FSA will be required if the Remedies Nonimpairment Condition is not satisfied.

 

(c)           Any purported transfer that is not in compliance with this
Section 13.1 will be void ab initio.

 

Section 13.2.          Amendments; Waivers. Any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the parties hereto, or in the case of a
waiver, by the party against whom the waiver is to be effective. Any purported
amendment or waiver that is not in compliance with this Section 13.2 will be
void ab initio. With respect to efforts to obtain a rating from any Rating
Agency for the GIC Issuers or FSAM, the parties agree that they will use
reasonable efforts to cooperate with one another in negotiating with the Rating
Agencies any amendments to this Agreement required to obtain such ratings and
FSA agrees that it will not unreasonably withhold consent to any such amendment.
The Dexia Parties and FSA agree to reasonably cooperate to amend this Agreement
to incorporate new or revised criteria of the Rating Agencies, which amendments
are required to maintain the ratings of FSA or any of the Dexia Parties, so long
as such amendments would not result in significant increased costs or other
adverse effect on any Dexia Parties (in the case of amendments requested by FSA)
or FSA (in the case of amendments requested by any of the Dexia Parties).

 

Section 13.3.          Notices. All notices and other communications provided
for hereunder will be in writing (including facsimile communication) and mailed
or telecopied or delivered by electronic transmission or delivered to it at the
address and in the manner set forth in Schedule A. The Collateral Agent agrees
to accept and act upon instructions or directions pursuant to this Agreement
sent by designated persons by unsecured e-mail, facsimile transmission or other
similar unsecured electronic methods; provided, however, that there shall be
delivered to the Collateral Agent an incumbency certificate listing such
designated persons, which incumbency certificate shall be amended whenever a
person is to be added or deleted from the listing. If the Collateral Agent
receives e-mail or facsimile instructions (or instructions by a similar
electronic method) and the Collateral Agent in its discretion elects to act upon
such instructions, the Collateral Agent’s understanding of such instructions
shall be deemed controlling. The Collateral Agent shall not be liable for any
losses, costs or expenses arising directly or indirectly from the Collateral
Agent’s reliance upon and compliance with such instructions notwithstanding that
such instructions conflict or are inconsistent with a subsequent written
instruction.

 

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The parties hereto agree to assume all risks arising out of the use of such
electronic methods to submit instructions and directions to the Collateral
Agent, including without limitation the risk of the Collateral Agent acting on
unauthorized instructions and the risk of interception and misuse by third
parties.

 

Section 13.4.          No Waiver; Remedies. No failure on the part of a party to
exercise, and no delay in exercising, any right hereunder will operate as a
waiver thereof, nor will any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

 

Section 13.5.          Captions. Section captions used in this Agreement are for
convenience of reference only, and will not affect the construction of this
Agreement.

 

Section 13.6.          Severability. Wherever possible each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement will be prohibited by or
invalid under such law, such provision will be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.

 

Section 13.7.          Entire Agreement, etc. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements, written or oral, with respect
thereto.

 

Section 13.8.          Governing Law. THIS AGREEMENT (OTHER THAN ANNEX K) SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES OTHER THAN SECTIONS 5-1401
AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK AND THE
MANDATORY CHOICE OF LAW RULES CONTAINED IN THE UCC. For the avoidance of doubt,
Annex K will be governed by Belgian law. Each of the parties hereto hereby
irrevocably submits to the exclusive jurisdiction of any U.S. federal or state
court in The City of New York for the purpose of any suit, action, proceeding or
judgment arising out of or relating to this Agreement. Each of the parties
hereto hereby consents to the laying of venue in any such suit, action or
proceeding in New York County, New York, and hereby irrevocably waives any claim
that any such suit, action or proceeding brought in such a court has been
brought in an inconvenient forum and agrees not to plead or claim the same.
Notwithstanding the foregoing, nothing contained in this Agreement shall limit
or affect the rights of any party hereto to exercise remedies under this
Agreement or any of the other Transaction Documents, or to enforce any judgment
with respect thereto, in any jurisdiction or venue. Any process in any such
action shall be duly served if mailed by registered mail, postage prepaid, with
respect to (i) any of Dexia FP, FSA, FSAM, FSA Capital Markets, FSA Capital
Management and the Collateral Agent, at its respective address designated
pursuant to Section 13.3 and (ii) with respect to the Dexia Parties, FSA PAL and
FSA Capital Markets Cayman, each such party hereby appoints HF Services LLC (the
“Process Agent”), with an office on the date hereof at 445 Park Avenue, 5th
Floor, New York, New York 10022 United States, as their agent to receive, on
behalf of each such party and its property, service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding. Such service may be made by mailing or delivering a copy of such
process to Dexia, DBB, DCL, FSA PAL and FSA Capital Markets Cayman in care of
the Process Agent at the Process Agent’s above address, and each of Dexia, DBB,
DCL, FSA PAL and FSA Capital Markets Cayman hereby authorizes and directs the
Process Agent to accept such service on its behalf. Dexia, DBB, DCL, FSA PAL and
FSA Capital Markets Cayman may appoint a replacement Process Agent with an
office in the State of New York by notice to FSA.

 

Section 13.9.          Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING

 

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RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION.

 

Section 13.10         Sovereign Immunity. To the extent that Dexia, DCL, DBB,
FSA PAL, FSA Capital Markets Cayman, or any of their respective properties,
assets or revenues may have or may hereafter become entitled to, or have
attributed to them, any right of immunity, on the grounds of sovereignty or
otherwise, from any legal action, suit or proceeding, from the giving of any
relief in any respect thereof, from setoff or counterclaim, from the
jurisdiction of any court, from service of process, from attachment upon or
prior to judgment, from attachment in aid of execution of judgment, or from
execution of judgment, or other legal process or proceeding for the giving of
any relief or for the enforcement of any judgment, in any jurisdiction in which
proceedings may at any time be commenced, with respect to its obligations,
liabilities or any other matter under or arising out of or in connection with
this Agreement, Dexia, DCL, DBB, FSA PAL, FSA Capital Markets Cayman and each
other party hereto hereby irrevocably and unconditionally waive, and agree not
to plead or claim, to the fullest extent permitted by applicable law, any such
immunity and consent to such relief and enforcement.

 

Section 13.11.        Counterparts. This Agreement may be executed by the
parties hereto in several counterparts, each of which will be deemed to be an
original and all of which will constitute together but one and the same
agreement.

 

Section 13.12.        Third Party Beneficiaries.

 

(a)           Nothing in this Agreement will confer any right, remedy or claim,
express or implied, upon any Person other than the parties hereto (other than
the Sovereign Guarantors and Assured which will be third party beneficiaries of
this Agreement), and all the terms, covenants, conditions, promises and
agreements contained herein will be for the sole and exclusive benefit of the
parties hereto and their successors and permitted assigns.

 

(b)           The parties acknowledge and agree that (i)(A) the Sovereign
Guarantors are express third party beneficiaries of Sections 7.1, 10.5, 10.6 and
12.1, and (B) Assured is an express third party beneficiary of Section 10.6, in
each case, with the right to enforce any rights or remedies thereunder to the
same extent as if they were parties to this Agreement, and (ii) that any Dexia
Party will have the right on behalf of the Sovereign Guarantors to enforce any
rights or remedies of the Sovereign Guarantors as third party beneficiaries
under this Agreement. Such right of enforcement by the Dexia Parties in (ii)
shall be without prejudice to and not in limitation of the rights of the
Sovereign Guarantors to enforce such rights and remedies directly.

 

Section 13.13.        Limited Recourse.

 

Notwithstanding any other provision of this Agreement, the obligations of each
GIC Business Entity secured hereby are limited recourse obligations of such GIC
Business Entity payable solely from the proceeds of the Collateral Granted
hereunder by such GIC Business Entity available under and applied in accordance
with the Priority of Payments. Upon application of such Collateral and the
proceeds thereof available to satisfy the Secured Obligations, the Secured
Parties will not be entitled to take any further steps against such GIC Business
Entity to recover any sums due and shall not constitute a claim against such GIC
Business Entity to the extent of any insufficiency. No recourse shall be had for
the payment of any amounts owing in respect of the Secured Obligations against
any officer, director, employee, stockholder, member or incorporator of the
Lenders, the Dexia Parties, the Collateral Agent, or the GIC Business Entities.
This provision shall survive the termination of this Agreement for any reason.

 

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Section 13.14.        Non-Petition.

 

Each party to this Agreement agrees that it will not, prior to the Senior
Release Date, acquiesce, petition or otherwise institute against, or join any
other person instituting against, any GIC Business Entity or any of their
respective properties any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any federal or state
bankruptcy, or similar law, including without limitation proceedings seeking to
appoint a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of any GIC Business Entity or any substantial part of
their property; provided, that this provision shall not restrict or prohibit the
Dexia Parties from joining any such proceedings which shall have already
commenced under applicable laws and not in violation of this provision. This
provision shall survive the termination of this Agreement for any reason.

 

Section 13.15.        Stamp Taxes.

 

All stamp taxes imposed in connection with the execution of the GIC Business
Documents to be executed in relation to the Closing Date shall be split equally
between Dexia and FSA (or, in each case, an applicable Affiliate).

 

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IN WITNESS WHEREOF, the parties have caused this Pledge and Administration
Agreement to be duly executed and delivered by its officer thereunto as of the
date first written above.

 

DEXIA SA

 

FINANCIAL SECURITY ASSURANCE INC.

 

 

 

 

 

 

By:

 

 

By:

 

Title:

 

 

Title:

 

 

 

 

 

 

DEXIA CRÉDIT LOCAL S.A.

 

FSA ASSET MANAGEMENT LLC

 

 

 

 

 

 

By:

 

 

By:

 

Title:

 

 

Title:

 

 

 

 

 

 

DEXIA BANK BELGIUM SA

 

FSA CAPITAL MARKETS SERVICES LLC

 

 

 

 

 

 

By:

 

 

By:

 

Title:

 

 

Title:

 

 

 

 

 

 

DEXIA FP HOLDINGS INC.

 

FSA CAPITAL MANAGEMENT SERVICES LLC

 

 

 

 

 

 

By:

 

 

By:

 

Title:

 

 

Title:

 

 

 

 

 

 

FSA CAPITAL MARKETS SERVICES (CAYMANS) LTD.

 

Executed as a DEED by FSA PORTFOLIO ASSET LIMITED
acting by EDSEL LANGLEY,

 

 

 

 

 

 

By:

 

 

 

Title:

 

 

a director, in the presence of:

 

 

 

 

 

 

 

 

Name:

 

 

Address:

THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as Collateral
Agent

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Title:

 

 

 

 

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APPENDIX I

DEFINITIONS

 

“Account Bank” means BNY Mellon or, with respect to the Dexia Collateral
Account, Wells Fargo.

 

“Account Bank Lien” means any Lien for the benefit of the Account Bank in its
capacity as securities intermediary (as defined in the UCC) as required or
permitted under the UCC, under the GIC Business Clearing and Custody Agreements,
the Debenture dated August 21, 2006, between FSA PAL and the Account Bank or
under any Securities Account Control Agreement.

 

“Account Transfer Cure” means the payment by any Dexia Party or any Affiliate to
the FSAM Cash Account such that on the date of (and after giving effect to) such
payment, the outstanding amount of the relevant non-payment, taken together with
any other outstanding and uncured failures to make payments or deliveries by any
Dexia Party or any Affiliate in relation to Uncovered Dexia Payment Obligations,
no longer exceeds the Default Threshold.

 

“Additional Securities Collateral” means the Dexia CSA Collateral from time to
time under the Put Contracts which is correspondingly pledged by FSAM from time
to time as additional collateral securing the Master Repurchase Agreement.

 

“Administrative Expenses” means amounts due or accrued with respect to (i) the
Collateral Agent and Reporting Agent (including in respect of any indemnity
obligations); (ii) the Intermediary under each Securities Account Control
Agreements (including in respect of any indemnity obligations) and the custodian
under the Dexia CSA’s; (iii) each of the Rating Agencies for surveillance fees
and other fees and expenses in connection with any rating of FSAM and the GIC
Issuers or any credit estimates, including any fee or expense of the Rating
Agencies in connection with the preparation, review and execution of any
amendment or other modification to any Material Agreements; (iv) direct and
indirect investment-related expenses incurred in connection with management the
GIC Business, including brokerage commissions, clearing and settlement charges,
custodial fees, other fees and expenses relating to acquiring, disposing and
holding investments; (v) pricing services engaged by or on behalf of FSAM to
provide valuations for the FSAM Assets; (vi) independent accountants, agents,
tax advisors and counsel of FSAM and the GIC Issuers for fees (including
retainers) and expenses; (vii) allocated portions of lease payments, software
expenses (including software providers and software consultants), and payments
for office furnishings, materials, and supplies and other overhead expenses;
(viii) costs of maintaining the GIC Business Entities in good standing,
including payments to or on behalf of any directors and officers (including D&O
insurance premiums for the Independent directors of each GIC Business Entity)
and any annual government fees and franchise taxes; (ix) insurance and
indemnification expenses (other than Covered Persons Indemnification Payments);
(x) any fees payable to or expenses incurred by the Administrator on behalf of
or for the benefit of the GIC Business Entities that are reasonably related to
the performance of its duties under this Agreement and the Administrative
Services Agreement; and (xi) any other costs and expenses in the following
categories: (A) compensation related expenses; (B) direct expenses (e.g.,
underwriting and rating expense, reasonable travel and entertainment, premises
and equipment, professional fees, taxes, licenses and fees, and operating (e.g.,
telephone supplies)), and (C) indirect expenses (e.g., corporate research,
systems, support and facilities, human resources, corporate training, and
services provided to and paid for by any GIC Business Entity under any
transition services agreement unless otherwise set forth therein); provided that
any taxes that are allocated pursuant to the FP Business Tax Sharing Agreement
dated as of June 30, 2009, by and among DHI, Dexia FP, HF Services LLC, FSAM,
FSA Capital Markets and FSA Capital Management or are payable under
Section 11.1(b)(ix) shall not be considered Administrative Expenses.

 

“Administrative Services Agreement” means the Administrative Services Agreement,
dated as of the Closing Date, among FSAM, the GIC Issuers, FSA PAL, FSA, the
Dexia Guarantors and the

 

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Administrator or a substantially similar agreement entered into with a
replacement or successor administrator in accordance with the terms thereof.

 

“Administrator” means HF Services LLC, a Delaware limited liability company in
its capacity as administrator under the Administrative Services Agreement,
unless a successor Person shall have become the Administrator pursuant to the
Administrative Services Agreement, and thereafter “Administrator” shall mean
such successor Person, as notified to the Collateral Agent and the Intermediary.

 

“Affiliate” or “Affiliated” means with respect to a Person, (i) any other Person
who, directly or indirectly, is in control of, controlled by, or under common
control with, such Person or (ii) any other Person who is a director, officer or
employee of (a) such Person, or (b) any such other Person described in clause
(i) above. For the purposes of this definition, control of a Person shall mean
the power, direct or indirect, (x) to vote more than 50% of the securities
having ordinary voting power for the election of directors of such Person, or
(y) to direct or cause the direction of the management and policies of such
Person whether by contract or otherwise; provided that no entity that is
controlled by Maples Finance Limited shall be deemed to be an Affiliate of FSA
Capital Markets Cayman solely by virtue thereof.

 

“ALM Arbiter” has the meaning specified in Section 7.4.

 

“ALM Arbiter Candidate List” means the list of dealers designated by the Dexia
Guarantors and FSA as candidates for selection as ALM Arbiter, as set forth in
Schedule C, as the same may be amended from time to time by the written
agreement of the Dexia Guarantors and FSA.

 

“ALM Noncompliance” means any ALM Noncompliance (Derivative) or ALM
Noncompliance (Operational).

 

“ALM Noncompliance (Derivative)” means in relation to any interest rate,
currency or other derivative transaction (whether such transaction would be
classified as an Asset Swap or a Liability Swap), (i) the party invoking dispute
resolution has provided notice to the other party that it believes such
transaction was required to have been effected or not to have been terminated,
as applicable, in order to comply with a standard of reasonable and prudent
hedging activity of the GIC Business in compliance with the ALM Procedures and
(ii) FSAM (or, if applicable, the FSAM Successor or the FSAM Hedging Successor)
has not within five (5) Business Days after such notice effected such
transaction in order to implement corrective action in compliance with the ALM
Procedures.

 

“ALM Noncompliance (Operational)” means (i) the party invoking dispute
resolution has provided notice to the other party that it believes that FSAM
(or, if applicable, the FSAM Successor or the FSAM Hedging Successor) has failed
to comply with the ALM Procedures or the ALM Procedures have been amended or
modified (other than, (x) in the case of an amendment when Dexia is the Secured
Party Representative, a Dexia Policy Amendment, and (y) in the case of an
amendment when FSA is the Secured Party Representative, an Assured Risk Policy
Amendment) such that the amended ALM Procedures do not constitute a reasonable
and prudent asset and liability management policy in accordance with prevailing
market standards for portfolio management activities of the same type with the
same investment objectives, (ii) the prior written consent of the notifying
party was not obtained in respect of the relevant noncompliance, amendment or
modification and (iii) FSAM (or, if applicable, the FSAM Successor or the FSAM
Hedging Successor) has failed to remedy the relevant noncompliance or rescind
the relevant amendment or modification to the ALM Procedures within five
(5) Business Days after such notice.

 

“ALM Procedures” means the guidelines set forth in Annex E, as the same may be
amended from time to time in accordance with Section 7.3(b).

 

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“Annual Expense Cap” means the limit on Administrative Expenses that may be paid
as Senior Priority Payments in any calendar year as determined by the
Administrator, which will be equal to the budget expenses for the current
calendar year as set forth in the budget as of the date of determination
specified by the Administrator pursuant to Section 7 of the Administrative
Services Agreement.

 

“Asset Default” has the meaning specified in the Dexia Guaranteed Put Contract
and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Asset Default Trigger” has the meaning specified in the Dexia Guaranteed Put
Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Asset Swap” means each Hedge Agreement identified as an “Asset Swap” on the
Hedge Agreement Register.

 

“Assured” has the meaning specified in the recitals.

 

“Assured Risk Policy Amendment” means an amendment or modification to the ALM
Procedures that conforms such ALM Procedures to generally applicable risk
management policies within the Assured group.

 

“Available Funds” means any amounts on deposit in the FSAM Cash Account, the
Collateral Agent Cash Account, the FSA PAL Cash Account, the FSA PAL Brussels
Cash Account and any other account that is established pursuant to Article X
following a Transition Date.

 

“Bankruptcy Trigger” has the meaning specified in the Dexia Guaranteed Put
Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“BNY Mellon” means The Bank of New York Mellon (f/k/a The Bank of New York) or
any successor thereto.

 

“Brussels Account Establishment” has the meaning specified in Section 10.1(h).

 

“Brussels Account Failure” means (i) the failure of the Administrator and FSA
PAL to transfer all property from the FSA PAL Cash Account and FSA PAL
Collateral Account to the FSA PAL Brussels Cash Account and FSA PAL Brussels
Cash Account, respectively, within two Business Days of the Brussels Account
Establishment or (ii) the Brussels Account Establishment has not occurred on or
before the 10th Business Day after the Closing Date.

 

“Business Day” means any day that is not a Saturday, Sunday or a day on which
commercial banking institutions located in the City of New York, New York (and,
with respect to (a) the Collateral Agent’s duties or obligations, the city in
which the principal office of the Collateral Agent is located, which will
initially be Houston, Texas (b) the Sovereign Guarantee or any notice,
obligation or action with respect thereto, Brussels, Belgium and Paris, France
and (c) with respect to any Transaction Document other than this Agreement in
which “business day” is defined, as defined therein) are authorized or obligated
by law or executive order to be closed.

 

“Call Option” has the meaning specified in the Dexia Guaranteed Put Contract and
the Dexia Non-Guaranteed Put Contract, respectively.

 

“Certificated Security” has the meaning specified in Article 8 of the UCC.

 

“Clearing Corporation” means any entity included within the meaning of “clearing
corporation” under the UCC.

 

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“Clearing Corporation Security” means an asset that is a Financial Asset that is
registered in the name of a Clearing Corporation or the nominee of such Clearing
Corporation and, if a Certificated Security, is in either case held in the
custody of such Clearing Corporation.

 

“Closing Date” means June 30, 2009.

 

“Collateral” means, collectively, the FSAM Sovereign Guarantee Collateral, the
FSAM Collateral, the Dexia Collateral, the GIC Issuers Collateral and the FSA
PAL Collateral.

 

“Collateral Agent” has the meaning specified in the recitals.

 

“Collateral Agent Cash Account” means the account maintained pursuant to
Section 10.1(a) and described in Section 10.2(c).

 

“Collateral Agent Custodial Account” means the account maintained pursuant to
Section 10.1(a) and described in Section 10.2(d).

 

“Collateral Lot” has the meaning specified in Section 5.2(d)(i).

 

“Collateral Posting Lien” means, in the event that the Master Repurchase
Agreement is recharacterized as secured financings, the Lien for the benefit of
FSA Capital Management and/or FSA Capital Markets pursuant to a pledge or
advance of FSAM Collateral by FSAM for the purpose of enabling FSA Capital
Management and FSA Capital Markets to satisfy their respective collateral
posting requirements under the GIC Contracts.

 

“Collateral Value” has the meaning defined in the Dexia Guaranteed Put CSA and
the Dexia Non-Guaranteed Put CSA, respectively.

 

“Collections” means all income received in respect of the Collateral, including
(a) all payments received in relation to the FSAM Assets or other assets
constituting Collateral (other than the Dexia CSA Collateral) from time to time
(inclusive of daily repayment of overnight funds), (b) all payments received by
FSAM under the Dexia Guarantees or Sovereign Guarantee, (c) payments received by
FSAM, the FSAM Hedging Successor or the FSAM Successor from time to time under
the Hedge Agreements, (d) all amounts received under the FSA PAL Loan, (e) all
payments received under the Guaranteed Liquidity Facilities, (f) all amounts
received by the GIC Issuers, whether as return of excess amounts distributed to
the GIC Issuers to fulfill their respective payment or posting obligations, and
(g) any other amounts received by FSAM, the GIC Issuers, the FSAM Hedging
Successor or the FSAM Successor and not specifically required to be deposited
into an FP Account other than the FSAM Cash Account, FSA PAL Brussels Cash
Account, FSA PAL Cash Account, Collateral Agent Cash Account and the Dexia
Collateral Account.

 

“Confirmation Request” means any request for Collateral Agent confirmation
substantially in the form of Annex O.

 

“Covered Persons Indemnification Payments” means any indemnification payments
subject to the Covered Persons Guarantee dated as of June 30, 2009 issued by DCL
and any other similar guarantee for Persons situated similarly to the
beneficiaries thereto.

 

“CSA Collateralized Liabilities” means on any date of determination:

 

(A)          the aggregate GIC Redemption Balance of the FSA GIC Contracts as of
such date, plus

 

(B)                                the GIC Business Costs Amount most recently
calculated on or prior to such date, plus

 

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(C)           the excess if any of (I) the aggregate sum of the FSAM Exposure to
each of its Hedge Counterparties as of such date over (II) the aggregate of the
Collateral Values for the related Hedge Agreements; plus

 

(D)          the aggregate of all the FSAM Asset Swap Costs and all the FSAM
Liability Swap Costs, in each case in relation to Third Party Hedge Agreements
other than Third Party Hedge Agreements which are Qualifying Hedge Agreements on
such date; plus

 

(E)           to the extent that (x) the “Credit Support Amount” applicable to
FSAM (or the FSAM Hedging Successor) in relation to any Third Party Hedge
Agreement that is not a Qualifying Hedge Agreement as of such date, plus or
minus any “unpaid amounts” that are outstanding between the parties exceeds
(y) the amount determined in relation to such Third Party Hedge Agreement under
(D), the aggregate of such excess of (x) over (y) in relation to all such Third
Party Hedge Agreements; plus

 

(F)           the ALM Noncompliance Amount (if any) (in relation to any ALM
Noncompliance arising prior to the date on which a Dexia Event of Default has
occurred); plus

 

(G)           the Lien Creditor Amount (if any) in relation to the then-current
FSAM Assets.

 

Capitalized terms used in the definition of “CSA Collateralized Liabilities”
shall have the meanings assigned in the Dexia Guaranteed Put Contract.

 

“Cure Period” means five Business Days following receipt of a Payment Failure
Notice (or, in the case of any nonpayment resulting from an administrative or
operational error or omission or a force majeure, eight Business Days following
the relevant Dexia Party’s receipt of notice of such Payment Failure Notice,
provided, however, that a Dexia Party has provided notice to FSA no later than
the third Business Day after receipt of such Payment Failure Notice that such
non-payment has occurred due to administrative or operational error or omission
or a force majeure).

 

“Custody Account” means the account maintained pursuant to the Section 10.1(a)
and described in Section 10.2(b).

 

“D&O Insurance” means directors and officers insurance with a financially sound
and reputable insurer.

 

“DBB” has the meaning specified in the recitals.

 

“DCL” has the meaning specified in the recitals.

 

“Defaulted Asset” has the meaning specified in the Dexia Guaranteed Put Contract
and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Default Threshold” has the meaning specified in Section 5.1.

 

“Delaware Act” has the meaning specified in Section 2.1(e).

 

“Deliver” or “Delivered” means the taking of the following steps:

 

(i)            in the case of each Certificated Security or Instrument (other
than a Clearing Corporation Security), (A) causing the delivery of such
Certificated Security or Instrument to the Intermediary registered in the name
of the Intermediary or its affiliated nominee or endorsed to

 

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the Intermediary or in blank, (B) causing the Intermediary to continuously
identify on its books and records that such Certificated Security or Instrument
is credited to the relevant Account and (C) causing the Intermediary to maintain
continuous possession of such Certificated Security or Instrument;

 

(ii)           in the case of each Uncertificated Security (other than a
Clearing Corporation Security), (A) causing such Uncertificated Security to be
continuously registered on the books of the obligor thereof to the Intermediary
and (B) causing the Intermediary to continuously identify on its books and
records that such Uncertificated Security is credited to the relevant Account;

 

(iii)          in the case of each Clearing Corporation Security, causing (A)
the relevant Clearing Corporation to continuously credit such Clearing
Corporation Security to the securities account of the Intermediary at such
Clearing Corporation and (B) the Intermediary to continuously identify on its
books and records that such Clearing Corporation Security is credited to the
relevant Account;

 

(iv)          in the case of any Financial Asset that is maintained in
book-entry form on the records of an FRB, causing (A) the continuous crediting
of such Financial Asset to a securities account of the Intermediary at any FRB
and (B) the Intermediary to continuously identify on its books and records that
such Financial Asset is credited to the relevant Account;

 

(v)           in the case of Money, causing the deposit of such Money with the
Intermediary and causing the Intermediary to continuously identify on its books
and records that such Money is credited to the relevant Account;

 

(vi)          in the case of each Financial Asset not covered by the foregoing
clauses (i) through (v), causing the transfer of such Financial Asset to the
Intermediary in accordance with applicable law and regulation and causing the
Intermediary to continuously credit such Financial Asset to the relevant
Account; and

 

(vii)         in all cases, the filing of an appropriate Financing Statement in
the appropriate filing office in accordance with the Uniform Commercial Code as
in effect in any relevant jurisdiction.

 

“Delivery Amount” has the meaning specified in the Dexia Guaranteed Put Contract
and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Dexia” has the meaning specified in the recitals.

 

“Dexia Additional Collateral” has the meaning specified in Section 2.1(a).

 

“Dexia Bid” has the meaning specified in Section 5.2(d)(iii).

 

“Dexia Collateral” has the meaning specified in Section 2.1(a).

 

“Dexia Collateral Account” means the account maintained pursuant to
Section 10.1(a) and described in Section 10.2(a).

 

“Dexia CSA Collateral” has the meaning specified in the recitals.

 

“Dexia CSAs” means the Dexia Guaranteed Put CSA and the Dexia Non-Guaranteed Put
CSA.

 

“Dexia Counterparty Guarantor” has the meaning specified in Section 8.1(c).

 

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“Dexia Default” means the occurrence of an event that with the passage of time
or the delivery of notice will constitute a Dexia Event of Default.

 

“Dexia Event of Default” has the meaning specified in Section 5.1.

 

“Dexia FP” has the meaning specified in the recitals.

 

“Dexia FP Collateral” has the meaning specified in Section 2.1(e).

 

“Dexia FP Guarantee” means the Guaranty dated as of the Closing Date issued by
the Dexia Guarantors to FSA.

 

“Dexia GIC Indemnity” means the Indemnification Agreement (GIC Business) dated
as of the Closing Date.

 

“Dexia Guarantee Fee” means the sum of (x) the periodic guarantee premium with
respect to the Dexia Guarantees as set forth in the Dexia Guarantee
Reimbursement Agreement and (y) the periodic Put Premium Amount as defined in
the Put Contracts.

 

“Dexia Guarantee Reimbursement Agreement” means the Dexia FP Reimbursement
Agreement dated as of the Closing Date.

 

“Dexia Guaranteed Put Contract” means the securities option contract between the
Dexia Guarantors and FSAM pursuant to a 1992 ISDA Master Agreement
(Multicurrency—Cross Border), including the schedule thereto and credit support
annex thereto and the confirmation thereto dated as of the Closing Date, and
designated as the Dexia Guaranteed Put Contract.

 

“Dexia Guaranteed Put CSA” means the credit support annex entered into between
FSAM and the Dexia Guarantors in connection with the Dexia Guaranteed Put
Contract.

 

“Dexia Guarantees” means the Dexia Guaranteed Put Contract, the Dexia
Non-Guaranteed Put Contract, the Dexia FP Guarantee and any Required Guarantees.

 

“Dexia Guarantor” means each of DCL and Dexia, acting in its capacity as
counterparty under the Put Contracts or guarantor under the Dexia FP Guarantee
or, in the case of the Required Guarantees, DCL.

 

“Dexia Hedge Agreements” means the Hedge Agreements between FSAM, the FSAM
Hedging Successor or the FSAM Successor and DCL or an Affiliate thereof as the
Hedge Counterparty.

 

“Dexia Non-Guaranteed Put Contract” means the securities option contract between
the Dexia Guarantors and FSAM pursuant to a 1992 ISDA Master Agreement
(Multicurrency—Cross Border), including the schedule thereto and credit support
annex thereto and the confirmation thereto dated as of the Closing Date, and
designated as the Dexia Non-Guaranteed Put Contract.

 

“Dexia Non-Guaranteed Put CSA” means the credit support annex entered into
between FSAM and the Dexia Guarantors in connection with the Dexia
Non-Guaranteed Put Contract.

 

“Dexia Only GIC Contract” means each GIC Contract in relation to which (a) the
related GIC Policy has been terminated and released and which is guaranteed only
by one or more of the Dexia Guarantors, and (b) the related GIC Holder has
agreed in writing that (i) it has no recourse to the assets of the related GIC
Issuer on such GIC Contract and has agreed to pursue remedies solely against the
applicable Dexia Guarantor and (ii) it will not petition for any insolvency
proceedings in relation to the related GIC Issuer.

 

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“Dexia Parties” means the Dexia Guarantors and DBB.

 

“Dexia Payment Obligations” has the meaning specified in Section 5.1.

 

“Dexia Policy Amendment” means an amendment or modification to the ALM
Procedures that conforms such ALM Procedures to generally applicable risk
management policies within the Dexia group.

 

“Dexia Reimbursement Payments” means (a) reimbursement to the Dexia Guarantors
of any amounts paid by the Sovereign Guarantors under the Sovereign Guarantee in
circumstances where such amounts were not due by Dexia as a Shortfall Amount or
Put Settlement Amount under the Dexia Guaranteed Put Contract, (b) reimbursement
to the Dexia Guarantors of any amounts paid under a Guaranteed Liquidity
Facility in excess of amounts needed to meet Senior Priority Payments then
payable on the day that such amounts were paid under the Guaranteed Liquidity
Facilities and on the day that such Dexia Senior Payment is proposed to be made,
(c) the amounts paid by the Dexia Guarantors in respect of a termination of a
GIC Contract following a Dexia Event of Default where such termination would
result in a Net Loss and (d) the amount paid by the Dexia Guarantors in excess
of the par amount (plus accrued interest) of any GIC Contract that was
terminated after a Dexia Event of Default for which termination, prior written
approval of the Dexia Guarantors was not obtained.

 

“DHI” has the meaning specified in the recitals.

 

“Disclosure CD” means the computer disc on which certain Annexes to this
Agreement will be delivered on the Closing Date.

 

“Disclosure Schedule” means Schedule B.

 

“Dollars” or “$”or “USD” means freely transferable lawful money of the United
States of America.

 

“Eligible Bidders” means dealers or other industry participants who regularly
make a market in or purchase for investment FSAM Assets included in the relevant
Collateral Lot, and in the relevant amounts to be included for sale in such
Collateral Lot.

 

“Eligible Collateral” has the meaning specified in the applicable Dexia CSA.

 

“Excess Payments” has the meaning specified in Section 5.3(b).

 

“Excluded Assets” means each asset identified on Annex A.

 

“Excluded Contract Rights” means any rights of a Grantor arising under any
contract, lease, instrument, license or other document (in each case, other than
securities or other financial assets) to the extent that and only for so long as
the Grant of a security interest therein would (x) constitute a violation or
abandonment of, or render unenforceable, a valid and enforceable restriction in
respect of such rights in favor of a third party by contract or under any law,
regulation, permit, order or decree of any Governmental Authority (for the
avoidance of doubt, the restrictions described herein shall not include negative
pledges or similar undertakings in favor of a lender or other financial
counterparty), or (y) expressly give any other party in respect of any such
contract, lease, instrument, license or other document, the right to terminate
its obligations thereunder, provided, however, that this limitation shall not
affect, limit, restrict or impair the Grant by a Grantor of a security interest
pursuant to this Agreement in any such Collateral, as applicable, to the extent
that an otherwise applicable prohibition or restriction on such Grant is
rendered ineffective pursuant to Section 9-406, 9-407, 9-408 or 9-409 of the UCC
of any relevant jurisdiction or any other applicable law or principles of equity
and provided, further, that, at such time as the condition causing the
conditions in subclauses (x) and (y) shall be remedied, whether by

 

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contract, change of law or otherwise, the contract, lease, instrument, license
or other documents shall immediately cease to be an Excluded Contract Right, and
any security interest that would otherwise be Granted herein shall attach
immediately to such contract, lease, instrument, license or other document, or
to the extent severable, to any portion thereof that does not result in any of
the conditions in (x) or (y) above.

 

“Excluded FSAM Collateral” means any FSAM Collateral specifically Granted or
posted by FSAM or the FSAM Hedging Successor to secure its payment obligations
under (x) any Senior Third Party Hedge Agreements or (y) the Master Repurchase
Agreement, to the extent that such FSAM Collateral shall also constitute
Excluded GIC Issuers Collateral. For the avoidance of doubt, Excluded FSAM
Collateral does not include, and the security interest in favor of the
Collateral Agent will extend to, all rights of FSAM, FSAM Successor or the FSAM
Hedging Successor to repurchase or to receive the return of FSAM Collateral (or
equivalent securities or payments) under the Senior Third Party Hedge Agreements
or Master Repurchase Agreement, as the case may be.

 

“Excluded GIC Issuers Collateral” means any GIC Issuers Collateral specifically
Granted or posted by a GIC Issuer to secure its payment obligations under any
GIC Contract or, upon the occurrence of a Transition Date, any Senior Third
Party Hedge Agreement, to the extent that the existence of the Lien of the
Collateral Agent in relation to such GIC Issuers Collateral would be deemed to
contradict any representation of title made in connection with such grant or
sale; subject to the related GIC Holder or Hedge Counterparty, as applicable,
not being permitted to repledge or rehypothecate such Excluded GIC Issuers
Collateral (except that GIC Holders and Hedge Counterparties will have all the
rights of a secured party to exercise remedies with respect to such Excluded GIC
Issuers Collateral following an event of default under and to the extent set
forth in the related GIC Contract or Hedge Agreement). For the avoidance of
doubt, Excluded GIC Issuers Collateral does not include, and the security
interest in favor of the Collateral Agent will extend to, all rights of the GIC
Issuer to repurchase or to receive the return of GIC Issuers Collateral under
any GIC Contract.

 

“Existing Account” means any of the FSAM Cash Account, the FSAM Collateral
Account, the FSA PAL Cash Account, the FSA PAL Collateral Account, the FSA
Capital Management Collateral Account and the FSA Capital Markets Collateral
Account.

 

“Existing Control Agreement” has the meaning specified in Section 10.1(c).

 

“Existing P&I Agreement” has the meaning specified in the recitals.

 

“Exposure” has the meaning specified in the Dexia Guaranteed Put Contract and
the Dexia Non-Guaranteed Put Contract, respectively.

 

“Financed FSAM Collateral Purchase” means the purchase from the GIC Issuers, as
counterparties to the Master Repurchase Agreement, of any Purchased Securities
under the Master Repurchase Agreement that have been retained by the GIC Issuers
pursuant to an exercise of creditors’ remedies in relation to such Master
Repurchase Agreement following a Dexia Event of Default, at the repurchase price
determined in accordance with the terms of the Master Repurchase Agreement.

 

“Financial Asset” has the meaning specified in Article 8 of the UCC.

 

“First Credit Agreement” has the meaning specified in the recitals.

 

“First Credit Agreement Lien” has the meaning specified in the recitals.

 

“Fitch” means Fitch Ratings Inc. or any successor thereto.

 

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“FP Account” means any of the Dexia Collateral Account, the Custody Account, the
Collateral Agent Cash Account, the Collateral Agent Custodial Account, the FSA
PAL Brussels Cash Account, the FSA PAL Brussels Collateral Account, the Existing
Accounts or other account established in accordance with Section 10.1.

 

“FRB” means any Federal Reserve Bank.

 

“FSA” has the meaning specified in the recitals.

 

“FSA Capital Management” has the meaning specified in the recitals.

 

“FSA Capital Management Collateral Account” means the account maintained
pursuant to Section 10.1(c) and described in Section 10.3(c).

 

“FSA Capital Management Insurance Agreement” has the meaning specified in the
recitals.

 

“FSA Capital Management Lien” has the meaning specified in the recitals.

 

“FSA Capital Markets” has the meaning specified in the recitals.

 

“FSA Capital Markets Cayman” has the meaning specified in the recitals.

 

“FSA Capital Markets Cayman Insurance Agreement” has the meaning specified in
the recitals.

 

“FSA Capital Markets Cayman Notes” has the meaning specified in
Section 2.1(b)(3).

 

“FSA Capital Markets Collateral Account” means the account maintained pursuant
to Section 10.1(c) and described in Section 10.3(d).

 

“FSA Capital Markets Insurance Agreement” has the meaning specified in the
recitals.

 

“FSA Capital Markets Lien” has the meaning specified in the recitals.

 

“FSA GIC Contract” means each GIC Contract covered by a Retained FSA Policy.

 

“FSA Defeasance Plan” has the meaning specified in the ALM Procedures.

 

“FSA Lien” has the meaning specified in the recitals.

 

“FSA PAL” has the meaning specified in the recitals.

 

“FSA PAL Accounts Transfer” has the meaning specified in Section 10.1(h).

 

“FSA PAL Additional Collateral” has the meaning specified in Section 2.1(c).

 

“FSA PAL Belgian Collateral” has the meaning specified in the recitals.

 

“FSA PAL Brussels Cash Account” means the account maintained pursuant to
Section 10.1(b) and described in Section 10.2(e).

 

“FSA PAL Brussels Collateral Account” means the account maintained pursuant to
Section 10.1(b) and described in Section 10.2(f).

 

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“FSA PAL Cash Account” means the account maintained pursuant to
Section 10.1(c) and described in Section 10.3(e).

 

“FSA PAL Collateral Account” means the account maintained pursuant to
Section 10.1(c) and described in Section 10.3(f).

 

“FSA PAL Clearing and Custody Agreement” means the agreement entered into by FSA
PAL with BNY Mellon.

 

“FSA PAL Collateral” has the meaning specified in Section 2.1(c).

 

“FSA PAL Lien” has the meaning specified in the recitals.

 

“FSA PAL Loan” means the intercompany loan agreement between FSAM and FSA PAL.

 

“FSA PAL Note” has the meaning specified in Section 3.9(k).

 

“FSA Policy” means any financial guaranty insurance policy issued by FSA with
respect to the GIC Business, excluding any Secondary Policies.

 

“FSAH” has the meaning specified in the recitals.

 

“FSAM” has the meaning specified in the recitals.

 

“FSAM Assets” means, as of any date of determination, the Put Portfolio Assets,
the Excluded Assets, and the Other Assets owned by FSAM on such date.

 

“FSAM Asset Value” has the meaning specified in the Dexia Guaranteed Put
Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“FSAM Belgian Pledge Agreement” means the FSAM Pledge Agreement, dated as of the
Closing Date, among FSA PAL, FSAM and the Collateral Agent.

 

“FSAM Cash Account” means the account maintained pursuant to Section 10.1(c) and
described in Section 10.3(a).

 

“FSAM Collateral” has the meaning specified in Section 2.1(d).

 

“FSAM Collateral Account” means the account maintained pursuant to
Section 10.1(c) and described in Section 10.3(b).

 

“FSAM Collateral Secured Parties” means FSA, the Dexia Guarantors, the Lenders
and the GIC Issuers.

 

“FSAM Hedging Successor” has the meaning specified in the definition of FSAM
Lien Release Date.

 

“FSAM Insurance Agreement” has the meaning specified in the recitals.

 

“FSAM Lien Release Date” means a date on which all of the following conditions
have been satisfied:

 

(a)           FSAM has redeemed or, if requested by FSA, effected a transfer and
novation of the Master Repurchase Agreement to the FSAM Successor, such that the
GIC Issuers or the relevant FSAM Successor hold (or have pledged as Additional
Securities Collateral to secure such Master Repurchase

 

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Agreement) an amount of cash or Permitted Investments having an FSAM Asset Value
equal to the CSA Collateralized Liabilities plus 25% of the GIC Business Costs
Amount immediately prior to such date.

 

(b)           The Permitted Investments described in clause (a) have been
pledged by the GIC Issuers under this Agreement to secure the obligations of the
GIC Issuers to (x) FSA under the GIC Issuers Insurance Agreements and (y) the
Dexia Guarantors under the Dexia Guarantee Reimbursement Agreement (subject to
the rights of the GIC Issuers to repledge or rehypothecate such Permitted
Investments to secure the GIC Contracts).

 

(c)           The Rating Agencies have confirmed that the obligations of the GIC
Issuers, after giving effect to the redemption and/or transfer and novation of
the Master Repurchase Agreement described in clause (a) and the termination of
the Guaranteed Liquidity Facilities, will be rated at least “Aa2” by Moody’s, at
least “AA” by S&P and at least “AA” by Fitch.

 

(d)           The Rating Agencies have confirmed that the redemption and/or
transfer and novation of the Master Repurchase Agreement and the release of the
FSAM Collateral as described in clause (a) will not cause the rating of FSA to
be downgraded, qualified or withdrawn.

 

(e)           Any FSA Policies outstanding in relation to Hedge Agreements
(which, for the avoidance of doubt, shall be identified in the Hedge Agreement
Register maintained by the Administrator) have been released by the Hedge
Counterparties to such Hedge Agreements.

 

(f)            The Liability Swaps outstanding immediately prior to such date
have been assigned and/or novated by FSAM to the FSAM Successor or another
special purpose direct or indirect subsidiary of DCL if so requested by FSA
(either, an “FSAM Hedging Successor”), in accordance with the terms of the
amendment provisions described in Section 8.3, or in the case of DCL and DBB, in
accordance with the terms of their respective Hedge Agreements, and DCL has
confirmed in writing that (x) DCL’s guarantee of the obligations of FSAM under
each such Hedge Agreement and (y) DCL’s collateral posting obligations to the
relevant Hedge Counterparties on behalf of such FSAM Hedging Successor will be
transferred to such FSAM Hedging Successor.

 

“FSAM PAL Collateral” has the meaning specified in Section 2.1(d).

 

“FSAM Successor” means (i) one of the GIC Issuers or (ii) another special
purpose limited liability company organized by the Secured Party Representative
(and which may be an Affiliate of the Secured Party Representative) in the same
jurisdiction and under a limited liability company agreement having provisions
and restrictions the same as those applicable to the GIC Issuers, in each case
where such entity either (x) succeeds to the rights and obligations of FSAM
under the Master Repurchase Agreement and under this Agreement in relation to
the Master Repurchase Agreement in connection with an FSAM Lien Release Date or
Dexia Event of Default or (y) if the Master Repurchase Agreement has been
terminated in whole or in part, enters into a Financed FSAM Collateral Purchase
and GIC Issuer Repurchase Agreement in relation to the relevant Purchased
Securities under the Master Repurchase Agreement that are retained by the GIC
Issuers.

 

“FSAM Secured Obligations” has the meaning specified in Section 2.1(d)(iii).

 

“FSAM Sovereign Guarantee Collateral” has the meaning specified in
Section 2.1(d)(i).

 

“General Intangibles” means all “general intangibles” and all “payment
intangibles,” each as defined in the UCC, and shall include all interest rate or
currency protection or hedging arrangements, all tax refunds, all licenses,
permits, concessions and authorization (in each case, regardless of whether
characterized as general intangibles under the UCC).

 

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“GIC Business” means investment, reinvestment and management of the proceeds of
GIC Contracts and the assets and liabilities of the GIC Business Entities,
including by entering into related cash and securities transactions, for the
purpose of paying to GIC Holders permitted withdrawal amounts from time to time
and retaining all or a portion of the returns earned on invested amounts, and
managing the credit, liquidity and other financial risks related to such
business, and all activities reasonably incidental thereto including, but not
limited to, the corporate, operational and administrative activities of the GIC
Business Entities, and other activities pursuant to the Material Agreements.

 

“GIC Business Costs Amount” has the meaning specified in the Dexia Guaranteed
Put Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“GIC Business Clearing and Custody Agreements” means the Securities Clearing
Agreement dated as of August 8, 2001 between FSAM and BNY Mellon, the Global
Clearing and Custody Agreement dated as of October 15, 2004 between FSAM and BNY
Mellon, the Securities Clearing Agreement dated as of August 8, 2001 between FSA
Capital Markets and BNY Mellon, the Securities Clearing Agreement dated as of
August 8, 2001 between FSA Capital Management and BNY Mellon, the Global
Clearing and Custody Agreement dated as of October 15, 2004 between FSA Capital
Management and BNY Mellon and the FSA PAL Clearing and Custody Agreement.

 

“GIC Business Costs Amount Dispute” means in relation to the calculation of the
GIC Business Costs Amount pursuant to the Dexia CSAs, the party invoking dispute
resolution has provided notice to the other party that it believes any
Administrative Expenses or any increase in the annual budget provided by the
Administrator in accordance with the Administrative Services Agreement was or
was not an Unanticipated Recurring Expense (as defined in Schedule B to the
Dexia CSAs) or that any savings of Administrative Expense or reduction of the
annual budget provided by the Administrator in accordance with the
Administrative Services Agreement was or was not an Unanticipated Recurring
Savings (as defined in Schedule B to the Dexia CSAs).

 

“GIC Business Documents” means with respect to each of FSAM and the GIC Issuers,
the Material Agreements to which it is a party.

 

“GIC Business Entity” means each of FSAM, FSA PAL, each GIC Issuer, any FSAM
Successor and any FSAM Hedging Successor.

 

“GIC Collateral” means, with respect to any GIC Contract, the collateral (if
any) posted thereunder by the respective GIC Issuer.

 

“GIC Contract” means each guaranteed investment contract issued by a GIC Issuer.

 

“GIC Holder” means the counterparty to a GIC Issuer with respect to a GIC
Contract.

 

“GIC Holder Lien” means any Lien for the benefit of a GIC Holder pursuant to a
pledge by a GIC Issuer to secure its obligations under GIC contracts.

 

“GIC Interest Hedge Reserve” means any amounts actually received by FSAM or the
FSAM Hedging Successor, as applicable, in consideration for the termination of
any Liability Swap, to the extent that the Administrator reasonably demonstrates
that an FSA GIC Contract for which interest rate exposure was hedged by such
Liability Swap is still outstanding.

 

“GIC Issuer Repurchase Agreement” means a repurchase agreement between (i) the
GIC Issuers (or if one of the GIC Issuers is the FSAM Successor, the GIC Issuer
which is not the FSAM Successor) and (ii) the FSAM Successor, which repurchase
agreement becomes effective where the Master Repurchase

 

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Agreement is terminated and the FSAM Successor has entered into a Financed FSAM
Collateral Purchase.

 

“GIC Issuer Secured Obligations” has the meaning specified in Section 2.1(b).

 

“GIC Issuers” means FSA Capital Markets, FSA Capital Management and FSA Capital
Markets Cayman.

 

“GIC Issuers Collateral” has the meaning specified in Section 2.1(b).

 

“GIC Issuers Collateral Account” means each of the FSA Capital Management
Collateral Account and the FSA Capital Services Collateral Account.

 

“GIC Issuers Collateral Secured Parties” means FSA, the Dexia Guarantors and, if
applicable after termination of the Master Repurchase Agreement, the Lenders.

 

“GIC Issuers Insurance Agreements” means the FSA Capital Management Insurance
Agreement, the FSA Capital Markets Insurance Agreement and the FSA Capital
Markets Caymans Insurance Agreement.

 

“GIC Issuers Lien” has the meaning specified in the recitals.

 

“GIC Policies” means the FSA Policies insuring the obligations of the GIC
Issuers under the GIC Contracts.

 

“Good Faith Contested Payment” means a payment (i) which is not an amount
required to be paid under the terms of any of the Guaranteed Liquidity
Facilities, any GIC Contract, any Hedge Agreement or any Dexia Guarantee (or a
reimbursement payment to FSA arising from FSA’s payment of such amount under any
Retained FSA Policy), (ii) for which Dexia or its affiliates are contesting
their liability in good faith by means of litigation or by cooperation in any
formal or informal dispute resolution process, and (iii) for which Dexia has
paid any uncontested amounts.

 

“Governmental Authority” means any applicable federal, state, local or foreign
court, including the Cayman Islands, or governmental department, commission,
board, bureau, agency, authority, central bank, instrumentality or regulatory or
supervisory body.

 

“Grant” means, as to any asset or property, to mortgage, pledge, assign, charge
and grant a security interest in such asset or property. A Grant of the Dexia
Collateral, the FSAM Sovereign Guarantee Collateral, the FSAM Collateral, FSAM
PAL Collateral, Dexia FP Collateral, FSA PAL Collateral or GIC Issuers
Collateral or any assigned document, instrument or agreement will include all
rights, powers and options (but none of the obligations, except to the extent
required by law), of the Granting party thereunder or, with respect thereto,
including the immediate and continuing right to claim, collect, receive and give
receipt for all moneys payable thereunder and all income, proceeds, products,
rents and profits thereof, to give and receive notices and other communications,
to make waivers or other agreements, to exercise all rights and options, to
bring proceedings in the name of the Granting party or otherwise, and generally
to do and receive anything which the Granting party is or may be entitled to do
or receive thereunder or with respect thereto.

 

“Grantors” has the meaning specified in Section 2.3(a).

 

“Guarantee Call” has the meaning specified in the Sovereign Guarantee.

 

“Guaranteed Liquidity Facilities” means the Liquidity Facility and the
Repurchase Facility Agreement, each in the form identified to the Sovereign
Guarantors and FSA on the Closing Date and any additional liquidity facilities
between FSAM and either DCL or DBB in one or more amounts entered into from time

 

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to time after the Closing Date, that are in substantially the same form as the
Liquidity Facility or the Repurchase Facility Agreement and that are entered
into for the purpose of providing liquidity to meet FSAM’s payment obligations
(including obligations to meet collateral posting requirements under the GIC
Contracts) under the Master Repurchase Agreement.

 

“Hedge Agreement Register” means (a) on the Closing Date, Annex D and (b)
following the Closing Date, the Hedge Agreement Register maintained by FSAM in
accordance with the ALM Procedures.

 

“Hedge Agreements” means all outstanding interest rate, currency and asset
swaps, options, caps and other derivative or hedge agreements hedging exposures
relating to the FSAM Assets and the Master Repurchase Agreement, whether
existing on the Closing Date or entered into after the Closing Date in
accordance with the ALM Procedures, including any futures account agreement and
repurchase agreements but excluding the Dexia Guaranteed Put Contract and the
Dexia Non-Guaranteed Put Contract.

 

“Hedge Counterparty” means, with respect to any Hedge Agreement, FSAM’s
counterparty thereunder.

 

“Hedge Policies” means the outstanding FSA Policies in relation to the Hedge
Agreements.

 

“Hedging Letter Agreement” means a letter agreement dated of even date herewith
between the Dexia Guarantors and FSA.

 

“Indebtedness” means, with respect to any Person at any time, (a) indebtedness
or liability of such Person for borrowed money whether or not evidenced by
bonds, debentures, notes or other instruments, or for the deferred purchase
price of property or services (including trade obligations); (b) obligations of
such Person as lessee under leases which should have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases; (c) obligations issued for or liabilities incurred on the account of
such Person; (d) obligations or liabilities of such Person arising under
acceptance facilities; (e) obligations of such Person under any guarantees,
endorsements (other than for collection or deposit in the ordinary course of
business) and other contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any Person or otherwise to assure a
creditor against loss; (f) obligations secured by any Lien on property or assets
of such Person, whether or not the obligations have been assumed by such Person;
or (g) obligations of such Person under any interest rate or currency exchange
agreement.

 

“Independent” means as to any of Assured, FSA and any Dexia Party, any other
Person (including any successor collateral agent or, in the case of an
accountant, or lawyer, a firm of accountants or lawyers and any member thereof)
who at the time of determination (i) does not have and is not committed to
acquire any material direct or indirect financial interest in such party or in
any Affiliate of such party, and (ii) is not connected with such party as an
officer, employee, promoter, underwriter, voting trustee, partner, director or
Person performing similar functions.

 

“Information Source” has the meaning specified in Section 10.4(e).

 

“Initial Event of Default Period” means the period from the date any Dexia Event
of Default occurs until the 60th day after FSA elects to become the Secured
Party Representative.

 

“Insolvency Regulation” has the meaning specified in Section 3.8(c).

 

“Inspecting Party” has the meaning specified in Section 10.6(a).

 

“Instrument” has the meaning specified in Article 9 of the UCC.

 

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“Insurance Agreements” means the FSAM Insurance Agreement, and the GIC Issuers
Insurance Agreements.

 

“Intermediary” means any entity maintaining an FP Account pursuant to a
Securities Account Control Agreement.

 

“Investment Company Act” means the United States Investment Company Act of 1940,
as amended.

 

“Investment Objectives” has the meaning specified in Section 7.5(b)(ii).

 

“ISDA Event of Default” means an “event of default” as to which Dexia or DCL is
the defaulting party, for purposes of the Dexia Guaranteed Put Contract and the
Dexia Non-Guaranteed Put Contract, respectively.

 

“Lender Bankruptcy” means, with respect to any Lender, a “Bankruptcy” as defined
in Section 5(a)(vii) of the 1992 ISDA Master Agreement, amended by deleting the
reference to “30 days” in subsection(4)(B) and replacing it with “60 days.”

 

“Lenders” means DCL and DBB.

 

“Leveraged Tax Lease Business” has the meaning specified in
Section 6.13(d)(i)(B) of the Purchase Agreement.

 

“Liability Swap” means each Hedge Agreement identified as a “Liability Swap” on
the Hedge Agreement Register.

 

“Lien” means, with respect to any property, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such property.

 

“Liquidation Agent” has the meaning specified in Section 5.2(c).

 

“Liquidation Procedures” has the meaning specified in Section 5.2(d).

 

“Liquidity and Collateral Trigger Expiration Date” means October 31, 2011.

 

“Liquidity Default Trigger” has the meaning specified in the Dexia Guaranteed
Put Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Liquidity Draw Request” means either a request for a “loan” as defined in the
Liquidity Facility or a “repurchase transaction request” as defined in the
Repurchase Facility Agreement.

 

“Liquidity Facility” has the meaning specified in the recitals.

 

“Liquidity Percentage” has the meaning specified in Section 5.2(d)(v).

 

“Mark to Market Value” with respect to each Put Portfolio Asset, Excluded Asset,
Other Asset and Dexia CSA Collateral the Indicative Market Value or other base
market value of the relevant asset (and not the FSAM Asset Value derived from
application of the relevant haircut percentage) determined by the Valuation
Agent as of the most recent Valuation Date, without giving effect to any
guarantee provided by a Dexia Guarantor, as determined in accordance with the
valuation procedures set forth in the related Dexia CSA.

 

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“Master Repurchase Agreement” means the Amended and Restated Master Repurchase
Agreement dated as of the Closing Date, amending and restating the master
repurchase agreement dated as of October 29, 2001, between FSAM and FSA Capital
Management, the master repurchase agreement dated as of October 29, 2001,
between FSAM and FSA Capital Markets, the Master Note (Series A) of FSAM, dated
as of October 29, 2001, issued to FSA Capital Management and the Master Note
(Series B) of FSAM, dated October 29, 2001, issued to FSA Capital Markets.

 

“Material Adverse Change” means, with respect to any Person and as of any date
of determination, a material adverse change in (i) the business, financial
condition, results of operations or property of such Person, (ii) with respect
to FSAM, (a) the FSAM Collateral, (b) the security interest of the Collateral
Agent in the FSAM Collateral, (c) the ability of the Collateral Agent to
liquidate, or foreclose against, the FSAM Collateral, (d) the ability of FSAM to
perform its obligations under any of the Material Agreements to which it is a
party, or (e) the practical realization by the Secured Parties of any of the
benefits or security afforded or intended to be afforded under any of the
Material Agreements, in each case as of such date, (iii) with respect to each
GIC Issuer, (a) the related GIC Issuers Collateral, (b) the security interest of
the Collateral Agent in such GIC Issuers Collateral, (c) the ability of the
Collateral Agent to liquidate, or foreclose against, such GIC Issuers
Collateral, (d) the ability of such GIC Issuer to perform its obligations under
any of the Material Agreements to which it is a party, or (e) the practical
realization by the Secured Parties of any of the benefits or security afforded
or intended to be afforded under any of the Material Agreements, in each case as
of such date, or (iv) with respect to each Dexia Guarantor, (a) the related
Dexia Collateral, (b) the security interest of the Collateral Agent in such
Dexia Collateral, (c) the ability of the Collateral Agent to liquidate, or
foreclose against, such Dexia Collateral, (d) the ability of such Dexia
Guarantor to perform its obligations under any of the Material Agreements to
which it is a party, or (e) the practical realization by the Secured Parties of
any of the benefits or security afforded or intended to be afforded under any of
the Material Agreements, in each case as of such date.

 

“Material Agreements” means the Transaction Documents, the Hedge Agreements, the
FSA PAL Loan, the GIC Business Clearing and Custody Agreements and the Principia
License.

 

“Medium-Term Note Business” has the meaning specified in Section 6.13(d)(i)(A)
of the Purchase Agreement.

 

“Minimum Liquidation Procedures” has the meaning specified in Section 5.2(e).

 

“Moody’s” means Moody’s Investors Service or any successor thereto.

 

“MPAA Account” means any account on the Euroclear System established with
Euroclear Bank NV/SA in accordance with Euroclear’s Multi Pledgor Pledged
Account Terms and Conditions.

 

“Net Loss” means a “net loss” as described in Section 8.2 of the ALM Procedures.

 

“Non-Conforming Agreement” has the meaning specified in Section 3.12.

 

“Notice Date” has the meaning specified in Section 7.5(a).

 

“Opinion of Counsel” means a written opinion addressed to the requesting party,
in form and substance reasonably satisfactory to such party, of an Independent
attorney at law, who is reasonably experienced and knowledgeable in the subject
matter of the opinion in question and admitted to practice (or a law firm with
one or more partners admitted to practice) in a state of the United States or
the District of Columbia (or foreign jurisdiction, in the case of an opinion
relating to the laws of a foreign jurisdiction) the laws of which state or other
jurisdiction govern the subject matter in respect of which the opinion is being

 

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solicited (provided, that if the State of Delaware has such jurisdiction, such
attorney may be admitted to practice in any state of the United States or the
District of Columbia).

 

“Organizational Document” means with respect to (a)  any limited liability
company, its limited liability company agreement and certificate of formation,
(b) Dexia FP, its certificate of incorporation and by-laws, (c) any company
incorporated under the laws of the Cayman Islands or England and Wales, its
Memorandum and Articles of Association, certificate of incorporation and, if
applicable, its declaration of trust and (d) each Dexia Guarantor, its Articles
of Association.

 

“Other Assets” has the meaning specified in the Dexia Non-Guaranteed Put
Contract.

 

“Outstanding Principal Amount” has the meaning specified in the Dexia Guaranteed
Put Contract or Dexia Non-Guaranteed Put Contract, respectively.

 

“Paid In Full” means final payment of all outstanding amounts has been made, the
relevant Dexia Party has given notice to FSA that it believes the relevant
amount is Paid in Full and requesting that FSA either confirm such circumstance
or provide the Opinion of Counsel referred to below, and one of the following
additional conditions is satisfied: (a) FSA does not provide notice within 10
days that it intends to obtain an Opinion of Counsel addressed to the Dexia
Parties in the applicable jurisdiction that a preference, suspect or hardening
period is reasonably likely to apply to such payment, (b) FSA fails to deliver
any such Opinion of Counsel within 20 days of FSA’s notice or such Opinion of
Counsel does not conclude that a preference, suspect or hardening period is
reasonably likely to apply to such payment or (c) the lesser of (i) the relevant
preference, suspect or hardening period identified in such Opinion of Counsel
has expired or (ii) one year has elapsed, in each case from the date of the
relevant final payment.

 

“Payment Failure Notice” means a notice of nonpayment in the form attached as
Annex H.

 

“Permitted Asset Sale” means (a) any sale pursuant to the exercise of a Call
Option, (b) any sale to an Unaffiliated Party so long as the Delivery Amount
(assuming for this purpose that the “threshold” and “minimum transfer amount”
(each as defined in the applicable Dexia CSA) is zero) under either Put Contract
after giving effect to such sale and (c) any sale pursuant to Section
11.2(b)(i); provided, however, that for so long as the Sovereign Guarantee is
outstanding, no Put Portfolio Asset may be sold in a Permitted Asset Sale for
less than its Put Settlement Amount without the consent of FSA; provided,
further, that after a Dexia Event of Default, any sale at the direction of FSA
in accordance with this Agreement will be considered a Permitted Asset Sale. On
any date on which FSA is not the Secured Party Representative, any sale of FSAM
Assets with a principal balance in excess of $100 million will require
confirmation pursuant to Section 11.2(e).

 

“Permitted Indebtedness” means indebtedness, liability or obligation not insured
or guaranteed by FSA, (including the Master Repurchase Agreement and any GIC
Issuer Repurchase Agreement), the documentation for which contains customary
limited recourse and non- petition provisions and that is entered into in the
ordinary course of managing the existing business of FSAM and the GIC Issuers,
as applicable, and in accordance with the ALM Procedures and any Administrative
Expenses.

 

“Permitted Investments” has the meaning specified in the ALM Procedures.

 

“Permitted Lien” means (i) any Collateral Posting Lien, (ii) any Account Bank
Lien, (iii) any GIC Holder Lien, (iv) any Lien Granted under this Agreement, (v)
the Lien created under the FSAM Belgian Pledge Agreement and (vi) any Lien
created as a result of a repledge, rehypothecation or use permitted under
Section 2.2.

 

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“Person” means an individual, joint stock company, trust, unincorporated
association, joint venture, corporation, limited liability company, business or
owner trust, partnership or other organization or entity (whether governmental
or private).

 

“Portfolio Management Agreement” has the meaning specified in Section 7.5(b).

 

“Portfolio Manager” has the meaning specified in Section 7.5(a).

 

“Portfolio Manager List” has the meaning specified in Section 7.5(a).

 

“Potential Jurisdiction” has the meaning specified in the definition of Remedies
Nonimpairment Condition.

 

“Previous Liens” has the meaning specified in the recitals.

 

“Principal Shortfall Amount” has the meaning specified in the Dexia Guaranteed
Put Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Principia” means Principia Analytic System.

 

“Principia License” means the license granted by Principia Partners LLC to the
Administrator pursuant to the Principia Analytic System Master Software Site
License Agreement under which the Administrator has rights to use Principia.

 

“Priority of Payments” has the meaning specified in Section 11.1(b).

 

“Private Placement Notes” means the promissory notes listed on Annex N.

 

“Process Agent” has the meaning specified in Section 13.8.

 

“Proposal” has the meaning specified in Section 7.5(a).

 

“Proscribed Amendment” has the meaning specified in Section 2.1(h).

 

“Protected Provisions” has the meaning specified in Section 7.3(b).

 

“Purchase Agreement” has the meaning specified in the recitals.

 

“Put Contract” means the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract.

 

“Put Option” has the meaning specified in the Dexia Guaranteed Put Contract and
the Dexia Non-Guaranteed Put Contract, respectively.

 

“Put Portfolio Asset” means each asset identified on Annex A.

 

“Put Settlement Amount” has the meaning specified in the Dexia Guaranteed Put
Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Put Settlement Assets” has the meaning specified in the Dexia Guaranteed Put
Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Put Settlement Date” has the meaning specified in the Dexia Guaranteed Put
Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

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“Put Settlement Procedures Agreement” has the meaning specified in Section 6.6.

 

“Put Trigger” has the meaning specified in the Dexia Guaranteed Put Contract and
the Dexia Non-Guaranteed Put Contract, respectively.

 

“Rating Agencies” means Moody’s, S&P and Fitch.

 

“Remedies Nonimpairment Condition” means, in respect of any Dexia Party, either
that:

 

(i)            in connection with the relevant consolidation with, or merger
with or into, or transfer of all or substantially all its assets to, another
entity (a “Corporate Reorganization”) (A) the jurisdiction of organization of
such Dexia Party (or if a successor entity to such Dexia Party is applicable in
connection with such Corporate Reorganization (a “Successor Entity”), the
jurisdiction of such Successor Entity) is the same as the jurisdiction of such
Dexia Party immediately prior to such Corporate Reorganization and (B) in the
case of DCL or DBB if a Successor Entity is applicable, the Successor Entity is
a regulated financial institution; or

 

(ii)           in connection with the relevant Corporate Reorganization the
jurisdiction of organization of such Dexia Party (or if a Successor Entity is
applicable, the Successor Entity), is not the same as the jurisdiction of such
Dexia Party immediately prior to such Corporate Reorganization but

 

(A)          (I)            such jurisdiction is France or Belgium or

 

(II)         such jurisdiction is an Eligible European Union State, Japan,
Australia, New Zealand or Canada (a “Potential Jurisdiction”), and if FSA
objects to location of such Dexia Party (or if a Successor Entity is applicable,
such Successor Entity) in such Potential Jurisdiction and requests appointment
of a Legal Arbiter (as described in the definition of Legal Arbiter) within five
Business Days after receiving notice from a Dexia Party, a Legal Arbiter
concludes that the laws of the relevant Potential Jurisdiction, in relation to
the risks associated with a bankruptcy or insolvency of such Dexia Party or the
applicable Successor Entity as to (x) substantive consolidation law with respect
to any of the GIC Entities in the case of any of the Liquidity Facilities, the
Secured Derivative Agreements, the Dexia GIC Indemnity or the Dexia FP Guarantee
and (y) the enforcement of creditor’s rights, netting, collateral and preference
avoidance protection for derivative contracts in the case of the Secured
Derivative Agreements, afford FSA (whether directly or indirectly as third party
beneficiary or as secured party) at least as favorable protection overall as do
the laws in the jurisdiction of organization of such Dexia Party immediately
prior to such Corporate Reorganization; and

 

(B)           in the case of DCL or DBB if a Successor Entity is applicable, the
Successor Entity is a regulated financial institution; or

 

(iii)          in the case of (A) the Guaranteed Put Contract, the
Non-Guaranteed Put Contract and the Liquidity Facilities, the FSAM Lien Release
Date has occurred or (B) any other agreement or instrument, the Senior Release
Date has occurred.

 

If the Remedies Nonimpairment Condition has been previously satisfied in
connection with any Corporate Reorganization with respect to which a Successor
Entity is applicable, the reference to such Dexia Party above shall be deemed to
refer to the relevant Successor Entity.

 

Solely for purposes of the definition of Remedies Nonimpairment Condition:

 

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“Eligible European Union State” means each of (i) Austria, Denmark, Finland,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain,
Sweden and the United Kingdom and (ii) any other country in the European Union
that has a rating assigned to its external indebtedness of at least “Aa2” by
Moody’s and “AA” by S&P, respectively, and for which derivatives netting and
collateral opinions rendered to ISDA are available on the ISDA website.

 

“GIC Entities” means FSAM, the GIC Issuers, DHI, the Administrator, Dexia FP
Holdings Inc. and FSA PAL.

 

“Legal Arbiter” means an internationally recognized law firm or practitioner
with expertise in matters of creditors’ rights and insolvency in the relevant
Potential Jurisdiction (“Eligible Expert”), which is Independent of both FSA and
Dexia. The Legal Arbiter shall be jointly appointed by FSA and Dexia; provided,
however, that (1) in the event FSA and Dexia do not agree as to such joint
appointment within eight Business Days from the FSA notice of objection referred
to in (A) (II) above, each shall nominate an Eligible Expert and the two
Eligible Experts shall themselves appoint the Legal Arbiter and (2) the Legal
Arbiter shall be required to reach its conclusion within ten Business Days and
if no such conclusion has been delivered, a replacement Legal Arbiter may be
appointed by the relevant Dexia Party acting alone. The determination of the
Legal Arbiter shall be final and binding on all parties.

 

“Secured Derivative Agreements” means the Guaranteed Put Contract and the
Non-Guaranteed Put Contract, the Dexia Hedge Agreement between DCL and FSAM and
Third Party Hedge Amendments.

 

“Specified Diligence Items” has the meaning specified in Section 3.2(g).

 

“Replacement Portfolio” means the cash and Permitted Investments (a) described
in clause (a) of the definition of FSAM Lien Release Date or (b) owned by FSAM
or the FSAM Successor following implementation of the FSA Defeasance Plan.

 

“Reporting Agent” has the meaning specified in Section 10.4(a).

 

“Reporting Service Agreement” means the service agreement dated as of June 30,
2009 between FSAM and the Reporting Agent.

 

“Repurchase Facility Agreement” has the meaning specified in the recitals.

 

“Required Guarantee” means any guarantee, substantially in the form of Annex J,
issued by DCL with respect to payment obligations of FSAM, the GIC Issuers or
the Administrator for the benefit of (a) Hedge Counterparties in connection with
Subordinated Third Party Hedge Agreements, (b) BNY Mellon with respect to the
GIC Business Clearing and Custody Agreements, and (c) service providers
(including other Account Banks) to the Administrator, FSAM, the FSAM Successor
or the FSAM Hedging Successor.

 

“Required Reserve” means, with respect to any date of determination, the lesser
of: (i) 2% of the aggregate principal balance of all remaining GIC Contracts on
such date and (ii) $200,000,000, provided that in no event will the Required
Reserve be less than $35,000,000. In the event that there is less than
$500,000,000 of remaining available amount under the Liquidity Facility, then
(i) above will equal the sum of 2% of the aggregate principal balance of all
remaining GIC Contracts on such date and the aggregate amount of all Senior
Priority Payments individually in excess of $1,000,000 expected to become due in
the next seven calendar days.

 

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“Restricted Payment” has the meaning specified in the Sovereign Guarantee
Reimbursement Agreement.

 

“Retained FSA Policy” means all policies that produce liabilities to FSA related
to the GIC Business, the GIC Business Entities or any Material Agreements,
including (a) all GIC Policies related to GIC Contracts owned by (i)
Unaffiliated Parties or (ii) FSA Global Funding Limited; (b) all Hedge Policies
related to Third Party Hedge Agreements and (c) Secondary Policies.

 

“S&P” means Standard and Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“Second Credit Agreement” has the meaning specified in the recitals.

 

“Second Credit Agreement Lien” has the meaning specified in the recitals.

 

“Secondary Policies” means the financial guaranty insurance policies issued by
FSA and listed in Annex F.

 

“Secured Obligations” means the FSAM Secured Obligations and the GIC Issuer
Secured Obligations.

 

“Secured Party Representative” means (a) prior to an election by FSA to become
the Secured Party Representative following the occurrence of a Dexia Event of
Default, the Dexia Guarantors, each on its own behalf and on behalf of the
Sovereign Guarantors (provided that if (x) a Dexia Event of Default has occurred
and (y) the Dexia Guarantors have requested FSA waive such Dexia Event of
Default, the Dexia Guarantors will obtain the consent of FSA prior to exercising
its rights as Secured Party Representative until the 10th Business Day after
such Dexia Event of Default (or, if earlier, the date on which FSA waives or
declines to waive such Dexia Event of Default); (b) following the occurrence of
a Dexia Event of Default, FSA upon notice to the Collateral Agent and the Dexia
Guarantors that it is electing to act as Secured Party Representative; and (c)
following the Senior Release Date, the Dexia Guarantors. For the avoidance of
doubt, upon the occurrence of a Dexia Event of Default, the Dexia Guarantors may
not waive a Dexia Event of Default or (unless FSA in its sole discretion has
waived such Dexia Event of Default in writing) exercise any other rights or
remedies of the Secured Party Representative under Article V unless the Senior
Release Date has occurred, and the Sovereign Guarantors may not at any time be
the Secured Party Representative.

 

“Secured Parties” means with respect to (a) the FSAM Sovereign Guarantee
Collateral, the GIC Issuers, (b) the FSAM Collateral, FSA, the Dexia Guarantors,
the Lenders and the GIC Issuers, (c) the GIC Issuers Collateral, FSA and the
Dexia Guarantors, (d) the Dexia Collateral, FSAM, (e) the FSA PAL Collateral,
FSAM, (f) the Dexia FP Collateral, FSA and (g) the FSAM PAL Collateral, FSA.

 

“Securities Account Control Agreement” has the meaning specified in Section
10.1(a).

 

“Securities Lending Facility” means the Global Master Securities Lending
Agreement between DCL and FSAM dated as of November 13, 2008.

 

“Semi-Annual Reporting Date” has the meaning specified in Section 10.5(e)(x).

 

“Senior Priority Payments” has the meaning specified in Section 11.1(b).

 

“Senior Release Date” means the date on which all of the GIC Contracts and
Senior Third Party Hedge Agreements have been Paid In Full or terminated and all
payments due and owing to FSA have been Paid In Full.

 

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“Senior Third Party Hedge Agreement” means any Third Party Hedge Agreement (i)
entered into after a Dexia Event of Default, (ii) that is subject to an FSA
Policy, (iii) transactions under futures account agreements or (iv) any other
Third Party Hedge Agreement that is not a Subordinated Third Party Hedge
Agreement.

 

“Shortfall Amounts” has the meaning specified in the Dexia Guaranteed Put
Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Shortfall Information” has the meaning specified in the Dexia Guaranteed Put
Contract and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Sovereign Guarantee” means the guarantee issued by the Sovereign Guarantors
under which the Sovereign Guarantors will guarantee the performance by Dexia of
its joint and several obligations under the Dexia Guaranteed Put Contract.

 

“Sovereign Guarantee Reimbursement Agreement” means the Reimbursement Agreement
among the Sovereign Guarantors and the Dexia Guarantors dated as of the Closing
Date relating to the payment of a guarantee fee and the reimbursement of the
Sovereign Guarantors for any payments made under the Sovereign Guarantee.

 

“Sovereign Guarantee Reimbursement Letter Agreement” means the letter agreement,
dated as of the Closing Date, between Dexia and FSAM related to certain
requirements and limitations regarding amendment, modification, supplement or
termination of certain provisions of, and attached as an exhibit to, the
Sovereign Guarantee Reimbursement Agreement.

 

“Sovereign Guarantee Unenforceability Date” has the meaning specified in the
Dexia Guaranteed Put Contract.

 

“Sovereign Guarantors” means the Belgian State and the French State.

 

“SPV Bankruptcy” means a “Bankruptcy” as defined in Section 5(a)(vii) of the
1992 ISDA Master Agreement, amended as follows: (w) by deleting clause (2); (x)
by deleting in clause (6) the words “seeks or” and the words “administrator,”
and “trustee, custodian”; (y) by deleting clause (7); and (z) by deleting clause
(9) (and conforming the cross-reference in clause (8)).

 

“Subordinated Claims Payment Condition” means, as of any date of determination
and any payment, a condition satisfied if (and after giving effect to the
relevant payment would be):

 

(a)             no Dexia Default has occurred and is continuing and no Dexia
Event of Default has occurred;

 

(b)             a Dexia Event of Default has occurred and the aggregate FSAM
Asset Value of Permitted Investments then held as Collateral hereunder (whether
held by FSAM, the FSAM Successor, the FSAM Hedging Successor or the GIC Issuers
or the Collateral Agent following enforcement of its security interest
hereunder, and including any Permitted Investments that were initially pledged
as Eligible Collateral under the Put Contracts (whether or not the Put Contracts
have been terminated)) exceeds the Subordinated Claims Payment Threshold; or

 

(c)             the Senior Release Date has occurred;

 

provided that the Subordinated Claims Payment Condition will not be considered
to have been satisfied if (x) the Dexia Guarantors are the Secured Party
Representative and FSAM has failed to comply with Section 11.1(c) or Section
11.2(e), until the next Valuation Date (as defined in the Dexia CSAs) has

 

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occurred following such failure to comply with Section 11.1(c) or Section
11.2(e) and the Dexia Guarantors have satisfied the collateral posting
requirement under the Dexia CSAs with respect to that Valuation Date; or (y) the
Required Reserve is not fully funded.

 

“Subordinated Claims Payment Threshold” means, as of any date of determination,
the sum of (w) the CSA Collateralized Liabilities plus 25% of the GIC Business
Costs Amount, (x) any GIC Interest Hedge Reserve, (y) if such date of
determination is within the Initial Event of Default Period, $500 million and
(z) if on the last date of the Initial Event of Default Period a decision of the
ALM Arbiter is pending with respect to any ALM Noncompliance (Derivative) and
the ALM Arbiter subsequently renders a decision adverse to FSA, until one month
after the date of the such decision, the lesser of (i) 150% of the proceeds of
the termination of any derivative transaction required as a result of such
decision that has not been used to enter into a replacement derivative
transaction in accordance with such decision and the ALM Procedures and (ii)
$500 million.

 

“Subordinated Third Party Hedge Agreement” has the meaning specified in Section
8.1(c).

 

“Subsidiary” of any specified Person means any other Person directly or
indirectly controlled by such specified Person. For the purposes of this
definition, “control” when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the term “controlled” has the meaning correlative to the
foregoing.

 

“Temporary Funding Transaction” means a repurchase transaction of a term of one
week or less with an Eligible Dealer as defined under the applicable Dexia CSA,
under which the Collateral Agent or FSA acting as Secured Party Representative
sells Eligible Collateral held under such Dexia CSA and agrees to repurchase
such Eligible Collateral at the end of such term, the proceeds of which
transaction are used to satisfy a scheduled or expected Senior Priority Payment
identified in accordance with the provisions Section 11.2 at or prior to the
relevant Payment Failure Notice.

 

“Third Party Hedge Agreements” means the Hedge Agreements that are not Dexia
Hedge Agreements.

 

“Transaction Documents” means this Agreement, the Guaranteed Liquidity
Facilities, the Dexia Guarantees, the Sovereign Guarantee, the Sovereign
Guarantee Reimbursement Letter Agreement, the Master Repurchase Agreement, the
Insurance Agreements, the Dexia Guarantee Reimbursement Agreement, the
Administrative Services Agreement, the Dexia GIC Indemnity, each Securities
Account Control Agreement, the FSAM Belgian Pledge Agreement and the Hedging
Letter Agreement.

 

“Transition Date” means the earlier of the occurrence of (i) a Dexia Event of
Default and election by FSA to become the Secured Party Representative, and (ii)
the FSAM Lien Release Date.

 

“UCC” or “Uniform Commercial Code” means, unless otherwise specified, the
Uniform Commercial Code as in effect from time to time in the State of New York.

 

“Unaffiliated Counterparties” means Hedge Counterparties that are not Affiliates
of any Dexia Party.

 

“Unaffiliated Eligible Bidders” means Eligible Bidder that are not Affiliates of
any Dexia Party or of FSA.

 

“Unaffiliated Parties” means Persons that are not Affiliates of any Dexia Party.

 

“Uncertificated Security” has the meaning specified in Article 8 of the UCC.

 

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“Uncovered Dexia Payment Obligations” means a payment failed to be made
(including a payment for the value of any failed delivery of Eligible
Collateral), either (a) under the Dexia FP Guarantee or the Dexia GIC Indemnity
other than a Good Faith Contested Payment, (b) under the Dexia Non-Guaranteed
Put Contract or (c) under the Guaranteed Liquidity Facilities or the Dexia
Guaranteed Put Contract where (x) the relevant payment amount (including a
payment for the value of any failed delivery of Eligible Collateral) cannot be
claimed from the Sovereign Guarantors under the Sovereign Guarantee, (y) the
Sovereign Guarantors have failed to perform their payment obligations in
relation thereto in a timely manner pursuant to the terms of the Sovereign
Guarantee or (z) a Sovereign Guarantee Unenforceability Date has occurred.

 

“Valuation Agent” has the meaning specified in the Dexia Guaranteed Put Contract
and the Dexia Non-Guaranteed Put Contract, respectively.

 

“Voting Rights” means any request, demand, instruction, authorization,
direction, notice, consent, waiver or similar action.

 

“Wells Fargo” means Wells Fargo Bank, National Association or any successor
thereto as custodian for a collateral posting account under the Put Contracts or
custodian of a GIC Holder.

 

“Wind Down Business” has the meaning specified in Section 7.5(f).

 

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EXHIBIT A-1
Form of Securities Account Control Agreement

 

FORM OF SECURITIES ACCOUNT CONTROL AGREEMENT

 

This Securities Account Control Agreement, dated as of [                 ], 2009
(this “Agreement”) among [             ] (the “Debtor”), The Bank of New York
Mellon Trust Company, National Association, as collateral agent (the “Collateral
Agent”), [                    ], as intermediary (the “Intermediary”) and
Financial Security Assurance Inc. Capitalized terms used but not defined herein
shall have the meaning assigned in the Pledge and Administration Agreement dated
as of June 30, 2009, as amended, between, inter alia, the Debtor and the
Collateral Agent (the “Security Agreement”). All references herein to the “UCC”
shall mean, the Uniform Commercial Code as in effect in the State of New York.

 

Section 1.               Definitions. Whenever used in this Agreement, the
following words shall have the meanings set forth below:

 

(a)           “Account or “Accounts” means the accounts established and
maintained by Intermediary hereunder in the name of the Debtor (as the same may
be redesignated, renumbered or otherwise modified) and pledged to the Collateral
Agent (which accounts are designated in Exhibit A hereto, setting forth the name
and account number of each Account). Each Account shall be deemed to consist of
a “securities account” (within the meaning of Section 8-501(a) of the UCC) for
purposes of the UCC with respect to any investment property or other financial
asset credited to or carried in such Account and a “deposit account” (within the
meaning of Section 9-102 of the UCC) for purposes of the UCC with respect to any
uninvested funds deposited in or credited thereto.

 

(b)           “Authorized Person” means any person, whether or not an officer or
employee of the Collateral Agent or the Debtor, duly authorized by the
Collateral Agent or the Debtor, respectively, to give Oral Instructions and/or
Written Instructions on behalf of the Collateral Agent or the Debtor,
respectively, and listed on Schedule I hereto or designated in a Certificate of
Authorized Persons which contains a specimen signature of such person.

 

(c)           “Collateral” means each item of property (whether investment
property, financial asset, security, instrument, cash proceeds or uninvested
funds) which may serve as collateral pledged by the Debtor pursuant to the
Security Agreement and credited or proposed to be credited to an Account.

 

(d)           “Depository” shall mean the Treasury/Reserve Automated Debt Entry
System maintained at The Federal Reserve Bank of New York for receiving and
delivering securities, The Depository Trust Company and any other clearing
corporation within the meaning of Section 8-102 of the UCC or otherwise
authorized to act as a securities depository or clearing agency, and their
respective successors and nominees.

 

(e)           “Notice of Sole Control” has the meaning specified in Section 10.

 

(f)            “Oral Instructions” means verbal instructions received by the
Intermediary.

 

(g)           “Written Instructions” means written communications received by
the Intermediary via S.W.I.F.T., tested telex, letter, facsimile transmission,
electronic mail or other method or system specified by the Intermediary as
available for use in connection with this Agreement.

 

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The terms “bank,” “cash proceeds,” “deposit account,” “financial asset,”
“investment property,” “proceeds,” “security,” “security account,” “security
entitlement” and “securities intermediary” shall have the meanings set forth in
Articles 8 or 9, as applicable, of the UCC.

 

Section 2.               Operation of the Account(s). Each Account is and will
be maintained by Intermediary as a “securities account” with respect to
securities and other financial assets deposited or credited thereto and a
“deposit account” with a bank with respect to uninvested funds deposited or
credited to such Account. The Intermediary agrees, subject to the terms of this
Agreement (including without limitation, Sections 3, 4 and 9 hereof) to treat
the Debtor as the party entitled to exercise the rights that comprise any
financial asset credited to an Account and as the “customer” (as such term is
defined in Section 4-104 of the UCC) of the Intermediary with respect to the
receipt and disposition of uninvested funds deposited thereto.

 

Section 3.               “Financial Assets” Election. The Intermediary hereby
agrees that each item of Collateral credited to any Account (excluding
uninvested funds) shall be treated as a “financial asset” within the meaning of
Section 8-102(a)(9) of the UCC.

 

Section 4.               Entitlement Orders. If at any time the Intermediary
shall receive an “entitlement order” (within the meaning of
Section 8-102(a)(8) of the UCC) or instructions with respect to the disposition
of funds originated by the Collateral Agent and relating to any Account, the
Intermediary shall comply with such entitlement order and/or instructions
without further consent by the Debtor or any other person.

 

Section 5.               Advance of Funds: Subordination of Lien: Waiver of
Set-Off.

 

(a)           If any advance of funds is made by the Intermediary to purchase,
or to make payment on or against delivery of any investment property to be held
as Collateral in any Account, the Intermediary shall have a continuing security
interest in and right of set-off against such investment property and the
proceeds thereof, until such time as the Intermediary is repaid the amount of
such advance.

 

(b)           The Collateral Agent acknowledges and agrees that its security
interest in the Collateral and other items deposited to any Account is
subordinate to the Intermediary’s security interest and right of set-off in such
Collateral and other items granted pursuant to Section 5(a) hereof and the
[Securities Clearing Agreement (GSCS), dated as of August 8, 2001, and the
Global Clearing and Custody Agreement, dated as of October 15, 2004
(collectively, the “BONY Clearing Agreement”), each between the Debtor and the
Intermediary and in the Security Agreement, dated as of August 8, 2001 (the
“BONY Security Agreement”), between the Debtor and the
Intermediary.](1) [Securities Clearing Agreement (GSCS), dated as of August 8,
2001 (the “BONY Clearing Agreement”), between the Debtor and the Intermediary
and in the Security Agreement, dated as of August 8, 2001 (the “BONY Security
Agreement”), between the Debtor and the Intermediary.](2) [Global Clearing and
Custody Agreement dated as of August 21, 2006 (the “BONY Clearing Agreement”),
between the Debtor and the Intermediary and in the Debenture, dated as of
August 21, 2006 (the “BONY Security Agreement”), between the Debtor and the
Intermediary.](3)

 

(c)           (i) Except as provided in Section 5(b) above, in the event that
the Intermediary has or subsequently obtains by agreement, operation of law or
otherwise a security interest in any Account or any security entitlement
credited thereto, the Intermediary hereby agrees that such security interest
shall

 

--------------------------------------------------------------------------------

(1) To be included in the FSAM and FSA Capital Management Securities Account
Control Agreements.

(2) To be included in the FSA Capital Markets Securities Account Control
Agreement.

(3) To be included in the FSA PAL Securities Account Control Agreement.

 

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be subordinate to the security interest of the Collateral Agent; and (ii) the
Collateral and other items deposited to such Account will not be subject to
deduction, set-off, banker’s lien, or any other right in favor of any person
other than the Collateral Agent, except as provided in Section 5(b) above.

 

Section 6.               Choice of Law. Both this Agreement and each Account
shall be governed by the laws of the State of New York. Regardless of any
provision in any other agreement, for purposes of Articles 8 and 9 of the UCC,
New York shall be deemed to be the Intermediary’s “jurisdiction” and the
establishment and maintenance of any Account (as well as the financial assets
credited thereto or carried therein and any uninvested funds deposited therein
or credited thereto,) shall be governed by the laws of the State of New York.

 

Section 7.               Conflict with other Agreements. Except for the BONY
Clearing Agreement, the BONY Security Agreement, the Security Agreement and this
Agreement, there are no other agreements entered into between the Intermediary
and the Debtor with respect to any Account. In the event of any conflict between
this Agreement (or any portion thereof) and any other agreement now existing or
hereafter entered into, the terms of this Agreement shall prevail. [For the
avoidance of doubt, the parties hereto agree that this Agreement supersedes the
Existing Control Agreement.]

 

Section 8.               Notice of Adverse Claims. Except for the claims and
interest of the Collateral Agent and of the Debtor in each Account and any
financial assets credited thereto or carried therein, and for the claims and
interest of the Intermediary in such Account as set forth in the BONY Clearing
Agreement, the BONY Security Agreement and Section 5(a) hereof, the Intermediary
does not have actual knowledge, as of the date hereof, of any claim to, or
interest in, such Account or in any financial asset credited thereto. Upon
receipt of written notice of any lien, encumbrance or adverse claim (including
any writ, garnishment, judgment, warrant of attachment, execution or similar
process) against any Account or in any financial asset carried therein, the
Intermediary will use reasonable efforts to notify the Collateral Agent, the
Debtor and FSA thereof as promptly as reasonably practicable.

 

Section 9.               Maintenance of Account. The Collateral Agent and the
Debtor hereby authorize the Intermediary to utilize Depositories to the extent
possible in connection with its performance hereunder. Collateral held by the
Intermediary in a Depository will be held subject to the rules, terms and
conditions of such Depository. Where Collateral is held in a Depository, the
Intermediary shall identify on its records as belonging to the Debtor and
pledged to the Collateral Agent a quantity of securities as part of a fungible
bulk of securities held in the Intermediary’s account at such Depository.
Securities deposited in a Depository will be represented in accounts which
include only assets held by the Intermediary for its customers.

 

Section 10.             Notice of Sole Control. Subject to Intermediary’s rights
pursuant to the BONY Clearing Agreement, the BONY Security Agreement and
Section 5(a) hereof, until the Intermediary receives a Notice of Sole Control in
the form of Exhibit B, the Intermediary is authorized to act upon Oral
Instructions or Written Instructions, including entitlement orders, from either
the Collateral Agent or the Debtor. If at any time the Collateral Agent delivers
to the Intermediary a Notice of Sole Control in substantially the form set forth
in Exhibit B hereto, the Intermediary agrees that after receipt of such notice,
it will comply only with entitlement orders or instructions originated by the
Collateral Agent and will cease to comply with any entitlement orders or
instructions originated by the Debtor or any other party.

 

Section 11.             Voting Rights; Disposition. Until such time as the
Intermediary receives a Notice of Sole Control pursuant to Section 10 hereof,
the Debtor shall direct the Intermediary with respect to the voting of and the
sale, pledge, transfer or other disposition of any Collateral credited to any
Account.

 

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Section 12.             Statements and Confirmations. The Intermediary will
promptly send copies of all statements, confirmations and other correspondence
concerning any Account and/or any Collateral credited thereto simultaneously to
the Debtor and to the Collateral Agent at the respective addresses set forth in
Section 23 of this Agreement.

 

Section 13.             Definitive Securities. The Intermediary shall take
possession of Collateral credited to any Account that is a definitive security
at a secure facility at one of its offices in New York City, shall ensure that
each such definitive security is accompanied by an endorsement or power in blank
or in the name of the Intermediary and shall identify such definitive security
on its books and records as belonging to the Debtor, subject to the security
interest of the Collateral Agent and shall credit an Account with such security.

 

Section 14.             Payment of Proceeds. Subject to Intermediary’s rights
pursuant to the BONY Clearing Agreement, the BONY Security Agreement and
Section 5(a) hereof, the Intermediary shall credit to each Account all proceeds
received by it with respect to the Collateral held in such Account.

 

Section 15.             Representations, Warranties and Covenants of the
Intermediary. The Intermediary hereby makes the following representations,
warranties and covenants:

 

(a)           Each Account has been established as set forth in Section 2 above
and each Account will be maintained in the manner set forth herein until
termination of this Agreement. The Intermediary shall not change the name of any
Account without the prior written consent of the Collateral Agent.

 

(b)           This Agreement is the valid and legally binding obligation of the
Intermediary.

 

(c)           Except for the BONY Clearing Agreement, the BONY Security
Agreement and this Agreement: (i) the Intermediary has not entered into, and
until the termination of this Agreement will not enter into, any agreement with
any party not a party to this Agreement relating to any of any Account and/or
any financial assets credited thereto pursuant to which it has agreed to comply
with entitlement orders (as defined in Section 8-102(a)(8) of the UCC) of such
person, and (ii) the Intermediary has not entered into any other agreement with
the Debtor or the Collateral Agent purporting to limit or condition the
obligation of the Intermediary to comply with entitlement orders as set forth
herein.

 

Section 16.             Standard of Care: Indemnification.

 

(a)           Except as otherwise expressly provided herein, the Intermediary
shall not be liable for any costs, expenses, damages, liabilities or claims,
including attorneys’ fees (“Losses”) incurred by or asserted against the Debtor
or the Collateral Agent, except those Losses arising out of the negligence or
willful misconduct of the Intermediary. The Intermediary shall have no liability
whatsoever for any Losses sustained or incurred by reason of any action or
inaction of any Depository, it being understood that with respect to any such
Losses, the Intermediary shall take appropriate action to recover such Losses
from such Depository, and the Intermediary’s sole responsibility and liability
to the Debtor and the Collateral Agent in respect thereof shall be limited to
any amounts so recovered from any such Depository (exclusive of reasonable costs
and expenses incurred by the Intermediary in connection with taking such
action). In no event shall the Intermediary be liable for special, indirect or
consequential damages, or lost profits or loss of business, arising in
connection with this Agreement.

 

(b)           Without limiting the generality of the foregoing, the Intermediary
shall be under no obligation to inquire into, and shall not be liable for, any
Losses incurred by the Debtor, the Collateral Agent or any other person as a
result of the receipt or acceptance of fraudulent, forged or invalid

 

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securities, or securities which otherwise are not freely transferable or
deliverable without encumbrance in any relevant market.

 

(c)           The Debtor agrees, subject to the Priority of Payments set forth
in the Security Agreement, to indemnify the Intermediary and hold the
Intermediary harmless from and against any and all Losses sustained or incurred
by or asserted against the Intermediary by reason of or as a result of any
action or inaction, or arising out of the Intermediary’s performance hereunder,
including reasonable fees and expenses of counsel incurred by the Intermediary
in a successful defense of claims by the Debtor or the Collateral Agent;
provided that the Debtor and the Collateral Agent shall not indemnify the
Intermediary for those Losses arising out of the Intermediary’s negligence or
willful misconduct. This indemnity shall be a continuing obligation of the
Debtor and its successors and assigns, notwithstanding the termination of this
Agreement.

 

(d)           The Debtor and the Collateral Agent hereby agree that,
notwithstanding references to the Security Agreement in this Agreement, the
Intermediary has no interest in, and no duty, responsibility or obligation with
respect to, the Security Agreement under this Agreement (including without
limitation, no duty, responsibility or obligation to monitor the Debtor’s or the
Collateral Agent’s compliance with the Security Agreement or to know the terms
of the Security Agreement except for the Priority of Payments as defined
therein).

 

(e)           The Intermediary may, with respect to questions of law, obtain the
advice of counsel and shall be fully protected with respect to anything done or
omitted by it in good faith in conformity with such advice.

 

(f)            The Intermediary shall be under no obligation to take action to
collect any amount payable on any Collateral in default, or if payment is
refused after due demand and presentment.

 

Section 17.             Fees and Expenses. The Debtor agrees to pay to the
Intermediary the fees, if any, as may be agreed upon from time to time, in
accordance with the Priority of Payments set forth in the Security Agreement. To
the extent the Debtor and the Intermediary so agree, the Debtor shall also
reimburse the Intermediary for (i) all costs associated with transfers of
Collateral to the Intermediary and records kept in connection with this
Agreement and (ii) out-of- pocket expenses which are a normal incident of the
services provided hereunder.

 

Section 18.             Effectiveness of Instructions; Reliance: Risk
Acknowledgements; Additional Terms. Subject to the terms below, the Intermediary
shall be entitled to rely upon any Written Instructions or Oral Instructions
actually received by the Intermediary and reasonably believed by the
Intermediary to be duly authorized and delivered. The Collateral Agent and the
Debtor each agrees (i) to forward to the Intermediary Written Instructions
confirming its Oral Instructions by the close of business of the same day that
such Oral Instructions are given to the Intermediary, and (ii) the fact that
such confirming Written Instructions are not received or that contrary Written
Instructions are received by the Intermediary shall in no way affect the
validity or enforceability of transactions authorized and effected by the
Intermediary pursuant to its Oral Instructions.

 

(b)           If the Intermediary receives Written Instructions which appear on
their face to have been transmitted via (i) computer facsimile, email, the
Internet or other insecure electronic method, or (ii) secure electronic
transmission containing applicable authorization codes, passwords and/or
authentication keys, the Collateral Agent and the Debtor each understands and
agrees that the Intermediary cannot determine the identity of the actual sender
of such Written Instructions and that the Intermediary shall conclusively
presume that such Written Instructions have been sent by an Authorized Person.
The Collateral Agent and the Debtor shall be responsible for ensuring that only
its Authorized Persons

 

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transmit such Written Instructions to the Intermediary and that all of its
Authorized Persons treat applicable user and authorization codes, passwords
and/or authentication keys with extreme care.

 

(c)           The Collateral Agent and the Debtor each acknowledges and agrees
that it is fully informed of the protections and risks associated with the
various methods of transmitting Written Instructions to the Intermediary and
that there may be more secure methods of transmitting Written Instructions than
the method(s) selected by it. The Collateral Agent and the Debtor each agrees
that the security procedures (if any) to be followed in connection with its
transmission of Written Instructions provide to it a commercially reasonable
degree of protection in light of its particular needs and circumstances.

 

(d)           [If the Collateral Agent or the Debtor elects to transmit Written
Instructions through an on-line communication system offered by the
Intermediary, its use thereof shall be subject to the Terms and Conditions
attached hereto as Appendix I.] If the Collateral Agent or the Debtor elects
(with the Intermediary’s prior consent) to transmit Written Instructions through
an on-line communications service owned or operated by a third party, it agrees
that the Intermediary shall not be responsible or liable for the reliability or
availability of any such service.

 

Section 19.             Account Disclosure. The Intermediary is authorized to
supply any information regarding any Account which is required by any law or
governmental regulation now or hereafter in effect.

 

Section 20.             Force Majeure. The Intermediary shall not be responsible
or liable for any claims, losses, liabilities, damages or expenses (including
attorneys’ fees and expenses) due to forces beyond the control of the
Intermediary, including without limitation strikes, work stoppages, acts of war
or terrorism, insurrection, revolution, nuclear or natural catastrophes or acts
of God, and interruptions, loss or malfunctions of utilities, or, with respect
to third party providers, communications or computer (software and hardware)
services.

 

Section 21.             Pricing Services. The Intermediary may, as an
accommodation, provide pricing or other information services to the Debtor
and/or the Collateral Agent in connection with this Agreement. The Intermediary
may utilize any vendor (including securities brokers and dealers) believed by it
to be reliable to provide such information. Under no circumstances shall the
Intermediary be liable for any loss, damage or expense suffered or incurred by
the Debtor or the Collateral Agent as a result of errors or omissions with
respect to any pricing or other information utilized by the Intermediary
hereunder.

 

Section 22.             No Implied Duties. The Intermediary shall have no duties
or responsibilities whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement and/or the Security Agreement, and no
covenant or obligation shall be implied against the Intermediary in connection
with this Agreement.

 

Section 23.             Any notice, request or other communication required or
permitted to be given under this Agreement shall be in writing and deemed to
have been properly given when delivered in person, or when sent by telecopy or
other electronic means and electronic confirmation of error free receipt is
received or two days after being sent by certified or registered United States
mail, return receipt requested, postage prepaid, addressed to (a) the Debtor,
the Collateral Agent, or FSA: at its respective address set forth in the
Security Agreement and (b) to the Intermediary at:

 

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[                                             

]

[                                              

]

Attention:

[

]

Telephone:

[

]

Facsimile:

[

]

 

Any party may change his address for notices in the manner set forth above.

 

Section 24.             Termination. This Agreement shall terminate upon (a) the
Intermediary’s receipt of Written Instructions from the Collateral Agent
expressly stating that the Collateral Agent no longer claims any security
interest in any Account and the Collateral credited thereto and the
Intermediary’s subsequent transfer of any such Collateral from each Account
pursuant to the Debtor’s Written Instructions, (b) transfer of each Account and
the Collateral to the Collateral Agent subsequent to the Intermediary’s receipt
of a Notice of Sole Control, or (c) by any party upon not less than ninety (90)
days prior written notice of termination to the other parties, provided that
termination pursuant to (c) above shall not affect or terminate the Collateral
Agent’s security interest in any Account or the Collateral. Upon termination
pursuant to (c) above, the Intermediary shall follow such reasonable Written
Instructions of the Collateral Agent concerning the transfer of any Collateral.
Except as otherwise provided herein, all obligations of the parties to each
other hereunder shall cease upon termination of this Agreement.

 

Section 25.             No Duty of Oversight. The Intermediary is not at any
time under any duty to monitor the value of the Collateral credited to any
Account or whether the Collateral is of a type required to be held in any
Account, or to supervise the investment of, or to advise or make any
recommendation for the purchase, sale, retention or disposition of any
Collateral.

 

Section 26.             Certificates of Authorized Persons. The Collateral Agent
and the Debtor agree to furnish to the Intermediary a new Certificate of
Authorized Persons in the event of any change in the then present Authorized
Persons. Until such new Certificate is received, the Intermediary shall be fully
protected in acting upon Written Instructions of such present Authorized
Persons.

 

Section 27.             Cumulative Rights; No Waiver. Each and every right
granted to the Intermediary hereunder or under any other document delivered
hereunder or in connection herewith, or allowed it by law or equity, shall be
cumulative and may be exercised from time to time. No failure on the part of the
Intermediary to exercise, and no delay in exercising, any right will operate as
a waiver thereof, nor will any single or partial exercise by the Intermediary of
any right preclude any other future exercise thereof or the exercise of any
other right.

 

Section 28.             Severability; Amendments: Assignment. 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 shall not in any way be affected thereby. This
Agreement may not be amended or modified in any manner except by a written
agreement executed by the parties hereto. Any amendment or modification of this
Agreement not in compliance with this Section 28 shall be void ab initio. This
Agreement shall extend to and shall be binding upon the parties hereto, and
their respective successors and assigns; provided, however, that this Agreement
shall not be assignable by any party without the written consent of the other
parties.

 

Section 29.             Jurisdiction. Each of the parties hereto hereby
irrevocably submits to the exclusive jurisdiction of any U.S. federal or state
court in The City of New York for the purpose of any suit, action, proceeding or
judgment arising out of or relating to this Agreement. Each of the parties
hereto hereby consents to the laying of venue in any such suit, action or
proceeding in New York County,

 

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New York, and hereby irrevocably waives any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient forum and
agrees not to plead or claim the same. Notwithstanding the foregoing, nothing
contained in this Agreement shall limit or affect the rights of any party hereto
to judgment with respect thereto, in any jurisdiction or venue. Any process in
any such action shall be duly served if mailed by registered mail, postage
prepaid, to any party hereto, at its respective address designated pursuant to
Section 23.

 

Section 30.             Waiver of Jury Trial. EACH OF THE PARTIES HERETO HERBY
IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION.

 

Section 31.             No Third Party Beneficiaries. In performing hereunder,
the Intermediary is acting solely on behalf of the Collateral Agent and the
Debtor and no contractual or service relationship shall be deemed to be
established hereby between the Intermediary and any other person other than FSA.

 

Section 32.             Limited Recourse. Notwithstanding any other provision of
this Agreement or any other agreement to which the Debtor and the Intermediary
are parties, the obligations of the Debtor hereunder and under the Security
Agreement are limited recourse obligations payable solely from the proceeds of
the Collateral granted under the Security Agreement available under and applied
in accordance with the Priority of Payments. Upon application of such Collateral
granted under the Security Agreement and the proceeds thereof available to
satisfy the obligations of the Debtor in accordance with the terms of the
Security Agreement, the Intermediary will not be entitled to take any further
steps against the Debtor to recover any sums due to it under any agreement and
shall not constitute a claim against the Debtor to the extent of any
insufficiency. No recourse will be had for the payment of any amounts owing in
respect of any obligation of the Debtor, to the Intermediary against any
officer, director, employee, stockholder, member or incorporator of the Debtor.
This provision shall survive the termination of this Agreement for any reason.

 

Section 33.             Non-Petition. The Intermediary agrees that it will not,
prior to the date that is six months (or such longer preference period as may be
in effect at such time) after the date on which all amounts owing by the Debtor
to the Intermediary under any agreement (including the BONY Clearing Agreement
and/or the BONY Security Agreement) have been paid in full, acquiesce, petition
or otherwise institute against, or join any other person instituting against,
the Debtor or any of its respective properties any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any federal or state bankruptcy, or similar law, including without limitation
proceedings seeking to appoint a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Debtor or any
substantial part of their property. This provision shall survive the termination
of this Agreement for any reason.

 

Section 34.             Headings. Section headings are included in this
Agreement for convenience only and shall have no substantive effect on its
interpretation.

 

Section 35.             Counterparts. This Agreement may be executed in any
number of counterparts, all of which shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing and
delivering one or more counterparts.

 

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IN WITNESS WHEREOF, we have set our hands to this SECURITIES ACCOUNT CONTROL
AGREEMENT as of the date first written above.

 

 

[DEBTOR]

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

THE BANK OF NEW YORK TRUST COMPANY MELLON, NATIONAL ASSOCIATION as Collateral
Agent

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

[                                ], as Intermediary

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

FINANCIAL SECURITY ASSURANCE INC.

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

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EXHIBIT A

 

Account Name

 

Account Number

 

[FSA Capital Management Collateral Account]

 

 

 

[FSA Capital Markets Collateral Account]

 

 

 

[FSAM Cash Account]

 

 

 

[FSAM Collateral Account]

 

 

 

[Dexia Collateral Account]

 

 

 

 

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EXHIBIT B

 

[Letterhead of the Collateral Agent]

 

[Date]

 

[                      ]

[Insert Address]

 

Re: Notice of Sole Control

 

Ladies and Gentlemen:

 

As referenced in the Securities Account Control Agreement, dated as of
[              ], 2009 among [Debtor], us and you (a copy of which is attached)
(the “Agreement”) we hereby give you notice, subject to your rights as set forth
in the Agreement, of our sole control over the account designated as the
[         ] (account # [           ]) (the “Account”) and all financial assets
credited thereto. You are hereby instructed not to accept any direction,
instructions or entitlement orders with respect to the Account or the financial
assets credited thereto from any person other than the undersigned, unless
otherwise ordered by a court of competent jurisdiction.

 

You are instructed to deliver a copy of this notice by facsimile transmission to
[Debtor].

 

 

Very truly yours,

 

 

THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as Collateral
Agent

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

cc: [Debtor]

 

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SCHEDULE I

 

Name

 

Title

 

Specimen Signature

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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[APPENDIX I]

 

[ELECTRONIC SERVICES TERMS AND CONDITIONS]

 

[1.                                   License; Use. (a) This Appendix I shall
govern Customer’s use of electronic communications, information delivery,
portfolio management and banking services, that The Bank of New York Mellon and
its affiliates (“BNYM”) may provide to Customer, such as The Bank of New York
Mellon Inform TM and The Bank of New York Mellon CA$H-Register Plus®, and any
computer software, proprietary data and documentation provided by BNYM to
Customer in connection therewith (collectively, the “Electronic Services”). In
the event of any conflict between the terms of this Appendix I and the main body
of this Agreement with respect to Customer’s use of the Electronic Services, the
terms of this Appendix I shall control.

 

(b) BNYM grants to Customer a personal, nontransferable and nonexclusive license
to use the Electronic Services to which Customer subscribes solely for the
purpose of transmitting instructions and information (“Written Instructions”),
obtaining reports, analyses and statements and other information and data,
making inquiries and otherwise communicating with BNYM in connection with the
Customer’s relationship with BNYM. Customer shall use the Electronic Services
solely for its own internal and proper business purposes and not in the
operation of a service bureau. Except as set forth herein, no license or right
of any kind is granted to Customer with respect to the Electronic Services.
Customer acknowledges that BNYM and its suppliers retain and have title and
exclusive proprietary rights to the Electronic Services, including any trade
secrets or other ideas, concepts, know-how, methodologies, and information
incorporated therein and the exclusive rights to any copyrights, trade dress,
look and feel, trademarks and patents (including registrations and applications
for registration of either), and other legal protections available in respect
thereof. Customer further acknowledges that all or a part of the Electronic
Services may be copyrighted or trademarked (or a registration or claim made
therefor) by BNYM or its suppliers. Customer shall not take any action with
respect to the Electronic Services inconsistent with the foregoing
acknowledgments, nor shall Customer attempt to decompile, reverse engineer or
modify the Electronic Services. Customer may not copy, distribute, sell, lease
or provide, directly or indirectly, the Electronic Services or any portion
thereof to any other person or entity without BNYM’s prior written consent.
Customer may not remove any statutory copyright notice or other notice included
in the Electronic Services. Customer shall reproduce any such notice on any
reproduction of any portion of the Electronic Services and shall add any
statutory copyright notice or other notice upon BNYM’s request.

 

(c) Portions of the Electronic Services may contain, deliver or rely on data
supplied by third parties (“Third Party Data”), such as pricing data and
indicative data, and services supplied by third parties (“Third Party Services”)
such as analytic and accounting services. Third Party Data and Third Party
Services supplied hereunder are obtained from sources that BNYM believes to be
reliable but are provided without any independent investigation by BNYM. BNYM
and its suppliers do not represent or warrant that the Third Party Data or Third
Party Services are correct, complete or current. Third Party Data and Third
Party Services are proprietary to their suppliers, are provided solely for
Customer’s internal use, and may not be reused, disseminated or redistributed in
any form. Customer shall not use any Third Party Data in any manner that would
act as a substitute for obtaining a license for the data directly from the
supplier. Third Party Data and Third Party Services should not be used in making
any investment decision. BNYM AND ITS SUPPLIERS ARE NOT RESPONSIBLE FOR ANY
RESULTS OBTAINED FROM THE USE OF OR RELIANCE UPON THIRD PARTY DATA OR THIRD
PARTY SERVICES. BNYM’s suppliers of Third Party Data and Services are intended
third party beneficiaries of this Section 1(c) and Section 5 below.

 

(d) Customer understands and agrees that any links in the Electronic Services to
Internet sites may be to sites sponsored and maintained by third parties. BNYM
make no guarantees, representations or warranties concerning the information
contained in any third party site (including without limitation that such
information is correct, current, complete or free of viruses or other
contamination), or any products or services sold through third party sites. All
such links to third party Internet sites are provided solely as a convenience to
Customer and Customer accesses and uses such sites at its own risk. A link in
the Electronic Services to a third party site does not constitute BNYM’s
endorsement, authorisation or sponsorship of such site or any products and
services available from such site.

 

2.                                       Equipment. Customer shall obtain and
maintain at its own cost and expense all equipment and services, including but
not limited to communications services, necessary for it to utilize and obtain
access to the Electronic Services, and BNYM shall not be responsible for the
reliability or availability of any such equipment or services.

 

3.                                       Proprietary Information. The Electronic
Services, and any proprietary data (including Third Party Data), processes,
software, information and documentation made available to Customer (other than
which are or become part of the public domain or are legally required to be made
available to the public) (collectively, the “Information”), are the exclusive
and confidential property of BNYM or its suppliers. However, for the avoidance
of doubt, reports generated by Customer containing information relating to its
account(s) (except for Third Party Data contained therein) are not deemed to be
within the meaning of the term “Information.” Customer shall keep the
Information confidential by using the same care and discretion that Customer
uses with respect to its own confidential property and trade secrets, but not
less than reasonable care. Upon termination of the Agreement or the licenses
granted herein for any reason, Customer shall return to BNYM any and all copies
of the Information which are in its possession or under its control (except that
Customer may retain reports containing Third Party Data, provided that such
Third Party Data remains subject to the provisions of this Appendix). The
provisions of this Section 3 shall not affect the copyright status of any of the
Information which may be copyrighted and shall apply to all information whether
or not copyrighted.

 

4.                                       Modifications. BNYM reserves the right
to modify the Electronic Services from time to time. Customer agrees not to
modify or attempt to modify the Electronic Services without BNYM’s prior written
consent. Customer acknowledges that any modifications to the Electronic
Services, whether by Customer or BNYM and whether with or without BNYM’s
consent, shall become the property of BNYM.

 

5.                                       NO REPRESENTATIONS OR WARRANTIES;
LIMITATION OF LIABILITY. BNYM AND ITS MANUFACTURERS AND SUPPLIERS MAKE NO
WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE ELECTRONIC SERVICES OR ANY
THIRD PARTY DATA OR THIRD PARTY SERVICES, EXPRESS OR IMPLIED, IN FACT OR IN LAW,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT AND
FITNESS FOR A PARTICULAR PURPOSE. CUSTOMER ACKNOWLEDGES THAT THE ELECTRONIC
SERVICES, THIRD PARTY DATA AND THIRD PARTY SERVICES ARE PROVIDED “AS IS.” TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT

 

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SHALL BNYM OR ANY SUPPLIER BE LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT
SPECIAL, OR CONSEQUENTIAL, WHICH CUSTOMER MAY INCUR IN CONNECTION WITH THE
ELECTRONIC SERVICES, THIRD PARTY DATA OR THIRD PARTY SERVICES, EVEN IF BNYM OR
SUCH SUPPLIER KNEW OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL BNYM OR
ANY SUPPLIER BE LIABLE FOR ACTS OF GOD, MACHINE OR COMPUTER BREAKDOWN OR
MALFUNCTION, INTERRUPTION OR MALFUNCTION OF COMMUNICATION FACILITIES, LABOR
DIFFICULTIES OR ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND THEIR REASONABLE
CONTROL.

 

6.                                       Security; Reliance; Unauthorized Use;
Funds Transfers. BNYM will establish security procedures to be followed in
connection with the use of the Electronic Services, and Customer agrees to
comply with the security procedures. Customer understands and agrees that the
security procedures are intended to determine whether instructions received by
BNYM through the Electronic Services are authorized but are not (unless
otherwise specified in writing) intended to detect any errors contained in such
instructions. Customer will cause all persons utilizing the Electronic Services
to treat any user and authorization codes, passwords, authentication keys and
other security devices with the highest degree of care and confidentiality. Upon
termination of Customer’s use of the Electronic Services, Customer shall return
to BNYM any security devices (e.g., token cards) provided by BNYM. BNYM is
hereby irrevocably authorized to comply with and rely upon on Written
Instructions and other communications, whether or not authorized, received by it
through the Electronic Services. Customer acknowledges that it has sole
responsibility for ensuring that only Authorized Persons use the Electronic
Services and that to the fullest extent permitted by applicable law BNYM shall
not be responsible nor liable for any unauthorized use thereof or for any losses
sustained by Customer arising from or in connection with the use of the
Electronic Services or BNYM’s reliance upon and compliance with Written
Instructions and other communications received through the Electronic Services.
With respect to instructions for a transfer of funds issued through the
Electronic Services, when instructed to credit or pay a party by both name and a
unique numeric or alpha-numeric identifier (e.g. ABA number or account number),
the BNYM, its affiliates, and any other bank participating in the funds
transfer, may rely solely on the unique identifier, even if it identifies a
party different than the party named. Such reliance on a unique identifier shall
apply to beneficiaries named in such instructions as well as any financial
institution which is designated in such instructions to act as an intermediary
in a funds transfer. It is understood and agreed that unless otherwise
specifically provided herein, and to the extent permitted by applicable law, the
parties hereto shall be bound by the rules of any funds transfer system utilized
to effect a funds transfer hereunder.

 

7.                                       Acknowledgments. BNYM shall acknowledge
through the Electronic Services its receipt of each Written Instruction
communicated through the Electronic Services, and in the absence of such
acknowledgment BNYM shall not be liable for any failure to act in accordance
with such Written Instruction and Customer may not claim that such Written
Instruction was received by BNYM. BNYM may in its discretion decline to act upon
any instructions or communications that are insufficient or incomplete or are
not received by BNYM in sufficient time for BNYM to act upon, or in accordance
with such instructions or communications.

 

8.                                       Viruses. Customer agrees to use
reasonable efforts to prevent the transmission through the Electronic Services
of any software or file which contains any viruses, worms, harmful component or
corrupted data and agrees not to use any device, software, or routine to
interfere or attempt to interfere with the proper working of the Electronic
Services.

 

9.                                       Encryption. Customer acknowledges and
agrees that encryption may not be available for every communication through the
Electronic Services, or for all data. Customer agrees that BNYM may deactivate
any encryption features at any time, without notice or liability to Customer,
for the purpose of maintaining, repairing or troubleshooting its systems.

 

10.                                 On-Line Inquiry and Modification of Records.
In connection with Customer’s use of the Electronic Services, BNYM may, at
Customer’s request, permit Customer to enter data directly into a BNYM database
for the purpose of modifying certain information maintained by BNYM’s systems,
including, but not limited to, change of address information. To the extent that
Customer is granted such access, Customer agrees to indemnify and hold BNYM
harmless from all loss, liability, cost, damage and expense (including
attorney’s fees and expenses) to which BNYM may be subjected or which may be
incurred in connection with any claim which may arise out of or as a result of
changes to BNYM database records initiated by Customer.

 

11.                                 Agents. Customer may, on advance written
notice to the BNYM, permit its agents and contractors (“Agents”) to access and
use the Electronic Services on Customer’s behalf, except that the BNYM reserves
the right to prohibit Customer’s use of any particular Agent for any reason.
Customer shall require its Agent(s) to agree in writing to be bound by the terms
of the Agreement, and Customer shall be liable and responsible for any act or
omission of such Agent in the same manner, and to the same extent, as though
such act or omission were that of Customer. Each submission of a Written
Instruction or other communication by the Agent through the Electronic Services
shall constitute a representation and warranty by the Customer that the Agent
continues to be duly authorized by the Customer to so act on its behalf and the
BNYM may rely on the representations and warranties made herein in complying
with such Written Instruction or communication. Any Written Instruction or other
communication through the Electronic Services by an Agent shall be deemed that
of Customer, and Customer shall be bound thereby whether or not authorized.
Customer may, subject to the terms of this Agreement and upon advance written
notice to the Bank, provide a copy of the Electronic Service user manuals to its
Agent if the Agent requires such copies to use the Electronic Services on
Customer’s behalf. Upon cessation of any such Agent’s services, Customer shall
promptly terminate such Agent’s access to the Electronic Services, retrieve from
the Agent any copies of the manuals and destroy them, and retrieve from the
Agent any token cards or other security devices provided by BNYM and return them
to BNYM.]

 

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EXHIBIT A-2

Form of Account Agreement

 

FORM OF ACCOUNT AGREEMENT

 

This Account Agreement, dated as of [                     ] (this “Agreement”)
among FSA Asset Management (the “Grantor”), The Bank of New York Mellon Trust
Company, National Association, as collateral agent (the “Collateral Agent”), The
Bank of New York Mellon Trust Company, National Association, as intermediary
(the “Intermediary”) and Financial Security Assurance Inc. (“FSA”)

 

The Intermediary, the Collateral Agent and the Grantor hereby agree as follows:

 

Section 1.                                            (a) Capitalized terms used
but not defined herein shall have the meaning assigned in the Pledge and
Administration Agreement dated as of June 30, 2009, as amended, between, inter
alia, the Grantor and the Collateral Agent (the “Security Agreement”), or if not
defined therein, as defined in the UCC. All references herein to the “UCC” shall
mean, the Uniform Commercial Code as in effect in the State of New York.

 

(b)                                 “Collateral” means each item of property
(whether investment property, financial asset, security, instrument, cash
proceeds or uninvested funds) which may serve as collateral pledged by the
Grantor pursuant to the Security Agreement and credited or proposed to be
credited to an Account.

 

(c)                                  The terms “bank,” “cash proceeds,” “deposit
account,” “financial asset,” “investment property,” “proceeds,” “security,”
“security account,” “security entitlement” and “Securities intermediary” shall
have the meanings set forth in Articles 8 or 9, as applicable, of the UCC.

 

Section 2.                                            The Intermediary is a bank
or trust company that in the ordinary course of business maintains securities
accounts for others and in that capacity has established securities accounts in
the name of the Collateral Agent for the benefit of the Secured Parties under
the Security Agreement which accounts are designated as set forth in Exhibit A
(the “Accounts”).

 

Section 3.                                            The Intermediary qualifies
as (i) a “securities intermediary” as defined in Article 8 of the UCC and will
maintain the Accounts as “securities accounts” (within the meaning of
Section 8-501(a) of the UCC), with respect to any investment property or other
financial asset credited to or carried in any Account and (ii) a “bank” as
defined in Article 8 of the UCC and will maintain the Accounts “deposit
accounts” (within the meaning of Section 9-102 of the UCC) with respect to any
uninvested funds deposited in or credited thereto.

 

Section 4.                                            The Collateral Agent and
the Intermediary agree that:

 

(a)                                  (i) the Intermediary will treat the
Collateral Agent as (x) the “entitlement holder” within the meaning of the UCC,
entitled to exercise the rights that comprise the financial assets credited to
the Accounts, and (y) its “customer” within the meaning of the UCC, entitled to
give instruction with respect to the receipt and disposition of uninvested funds
deposited thereto, (ii) the Intermediary will act only on entitlement orders or
other instructions with respect to the Accounts originated by the Collateral
Agent and no other Person, (iii) the Intermediary will treat all property (other
than cash) credited to any Account as a “financial asset” for purposes of
Article 8 of the UCC and (iv) as of the date hereof, no officer or employee of
the Intermediary responsible for administering the Account has actual knowledge
of any adverse claim with respect to any “financial asset” or cash credited to
any Account; and

 

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(b)                                 the Intermediary agrees that any security
interest in or lien on, or right of set-off with respect to any of the Account
that Securities Intermediary may now or in the future may have is hereby
subordinated to the security interest of the Collateral Agent, except to the
extent of (i) any advances that Intermediary may from time to time make to, or
for the benefit of, Collateral Agent or Grantor solely for purposes of clearing
or settling purchases or sales of securities held or to be held in the Accounts,
and (ii) any fees, charges, expenses and other amounts not described in
Section 11 below owed to Intermediary and incurred in connection with the
performance of its duties hereunder for which Intermediary shall have a prior
claim to the Account.

 

Section 5.                                            Except as set forth in
Section 4(b), in the event that the Intermediary has or subsequently obtains by
agreement, operation of law or otherwise a security interest in any Account or
any security entitlement credited thereto, the Intermediary hereby agrees that
(i) such security interest shall be subordinate to the security interest of the
Collateral Agent; and (ii) the Collateral and other items deposited to such
Account will not be subject to deduction, set-off, banker’s lien, or any other
right in favor of any person other than the Collateral Agent.

 

Section 6.                                            Any Person into which the
Intermediary may be merged or converted or with which it may be consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Intermediary shall be a party, or any Person succeeding to all or substantially
all of the corporate trust business of the Intermediary, shall be the successor
of the Intermediary hereunder; provided such Person shall be otherwise qualified
and eligible under this Agreement, without the execution or filing of any
document or any further act on the part of any of the parties hereto.

 

Section 7.                                            Both this Agreement and
each Account shall be governed by the laws of the State of New York. Regardless
of any provision in any other agreement, for purposes of Articles 8 and 9 of the
UCC, New York shall be deemed to be the Intermediary’s “jurisdiction” and the
establishment and maintenance of any Account (as well as the financial assets
credited thereto or carried therein and any uninvested funds deposited therein
or credited thereto,) shall be governed by the laws of the State of New York.

 

Section 8.                                            Except for the Security
Agreement and this Agreement, there are no other agreements entered into between
the Intermediary and the Grantor with respect to any Account. In the event of
any conflict between this Agreement (or any portion thereof) and any other
agreement now existing or hereafter entered into, the terms of this Agreement
shall prevail.

 

Section 9.                                            Except for the claims and
interest of the Collateral Agent and of the Grantor in each Account and any
financial assets credited thereto or carried therein, the Intermediary does not
have actual knowledge, as of the date hereof, of any claim to, or interest in,
such Account or in any financial asset credited thereto. Upon receipt of written
notice of any lien, encumbrance or adverse claim (including any writ,
garnishment, judgment, warrant of attachment, execution or similar process)
against any Account or in any financial asset carried therein, the Intermediary
will use reasonable efforts to notify the Collateral Agent, the Grantor and FSA
thereof as promptly as reasonably practicable.

 

Section 10.                                      The Intermediary will promptly
send copies of all statements confirmations and other correspondence concerning
any Account and/or any Collateral credited thereto simultaneously to the Grantor
and to the Collateral Agent at the respective addresses set forth in Section 20
of this Agreement.

 

Section 11.                                      The Intermediary shall take
possession of Collateral credited to any Account that is a definitive security
at a secure facility at one of its offices in New York City, shall ensure that
each such definitive security is accompanied by an endorsement or power in blank
or in the name of the

 

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Intermediary and shall identify such definitive security on its books and
records as belonging to the Grantor, subject to the security interest of the
Collateral Agent and shall credit an Account with such security.

 

Section 12.                                      The Intermediary shall credit
to each Account all proceeds received by it with respect to the Collateral held
in such Account.

 

Section 13.                                      The Intermediary hereby makes
the following representations, warranties and covenants:

 

(a)                                  Each Account has been established as set
forth in this Agreement and each Account will be maintained in the manner set
forth herein until termination of this Agreement. The Intermediary shall not
change the name of any Account without the prior written consent of the
Collateral Agent.

 

(b)                                 This Agreement is the valid and legally
binding obligation of the Intermediary.

 

(c)                                  Except for this Agreement: (i) the
Intermediary has not entered into, and until the termination of this Agreement
will not enter into, any agreement with any party not a party to this Agreement
relating to any of any Account and/or any financial assets credited thereto
pursuant to which it has agreed to comply with entitlement orders (as defined in
Section 8-102(a)(8) of the UCC) of such person, and (ii) the Intermediary has
not entered into any other agreement with the Grantor or the Collateral Agent
purporting to limit or condition the obligation of the Intermediary to comply
with entitlement orders as set forth herein.

 

Section 14.                                      The Grantor and the Collateral
Agent hereby agree that:

 

(a)                                  Except as otherwise expressly provided
herein, the Intermediary shall not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys’ fees (“Losses”) incurred by or
asserted against the Grantor or the Collateral Agent, except those Losses
arising out of the gross negligence or willful misconduct of the Intermediary.
In no event shall the Intermediary be liable for special, indirect or
consequential damages, or lost profits or loss of business, arising in
connection with this Agreement.

 

(b)                                 Without limiting the generality of the
foregoing, the Intermediary shall be under no obligation to inquire into, and
shall not be liable for, any Losses incurred by the Grantor, the Collateral
Agent or any other person as a result of the receipt or acceptance of
fraudulent, forged or invalid securities, or securities which otherwise are not
freely transferable or deliverable without encumbrance in any relevant market.

 

(c)                                  The Grantor agrees, subject to the Priority
of Payments set forth in the Security Agreement, to indemnify the Intermediary
and hold the Intermediary harmless from and against any and all Losses sustained
or incurred by or asserted against the Intermediary by reason of or as a result
of any action or inaction, or arising out of the Intermediary’s performance
hereunder, including reasonable fees and expenses of counsel incurred by the
Intermediary in a successful defense of claims by the Grantor or the Collateral
Agent; provided that the Grantor or the Collateral Agent shall not indemnify the
Intermediary for those Losses arising out of the Intermediary’s gross negligence
or willful misconduct. This indemnity shall be a continuing obligation of the
Grantor and its successors and assigns, notwithstanding the termination of this
Agreement.

 

(d)                                 The Grantor and the Collateral Agent hereby
agree that, notwithstanding references to the Security Agreement in this
Agreement, the Intermediary has no interest in, and no duty, responsibility or

 

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obligation with respect to, the Security Agreement under this Agreement
(including without limitation, no duty, responsibility or obligation to monitor
the Grantor’s or the Collateral Agent’s compliance with the Security Agreement
or to know the terms of the Security Agreement except for the Priority of
Payments as defined therein).

 

(e)                                  The Intermediary may, with respect to
questions of law, obtain the advice of counsel and shall be fully protected with
respect to anything done or omitted by it in good faith in conformity with such
advice.

 

(f)                                    The Intermediary shall be under no
obligation to take action to collect any amount payable on any Collateral in
default, or if payment is refused after due demand and presentment.

 

Section 15.                                      The Grantor agrees to pay to
the Intermediary the fees, if any, as may be agreed upon from time to time, in
accordance with the Priority of Payments set forth in the Security Agreement. To
the extent the Grantor and the Intermediary so agree, the Debtor shall also
reimburse the Intermediary for (i) all costs associated with transfers of
Collateral to the Intermediary and records kept in connection with this
Agreement and (ii) out-of- pocket expenses which are a normal incident of the
services provided hereunder.

 

Section 16.                                      (a) The Intermediary may, but
is not required to, rely upon and comply with instructions and directions sent
by email or facsimile, (or any other reasonable means of communication) by
persons believed by the Intermediary in good faith to be authorized to provide
such instructions or direction; provided, however, that the Intermediary may
require such additional evidence, confirmation or certification from any such
party or parties as the Intermediary, in its reasonable discretion, deems
necessary or advisable before acting or refraining from acting upon any such
instruction or direction.

 

(b)                                 The Intermediary agrees to accept and act
upon instructions or directions pursuant to this Agreement sent by unsecured
email, facsimile transmission or other similar unsecured electronic methods,
provided, however, that any Person providing such instructions or directions
shall provide to the Intermediary an incumbency certificate listing such
designated persons, which incumbency certificate shall be amended whenever a
person is to be added or deleted from the listing. If such Person elects to give
the Intermediary email or facsimile instructions (or instructions by a similar
electronic method) and the Intermediary in its discretion elects to act upon
such instructions, the Intermediary’s understanding of such instructions shall
be deemed controlling. The Intermediary shall not be liable for any losses,
costs or expenses arising directly or indirectly from the Intermediary’s
reliance upon and compliance with such instructions notwithstanding such
instructions conflict or are inconsistent with a subsequent written instruction.
Each Person providing instructions or directions to the Intermeidary hereunder
agrees to assume all risks arising out of the use of such electronic methods to
submit instructions and directions to the Intermediary, including without
limitation the risk of the Intermediary acting, in good faith, on unauthorized
instructions, and the risk of interception and misuse by third parties.

 

Section 17.                                      The Intermediary is authorized
to supply any information regarding any Account which is required by any law or
governmental regulation now or hereafter in effect.

 

Section 18.                                      The Intermediary shall not be
responsible or liable for any claims, losses, liabilities, damages or expenses
(including attorneys’ fees and expenses) due to forces beyond the control of the
Intermediary, including without limitation strikes, work stoppages, acts of war
or terrorism, insurrection, revolution, nuclear or natural catastrophes or acts
of God, and interruptions, loss or malfunctions of utilities, or, with respect
to third party providers, communications or computer (software and hardware)
services.

 

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Section 19.                                      The Intermediary shall have no
duties or responsibilities whatsoever except such duties and responsibilities as
are specifically set forth in this Agreement and/or the Security Agreement, and
no covenant or obligation shall be implied against the Intermediary in
connection with this Agreement.

 

Section 20.                                      Any notice, request or other
communication required or permitted to be given under this Agreement shall be in
writing and deemed to have been properly given when delivered in person, or when
sent by telecopy or other electronic means and electronic confirmation of error
free receipt is received or two days after being sent by certified or registered
United States mail, return receipt requested, postage prepaid, addressed to the
party at the address set forth below:

 

the Grantor, the Collateral Agent or FSA: at its respective address set forth in
the Pledge and Administration Agreement;

 

Intermediary: at the address of the Collateral Agent set forth in the Pledge and
Administration Agreement.

 

Any party may change his address for notices in the manner set forth above.

 

Section 21.                                      This Agreement shall terminate
(a) upon the Intermediary’s receipt of written instructions from the Collateral
Agent expressly stating that the Collateral Agent no longer claims any security
interest in any Account and the Collateral credited thereto and the
Intermediary’s subsequent transfer of any such Collateral from each Account
pursuant to the Collateral Agent’s written instructions or (b) by any party upon
not less than ninety (90) days prior written notice of termination to the other
parties, provided that termination pursuant to (b) above shall not affect or
terminate the Collateral Agent’s security interest in any Account or the
Collateral. Upon termination pursuant to (b) above, the Intermediary shall
follow such reasonable written instruction of the Collateral Agent concerning
the transfer of any Collateral. Except as otherwise provided herein, all
obligations of the parties to each other hereunder shall cease upon termination
of this Agreement.

 

Section 22.                                      The Intermediary is not at any
time under any duty to monitor the value of the Collateral credited to any
Account or whether the Collateral is of a type required to be held in any
Account, or to supervise the investment of, or to advise or make any
recommendation for the purchase, sale, retention or disposition of any
Collateral.

 

Section 23.                                      Each and every right granted to
the Intermediary hereunder or under any other document delivered hereunder or in
connection herewith, or allowed it by law or equity, shall be cumulative and may
be exercised from time to time. No failure on the part of the Intermediary to
exercise, and no delay in exercising, any right will operate as a waiver
thereof, nor will any single or partial exercise by the Intermediary of any
right preclude any other future exercise thereof or the exercise of any other
right

 

Section 24.                                      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 shall not in any way be affected thereby. This Agreement may not be
amended or modified in any manner except by a written agreement executed by the
parties hereto. Any amendment or modification of this Agreement not in
compliance with this Section 24 shall be void ab initio. This Agreement shall
extend to and shall be binding upon the parties hereto, and their respective
successors and assigns; provided, however, that this Agreement shall not be
assignable by any party without the written consent of the other parties.

 

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Section 25.                                      Each of the parties hereto
hereby irrevocably submits to the exclusive jurisdiction of any U.S. federal or
state court in The City of New York for the purpose of any suit, action,
proceeding or judgment arising out of or relating to this Agreement. Each of the
parties hereto hereby consents to the laying of venue in any such suit, action
or proceeding in New York County, New York, and hereby irrevocably waives any
claim that any such suit, action or proceeding brought in such a court has been
brought in an inconvenient forum and agrees not to plead or claim the same.
Notwithstanding the foregoing, nothing contained in this Agreement shall limit
or affect the rights of any party hereto to judgment with respect thereto, in
any jurisdiction or venue. Any process in any such action shall be duly served
if mailed by registered mail, postage prepaid, to any party hereto, at its
respective address designated pursuant to Section 20 above.

 

Section 26.                                      EACH OF THE PARTIES HERETO
HERBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION.

 

Section 27.                                      In performing hereunder, the
Intermediary is acting solely on behalf of the Collateral Agent and the Grantor
and no contractual or service relationship shall be deemed to be established
hereby between the Intermediary and any other person other than FSA.

 

Section 28.                                      Notwithstanding any other
provision of this Agreement or any other agreement to which the Grantor and the
Intermediary are parties, the obligations of the Grantor hereunder and under the
Security Agreement are limited recourse obligations payable solely from the
proceeds of the Collateral granted under the Security Agreement available under
and applied in accordance with the Priority of Payments. Upon application of
such Collateral granted under the Security Agreement and the proceeds thereof
available to satisfy the obligations of the Grantor in accordance with the terms
of the Security Agreement, the Intermediary will not be entitled to take any
further steps against the Grantor to recover any sums due to it under any
agreement and shall not constitute a claim against the Grantor to the extent of
any insufficiency. No recourse will be had for the payment of any amounts owing
in respect of any obligation of the Grantor, to the Intermediary against any
officer, director, employee, stockholder, member or incorporator of the Grantor.
This provision shall survive the termination of this Agreement for any reason.

 

Section 29.                                      The Intermediary agrees that it
will not, prior to the date that is six months (or such longer preference period
as may be in effect at such time) after the date on which all amounts owing by
the Grantor to the Intermediary under any agreement have been paid in full,
acquiesce, petition or otherwise institute against, or join any other person
instituting against, the Grantor or any of its respective properties any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any federal or state bankruptcy, or similar law,
including without limitation proceedings seeking to appoint a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Grantor or any substantial part of their property. This provision shall
survive the termination of this Agreement for any reason

 

Section 30.                                      This Agreement may be executed
in any number of counterparts, all of which shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing and
delivering one or more counterparts.

 

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IN WITNESS WHEREOF, we have set our hands to this ACCOUNT AGREEMENT as of the
date first written above.

 

 

FSA ASSET MANAGEMENT LLC, as Grantor

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as Collateral
Agent

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as Intermediary

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

FINANCIAL SECURITY ASSURANCE INC.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

131

--------------------------------------------------------------------------------

 

EXHIBIT A

 

Account Name

 

Account Number

Custodial Account

 

[            ]

Collateral Agent Cash Account

 

[            ]

Collateral Agent Custody Account

 

[            ]

 

132

--------------------------------------------------------------------------------

 

EXHIBIT B
Form of Power of Attorney

 

Capitalized terms not otherwise defined herein have the meanings specified in
the Pledge and Administration Agreement (as amended, modified or supplemented
from time to time, the “Pledge and Administration Agreement”), dated as of
June 30, 2009, entered into among Dexia SA, Dexia Crédit Local S.A., Dexia Bank
Belgium SA, Dexia FP Holdings Inc., Financial Security Assurance Inc. (“FSA”),
FSA Asset Management LLC (“FSAM”), Dexia FP Holdings Inc., FSA Portfolio Asset
Limited, FSA Capital Markets Services LLC, FSA Capital Markets Services
(Caymans) Ltd., FSA Capital Management Services LLC and The Bank of New York
Mellon Trust Company, National Association, as Collateral Agent (the “Collateral
Agent”).

 

This Power of Attorney is provided pursuant to Section 2.1(i) of the Pledge and
Administration Agreement.

 

FSAM hereby constitutes and appoints the Collateral Agent as its true and lawful
attorney-in-fact and agent, to make claims under the Sovereign Guarantee in
accordance with Section 4.2 of the Pledge and Administration Agreement. The
undersigned hereby grants unto said attorneys-in-fact and agents full power and
authority to make such claims, as FSAM might or could do if personally present
by one of its officers, hereby ratifying and confirming all that said
attorney-in-fact shall lawfully do or cause to be done by virtue hereof.

 

The rights under this Power of Attorney may be delegated and assigned by the
holder hereof at any time, and the Collateral Agent hereby delegates and assigns
all its rights hereunder to FSA as its representative.

 

This Power of Attorney and its delegation and assignment is effective as of the
date hereof, is coupled with an interest, is not limited in time and may not be
revoked.

 

IN WITNESS WHEREOF, this Power of Attorney was duly executed and delivered on
this [ ]th day of [             ].

 

 

FSA ASSET MANAGEMENT LLC

THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION

 

 

By:

 

 

 

Title:

By:

 

 

Title:

 

133

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ANNEX E

 

ALM GUIDELINES AND PROCEDURES

 

Table of Contents:

 

1

Scope

2

2

Strategy and Objectives

4

3

ALCO

5

4

Authorized Products and Permitted Investments

5

4.1

      Hedging Portfolio

5

 

4.1.1      Hedge Register

6

4.2

Asset Portfolio

6

4.3

GIC Portfolio

6

5

Market Risk Management

6

5.1

Interest Rate Risk

6

5.2

Currency Risk

10

5.3

Inflation Risk

10

5.4

Credit Spread Risk

10

5.5

Construction/Acquisition Fund Flex Risk

11

5.6

Debt Service Reserve Fund Risk

12

6

Liquidity Risk Management

13

6.1

GAP Ratio; Minimum Cash Level

13

6.2

Scenario Analysis

14

6.3

Collateral Posting Requirements upon Downgrade

15

7

Swap Counterparty Credit Risk Management

15

7.1

Existing Swap Counterparty Exposure

15

7.2

Potential Swap Counterparty Exposure

16

7.3

New Swap Counterparty Exposure

16

8

Terminations and Other Actions Relating to GICs

16

8.1

Terminations Following Downgrade Events

16

8.2

Negotiated Terminations Not Due to Downgrade Event

17

8.3

Collateral Maintenance Requirements

17

9

Post Dexia Event of Default

18

10

Reports

18

 

Appendices and Exhibits

 

Appendix I —

ALCO Charter

Appendix II —

Permitted Investments

Exhibit A —

Approved Bank Deposit Counterparties

Appendix III —

Certain Definitions

Appendix IV —

Cash Flow Scenario Analysis Assumptions

Appendix V —

Process and Procedures for Re-projection of Cash Flows

Appendix VI —

Post Dexia Event of Default

Exhibit A —

FSA Defeasance Plan

 

--------------------------------------------------------------------------------

 

1         Scope

 

This document sets forth the Asset and Liability Management (“ALM”) guidelines
and procedures (“ALM Procedures”) for the guaranteed investment contract (“GIC”)
business of FSAM, FSA PAL and the GIC Issuers.  Capitalized terms used but not
defined herein have the respective meanings assigned to such terms in the Pledge
and Administration Agreement, dated as of July 1, 2009, among Dexia SA, Dexia
Crédit Local S.A., Dexia Bank Belgium SA, Dexia FP Holdings Inc., Financial
Security Assurance Inc., FSA Asset Management LLC, FSA Portfolio Asset Limited,
FSA Capital Markets Services LLC, FSA Capital Management Services LLC, FSA
Capital Markets Services (Caymans) Ltd. and The Bank of New York Mellon Trust
Company, National Association, as amended, modified or supplemented from time to
time (the “Pledge and Administration Agreement”).

 

The GIC Business consisted of the issuance of GICs, on either an unsecured or
secured basis, by the GIC Issuers, and, in the case of GICs issued by FSA
Capital Management and FSA Capital Markets, the simultaneous onlending of the
proceeds of such GICs, on precisely matching terms and conditions, to FSAM, for
investment, either directly or, in the case of certain non-USD investments,
through FSAM’s direct wholly-owned subsidiary, FSA PAL (FSA PAL, together with
FSAM and the GIC Issuers, collectively, the “GIC Companies”).(1)  FSAM is also
the entity through which all hedging operations and other financial transactions
(such as, for example, liquidity borrowings) relating to the GIC Business have
been conducted and will be conducted prior to the Transition Date.  Following
the Transition Date, the hedging activity is expected to be conducted through
the FSAM Hedging Successor, and upon direction from FSA as Secured Party
Representative if a Dexia Event of Default has occurred. The payment obligations
of the GIC Issuers under their respective GICs (other than any Dexia Only GIC
Contracts), as well as FSAM’s payment obligations under its Senior Third Party
Hedge Agreements, if any, are all guaranteed by FSA.  FSA previously was an
Affiliate of the GIC Companies.  Immediately following the Closing Date, it will
be an indirect subsidiary of Assured.

 

As noted above, FSA PAL is a direct wholly-owned subsidiary of FSAM, and each of
the other GIC Companies, except for FSA Capital Markets Cayman,(2) is a direct
wholly-owned subsidiary of Dexia FP Holdings Inc., a Delaware corporation
(“Dexia FP”).  Dexia FP, in turn, is a direct wholly-owned subsidiary of Dexia
Holdings, Inc., a Delaware corporation (“DHI”), which, in turn, is 90%-owned by
DCL, and 10%-owned by Dexia.  DCL is a direct wholly-owned subsidiary of Dexia.

 

The GIC Business is managed for the GIC Companies by the Administrator pursuant
to an Administrative Services Agreement.  Initially, HF Services LLC, a
bankruptcy-remote Delaware limited liability company and direct wholly-owned
subsidiary of Dexia FP (“HF Services”) will act as administrator and manage the
GIC Business pursuant to that certain Administrative Services Agreement, dated
as of July 1, 2009, by and among the GIC Companies, Dexia, FSA and HF Services. 
The Administrative Services Agreement provides, among other things, that, in
managing the GIC Business, the Administrator will be governed by these ALM
Procedures and decisions of the ALCO (as defined below).

 

For purposes of this document, ALM is the management of the structural risks
embedded in the GIC Business.  These structural risks can result from changes in
interest rates, currency exchange rates, inflation, credit spreads, liquidity
requirements and counterparty risk.  The GIC Business is also exposed to credit
risk but, given that all such credit risk, except for the Excluded Assets and
Other Assets, representing approximately USD 4.5 Bn of

 

--------------------------------------------------------------------------------

(1) The proceeds of GICs issued by the third GIC Issuer, FSA Capital Markets
Cayman — only two of which, having an aggregate outstanding principal balance of
USD 25MM, remain outstanding — were onlent to another affiliate of FSA, FSA
Global, which, in turn, purchased matching GICs from one of the other two GIC
Issuers, which then, in turn, onlent the proceeds of those GICs to FSAM as
described in text above.

(2) FSA Capital Markets Cayman is wholly-owned by a Cayman Islands charitable
trust.

 

2

--------------------------------------------------------------------------------

 

low credit risk assets, is being shifted to Dexia and/or DCL, backed by the
French and Belgian States, the ALCO does not expect to actively manage this
risk.

 

The original goal of the GIC Business was to earn a net interest margin (“NIM”)
and therefore the GIC Companies did not intend to take any interest rate,
currency or inflation risks.  The GIC Business is now in “run-off.”  Therefore,
the Transaction Documents contemplate that:

 

·      No new GICs will be written.

·      No active management of the asset portfolio will be undertaken —

·      assets guaranteed by the Belgian and French governments will be sold
solely in limited circumstances set forth in the Pledge and Administration
Agreement (including, in certain circumstances, with the consent of FSA), given
that such guarantees generally are effective only for so long as the guaranteed
assets remain on FSAM’s balance sheet;

·      the Excluded Assets and Other Assets may only be sold to the extent
permitted by the Pledge and Administration Agreement; and

·      to the extent that free cash flow is generated, the funds can be
re-invested only in “Permitted Investments” as and to the extent specified in
Appendix II (including, among other things, subject to certain concentration
limits set forth therein).

·      An active management of the Hedge Agreements will be required to ensure
that the desired low risk profile of the GIC Business is maintained.

 

The breach of any tests or limits set forth herein shall be reported to the ALCO
as provided herein, which shall decide on the appropriate course of action to
remediate such breach.  In addition, the consequences of any such breach (if
any) shall be as set forth in the Pledge and Administration Agreement.

 

Sources of risks:

 

Interest Rate Risk is the risk to earnings or economic value arising from the
movement of interest rates.  It arises from differences between the timing of
rate changes and the timing of cash flows (“repricing risk”); from changing rate
relationships among yield curves (“basis risk”); from changing relationships
across the spectrum of maturities (“yield curve risk”); and from
interest-rate-related options embedded in financial instruments (“option risk”).

 

Currency (or FX) Risk is the potential that movements in currency exchange rates
may adversely affect the value of a financial instrument or portfolio.  FX risk
can result when assets or liabilities are non-USD denominated such that a rise
or fall in FX rates can affect their market values.

 

Inflation Risk is the potential that changes in relevant inflation rates could
adversely affect the value of “inflation-linked” assets and liabilities such
that a rise or fall in such inflation rates can cause a mismatch of the
portfolio.

 

Prior to FSA becoming the Secured Party Representative following a Dexia Event
of Default and implementation of the FSA Defeasance Plan (as defined herein),
substantially all interest rate, currency and inflation risk will be hedged
which can be implemented by swapping both assets and liabilities to USD floating
rate or otherwise entering into other types of hedges to minimize these risks.

 

Liquidity Risk can result from:

 

·      unexpected changes in the cash flows of assets and/or liabilities,
including early withdrawals from and early terminations, of GICs,

 

·      change of mark-to-market on the Senior Third Party Hedge Agreements,
which can lead to collateral posting requirements for FSAM or the FSAM Hedging
Successor,

 

3

--------------------------------------------------------------------------------

 

·      collateralization/termination requirements tied to ratings of the GIC
guarantors/issuers,

 

·      change of the market values of assets used to collateralize existing GIC
contracts, and

 

·      collateral assets becoming ineligible as collateral due to ratings
downgrades.

 

Prior to FSA becoming the Secured Party Representative following a Dexia Event
of Default and implementation of the FSA Defeasance Plan, liquidity risk will be
managed through scenario analysis, stress testing and the monitoring of short-,
medium- and long-term liquidity needs.

 

Credit Spread Risk can result from unexpected changes in the credit spreads of
assets and/or liabilities despite unchanged credit ratings, hence not related to
credit events (downgrades, defaults).

 

As noted above, the original goal of the GIC Business was to earn a NIM, in part
through exposure to credit spread risk.  As it issued its GICs, it purchased
investments, “locking in” positive NIMs.  As the GIC Business is now in
“run-off”, it is to be expected that credit spread risk will gradually diminish
over time and no new exposure will be taken (other than possibly in the event of
either (i) a credit rating downgrade leading to the purchase of additional
Permitted Investments for the purpose of posting collateral to various GICs,
(ii) a need to reinvest excess proceeds from maturing assets at a time when such
proceeds cannot be returned to Dexia due to the failure of the Subordinated
Claims Payment Condition to be satisfied at the time), and/or (iii) upon a Dexia
Event of Default.

 

The Administrator is directly responsible for the oversight of ALM, including
the analysis of and the reporting on the different risks.  It is the
responsibility of the Administrator to ensure that any transactions entered into
by any of the GIC Companies are in compliance with the ALM Procedures.

 

The Administrator performs these duties under the auspices of the ALCO (see
Section 3 below).  This document is intended to provide an overview of the ALM
framework applicable to the GIC Business.

 

The objective of this document, which describes various limits and processes
applied in managing the structural risks embedded in the GIC Business, is to
monitor and steer the hedging and other ALM activities of the GIC Business
within authorized risk limits (to the extent such limits are established and
applicable) and business objectives in line with risk governance standards and
principles as set forth by the ALCO.

 

2         Strategy and Objectives

 

Subject to other applicable constraints, the Administrator is in charge of the
supervision of the GIC Companies’ balance sheet.  As such, it has the
responsibility to analyze, assess and oversee the management of the structural
interest rate, currency exchange rate, inflation rate and credit spread risk
imbalances, as well as the liquidity needs, generated by the balance sheet.

 

The Administrator will pursue an ALM focusing on value preservation and
mitigation of revenue volatility.  The mission is to manage, to its best ability
and within predefined limits (to the extent such limits are established and
applicable), interest rate, currency exchange rate, inflation rate and credit
spread risk exposure and volatility generated by cash flows (partly estimated
through behavioral models).  The Administrator must fully support the outcome of
the models employed and act accordingly.

 

The Administrator operates within an ALM driven environment retaining
sensitivity measures as principal risk measurement tools (full revaluation
expressed in sensitivity terms).  Global and partial risk sensitivities per time
bucket are the principal risk indicators on which the ALCO manages the risk
exposure of the GIC Companies.

 

4

--------------------------------------------------------------------------------

 

Otherwise, as detailed below, the market risks generated by the GIC Business are
principally measured by using the following indicators:

 

·      Global sensitivity and partial sensitivity of net present value (“NPV”)
by maturity bucket

·      Convexity

·      Liquidity ratios

·      Stress testing for both cash flow and collateral posting requirements
upon downgrade

 

The Administrator will assess, monitor and manage these risks using the tests,
limits and procedures described herein and manage the portfolio of Hedge
Agreements in order to achieve the objective of maintaining a low risk profile,
focusing on preserving value of the GIC Business and maximum risk mitigation. 
The Administrator will cause FSAM (or following the Transition Date and
direction from FSA, the FSAM Hedging Successor) to terminate existing Hedge
Agreements and/or enter into new Hedge Agreements in order to achieve the
objectives described above.

 

3         ALCO

 

An asset and liability management committee (the “ALCO”) will be established in
accordance with the ALCO Charter attached hereto as Appendix I.  The ALCO will
continue in existence until the GICs and all amounts due and payable to FSA
under the Transaction Documents have been Paid In Full.  Upon the Transition
Date, the ALCO may be transferred from FSAM to the FSAM Hedging Successor, at
the direction of FSA where a Dexia Event of Default has occurred.

 

4         Authorized Products and Permitted Investments

 

4.1      Hedging Portfolio

 

The following types of hedging instruments are approved for use:

 

Product

 

Market

 

Underlying

 

Valuation

 

 

 

 

 

 

 

Eurodollar futures

 

CBOT

 

3-month Libor

 

Principia

U.S. Treasury futures

 

CBOT

 

2, 5 & 10 yr U.S. Treasuries

 

Principia

Interest rate swaps

 

OTC

 

 

 

Principia

Swaptions / Cancelable swaps (LONG only)

 

OTC

 

Interest rate swaps

 

Principia

Caps / Floors (LONG only)

 

OTC

 

 

 

Principia

Cross-currency swaps

 

OTC

 

 

 

Principia

Inflation swaps

 

OTC

 

U.K. RPI

 

Principia

Basis swaps

 

OTC

 

1-month / 3-month Libor

 

Principia

 

Prior to a Dexia Event of Default, new products may be approved by Dexia for use
by the GIC Business in accordance with Dexia’s new products approval procedures,
so long as HF Services is the Administrator.  As the GIC Business is in
“run-off,” the development and use of new products for use in connection with
the GIC Business is not expected and must be approved by the ALCO.  Following a
Dexia Event of Default or the appointment of a new Administrator, new products
will only be used by the Administrator with the approval of the ALCO and, if
applicable, the Portfolio Manager.

 

5

--------------------------------------------------------------------------------

 

4.1.1       HEDGE AGREEMENT REGISTER

 

In Annex D to the Pledge and Administration Agreement, all derivative
transactions under Hedge Agreements as of the Closing Date are categorized as
either Asset Swaps or Liability Swaps.  Following the Closing Date, the
Administrator shall, consistent with the current procedures of the GIC Business,
categorize all hedges (i) converting the cash flows of specific assets (whether
to hedge against interest rate, currency and/or inflation risk) or (ii) hedging
the mark-to-market on the asset portfolio as “Asset Swaps”, and all other hedges
on the Hedge Agreement Register as “Liability Swaps”.

 

4.2       ASSET PORTFOLIO

 

The GIC Business may only acquire “Permitted Investments” as and to the extent
specified in Appendix II (including, among other things, subject to certain
concentration limits set forth therein).

 

4.3       GIC PORTFOLIO

 

The GIC Business will not issue any new GICs.

 

5         Market Risk Management

 

5.1       INTEREST RATE RISK

 

The objective of managing the interest rate risk generated by the GIC Business
is to hedge its fixed rate assets or liabilities (to the extent they are not
natural floaters) to eliminate substantially all interest rate risk.  The
principal risk in this hedging is that the actual cash flows from these fixed
rate assets or liabilities deviate from the projections of such cash flows in
place at the time the hedges are initiated or subsequently amended.

 

Sensitivity – This risk is monitored – separately for each currency in which any
assets, liabilities or hedges of the GIC Business are denominated (currently,
USD, GBP, EUR and SGD) – by (i) the calculation of a “PV01” (change in aggregate
NPV for all such assets, liabilities and hedges denominated in a given currency
resulting from a parallel upward move of 1 bp across the entire yield curve for
such currency) and “convexity” (change in duration for all fixed rate assets,
liabilities and hedges of the GIC Business denominated in such currency
resulting from a parallel upward or downward move of 100 bps across the entire
yield curve for such currency – a second order effect), and (ii) the performance
of scenario analyses showing changes in aggregate NPV for all assets,
liabilities and hedges of the GIC Business resulting from assumed steepening or
flattening of the yield curve around 2-, 5- and 10-year “pivot” points of the
relevant yield curve, as described in more detail below.  See the definitions
for “PV01” and “convexity” in Appendix III.

 

Parallel Shifts in Interest Rates:

 

PV01:                     PV01 for all assets, liabilities and hedges of the GIC
Business shall be measured, separately for each currency, on a net aggregate
basis, as well as at each of the following points on the yield curve:

 

1 week

 

1 year

 

10 years

1 month

 

2 years

 

15 years

2 months

 

3 years

 

20 years

3 months

 

4 years

 

25 years

6 months

 

5 years

 

30 years

9 months

 

7 years

 

40 years

 

6

--------------------------------------------------------------------------------

 

The applicable net aggregate PV01 limits (expressed in USD) at any time shall be
dependent upon (i) the currency and (ii) in the case of USD, the outstanding GIC
balance at such time, as follows:

 

Currency:

 

Aggregate Net
PV01 Limit
(in USD)

 

 

 

 

 

USD:

 

 

 

 

 

 

 

Outstanding GIC Balance:

 

 

 

 

 

 

 

Equal to or greater than 10Bn

 

150,000

 

Less than 10Bn but equal to or greater than 5Bn

 

100,000

 

Less than 5Bn

 

75,000

 

 

 

 

 

Non-USD Currencies:

 

 

 

 

 

 

 

GBP:

 

200,000

 

EUR:

 

1,000

 

SGD:

 

1,000

 

 

In addition, all non-USD portfolios must be substantially cash-flow matched
(i.e., gaps of no greater than 5 Business Days).(3)  Following a Dexia Event of
Default and for purposes of making the PV01 calculations, it will be assumed
that short term Treasury bills will be rolled into similar short term Treasury
bills at their maturity.

 

Remedies:             The Administrator will, at or prior to the next regularly
scheduled ALCO meeting, notify the ALCO of any breach of any aggregate net PV01
limit since the date of the last regularly scheduled ALCO meeting and develop
and implement a strategy to remedy such breach (to the extent not already
remedied), taking into consideration the directions, recommendations and/or
suggestions of the ALCO and the Strategy and Objectives described in Section 2.

 

Convexity:             Net convexity of all assets, liabilities and hedges of
the GIC Business shall be measured separately for each currency, on a net
aggregate basis, for parallel interest rate movements of +/- 100 bps across the
entire yield curve for such currency.

 

The applicable aggregate net convexity limits (expressed in USD) at any time
(being the amount that the aggregate net convexity shall not be less than) shall
be dependent upon the currency, as follows:

 

Currency:

 

Aggregate Net
Convexity Limit
(in USD)

 

 

 

 

 

USD:

 

(10,000,000

)

GBP:

 

(5,000,000

)

EUR:

 

(1,000,000

)

SGD:

 

(1,000,000

)

 

--------------------------------------------------------------------------------

(3) Currently all the GBP assets or liabilities are swapped back to USD and all
the GBP cash flows are substantially matched.  Due to the fact that the assets
and liabilities are discounted at swap rates plus a credit spread, while the
related hedges are discounted at swap rates without any credit spread, the
PV01’s of the assets or liabilities do not cancel exactly those of their
associated swaps, even though they are substantially cash flow matched.  The
relatively higher PV01 limit for GBP reflects this difference in measurement.

 

7

--------------------------------------------------------------------------------

 

Following a Dexia Event of Default and for purposes of making the convexity
calculations, it will be assumed that short term Treasury bills will be rolled
into similar short term Treasury bills at their maturity.

 

Remedies:             The Administrator will, at or prior to the next regularly
scheduled ALCO meeting, notify the ALCO of any breach of any aggregate net
convexity limit since the date of the last regularly scheduled ALCO meeting and
develop and implement a strategy to remedy such breach (to the extent not
already remedied), taking into consideration the directions, recommendations
and/or suggestions of the ALCO and the Strategy and Objectives described in
Section 2.

 

Global

 

Sensitivity:            The USD PV01 and convexity limits, for each currency
separately and for all currencies on a combined basis, will be converted for
Dexia reporting purposes into a global sensitivity limit for a 100bp change in
interest rates (i.e., the sum of (i) the applicable PV01 limit * 100 plus
(ii) the absolute value of the applicable convexity limit), expressed in EUR
based on a conservative EUR/USD exchange rate (currently set at 1.25) that will
only be reviewed in case of exchange rate fluctuations of more than 0.25.  Thus,
for example, the current USD global sensitivity limit for USD-denominated
assets, liabilities and hedges of USD 25MM/100bps (as shown in the table below)
currently amounts to EUR 20MM/100bps.

 

Based on the foregoing (and given that the outstanding GIC balance currently
exceeds USD 10 Bn), the applicable global sensitivity limits for each currency
separately, and on a combined basis for all currencies, are currently as follows
(provided that, from and after the time that FSA shall have elected to become
the Secured Party Representative following the occurrence of a Dexia Event of
Default, only the Global Sensitivity Limit expressed in USD shall be
applicable):

 

Currency:

 

Global Sensitivity
Limit
(in USD)

 

Global Sensitivity
Limit
(in EUR)

 

 

 

 

 

 

 

USD:

 

25,000,000

 

20,000,000

 

GBP:

 

25,000,000

 

20,000,000

 

EUR:

 

1,100,000

 

880,000

 

SGD:

 

1,100,000

 

880,000

 

Combined:

 

52,200,000

 

41,760,000

 

 

Remedies:             The Administrator will, at or prior to the next regularly
scheduled ALCO meeting, notify the ALCO of any breach of any global sensitivity
limit and develop and implement a strategy to remedy such breach (to the extent
not already remedied), taking into consideration the directions, recommendations
and/or suggestions of the ALCO and the Strategy and Objectives described in
Section 2.

 

8

--------------------------------------------------------------------------------

 

Frequency of Measurement:

 

PV01:

Daily

 

 

Convexity:

Monthly

 

 

Global Sensitivity:

Monthly

 

Yield Curve Steepening and Flattening:

 

Scenario analyses will be performed showing the effects on aggregate net present
value of the assets, liabilities and hedges of the GIC Business due to possible
steepening and flattening of the yield curve around 2-, 5- and 10-year “pivot”
points as follows:

 

Yield Curve Steepening:

 

2-Year Pivot Point:  1-week rate will be reduced by 100 bps (or, if less, the
amount required to reduce the 1-week rate to 0%) to obtain a new 1-week rate. 
All rates between the 1-week and 2-year rates will be linearly interpolated
(using the adjusted 1-week rate).  Each rate for a point equal to or longer than
the 10-year rate will be increased by 100 bps.  All rates between the 2-year and
10-year rates will be linearly interpolated (using the adjusted 10-year rate).

 

5-Year Pivot Point:  1-week rate will be reduced by 100 bps (or, if less, the
amount required to reduce the 1-week rate to 0%) to obtain a new 1-week rate. 
All rates between the 1-week and 5-year rates will be linearly interpolated
(using the adjusted 1-week rate).  Each rate for a point equal to or longer than
the 10-year rate will be increased by 100 bps.  All rates between the 5-year and
10-year rates will be linearly interpolated (using the adjusted 10-year rate).

 

10-Year Pivot Point:  1-week rate will be reduced by 100 bps (or, if less, the
amount required to reduce the 1-week rate to 0%) to obtain a new 1-week rate. 
All rates between the 1-week and 10-year rates will be linearly interpolated
(using the adjusted 1-week rate).  Each rate for a point equal to or longer than
the 20-year rate will be increased by 100 bps.  All rates between the 10-year
and 20-year rates will be linearly interpolated (using the adjusted 20-year
rate).

 

Yield Curve Flattening:

 

2-Year Pivot Point:  1-week rate will be increased by 100 bps to obtain a new
1-week rate.  All rates between the 1-week and 2-year rates will be linearly
interpolated (using the adjusted 1-week rate).  Each rate for a point equal to
or longer than the 10-year rate will be decreased by 100 bps (or, if less, the
amount required to reduce such rate(s) to 0%).  All rates between the 2-year and
10-year rates will be linearly interpolated (using the adjusted 10-year rate).

 

5-Year Pivot Point:  1-week rate will be increased by 100 bps to obtain a new
1-week rate.  All rates between the 1-week and 5-year rates will be linearly
interpolated (using the adjusted 1-week rate).  Each rate for a point equal to
or longer than the 10-year rate will be decreased by 100 bps (or, if less, the
amount required to reduce such rate(s) to 0%).  All rates between the 5-year and
10-year rates will be linearly interpolated (using the adjusted 10-year rate).

 

10-Year Pivot Point:  1-week rate will be increased by 100 bps to obtain a new
1-week rate.  All rates between the 1-week and 10-year rates will be linearly
interpolated (using the adjusted 1-week rate).  Each rate for a point equal to
or longer than the 20-year rate will be decreased by 100 bps (or, if less, the
amount required to reduce such rate(s) to 0%).  All rates between the 10-year
and 20-year rates will be linearly interpolated (using the adjusted 20-year
rate).

 

Frequeny of Measurement:   Monthly

 

9

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VaR — This risk is monitored by the calculation of an interest rate
value-at-risk, or “VaR”, as follows.

 

Measurement:

 

99%, 10-day, VaR (as defined in Appendix III)

 

 

 

Frequency of Measurement:

 

Quarterly

 

Process:

 

After conducting such analyses, the Administrator will, at or prior to the next
regularly scheduled ALCO meeting, notify the ALCO of any significant impact on
the aggregate net present value of the assets and any trends that may cause a
significant increase in the VaR and develop and implement a strategy to lessen
such impact and/or minimize the effect of any such trends taking into
consideration the directions, recommendations and/or suggestions of the ALCO and
the Strategy and Objectives described in Section 2; provided, however, that
following a Dexia Event of Default, any such strategy will be developed taking
into consideration the FSA Defeasance Plan described in Appendix VI and the
Administrator will have no obligation to implement all or any portion of any
such strategy that is in conflict with the FSA Defeasance Plan.

 

5.2       CURRENCY RISK

 

The objective of the GIC Business is not to take foreign currency exchange, or
“FX”, risk.  All foreign currency denominated assets or liabilities are swapped
back to USD via cross-currency swaps at the time of initiation.

 

Measurement:

 

Scenario analyses shall be performed showing the result of a 10% change in the
value of non-USD currency versus the USD

 

Frequency of Measurement:

 

Monthly

 

Process:

 

After conducting such analyses, the Administrator will, at or prior to the next
regularly scheduled ALCO meeting, notify the ALCO of any material increase in
the FX risk of the GIC Business, or any significant trends affecting such risk,
and develop and implement a strategy to minimize or hedge such risk and/or
minimize the effect of any such trends taking into consideration the directions,
recommendations and/or suggestions of the ALCO and the Strategy and Objectives
described in Section 2 and the objective of the GIC Business not to take FX risk
as described above.

 

5.3       INFLATION RISK

 

The objective of the GIC Business is not to take inflation rate risk.  All
inflation-linked assets or liabilities are swapped back to USD via
inflation-linked swaps at the time of initiation.

 

Measurement:

 

Scenario analyses shall be performed showing the result of a 100bp increase in
the applicable inflation rate

 

Frequency of Measurement:

 

Monthly

 

5.4       CREDIT SPREAD RISK

 

The objective of the GIC Business is to “buy and hold” and therefore not to
hedge the credit spread risk in its assets or liabilities.  The credit spread
risks are nevertheless monitored through sensitivity and VaR measurement,
mark-to-market and the calculation of an implied credit spread/yield. 
Accordingly, the risk management focus on these “buy and hold” positions will be
on the follow-up of the credit profile for consideration of the possible sale of
credit-deteriorated assets.  Following a Dexia Event of Default, the

 

10

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Administrator will implement the FSA Defeasance Plan in accordance with Appendix
VI and have no obligation to continue to monitor credit spread risks as
described in this section.

 

Sensitivity — This risk is monitored by the calculation of “Spread 01” (change
in the net present of the assets and liabilities of the GIC Business resulting
from widening of credit spreads by 1 bp), with separate calculations for the
asset and liability sides of the balance sheet.

 

Measurement:

 

Spread 01

 

 

 

Frequency of Measurement:

 

Monthly

 

VaR — This risk is monitored by the calculation of a credit spread VaR, as
follows:

 

Measurement:

 

99%, 10-day, VaR (as defined in Appendix III)

 

 

 

Frequency of Measurement:

 

Quarterly

 

Note:      No credit spread VaR will be calculated for assets that have been
reclassified in Loans and Receivables, as from time to time notified by Dexia to
the ALCO, and thus will be accounted for on an accrual (rather than a
mark-to-market) basis on FSAM’s (and its parents’) financial statements.

 

Mark-to-Market — This risk is monitored by the periodic valuation of the assets,
as follows:

 

Measurement:

 

The assets of the GIC Business will periodically be valued in accordance with
the terms and conditions of the Dexia CSAs (as defined in the Pledge and
Administration Agreement).  The Administrator will, at or prior to each ALCO
meeting, report the results of the most recent such valuation(s) since the date
of its last such report.

 

Frequency of Measurement:

 

Bi-Weekly

 

Process:

 

The Administrator will, at or prior to the next regularly scheduled ALCO
meeting, notify the ALCO of any significant increase in the credit spread VaR
and any trends that may cause a significant increase in the credit spread VaR
and develop and implement a strategy to hedge and/or minimize the effect of any
such increase and/or trends, taking into consideration the directions,
recommendations and/or suggestions of the ALCO and the Strategy and Objectives
described in Section 2.

 

5.5       CONSTRUCTION/ACQUISITION FUND FLEX RISK

 

Construction and acquisition fund GICs generally represent the investment of
municipal bond proceeds pending their use by the issuer to pay the construction
or acquisition costs of one or more specified projects.  Most of these GICs are
fixed rate and therefore hedged (mostly using, given their short-term nature,
Eurodollar futures).  The effectiveness of any such hedge is dependent on the
accuracy of the draw projections.  To the extent that actual draws deviate from
those initially expected, such deviations require adjustments to the associated
hedges, which may entail an economic cost.  The option to draw under these GICs
is not, however, an “economic” option (i.e., it is not correlated to interest
rates) — such draws can only be made for construction purposes.

 

Initially, Liability Swaps were put on for each construction/acquisition fund
GIC based on a projection of construction draws at the time of the GIC’s
issuance.  Such projections will be periodically reviewed and adjusted by the
Administrator, along with the related hedges, as appropriate.  These hedge
adjustments will affect the profit and loss, or “P/L”, associated with the GIC
as follows:

 

·

 

If GIC draws slower than expected and interest rates rise

=

 

positive

 

11

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·

 

If GIC draws slower than expected and interest rates fall

=

 

negative

·

 

If GIC draws faster than expected and interest rates rise

=

 

negative

·

 

If GIC draws faster than expected and interest rates fall

=

 

positive

 

The strategy to manage this risk is:

 

1)             Diversification — This reduces risk in the uncertainty of draws
and the associated hedge adjustment costs since draws under each
construction/acquisition fund GIC relate to different projects and are therefore
uncorrelated.

 

2)             Hedge tail risk — In aggregate, the construction/acquisition fund
GIC portfolio has generally drawn slower than expected.  This poses a major risk
in lower interest rate environments.  Receiver swaptions or interest rate floors
can be used to reduce this tail risk.

 

Process:

 

The projected construction/acquisition fund GIC draw schedules will be reviewed
regularly and re-projected as needed.  These re-projections will be based on
comparisons between each GIC’s projected versus actual draw experience and, in
some cases, reports on the progress of the project obtained from transaction
participants or other available sources.  Decisions on re-projections will be
made at the ALCO meeting, and macro hedge decisions will be discussed based upon
the overall construction/acquisition fund GIC portfolio re-projection.

 

Frequency:

 

Monthly

 

5.6       DEBT SERVICE RESERVE FUND RISK

 

Most debt service reserve fund (“DSRF”) GICs, which are used to cover debt
service shortfalls on the underlying municipal bonds, are fixed rate and
therefore hedged (mostly using, given their long-term nature, interest rate
swaps).  Most such debt service shortfall draws will occur after public signs of
deterioration in the underlying issuer’s creditworthiness.  In addition, in some
cases, DSRF GICs can be terminated upon a refunding of the underlying bond
issue.

 

Generally, any draw under a DSRF GIC will necessitate the unwinding of the
associated hedge.  Therefore, the P/L impact of such a draw will be dependent
upon both the size of the draw and the direction of any change in interest rates
since the GIC was initiated, with draws in higher interest rate environments
generating negative P/L impacts and draws in lower interest rate environments
resulting in positive P/L impacts.  Generally, DSRF GIC terminations relating to
the refunding of the underlying bonds will occur in lower interest rate
environments, generating positive P/L.  Any macro hedging for the risk of debt
service shortfall draws (which can occur in either a higher or lower interest
rate environment) will be subject to ALCO review and approval.

 

Process:

 

The credit ratings assigned to the underlying bond issue are monitored regularly
to provide early warning of any credit deterioration and possible debt service
shortfall draws.  If the underlying issue rating is at or below the lower of
BBB+/Baa1 or the equivalent internal Dexia rating, the DSRF GIC will be reviewed
for the possibility of draws and the relevant hedge/liquidity profile will be
discussed at the ALCO meeting, where a decision will be made on the appropriate
hedge activity, if any.

 

Frequency:

 

Quarterly or as needed

 

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6      Liquidity Risk Management

 

The principles in liquidity risk management are based on applying stress
scenarios by analyzing the cash flows of various components in the asset and
liability portfolios.  These scenarios measure the ability to meet draw
requirements under the GICs over various time horizons.  These include
short-term periods (1 day to 1 week) and medium-term periods (1 month to 1
year).  Each period is monitored based on a liquidity ratio calculated using the
calculation methods described below.

 

Daily reporting of one-month liquidity projections will be provided to the ALCO
and to Dexia (with copies to FSA).

 

For horizons extending more than 1 year, stress scenarios will be run regularly
and will be monitored.

 

Liquidity lines are not to be used to create balance sheet leverage.

 

6.1       GAP RATIO; MINIMUM CASH LEVEL

 

GAP Ratio — The “GAP ratio” measures the ability to cover cash flow shortfalls
resulting from the mismatch between asset and liability cash flows.  Thus, for
purposes of calculating the GAP ratios, “GAP” is defined as follows:

 

[g176031lp35bi001.gif]

 

Note that, by definition, a negative GAP means sufficient cash and a positive
GAP means a cash shortfall.

 

The “GAP ratio” is then calculated as follows:

 

[g176031lp35bi002.jpg]

 

where “Liquidity Reserves” includes only committed liquidity lines and
unencumbered Permitted Investments (if any).

 

Minimum Cash Position — With respect to any date of determination, the minimum
cash position (being the “Required Reserve” as defined in the Pledge and
Administration Agreement) will equal the lesser of: (i) the sum of (x) 2% of the
aggregate principal balance of all remaining GICs on such date and (y) if (and
only if) there is less than USD 500MM of remaining available amount under the
Guaranteed Liquidity Facilities on such date, the aggregate amount of all Senior
Priority Payments individually in excess of USD 1MM expected to become due in
the next seven calendar days; and (ii) USD 200MM, provided that in no event will
such minimum amount be less than USD 35MM.

 

Limits:

 

GAP Ratio:           Not less than 105% for each of the following periods:

 

·      1 day

·      2 days

 

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·      1 week

·      2 weeks (to be added post-closing)

·      1 month

·      3 months

·      6 months

·      1 year

 

Remedies:

 

If the GAP ratio falls below 105% for any of the measurement periods, the
Administrator will notify the ALCO and, if such condition is expected to persist
for not less than three (3) Business Days, appropriate action will be taken to
increase available liquidity, such as through effecting an increase in the
Guaranteed Liquidity Facilities and/or the sale of assets as and to the extent
otherwise permitted.

 

Frequency:

 

The above GAP ratios for, and cash held by, the GIC Business will be determined
by the Administrator and reported daily to the ALCO, Dexia and FSA.

 

6.2       SCENARIO ANALYSIS

 

Scenario analysis of cash flows plays an important part in the management of the
liquidity risk of the GIC Business.  Cash flows under various assumptions for
assets and liabilities will be reviewed and generated regularly.  The following
describes various scenarios and review frequency.

 

Assets:

 

All assets that are prepayable or extendable will be reviewed regularly by the
Administrator.  Both expected and stress scenarios will be generated by applying
different prepayment, default rate and recovery assumptions.  Such assumptions
are set forth in Appendix IV.

 

Frequency:

 

RMBS:                                   Monthly

Other assets:                         Quarterly

 

Liabilities:

 

All liabilities that can deviate from their projections will be reviewed
regularly by the Administrator.  Both expected and stress scenarios will be
generated applying different draw assumptions.  Such assumptions are set forth
in Appendix IV.

 

Frequency:

 

Construction/acquisition fund GICs:                Monthly

CDO GICs:                                                             Monthly

Other GICs:                                                            As needed

 

Process:

 

See Appendix V for a description of the processes and procedures applied for the
re-projection of asset and liability cash flows.

 

14

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6.3       COLLATERAL POSTING REQUIREMENTS UPON DOWNGRADE

 

In the event that FSA (or, if the GIC Issuers obtain their own credit ratings,
both FSA and the relevant GIC Issuer) is (or are) downgraded by any of the
rating agencies, a number of GICs will be affected — particularly in the case of
a downgrade by Moody’s to below Aa3 or by S&P to below AA-.  Generally,
depending on the specific GIC, the GIC Business would have the option either to
post collateral (or, in the case of already secured GICs, post additional
collateral) or assign the GIC to another provider/guarantor having the minimum
specified ratings, failing either of which the GIC would either automatically
terminate or become subject to termination at the option of the holder.  Again,
depending upon the terms of the particular GIC, any such termination could
either be at par, at “market” (as defined in the particular GIC) or at the
greater of par or such “market”.  In any case, the ability to post any such
collateral depends on the ratings and the market values of the assets in the GIC
Business investment portfolio at the time, including the Dexia CSA Collateral.

 

Process:

 

The GICs’ requirements upon downgrade have been captured and the ability to meet
such requirements will be monitored through a report which summarizes the amount
of GICs affected at different levels of downgrade and the types of collateral
then eligible to be posted, as well as the available sources of any additional
collateral that might then be required.  The reports will be discussed at ALCO
meetings.

 

Frequency:

 

Monthly

 

7      Swap Counterparty Credit Risk Management

 

7.1       EXISTING SWAP COUNTERPARTY EXPOSURE

 

To hedge interest rate, currency and inflation risks, FSAM (or following the
Transition Date and direction from FSA, the FSAM Hedging Successor) enters into
various over-the-counter, or “OTC”, derivatives transactions with various
counterparties.  If the derivatives exposure to a counterparty is “in the
money”, FSAM or the FSAM Hedging Successor, as applicable, is exposed to the
creditworthiness of the counterparty, who may be required to post collateral to
FSAM or the FSAM Hedging Successor, as applicable.  Conversely, if the
derivatives exposure to a counterparty is “out of money”, the counterparty is
exposed to the creditworthiness of FSAM or the FSAM Hedging Successor, as
applicable, and FSAM or the FSAM Hedging Successor, as applicable, if such Hedge
Agreement is a Senior Third Party Hedge Agreement, may be required to post
collateral to the counterparty.

 

Process:

 

The derivatives exposure to each existing counterparty, the credit rating of
each counterparty and the threshold to collateralize under the ISDA Credit
Support Annex with each counterparty will be captured. The collateral required
to be posted will be posted by FSAM or the FSAM Hedging Successor, as
applicable, under any Senior Third Party Hedge Agreement or requested from the
counterparty under any Hedge Agreement, as the case may be.

 

Frequency:

 

Daily

 

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7.2       POTENTIAL SWAP COUNTERPARTY EXPOSURE

 

Under various interest rate/currency/inflation scenarios, FSAM or the FSAM
Hedging Successor, as applicable, might have to post collateral (or additional
collateral) to various derivatives counterparties or FSAM or the FSAM Hedging
Successor may be exposed to additional credit exposure to a counterparty. 
Scenario analyses will be performed, by stressing interest rates, currency
exchange rates, and inflation rates.  Results of the analyses, as well as
possible risk mitigation measures, will be discussed at ALCO meetings.

 

Frequency:

 

Monthly

 

7.3       NEW SWAP COUNTERPARTY EXPOSURE

 

Any new derivatives counterparty will be approved by the ALCO and, prior to a
Dexia Event of Default, be subject to the process and approval guidelines set by
Dexia (including the establishment of appropriate credit exposure limits).

 

8      Terminations and Other Actions Relating to GICs

 

8.1       TERMINATIONS FOLLOWING DOWNGRADE EVENTS

 

GICs with downgrade triggers have specific provisions that apply upon the
occurrence of a credit rating downgrade event thereunder.  Depending on the
level of the downgrade event, the GIC Business will either have an opportunity
to cure (such as by posting collateral) or the GIC may terminate or be subject
to termination at the option of the holder if such downgrade is not timely
cured.  The time periods for posting collateral and terminations following a
downgrade event vary by GIC, but in general the time periods are not lengthy and
can be as short as 2 Business Days.

 

Given such factors, all decisions regarding whether or not to post collateral or
to terminate GICs for which a downgrade event has occurred, and any market
breakage calculations that may be required as a result of any such termination,
shall require the approval of one of the two most senior officers of the
Administrator, and shall not require further approval from the board of
directors of any of the GIC Companies, from the ALCO, or from Dexia, FSA,
Assured or any of their respective Affiliates.  The factors that will be taken
into consideration in making those decisions shall include the following:

 

·      The then available liquidity resources of the GIC Business;

·      The economic impact of any GIC termination, including termination of any
related hedges (and/or entering into offsetting transactions with respect to
such hedges); and

·      The availability of eligible collateral for posting, whether from the GIC
Business’s existing investment portfolio, through securities exchange facilities
available to the GIC Business, or via market purchases with funds available in
accordance with the Priority of Payments on or before the due date for the
payment thereof.

 

It has been determined that, as a general matter, termination of secured
municipal GICs, virtually all of which are collateralized by Treasuries or
Agencies, would be most beneficial (insofar as the collateral thereby released
would be eligible for posting under almost all other GICs), and termination of
so-called “sticky” GICs (where asset backed securities, or “ABS”, rated AAA at
the time of posting remains eligible as collateral even if such securities are
subsequently downgraded) would be least beneficial, as that collateral (if in
fact downgraded) would not be eligible collateral under any other GICs.

 

16

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8.2       NEGOTIATED TERMINATIONS NOT DUE TO DOWNGRADE EVENT

 

The negotiated termination of any GIC for which no credit rating downgrade
condition has occurred, including termination of any related hedges (and/or
entering into offsetting transactions with respect to such hedges), shall be
subject to the following:

 

·      All such negotiated terminations will require the approval of one of the
two most senior officers of the Administrator, who will take into account the
factors listed in Section 8.1 above;

·      In addition, any negotiated termination which would result in a Net Loss
(as described below) will also require the prior approval of the ALCO.  For this
purpose, a “Net Loss” would occur if the amount payable to the holder of the GIC
upon termination (excluding any accrued but unpaid interest), as agreed by the
parties, plus the NPV of any related hedges, if “out-of-the-money” to FSAM (or
minus the NPV of any related hedges, if “in-the-money” to FSAM), would exceed
the outstanding principal amount of the GIC; and

·      In addition, at any time the remaining commitment under the Guaranteed
Liquidity Facilities is USD 1 Bn or less, any negotiated termination of a GIC
having an outstanding principal balance in excess of USD 25MM shall require the
prior approval of the ALCO.

 

As noted in Section 8.1, it has been determined that, as a general matter,
termination of secured municipal GICs, virtually all of which are collateralized
by Treasuries or Agencies, would be most beneficial (insofar as the collateral
thereby released would be eligible for posting under almost all other GICs), and
termination of so-called “sticky” GICs (where ABS rated AAA at the time of
posting remains eligible as collateral even if such securities are subsequently
downgraded) would be least beneficial, as that collateral (if in fact
downgraded) would not be eligible collateral under any other GICs.

 

8.3       COLLATERAL MAINTENANCE REQUIREMENTS

 

Collateralized GICs (whether in the form of collateralized investment agreements
or master repurchase agreements) typically include a covenant to maintain the
required level of collateral, determined as set forth in the collateralized
GIC.  The market value of collateral pledged to a collateralized GIC, however,
is subject to change and may decline below the required level of collateral.  If
the required level of collateral is not maintained (typically after notice and
an opportunity to cure), the GIC holder will usually have the right to terminate
the GIC.  The GIC Business intends, as a business practice, to take actions
necessary to maintain the required level of collateral; however, the relevant
GIC Issuer has the right and power under these ALM Procedures not to take such
collateral maintenance actions, subject to the following:

 

·      All such decisions will require the approval of one of the two most
senior officers of the Administrator, who will take into account the factors
listed in Section 8.1 above;

·      In addition, any failure to maintain collateral that could give rise to a
GIC termination which would result in a Net Loss (determined as described in
Section 8.2 above) will also require the prior approval of the ALCO; and

·      In addition, at any time the remaining commitment under the Guaranteed
Liquidity Facilities is USD 1 Bn or less, any failure to maintain collateral
that could give rise to the termination of a GIC having an outstanding principal
balance in excess of USD 25MM shall require the prior approval of the ALCO.

 

For the avoidance of doubt, any failure by a GIC Issuer to maintain the required
level of collateral under a collateralized GIC due to a decline in market value
that results in a GIC termination because the GIC Issuer was unable to pledge on
a timely basis eligible collateral under such GIC sufficient to satisfy the
collateral requirement, despite its commercially reasonable efforts to do so
following notice of such deficiency, shall not constitute non-compliance with
these ALM Procedures.

 

17

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9      Post Dexia Event of Default

 

From and after the time that FSA shall have elected to become the Secured Party
Representative following the occurrence of a Dexia Event of Default, the
provisions set forth in Appendix VI shall become applicable, it being
understood, however, that all other provisions of these ALM Procedures, except
to the extent inconsistent with the provisions set forth in Appendix VI or
except as specifically set forth herein, shall also remain in full force and
effect.

 

10   Reports

 

The Administrator will produce the reports described below and distribute such
reports to the addressees and in the frequency provided in the following table:

 

Description

 

Frequency

 

Distribution

 

 

 

 

 

Cash and liquidity line draw requirements on a daily basis for next two months

 

Daily/Monthly

 

Daily: Operations, Management
Monthly: ALCO

 

 

 

 

 

Liquidity report showing liquidity GAP ratios and reserves

 

Daily/Monthly

 

Daily: Operations, Management, Dexia, FSA
Monthly: ALCO

 

 

 

 

 

Derivative exposures and sensitivities to counterparties; includes swaps,
swaptions and caps/floors

 

Daily/Monthly

 

Daily: Operations, Management
Monthly: ALCO (including stress scenario)

 

 

 

 

 

Hedge report

 

Daily/Monthly

 

Daily: Operations, Management
Monthly: ALCO

 

 

 

 

 

Monthly risk report, compiled from various reports, summarizing, among other
things, the activities, asset and liability portfolios, market risk, liquidity
position, downgrade analysis and swap counterparty exposures (for both the GIC
and non-GIC Businesses within the Dexia FP Group)

 

Monthly

 

ALCO

 

 

 

 

 

ALM Guideline compliance report

 

Monthly

 

ALCO

 

 

 

 

 

Liquidity projections under different scenarios

 

Monthly

 

ALCO, Dexia

 

 

 

 

 

Collateral needs upon downgrade

 

Monthly

 

ALCO, Dexia

 

 

 

 

 

Hedge effectiveness test results

 

Monthly

 

Accounting

 

 

 

 

 

Summary of construction/acquisition fund GIC flex

 

Monthly

 

Internally

 

 

 

 

 

Dexia-required reporting (Interest rate sensitivity and VaR; credit spread
sensitivity and VaR; valuation report: book value, market value, official (OCI)

 

Quarterly

 

Dexia Market Risk Management, ALCO

 

18

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reserves, local GAAP, annexes IFRS; scenario analysis; convexity; interest rate
GaPs), commencing on the date mutually agreed by Dexia and the Administrator

 

 

 

 

 

 

 

 

 

Comparison of the amounts allocated towards Administrative Expenses versus the
established budget

 

Quarterly

 

ALCO

 

19

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Appendix I

 

ALCO CHARTER

 

This Asset and Liability Committee (ALCO) Charter (this “Charter”) governs the
operation of the Asset and Liability Management Committee (the “ALCO”).  The
ALCO shall review the adequacy of this Charter at least annually and recommend
any proposed changes to Dexia and FSA.

 

Membership of ALCO

 

The ALCO shall be composed of five (5) members, as follows:

 

Prior to a Dexia Event of Default:

 

·                  One member shall be either the chief executive officer or
chief financial officer of the Administrator

·                  One member shall be the director of market risk management
for the Administrator

·                  Two members shall be designated by Dexia

·                  One member shall be designated by FSA

 

Upon and after a Dexia Event of Default:

 

·                  One member shall be either the chief executive officer or
chief financial officer of the Administrator

·                  One member shall be the director of market risk management
for the Administrator

·                  One member shall be designated by Dexia

·                  Two members shall be designated by FSA

 

The chief executive officer or chief financial officer of the Administrator, and
the director of market risk management of the Administrator, shall be referred
to as the “Administrator Members”.  The member(s) appointed by Dexia shall be
referred to as the “Dexia Member(s)”.  The member(s) appointed by FSA shall be
referred to as the “FSA Member(s)”.  The Administrator Members shall be officers
and/or employees of the Administrator and shall receive no additional
remuneration for their services on the ALCO.  The Dexia Member(s) and the FSA
Member(s) shall be remunerated for their services on the ALCO, if at all, solely
by Dexia or FSA, or an Affiliate thereof, as applicable.

 

Members of the ALCO shall be appointed and replaced in accordance with the
above.  Upon and after FSA becoming Secured Party Representative following a
Dexia Event of Default, one Dexia Member shall immediately resign as a member of
the ALCO, and a designee of FSA, as the second FSA Member shall be seated as a
member of the ALCO with immediate effect and shall have full voting and other
rights of members of the ALCO.  The chairman of the ALCO (the “Chairman”) shall
be appointed by a majority of the ALCO members.  The Chairman of the ALCO shall
be reappointed upon the seating of the second FSA Member as a member of the ALCO
following FSA becoming Secured Party Representative following a Dexia Event of
Default.  Members of the ALCO shall serve until their removal by the entity
entitled to designate them as a member, as described above, and their successors
are duly appointed.

 

All ALCO members shall be sufficiently familiar with ALM concepts and issues,
including the ALM Procedures, as to make the judgments required of the ALCO.
Topics of frequent discussion in the ALCO include:

 

·                  GIC Business risk profile;

·                  Interest rate, credit, FX, inflation and liquidity risk;

·                  Risk management;

 

--------------------------------------------------------------------------------

 

·                  Economic cycle;

·                  Hedging of risk;

·                  Interest rate yield curve; and

·                  Macro-economic market conditions.

 

Meetings and Voting

 

The ALCO shall meet bi-weekly, unless the ALCO unanimously decides to meet less
frequently (but in no event less frequently than monthly), and shall otherwise
meet at the call of the Chairman upon the reasonable request of any member.  The
ALCO may request any officer or employee of the Administrator to attend a
meeting of the ALCO or to meet with any members of, or any consultant to, the
ALCO.  In addition and prior to a Dexia Event of Default, no less frequently
than quarterly, the Chairman shall invite the Dexia chief financial officer and
chief risk officer to attend an ALCO meeting (it being understood, however, that
such persons shall not be considered members of the ALCO).  Notice of meetings
designating the time and place proposed for such meeting, together with
distribution of materials, shall be provided by the Chairman to each other
member of the ALCO no later than the second Business Day prior to such meeting.

 

Each member of the ALCO shall have one vote.  A Quorum of members must be
present at each meeting in order to make decisions of the ALCO.  A “Quorum”
shall at all times consist of 3 members of the ALCO, including (i) prior to FSA
becoming Secured Party Representative following a Dexia Event of Default, (w) at
least one of the Administrator Members, (x) at least one of the Dexia Members,
(y) at least one member who is a representative of the Dexia risk management
function (who may be either the director of market risk management for the
Administrator or one of the Dexia Members) and (z) at least one member who is a
representative of (1) DCL and/or DCL, New York Branch, or (2) the Dexia balance
sheet management function (it being understood that any single member may
satisfy more than one of the foregoing requirements), and (ii) upon and
following FSA becoming Secured Party Representative following a Dexia Event of
Default, (x) the director of market risk management for the Administrator and
(y) the two FSA Members.  Any member may elect to participate in any meeting by
teleconference and/or to designate a proxy to attend any meeting in his/her
place, and in either case, such member shall be deemed to be present for all
purposes hereunder.  Assuming a Quorum is present at a meeting, a vote of the
majority of the members present at such meeting is sufficient for authorizing an
action of the ALCO.  In the event that a Quorum is not present at any properly
noticed meeting, the members present may elect to proceed with the meeting for
informational purposes (though not take any binding actions) or adjourn the
meeting.

 

The ALCO will cause to be kept adequate minutes of all its proceedings which
will be provided to the ALCO at its next regularly scheduled meeting. The ALCO
members will be furnished with copies of the minutes of each meeting and any
action taken by unanimous consent.  The ALCO shall otherwise be governed by the
same rules regarding meetings (including meetings by conference video or
telephone or similar communications equipment), action without meetings, notice
and waiver of notice, as would be applicable to the board of directors of FSA
Capital Management.  The ALCO is authorized to adopt its own rules of procedure
not inconsistent with (a) any provision of this Charter, (b) any provision of
the organizational documents of any of the GIC Issuers, (c) the ALM Procedures
or (d) the Pledge and Administration Agreement.

 

Purposes of the ALCO

 

“Asset and Liability Management” is the process of actively managing the risk
inherent in the GIC Business’s balance sheet, primarily the GIC Business’s
derivatives portfolio, in a manner consistent with the GIC Business’s goals for
maintaining a low risk profile and preserving value.  The ALCO shall ensure that
the GIC Business focuses on maximum risk mitigation and minimum earnings
volatility.

 

--------------------------------------------------------------------------------

 

Responsibilities and Processes

 

The primary responsibility of the ALCO shall be to manage the financial risks
(interest rate, credit, FX, inflation and liquidity risk) associated with the
GIC Business’s assets, liabilities and derivatives portfolios, and the
obligations of FSAM or the FSAM Successor, as applicable, under the Senior
Priority Payments.  The ALCO’s process for managing financial risk shall be
based upon the following:

 

·                  Minimizing the GIC Business’s exposure to risk

·                  Establishing appropriate risk parameters

·                  Monitoring risks on an ongoing basis

 

The ALCO recognizes that risk management is a dynamic process based in part on
the judgments and perceptions of its members, which may vary significantly. The
ALCO shall therefore consider appropriate industry standards, best practices,
peer comparisons, and the views of reputable outside resources in its risk
management process.  The ALCO, in carrying out its responsibilities, believes
its policies and procedures should remain flexible in order to best react to
changing conditions and circumstances.

 

--------------------------------------------------------------------------------

 

Appendix II

 

PERMITTED INVESTMENTS

 

The following limits shall apply to all investments purchased after the
effective date of these ALM Procedures (it being understood, for the avoidance
of doubt, that such limits shall not be applicable to any investments owned as
of the effective date of these ALM Procedures):

 

1.              Cash Equivalent Investments:

 

a.               Bank Deposits (“BD”) — BD counterparties will constitute the
currently approved counterparty list (see attached Exhibit A).  The Bank of New
York is the overnight sweep account with an investment limit (in addition to its
limit as an approved BD counterparty) of USD 150MM.

 

b.              Reverse Repurchase Agreements (“Reverse Repos”) — Contingent
upon further approval of the ALCO for specific counterparties.  The term limit
is 1 week with a maximum counterparty exposure of USD 250MM and with inclusion
of customary haircuts and collateral posing obligations acceptable to the ALCO. 
U.S. Treasuries and U.S. Agencies are acceptable collateral with a maximum
maturity of 10 years.

 

2.              U.S. Treasury bills, notes and bonds:  Unlimited investment
amount and unlimited term

 

3.              U.S. Securities backed by the full faith and credit of the U.S.
Government:

 

a.               GNMAs (inclusive of pass-throughs and CMOs):  Investment amount
limit of USD 2,000MM or, if less, 25% of “total assets” (i.e., including assets
owned as of the effective date of these ALM Procedures) by invested dollars and
WAL limit of 12 years

 

b.              Small Business Administration (“SBA”):  Investment amount limit
of USD 250MM or, if less, 10% of total assets by invested dollars and WAL limit
of 12 years

 

c.               Agency for International Development (“AID”):  Investment
amount limit of USD 250MM or, if less, 10% of total assets by invested dollars
and WAL limit of 15 years

 

d.              Other:  For each other class of U.S. securities backed by the
full faith and credit of the U.S. Government, investment amount limit of USD
250MM or, if less, 10% of total assets by invested dollars and WAL limit of 5
years

 

4.              Bonds guaranteed under the FDIC’s Temporary Liquidity Guarantee
Program (maturity limit not later than the termination of the program): 
Investment amount limit (measured in the aggregate for all such bonds under the
program) of USD 1,000MM or, if less, 20% of total assets by invested dollars and
maturity limit as established by the program (as of the effective date of these
ALM Procedures, approximately 3.5 years)

 

5.              RMBS issued or guaranteed by FNMA or FHLMC (inclusive of
pass-throughs and CMOs):  Investment amount limit (per entity) of USD 2,000MM
or, if less, 25% of total assets by invested dollars and WAL limit of 12 years;
provided that, prior to the occurrence of a Dexia Event of Default, no such
securities may be purchased without the prior approval of Dexia in each instance

 

6.              Securities issued on a full recourse basis by the States of
France, Belgium, Germany, the United Kingdom or the Netherlands:  Investment
amount limit (per sovereign) of USD 1,000MM or, if less, 25% of total assets by
invested dollars and maturity limit of 30 years

 

7.              Securities guaranteed (but not issued) on a full recourse basis
by the States of France, Belgium, Germany, the United Kingdom or the
Netherlands:  Investment amount limit (per sovereign) of USD 250MM or, if less,
10% of total assets by invested dollars and maturity limit of 10 years

 

--------------------------------------------------------------------------------

 

·                  Notwithstanding the foregoing, (x) the aggregate principal
balance of the securities issued or guaranteed by the States of France or
Belgium may not exceed USD 1,250 MM in the aggregate, and (y) securities issued
or guaranteed by any State listed in clause 6 and 7 that does not have a long
term rating of at least “AA” or its equivalent by each Rating Agency are not
Permitted Investments.

 

·                  Notwithstanding any other provision contained in this
Appendix II, no asset shall be acquired (even if it would otherwise constitute a
Permitted Investment) if to do so (taking into account any associated Hedge
Agreement that would be acquired in connection therewith) would cause any of the
limits set forth in these ALM Procedures, including, but without limitation, any
PV01 limits, to be violated.

 

·                  The above investments will either be natural floating rate
securities or fixed rate with time certain amortization schedules that can be
hedged back to floating rate.  Fixed rate bonds with make whole provisions are
acceptable investments.  In addition, securities may be denominated in USD,
Euros or Sterling and, if denominated in Euros or Sterling, shall be swapped
back to USD (or used to offset liabilities denominated in the same non-USD
currency).  Any investment limits for non-USD transactions will be based on the
FX rate as of the trade date.

 

·                  Investment limits for bonds with a principal balance and
accrue interest are based on economic balance (i.e., par * purchase price);
investment limits for zero coupon bonds are based on face (i.e., amount due at
maturity)

 

·                  All investments must be Fed and/or ECB eligible as a strict
condition

 

·                  All junior and mezzanine debentures and structures are
strictly prohibited.

 

·                  The WAL of any Permitted Investment proposed to be acquired
needs to be reasonably aligned with the expected WAL of the liabilities.

 

·                  The above investment criteria apply at the time of purchase. 
Any violations will be remedied through a resale of such security (and the
assignment of a collateral value of zero for purposes of collateral postings for
purposes of the Dexia CSAs for so long as such security continues to be held).

 

The following terms used above in this Appendix II shall have the following
meanings:

 

“CMO”:

 

Collateralized mortgage obligation.

“ECB”:

 

European Central Bank.

“FDIC”:

 

Federal Deposit Insurance Corporation.

“Fed”:

 

Federal Reserve System.

“FHLMC”:

 

Federal Home Loan Mortgage Corporation.

“FNMA”:

 

Federal National Mortgage Association.

“GNMA”:

 

Governmental National Mortgage Association.

“RMBS”:

 

Residential mortgage backed securities.

“WAL”:

 

Weighted average life.

 

--------------------------------------------------------------------------------

 

Exhibit A to

Appendix II

 

Approved Bank Deposit Counterparties

 

Each of the following institutions is currently approved as a Bank Deposit
counterparty with an investment limit of USD 100MM and a maturity limit of 1
week; provided that such institution has, at the time of the making of such
deposit, minimum short-term and long-term ratings of (i) P-1 and Aa3 from
Moody’s; (ii) A-1+ and AA- from S&P; and (iii) if rated by Fitch, F1 and AA-
from Fitch:

 

Abbey National Treasury Services PLC

Banco Bilbao Vizcaya Argentaria, S.A.

Bank of New York

Bank of Nova Scotia

BNP Paribas

Branch Banking & Trust

Credit Agricole

HSBC Bank plc

JPMorgan Chase Bank

Nordea Bank Finland Plc

Rabobank Nederland

Svenska Handelsbanken AB

U.S. Bank N.A.

Wells Fargo Bank NA

 

--------------------------------------------------------------------------------

 

Appendix III

 

CERTAIN DEFINITIONS

 

“PV01”:

 

Measures change in the net present value of a financial instrument if rates move
up by one basis point across the entire yield curve.  In the case of PV01 for a
specific time bucket, it measures the change in net present value of a financial
instrument if the rate moves up by 1 basis point only for that time maturity
bucket while the rest of the rates at other time buckets remain the same.

 

Interest rate curves are generated from market observable Libor/swap rates and
are generated automatically in Principia.

 

“Convexity”:

 

NPV change (+/-100 bps) — net aggregate PV01 * 100 bps

 

“99%, 10-day, VaR”:

 

Value-at-Risk (VaR) is defined as the maximum potential loss in the value of a
portfolio of financial instruments with a given probability over a certain
horizon (the holding period).  The 99%, 10-day VaR is a measure of the potential
loss that can be experienced with a 99% confidence level and for a holding
period of 10 business days.

 

Interest Rate VaR

 

Interest rate risk is measured through a parametric VaR approach.

 

A parametric model assumes a parametric probability distribution of the risk
factor returns, e.g. often a normal distribution is assumed.  The idea behind
parametric methods is to approximate the return function in order to obtain an
analytical formula for VaR, based on standard mathematical properties.

 

The VaR calculation has the following form: GRAPHIC [g176031lp35ci001.gif]

 

where [g176031lp35ci002.jpg] represents the variance-covariance matrix of the
risk factors and [g176031lp35ci003.jpg] is the vector of exposures of this
portfolio on these risk factors (that is, the sensitivity for interest rates
risk on the different interest rate curves buckets).  The c term is equal to the
corresponding %-percentile of the one-dimension standard normal distribution
multiplied by GRAPHIC [g176031lp35ci004.gif]. This GRAPHIC
[g176031lp35ci004.gif]term stands for the scaling of a 1-day horizon to a 10-day
horizon.

 

Credit Spread VaR

 

Credit spread risk is measured through a parametric VaR approach using
sensitivities.  This Credit Spread VaR measures the specific credit spread risk
at a constant credit rating for trading and AFS positions.

 

Historical data for each credit spread bucket is used to estimate the volatility
for each risk factor.  These estimations are used to calculate a VaR
(%-percentile) based on the same parametric estimates as in the interest rate
VaR.

 

--------------------------------------------------------------------------------

 

Each position is mapped to a bucket based on its credit rating and its sector. 
The credit spread volatility is estimated using historical data for each credit
spread bucket based on historically observed credit spread movements.  The
impact on the position’s value is calculated by using the exposure’s credit
spread delta.  The result for each position is totaled to derive the portfolio
impact and the desired VaR.

 

--------------------------------------------------------------------------------

 

Appendix IV

 

CASH FLOW SCENARIO ANALYSIS ASSUMPTIONS

 

Base Scenario:

 

See descriptions and assumptions in Appendix V — PROCESS AND PROCEDURES FOR
RE-PROJECTION OF CASH FLOWS

 

Stress Scenarios:

 

Assets:

 

RMBS assets are assumed to prepay 20% and 40% slower in each payment period
(monthly) than projected in the base scenario.

 

GICs:

 

For CLO/CDO GICs, FSA’s worst cohort default rates are applied to each corporate
CDO deal assuming a 50% recovery for loans (CLO) and a 30% recovery for bonds
(senior unsecured).

 

--------------------------------------------------------------------------------

 

Appendix V

 

PROCESS AND PROCEDURES FOR RE-PROJECTION OF CASH FLOWS

 

Overview:

 

This Appendix defines the current process and procedures for reviewing and
adjusting asset prepayment and GIC flex speeds.  Such process and procedures may
be adjusted from time to time by decision of the ALCO.

 

Background:

 

For hedging and liquidity projection purposes, asset prepayment and GIC flex
speeds need to be properly modeled and reflected in Principia.

 

Process:

 

Once each month (typically at the end of the month for assets since most of the
payments are received on or about the 25th of the month), the Administrator will
develop reports detailing the assets and GICs that are subject to
prepayment/flex risks.  The payment histories and current projections are
reviewed for speed changes to the asset and GIC schedules.

 

The following shows the specific processes that are performed to determine and
implement speed changes for asset and GIC schedules:

 

Monthly Schedule Re-projection Process — Assets:

 

I.       Operations

 

a.               Track actual payments for comparison to expected ones.

b.              Resolve discrepancies by comparing to Bloomberg factors and
contacting the counterparty if necessary or appropriate.

c.               Update Principia balances as applicable to reflect the correct
factors.

d.              Provide a spreadsheet showing all actual vs. expected payments
to Risk Management.

e.               No re-projection of prepayment occurs at this stage other than
adjusting the current schedules proportionately to reflect the actual vs.
expected payment differences; Discount Margin(4) recalculations are automatic as
part of this ratio-stripping program

 

II.      Risk Management

 

f.                 Run program that shows all Principia deals and their related
schedules to ensure they are correct (if we own multiple positions of the same
deal tranche they share a schedule, etc.).

g.              Run program to populate spreadsheet with the latest Principia
deal information for ABS and mortgage backed securities, or “MBS” deals (current
balance, seasoning, average life and prepayment speed description).

h.              Operations data showing actual vs. expected payments is added
for each deal

i.                  Any new deals that were settled since the prior month are
added to the spreadsheet library of prepayment speeds for each deal that
interfaces with Intex to produce schedules.

 

--------------------------------------------------------------------------------

(4) NOTE: Should this be a defined term?

 

--------------------------------------------------------------------------------

 

j.                  Creates a summary of each deal in a spreadsheet with current
balance, seasoning, average life, expected vs. actual payments, current
principal or no current principal, current prepayment speed description,
historical Intex constant prepayment rate, or “CPR,” data, and sector-vintage. 
Every MBS deal is reviewed each month (filters identifying only certain deals
for review are no longer applicable).

 

k.               Review and modify prepayment assumptions in the above
spreadsheet.  Speed changes are identified in a specific column.  The 3-month
average actual CPR data is generated (by the Front Office) for each deal and is
further split into constant default rate, or “CDR,” and variable prepayment
rate, or “VPR,” categories.  The new prepayment speed is determined by the
following formula:  (((3-month average actual VPR) + (3-month average actual CDR
* recovery rate)) divided by (3-month average projected CPR))) times current
prepayment curve

 

Recovery Rates to be applied to CDR data are updated on a quarterly basis and
currently equal:

 

Type

 

Recovery Rate

 

 

 

 

 

Subprime

 

50

%

Alt-A and Prime

 

65

%

Option ARM

 

65

%

HELOC

 

0

%

Second Lien

 

0

%

 

It should be noted that certain FNMA and FHLMC originated RE-REMIC securities do
not have CPR data available.  For those deals, the weighted average CPR data for
the underlying deals is used and the new speed calculated using the formula. 
Additionally, there are auto loan deals run at ABS speeds that are adjusted to
3-month average ABS speeds.  All NIM deals are re-projected using the 3-month
average factor changes as CPR data is not applicable.

 

III.     Risk Management

 

l.                  Implements the speed changes by making changes to the
prepayment speed library.

m.            Runs program that interfaces with Intex program to produce
schedules for upload into Principia.

n.              Reviews diagnostics for each deal that show the change to
average life resulting from the current schedule run as compared to previous
schedule.  Any unexpected differences are investigated and resolved.

 

IV.    Operations

 

o.              Uploads files with new amortization schedules.  The upload
program automatically calculates new Discount Margins for all premium and
discount assets to reflect the new deal spread implied by the schedule change. 
Reviews the diagnostics that show NPV and spread changes that result from the
new schedule upload.  Any large differences are reported to Risk Management for
investigation.  The diagnostics also indicate if any deal schedules failed to
run due to system error.

 

V.      Risk Management

 

p.              Creates a file with updates to the prepayment speed
descriptions.

q.              Reviews a sample of premium and discount assets each month to
verify that the automatically calculated new Discount Margin and deal spread tag
programs are working properly.

 

--------------------------------------------------------------------------------

 

VI.    Front Office

 

r.                 Creates 2 files (deal level and summarized by sector-vintage)
that show projected vs. actual CPR (broken down by CDR and VPR where available)
for MBS that illustrate the impact of the current month’s speed changes by
showing what the projected CPR’s would have been for 1 month, 3 months, and 6
months historically if the current speeds were used.  The deal level projected
vs. actual CPR data is used by Risk Management to calculate the following
month’s projections (using the formula in k.).  The data is then summarized by
sector-vintage buckets (for instance, HEL_NON_AGENCY 2007) for comparison to the
actual CPR’s for the same historical periods.

 

VII.   Risk Management

 

s.               Summarizes the actual vs. projected payments by sector-vintage
to show the effectiveness of the prior month’s schedule re-projections.  The
results are then analyzed to identify additional process improvements.

 

Monthly Schedule Re-projection Process — GICs:

 

I.                                         Operations

 

t.                 Track actual deposits and draws for comparison to projected
ones.

u.              Update Principia balances to reflect actual payment activity.

v.              No re-projection of prepayments occurs at this stage other than
adjusting the current schedules proportionately to reflect the actual vs.
expected payment differences; Discount Margin recalculations are automatic as
part of this ratio-stripping program.

 

II.                                     Risk Management

 

w.            Creates monthly Principia-generated “Flex Report for Construction
Funds” with the actual historical and current projected balances compared to the
original projected balances.  The Flex Report also summarizes the Discount
Margin change history and realized historical spreads as well as GIC fixed rate
buckets in comparison to current Libor swap rates (higher or lower than current
market).

 

III.                                 Risk Management, Front Office, Operations

 

x.                Risk Management, Front Office, and Operations review the Flex
Report balance history and current projections relative to original projections
and determine whether the current schedule projections should be sped up or
slowed down (may include a call to the GIC investor by Operations).

y.              Other GIC types, such as Float Fund GICs (Front Office) and CDO
GICs (Risk Management) are reviewed for possible speed changes on a periodic
basis

 

·                  ABS CDO GICs:

 

For the ABS CDO GICs, 10 of the ABS CDO transactions in our GIC portfolio,
representing approximately 65% of the outstanding notional amount, are modeled
in Intex.  We applied subprime and Alt-A default and severity curves to the
respective portions of the underlying assets consistent with the average rates
used in our impairment analysis.  For the subprime assets, the CDR plateau was
28.84% which remained constant for 21 months followed by a 12 month linear
decline to 7.21%.  For the Alt-A assets, a CDR plateau of 19.62% was used for
the first 21 months followed by a 12 month linear decline to 4.91%.  Severities
for subprime are assumed to increase from 50% to 60% over the first 15 months
after which they remained constant at 60% for the remaining life.  For the Alt-A
assets, severities were assumed to increase from 40% to 50% over the first 15
months after which they remained constant at 50% for the remaining life. 
Prepayments were assumed to be 5%

 

--------------------------------------------------------------------------------

 

for the first 21 months followed by a 12 month linear ramp up to 15% after which
the rate remained constant at 15% for the remaining life.  For the transactions
that we were unable to model, the average of the modeled schedules was used to
project the GIC balance.

 

·                  CDO/CLO GICs:

 

We use Moody’s average historical default rates, applied to the underlying
collateral of each CDO/CLO deal.  The loss severity is 50% for loans and 70% for
senior unsecured bonds.  The Moody’s historical default rates are rating
dependent.

 

z.                Recommends speed changes by creating new amortization
schedules for upload and creates “Discount Margin Change Form” showing the
resulting spread change (to be signed by Front Office, Operations, Risk
Management and FP management).

 

IV.                                Risk Management

 

aa.         Reviews all proposed schedule changes by Front Office prior to
upload by Operations

 

V.                                    Operations

 

bb.       Uploads files with new amortization schedules and runs program to
calculate new Discount Margins for the GICS to reflect the new deal spread
created by the schedule change (reflects economics of the GIC and its hedge due
to adjustment to its hedge position as a result of speed changes).

cc.         Informs Risk Management of any additional changes made to proposed
schedule changes due to unexpected events (draws or deposits that were not
foreseen at time of schedule creation).

dd.       Delivers the Discount Margin Change Forms for all GICs with schedule
changes to Risk Management for review.

 

VI.                                Risk Management

 

ee.         Reviews changes to schedules and Discount Margins for reasonableness
and calculation accuracy and signs off on the changes.

 

--------------------------------------------------------------------------------

 

Appendix VI

 

POST DEXIA EVENT OF DEFAULT

 

In the event that FSA shall ever elect to become the Secured Party
Representative following the occurrence of a Dexia Event of Default, commencing
at the time of such election FSA shall, and shall cause the Administrator to,
implement diligently and in good faith the “FSA Defeasance Plan”, attached as
Exhibit A hereto, as soon as reasonably practicable in accordance with Article V
of the Pledge and Administration Agreement.  For the avoidance of doubt, in the
event that any provision set forth in this Appendix VI (including, without
limitation, in Exhibit A hereto) shall be inconsistent with any provision set
forth in the Pledge and Administration Agreement, the inconsistent provision set
forth in the Pledge and Administration Agreement shall prevail.

 

In particular, FSA shall, and shall cause the Administrator to, consistent with
the FSA Defeasance Plan:

 

(i)                                     Match unhedged long-dated fixed rate
assets (consisting solely of Permitted Investments, Put Portfolio Assets and a
de minimis amount of other assets) to all unhedged long-dated fixed rate
liabilities.

 

(ii)                                  Assess the risk of rising rates for all
liability hedges and/or early termination of any GICs and, based upon such
assessment, devise and implement a strategy to hedge such risk consistent with
the Strategy and Objectives described in Section 2, including through the
purchase of one or more swaptions or caps; provided that the particular term and
structure of such strategy will be subject to approval by the ALCO (subject, for
the avoidance of doubt, to Dexia’s rights provided in the Pledge and
Administration Agreement).

 

(iii)                               Continue to observe all limits set forth in
Section 5 (“Market Risk Management”), including, but without limitation, the
PV01 limits set forth therein.  This can be achieved by matching some or all of
the fixed rate liabilities with fixed rate assets (consisting solely of
Permitted Investments, except as set forth in clause (i) above) and/or swapping
some or all fixed rate liabilities and assets to floating rate.

 

(iv)                              Continue to observe all limits set forth in
Section 6 (“Liquidity Risk Management”).

 

For the avoidance of doubt, as provided in Section 9, all provisions set forth
in these ALM Procedures shall continue to be fully applicable except to the
extent inconsistent with any provision set forth in this Appendix VI (including
Exhibit A hereto) or except as otherwise specifically set forth in the ALM
Procedures.

 

--------------------------------------------------------------------------------

 

Exhibit A to

Appendix VI

 

FSA Defeasance Plan

 

The FSA Defeasance Plan will use the following resources which are expected to
be available:

 

·                  Dexia CSA Collateral, including the GIC Business Costs Amount
and other amounts posted with respect to its Hedge Agreements.

·                  FSAM Assets and Sovereign Guarantee — the assets would at the
point of a Dexia Event of Default be put (or held until they may be put) to
Dexia, guaranteed by the Sovereign Guarantors (prior to the Liquidity and
Collateral Trigger Expiration Date or the Sovereign Guarantee Unenforceability
Date) or, other than with respect to any Permitted Investments, liquidated (on
or after the Liquidity and Collateral Trigger Expiration Date or the Sovereign
Guarantee Unenforceability Date).

·                  Shares of HF Services — FSA may direct HF Services, such that
existing employees and systems may be the same as those which had been in
existence prior to the Dexia Event of Default, although FSA may replace HF
Services as the Administrator.

·                  Asset / Liability Swaps — The GIC Business will benefit from
any collateral that has been posted by the counterparties to FSAM or the FSAM
Hedging Successor, as applicable.

·                  GICs — the GICs are expected to amortize down to
approximately $6 billion over the next two years, and the GICs with highest
maturity variability (the CDO GICs) are Libor based and therefore there are no
fixed to floating swaps with respect to such GICs.  FSA intends to invest in
Treasury Bills for this portion of the book.

·                  Options — the ability to purchase swaptions and caps to hedge
or minimize the risk of rising interest rates and early termination or
acceleration of all or any portion of the long-dated fixed rate GICs.

 

Since it is uncertain what the conditions will be at the time that FSA becomes
the Secured Party Representative, the tactics to achieve the low risk portfolio
will change depending on the relevant circumstances.  The key factors in this
determination are as follows:

 

·                  Composition of GIC Portfolio — Over time, fixed rate GICs
will comprise an increasing percentage of the remaining portfolio.  The
long-dated GICs are mainly for Municipal Debt Service Reserve funds ($2.2
billion) with a WAL of approximately 15 years.  The other fixed rate GICs are
shorter dated construction funds (1.5 WAL) and capitalized interest funds (2.0
WAL).  The CDO GICs, as previously mentioned, are expected to mature quickly and
are floating rate.

·                  Interest rates — FSA will consider swap spreads, interest
rates and the shape of the forward curve and will consider the costs of any
swaptions or cap purchases that would be necessary or appropriate to reduce the
risk to the GIC Business of rate increases.

 

The FSA Defeasance Plan will address the following risks:

 

·                  Market price volatility of the Permitted Investments —
Permitted Investments are specified investments that are marked to market on a
weekly basis and are valued with conservative advance rates.  FSA will direct
the Administrator to minimize the market risk associated with the mismatch of
assets and liabilities through cashflow matching, either directly or
synthetically, of assets and liabilities.

·                  Interest rate swap / collateral posting— A rising interest
rate environment could expose the FSAM Hedging Successor to posting requirements
with respect to interest rate swaps entered into to hedge long-dated fixed rate
GICs, to the extent such swaps are Senior Third Party Hedge Agreements.  FSA
will direct the Administrator to assess the existing Senior Third Party Hedge
Agreements and

 

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endeavor to match the total notional of any that are asset swaps with a similar
quantum of liability swaps.  This will minimize any need for sourcing funds of
FSAM or the FSAM Hedging Successor to post as collateral under the Senior Third
Party Hedge Agreements as net flows should be zero.  The negative MTM on the
liability swaps that are Senior Third Party Hedge Agreements will be mitigated
by re-hypothecated collateral posted to the FSAM Hedging Successor from the
asset swaps that are Senior Third Party Hedge Agreements which will have a
largely offsetting positive MTM.

·                  Fixed Rate GIC liability acceleration — GIC acceleration
could arise due to either an FSA downgrade or other factors (Muni-bond default
or refinancing).  FSA will direct the Administrator to assess the
appropriateness of purchasing swaptions and/or caps that will offset the asset
value loss that would be realized should GICs accelerate in light of prevailing
interest rates, the shape of the forward curve and swap spreads.

 

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