Exhibit 10.71
EXECUTION COPY
     
 
SALE AND SERVICING AGREEMENT
by and among
CAPITALSOURCE COMMERCIAL LOAN TRUST 2007-1,
as the Issuer,
CAPITALSOURCE COMMERCIAL LOAN LLC, 2007-1,
as the Trust Depositor,
CAPITALSOURCE FINANCE LLC,
as the Originator and as the Servicer,
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as the Indenture Trustee and as the Backup Servicer.
Dated as of April 12, 2007
     
 
CapitalSource Commercial Loan Trust 2007-1 Asset Backed Notes
Class A, Class B, Class C, Class D, Class E and Class F Notes

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

         
 
    Page  
ARTICLE 1.  DEFINITIONS
    2  
 
       
Section 1.01. Definitions
    2  
Section 1.02. Usage of Terms
    65  
Section 1.03. Section References
    65  
Section 1.04. Calculations
    65  
Section 1.05. Accounting Terms
    65  
 
       
ARTICLE 2.  ESTABLISHMENT OF ISSUER; TRANSFER OF LOAN ASSETS
    66  
 
       
Section 2.01. Creation and Funding of Issuer; Transfer of Initial Loan Assets
    66  
Section 2.02. Conditions to Transfer of Initial Loan Assets to Issuer
    67  
Section 2.03. Acceptance by Owner Trustee
    68  
Section 2.04. Conveyance of Substitute Loans
    69  
Section 2.05. [Reserved]
    72  
Section 2.06. Release of Released Amounts
    72  
Section 2.07. Delivery of Documents in the Loan File
    72  
Section 2.08. Optional Purchase by the Servicer of Certain Loans; Limitations on
Substitution and Repurchase
    72  
Section 2.09. Certification by Indenture Trustee; Possession of Loan Files
    73  
 
       
ARTICLE 3.  REPRESENTATIONS AND WARRANTIES
    75  
 
       
Section 3.01. Representations and Warranties Regarding the Trust Depositor
    75  
Section 3.02. Representations and Warranties Regarding Each Loan and as to
Certain Loans in the Aggregate
    79  
Section 3.03. Representations and Warranties Regarding the Initial Loans in the
Aggregate
    80  
Section 3.04. Representations and Warranties Regarding the Loan Files
    80  
Section 3.05. [Reserved]
    80  
Section 3.06. Representations and Warranties Regarding the Servicer
    80  
Section 3.07. Representations and Warranties of the Backup Servicer
    81  
 
       
ARTICLE 4.  PERFECTION OF TRANSFER AND PROTECTION OF SECURITY INTERESTS
    82  
 
       
Section 4.01. Custody of Loans
    82  
Section 4.02. Filing
    82  
Section 4.03. Changes in Name, Corporate Structure or Location
    83  
Section 4.04. Costs and Expenses
    83  
Section 4.05. Sale Treatment
    84  
Section 4.06. Separateness from Trust Depositor
    84  
 
       
ARTICLE 5.  SERVICING OF LOANS
    84  
 
       
Section 5.01. Appointment and Acceptance
    84  
Section 5.02. Duties of the Servicer
    84  
Section 5.03. Liquidation of Loans
    89  

-i-

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS
(continued)

         
 
    Page  
Section 5.04. Fidelity Bond
    90  
Section 5.05. Maintenance of Hazard Insurance
    90  
Section 5.06. Collection of Certain Loan Payments
    91  
Section 5.07. Access to Certain Documentation and Information Regarding the
Loans
    92  
Section 5.08. Satisfaction of Mortgages and Related Property and Release of Loan
Files
    92  
Section 5.09. Scheduled Payment Advances
    94  
Section 5.10. Title, Management and Disposition of Foreclosed Property
    94  
Section 5.11. Servicing Compensation
    95  
Section 5.12. Assignment; Resignation
    95  
Section 5.13. Merger or Consolidation of Servicer
    95  
Section 5.14. Limitation on Liability of the Servicer and Others
    96  
Section 5.15. The Backup Servicer
    96  
Section 5.16. Covenants of the Backup Servicer
    99  
 
       
ARTICLE 6. COVENANTS OF THE TRUST DEPOSITOR
    99  
 
       
Section 6.01. Legal Existence
    99  
Section 6.02. Loans Not to Be Evidenced by Promissory Notes
    99  
Section 6.03. Security Interests
    99  
Section 6.04. Delivery of Principal Collections and Interest Collections
    100  
Section 6.05. Regulatory Filings
    100  
Section 6.06. Compliance with Law
    100  
Section 6.07. Activities; Transfers of Notes or Certificates by Trust Depositor
    100  
Section 6.08. Indebtedness
    100  
Section 6.09. Guarantees
    100  
Section 6.10. Investments
    101  
Section 6.11. Merger; Sales
    101  
Section 6.12. Distributions
    101  
Section 6.13. Other Agreements
    101  
Section 6.14. Separate Legal Existence
    102  
Section 6.15. Location; Records
    102  
Section 6.16. Liability of Trust Depositor
    103  
Section 6.17. Bankruptcy Limitations
    103  
Section 6.18. Limitation on Liability of Trust Depositor and Others
    103  
Section 6.19. Insurance Policies
    103  
Section 6.20. Payments from Obligor Lock–Boxes and Obligor Lock–Box Accounts
    104  
 
       
ARTICLE 7. ESTABLISHMENT OF ACCOUNTS; DISTRIBUTIONS; RESERVE FUND
    104  
 
       
Section 7.01. Note Distribution Account, Reserve Fund and Lock–Boxes
    104  
Section 7.02. Reserved
    105  

-ii-

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS
(continued)

         
 
    Page  
Section 7.03. Principal and Interest Account
    105  
Section 7.04. Securityholder Distributions
    108  
Section 7.05. Priority of Payments; Allocations and Distributions
    108  
Section 7.06. Determination of LIBOR
    113  
Section 7.07. Monthly Reconciliation
    114  
 
       
ARTICLE 8. SERVICER DEFAULT; SERVICER TRANSFER
    114  
 
       
Section 8.01. Servicer Default
    114  
Section 8.02. Servicer Transfer
    115  
Section 8.03. Appointment of Successor Servicer; Reconveyance; Successor
Servicer to Act
    116  
Section 8.04. Notification to Securityholders
    118  
Section 8.05. Effect of Transfer
    118  
Section 8.06. Database File
    118  
Section 8.07. Waiver of Defaults
    119  
Section 8.08. Responsibilities of the Successor Servicer
    119  
Section 8.09. Rating Agency Condition for Servicer Transfer
    119  
Section 8.10. Appointment of Successor Backup Servicer; Successor Backup
Servicer to Act
    120  
 
       
ARTICLE 9. REPORTS
    120  
 
       
Section 9.01. Monthly Reports
    120  
Section 9.02. Officer’s Certificate
    121  
Section 9.03. Other Data; Obligor Financial Information
    121  
Section 9.04. Annual Report of Accountants
    121  
Section 9.05. Annual Statement of Compliance from Servicer
    122  
Section 9.06. [Reserved]
    123  
Section 9.07. Notices of Event of Default or Servicer Default
    123  
Section 9.08. Indenture Trustee’s Right to Examine Servicer Records and Audit
Operations
    123  
 
       
ARTICLE 10. TERMINATION
    123  
 
       
Section 10.01. Optional Repurchase of Offered Notes
    123  
Section 10.02. Termination
    124  
 
       
ARTICLE 11. REMEDIES UPON MISREPRESENTATION; REPURCHASE OPTION
    124  
 
       
Section 11.01. Repurchases of, or Substitution for, Loans for Breach of
Representations and Warranties
    124  
Section 11.02. Reassignment of Repurchased or Substituted Loans
    125  
 
       
ARTICLE 12. INDEMNITIES
    125  
 
       
Section 12.01. Indemnification by Servicer
    125  

-iii-

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS
(continued)

         
 
    Page  
Section 12.02. Indemnification by Trust Depositor
    126  
 
       
ARTICLE 13. MISCELLANEOUS
    126  
 
       
Section 13.01. Amendment
    126  
Section 13.02. Protection of Title to Issuer
    127  
Section 13.03. Governing Law
    127  
Section 13.04. Notices
    128  
Section 13.05. Severability of Provisions
    130  
Section 13.06. Third Party Beneficiaries
    131  
Section 13.07. Counterparts
    131  
Section 13.08. Headings
    131  
Section 13.09. No Bankruptcy Petition; Disclaimer
    131  
Section 13.10. Jurisdiction
    132  
Section 13.11. Tax Characterization
    132  
Section 13.12. Prohibited Transactions with Respect to the Issuer
    133  
Section 13.13. Limitation of Liability of Owner Trustee
    133  
Section 13.14. Allocation of Payments with Respect to Loans
    133  
Section 13.15. No Partnership
    134  
Section 13.16. Successors and Assigns
    134  
Section 13.17. Acts of Holders
    134  
Section 13.18. Duration of Agreement
    135  
Section 13.19. Limited Recourse
    135  
Section 13.20. Confidentiality
    135  
Section 13.21. Non-Confidentiality of Tax Treatment
    135  
Section 13.22. Alternative Exchange Listing
    136  

-iv-

--------------------------------------------------------------------------------

 

EXHIBITS, SCHEDULES AND APPENDIX

         
Exhibit A
  Form of Assignment   A–1
Exhibit B
  Form of Closing Certificate of Trust Depositor   B–1
Exhibit C
  Form of Closing Certificate of Servicer/Originator   C–1
Exhibit D
  Form of Liquidation Report   D–1
Exhibit E
  Form of Principal and Interest Account Letter Agreement   E–1
Exhibit F
  [Reserved]   F–1
Exhibit G
  List of Loans   G–1
Exhibit H
  Form of Monthly Servicer Report   H–1
Exhibit I
  Form of Subsequent Transfer Agreement   I–1
Exhibit J
  Form of Subsequent Purchase Agreement   J–1
Exhibit K
  Credit and Collection Policy   K–1
Exhibit L–1
  Form of Initial Certification   L–1
Exhibit L–2
  Form of Final Certification   L–2
Exhibit M
  Form of Request For Release Of Documents   M–1
Exhibit N
  Form of Addition Notice   N–1
 
       
Schedule I
  Lock–Box Banks and Lock–Box Accounts   Schedule–I
Schedule II
  Obligor Lock–Box Banks and Obligor Lock–Box Accounts   Schedule–II
 
       
Annex A
  Diversity Score Table    
Annex B
  Moody’s RickCalc Calculation    
Annex C
  Weighted Average Life Matrix    

-i-

--------------------------------------------------------------------------------

 

SALE AND SERVICING AGREEMENT
     THIS SALE AND SERVICING AGREEMENT, dated as of April 12, 2007, is by and
among:

  (1)   CAPITALSOURCE COMMERCIAL LOAN TRUST 2007-1, a statutory trust created
and existing under the laws of the State of Delaware (together with its
successors and assigns, the “Issuer”);     (2)   CAPITALSOURCE COMMERCIAL LOAN
LLC, 2007-1, a Delaware limited liability company, as the trust depositor
(together with its successor and assigns, in such capacity, the “Trust
Depositor”);     (3)   CAPITALSOURCE FINANCE LLC, a Delaware limited liability
company (together with its successors and assigns, “CapitalSource”), as the
servicer (together with its successor and assigns, in such capacity, the
“Servicer”), and as the originator (together with its successor and assigns, in
such capacity, the “Originator”); and     (4)   WELLS FARGO BANK, NATIONAL
ASSOCIATION (together with its successors and assigns, “Wells Fargo”), not in
its individual capacity but as the indenture trustee (together with its
successors and assigns, in such capacity, the “Indenture Trustee”), and not in
its individual capacity but as the backup servicer (together with its successors
and assigns, in such capacity, the “Backup Servicer”).

R E C I T A L S
     WHEREAS, in the regular course of its business, the Originator originates
and/or otherwise acquires Loans (as defined herein);
     WHEREAS, the Trust Depositor purchased the Initial Loans from the
Originator and may purchase from time to time thereafter certain Substitute
Loans (such Initial Loans and Substitute Loans, together with certain related
property as more fully described herein, being the Loan Assets as defined
herein);
     WHEREAS, it is a condition to the Trust Depositor’s acquisition of the
Initial Loans and any Substitute Loans from the Originator that the Originator
make certain representations and warranties regarding the Loan Assets for the
benefit of the Trust Depositor as well as the Issuer;
     WHEREAS, on the Closing Date (as defined herein), the Trust Depositor will
fund the Issuer by selling, conveying and assigning all its right, title and
interest in the Initial Loan Assets and certain other assets to the Issuer;
     WHEREAS, the Issuer is willing to purchase and accept assignment of the
Loan Assets (as defined herein) from the Trust Depositor pursuant to the terms
hereof; and

 

--------------------------------------------------------------------------------

 

     WHEREAS, the Servicer is willing to service the Loan Assets for the benefit
and account of the Issuer pursuant to the terms hereof.
     NOW, THEREFORE, based upon the above recitals, the mutual premises and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE 1.
DEFINITIONS
     Section 1.01. Definitions.
     Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
“1940 Act” means the Investment Company Act of 1940, as amended.
“A/B Exchange” means an exchange or sale of one security (the “A Security”) and
the subsequent delivery of or reinvestment in another security (the “B
Security”) which shall be issued by the issuer or issuers of the A Security and
shall have substantially identical terms to the A Security, except that one or
more restrictions on the ability of the holder to sell or otherwise dispose of
the A Security are intended to be inapplicable to the B Security and cash or
cash equivalents in settlement of fractional or unauthorized denominations of A
Securities tendered for exchange or B Securities received in exchange.
“Accreted Interest” means accrued interest on a Deferred Interest Loan that is
added to the principal amount of such Deferred Interest Loan instead of being
paid as it accrues.
“Acquired Loan” means a Loan that is originated by a Person other than the
Originator or an Affiliate thereof and acquired by the Originator in a “true
sale” transaction pursuant to a standard loan acquisition agreement.
“Addition Notice” means, with respect to any transfer of Substitute Loans to the
Issuer in accordance with Section 2.04, (and the Trust Depositor’s corresponding
prior purchase of such Loans from the Originator), a notice in the form of
Exhibit N, which shall be delivered not later than ten Business Days prior to
the related Cut-Off Date, identifying the Substitute Loans to be transferred,
the Outstanding Loan Balance of such Substitute Loans and the related
Substitution Event (with respect to an identified Loan or Loans then in the Loan
Pool) to which such Substitute Loan relates, with such notice to be signed both
by the Trust Depositor and the Originator.
“Additional Servicing Fee” means an amount, in addition to the Servicing Fee,
necessary to induce a Successor Servicer to serve as Servicer hereunder, which
amount shall not exceed $100,000 in the aggregate per Successor Servicer.

2

--------------------------------------------------------------------------------

 

“Administrative Expenses” means fees and expenses (excluding amounts related to
indemnification) due or accrued with respect to any Payment Date and payable by
the Issuer:
     (i) to the Indenture Trustee and the Backup Servicer, (a) any monthly fees
to be paid to the Indenture Trustee and the Backup Servicer pursuant to the
Transaction Documents, (b) any additional fees, expenses or other amounts, in
the aggregate, not to exceed $5,000 for any 12-month period and (c) if a
Successor Servicer is being appointed, any Servicing Transfer Costs;
     (ii) to the Owner Trustee, (a) any monthly fees to be paid to it pursuant
to the Transaction Documents and (b) any additional fees, expenses or other
amounts not to exceed $5,000 for any 12-month period;
     (iii) the Independent Accountants, agents and counsel of the Issuer for
fees and expenses including, but not limited to, audit fees and expenses;
     (iv) any other Person in respect of any governmental fee, charge or tax in
relation to the Issuer;
     (v) to the Indenture Trustee, for unpaid fees and expenses (including fees
and expenses of its agents and counsel) incurred in the exercise of its rights
and remedies on behalf of the Securityholders pursuant to Article V of the
Indenture; and
     (vi) to S&P, Moody’s and Fitch, for their respective surveillance fees;
provided that (x) amounts payable as Administrative Expenses pursuant to clauses
(i) through (v) above shall in no event exceed $120,000 in the aggregate for any
12-month period, except that after the occurrence of an Event of Default,
amounts payable as Administrative Expenses pursuant to clauses (i) through
(v) above shall not exceed $180,000 in the aggregate for any 12-month period,
and (y) Administrative Expenses will not include (a) any amounts due or accrued
with respect to the actions taken on or in connection with the Closing Date,
(b) any principal of or interest on, any Notes, (c) amounts payable to Indenture
Trustee, the Backup Servicer, the Owner Trustee or any other Person in respect
of indemnification or (d) amounts payable in connection with the listing of the
Listed Notes on the Irish Stock Exchange.
“Affiliate” of any specified Person means any other Person controlling or
controlled by, or under common control with, such specified Person. For the
purposes of this definition, “control” (including the terms “controlling,”
“controlled by” and “under common control with”) when used with respect to any
specified Person means the possession, direct or indirect, of the power to vote
20% or more of the voting securities of such Person or to direct or cause the
direction of the management and policies of such Person whether through the
ownership of voting securities, by contract or otherwise. Each of the Indenture
Trustee and the Owner Trustee may conclusively presume that a Person is not an
Affiliate of another Person unless a Responsible Officer of such trustee has
actual knowledge to the contrary.
“Agented Loans” means, with respect to any Loan, (a) the Loan is originated by
the Originator as a part of a syndicated loan transaction that has been fully
consummated prior to such Loan becoming part of the Loan Pool and (b) the
Issuer, as assignee of the Loan, will have all of the

3

--------------------------------------------------------------------------------

 

rights (subject to the Retained Interest) excluding agency rights, of the
Originator with respect to such Loan and the Originator’s right, title and
interest in and to the Related Property.
“Aggregate Outstanding Loan Balance” means, as of any date of determination, the
sum of the Outstanding Loan Balance for each Loan owned by the Issuer as of such
date.
“Aggregate Outstanding Principal Balance” means, as of any date of
determination, the sum of the Outstanding Principal Balances of each Class
outstanding on such date.
“Agreement” means this Sale and Servicing Agreement, as amended, modified,
waived, supplemented or restated from time to time in accordance with the terms
hereof.
“Alarm Service Agreement” means an agreement between a Dealer and its customer
pursuant to which the Dealer is obligated to service and monitor the customer’s
alarm system in consideration for monthly payments by the customer.
“Amortizing Loan” means a Loan that, by its terms, provides for (or after a
period of time will provide for) a series of Scheduled Payments calculated to
amortize the principal balance of the Loan over its term so that, at the Loan’s
maturity, no more than 25% of the maximum outstanding loan balance remains
unpaid, with the remaining balance due at maturity.
“Applicable Law” means for any Person or property of such Person, all existing
and future applicable laws, rules, regulations (including proposed, temporary
and final income tax regulations), statutes, treaties, codes, ordinances,
permits, certificates, orders and licenses of and interpretations by any
Governmental Authority (including, without limitation, usury laws, the Federal
Truth in Lending Act, and Regulation Z and Regulation B of the Board of
Governors of the Federal Reserve System), and applicable judgments, decrees,
injunctions, writs, awards or orders of any court, arbitrator or other
administrative, judicial, or quasi-judicial tribunal or agency of competent
jurisdiction.
“Asset Based Revolver” means any Revolving Loan (other than a Loan to an SPE
Obligor) secured by accounts receivable and/or inventory.
“Assigned Loan” means a Loan originated by a Person other than the Originator in
which a constant percentage interest has been assigned to the Originator by such
Person in accordance with the Credit and Collection Policy and (a) such
transaction has been fully consummated prior to such Loan becoming part of the
Loan Pool, (b) the Originator is a party to the underlying loan documents,
(c) the Issuer, as assignee of the Loan, will have all of the rights (but none
of the obligations) of the Originator with respect to such Loan and the
Originator’s right, title and interest in and to the Related Property, and
(d) the agent bank receives payment directly from the Obligor thereof on behalf
of each lender that has been assigned a percentage interest in such Loan.
“Assigned Moody’s Rating” means, with respect to any Loan as of any date of
determination, the monitored publicly available rating or the estimated rating
expressly assigned to such Loan by Moody’s that addresses the full amount of the
principal and interest payable on such Loan.

4

--------------------------------------------------------------------------------

 

“Assignment” means each Assignment, substantially in the form of Exhibit A,
relating to an assignment, transfer and conveyance of Loans and the Related
Property by the Trust Depositor to the Issuer.
“Available Collections Amount” means, as of any Payment Date, an amount equal to
(i) the amount of funds remaining after distribution of all amounts payable
under clauses First through Eighth of Section 7.05(a) minus (ii) the Required
Reserve Amount for such Payment Date.
“Available Collections Shortfall” means, as of any Payment Date, the Total
Principal Payable exceeds the Available Collections Amount.
“Available Principal Amount” means, as of any Payment Date, an amount equal to
(i) the amount of funds remaining after distribution of all amounts payable
under clauses First through Eighth of Section 7.05(a) minus (ii) the sum of the
Outstanding Loan Balances of all Delinquent Loans.
“Average Life” means, with respect to any Loan as of any date of determination,
the number obtained by dividing (a) the sum of the products, of (i) the number
of years (rounded to the nearest one tenth) from such date of determination to
the respective dates of each successive Scheduled Payment of principal of such
Loan and (ii) the respective amounts of principal of such Scheduled Payments by
(b) the sum of all future Scheduled Payments of principal on such Loan.
“Backup Servicer” means the Person acting as Backup Servicer hereunder, its
successors in interest and any Successor Backup Servicer hereunder.
“Backup Servicer Termination Notice” shall have the meaning given to such term
in Section 8.10(a).
“Backup Servicer Transfer” shall have the meaning given to such term in Section
8.10(b).
“Backup Servicing Fee” shall have the meaning given to such term in the fee
letter, dated as of the date hereof, among the Originator, the Trust Depositor,
the Issuer and the Backup Servicer.
“Balloon Loan” means a Loan that, by its terms, provides for a series of
Scheduled Payments calculated to partially amortize the principal balance of the
Loan over its term so that, at the Loan’s maturity, more than 25% (but less than
100%) of the maximum Outstanding Loan Balance for such Loan remains unpaid, with
such remaining balance due at maturity.
“Banc of America Securities” means Banc of America Securities LLC.
“BIF” means the Bank Insurance Fund, or any successor thereto.
“Blended Rate Loan” means a Loan which by its terms has Loan Rates determined by
reference to more than one Loan Rate Index.
“BMO Capital Markets” means BMO Capital Markets Corp.

5

--------------------------------------------------------------------------------

 

“Broadly Syndicated Loan” means any Loan to an Obligor issued as part of a loan
facility, which is held by more than two lenders, with an original loan
commitment (including any first and second lien loans included in the facility)
greater than $250,000,000, including for purposes of this definition the maximum
available amount of commitments under any Revolving Loans and Partially Funded
Term Loans.
“Bullet Loan” means a Loan that, by its terms, provides for no Scheduled
Payments of principal prior to the Loan’s maturity, and, at maturity, the entire
unpaid principal balance of the Loan is due.
“Business Day” means any day other than (a) a Saturday or Sunday, or (b) a day
on which banking institutions in the cities of New York, New York and
Minneapolis, Minnesota are authorized or obligated, by law or executive order,
to be closed; provided that if any action is required of the Ireland Paying
Agent, then, for purposes of determining when such Ireland Paying Agent action
is required Dublin, Ireland will be considered in determining “Business Day”.
“Call Period” means the period on and after the date on which the Outstanding
Principal Balance of the Class A Notes is less than or equal to 20% of the
Outstanding Principal Balance of the Class A Notes on the Closing Date.
“CapitalSource” shall have the meaning given to such term in the Preamble.
“Certificate” means the CapitalSource Commercial Loan Trust 2007-1 Certificates
representing a beneficial equity interest in the Issuer and issued pursuant to
the Trust Agreement.
“Certificate Account” shall have the meaning given to such term in Section 5.01
of the Trust Agreement.
“Certificate Register” shall have the meaning given to such term in the Trust
Agreement.
“Certificateholder” means the registered holder of a Certificate.
“Charged–Off Loan” means a Loan in the Loan Pool with respect to which there has
occurred one or more of the following:
     (a) the occurrence of both (i) any portion of a payment of interest on or
principal (excluding payments of principal consisting of excess cash flow
sweeps) of such Loan is not paid when due (without giving effect to any grace
period or any Scheduled Payment Advance made in respect of such payment of
interest or principal) or would be so delinquent but for any amendment or
modification made to such Loan resulting from the Obligor’s inability to pay
such Loan in accordance with its terms and (ii) within 120 days of when such
delinquent payment was first due, all delinquencies have not been cured;
     (b) an Insolvency Event has occurred with respect to the related Obligor;
     (c) the related Obligor has suffered any material adverse change that
materially affects its viability as a going concern;

6

--------------------------------------------------------------------------------

 

     (d) the Servicer has determined, in its sole discretion, in accordance with
the Credit and Collection Policy, that all or a portion of such Loan is not
collectible;
     (e) any portion of the proceeds used to make payments of principal of or
interest on such Loan have come from a new loan by the Originator or an entity
controlled by the Originator to the Obligor or any of its Affiliates, which new
loan was made to the Obligor due to the Obligor’s inability to make such
payments of principal or interest;
     (f) S&P withdraws its rating or credit estimate assigned to such Loan;
     (g) the related Obligor is rated “D” or “SD” by S&P; or
     (h) with respect to a Structured Loan, such Loan is rated “Ca” or lower by
Moody’s.
“Citigroup” means Citigroup Global Markets Inc.
“Class” means any of the group of Notes identified herein as, as applicable, the
Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the
Class E Notes, or the Class F Notes.
“Class A Notes” means the CapitalSource Commercial Loan Trust 2007-1
Asset-Backed Notes, Class A Notes, issued pursuant to the Indenture.
“Class A Interest Amount” means, for each Interest Accrual Period, the product
of (i) the Note Interest Rate applicable to the Class A Notes as of the first
day of such Interest Accrual Period, (ii) the Outstanding Principal Balance of
the Class A Notes as of the first day of such Interest Accrual Period (after
giving effect to all distributions made on such day) and (iii) a fraction, the
numerator of which is the number of days in such Interest Accrual Period and the
denominator of which is 360.
“Class A Note Interest Rate” means the annual rate of interest payable with
respect to the Class A Notes, which shall be equal to LIBOR plus 0.13% per
annum.
“Class A Noteholder” means each Person in whose name a Class A Note is
registered in the Note Register.
“Class B Accrued Payable” means, for any Payment Date with respect to which the
Class B Interest Amount is calculated using clause (ii)(b) of the definition
thereof, an amount equal to the excess, if any, of (a) the amount that would
have been calculated as the Class B Interest Amount on such Payment Date if the
calculation was made using clause (ii)(a) of the definition of Class B Interest
Amount and not clause (ii)(b) of such definition over (b) the amount calculated
as the Class B Interest Amount on such Payment Date, together with the unpaid
portion of any such excess from prior Payment Dates (and interest accrued
thereon at the then applicable Class B Note Interest Rate).
“Class B Interest Amount” means, for each Interest Accrual Period, an amount
equal to the product of (i) the Class B Note Interest Rate as of the first day
of such Interest Accrual Period, (ii) the lesser of (a) the Outstanding
Principal Balance of the Class B Notes as of the first day of such Interest
Accrual Period (after giving effect to all distributions made on such day) and
(b)

7

--------------------------------------------------------------------------------

 

the excess, if any, of (1) the Aggregate Outstanding Loan Balance as of the last
day of the Due Period immediately preceding the start of such Interest Accrual
Period over (2) the Outstanding Principal Balance of the Class A Notes as of the
first day of such Interest Accrual Period (after giving effect to all
distributions made on such day) and (iii) a fraction, the numerator of which is
the number of days in such Interest Accrual Period and the denominator of which
is 360.
“Class B Note Interest Rate” means the annual rate of interest payable with
respect to the Class B Notes, which shall be equal to LIBOR plus 0.31% per
annum.
“Class B Noteholder” means each Person in whose name a Class B Note is
registered in the Note Register.
“Class B Notes” means CapitalSource Commercial Loan Trust 2007-1 Asset–Backed
Notes, Class B Notes, issued pursuant to the Indenture.
“Class C Accrued Payable” means, for any Payment Date with respect to which the
Class C Interest Amount is calculated using clause (ii)(b) of the definition
thereof, an amount equal to the excess, if any, of (a) the amount that would
have been calculated as the Class C Interest Amount on such Payment Date if the
calculation was made using clause (ii)(a) of the definition of Class C Interest
Amount and not clause (ii)(b) of such definition over (b) the amount calculated
as the Class C Interest Amount on such Payment Date, together with the unpaid
portion of any such excess from prior Payment Dates (and interest accrued
thereon at the then applicable Class C Note Interest Rate).
“Class C Interest Amount” means, for each Interest Accrual Period, an amount
equal to the product of (i) the Class C Note Interest Rate as of the first day
of such Interest Accrual Period, (ii) the lesser of (a) the Outstanding
Principal Balance of the Class C Notes as of the first day of such Interest
Accrual Period (after giving effect to all distributions made on such day) and
(b) the excess, if any, of (1) the Aggregate Outstanding Loan Balance as of the
last day of the Due Period immediately preceding the start of such Interest
Accrual Period over (2) the Outstanding Principal Balance of the Class A Notes
and the Class B Notes as of the first day of such Interest Accrual Period (after
giving effect to all distributions made on such day) and (iii) a fraction, the
numerator of which is the number of days in such Interest Accrual Period and the
denominator of which is 360.
“Class C Note Interest Rate” means the annual rate of interest payable with
respect to the Class C Notes, which shall be equal to LIBOR plus 0.65% per
annum.
“Class C Noteholder” means each Person in whose name a Class C Note is
registered in the Note Register.
“Class C Notes” means CapitalSource Commercial Loan Trust 2007-1 Asset–Backed
Notes, Class C Notes, issued pursuant to the Indenture.
“Class D Accrued Payable” means, if, for any Payment Date, the Class D Interest
Amount is calculated using clause (ii)(b) of the definition thereof, the excess,
if any, of (i) the amount that would have been calculated as the Class D
Interest Amount on such Payment Date if the calculation was made using clause
(ii)(a) of the definition of Class D Interest Amount and not

8

--------------------------------------------------------------------------------

 

clause (ii)(b) of such definition over (ii) the amount calculated as the Class D
Interest Amount on such Payment Date, together with the unpaid portion of any
such excess from prior Payment Dates (and interest accrued thereon at the then
applicable Class D Note Interest Rate).
“Class D Interest Amount” means, for each Interest Accrual Period, the product
of (i) the Class D Note Interest Rate as of the first day of such Interest
Accrual Period, (ii) the lesser of (a) the Outstanding Principal Balance of the
Class D Notes as of the first day of such Interest Accrual Period (after giving
effect to all distributions made on such day) and (b) the excess, if any, of
(1) the Aggregate Outstanding Loan Balance as of the last day of the Due Period
immediately preceding the start of such Interest Accrual Period over (2) the
Outstanding Principal Balance of the Class A Notes, Class B Notes and Class C
Notes as of the first day of such Interest Accrual Period (after giving effect
to all distributions made on such day) and (iii) a fraction, the numerator of
which is the number of days in such Interest Accrual Period and the denominator
of which is 360.
“Class D Note Interest Rate” means the annual rate of interest payable with
respect to the Class D Notes, which shall be equal to LIBOR plus 1.50% per
annum.
“Class D Noteholder” means each Person in whose name a Class D Note is
registered in the Note Register.
“Class D Notes” means CapitalSource Commercial Loan Trust 2007-1 Asset–Backed
Notes, Class D Notes, issued pursuant to the Indenture.
“Class E Accrued Payable” means, if, for any Payment Date, the Class E Interest
Amount is calculated using clause (ii)(b) of the definition thereof, the excess,
if any, of (i) the amount that would have been calculated as the Class E
Interest Amount on such Payment Date if the calculation was made using clause
(ii)(a) of the definition of Class E Interest Amount and not clause (ii)(b) of
such definition over (ii) the amount calculated as the Class E Interest Amount
on such Payment Date, together with the unpaid portion of any such excess from
prior Payment Dates (and interest accrued thereon at the then applicable Class E
Note Interest Rate).
“Class E Interest Amount” means, for each Interest Accrual Period, the product
of (i) the Class E Note Interest Rate as of the first day of such Interest
Accrual Period, (ii) the lesser of (a) the Outstanding Principal Balance of the
Class E Notes as of the first day of such Interest Accrual Period (after giving
effect to all distributions made on such day) and (b) the excess, if any, of
(1) the Aggregate Outstanding Loan Balance as of the last day of the Due Period
immediately preceding the start of such Interest Accrual Period over (2) the
Outstanding Principal Balance of the Class A Notes, Class B Notes, Class C Notes
and Class D Notes as of the first day of such Interest Accrual Period (after
giving effect to all distributions made on such day) and (iii) a fraction, the
numerator of which is the number of days in such Interest Accrual Period and the
denominator of which is 360.
“Class E Note Interest Rate” means the annual rate of interest payable with
respect to the Class E Notes, which shall be equal to LIBOR plus 2.50% per
annum.
“Class E Noteholder” means each Person in whose name a Class E Note is
registered in the Note Register.

9

--------------------------------------------------------------------------------

 

“Class E Notes” means the CapitalSource Commercial Loan Trust 2007-1
Asset-Backed Notes, Class E Notes, issued pursuant to the Indenture.
“Class F Noteholder” means each Person in whose name a Class F Note is
registered in the Note Register.
“Class F Notes” means the CapitalSource Commercial Loan Trust 2007-1
Asset–Backed Notes, Class F Notes, issued pursuant to the Indenture.
“Class Scenario Loss Rate” means, with respect to any Class rated by S&P, at any
time, an estimate of the cumulative default rate for the Current Portfolio or
the Proposed Portfolio, as applicable, consistent with S&P’s rating of such
Class on the Closing Date, determined by application of the S&P CDO Monitor at
such time.
“Closing Date” means April 12, 2007.
“Code” means the Internal Revenue Code of 1986, as amended, or any successor
legislation thereto.
“Collateral” means, as of any date, the “Indenture Collateral,” as such term is
defined in the Indenture.
“Collections” means the aggregate of Interest Collections and Principal
Collections.
“Commission” means the United States Securities and Exchange Commission.
“Computer Records” means the computer records generated by the Servicer or any
subservicer that provide information relating to the Loans and that were used by
the Originator in selecting the Loans conveyed to the Trust Depositor pursuant
to Section 2.01 (and any Substitute Loans conveyed to the Trust Depositor
pursuant to Section 2.04).
“Contractual Obligation” means, with respect to any Person, any provision of any
securities issued by such Person or any indenture, mortgage, deed of trust,
contract, undertaking, agreement, instrument or other document to which such
Person is a party or by which it or any of its property is bound or is subject.
“Corporate Trust Office” means, with respect to the Indenture Trustee or Owner
Trustee, as applicable, the office of the Indenture Trustee or Owner Trustee at
which at any particular time its corporate trust business shall be principally
administered, which offices at the date of the execution of this Agreement are
located at the addresses set forth in Section 13.04.
“Credit and Collection Policy” means the written credit and collection policies
and procedures manual of the Originator and the Servicer in effect on the
Closing Date and attached hereto as Exhibit K, as amended or supplemented from
time to time in accordance with Section 5.02(m) of this Agreement; and with
respect to any Successor Servicer, the written collection policies and
procedures of such Person at the time such Person becomes Successor Servicer.
“Credit Suisse” means Credit Suisse Securities (USA) LLC.

10

--------------------------------------------------------------------------------

 

“Current Portfolio” means the portfolio (measured by the outstanding principal
balance) of (a) the Loans, (b) Principal Collections held as cash and
(c) Permitted Investments purchased with Principal Collections existing
immediately prior to the applicable Measurement Date.
“Curtailment” means, with respect to a Loan, any payment of principal received
by the Issuer during a Due Period as part of a payment allocable to a Loan that
is in excess of the principal portion of the Scheduled Payment due for such Due
Period and which is not intended to satisfy the Loan in full, nor is intended to
cure a delinquency, including any accelerated amortization due to structural
features of the related Loan.
“Cut–Off Date” means either or both of (as the context may require) the Initial
Cut-Off Date and any Subsequent Cut–Off Date as applicable to the Loan or Loans
in question.
“Dealer” means an alarm system dealer that has sold an Alarm Service Agreement
to the SLP Financing Originator or the Originator pursuant to an MPA.
“Deferred Interest Loan” means a Loan that requires the related Obligor to pay
only a portion of the accrued and unpaid interest on a current basis, with the
remaining interest being deferred and paid later, together with any unpaid
interest thereon, in a lump sum, which amount shall be treated as Interest
Collections at the time it is received.
“Delinquent Loan” means a Loan (that is not a Charged–Off Loan) in the Loan Pool
as to which there has occurred one or more of the following:
     (a) the occurrence of both (i) any portion of a payment of interest on or
principal (excluding payments of principal constituting excess cash flow sweeps)
of such Loan is not paid in cash on a current basis when due (without giving
effect to any grace period or any Scheduled Payment Advance made in respect of
such payment of interest or principal) or would be so delinquent but for any
amendment, modification, waiver or variance made to such Loan resulting from the
Obligor’s inability to pay such Loan in accordance with its terms and (ii) all
delinquencies have not been cured (A) with respect to Asset Based Revolvers,
within five Business Days of when such delinquent payment was first due and
(B) with respect to all other Loans, within 60 calendar days of when such
delinquent payment was first due (or within 5 calendar days of when such
delinquent payment was first due if such Loan or the Obligor of such Loan is
publicly rated by Moody’s);
     (b) consistent with the Credit and Collection Policy such Loan would be
classified as delinquent by the Servicer or the Originator;
     (c) the cash interest rate payable by the Obligor under such Loan has been
reduced, and, either before or immediately after giving effect to such
reduction, the Weighted Average LIBOR Spread Test is not satisfied;
     (d) the Loan shall have been subject to a modification of the type
described in clause (v) of the definition of Specified Amendment;
     (e) the Loan shall have been subject to a modification of the type
specified in clauses (i) through (iv) or (vi) of the definition of Specified
Amendment and within 60 days after the

11

--------------------------------------------------------------------------------

 

effective date of the relevant Specified Amendment the Servicer has not
submitted such Loan to S&P for re-rating; provided that such Loan shall cease to
be deemed a Delinquent Loan as of such later date as it may be submitted to S&P
for re-rating; or
     (f) any Substitute Loan, which, within 60 days after the related Subsequent
Cut-Off Date, the Servicer has not submitted to each Rating Agency for
assignment of a rating and a recovery rate;
provided that if any Loan to an Obligor is a Delinquent Loan, or if any Loan to
an Obligor from the Originator or any entity controlled by the Originator would
be a Delinquent Loan if owned by the Issuer, then all Loans to that Obligor
shall be deemed to be Delinquent Loans; provided further that such Loan or Loans
shall cease to be deemed delinquent as of the date that each Loan which caused
any other Loan to be deemed delinquent in accordance with the preceding proviso
has become a performing Loan and maintained such status for a period of 12
consecutive months.
“Determination Date” means that day of each month that is the third Business Day
prior to a Payment Date.
“Deutsche Bank Securities” means Deutsche Bank Securities Inc.
“DIP Loan” means a loan to an Obligor that is a “debtor-in-possession” as
defined under the Bankruptcy Code, the terms of which have been approved by an
order of the United States Bankruptcy Court, a United States District Court or
any other court of competent jurisdiction, the enforceability of which order is
not subject to any pending contested matter or proceeding (as such terms are
defined in the Federal Rules of Bankruptcy Procedure) and which order provides
that: (i) (A) such DIP Loan is fully secured by liens on the debtor’s otherwise
unencumbered assets pursuant to §364(c)(2) of the Bankruptcy Code or any other
applicable bankruptcy or insolvency law, or (B) such DIP Loan is secured by
liens of equal or senior priority on property of such debtor’s estate that is
otherwise subject to a lien pursuant to §364(d) of the Bankruptcy Code or any
other applicable bankruptcy or insolvency law, and (ii) such DIP Loan is fully
secured based upon a current valuation or appraisal report. Notwithstanding the
foregoing, such a Loan will not be deemed to be a DIP Loan following the
emergence of the related debtor-in-possession from bankruptcy protection under
Chapter 11 of the Bankruptcy Code.
“Diversity Score” means the single number that indicates collateral
concentration for Loans in terms of both Obligor and industry concentration,
which is calculated as described in Annex A attached hereto.
“Diversity Test” means a test that will be satisfied, as of the Cut-Off Date for
any Substitute Loan(s), if the Diversity Score of the Loan Pool, after giving
effect to the proposed substitution, equals or exceeds the Diversity Score of
the Loan Pool prior to giving effect to the Substitute Loan (as determined after
giving effect to all Substitute Loans to be included in the Loan Pool as of such
Cut-Off Date).
“Dollar” and “$” means lawful currency of the United States.

12

--------------------------------------------------------------------------------

 

“Downgrade Event” means the reduction or withdrawal of the rating issued by
Moody’s or S&P, as applicable, as in effect immediately prior to giving effect
to such reduction or withdrawal, with respect to any outstanding Class of
Offered Notes.
“Due Period” means, with respect to the first Payment Date, the period from and
including the Initial Cut-Off Date to but excluding the 11th day of the calendar
month immediately preceding the first Payment Date; and thereafter, the period
from and including the 11th day of the previous calendar month to but excluding
the 11th day of the month in which such Payment Date occurs.
“Eligible Deposit Account” means either (a) a segregated account with a
Qualified Institution, or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States or any one of the states thereof, including the District of
Columbia (or any domestic branch of a foreign bank), and acting as a trustee for
funds deposited in such account, so long as any of the securities of such
depository institution shall have a credit rating from in the case of Fitch of
at least “F1+”, in the case of Moody’s a short–term credit rating of “P-1” and
in the case of S&P a commercial paper short–term debt rating of “A-1+” and a
long–term unsecured debt rating of “AA-”.
“Eligible Loan” means, on and as of the related Transfer Date, a Loan as to
which each of the following is true:
     (a) the information with respect to each Loan set forth on the List of
Loans delivered to the Indenture Trustee is true and complete;
     (b) the Loan, together with the Related Property, has been originated,
acquired by or assigned to the Originator, and immediately prior to the transfer
and assignment contemplated by the Loan Sale Agreement, the Originator held, and
immediately prior to the transfer and assignment contemplated by the Sale and
Servicing Agreement, the Trust Depositor held, good and indefeasible title to,
and was the sole owner of, the Loans being transferred to the Trust Depositor
and Issuer, respectively, subject to no Liens except Liens which will be
released simultaneously with such transfer and assignment and Permitted Liens;
and immediately upon the transfer and assignment contemplated by this Agreement,
the Issuer will hold good and indefeasible title to, and be the sole owner of,
each Loan, subject to no Liens except Liens in favor of the Indenture Trustee;
     (c) (i) the Loan, together with the Collections and Related Property
related thereto, are free and clear of any Liens except Permitted Liens, and
(ii) all filings and other actions required to grant to (A) the Indenture
Trustee a first priority perfected security interest in the Originator’s, the
Trust Depositor’s and the Issuer’s interest in the Loan, the Collections and
Related Property have been made or taken, and (B) in the case of Agented Loans
and Assigned Loans, the collateral agent, as agent for certain creditors of the
related Obligor including the Issuer as owner of the related Loan, a first
priority perfected security interest in the Related Property (except for
Permitted Liens);
     (d) at the time such Loan is included in the Loan Pool, (i) the Loan is not
(and since its origination or, to the knowledge of the Originator or the Trust
Depositor (as applicable) in the case of Acquired Loans, since its acquisition,
has never been) a Charged–Off Loan, and (ii) the

13

--------------------------------------------------------------------------------

 

Loan is not past due after giving effect to any grace period set forth in the
Credit and Collection Policy in determining the number of days past due, with
respect to payments of principal or interest; provided that any Loan which would
be rendered ineligible by this clause (d) shall cease to be deemed ineligible by
the operation of this clause (d) as of the date that such Loan has become a
performing Loan and maintained such status for a period of 12 consecutive
months;
     (e) the Loan is an “eligible asset” as defined in Rule 3a–7 under the 1940
Act;
     (f) the Loan constitutes an “account”, “chattel paper”, “instrument” or a
“general intangible” within the meaning of Article 9 of the UCC of all
applicable jurisdictions;
     (g) the Loan is to an Eligible Obligor;
     (h) the Loan is denominated and payable only in United States dollars and
does not permit the currency in which or country in which such Loan is payable
to be changed;
     (i) the Loan is evidenced by an Underlying Note or, in the case of a
Noteless Loan, a credit agreement or comparable loan agreement and a related
Loan Register, security agreement or instrument and related loan documents, as
the case may be, that have been duly authorized and properly executed, are in
full force and effect and constitute the legal, valid, binding and absolute and
unconditional payment obligation of the related Obligor, enforceable against
such Obligor in accordance with their terms (subject, as to enforcement only, to
applicable bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally and to general principles of equity, whether
considered in a suit at law or in equity), and there are no conditions precedent
to the enforceability or validity of the Loan that have not been satisfied or
validly waived;
     (j) the Loan or any portion thereof does not contravene in any material
respect any Applicable Law (including, without limitation, Applicable Law
relating to predatory or abusive lending, usury, truth in lending, fair credit
billing, fair credit reporting, equal credit opportunity, fair debt collection
practices, licensing and privacy);
     (k) the Loan, (i) satisfies all applicable requirements of and was
originated or acquired, underwritten, closed and serviced in all material
respects in accordance with the Credit and Collection Policy (including without
limitation the execution by the Obligor of all documentation required by the
Credit and Collection Policy); (ii) does not contain a confidentiality provision
that restricts or purports to restrict the ability of the Indenture Trustee to
exercise its rights under the Transaction Documents, including, without
limitation, its rights to review the Loan, the Required Loan Documents and Loan
File; (iii) was generated in the ordinary course of the Originator’s business;
(iv) arises pursuant to loan documentation with respect to which the Originator
has performed all obligations required to be performed by it thereunder; (v) has
an original term to maturity (A) in the case of Senior Loans and Senior B-Note
Loans of not greater than seven years, or (B) in the case of Subordinated Loans
of not greater than ten years; (vi) is not subject to a guaranty by the
Originator or any Affiliate thereof; and (vii) is not a loan primarily for
personal, family or household use;
     (l) the Loan is eligible to be sold, assigned or transferred to the Trust
Depositor and Issuer, respectively, and neither the sale, transfer or assignment
of the Loan under the Transfer

14

--------------------------------------------------------------------------------

 

and Servicing Agreements to the Trust Depositor and Issuer, respectively, nor
the granting of a security interest under the Indenture to the Indenture
Trustee, violates, conflicts with or contravenes any Applicable Law or any
contractual or other restriction, limitation or encumbrance;
     (m) the Loan (other than Loans as to which the sole Related Property is the
Obligor’s accounts receivable and other than unsecured Loans) requires the
Obligor thereof to maintain adequate property damage and liability insurance
with respect to the real or personal property constituting the Related Property
and the same has been at all times covered by adequate physical damage and
liability Insurance Policies issued by generally acceptable carriers;
     (n) the Related Property, if any, (i) is located in the United States,
(ii) has not been foreclosed on, or repossessed from the current Obligor, by the
Servicer, and (iii) has not suffered any loss or damage that materially and
adversely affects the collectibility of the Loans and has not been repaired or
restored;
     (o) (i) the Loan contains a provision substantially to the effect that the
Obligor’s payment obligations are absolute and unconditional without any right
of rescission, setoff, counterclaim or defense for any reason against the
Originator or any assignee, (ii) the Loan contains a clause that has the effect
of unconditionally and irrevocably obligating the Obligor to make periodic
payments (including taxes) notwithstanding any rights the Obligor may have
against the assignor and notwithstanding any damage to, defects in or
destruction of the Related Property or any other event, including obsolescence
of any property or improvements, (iii) the Obligor has no right of deduction,
offset, netting, recoupment, counterclaim, defense or reservation of rights that
have not been waived, and (iv) the Issuer has no future funding obligation with
respect to such Loan;
     (p) the Loan is not subject to any litigation, dispute, refund, claims of
rescission, setoff, netting, counterclaim or defense whatsoever, including but
not limited to, claims by or against the Obligor thereof or a payor to or
account debtor of such Obligor, nor will the operation of any of the terms of
the Required Loan Documents, or the exercise of any right thereunder, render any
of the Required Loan Documents unenforceable in whole or in part (subject to
applicable bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally and to general principles of equity, whether
considered in a suit at law or in equity);
     (q) the Loan requires the Obligor to maintain any Related Property in good
condition and to bear all the costs of operating and maintaining same, including
taxes and insurance relating thereto;
     (r) the Loan provides (i) for periodic payments of interest and/or
principal in cash, which are due and payable on a monthly, quarterly,
semi-annual or annual basis, and (ii) that the Servicer (or, with respect to
Agented Loans, Assigned Loans and Senior B-Note Loans, an agent appointed
pursuant to the Required Loan Documents or at least a majority of the lenders)
may accelerate all payments on the Loan (or, with respect to any MPA, require
the Dealer to repurchase all related Alarm Service Agreements) if the Obligor is
in default under the Loan and

15

--------------------------------------------------------------------------------

 

any applicable cure period has expired (in the case of any Subordinated Loan or
Senior B-Note Loan, subject to any applicable intercreditor or subordination
agreement);
     (s) unless such Loan is a Security System Loan, the Loan provides for cash
payments that fully amortize the Outstanding Loan Balance of such Loan on or by
its maturity and does not provide for such Outstanding Loan Balance to be
discounted pursuant to a prepayment in full;
     (t) the Loan shall not have been originated in, nor shall it be subject to
the laws of, any jurisdiction under which the sale, transfer and assignment of
such Loan under the Transfer and Servicing Agreements would be unlawful, void or
voidable;
     (u) the Loan does not permit the Obligor to defer all or any portion of the
current cash interest due thereunder;
     (v) the Loan does not permit the payment obligation of the Obligor
thereunder to be converted or exchanged for equity capital of such Obligor;
     (w) neither the Loan nor any portion of the Related Property constitutes
Margin Stock;
     (x) the Loan is not a DIP Loan;
     (y) the Loan, together with the Required Loan Documents and Loan File
related thereto, is fully assignable and does not require the consent of or
notice to the Obligor or contain any enforceable restriction on the transfer or
the assignment of the Loan other than a consent or waiver of such restriction
that has been obtained prior to the date on which the Loan was sold to the Trust
Depositor; provided that the Required Loan Documents may restrict the transfer
or assignment of the related Loan so long as such Loan is freely assignable or
transferable to a Qualified Transferee;
     (z) the Obligor of such Loan is legally responsible for all taxes relating
to the Related Property, and all payments in respect of the Loan are required to
be made free and clear of, and without deduction or withholding for or on
account of, any taxes, unless such withholding or deduction is required by
Applicable Law in which case the Obligor thereof is required to make “gross-up”
payments that cover the full amount of any such withholding taxes on an
after-tax basis;
     (aa) the Loan and the Related Property have not been sold, transferred,
assigned or pledged by the Originator, the Trust Depositor or the Issuer to any
Person other than as contemplated by the Transaction Documents;
     (bb) other than Participation Loans and Agented Loans, with respect to the
Originator’s obligation to fund and the actual funding of the Loan by the
Originator, the Originator has not assigned or granted participations to, in
whole or in part, any Person other than to the Issuer or to a special purpose
entity created in connection with one or more of the Warehouse Facilities, a
Prior Term Transaction and any future or similar credit facility;

16

--------------------------------------------------------------------------------

 

     (cc) no selection procedure adverse to the interests of the Noteholders was
utilized by the Originator or Trust Depositor in the selection of the Loan for
inclusion in the Loan Pool;
     (dd) the Loan has not been compromised, adjusted, extended, satisfied,
rescinded or set–off by the Trust Depositor, the Originator or the Obligor with
respect thereto, and no Loan is subject to compromise, adjustment, extension,
satisfaction, rescission, set–off, counterclaim, defense, abatement, suspension,
deferment, deductible, reduction or termination, whether arising out of
transactions concerning the Loan, or otherwise, by the Trust Depositor, the
Originator or the Obligor with respect thereto;
     (ee) the particular Loan is not one as to which the Originator or Trust
Depositor has knowledge that the Loan will not be paid in full;
     (ff) except with respect to Subordinated Loans or Senior B-Note Loans,
multiple Loans originated to the same Obligor (excluding any guarantor) contain
standard cross–collateralization and cross–default provisions (other than with
respect to certain Initial Loans representing not more than 3.1% of the Initial
Aggregate Outstanding Loan Balance);
     (gg) the Obligor of such Loan is not the subject of an Insolvency Event or
Insolvency Proceedings;
     (hh) the Loan is not a Loan or extension of credit by the Originator or an
entity controlled by the Originator to the Obligor or any of its Affiliates for
the purpose of making any past due principal, interest or other payments due on
such Loan;
     (ii) the Loan is secured by a valid, perfected, first priority (other than
Subordinated Loans and unsecured Loans and, solely in the case of a Senior
B-Note Loan, with respect to other lenders on the senior tranche related to such
Loan) Lien over all assets that constitute the Related Property for such Loan,
subject to Permitted Liens, and such Loan is not subordinated to any other loan
or financing to the related Obligor;
     (jj) all material consents, licenses, approvals or authorizations of, or
registrations or declarations with, any Governmental Authority required to be
obtained, effected or given in connection with the making or performance of the
Loan have been duly obtained, effected or given and are in full force and
effect;
     (kk) the Originator (i) has completed to its satisfaction, in accordance
with the Credit and Collection Policy, a due diligence audit and collateral
assessment with respect to such Loan and (ii) has done nothing to impair the
rights of the Indenture Trustee or the Noteholders with respect to the Loan, the
Related Property, the Scheduled Payments or any income or proceeds therefrom;
     (ll) the Loan is a Senior Loan, Senior B-Note Loan, Subordinated Loan,
Broadly Syndicated Loan, Real Estate Loan, Structured Loan or unsecured Loan;
     (mm) no provision of the Required Loan Documents has been waived, modified,
or altered in any respect, except in accordance with the Credit and Collection
Policy and by instruments duly authorized and executed and contained in the
Required Loan Documents and

17

--------------------------------------------------------------------------------

 

recorded, if necessary, to protect the interests of the Noteholders and which
has been delivered to the Indenture Trustee;
     (nn) any funding obligation under such Loan is subject to the Retained
Interest;
     (oo) with respect to Subordinated Loans, the Originator has entered into an
intercreditor agreement or subordination agreement (or such provisions are
contained in the principal loan documents for such Loan) with, or provisions for
the benefit of, the senior lender, which agreement or provisions are assignable
to and have been assigned to the Trust Depositor and Issuer, and which provide
that any standstill of remedies by the Originator or its assignee is limited
(A) such that there shall be no standstill of remedies (x) until after a payment
default with respect to the senior obligation or the Originator’s or assignee’s
receipt from the senior lender of a notice of default or a payment default by
the Obligor under the senior debt and (y) unless a covenant default is also in
effect, and (B) provided that the Subordinated Loan has not been accelerated, to
no longer than 180 days in duration in the aggregate in any given year (other
than with respect to certain Initial Loans representing not more than 3.9% of
the Initial Aggregate Outstanding Loan Balance);
     (pp) with respect to any Acquired Loan, such Loan has been re–underwritten
by the Originator and satisfies all of the Originator’s underwriting criteria;
     (qq) with respect to Agented Loans and Assigned Loans, the related Required
Loan Documents (i) shall include a credit or note purchase agreement or similar
agreement containing standard provisions relating to the appointment and duties
of a payment agent and a collateral agent and intercreditor and (if applicable)
subordination provisions, and (ii) are duly authorized, fully and properly
executed and are the valid, binding and unconditional payment obligations of the
Obligor thereof;
     (rr) with respect to Agented Loans, the Originator (or a wholly owned
subsidiary of the Originator) has been appointed the collateral agent of the
security and the paying agent for all such notes prior to such Agented Loan or
Loan becoming a part of the Loan Pool (other than with respect to certain
Initial Loans representing not more than 3.8% of the Initial Aggregate
Outstanding Loan Balance);
     (ss) with respect to Agented Loans and Assigned Loans, if the entity
serving as the collateral agent of the security for all syndicated notes of the
Obligor has or will change from the time of the origination of such notes, all
appropriate assignments of the collateral agent’s rights in and to the
collateral on behalf of the noteholders have been executed and filed or recorded
as appropriate prior to such Agented Loan or Assigned Loan becoming a part of
the Loan Pool;
     (tt) with respect to Agented Loans and Assigned Loans, all required
notifications, if any, have been given to the collateral agent, the paying agent
and any other parties required by the Required Loan Documents of, and all
required consents, if any, have been obtained with respect to, the Originator’s
assignment of such Loan and the Originator’s right, title and interest in the
Related Property to the Trust Depositor and the Issuer and the Indenture
Trustee’s security interest therein on behalf of the Noteholders;

18

--------------------------------------------------------------------------------

 

     (uu) with respect to Agented Loans and Assigned Loans, the right to control
the actions of and replace the collateral agent and/or the paying agent of the
syndicated underlying indebtedness is to be exercised by at least a majority in
interest of all holders of such underlying indebtedness;
     (vv) with respect to Agented Loans, Assigned Loans and any Loans which have
more than one holder of the underlying indebtedness, all syndicated underlying
indebtedness of the Obligor of the same priority is cross-defaulted, and all
holders of such underlying indebtedness (i) have an undivided interest in the
collateral securing such underlying indebtedness, (ii) share in the proceeds of
the sale or other disposition of such collateral on a pro rata basis and
(iii) may transfer or assign their right, title and interest in the collateral;
     (ww) no portion of the proceeds used to make payments of principal of or
interest on such Loan have come from a new Loan or a new loan by the Originator
or an entity controlled by the Originator;
     (xx) all of the original or certified Required Loan Documents required to
be delivered to the Indenture Trustee (including all material documents related
thereto) with respect to such Loan have been or will be delivered to the
Indenture Trustee on the Transfer Date or as otherwise provided in this
Agreement;
     (yy) there is no material delinquent tax or assessment Lien on any
mortgaged property which is the primary Related Property for the related Loan,
and each such mortgaged property is free of material damage and is in good
repair;
     (zz) other than in the case of Noteless Loans, there is one or more
originally signed Underlying Notes in effect for each Loan, which in the
aggregate evidence the portion of the Loan being assigned to the Issuer and
which Underlying Notes have been delivered to the Indenture Trustee; provided
that if the Originator funds such a Loan in multiple installments, there may be
one originally signed Underlying Note for each installment;
     (aaa) there is no obligation on the part of the Originator or the Trust
Depositor, as the case may be, or any other party (except for any guarantor of a
Loan), to make Scheduled Payments in addition to those made by the Obligor;
     (bbb) as of the related Transfer Date, there is no default, breach,
violation or event of acceleration existing under the related loan agreement or,
as applicable, the Underlying Notes and no event which, with the passage of time
or with notice and the expiration of any grace or cure period, would constitute
a default, breach, violation or event of acceleration (except for such defaults,
breaches and violations that would not have a material adverse effect on the
ability of the Servicer to collect the entire principal and interest thereunder
and would not have a material adverse effect on the ability of the Servicer to
realize the value of the Related Property securing the related Loan);
     (ccc) with respect to each Pooled Obligor Loan, as of the related Transfer
Date, (i) the collateral (including, but not limited to, the notes of the
Underlying Debtors and assignments of mortgage in each case where real property
secures the Underlying Debtors’ notes) of the related Underlying Debtors
securing such Loan is held by a custodian under a custodial agreement, (ii)

19

--------------------------------------------------------------------------------

 

the custodial agreement for such Loan provides that (A) the related custodian
holds the collateral of the Underlying Debtors pro rata on behalf of the
Indenture Trustee, for the benefit of the Noteholders, and any other assignee
and (B) the custodian will record and file the assignments of mortgage in its
name on behalf of the Indenture Trustee and any other assignee upon the request
of noteholders of such Obligor or SPE Obligor holding a controlling interest and
(iii) the Originator’s rights under the custodial agreement are fully assignable
and have been assigned to the Indenture Trustee;
     (ddd) the Loan was not made in connection with (a) the construction or
development of unimproved land or (b) facilitating the trade-in or exchange of
the related mortgaged property;
     (eee) with respect to MPAs, the related loan documents require the Dealer
to repurchase all Alarm Service Agreements then subject to such MPA on the
earlier of (i) a date certain or (ii) when so demanded by the purchaser (as
defined in such MPA) after a default (as defined in such MPA), as provided in
such MPA, which repurchase is required to be at a repurchase price sufficient to
pay all principal and interest outstanding on such MPA, and “Default” under such
MPA requiring the Dealer to repurchase an Alarm Service Agreement shall include,
without limitation, (w) a failure by the related customer to make a monthly
payment due under such Alarm Service Agreement and such failure shall continue
unremedied for more than 60 days, (x) the related customer shall fail to make a
monthly payment when due two or more times in any 180 day period and (y) a
default by the Dealer in any of its obligations, covenants, agreements,
representation or warranties contained in any Alarm Service Agreement or in such
MPA;
     (fff) with respect to MPAs, if such Loan is a Security System Loan, such
Loan has an original term to maturity and full amortization of not more than
84 months;
     (ggg) there is no restriction on the Originator’s ability to direct the
Underlying Debtors to make all payments to one of the Lock-Boxes or directly to
one of the Lock-Box Accounts;
     (hhh) the Loan Rating of such Loan is 1, 2, 3 or 4; and
     (iii) if such Loan was acquired by the Originator from a third party, such
Loan was purchased for a price equal to or greater than 90% of par, provided
that Loans purchased for a price lower than 90% of par (but not lower than 85%
of par) may comprise 7.5% of the Aggregate Outstanding Loan Balance.
“Eligible Obligor” means, on any date of determination, any Obligor that (i) is
a business organization (and not a natural person) that is duly organized and
validly existing under the laws of, its jurisdiction of organization, (ii) is a
legal operating entity or holding company (except in the case of a Loan to an
SPE Obligor), (iii) is not a Governmental Authority, (iv) is not an Affiliate
(other than in the case of an SPE Obligor) of the Originator, the Servicer, the
Trust Depositor or the Issuer, (v) is not the subject of an Insolvency
Proceeding, (vi) is not an Obligor of a Charged-Off Loan or Delinquent Loan;
provided that an Obligor with respect to a Charged-Off Loan or a Delinquent Loan
shall cease to be disqualified under this clause (vi) as of the date that each
Loan which caused such Obligor to be so disqualified has become a performing
Loan and maintained such status for a period of 12 consecutive months.

20

--------------------------------------------------------------------------------

 

“Eligible Repurchase Obligations” means repurchase obligations with respect to
any security that is a direct obligation of, or fully guaranteed by, the United
States or any agency or instrumentality thereof the obligations of which are
backed by the full faith and credit of the United States, in either case entered
into with a depository institution or trust company (acting as principal)
described in clauses (c)(ii) and (c)(iv) of the definition of Permitted
Investments.
“Event of Default” shall have the meaning specified in Section 5.01 of the
Indenture.
“Exchange Act” means the Securities Exchange Act of 1934, as amended or
supplemented from time to time.
“FDIC” shall mean the Federal Deposit Insurance Corporation and any successor
thereto.
“Fidelity Bond” shall have the meaning given to such term in Section 5.04.
“Final Maturity Date” means March 20, 2017.
“Finance Charges” means, with respect to any Loan, any interest or finance
charges owing by an Obligor pursuant to or with respect to such Loan.
“First Lien Asset Based Term Loan” means any Term Loan that the Servicer
reasonably believes has a Loan-to-Value of less than 100% and is secured by a
first lien over the property or other assets designated and pledged or mortgaged
as collateral to secure repayment of such Loan.
“Fitch” means Fitch, Inc. and its subsidiaries or any successor or successors
thereto.
“Fitch Rating” means, for any Loan, the rating assigned to such Loan by Fitch,
as updated from time to time by Fitch.
“Fitch Rating Condition” means, with respect to any action or series of related
actions or proposed transaction or series of proposed transactions, that Fitch
shall have notified the Trust Depositor, the Servicer, the Owner Trustee and the
Indenture Trustee in writing that such action or series of related actions or
the consummation of such proposed transaction or series of related transactions
will not result in a reduction or withdrawal of the then-current rating issued
by Fitch with respect to any outstanding Class of Notes as a result of such
action or series of related actions or the consummation of such proposed
transaction or series of related transactions.
“Fitch Rating Factor” means, for any Loan with a Fitch Rating, the number set
forth below under the heading “Fitch Rating Factor” across from the Fitch Rating
of such Loan or, in the case of a rating assigned by Fitch at the request of the
Issuer (or the Servicer on behalf of the Issuer), the Fitch Rating Factor as
assigned by Fitch.

      Fitch Rating of Loan   Fitch Rating Factor AAA   0.19 AA+   0.57 AA   0.89
AA-   1.15

21

--------------------------------------------------------------------------------

 

      Fitch Rating of Loan   Fitch Rating Factor A+   1.65 A   1.85 A-   2.44
BBB+   3.13 BBB   3.74 BBB-   7.26 BB+   10.18 BB   13.53 BB-   18.46 B+   22.84
B   27.67 B-   34.98 CCC+   43.36 CCC   48.52 CC   77.00 C   95.00 DDD-D  
100.00

“Fitch Weighted Average Rating Factor” means, as of any Measurement Date, the
percentage obtained by dividing (a) the sum of the products obtained by
multiplying the Outstanding Loan Balance of each Loan (excluding any Delinquent
Loans) by its Fitch Rating Factor as of such date by (b) the Aggregate
Outstanding Loan Balance of all Loans owned by the Issuer (excluding any
Delinquent Loans) as of such date.
“Fitch Weighted Average Rating Factor Test” means a test that will be satisfied,
as of the Cut-Off Date for any Substitute Loan(s), if the Fitch Weighted Average
Rating Factor of the Loan Pool, after giving effect to the proposed
substitution, is less than or equal to the Fitch Weighted Average Rating Factor
of the Loan Pool prior to giving effect to the Substitute Loan (as determined
after giving effect to all Substitute Loans to be included in the Loan Pool as
of such Cut-Off Date).
“Fixed Rate Adjustment Amount” means, as of any Measurement Date, an amount
(which may be negative) equal to a fraction (expressed as a percentage), the
numerator of which is equal to the product of (a) (i) the Weighted Average
Coupon for such Measurement Date minus (ii) 10%, and (b) the sum of the
Outstanding Loan Balances of all Fixed Rate Loans (excluding any Charged-Off
Loans and Delinquent Loans) in the Loan Pool as of such Measurement Date and the
denominator of which is equal to the sum of the Outstanding Loan Balances of all
Floating LIBOR Rate Loans, Floating Prime Rate Loans and Blended Rate Loans
(excluding any Charged-Off Loans and Delinquent Loans) in the Loan Pool as of
such Measurement Date, in each case solely to the extent that the Fixed Rate
Adjustment Amount is included in the calculation of the Weighted Average LIBOR
Spread as of such Measurement Date.
“Fixed Rate Loan” means a Loan, other than a Floating Rate Loan, where the Loan
Rate payable by the Obligor thereunder is expressed as a fixed rate of interest.

22

--------------------------------------------------------------------------------

 

“Floating LIBOR Rate Loan” means, as of any date of determination, a Loan where
the Loan Rate payable by the Obligor thereof in respect of the majority of the
Outstanding Loan Balance of such Loan is based on the Loan LIBOR Rate plus some
specified percentage in addition thereto, and the Loan provides that such Loan
Rate will reset upon any change in the related Loan LIBOR Rate.
“Floating Prime Rate Loan” means, as of any date of determination, a Loan where
the Loan Rate payable by the Obligor thereof in respect of the majority of the
Outstanding Loan Balance of such Loan is based on the Loan Prime Rate plus some
specified percentage in addition thereto, and the Loan provides that such Loan
Rate will reset upon any change in the related Loan Prime Rate.
“Floating Rate Loan” means a Floating Prime Rate Loan or a Floating LIBOR Rate
Loan.
“Foreclosed Property” means Related Property acquired by the Issuer for the
benefit of the Securityholders in foreclosure or by deed in lieu of foreclosure
or by other legal process.
“Foreclosed Property Disposition” means the final sale of a Foreclosed Property
or of Repossessed Collateral. The proceeds of any “Foreclosed Property
Disposition” constitute part of the definition of Liquidation Proceeds.
“Fully Funded Term Loan” means a Term Loan that is fully funded as of the
Cut–Off Date.
“Funding I Transaction” means the transactions contemplated by the Fourth
Amended and Restated Loan Certificate and Servicing Agreement, dated as of
May 28, 2004, among CapitalSource Funding LLC, as the seller, the Originator, as
the originator and the servicer, Variable Funding Capital Company LLC (f/k/a
Variable Funding Capital Corporation), Harris Nesbitt Corp., as administrative
agent, each of the purchasers and purchaser agents from time to time party
thereto, and Wells Fargo Bank, National Association, as amended, modified,
restated, waived or supplemented from time to time, and all documents executed
in connection therewith and all transactions contemplated thereby.
“Funding II Transaction” means the Note Purchase Agreement, dated as of
September 17, 2003, among CapitalSource Funding II Trust, CS Funding II
Depositor LLC, the Originator and Citigroup Global Markets Realty Corp., as
amended, modified, restated, waived or supplemented from time to time, and all
documents executed in connection therewith and all transactions contemplated
thereby.
“Funding III Transaction” means the Sale and Servicing Agreement, dated as of
April 20, 2004, by and among CapitalSource Funding III LLC, the Originator, the
Servicer, Variable Funding Capital Company LLC (f/k/a Variable Funding Capital
Corporation), the other Commercial Paper Conduits from time to time party
thereto, Wachovia Capital Markets, LLC and Wells Fargo Bank, National
Association, as amended, modified, restated, waived or supplemented from time to
time, and all documents executed in connection therewith and all transactions
contemplated thereby.
“Funding V Transaction” means the Credit Agreement, dated as of June 30, 2005,
among CapitalSource Funding V Trust, CS Funding V Depositor Inc., the Originator
and JPMorgan

23

--------------------------------------------------------------------------------

 

Chase Bank, N.A., as amended, modified, restated, waived or supplemented from
time to time, and all documents executed in connection therewith and all
transactions contemplated thereby.
“Governmental Authority” means, with respect to any Person, any nation or
government, any state or other political subdivision thereof, any central bank
(or similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and any court or arbitrator having jurisdiction over
such Person.
“Group I Country” means any of The Netherlands, the United Kingdom, Australia
and New Zealand.
“Group II Country” means any of Germany, Ireland, Sweden, and Switzerland.
“Group III Country” means any of Austria, Belgium, Denmark, Finland, France,
Iceland, Liechtenstein, Luxembourg, Norway and Spain.
“Highest Required Investment Category” means (a) with respect to ratings
assigned by Fitch (if such investment is rated by Fitch), “F1+” for short-term
instruments and “AAA” for long–term instruments, (b) with respect to ratings
assigned by Moody’s, “Aa2” or “P-1” for one-month instruments, “Aa2” and “P-1”
for three-month instruments, “Aa2” and “P-1” for six-month instruments and “Aaa”
and “P-1” for instruments with a term in excess of six-months, and (c) with
respect to rating assigned by S&P, “A-1+” for short–term instruments and “AAA”
for long-term instruments.
“Holder” means (a) with respect to a Certificate, the Person in whose name such
Certificate is registered in the Certificate Register, and (b) with respect to a
Note, the Person in whose name such Note is registered in the Note Register.
“Indebtedness” means, with respect to any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current liabilities incurred in the
ordinary course of business and payable in accordance with customary trade
practices) or which is evidenced by a note, bond, debenture or similar
instrument, (b) all obligations of such Person under capital leases, (c) all
obligations of such Person in respect of acceptances issued or created for the
account of such Person, and (d) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.
“Indenture” means the Indenture, dated as of April 12, 2007, between the Issuer
and the Indenture Trustee, as such Indenture may be amended, modified, waived,
supplemented or restated from time to time.
“Indenture Trustee” means the Person acting as Indenture Trustee under the
Indenture, its successors in interest and any successor trustee under the
Indenture.
“Independent” means, when used with respect to any specified Person, the Person
(a) is in fact independent of the Issuer, any other obligor on the Notes, the
Trust Depositor and any Affiliate of any of the foregoing Persons, (b) does not
have any direct financial interest or any material

24

--------------------------------------------------------------------------------

 

indirect financial interest in the Issuer, any such other obligor, the Trust
Depositor or any Affiliate of any of the foregoing Persons and (c) is not
connected with the Issuer, any such other obligor, the Trust Depositor or any
Affiliate of any of the foregoing Persons as an officer, employee, trustee,
partner, director or person performing similar functions.
“Independent Accountants” shall have the meaning given to such term in Section
9.04.
“Individual Notes” shall have the meaning specified in the Indenture.
“Ineligible Loan” shall have the meaning given to such term in Section 11.01.
“Initial Aggregate Outstanding Loan Balance” means the Aggregate Outstanding
Loan Balance (measured as of the Initial Cut-Off Date) of the Loans transferred
to the Issuer on the Closing Date.
“Initial Class A Principal Balance” means $586,000,000.
“Initial Class B Principal Balance” means $20,000,000.
“Initial Class C Principal Balance” means $84,000,000.
“Initial Class D Principal Balance” means $48,000,000.
“Initial Class E Principal Balance” means $34,000,000.
“Initial Class F Principal Balance” means $28,000,000.
“Initial Cut-Off Date” means February 28, 2007.
“Initial Loan Assets” means any assets acquired by the Issuer from the Trust
Depositor on the Closing Date pursuant to Section 2.01, which assets shall
include the Trust Depositor’s right, title and interest in the following:
     (i) the Initial Loans, all payments paid in respect thereof and all monies
due, to become due or paid in respect thereof accruing on and after the Initial
Cut-Off Date and all Net Liquidation Proceeds and recoveries thereon, in each
case as they arise after the Initial Cut-Off Date, but not including the
Retained Interest or Interest Collections received prior to the Initial Cut-Off
Date;
     (ii) all security interests and Liens and Related Property subject thereto
from time to time purporting to secure payment by Obligors under such Loans;
     (iii) all guaranties, indemnities and warranties, and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Loans;
     (iv) the Trust Accounts, and each Obligor Lock-Box, each Obligor Lock-Box
Account and the Lock-Box Account, together with all cash and investments in each
of the foregoing;

25

--------------------------------------------------------------------------------

 

     (v) all collections and records (including Computer Records) with respect
to the foregoing;
     (vi) all documents relating to the applicable Loan Files; and
     (vii) all income, payments, proceeds and other benefits of any and all of
the foregoing, including but not limited to, all accounts, cash and currency,
chattel paper, electronic chattel paper, tangible chattel paper, copyrights,
copyright licenses, equipment, fixtures, general intangibles, instruments,
commercial tort claims, deposit accounts, inventory, investment property, letter
of credit rights, software, supporting obligations, accessions, and other
property consisting of, arising out of, or related to the foregoing, but
excluding any Retained Interest.
“Initial Loans” means those Loans conveyed to the Issuer on the Closing Date and
identified on the initial List of Loans required to be delivered pursuant to
Section 2.02(d).
“Initial Purchasers” means collectively Citigroup, JPMorgan, Banc of America
Securities, BMO Capital Markets, Credit Suisse, Deutsche Bank Securities, Morgan
Stanley, SG CIB, SunTrust and Wachovia Securities.
“Insolvency Event” means, with respect to a specified Person, (a) the filing of
a decree or order for relief by a court having jurisdiction in the premises in
respect of such Person or any substantial part of its property in an involuntary
case under any applicable Insolvency Law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for such Person or for any substantial part of its property, or
ordering the winding–up or liquidation of such Person’s affairs, and such decree
or order shall remain unstayed or undismissed and in effect for a period of 60
consecutive days; or (b) the commencement by such Person of a voluntary case
under any applicable Insolvency Law now or hereafter in effect, or the consent
by such Person to the entry of an order for relief in an involuntary case under
any such law, or the consent by such Person to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for such Person or for any substantial part of its property,
or the making by such Person of any general assignment for the benefit of
creditors, or the failure by such Person generally to pay its debts as such
debts become due, or the taking of action by such Person in furtherance of any
of the foregoing.
“Insolvency Laws” means the Bankruptcy Code of the United States and all other
applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments, or similar
debtor relief laws from time to time in effect affecting the rights of creditors
generally.
“Insolvency Proceeding” means any case, action or proceeding before any court or
other Governmental Authority relating to any Insolvency Event.
“Insurance Policy” means, with respect to any Loan, an insurance policy covering
liability and physical damage to or loss of the Related Property, including, but
not limited to, title, hazard, life, accident and/or flood insurance policies.

26

--------------------------------------------------------------------------------

 

“Insurance Proceeds” means, depending on the context, any amounts payable or any
payments made under any Insurance Policy covering a Loan, Related Property,
Repossessed Collateral or Foreclosed Property which are not applied or paid by
the Obligor or the Servicer, as applicable, to the restoration or repair of the
Related Property or released to the Obligor, or another creditor or any other
Person in accordance with Applicable Law, the Required Loan Documents, the
Credit and Collection Policy, or this Agreement, net of costs of collection.
“Interest Accrual Period” means the period commencing on a Payment Date and
ending on the day immediately preceding the next Payment Date (or, with respect
to the first Payment Date, the period commencing on the Closing Date and ending
on the day before the first Payment Date).
“Interest Amount” means, with respect to any Payment Date, the Class A Interest
Amount, the Class B Interest Amount, the Class C Interest Amount, the Class D
Interest Amount and the Class E Interest Amount payable on such Payment Date,
collectively and as applicable.
“Interest Collection Account” means a sub–account of the Principal and Interest
Account established and maintained pursuant to Section 7.03(a).
“Interest Collections” means the aggregate of:
     (a) amounts deposited into the Principal and Interest Account in respect
of:
     (i) all payments received on or after the first day of the month in which
the Closing Date occurs on account of interest on the Loans (including Finance
Charges, fees and the deferred interest component of a Deferred Interest Loan)
and all late payment, default and waiver charges;
     (ii) Net Liquidation Proceeds;
     (iii) Insurance Proceeds (other than amounts to be applied to the
restoration or repair of the Related Property, or released or to be released to
the Obligor or others);
     (iv) Released Mortgaged Property Proceeds and any other proceeds from any
other Related Property securing the Loans (other than amounts released or to be
released to the Obligor or others); and
     (v) the interest portion of any amounts received (x) in connection with the
purchase or repurchase of any Loan and the amount of any adjustment for
substituted Loans and (y) any Scheduled Payment Advances that the Servicer
determines to make; plus
     (b) Investment Earnings on funds invested in Permitted Investments or held
in the Trust Accounts; minus
     (c) the amount of any losses incurred in connection with investments in
Permitted Investments.

27

--------------------------------------------------------------------------------

 

“Interest Shortfall” means, with respect to each Class of Offered Notes and any
Payment Date, as applicable, an amount equal to the excess, if any, of (i) the
Interest Amount with respect to such Class of Notes over (ii) the amount of
interest actually paid to such Class of Notes, together with the unpaid portion
of any such excess from prior Payment Dates (and interest accrued thereon at the
then applicable Note Interest Rate for such Class).
“Investment Earnings” means the investment earnings (net of losses and
investment expenses) on amounts on deposit in the Principal and Interest
Account, the Note Distribution Account and the Reserve Fund, to be credited to
the Principal and Interest Account on the applicable Payment Date pursuant to
Section 7.01 and Section 7.03.
“Ireland Paying Agent” means the Person acting as Ireland Paying Agent hereunder
and its successors in interest.
“Irish Stock Exchange” means the Irish Stock Exchange and any successor
securities exchange thereto on which the Listed Notes may be listed for trading.
“Issuer” means the trust created by the Trust Agreement and funded pursuant to
this Agreement, consisting of the Loan Assets.
“JPMorgan” means J.P. Morgan Securities Inc.
“Leverage Ratio” means, with respect to any Payment Date a fraction, the
numerator of which is (a) the sum of (i) the Outstanding Principal Balance of
the Class A Notes plus (ii) the Outstanding Principal Balance of the Class B
Notes plus (iii) the Outstanding Principal Balance of the Class C Notes plus
(iv) Outstanding Principal Balance of the Class D Notes plus (v) the Outstanding
Principal Balance of the Class E Notes in each case as of the prior Payment Date
(after giving effect to all distributions to the Notes on such Payment Date) and
the denominator of which is (b) the Aggregate Outstanding Loan Balance as of the
Determination Date related to the prior Payment Date.
“LIBOR” shall have the meaning given to such term in Section 7.06.
“LIBOR Determination Date” shall have the meaning given to such term in Section
7.06.
“LIBOR Spread” means, as of any date of determination:
(a) in the case of any Floating LIBOR Rate Loan or any Blended Rate Loan, the
excess, if any, of the Loan Rate on such Loan over One-Month LIBOR as of such
date; and
(b) in the case of any Floating Prime Rate Loan, the excess, if any, of the Loan
Rate on such Loan over One-Month LIBOR as of such date;
provided that for purposes of determining the LIBOR Spread with respect to any
Loan, (i) no contingent payment of interest will be included in such
calculation, and (ii) any Loan Rate shall exclude any portion of the interest
that is currently being deferred in violation of the terms of the related loan
documents.

28

--------------------------------------------------------------------------------

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever, including, without limitation, any conditional sale or other
title retention agreement, and any financing lease having substantially the same
economic effect as any of the foregoing (including any UCC financing statement
or any similar instrument filed against a Person’s assets or properties).
“Liquidation Expenses” means, with respect to any Loan, the aggregate amount of
all out–of–pocket expenses reasonably incurred by the Servicer (including
amounts paid to any Subservicer) and any reasonably allocated costs of counsel
(if any), in each case in accordance with the Servicer’s customary procedures in
connection with the repossession, refurbishing and disposition of any Related
Property securing such Loan upon or after the expiration or earlier termination
of such Loan and other out–of–pocket costs related to the liquidation of any
such Related Property, including the attempted collection of any amount owing
pursuant to such Loan if it is a Charged–Off Loan, and, if requested by the
Indenture Trustee, the Servicer and Originator must provide to the Indenture
Trustee a breakdown of the Liquidation Expenses for any Loan along with any
supporting documentation therefor; provided that to the extent any such
“Liquidation Expenses” relate to any Loan with a Retained Interest, such
expenses shall be allocated pro rata to such Loan based on the Outstanding Loan
Balance of such Loan included in the Loan Pool and the outstanding loan balance
of the Retained Interest.
“Liquidation Proceeds” means, with respect to any Charged-Off Loan, whatever is
receivable or received when such Loan or the Related Property is sold,
liquidated, foreclosed, exchanged, or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes all amounts representing
late fees and penalties.
“Liquidation Report” shall have the meaning given to such term in
Section 5.03(c).
“List of Loans” means the list identifying each Loan constituting part of the
Loan Assets, which list shall consist of the initial List of Loans reflecting
the Initial Loans transferred to the Issuer on the Closing Date, together with
any Subsequent List of Loans amending the most current List of Loans reflecting
the Substitute Loans transferred to the Issuer on the related Subsequent
Transfer Date (together with, if applicable, a deletion from such list of the
related Loan or Loans identified on the corresponding Addition Notice with
respect to which a Substitution Event has occurred), and which list in each case
(a) identifies by account number each Loan included in the Loan Pool, and
(b) sets forth as to each such Loan (i) the Obligor number, (ii) the Loan
number, (iii) the Outstanding Loan Balance as of the related Cut-Off Date, and
(iv) the maturity date, and which list (as in effect on the Closing Date) is
attached to this Agreement as Exhibit G.
“Listed Notes” means the Class A Notes, Class B Notes, Class C Notes and Class D
Notes.
“Loan” means, to the extent transferred by the Trust Depositor to the Issuer, an
individual loan to an Obligor, or portion thereof made or purchased by the
Originator, including, as applicable, Assigned Loans, Agented Loans, MPAs,
Participation Loans and Substitute Loans.
“Loan Assets” means, collectively and as applicable, the Initial Loan Assets and
the Substitute Loan Assets.

29

--------------------------------------------------------------------------------

 

“Loan Checklist” means the list delivered by the Trust Depositor to the
Indenture Trustee pursuant Section 2.07 of this Agreement that identifies the
items contained in the related Loan File.
“Loan Files” means, with respect to any Loan and Related Property, each of the
Required Loan Documents and duly executed originals (to the extent required by
the Credit and Collection Policy) and copies of any other Records relating to
such Loan and Related Property.
“Loan LIBOR Rate” means, with respect to any Floating LIBOR Rate Loan the London
interbank offered rate for deposits in U.S. dollars for the applicable maturity,
as and when determined in accordance with the Required Loan Documents for such
Loan.
“Loan Pool” means, as of any date of determination, all outstanding Loans owned
by the Issuer (including Initial Loans and any Substitute Loans), and excluding
any such Loans that (a) have been reconveyed by the Issuer to the Trust
Depositor, and concurrently by the Trust Depositor to the Originator, pursuant
to Section 11.02 hereof or (b) have been paid (or prepaid) in full.
“Loan Prime Rate” means, with respect to any Loan the rate designated as the
“prime rate” or “base rate,” as and when determined in accordance with the
Required Loan Documents for such Loan.
“Loan Rate” means, for each Loan in a Due Period, the current cash pay interest
rate for such Loan in such period, as specified in the related Required Loan
Documents.
“Loan Rate Index” means (a) in the case of a Floating Prime Rate Loan, the Loan
Prime Rate, (b) in the case of a Floating LIBOR Rate Loan, the Loan LIBOR Rate
and (c) in the case of a Fixed Rate Loan, a fixed rate of interest.
“Loan Rating” means, for each Loan in the Loan Pool, the rating assigned to such
Loan by CapitalSource by applying its comprehensive loan rating matrix to
characterize the risk and level of each loan. The loan rating matrix is
customized for the different array of products offered by each lending unit, but
without exception evaluates the same three areas, which are (i) credit factors,
(ii) collateral factor, and (iii) financial reporting. The following is a
description of the conditions associated with each Loan Rating, which must be
affirmed by CapitalSource’s credit operations and services group and is then
used to determine the level of servicing required:

      Loan     Rating   Summary Description
1
  “Investment Grade” (based on structure, collateral or credit)
 
   
2
  Very high quality credit in all respects, supported by a combination of strong
collateral and cash flow
 
   
3
  Strong credit or collateral position
 
   
4
  Acceptable collateral or credit position with enhanced monitoring
 
   
5
  Problem loan, with limited credit risk
 
   
6
  Active work-out; expectation of credit loss

30

--------------------------------------------------------------------------------

 

“Loan Register” means, with respect to each Noteless Loan, the register in which
the agent or collateral agent on such Loan will record, among other things,
(i) the amount of such Loan, (ii) the amount of any principal or interest due
and payable or to become due and payable from the Obligor thereunder, (iii) the
amount of any sum in respect of such Loan received from the Obligor and each
lender’s share thereof, (iv) the date of origination of such Loan and (v) the
maturity date of such Loan.
“Loan Sale Agreement” means the Commercial Loan Sale Agreement, dated as of the
date hereof, between the Originator and the Trust Depositor, as such agreement
may be amended, modified, waived, supplemented or restated from time to time.
“Loan-to-Value” means, with respect to any Loan, as of any date of
determination, the percentage equivalent of a fraction (i) the numerator of
which is equal to the maximum availability (as provided in the applicable loan
documentation) of such Loan as of the date of its origination and (ii) the
denominator of which is equal to the total discounted collateral value of the
Related Property securing such Loan.
“Lock-Box” means the post office box to which Collections are remitted for
retrieval by the Lock–Box Bank and deposited by such Lock–Box Bank into the
Lock–Box Account, the details of which are contained in Schedule I, as such
schedule may be amended from time to time.
“Lock-Box Accounts” means the accounts maintained at Bank of America, N.A. in
the name of CapitalSource Funding Inc. for the purpose of receiving Collections,
including but not limited to Collections from the Obligor Lock–Boxes, the
details of which are contained in Schedule I, as such schedule may be amended
from time to time.
“Lock-Box Agreement” means the Fourth Amended and Restated Three Party Agreement
Relating to Lockbox Services and Control (with Activation Upon Notice), dated as
of November 25, 2003, among Wells Fargo, as the indenture trustee, Bank of
America, N.A., as the lockbox bank, Wachovia Capital Markets, LLC, as the
administrative agent thereof, CapitalSource Finance, as the originator, as the
original servicer and as the lockbox servicer, and CapitalSource Funding Inc.,
as the owner of the account and as the owner of the lockbox, as amended,
modified, waived, supplemented or restated from time to time.
“Lock-Box Bank” means Bank of America, N.A.
“London Banking Day” means any day on which dealings in deposits in Dollars are
transacted in the London interbank market and which is a Business Day.
“Low Coupon Deferred Interest Loan” means a Deferred Interest Loan that (a) if
such Loan is a Fixed Rate Loan, carries a current cash pay interest rate of less
than 5% per annum or (b) if such Loan is a Floating Prime Rate Loan, a Floating
LIBOR Rate Loan, or a Blended Rate Loan bearing a Loan Rate determined by
reference to a Loan Prime Rate or Loan LIBOR Rate, carries a LIBOR Spread of
less than 2% per annum.

31

--------------------------------------------------------------------------------

 

“Majority Noteholders” means, as of any date of determination (a) prior to the
payment in full of the Offered Notes, the Noteholders evidencing more than 50%
of the aggregate Outstanding Principal Balance of all Offered Notes (voting as a
single Class) and (b) from and after the payment in full of the Offered Notes,
the Class F Noteholders evidencing more than 50% of the aggregate Outstanding
Principal Balance of the Class F Notes.
“Margin Stock” means “Margin Stock” as defined under Regulation U issued by the
Board of Governors of the Federal Reserve System.
“Material Modification” means:
     (i) a termination or release (including pursuant to prepayment), or an
amendment, modification or waiver, or equivalent similar undertaking or
agreement, by the Servicer with respect to a Loan that would not otherwise be
permitted under the standards and criteria set forth in Section 5.02(e); or
     (ii) a termination or release (including pursuant to prepayment), or an
amendment, modification or waiver, or equivalent similar undertaking or
agreement, by the Servicer with respect to a Loan that is entered into for
reasons related to the inability of the applicable Obligor to make payments of
principal (excluding payments of principal consisting of excess cash flow
sweeps) or interest under such Loan, as determined in accordance with the Credit
and Collection Policy.
“Measurement Date” means each Cut-Off Date with respect to a Substitute Loan.
“Monthly Report” shall have the meaning given to such term in Section 9.01.
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.
“Moody’s Default Probability Rating” means, with respect to any Loan as of any
date of determination, the rating determined in the following order of priority:
     (a) with respect to a Moody’s Senior Secured Loan:
     (i) if the Obligor has a Moody’s corporate family rating, such Moody’s
corporate family rating;
     (ii) if the preceding clause (a)(i) does not apply, the Moody’s Obligation
Rating of such Loan;
     (iii) if the preceding clauses (a)(i) and (a)(ii) do not apply, the Moody’s
rating that is one rating subcategory above the current outstanding Assigned
Moody’s Rating for a senior unsecured obligation of the Obligor of such Loan;
and
     (iv) if the preceding clauses (a)(i), (a)(ii) and (a)(iii) do not apply,
the Moody’s rating that is one rating subcategory above the Moody’s Equivalent
Senior Unsecured Rating of such Loan; and

32

--------------------------------------------------------------------------------

 

     (b) with respect to any Loan that is not a Moody’s Senior Secured Loan:
     (i) if the Obligor has a senior unsecured obligation with an Assigned
Moody’s Rating, such rating; and
     (ii) if the preceding clause (b)(i) does not apply, the Moody’s Equivalent
Senior Unsecured Rating of the Loan.
     Notwithstanding the foregoing, if the Moody’s rating or ratings used to
determine the Moody’s Obligation Rating referred to above are on watch for
downgrade or upgrade by Moody’s, such rating or ratings will be adjusted down
one subcategory (if on watch for downgrade) or up one subcategory (if on watch
for upgrade).
     “Moody’s Equivalent Senior Unsecured Rating” means, with respect to any
Loan as of any date of determination, the rating determined in the following
order of priority:
     (a) if the Obligor has a senior unsecured obligation with an Assigned
Moody’s Rating, such Assigned Moody’s Rating;
     (b) if the preceding clause (a) does not apply, the Moody’s “issuer rating”
for the Obligor;
     (c) if the preceding clauses (a) and (b) do not apply, but the Obligor has
a subordinated obligation with an Assigned Moody’s Rating, then:
     (i) if such Assigned Moody’s Rating is at least “B3” (and, if rated “B3,”
not on watch for downgrade), the Moody’s Equivalent Senior Unsecured Rating will
be the rating that is one rating subcategory higher than such Assigned Moody’s
Rating; or
     (ii) if such Assigned Moody’s Rating is less than “B3” (or rated “B3” and
on watch for downgrade), the Moody’s Equivalent Senior Unsecured Rating will be
such Assigned Moody’s Rating;
     (d) if the preceding clauses (a), (b) and (c) do not apply, but the Obligor
has a senior secured obligation with an Assigned Moody’s Rating, then:
     (i) if such Assigned Moody’s Rating is at least “Caa3”(and if rated “Caa3”
is not on watch for downgrade), then the Moody’s Equivalent Senior Unsecured
Rating will be the rating that is one subcategory below such Assigned Moody’s
Rating; or
     (ii) if such Assigned Moody’s Rating is less than “Caa3” (or rated “Caa3”
and on watch for downgrade), then the Moody’s Equivalent Senior Unsecured Rating
will be “C”;
     (e) if the preceding clauses (a) through (d) do not apply, but such Obligor
has a Moody’s corporate family rating, the Moody’s Equivalent Senior Unsecured
Rating will be one rating subcategory below such Moody’s corporate family
rating;

33

--------------------------------------------------------------------------------

 

     (f) if the preceding clauses (a) through (e) do not apply, but such Obligor
has a senior unsecured obligation (other than a bank loan) with a monitored
public rating from S&P (without any postscripts, asterisks or other qualifying
notations, that addresses the full amount of principal and interest promised),
then the Moody’s Equivalent Senior Unsecured Rating will be:
     (i) one rating subcategory below the Moody’s equivalent of such S&P rating
if it is “BBB-” or higher, or
     (ii) two rating subcategories below the Moody’s equivalent of such S&P
rating if it is “BB+” or lower;
     (g) if the preceding clauses (a) through (f) do not apply, but the Obligor
has a subordinated obligation (other than a bank loan) with a monitored public
rating from S&P (without any postscripts, asterisks or other qualifying
notations, that addresses the full amount of principal and interest promised),
then the Assigned Moody’s Rating will be deemed be:
     (i) one rating subcategory below the Moody’s equivalent of such S&P rating
if it is “BBB-” or higher; or
     (ii) two rating subcategories below the Moody’s equivalent of such S&P
rating if it is “BB+” or lower;
     and the Moody’s Equivalent Senior Unsecured Rating will be determined
pursuant to clause (c) of this definition;
     (h) if the preceding clauses (a) through (g) do not apply, but the Obligor
has a senior secured obligation with a monitored public rating from S&P (without
any postscripts, asterisks or other qualifying notations, that addresses the
full amount of principal and interest promised), then the Assigned Moody’s
Rating will be deemed to be:
     (i) one rating subcategory below the Moody’s equivalent of such S&P rating
if it is “BBB-” or higher; or
     (ii) two rating subcategories below the Moody’s equivalent of such S&P
rating if it is “BB+” or lower;
and the Moody’s Equivalent Senior Unsecured Rating will be determined pursuant
to clause (d) of this definition;
     (i) if the preceding clauses (a) through (h) do not apply and each of the
following clauses (i) through (viii) do apply, the Moody’s Equivalent Senior
Unsecured Rating will be “Caa1”:
     (i) neither the Obligor nor any of its Affiliates is subject to
reorganization or bankruptcy proceedings;
     (ii) no debt securities or obligations of the Obligor are in default;

34

--------------------------------------------------------------------------------

 

     (iii) neither the Obligor nor any of its Affiliates has defaulted on any
debt during the preceding two years;
     (iv) the Obligor has been in existence for the preceding five years;
     (v) the Obligor is current on any cumulative dividends;
     (vi) the fixed-charge ratio for the Obligor exceeds 125% for each of the
preceding two fiscal years and for the most recent quarter;
     (vii) the Obligor had a net profit before tax in the past fiscal year and
the most recent quarter; and
     (viii) the annual financial statements of such Obligor are unqualified and
certified by a firm of Independent Accountants, and quarterly statements are
unaudited but signed by a corporate officer;
     (j) if the preceding clauses (a) through (i) do not apply but each of the
following clauses (i) and (ii) do apply, the Moody’s Equivalent Senior Unsecured
Rating will be “Caa3”:
     (i) neither the Obligor nor any of its Affiliates is subject to
reorganization or bankruptcy proceedings; and
     (ii) no debt security or obligation of such Obligor has been in default
during the past two years; and
     (k) if the preceding clauses (a) through (j) do not apply and a debt
security or obligation of the Obligor has been in default during the past two
years, the Moody’s Equivalent Senior Unsecured Rating will be “Ca.”
Notwithstanding the foregoing, no more than 10% of the Initial Aggregate
Outstanding Loan Balance may be given a Moody’s Equivalent Senior Unsecured
Rating based on a rating given by S&P as provided in clauses (h), (i) and
(j) above as of any date of determination.
“Moody’s Non-Senior Secured Loan” means any Loan other than a Moody’s Senior
Secured Loan.
“Moody’s Obligation Rating” means, with respect to any Loan as of any date of
determination, the rating determined in the following order of priority:
     (a) with respect to a Moody’s Senior Secured Loan:
     (i) if it has an Assigned Moody’s Rating, such Assigned Moody’s Rating; or
     (ii) if the preceding clause (a)(i) does not apply, the rating that is one
rating subcategory above the Moody’s Equivalent Senior Unsecured Rating; and
     (b) with respect to a Loan other than a Moody’s Senior Secured Loan:

35

--------------------------------------------------------------------------------

 

     (i) if it has an Assigned Moody’s Rating, such Assigned Moody’s Rating; or
     (ii) if the preceding clause (b)(i) does not apply, the Moody’s Equivalent
Senior Unsecured Rating.
Notwithstanding the foregoing, if the Moody’s rating or ratings used to
determine the Moody’s Obligation Rating are on watch for downgrade or upgrade by
Moody’s, such rating or ratings will be adjusted downward by one subcategory (if
on watch for downgrade) or up one subcategory (if on watch for upgrade).
“Moody’s Rating” means, with respect to any Loan as of any date of
determination:
     (a) (i) the rating assigned to such Loan by Moody’s at the request of the
Servicer or (ii) if such Loan has a public rating, such rating;
     (b) prior to the time that any Loan has been assigned a rating by Moody’s
in the manner described in clause (a) above, other than with respect to a DIP
Loan, the Moody’s Rating for such Loan shall be deemed to be the Moody’s Default
Probability Rating for such Loan;
     (c) prior to the time that any Loan has been assigned a rating in the
manner described in clauses (a) or (b) above, the Moody’s Rating of a Loan
(other than a Deferred Interest Loan) may, in the Servicer’s discretion, be
determined in accordance with Annex B attached hereto as of Closing Date or the
related Cut-Off Date, as applicable, subject to the satisfaction of the
qualifications set forth therein; provided that the Servicer shall re-determine
and report to Moody’s the Moody’s Rating for each Loan with a Moody’s Rating
determined pursuant to this clause (c) within 60 days after receipt by the
Servicer on behalf of the Issuer of the annual financial statements from the
related Obligor; provided further that not more than 20% of the Aggregate
Outstanding Loan Balance may consist of Loans assigned a Moody’s Rating pursuant
to this clause (c); and
     (d) prior to the time that any Loan has been assigned a rating in the
manner described in clauses (a), (b) or (c) above, the Moody’s Rating of such
Loan shall be deemed to be “Caa2.”
“Moody’s Rating Condition” means, with respect to any action or series of
related actions or proposed transaction or series of proposed transactions, that
Moody’s shall have notified the Trust Depositor, the Servicer, the Owner Trustee
and the Indenture Trustee in writing that such action or series of related
actions or the consummation of such proposed transaction or series of related
transactions will not result in a reduction or withdrawal of the then-current
rating by Moody’s with respect to any outstanding Class of Notes as a result of
such action or series of related actions or the consummation of such proposed
transaction or series of related transactions.
“Moody’s Rating Factor” means, for any Loan with a Moody’s Rating, the number
set forth below under the heading “Moody’s Rating Factor” across from the
Moody’s Rating of such Loan or, in the case of a rating assigned by Moody’s at
the request of the Issuer (or the Servicer on behalf of the Issuer), the Moody’s
Rating Factor as assigned by Moody’s.

36

--------------------------------------------------------------------------------

 

          Moody’s Rating of Loan   Moody’s Rating Factor
Aaa(1)
    1  
Aa1
    10  
Aa2
    20  
Aa3
    40  
A1
    70  
A2
    120  
A3
    180  
Baa1
    260  
Baa2
    360  
Baa3
    610  
Ba1
    940  
Ba2
    1,350  
Ba3
    1,766  
B1
    2,220  
B2
    2,720  
B3
    3,490  
Caa1
    4,770  
Caa2
    6,500  
Caa3
    8,070  
Ca
    10,000  
C
    10,000  

 

(1)   Includes any security issued or guaranteed as to the payment of principal
and interest by the United States government or any agency or instrumentality
thereof.

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

37

--------------------------------------------------------------------------------

 

     (a) with respect to any Loan other than a Broadly Syndicated Loan, the
recovery rate specified by Moody’s for such Loan in writing; provided that
(i) the Moody’s Recovery Rate for any Loan (other than a Deferred Interest Loan)
for which the Moody’s Rating has been determined pursuant to clause (c) of the
definition of “Moody’s Rating” shall be determined in accordance with Annex B
hereto, and (ii) prior to the time that such recovery rate has been specified by
Moody’s in writing or so determined, the Moody’s Recovery Rate with respect to
such loan shall be deemed to be the percentage specified in the following table:

          Moody’s Category   Recovery Rate
Type 1: U.S. or Canadian Obligor senior secured Loan with first priority
perfected Lien
    45 %
 
       
Type 2: U.S. or Canadian Obligor senior secured “second lien” or “last-out” Loan
    40 %
 
       
Type 3: U.S. or Canadian Obligor senior unsecured Loan
    30 %
 
       
Type 4: U.S. or Canadian Obligor Structured Loan
    0 %
 
       
Type 5: Non-U.S., Non-Canadian Obligor any Loan
    0 %

     (b) with respect to any Broadly Syndicated Loan, unless Moody’s has
specified a recovery rate for such Broadly Syndicated Loan in writing, the
recovery rate determined pursuant to the table set forth below based on the
number of rating subcategory differences between its Moody’s Obligation Rating
and its Moody’s Default Probability Rating (for which purpose if the Moody’s
Obligation Rating is higher than the Moody’s Default Probability Rating, the
rating subcategories difference will be positive and if it is lower, negative):

                              Moody’s Non-     Moody’s Senior   Senior Secured
Ratings Subcategory   Secured Loan   Loan Recovery Differential   Recovery Rate
  Rate
+2 or more
    60 %     45 %
+1
    50 %     42.5 %
0
    45 %     40 %
-1
    40 %     30 %
-2
    30 %     15 %
-3 or less
    20 %     10 %

“Moody’s Senior Secured Loan” means any Loan that (a) is not (and by its terms
is not permitted to become) subordinate in right of payment to any other debt
for borrowed money incurred by the related Obligor (other than with respect to
liquidation preferences in respect of pledged

38

--------------------------------------------------------------------------------

 

collateral), and (b) is secured by a valid first priority perfected security
interest in or lien on specified collateral (or all of the Obligor’s assets)
securing the Obligor’s obligations under such Loan, which security interest or
lien is not subordinate to the security interest or lien securing any other debt
for borrowed money of the Obligor (other than with respect to liquidation
preferences in respect of pledged collateral); provided that with respect to
clauses (a) and (b) above, such right of payment, security interest or lien may
be subordinate to Permitted Liens.
“Moody’s Weighted Average Rating” means, as of any Measurement Date, the number
obtained by dividing (a) the sum of the products obtained by multiplying the
Outstanding Loan Balance of each Loan by its Moody’s Rating Factor as of such
date by (b) the aggregate Outstanding Loan Balance of all Loans owned by the
Issuer as of such date.
“Moody’s Weighted Average Rating Factor Test” means a test that will be
satisfied, as of the Cut-Off Date for any Substitute Loan(s), if the Moody’s
Weighted Average Rating Factor of the Loan Pool, after giving effect to the
proposed substitution, is less than or equal to the Moody’s Weighted Average
Rating Factor of the Loan Pool prior to giving effect to the Substitute Loan (as
determined after giving effect to all Substitute Loans to be included in the
Loan Pool as of such Cut-Off Date).
“Moody’s Weighted Average Recovery Rate” means, as of any Measurement Date, the
percentage (rounded up to the first decimal place) obtained by dividing (a) the
sum of the products obtained by multiplying the Outstanding Loan Balance of each
Loan by its Moody’s Recovery Rate, by (b) the aggregate Outstanding Loan Balance
of all Loans owned by the Issuer as of such date.
“Moody’s Weighted Average Recovery Rate Test” means a test that will be
satisfied, as of the Cut-Off Date for any Substitute Loan(s), if the Moody’s
Weighted Average Recovery Rate of the Loan Pool, after giving effect to the
proposed substitution, equals or exceeds the Moody’s Weighted Average Recovery
Rate of the Loan Pool prior to giving effect to the Substitute Loan (as
determined after giving effect to all Substitute Loans to be included in the
Loan Pool as of such Cut-Off Date).
“Morgan Stanley” means Morgan Stanley & Co. Incorporated.
“Mortgage” means the mortgage, deed of trust or other instrument creating a Lien
on a Mortgaged Property.
“Mortgaged Property” means the underlying real property, if any, and any
improvements thereon on which a Lien is granted to secure a Loan.
“MPA” means any master purchase agreement between the SLP Financing Originator
or the Originator and a Dealer, as supplemented and/or modified by one or more
purchase statements, pursuant to which such Dealer has sold Alarm Service
Agreements to the SLP Financing Originator or the Originator. With respect to
any MPA:
     (a) references in this Agreement to “payments” due under a Loan shall mean
all payments owed by the related Dealer under such MPA and (without
duplication), to the extent

39

--------------------------------------------------------------------------------

 

not payable to the Dealer pursuant to such MPA, all payments owed by a customer
under any Alarm Service Agreement sold pursuant to such MPA;
     (b) references in this Agreement to “principal” due on a Loan or
“principal” of a Loan shall mean the aggregate amount of all purchase prices
paid to the Dealer under such MPA for Alarm Service Agreements as reduced by any
payments previously received by the “Purchaser” under such MPA and allocable to
principal in accordance with such MPA;
     (c) references in this Agreement to “interest” on a Loan shall mean the
portion of payments due under such MPA allocable to interest in accordance with
such MPA;
     (d) references to “loan documents” or “loan documentation” shall include
the related master purchase agreement, initial purchase statements, purchase
statement, security agreement and other documents executed and delivered in
connection with such MPA;
     (e) references in this Agreement to “maturity” or “maturity date” shall
mean the date on which the Dealer is required under the MPA to repurchase all
related Alarm Service Agreements;
     (f) references in this Agreement to “note” or “promissory note” means the
related master purchase agreement and all related purchase statements; and
     (g) references in this Agreement to “Loans” shall include MPAs.
“NAICS Code” means the North American Industry Classification System Codes by at
least four digits.
“Net Liquidation Proceeds” means Liquidation Proceeds relating to a Loan net of
(a) any Liquidation Expenses relating to such Loan reimbursed to the Servicer
therefrom pursuant to terms of this Agreement and (b) amounts required to be
released to other creditors, including any other costs, expenses and taxes, or
the related Obligor or grantor pursuant to Applicable Law or the governing
Required Loan Documents.
“Net Purchased Loan Balance” means, as of any date of determination, an amount
equal to (a) the aggregate Outstanding Loan Balance of all Loans conveyed by the
Originator to the Trust Depositor under the Loan Sale Agreement prior to such
date minus (b) the aggregate Outstanding Loan Balance of all Loans (other than
Ineligible Loans) repurchased by the Originator or substituted pursuant to the
Sale and Servicing Agreement prior to such date.
“Note” means any one of the notes of the Issuer of any Class executed and
authenticated in accordance with the Indenture.
“Note Break-Even Loss Rate” means, with respect to any Class of Notes rated by
S&P, at any time, the maximum percentage of defaults that the Current Portfolio
or the Proposed Portfolio, as applicable, can sustain such that, after giving
effect to S&P assumptions on recoveries and timing and to the Priority of
Payments with respect to the Notes, will result in sufficient funds remaining
for the ultimate payment of principal of and interest on such Class of Notes in
full by its stated maturity date and the timely payment of interest on such
Class of Notes.

40

--------------------------------------------------------------------------------

 

“Note Distribution Account” means the interest bearing trust account so
designated and established and maintained pursuant to Section 7.01.
“Note Interest Rate” means, as the context requires, any of the Class A Note
Interest Rate, the Class B Note Interest Rate, the Class C Note Interest Rate,
the Class D Note Interest Rate or the Class E Note Interest Rate.
“Note Register” shall have the meaning given to such term in Section 4.02(a) of
the Indenture.
“Noteholders” means each Person in whose name a Note is registered in the Note
Register.
“Noteless Loan” means a Loan with respect to which (i) the related loan
agreement does not require the Obligor to execute and deliver an Underlying Note
to evidence the indebtedness created under such Loan and (ii) no Underlying
Notes are outstanding with respect to the portion of the Loan transferred to the
Issuer.
“Notes Loss Differential” means, with respect to any Class of Notes rated by
S&P, at any time, the rate calculated by subtracting the Class Scenario Loss
Rate at such time from the Note Break-Even Loss Rate for such Class of Notes at
such time.
“Obligor” means, with respect to any Loan, any Person or Persons obligated to
make payments pursuant to or with respect to such Loan, including any guarantor
thereof, but excluding, in each case, any such Person that is an obligor or
guarantor that is in addition to the primary obligors or guarantors with respect
to the assets, cash flows or credit of which the related Loan is principally
underwritten.
“Obligor Lock–Box” means the post office box to which Collections are remitted
with respect to certain Revolving Loans for retrieval by an Obligor Lock–Box
Bank and deposited by such Obligor Lock–Box Bank into an Obligor Lock–Box
Account, the details of which are contained in Schedule II, as such schedule may
be amended from time to time.
“Obligor Lock–Box Accounts” means the accounts maintained for the purpose of
receiving Collections on certain Revolving Loans and transferring such
Collections to the Lock–Box, the details of which are contained in Schedule II,
as such schedule may be amended from time to time.
“Obligor Lock–Box Bank” means any of the banks or other financial institutions
holding one or more Obligor Lock–Box Accounts.
“OCC” means the Office of the Comptroller of the Currency.
“Offer” means, with respect to any security, (a) any offer by the issuer of such
security or by any other Person made to all of the holders of such security to
purchase or otherwise acquire such security (other than (i) pursuant to any
redemption in accordance with the terms of the related underlying instruments or
(ii) an A/B Exchange) or to convert or exchange such security into or for cash
or for any other security or other property or (b) any solicitation by the
issuer of such security or any other Person to amend, modify or waive any
provision of such security or any related underlying instruments in any manner.

41

--------------------------------------------------------------------------------

 

“Offered Notes” means the Class A Notes, the Class B Notes, the Class C Notes,
the Class D Notes and the Class E Notes.
“Offering Memorandum” means the Offering Memorandum, dated April 5, 2007
prepared in connection with the offer and sale of the Offered Notes.
“Officer’s Certificate” means a certificate delivered to the Indenture Trustee
signed by the Chief Executive Officer, the President, an Executive Vice
President, a Senior Vice President, the Treasurer, the Secretary, or one of the
Assistant Treasurers or Assistant Secretaries or other authorized signatory of
the Trust Depositor, the Servicer, or the Owner Trustee (or another Person) on
behalf of the Issuer, as required by this Agreement or any other Transaction
Document.
“One–Month Index Maturity” shall have the meaning given to such term in Section
7.06.
“One–Month LIBOR” means LIBOR for the One-Month Index Maturity.
“Opinion of Counsel” means a written opinion of counsel, who may be outside
counsel, or internal counsel (except with respect to federal securities law, tax
law, bankruptcy law or UCC matters), for the Trust Depositor or the Servicer,
from Patton Boggs LLP or other counsel reasonably acceptable to the Owner
Trustee or the Indenture Trustee, as the case may be.
“Optional Repurchase” means a repurchase of the Notes pursuant to Section 10.01
of the Indenture.
“Originator” shall have the meaning given to such term in the Preamble.
“Outstanding” shall have the meaning given to such term in the Indenture.
“Outstanding Loan Balance” of a Loan means the excess of (a) the principal
amount of such Loan, or portion thereof transferred to the Issuer, outstanding
as of the applicable Cut–Off Date over (b) all Principal Collections received on
such Loan, or portion thereof, transferred to the Issuer since the applicable
Cut–Off Date; provided that for all purposes other than the determination of the
Repurchase Amount: (i) any Loan charged–off pursuant to clauses (a), (b), (c),
(e) and (f) of the definition of Charged–Off Loan will be deemed to have an
Outstanding Loan Balance equal to zero; and (ii) all or the portion of any Loan
charged–off pursuant to clause
(d) of the definition of Charged–Off Loan will be deemed to have an Outstanding
Loan Balance equal to zero; and provided further that for any Deferred Interest
Loan, the Outstanding Loan Balance of such Deferred Interest Loan shall exclude
any Accreted Interest with respect thereto.
“Outstanding Principal Balance” means, as of date of determination and with
respect to any Class of Notes, the original principal amount of such Class of
Notes on the Closing Date, as reduced by (a) all amounts paid by the Issuer with
respect to such principal amount up to such date and (b) without duplication,
the aggregate principal amount of all Notes of such Class not deemed Outstanding
as of such date.

42

--------------------------------------------------------------------------------

 

“Overadvance” means an advance of funds by the Originator or any of its
Affiliates to an Obligor under a Loan in excess of the availability under the
facility related to such Loan at the time such advance is made.
“Owner Trustee” means the Person acting, not in its individual capacity, but
solely as Owner Trustee, under the Trust Agreement, its successors in interest
and any successor owner trustee under the Trust Agreement.
“Partially Funded Term Loan” means a Loan that is a closed–end multiple advance
Loan that has not been fully funded as of the Cut–Off Date.
“Participation Loan” means a Loan to an Obligor, originated by the Originator
and serviced by the Servicer in the ordinary course of its business, in which a
participation interest has been granted to another Person in accordance with the
Credit and Collection Policy and such transaction has been fully consummated,
pursuant to a standard participation agreement.
“Paying Agent” shall have the meaning given to such term in Section 3.03 of the
Indenture and Section 3.09 of the Trust Agreement.
“Payment Date” means the 20th day of each month or, if such 20th day is not a
Business Day, the next succeeding Business Day, commencing May 21, 2007.
“Permitted Investments” with respect to any Payment Date means negotiable
instruments or securities or other investments maturing on or before such
Payment Date (a) which, except in the case of demand or time deposits,
investments in money market funds and Eligible Repurchase Obligations, are
represented by instruments in bearer or registered form or ownership of which is
represented by book entries by a Clearing Agency or by a Federal Reserve Bank in
favor of depository institutions eligible to have an account with such Federal
Reserve Bank who hold such investments on behalf of their customers, (b) that,
as of any date of determination, mature by their terms on or prior to the
Payment Date immediately following such date of determination, and (c) that
evidence:
     (i) direct obligations of, and obligations fully guaranteed as to full and
timely payment by, the United States (or by any agency thereof to the extent
such obligations are backed by the full faith and credit of the United States);
     (ii) demand deposits, time deposits or certificates of deposit of
depository institutions or trust companies incorporated under the laws of the
United States or any state thereof and subject to supervision and examination by
federal or state banking or depository institution authorities; provided that at
the time of the Issuer’s investment or contractual commitment to invest therein,
the commercial paper, if any, and short-term unsecured debt obligations (other
than such obligation whose rating is based on the credit of a Person other than
such institution or trust company) of such depository institution or trust
company shall have a credit rating from each Rating Agency in the Highest
Required Investment Category granted by such Rating Agency, which, in the case
of Fitch, shall be “F1+”;

43

--------------------------------------------------------------------------------

 

     (iii) commercial paper, or other short term obligations, having, at the
time of the Issuer’s investment or contractual commitment to invest therein, a
rating in the Highest Required Investment Category granted by each Rating
Agency, which, in the case of Fitch, shall be “F1+”;
     (iv) demand deposits, time deposits or certificates of deposit that are
fully insured by the FDIC and either have a rating on their certificates of
deposit or short–term deposits from Moody’s and S&P of “P–1” and “A–1+”,
respectively, and, if rated by Fitch, from Fitch of “F1+”;
     (v) notes that are payable on demand or bankers’ acceptances issued by any
depository institution or trust company referred to in clause (ii) above;
     (vi) investments in taxable money market funds or other regulated
investment companies having, at the time of the Issuer’s investment or
contractual commitment to invest therein, a rating of the Highest Required
Investment Category from Moody’s, S&P and Fitch (if rated by Fitch) or otherwise
subject to satisfaction of the Rating Agency Condition;
     (vii) time deposits (having maturities of not more than 90 days) by an
entity the commercial paper of which has, at the time of the Issuer’s investment
or contractual commitment to invest therein, a rating of the Highest Required
Investment Category granted by each Rating Agency;
     (viii) Eligible Repurchase Obligations with a rating acceptable to the
Rating Agencies, which, in the case of Fitch, shall be “F1+” and in the case of
S&P shall be “A-1+”; or
     (ix) any negotiable instruments or securities or other investments subject
to satisfaction of the Rating Agency Condition.
Permitted Investments shall not include any instrument, security or investment
(a) which is purchased at a price (excluding accrued interest) in excess of 100%
of par, (b) which is subject to substantial non-credit risk as determined by the
Servicer in its reasonable business judgment, (c) the S&P rating of which
includes a “p”, “pi”, “q”, “r” or “t” subscript, (d) which is subject to an
Offer, or (e) if the income from such obligation or security is or will be
subject to deduction or withholding for or on account of any withholding or
similar tax, unless the issuer is required to make gross up payments equal to
the full amount of any such withholding tax, or the acquisition (including the
manner of acquisition), ownership, enforcement or disposition of such obligation
or security will subject the Issuer to net income tax in any jurisdiction other
than its jurisdiction of incorporation. Permitted Investments may not include
obligations secured by real property, including mortgage-backed securities. The
Indenture Trustee may purchase or sell to itself or an Affiliate, as principal
or agent, the Permitted Investments described above.
“Permitted Liens” means
     (a) with respect to Loans in the Loan Pool: (i) Liens in favor of the Trust
Depositor created pursuant to the Loan Sale Agreement and transferred to the
Issuer pursuant hereto, (ii)

44

--------------------------------------------------------------------------------

 

Liens in favor of the Issuer created pursuant to this Agreement, and (iii) Liens
in favor of the Indenture Trustee created pursuant to the Indenture and/or this
Agreement; and
     (b) with respect to the interest of the Originator, the Trust Depositor and
the Issuer in the Related Property: (i) materialmen’s, warehousemen’s,
mechanics’ and other Liens arising by operation of law in the ordinary course of
business for sums not due or sums that are being contested in good faith,
(ii) purchase money security interests in certain items of equipment,
(iii) Liens for state, municipal and other local taxes if such taxes shall not
at the time be due and payable or if the Trust Depositor shall currently be
contesting the validity thereof in good faith by appropriate proceedings,
(iv) Liens in favor of the Trust Depositor created by the Originator and
transferred by the Trust Depositor to the Issuer pursuant to this Agreement, (v)
Liens in favor of the Issuer created pursuant to this Agreement, (vi) Liens in
favor of the Indenture Trustee created pursuant to the Indenture and/or this
Agreement, (vii) Liens held by senior lenders or lenders under Senior B-Note
Loans with respect to any Subordinated Loans, (viii) contractually subordinated
liens in favor of junior lenders to the same Obligor, and (ix) with respect to
Agented Loans and Assigned Loans, Liens in favor of the collateral agent on
behalf of all noteholders of such Obligor.
“Person” means any individual, corporation, estate, partnership, business or
statutory trust, limited liability company, sole proprietorship, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political subdivision
thereof or other entity.
“Pooled Obligor Loans” means Loans to Obligors that are in turn collateralized
by loans to multiple Underlying Debtors, including, without limitation,
Underlying Debtors that are individuals, consumers and small businesses.
“Portfolio Acquisition and Disposition Requirements” means the satisfaction of
the following criteria with respect to the purchase or substitution of a Loan:
     (a) such Loan, upon being acquired by the Issuer, is an Eligible Loan;
     (b) such Loan is being acquired, repurchased or substituted in accordance
with the terms and conditions set forth in this Agreement;
     (c) the acquisition, repurchase or substitution of such Loan does not
result in a reduction or withdrawal of the then-current rating issued by any
Rating Agency on any Class of Notes then outstanding; and
     (d) such Loan is not being acquired, repurchased or substituted for the
primary purpose of recognizing gains or decreasing losses resulting from market
value changes.
“Portfolio Criteria” means the criteria set forth below:
     (a) the S&P CDO Monitor Test is satisfied;
     (b) the Fitch Weighted Average Rating Factor Test is satisfied;

45

--------------------------------------------------------------------------------

 

     (c) the Moody’s Weighted Average Rating Factor Test is satisfied;
     (d) the Weighted Average LIBOR Spread Test is satisfied;
     (e) the Diversity Test is satisfied;
     (f) the Weighted Average Life Test is satisfied;
     (g) the Moody’s Weighted Average Recovery Rate Test is satisfied;
     (h) the S&P Weighted Average Recovery Rate Test is satisfied;
     (i) the percentage of the Aggregate Outstanding Loan Balance consisting of
each type of Loan described in clauses (1) – (17) below is not greater after
giving effect to the inclusion of all Substitute Loans to be included in the
Loan Pool on the related Cut-Off Date than the percentage of the Aggregate
Outstanding Loan Balance represented by the applicable type of Loan prior to
giving effect to the proposed inclusion of all Substitute Loans to be included
in the Loan Pool on such Cut-Off Date:
(1) Fixed Rate Loans;
(2) Subordinated Loans;
(3) unsecured Loans;
(4) Real Estate Loans and Structured Loans;
(5) Broadly Syndicated Loans;
(6) Loans that pay interest less frequently than monthly;
(7) Loans that pay interest less frequently than quarterly;
(8) Loans that pay interest less frequently than annually;
(9) Loans (other than Charged-Off Loans) with a Moody’s Rating of “Caa1” or
lower;
(10) Loans (other than Charged-Off Loans) with a Moody’s Rating of “Caa3” or
lower;
(11) Loans (other than Charged-Off Loans) with an S&P Rating of “CCC+” or lower;
(12) Loans (other than Charged-Off Loans) with an S&P Rating of “CCC-” or lower;
(13) Loans to Obligors organized under the laws of, or all or substantially all
of the assets of which are located in, any country other than the United States;

46

--------------------------------------------------------------------------------

 

(14) Loans to Obligors organized under the laws of, or all or substantially all
of the assets of which are located in, Group I Countries, Group II Countries or
Group III Countries;
(15) Loans to a single Obligor organized under the laws of, or all or
substantially all of the assets of which are located in, a Group II Country or a
Group III Country;
(16) Loans to a single Obligor; and
(17) Low Coupon Deferred Interest Loans.
     Compliance with the above criteria will be determined, in the case of a
Measurement Date relating to any Substitute Loan, after giving effect to the
acquisition or substitution of all Substitute Loans on such date.
“Prepayments” means any and all full prepayments, including prepayment premiums,
on or with respect to a Loan (including, with respect to any Loan and any Due
Period, any Scheduled Payment, Finance Charge or portion thereof that is due in
a subsequent Due Period that the Servicer has received and expressly permitted
the related Obligor to make in advance of its scheduled due date, and that will
be applied to such Scheduled Payment on such due date).
“Principal and Interest Account” means the interest bearing trust account so
designated and established and maintained pursuant to Section 7.03.
“Principal Collection Account” means a sub–account of the Principal and Interest
Account established and maintained pursuant to Section 7.03(a).
“Principal Collections” means amounts deposited into the Principal and Interest
Account in respect of payments received on or after the Cut–Off Date on account
of principal on the Loans, including:
     (a) the principal portion of:
     (i) any Scheduled Payments and Prepayments; and
     (ii) any amounts received (x) in connection with the purchase or repurchase
of any Loan and the amount of any adjustment for substituted Loans and (y) any
Scheduled Payment Advances that the Servicer determines to make;
     (b) Curtailments;
     (c) Principal Collections on deposit in the Principal Collection Account
that have not been used by the Issuer to acquire Substitute Loans within
180 days after the initial deposit of such amount for such purpose in the
Principal Collection Account; and
     (d) all other amounts not specifically included in Interest Collections.

47

--------------------------------------------------------------------------------

 

“Principal Distributable Shortfall” means, on each Payment Date, the amount, if
any, by which the Total Principal Payable exceeds the Available Principal
Amount.
“Prior Term Transactions” means the Rule 144A/Regulation S private placements of
Notes issued by (i) CapitalSource Commercial Loan Trust 2003-2 on or about
November 25, 2003, (ii) CapitalSource Commercial Loan Trust 2004-1 on or about
June 22, 2004, (iii) CapitalSource Commercial Loan Trust 2005-1 on or about
April 14, 2005, (iv) CapitalSource Commercial Loan Trust 2006-1 on or about
April 11, 2006 (v) CapitalSource Commercial Loan Trust 2006-2 on or about
September 28, 2006 and (vi) CapitalSource Real Estate Loan Trust 2006-A on or
about December 20, 2006.
“Priority of Payments” means, collectively, the payments made on each Payment
Date in accordance with Section 7.05(a) and Section 7.05(b).
“Proposed Portfolio” means the portfolio (measured by the outstanding principal
balance) of (a) the Loans, (b) Principal Collections held as cash and
(c) Permitted Investments purchased with Principal Collections resulting from
the repurchase, maturity or other disposition of a Loan or a proposed
substitution of a Substitute Loan, as the case may be.
“Public Securities” means the common stock of CapitalSource Inc., a Delaware
corporation and the ultimate parent of the Originator, and any subsequent
securities issued by CapitalSource Inc. in a transaction registered under the
Securities Act.
“Purchase Agreement” means the Purchase Agreement, dated April 5, 2007 among the
Initial Purchasers, the Trust Depositor, the Issuer and the Originator, as such
agreement may be amended, modified, waived, supplemented or restated from time
to time.
“QRS Funding I Transaction” means the Amended and Restated Sale and Servicing
Agreement, dated April 28, 2006, among CSE Mortgage I LLC, CSE QRS Funding I
LLC, the various purchasers and purchaser agents, Wachovia Capital markets, LLC
and Wells Fargo Bank, National Association, as amended, restated, waived,
supplemented, modified and in effect from time to time.
“QRS Funding II Transaction” means the Amended and Restated Sale and Servicing
Agreement, dated July 28, 2006, among CSE QRS Funding II, LLC, CSE Mortgage LLC,
each of purchasers and purchaser agents from time to time party thereto,
Citigroup Global Markets Realty Corp. and Wells Fargo Bank, National
Association, as amended, restated, waived, supplemented, modified and in effect
from time to time.
“Qualified Institution” means (a) the corporate trust department of the
Indenture Trustee or the corporate trust department of Citibank N.A. (for so
long as such Persons meet the requirements of clause (b) below), or (b) a
depository institution organized under the laws of the United States or any one
of the states thereof or the District of Columbia (or any domestic branch of a
foreign bank), (i)(A) that has either (1) a long-term unsecured debt rating
acceptable to the Rating Agencies, which, in the case of S&P, shall be “AA-”, in
the case of Fitch, shall be “AAA” and in the case of Moody’s, shall be “Aa3,” or
(2) a short–term unsecured debt rating or certificate of deposit rating
acceptable to the Rating Agencies, which, in the case of S&P, shall be “A-1+”,
in the case of Fitch, shall be “F1+”, and in the case of Moody’s, shall be
“P-1,” (B) the parent

48

--------------------------------------------------------------------------------

 

corporation, if such parent corporation guarantees the obligations of the
depository institution, of which has either (1) a long–term unsecured debt
rating acceptable to the Rating Agencies, which, in the case of S&P, shall be
“AA-”, in the case of Fitch, shall be “AAA” and in the case of Moody’s, shall be
“Aa3” or (2) a short–term unsecured debt rating or certificate of deposit rating
acceptable to the Rating Agencies, which, in the case of S&P, shall be “A-1+”,
in the case of Fitch, shall be “F1+” and in the case of Moody’s, shall be “A-1,”
or (C) otherwise satisfies the Rating Agency Condition, and (ii) whose deposits
are insured by the FDIC and satisfies the Rating Agency Condition.
“Qualified Transferee” means:
     (a) the Trust Depositor, the Issuer, the Indenture Trustee and any
Affiliate thereof; or
     (b) any other Person which:
     (i) has at least $50,000,000 in capital/statutory surplus or shareholders’
equity (except with respect to a pension advisory firm or similar fiduciary);
and
     (ii) is one of the following:
     (A) an insurance company, bank, savings and loan association, investment
bank, trust company, commercial credit corporation, pension plan, pension fund,
pension fund advisory firm, mutual fund, real estate investment trust,
governmental entity or plan;
     (B) an investment company, money management firm or a “qualified
institutional buyer” within the meaning of Rule 144A under the Securities Act,
or an “institutional accredited investor” within the meaning of Regulation D who
is a qualified purchaser for purposes of Section 3(c)(7) of the 1940 Act;
     (C) the trustee, collateral agent or administrative agent in connection
with (x) a securitization of the subject Loan through the creation of
collateralized debt or loan obligations or (y) an asset-backed commercial paper
funded transaction funded by a commercial paper conduit whose commercial paper
notes are rated at least “A-1” by S&P or at least “P-1” by Moody’s, or (z) a
repurchase transaction funded by an entity which would otherwise be a Qualified
Transferee so long as the “equity interest” (other than any nominal or de
minimis equity interest) in the special purpose entity that issues notes or
certificates in connection with any such collateralized debt or loan obligation,
asset-backed commercial paper funded transaction or repurchase transaction is
owned by one or more entities that are Qualified Transferees under subclauses
(A) or (B) above; or
     (D) any entity Controlled (as defined below) by any of the entities
described in subclauses (i) or (ii) above.
For purposes of this definition only, “Control” means the ownership, directly or
indirectly, in the aggregate of more than fifty percent (50%) of the beneficial
ownership interests of an entity and the possession, directly or indirectly, of
the power to direct or cause the direction of the

49

--------------------------------------------------------------------------------

 

management or policies of an entity, whether through the ability to exercise
voting power, by contract or otherwise, and “Controlled” has the meaning
correlative thereto.
“Rating Agency” means each of S&P, Moody’s and Fitch, so long as such Persons
maintain a rating on any of the Offered Notes; and if any of S&P, Moody’s or
Fitch no longer maintains a rating on any of the Offered Notes, such other
nationally recognized statistical rating organization, if any, selected by the
Trust Depositor.
“Rating Agency Condition” means, with respect to any action or series of related
actions or proposed transaction or series of related proposed transactions, that
each applicable Rating Agency shall have notified the Trust Depositor, the
Servicer, the Issuer, the Owner Trustee and the Indenture Trustee in writing
that such action or series of related actions or the consummation of such
proposed transaction or series of related transactions will not result in a
Ratings Effect.
“Ratings Effect” means, with respect to any action or series of related actions
or proposed transaction or series of related proposed transactions, a reduction
or withdrawal of any then-current rating issued by a Rating Agency with respect
to any outstanding Class of Notes as a result of such action or series of
related actions or the consummation of such proposed transaction or series of
related transactions.
“Real Estate Loan” means any Loan for which the underlying Related Property
consists primarily of real property owned by the Obligor and is evidenced by a
mortgage note.
“Record Date” means, for book–entry Notes, the calendar day immediately
preceding the applicable Payment Date or Repurchase Date, and for the Individual
Notes, the last Business Day of the immediately preceding calendar month.
“Records” means all Loan and other documents, books, records and other
information (including without limitation, computer programs, tapes, disks,
punch cards, data processing software and related property and rights) executed
in connection with the origination or acquisition of the Loans or maintained
with respect to the Loans and the related Obligors that the Originator or the
Servicer have generated, in which the Originator, the Trust Depositor, the
Issuer, the Indenture Trustee or the Servicer have acquired an interest pursuant
to the Transfer and Servicing Agreements or in which the Originator, the Trust
Depositor, the Issuer, the Indenture Trustee or the Servicer have otherwise
obtained an interest.
“Reference Banks” means leading banks selected by the Indenture Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market.
“Related Property” means, with respect to any Loan and as applicable in the
context used, the interest of the Obligor, or the interest of the Originator,
Trust Depositor or the Issuer under the Loan, in any property or other assets
designated and pledged or mortgaged as collateral to secure repayment of such
Loan (including, without limitation, mortgaged property and/or a pledge of the
stock, membership or other ownership interests in the Obligor), including all
Proceeds from any sale or other disposition of such property or other assets.
“Released Amounts” means, with respect to any payment or collection received
with respect to any Loan on any Business Day (whether such payment or collection
is received by the Servicer,

50

--------------------------------------------------------------------------------

 

the Owner Trustee or the Trust Depositor), an amount equal to that portion of
such payment or collection on any Retained Interest released from the Loan
Assets pursuant to Section 2.06.
“Released Mortgaged Property Proceeds” means, as to any Loan secured by a
Mortgaged Property, the proceeds received by the Servicer in connection with
(a) a taking of an entire Mortgaged Property by exercise of the power of eminent
domain or condemnation or (b) any release of part of the Mortgaged Property from
the Lien of the related Mortgage, whether by partial condemnation, sale or
otherwise, which is not released to the Obligor, the grantor or another creditor
in accordance with Applicable Law, the governing documents, the Credit and
Collection Policy and this Agreement, net of costs with respect thereto.
“Repossessed Collateral” means items of Related Property taken in the name of
the Issuer as a result of legal action enforcing the Lien on the Related
Property resulting from a default on the related Loan.
“Representative Amount” means an amount that is representative for a single
transaction in the relevant market at the relevant time.
“Repurchase Amount” means, with respect to each Ineligible Loan or Loan that is
to be repurchased pursuant to Section 2.04 or Section 2.08, on the Repurchase
Date, the sum of the Outstanding Loan Balance of such Loan, together with
accrued interest thereon through such Repurchase Date at the Loan Rate provided
for thereunder, and any outstanding Scheduled Payment Advances thereon that have
not been waived by the Servicer entitled thereto.
“Repurchase Date” means in the case of an Optional Repurchase, the Payment Date
specified by the Issuer pursuant to Section 10.01 of the Indenture.
“Repurchase Price” means, in the case of an Optional Repurchase, an amount equal
to the then Outstanding Principal Amount of each Class of Notes to be
repurchased plus accrued and unpaid interest thereon to but excluding the
Repurchase Date plus all other amounts accrued and unpaid with respect thereto.
“Required Loan Documents” means, with respect to:
     (a) all Loans in the aggregate:
     (i) a blanket assignment of all of the Originator’s and Trust Depositor’s
right, title and interest in and to all Related Property securing the Loans at
any time transferred to the Issuer including without limitation, all rights
under applicable guarantees and Insurance Policies, such assignment shall be in
the name of “Wells Fargo Bank, National Association, its successors and assigns,
as Indenture Trustee under the Indenture, dated as of April 12, 2007 relating to
CapitalSource Commercial Loan Trust 2007-1”;
     (ii) irrevocable powers of attorney of the Originator, the Trust Depositor
and the Issuer to the Indenture Trustee to execute, deliver, file or record and
otherwise deal with the Related Property for the Loans at any time transferred
to the Issuer. The powers of attorney will be delegable by the Indenture Trustee
to the Servicer and any Successor

51

--------------------------------------------------------------------------------

 

Servicer and will permit the Indenture Trustee or its delegate to prepare,
execute and file or record UCC financing statements and notices to insurers;
     (iii) blanket UCC–1 financing statements identifying by type all Related
Property for the Loans to be transferred to the Issuer as Collateral under the
Indenture and naming the Issuer and the Indenture Trustee, as assignee of the
Issuer, as “Secured Party” and the Trust Depositor as the “Debtor”;
     (b) for each Loan:
     (i) with the exception of Noteless Loans, the original Underlying Note,
endorsed by means of an allonge in blank or as follows: “Pay to the order of
Wells Fargo Bank, National Association, and its successors and assigns, not in
its individual capacity but solely as Indenture Trustee under that certain
Indenture, dated as of April 12, 2007 relating to CapitalSource Commercial Loan
Trust 2007-1, without recourse” and signed, by facsimile or manual signature, in
the name of the Trust Depositor by a Responsible Officer, with all prior and
intervening endorsements showing a complete chain of endorsement from the
Originator to the Trust Depositor and from the Trust Depositor to the Issuer;
     (ii) in the case of Noteless Loans, a copy of the Loan Register, certified
by a Responsible Officer of the Originator;
     (iii) a copy of the related loan agreement (which may be included in the
Underlying Note if so indicated in the Loan Checklist) or, with respect to an
MPA, the master purchase agreement and purchase statements, together with a copy
of all amendments and modifications thereto;
     (iv) a copy of any related security agreement signed by the primary
Obligor;
     (v) a copy of the Loan Checklist;
     (vi) a copy of any related guarantees then executed in connection with such
Loan;
     (vii) a copy of any UCC financing statements filed securing any Related
Property naming the Originator, or, with respect to Assigned Loans,
Participation Loans or Agented Loans, the collateral agent named thereunder, as
“Secured Party”;
     (viii) for Assigned Loans, a copy of the assignment agreement;
     (ix) if the Originator is the only lender under the credit facility, if the
Originator is the collateral agent for a syndicate of lenders under the credit
facility, or if the Originator has not previously delivered such stock
certificate to Wells Fargo in connection with any of the Warehouse Facilities or
any Prior Term Transaction, and the Loan Checklist indicates that the Related
Property includes a pledge of stock, the original stock certificate serving as
Related Property for such Loan, along with an executed stock power executed in
blank; and

52

--------------------------------------------------------------------------------

 

     (x) if the Originator is the only lender under the credit facility, if the
Originator is the collateral agent for a syndicate of lenders under the credit
facility, or if the Originator has not previously delivered such items to Wells
Fargo in connection with any of the Warehouse Facilities or such Prior Term
Transaction, all other items listed in the related Loan Checklist that have not
previously been delivered, or a certificate from a Responsible Officer of the
Trust Depositor that such delivery has been waived consistent with the prudent
lending practices and the Credit and Collection Policy of the Originator and
such waiver shall not have a material adverse effect on the Noteholders.
Provided that, notwithstanding the foregoing, with respect to any Assigned Loan,
other than with respect to items (i) – (iii) and item (viii) of subparagraph
(b) above, the Trust Depositor will deliver the items in subparagraph (b) above
to the extent available to the Trust Depositor using efforts consistent with the
Credit and Collection Policy.
“Required Reserve Amount” means, with respect to each Payment Date, an amount
equal to (a) the Outstanding Loan Balance of each Delinquent Loan as of the
related Determination Date plus (b) 0.25 times the product of (i) the sum of
one-month LIBOR as of the related Determination Date plus 0.38% multiplied by
(ii) the Aggregate Outstanding Loan Balance as of the related Determination Date
multiplied by (iii) the Leverage Ratio.
“Reserve Fund” means the interest bearing trust account so designated and
established and maintained pursuant to Section 7.01.
“Responsible Officer” means, when used with respect to the Owner Trustee or the
Indenture Trustee, any officer assigned to the Corporate Trust Office, including
any Chief Executive Officer, President, Executive Vice President, Vice
President, Assistant Vice President, Secretary, any Assistant Secretary, any
trust officer or any other officer of the Owner Trustee or the Indenture Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer’s knowledge of
and familiarity with the particular subject. When used with respect to the Trust
Depositor, the Issuer, the Originator or the Servicer, any Chief Executive
Officer, the President, an Executive Vice President, a Senior Vice President,
the Treasurer, the Secretary, any Assistant Secretary or Assistant Treasurer or
any other authorized signatory.
“Retained Interest” means, for each Loan, the following interests, rights and
obligations in such Loan and under the related loan documents, which are being
retained by the Originator: (a) all of the obligations, if any, to provide
additional funding with respect to such Loan, (b) all of the rights and
obligations, if any, of the agent(s) under the documentation evidencing such
Loan, (c) the applicable portion of the interests, rights and obligations under
the documentation evidencing such Loan that relate to such portion(s) of the
indebtedness that is owned by another lender or is being retained by the
Originator, (d) any unused commitment fees associated with the additional
funding obligations that are not being transferred in accordance with clause (a)
above, (e) any agency or similar fees associated with the rights and obligations
of the agent that are not being transferred in accordance with clause (b) above,
(f) any advisory, consulting, audit, in–house legal expenses or similar fees
and/or expenses due from the Obligor associated with services provided by the
agent that are not being transferred in accordance with clause (b) above, and
(g)

53

--------------------------------------------------------------------------------

 

any and all warrants and equity instruments issued in the name of the Originator
or its Affiliates in connection with or relating to any Loan.
“Reuters Screen LIBOR01 Page” means the display page currently so designated on
the Moneyline Telerate Service or such other page as may be nominated as the
information vendor (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
“Revolving Loan” means a Loan which specifies a maximum aggregate amount that
can be borrowed by the Obligor thereunder and permits the related Obligor to
re-borrow any amount previously borrowed and subsequently repaid during the term
of the Loan.
“S&P” means Standard and Poor’s Ratings Services Inc., a division of The
McGraw-Hill Companies and any successor thereto.
“S&P CDO Monitor” means the dynamic, analytical computer program provided by S&P
to the Servicer, the Backup Servicer and the Indenture Trustee within 30 days
after the Closing Date for the purpose of estimating the default risk of Loans.
The S&P CDO Monitor calculates the cumulative default rate of a pool of loans
consistent with a specified benchmark rating level based upon S&P proprietary
corporate debt default studies. In calculating the Class Scenario Loss Rate, the
S&P CDO Monitor considers each Obligor’s most senior unsecured debt rating, the
number of Obligors in the Collateral, the Obligor and the industry concentration
in the Collateral and the remaining weighted average maturity of the Loans and
calculates a cumulative default rate based on the statistical probability of
distributions of defaults on the Loans in the Collateral.
“S&P CDO Monitor Test” means the test that will be satisfied on any Measurement
Date if after giving effect to the substitution of a Substitute Loan on such
Measurement Date the Notes Loss Differential of the Proposed Portfolio is
positive, or if the Notes Loss Differential of the Proposed Portfolio is
negative prior to giving effect to such substitution the extent of compliance is
improved after giving effect to the substitution of a Substitute Loan (as
determined after giving effect to all Substitute Loans to be included in the
Loan Pool as of the related Cut-Off Date). The S&P CDO Monitor Test will be
considered improved if the Notes Loss Differential of the Proposed Portfolio is
greater than the corresponding Notes Loss Differential of the Current Portfolio.
In the event such test is updated or otherwise modified by S&P after the Closing
Date, the “S&P CDO Monitor Test” shall mean such test as so updated or otherwise
modified.
“S&P Priority Category Recovery Rate” means, with respect to any Loan, unless
otherwise specified by S&P, the percentage specified in the table below:

          S&P Priority Category   Recovery Rate
first lien Asset Based Revolver
    60 %
 
       
first lien cash flow loan and First Lien Asset Based Term Loan
    57.5 %

54

--------------------------------------------------------------------------------

 

          S&P Priority Category   Recovery Rate
second lien cash flow loan
    37.5 %
 
       
Senior B-Note Loan
    55 %
 
       
Subordinated Loan
    23 %
 
       
senior unsecured Loan
    37.5 %
 
       
Real Estate Loan (Senior B-Note Loan)
    55 %
 
       
Real Estate Loan (subordinated B-note loan)
    23 %
 
       
Structured Loan
  as assigned by S&P

“S&P Rating” means, with respect to any Loan, for determining the S&P Rating as
of any Measurement Date:
     (i) if there is an issuer credit rating of the Obligor of such Loan, or the
guarantor who unconditionally and irrevocably guarantees such Loan, then the S&P
Rating shall be such rating (regardless of whether there is a published rating
by S&P on such Loan in the Collateral);
     (ii) if there is no issuer credit rating of the Obligor and no other
security or obligation of the Obligor is rated by S&P, then the Issuer may apply
to S&P for a corporate credit estimate after the acquisition of such Loan, which
shall be its S&P Rating; provided that pending receipt from S&P of such
estimate, such Loan shall have a S&P Rating of “CCC” if the Servicer reasonably
believes such rating would be at least “CCC”;
     (iii) if there is no issuer credit rating of the Obligor and such Loan is
not rated by S&P, but another security or obligation of the Obligor is rated by
S&P and the Issuer does not obtain a S&P Rating for such Loan pursuant to clause
(ii) above, then the S&P Rating of such Loan shall be the issuer credit rating
or shall be determined as follows: (A) if there is a rating on a senior secured
obligation of the Obligor, then the S&P Rating of such Loan shall be one rating
subcategory below such rating; (B) if there is a rating on a senior unsecured
obligation of the Obligor, then the S&P Rating of such Loan shall equal such
rating; and (C) if there is a rating on a subordinated obligation of the
Obligor, then the S&P Rating of such Loan shall be one rating subcategory above
such rating;
     (iv) if there is no issuer credit rating of the Obligor published by S&P
and such Loan is not rated by S&P and no other security or obligation of the
Obligor is rated by S&P and the Issuer does not obtain a S&P Rating for such
Loan pursuant to clause (ii) above, then the S&P Rating of such Loan shall be
determined as follows: If such Loan

55

--------------------------------------------------------------------------------

 

has a public rating by Moody’s or Fitch, then the S&P Rating of such Loan shall
be (A) one rating subcategory below the S&P equivalent of the rating assigned by
(x) Moody’s if such Loan is rated “Baa3” or higher by Moody’s or (y) Fitch if
such Loan is rated “BBB-” or higher by Fitch, and (B) two rating subcategories
below the S&P equivalent of the rating assigned by (x) Moody’s if such Loan is
rated “Bal” or lower by Moody’s or (y) Fitch if such Loan is rated “BB+” or
lower by Fitch; provided that not more than 10% (or such higher percentage as
S&P may specify in writing to the Issuer and the Trustee from time to time) of
the Initial Aggregate Outstanding Loan Balance may be deemed to have a S&P
Rating based on a rating assigned by Moody’s or Fitch as provided in this
clause; and
     (v) if (A) the S&P Rating previously provided for a Loan expires 13 months
after issuance without such S&P Rating being renewed, (B) the Servicer fails to
provide S&P with requested materials in connection with obtaining an S&P Rating
for a Loan, (C) the Servicer fails to provide financial statements with respect
to any Obligor within 135 days after the end of the fiscal year of such Obligor,
until such Loan is paid in full or (D) no other rating for such Loan applies by
operation of clauses (i)-(iv) above, the applicable Loan will be deemed to have
an S&P Rating of “CCC-” (unless otherwise determined by S&P in its sole
discretion).
“S&P Rating Condition” means, with respect to any action or series of related
actions or proposed transaction or series of proposed transactions, that S&P
shall have notified the Trust Depositor, the Owner Trustee and the Indenture
Trustee in writing that such action or series of related actions or the
consummation of such proposed transaction or series of related transactions will
not result in a reduction or withdrawal of the then-current rating issued by S&P
with respect to any outstanding Class of Notes as a result of such action or
series of related actions or the consummation of such proposed transaction or
series of related transactions.
“S&P Weighted Average Recovery Rate” means, as of any Measurement Date, the
percentage (rounded up to the first decimal place) obtained by dividing (a) the
sum of the products obtained by multiplying the Outstanding Loan Balance of each
Loan by its S&P Priority Category Recovery Rate, by (b) the aggregate
Outstanding Loan Balance of all Loans owned by the Issuer as of such date.
“S&P Weighted Average Recovery Rate Test” means a test that will be satisfied,
as of the Cut-Off Date for any Substitute Loan(s), if the S&P Weighted Average
Recovery Rate of the Loan Pool, after giving effect to the proposed
substitution, equals or exceeds the S&P Weighted Average Recovery Rate of the
Loan Pool prior to giving effect to the Substitute Loan (as determined after
giving effect to all Substitute Loans to be included in the Loan Pool as of such
Cut-Off Date).
“SAIF” means the Savings Association Insurance Fund, or any successor thereto.
“Scheduled Payment” means, with respect to any Loan, the payment of principal
and/or interest scheduled to be made by the related Obligor under the terms of
such Loan after the related Cut–Off Date, excluding any payments of principal
constituting excess cash flow sweeps, as adjusted

56

--------------------------------------------------------------------------------

 

pursuant to the terms of the related Underlying Note or Required Loan Documents,
and any such payment received after the related Cut–Off Date.
“Scheduled Payment Advance” means, with respect to any Payment Date, the
amounts, if any, deposited by the Servicer in the Principal and Interest Account
for such Payment Date in respect of Scheduled Payments (or portions thereof)
pursuant to Section 5.09.
“Securities” means the Notes and the Certificate, or any of them.
“Securities Act” means the Securities Act of 1933, as amended from time to time.
“Security System Loan” means a Loan with respect to which the related Obligor is
in the business classified under 2002 NAICS Code 56162 (Security Systems
Services), which is secured by Alarm Service Agreements.
“Securityholders” means, collectively, the Holders of any of the Notes and the
Certificate.
“Senior B-Note Loan” means any multilender Loan that (a) is secured by a first
priority Lien on all the Obligor’s assets constituting Related Property for the
Loan, (b) has a Loan-to-Value of less than or equal to 90%, and (c) that
contains provisions which, upon the occurrence of an event of default under the
underlying loan documents or in the case of any liquidation or foreclosure on
the Related Property, the Issuer’s portion of such Loan would be paid only after
the other lender party to such Loan (whose right to payment is contractually
senior to the Issuer) is paid in full.
“Senior Loan” means any Loan that (a) is secured by a first priority Lien on all
of the Obligor’s assets constituting Related Property for the Loan, (b) has a
Loan–to–Value of less than or equal to 90%, and (c) provides that the Payment
Obligation of the related Obligor on such Loan is either senior to, or pari
passu with, all other loans or financings to such Obligor.
“Sequential Pay Event” means, with respect to each Payment Date, that one or
more of the following events as of the related Determination Date, or any
preceding Determination Date has occurred;
     (a) the Aggregate Outstanding Loan Balance is less than 45% of the Initial
Aggregate Outstanding Loan Balance;
     (b) a Principal Distributable Shortfall;
     (c) an Event of Default;
     (d) a Servicer Default;
     (e) a Downgrade Event; or
     (f) as of the related Determination Date, the aggregate Outstanding Loan
Balance of Loans which have become Charged-Off Loans represents 8% or more of
the Initial Aggregate Outstanding Loan Balance;

57

--------------------------------------------------------------------------------

 

provided that any Sequential Pay Event will be cured if (i) in the case of a
Sequential Pay Event described in clause (c) or (d) above, the event giving rise
to such Sequential Pay Event has been cured or waived in accordance with the
applicable Transaction Documents, (ii) in the case of a Sequential Pay Event
described in clause (b) above, the event giving rise to such Sequential Pay
Event has been cured, and (iii) in the case of any Sequential Pay Event, the
Servicer has obtained satisfaction of the Rating Agency Condition with respect
to Moody’s and S&P only with respect to such Sequential Pay Event being cured.
“Servicer” means initially CapitalSource, or its successor, until any Servicer
Transfer hereunder or the resignation or permitted assignment by the Servicer
and, thereafter, means the Successor Servicer appointed pursuant to Article 8
with respect to the duties and obligations required of the Servicer under this
Agreement.
“Servicer Default” shall have the meaning specified in Section 8.01.
“Servicer Employees” shall have the meaning specified in Section 5.04.
“Servicer Transfer” shall have the meaning specified in Section 8.02(b).
“Servicing Advances” means, all reasonable and customary “out–of–pocket” costs
and expenses incurred in the performance by the Servicer of its servicing
obligations, including, but not limited to, the cost of (a) the preservation,
restoration and protection of the Related Property, (b) any enforcement or
judicial proceedings, including foreclosures, (c) the management and liquidation
of the Foreclosed Property or Repossessed Collateral, (d) compliance with the
obligations under this Agreement, which “Servicing Advances” are reimbursable to
the Servicer to the extent provided in Section 5.10(d) of this Agreement, and
(e) in connection with the liquidation of a Loan, for all of which costs and
expenses the Servicer is entitled to reimbursement thereon up to a maximum rate
per annum equal to the related Loan Rate.
“Servicing Fee” shall have the meaning given to such term in Section 5.11.
“Servicing Fee Percentage” means 1.0%.
“Servicing Officer” means any officer of the Servicer involved in, or
responsible for, the administration and servicing of Loans whose name appears on
a list of servicing officers appearing in an Officer’s Certificate furnished to
the Indenture Trustee by the Servicer, as the same may be amended from time to
time.
“Servicing Transfer Costs” means, costs and expenses, if any, incurred by the
Indenture Trustee or by the Backup Servicer or by the Successor Servicer for
costs and expenses associated with the transfer of servicing to the Successor
Servicer, which shall not exceed $100,000 in the aggregate for any given
servicing transfer.
“SG CIB” means SG Americas Securities, LLC.
“SLP Financing Originator” means Security Leasing Partners, LP, a Delaware
limited partnership.

58

--------------------------------------------------------------------------------

 

“Solvent” means, as to any Person at any time, that (a) the fair value of the
property of such Person is greater than the amount of such Person’s liabilities
(including disputed, contingent and unliquidated liabilities) as such value is
established and liabilities evaluated for purposes of Section 101(32) of the
Bankruptcy Code; (b) such Person is able to realize upon its property and pay
its debts and other liabilities (including disputed, contingent and unliquidated
liabilities) as they mature in the normal course of business; (c) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person’s ability to pay as such debts and liabilities
mature; and (d) such Person is not engaged in business or a transaction, and is
not about to engage in a business or a transaction, for which such Person’s
property would constitute unreasonably small capital.
“SPE Obligor” means an Obligor that (a) is organized as a special purpose entity
and is not an operating company and (b) has as its primary assets loans to, and
a security interest in the assets of, Underlying Debtors.
“Specified Amendment” means, with respect to any Loan, any waiver, modification,
amendment or variance of such Loan which does not constitute a Material
Modification of the type specified in clause (ii) of the definition thereof and
which would:
     (i) modify the amortization schedule with respect to such Loan in a manner
that (a) reduces the dollar amount of any Scheduled Payment by more than 20%,
(b) postpones any Scheduled Payment by more than two payment periods or
(c) causes the weighted average life of the applicable Loan to increase by more
than 10%; or
     (ii) reduce or increase the cash interest rate payable by the Obligor
thereunder by more than 100 basis points (excluding any (i) increase in an
interest rate arising by operation of a default or penalty interest clause under
a Loan or (ii) decrease resulting from the waiver of any such default or penalty
interest clause or the waiver or cure of any related default, in each case, in
accordance with the terms of such Loan; provided that, any such decrease does
not result in an interest rate less than the interest rate that would otherwise
be applicable without giving effect to such default or penalty interest rate
clause); or
     (iii) extend the stated maturity date of such Loan by more than 24 months;
provided that, any such extension shall be deemed not to have been made until
the business day following the original stated maturity date of such Loan,
provided further that such extension shall not cause the Average Life of the
applicable Loan to increase by more than 10%; or
     (iv) release any party from its obligations under such Loan, if such
release would have a material adverse effect on the Loan; or
     (v) reduce the principal amount of such Loan; or
     (vi) (a) increase the advance rate under an Asset Based Revolver to more
than 90% for more than one year or (b) effect an Overadvance not scheduled to be
repaid within one year of being made to the Obligor with respect to an Asset
Based Revolver, where such Overadvance results in an advance rate in excess of
90% for such Loan;

59

--------------------------------------------------------------------------------

 

     provided that the modifications described in clauses (i) – (iii) above will
not constitute a Specified Amendment so long as the Portfolio Criteria is
maintained or improved after giving effect to such modification; provided
further that any waiver or forgiveness by the Servicer of any amount described
in Section 5.11(b) shall not constitute a Specified Amendment.
“Statutory Trust Statute” means Chapter 38 of Title 12 of the Delaware Code, 12
Del. C. §§ 3801 et seq., as the same may be amended from time to time.
“Structured Loan” means a Loan (which may be documented in legal form consistent
with either a loan or a security, but which shall not be a bond) which arises
from an extension of credit to an Obligor (including SPE Obligors), in
connection with which the cash flows, priority of payment provisions,
determinations of credit enhancement levels, performance triggers and legal
opinions are consistent with those for issuances of asset backed loans or asset
backed securities, as applicable, involving similar underlying pools of assets
with similar characteristics as the specified pool of assets collateralizing
such Structured Loan.
“Subordinated Loan” means any Loan which is by its terms (or is expressly
permitted by its terms to become) subordinate in right of payment to any first
lien loan or second lien loan or other senior obligation of the Obligor of such
Loan.
“Subsequent Cut–Off Date” means the date specified as such for Substitute Loans
in the related Subsequent Transfer Agreement.
“Subsequent List of Loans” means a list, in the form of the initial List of
Loans delivered on the Closing Date, but listing each Substitute Loan
transferred to the Issuer pursuant to the related Subsequent Transfer Agreement.
“Subsequent Purchase Agreement” means, with respect to any Substitute Loans, the
agreement between the Originator and the Trust Depositor pursuant to which the
Originator will transfer the Substitute Loans to the Trust Depositor, the form
of which is attached hereto as Exhibit J.
“Subsequent Transfer Agreement” means the agreement described in
Section 2.04(d)(v) hereof, as applicable, the form of which is attached hereto
as Exhibit I.
“Subsequent Transfer Date” means any date on which Substitute Loans are
transferred to the Issuer.
“Subservicer” means any direct or indirect wholly owned subsidiary of
CapitalSource that CapitalSource has identified as a subservicer or additional
collateral agent or any other Person with whom the Servicer has entered into a
Subservicing Agreement and who satisfies the requirements set forth in
Section 5.02(a) of this Agreement in respect of the qualification of a
Subservicer.
“Subservicing Agreement” means any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of certain Loans as
provided in this Agreement, a copy of which shall be delivered, along with any
modifications thereto, to the Indenture Trustee.

60

--------------------------------------------------------------------------------

 

“Substitute Loan” means one or more Eligible Loans (a) transferred to the Issuer
under and in accordance with Section 2.04 and identified in the related Addition
Notice, and (b) that become part of the Loan Pool.
“Substitute Loan Assets” means any assets acquired by the Issuer in connection
with a substitution of one or more Substitute Loans pursuant to Section 2.04,
which assets shall include the Trust Depositor’s right, title and interest in
the following:
     (i) the Substitute Loans listed in the related Subsequent Purchase
Agreement, all payments paid in respect thereof and all monies due, to become
due or paid in respect thereof accruing on and after the applicable Cut-Off
Date, and all Net Liquidation Proceeds and recoveries thereon, in each case as
they arise after the applicable Cut-Off Date but not including the Retained
Interest or Interest Collections received prior to the applicable Cut-Off Date;
     (ii) all security interests and Liens and Related Property subject thereto
from time to time purporting to secure payment by Obligors under such Loans;
     (iii) all guaranties, indemnities and warranties, and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Loans;
     (iv) the Trust Accounts, and each Obligor Lock-Box, each Obligor Lock-Box
Account and the Lock-Box Account, together with all cash and investments in each
of the foregoing;
     (v) all collections and records (including computer records) with respect
to the foregoing;
     (vi) all documents relating to the applicable Loan Files; and
     (vii) all income, payments, proceeds and other benefits of any and all of
the foregoing, including but not limited to, all accounts, cash and currency,
chattel paper, electronic chattel paper, tangible chattel paper, copyrights,
copyright licenses, equipment, fixtures, general intangibles, instruments,
commercial tort claims, deposit accounts, inventory, investment property, letter
of credit rights, software, supporting obligations, accessions, and other
property consisting of, arising out of, or related to the foregoing.
“Substitute Loan Qualification Conditions” means, with respect to any Substitute
Loans being transferred to the Issuer pursuant to Section 2.04, the accuracy of
each of the following statements as of the related Cut-Off Date for each such
Loan:
     (a) the Outstanding Loan Balance of such Substitute Loan or, if more than
one Substitute Loan will be added in replacement of a Loan, the sum of the
Outstanding Loan Balances of such Substitute Loans, must equal or exceed the
Outstanding Loan Balance of the Loan being replaced; and

61

--------------------------------------------------------------------------------

 

     (b) all actions or additional actions (if any) necessary to perfect the
security interest and assignment of such Substitute Loan and Related Property to
the Trust Depositor, the Issuer, and the Indenture Trustee shall have been taken
as of or prior to the related Cut-Off Date.
“Substitution Event” shall have occurred if a Loan then held by the Issuer and
identified in the related Addition Notice is one of (a) a Charged–Off Loan,
(b) a Loan that has a material covenant default, (c) a Delinquent Loan (other
than a Loan which has been deemed to be a Delinquent Loan in accordance with
Section 5.02(e)(iii)), (d) a Loan that becomes subject to a Material
Modification, (e) a Loan that becomes subject to a Specified Amendment or
(f) the subject of a breach of a representation or warranty under this Agreement
or other provision, which breach or other provision, in the absence of a
substitution of a Substitute Loan for such Loan pursuant to Section 2.04, would
require the payment of a Repurchase Amount to the Issuer in respect of such Loan
pursuant to Section 11.01; provided that the occurrence of a Substitution Event
under clauses (a) above shall be subject to the limits set forth in
Section 2.08; and provided further that in the case of clause (f) above, the
Trust Depositor and the Originator will be required to repurchase such Loan (or,
at their option, substitute a Substitute Loan for such Loan).
“Substitution Period” shall have the meaning given to such term in Section
2.04(a)(ii)(C).
“Successor Backup Servicer” shall have the meaning given to such term in Section
8.10(a).
“Successor Servicer” shall have the meaning given to such term in
Section 8.02(b).
“SunTrust” means SunTrust Capital Markets, Inc.
“Tape” shall have the meaning given to such term in Section 5.15(b)(ii).
“Term Loan” means a loan that is a closed-end extension of credit by the
Originator to an Obligor which may be fully funded or partially funded at the
closing thereof, and which provides for full amortization of the principal
thereof prior to or upon maturity.
“Termination Notice” shall have the meaning given to such term in
Section 8.02(a).
“Total Principal Payable” means, as of any date of determination, the excess, if
any, of the Aggregate Outstanding Principal Balance over the Aggregate
Outstanding Loan Balance.
“Transaction Documents” means this Agreement, the Indenture, the Trust
Agreement, the Loan Sale Agreement, the Purchase Agreement, any Subsequent
Transfer Agreement, any Subsequent Purchase Agreement, the Notes, the
Certificate, and any documents or agreements executed in connection with the
forgoing, as the forgoing documents and agreements are amended, modified,
restated, replaced, substituted, waived, supplemented or extended from time to
time.
“Transfer and Servicing Agreements” means collectively this Agreement and the
Loan Sale Agreement.
“Transfer Date” means each date on which the Trust Depositor transfers Loans, or
portions thereof, to the Issuer.

62

--------------------------------------------------------------------------------

 

“Trust Account Property” means the Trust Accounts, all amounts and investments
held from time to time in any Trust Account (whether in the form of deposit
accounts, physical property, book–entry securities, uncertificated securities or
otherwise) including, without limitation, the Required Reserve Amount, and all
proceeds of the foregoing.
“Trust Accounts” means, collectively, the Principal and Interest Account
(including the Principal Collection Account and Interest Collection Account),
the Reserve Fund, the Note Distribution Account and the Certificate Account or
any of them.
“Trust Agreement” means the Trust Agreement, dated on or about March 16, 2007,
between the Trust Depositor and the Owner Trustee, as such agreement may be
amended, modified, waived, supplemented or restated from time to time.
“Trust Depositor” shall have the meaning given to such term in the Preamble.
“Trust Estate” shall have the meaning given to such term in the Trust Agreement.
“Trustees” means the Owner Trustee and the Indenture Trustee, or any of them
individually as the context may require.
“UCC” means the Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
“Underlying Custodial Agreement” means, with respect to each Loan to an SPE
Obligor, that certain custodial agreement entered into among the Originator and
a collateral custodian under which such collateral custodian agrees to hold
certain underlying loan documents or other collateral of the Pooled Debtors with
respect to such Loan for the benefit of the Originator and its assignees.
“Underlying Custodian” means the party acting as collateral custodian under a
Custodial Agreement.
“Underlying Debtors” means each of the underlying obligors who are obligated as
debtors on a Loan from an SPE Obligor.
“Underlying Note” means the one or more promissory notes executed by an Obligor
evidencing a Loan.
“United States” means the United States of America.
“USD–LIBOR–Reference Banks” shall have the meaning given to such term in Section
7.06(a).
“Wachovia Securities” means Wachovia Capital Markets, LLC.
“Warehouse Facilities” means the Funding I Transaction, the Funding II
Transaction, the Funding III Transaction, the Funding V Transaction, the QRS
Funding I Transaction and the QRS Funding II Transaction and any future or
similar credit facilities.

63

--------------------------------------------------------------------------------

 

“Weighted Average Coupon” means, as of any Measurement Date, a fraction
(expressed as a percentage and rounded up to the next 0.001%), (a) the numerator
of which is the sum of the products determined by multiplying the Outstanding
Loan Balance of each Fixed Rate Loan (excluding Charged-Off Loans and Delinquent
Loans) in the Loan Pool as of such Measurement Date by the current Loan Rate on
such Loan, and (b) the denominator of which is the sum of the Outstanding Loan
Balances of all Fixed Rate Loans (excluding Charged-Off Loans and Delinquent
Loans) in the Loan Pool as of such Measurement Date; provided that for purposes
of this definition: (i) no contingent payment of interest will be included in
such calculation; (ii) any stated coupon shall exclude any portion of the
interest that is currently being deferred in violation of the terms of the
related designated loan agreement; and (iii) Loans that are Charged-Off Loans
and Delinquent Loans will be included in the calculations described herein if,
as of such Measurement Date, such Loans are paying in full current interest
pursuant to the terms of their respective Underlying Note, or, if a Noteless
Loan, pursuant to the terms of the related designated loan agreement.
“Weighted Average LIBOR Spread” means, as of any Measurement Date, the sum of
(a) a fraction (expressed as a percentage and rounded up to the next 0.001%),
(i) the numerator of which is the sum of the products determined by multiplying
the Outstanding Loan Balance of each Floating LIBOR Rate Loan, Floating Prime
Rate Loan and Blended Rate Loan (excluding Charged-Off Loans and Delinquent
Loans) owned by the Issuer as of such Measurement Date by the LIBOR Spread with
respect to such Loan, and (ii) the denominator of which is the sum of the
Outstanding Loan Balances of all Floating LIBOR Rate Loans, Floating Prime Rate
Loans and Blended Rate Loans (excluding Charged-Off Loans and Delinquent Loans)
owned by the Issuer as of such Measurement Date and (b) the Fixed Rate
Adjustment Amount.
“Weighted Average LIBOR Spread Test” means a test that will be satisfied, as of
the Cut-Off Date for any Substitute Loan(s), if the Weighted Average LIBOR
Spread of the Loan Pool, after giving effect to the proposed substitution,
equals or exceeds the Weighted Average LIBOR Spread of the Loan Pool prior to
giving effect to the Substitute Loan (as determined after giving effect to all
Substitute Loans to be included in the Loan Pool as of such Cut-Off Date).
“Weighted Average Life” means, as of any Measurement Date, the number obtained
by dividing (a) the sum, for each Loan in the Loan Pool, of the products
obtained by multiplying (i) the Average Life of such Loan as of such date by
(ii) the Outstanding Loan Balance of such Loan by (b) the Aggregate Outstanding
Loan Balance as of such date.
“Weighted Average Life Test” means a test that will be satisfied as of any
Measurement Date if the Weighted Average Life as of such date is less than the
value set forth in the cell corresponding to such date (which shall be the date
in the “Date” column or the most recent date preceding such Measurement Date set
forth in the “Date” column) in the table attached hereto as Annex C; provided
that, for purposes of this test, the Weighted Average Life as of any Measurement
Date that is not a Payment Date will be calculated by reference to the Average
Life of each Loan in the Loan Pool measured as of the Payment Date immediately
preceding such Measurement Date.

64

--------------------------------------------------------------------------------

 

     Section 1.02. Usage of Terms.
     In this Agreement, unless a contrary intention appears:
     (a) the singular number includes the plural number and vice versa;
     (b) reference to any Person includes such Person’s successors and assigns
but, if applicable, only if such successors and assigns are permitted by the
Transaction Documents;
     (c) reference to any gender includes each other gender;
     (d) reference to day or days without further qualification means calendar
days;
     (e) unless otherwise stated, reference to any time means New York, New York
time;
     (f) references to “writing” include printing, typing, lithography,
electronic or other means of reproducing words in a visible form;
     (g) reference to any agreement (including any Transaction Document),
document or instrument means such agreement, document or instrument as amended,
modified, supplemented, replaced, restated, waived or extended and in effect
from time to time in accordance with the terms thereof and, if applicable, the
terms of the other Transaction Documents, and reference to any promissory note
includes any promissory note that is an extension or renewal thereof or a
substitute or replacement therefor; and
     (h) reference to any Applicable Law means such Applicable Law as amended,
modified, codified, replaced or reenacted, in whole or in part, and in effect
from time to time, including rules and regulations promulgated thereunder and
reference to any Section or other provision of any Applicable Law means that
provision of such Applicable Law from time to time in effect and constituting
the substantive amendment, modification, codification, replacement or
reenactment of such Section or other provision.
     Section 1.03. Section References.
     All Section references (including references to the Preamble), unless
otherwise indicated, shall be to Sections (and the Preamble) in this Agreement.
     Section 1.04. Calculations.
     Except as otherwise provided herein, all interest rate and basis point
calculations hereunder will be made on the basis of a 360 day year and the
actual days elapsed in the relevant period and will be carried out to at least
three decimal places.
     Section 1.05. Accounting Terms.
     All accounting terms used but not specifically defined herein shall be
construed in accordance with generally accepted accounting principles in the
United States.

65

--------------------------------------------------------------------------------

 

ARTICLE 2.
ESTABLISHMENT OF ISSUER; TRANSFER OF LOAN ASSETS
     Section 2.01. Creation and Funding of Issuer; Transfer of Initial Loan
Assets.
     (a) The Issuer shall be created pursuant to the terms and conditions of the
Trust Agreement, upon the execution and delivery of the Trust Agreement and the
filing by the Owner Trustee of an appropriately completed Certificate of Trust
(as defined in the Trust Agreement) under the Statutory Trust Statute. The Trust
Depositor, as settlor of the Issuer, shall fund and convey assets to the Issuer
pursuant to the terms and provisions hereof. The Issuer shall be administered
pursuant to the provisions of this Agreement and the Trust Agreement for the
benefit of the Securityholders. The Owner Trustee is hereby specifically
recognized by the parties hereto as empowered to conduct business dealings on
behalf of the Issuer in accordance with the terms hereof and of the Trust
Agreement. The Servicer is hereby specifically recognized by the parties hereto
as empowered to act on behalf of the Issuer and the Owner Trustee in accordance
with Section 5.02(e) and Section 5.02(h) and otherwise perform the duties and
obligations required to be performed by Servicer under the Transaction
Documents.
     (b) Subject to and upon the terms and conditions set forth herein, the
Trust Depositor hereby sells, transfers, assigns, sets over and otherwise
conveys to the Issuer, for a purchase price consisting of $738,000,000 in cash
(less placement expenses and certain other expenses associated with the initial
offer and sale of the Offered Notes the proceeds of which represent the
consideration paid by the Issuer herein), $34,000,000 in aggregate principal
amount of the Class E Notes, $28,000,000 in aggregate principal amount of the
Class F Notes, and the Certificate, all the right, title and interest of the
Trust Depositor in and to the Initial Loan Assets.
To the extent the purchase price paid to the Trust Depositor for any Loan is
less than the fair market value of such Loan, the difference between such fair
market value and the purchase price shall be deemed to be a capital contribution
made by the Trust Depositor to the Issuer on the Closing Date in the case of the
Initial Loans and as of the related Transfer Date in the case of any Substitute
Loans.
     (c) The Originator and the Trust Depositor each acknowledge with respect to
itself that the representations and warranties of the Trust Depositor in
Section 3.01(a) through Section 3.01(e) will run to and be for the benefit of
the Issuer and the Trustees, and the Issuer and the Trustees may enforce,
directly (without joinder of the Trust Depositor when enforcing against the
Originator), the repurchase obligations of the Originator with respect to
breaches of such representations and warranties as set forth herein and in
Section 11.01.
     (d) The sale, transfer, assignment, set-over and conveyance of the Loan
Assets by the Trust Depositor to the Issuer pursuant to this Agreement does not
constitute and is not intended to result in a creation or an assumption by the
Trust Depositor or the Issuer of any obligation of the Originator in connection
with the Loan Assets, or any agreement or instrument relating thereto,
including, without limitation, any obligation to any Obligor, if any, not
financed by the Originator, or (i) any taxes, fees, or other charges imposed by
any Governmental Authority and (ii) any insurance premiums that remain owing
with respect to any Loan at the time such Loan is

66

--------------------------------------------------------------------------------

 

sold hereunder. The Trust Depositor also hereby assigns to the Issuer all of the
Trust Depositor’s right, title and interest (but none of its obligations) under
the Loan Sale Agreement, including but not limited to the Trust Depositor’s
right to exercise the remedies created by the Loan Sale Agreement.
     (e) The Originator, Trust Depositor and Issuer intend and agree that
(i) the transfer of the Loan Assets to the Trust Depositor and the transfer of
the Loan Assets to the Issuer hereunder are intended to be a sale, conveyance
and transfer of ownership of the Loan Assets, as the case may be, rather than
the mere granting of a security interest to secure a borrowing and (ii) such
Loan Assets, as applicable, shall not be part of the Originator’s or the Trust
Depositor’s estate in the event of a filing of a bankruptcy petition or other
action by or against such Person under any Insolvency Law. In the event,
however, that notwithstanding such intent and agreement, such transfers are
deemed to be a mere granting of a security interest to secure indebtedness, the
Originator shall be deemed to have granted (and as of the Closing Date hereby
grants to) the Trust Depositor and the Trust Depositor shall be deemed to have
granted (and as of the Closing Date hereby grants to) the Issuer, as the case
may be, a perfected first priority security interest in such Loan Assets
respectively and this Agreement shall constitute a security agreement under
Applicable Law, securing the repayment of the purchase price paid hereunder, the
obligations and/or interests represented by the Notes, in the order and
priorities, and subject to the other terms and conditions of, this Agreement,
the Indenture and the Trust Agreement, together with such other obligations or
interests as may arise hereunder and thereunder in favor of the parties hereto
and thereto.
     (f) If any such transfer of the Loan Assets is deemed to be the mere
granting of a security interest to secure a borrowing, the Trust Depositor may,
to secure the Trust Depositor’s own borrowing under this Agreement (to the
extent that the transfer of the Loan Assets thereunder is deemed to be a mere
granting of a security interest to secure a borrowing) repledge and reassign
(1) all or a portion of the Loan Assets pledged to Trust Depositor by the
Originator and with respect to which the Trust Depositor has not released its
security interest at the time of such pledge and assignment, and (2) all
proceeds thereof. Such repledge and reassignment may be made by Trust Depositor
with or without a repledge and reassignment by Trust Depositor of its rights
under any agreement with the Originator, and without further notice to or
acknowledgment from the Originator. The Originator waives, to the extent
permitted by applicable law, all claims, causes of action and remedies, whether
legal or equitable (including any right of setoff), against Trust Depositor or
any assignee of Trust Depositor relating to such action by Trust Depositor in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents.
     Section 2.02. Conditions to Transfer of Initial Loan Assets to Issuer.
     On or before the Closing Date, the Originator or the Trust Depositor, as
applicable, shall deliver or cause to be delivered to the Owner Trustee and
Indenture Trustee each of the documents, certificates and other items as
follows:
     (a) a certificate of an officer of the Originator substantially in the form
of Exhibit C hereto;

67

--------------------------------------------------------------------------------

 

     (b) copies of resolutions of the manager of the Originator and the Servicer
and the member of the Trust Depositor approving the execution, delivery and
performance of this Agreement and the transactions contemplated hereunder,
certified in each case by the Secretary, Assistant Secretary or other authorized
signatory of the Originator, the Servicer and member of the Trust Depositor;
     (c) officially certified evidence dated within 30 days of the Closing Date
of due formation and good standing of the Originator under the laws of the State
of Delaware;
     (d) the initial List of Loans, certified by an officer of the Trust
Depositor, together with an Assignment substantially in the form of Exhibit A
(along with the delivery of any instruments and Loan Files as required under
Section 2.07);
     (e) a certificate of an officer of the Trust Depositor substantially in the
form of Exhibit B hereto;
     (f) one or more letters from Ernst & Young LLP or another nationally
recognized accounting firm, addressed to the Originator and the Trust Depositor
(with a copy to Moody’s, Fitch and S&P), stating that such firm has reviewed a
sample of the Initial Loans and performed specific procedures for such sample
with respect to certain loan terms and that identifies those Initial Loans that
do not conform;
     (g) officially certified, evidence dated within 30 days of the Closing Date
of due organization and good standing of the Trust Depositor under the laws of
the State of Delaware;
     (h) evidence of proper filing with appropriate offices in the State of
Delaware of UCC financing statements listing the Originator, as debtor, naming
the Trust Depositor as secured party (and the Indenture Trustee as assignee) and
identifying the Loan Assets as collateral; and evidence of proper filing with
appropriate officer in the State of Delaware of UCC financing statements listing
the Trust Depositor, as debtor, naming the Issuer as secured party (and the
Indenture Trustee as assignee) and identifying the Loan Assets as collateral;
and evidence of proper filing with appropriate officers in the State of Delaware
of UCC financing statements listing the Issuer and naming the Indenture Trustee
as secured party and identifying the Collateral, as collateral;
     (i) an Officer’s Certificate listing the Servicer’s Servicing Officers; and
     (j) a fully executed copy of each of the Transaction Documents.
     Section 2.03. Acceptance by Owner Trustee.
     On the Closing Date, if the conditions set forth in Section 2.02 have been
satisfied, the Issuer shall issue to, or upon the order of, the Trust Depositor
the Certificate representing ownership of a beneficial interest in 100% of the
Issuer and the Issuer shall issue, and the Indenture Trustee shall authenticate,
to, or upon the order of, the Trust Depositor the Notes secured by the
Collateral. The Owner Trustee hereby acknowledges its acceptance, on behalf of
the Issuer, of the Initial Loan Assets, and declares that it shall maintain such
right, title and

68

--------------------------------------------------------------------------------

 

interest in the Loan Assets in accordance with the terms of this Agreement and
the Trust Agreement upon the trust herein and therein set forth.
     Section 2.04. Conveyance of Substitute Loans.
     (a) (i) Subject to Sections 2.01(d) and (e) and, as applicable, the
satisfaction of the conditions set forth in Section 2.04(c), the Originator may,
at its option (but shall not be obligated to) either:
     (A) contemporaneously convey to the Trust Depositor one or more Loans as
described in Section 2.04(b); or
     (B) deposit to the Principal Collection Account the Repurchase Amount with
respect to any Loan as to which a Substitution Event has occurred and then,
prior to the expiry of the Substitution Period, convey to the Trust Depositor
one or more Loans as described in Section 2.04(b) in exchange for the funds so
deposited or a portion thereof.
     (ii) Any substitution pursuant to this Section 2.04 shall be initiated by
delivery of written notice (a “Notice of Substitution”) to the Indenture Trustee
that the Servicer intends to substitute a Loan pursuant to this Section 2.04 and
shall be completed prior to the earliest of:
     (A) 180 days after delivery of such notice;
     (B) delivery of written notice to the Indenture Trustee from the Servicer
stating that it does not intend to use any remaining deposit to purchase
Substitute Loans; or
     (C) in the case of a Loan which has become subject to a Material
Modification, the effective date set forth in such Material Modification (such
period described in clause (a)(ii)(A), (B) or (C) above, as applicable, being
the “Substitution Period”).
     (iii) Each Notice of Substitution shall specify the Loan to be substituted,
the reasons for such substitution and the Repurchase Amount with respect to the
Loan. On the last day of any Substitution Period, any amounts previously
deposited in accordance with clause (a)(i)(B) above which relate to such
Substitution Period that have not been applied to purchase one or more
Substitute Loans shall be deemed to constitute Principal Collections and shall
be transferred on the next Payment Date to the Note Distribution Account and
distributed to the Securityholders in accordance with the priority of payments
set forth in Section 7.05 (a) or (b), as applicable. The price paid (or, in the
case of a contemporaneous conveyance of a Substitute Loan pursuant to
Section 2.04(a)(i)(A), deemed paid) by the Issuer for any Substitute Loan shall
be an amount equal to the Repurchase Amount.
     (b) With respect to any Substitute Loans to be conveyed to the Trust
Depositor by the Originator as described in Section 2.04(a), the Originator
shall sell, transfer, assign, set over and

69

--------------------------------------------------------------------------------

 

otherwise convey to the Trust Depositor (by delivery of an executed Subsequent
Purchase Agreement, without recourse other than as expressly provided herein and
therein (and the Trust Depositor shall be required to purchase through cash
payment or by exchange of one or more related Loans released by the Issuer to
the Trust Depositor on the Subsequent Transfer Date), all the right, title and
interest of the Originator in and to the Substitute Loan Assets:
To the extent the purchase price paid to the Originator for any Substitute Loan
is less than the fair market value of such Substitute Loan, the difference
between such fair market value and the purchase price shall be deemed to be a
capital contribution made by the Originator to the Trust Depositor on the
relevant Transfer Date.
     (c) Subject to Section 2.01(d) and Section 2.01(e) and the conditions set
forth in Section 2.04(d), the Trust Depositor shall sell, transfer, assign, set
over and otherwise convey to the Issuer, without recourse other than as
expressly provided herein and therein, (i) all the right, title and interest of
the Trust Depositor in and to the Substitute Loans purchased pursuant to
Sections 2.04(a) and (b), and (ii) all other rights and property interests
consisting of Substitute Loan Assets related to such Substitute Loans.
     (d) The Originator shall transfer to the Trust Depositor and the Trust
Depositor shall transfer to the Issuer the Substitute Loan Assets pursuant to
Section 2.04(b) only upon the satisfaction of each of the following conditions
on or prior to the related Subsequent Transfer Date (and the delivery of a
related Addition Notice by the Trust Depositor shall be deemed a representation
and warranty by the Trust Depositor and of the Originator that such conditions
have been or will be, as of the related Subsequent Transfer Date, satisfied):
     (i) the Trust Depositor shall have provided the Owner Trustee and the
Indenture Trustee with a timely Addition Notice complying with the definition
thereof contained herein (a copy of which shall be provided to S&P promptly
after it is delivered to the Owner Trustee), which Addition Notice shall in any
event be no later than ten Business Days prior to the date of addition;
     (ii) there shall have occurred, with respect to each such Substitute Loan,
a corresponding Substitution Event with respect to one or more Loans then in the
Loan Pool;
     (iii) after giving effect to the inclusion of the applicable Substitute
Loans in the Collateral, (x) the Portfolio Acquisition and Disposition
Requirements are satisfied, (y) the Portfolio Criteria are satisfied and (z) the
Substitute Loans being conveyed to the Issuer satisfy the Substitute Loan
Qualification Conditions; provided that for purposes of determining compliance
with the Portfolio Criteria, any Substitute Loan which does not have a rating
from each Rating Agency as of the applicable Cut-Off Date will be deemed to have
an S&P Rating of “CCC”, a Moody’s Rating of “Caa2” and in the case of Fitch, a
rating determined by the Fitch Algorithmics CRS rating model pending receipt of
a rating estimate from the applicable Rating Agency;
     (iv) on the date of such substitution, the Servicer shall deliver to the
Indenture Trustee a certificate stating that such Loan satisfies each of the
Substitute Loan

70

--------------------------------------------------------------------------------

 

Qualification Conditions; provided that a Substitute Loan which at the time of
delivery of the related Addition Notice has a Moody’s rating lower than “B3”
shall not become part of the Loan Pool on the proposed Subsequent Transfer Date;
     (v) the Originator shall have delivered to the Trust Depositor a duly
executed Subsequent Purchase Agreement, which shall include a Subsequent List of
Loans listing the Substitute Loan;
     (vi) the Trust Depositor shall have delivered to the Issuer a duly executed
Subsequent Transfer Agreement, which shall include a Subsequent List of Loans
listing the Substitute Loan;
     (vii) the Trust Depositor shall have deposited or caused to be deposited in
the Principal and Interest Account all Collections received with respect to the
Substitute Loan on and after the related Subsequent Cut–Off Date;
     (viii) each of the representations and warranties made by the Trust
Depositor pursuant to Sections 3.02 and 3.04, applicable to the Substitute Loan
(including without limitation that each such Substitute Loan is an Eligible
Loan) shall be true and correct as of the related Subsequent Transfer Date;
     (ix) the Originator shall bear all incidental transactions costs incurred
in connection with a substitution effected pursuant to this Agreement and shall,
at its own expense, on or prior to the Subsequent Transfer Date, indicate in its
Computer Records that ownership of the Substitute Loan identified on the
Subsequent List of Loans in the Subsequent Transfer Agreement has been sold by
the Originator to the Trust Depositor and by the Trust Depositor to the Issuer
pursuant to this Agreement; and
     (x) prior to such substitution the Originator shall provide written notice
of such substitution to each Rating Agency; provided that Fitch shall be
entitled to receive from the Originator financial statements, credit committee
papers and such other information relating to such Substitute Loan as is
reasonably requested by Fitch in connection with the proposed substitution of a
Loan.
     (e) Notwithstanding anything in this Section 2.04 to the contrary, any
substitution of Loans to be effected pursuant to this Section 2.04 shall be
subject to the limitations set forth in Section 2.08(b).
     (f) The Servicer, the Issuer and the Indenture Trustee shall execute and
deliver such instruments, consents or other documents and perform all acts
reasonably requested by the Servicer in order to effect the transfer and release
of any of the Issuer’s interests in the Loans that are being substituted.
     (g) The Servicer on behalf of the Issuer shall present each Substitute Loan
proposed to be included in the Collateral to each Rating Agency for review by
such Rating Agency in order that each Rating Agency may provide a rating and a
recovery rate with respect to such Loan; provided that (i) such Loan may become
a part of the Collateral prior to the Servicer’s presentment of the Loan to the
Rating Agencies as described herein, (ii) the Servicer’s failure to

71

--------------------------------------------------------------------------------

 

present a Loan to the Rating Agencies as described herein shall not constitute
an independent breach of, or default under, this Agreement; provided that any
Substitute Loan which has not been submitted to each Rating Agency within
60 days after the related Subsequent Cut-Off Date will be deemed a Delinquent
Loan as of such date, (iii) with respect to S&P, the recovery rate shall be
determined in accordance with the S&P Priority Category Recovery Rate and
(iv) the Servicer shall have no obligation to present a Substitute Loan to
Moody’s if a Moody’s Rating for such Loan has been determined by reference to
clause (c) of the definition of Moody’s Rating.
     Section 2.05. [Reserved]
     Section 2.06. Release of Released Amounts.
     (a) The parties hereto acknowledge and agree that the Issuer has no
interest in the Retained Interest and Released Amounts. The Indenture Trustee
hereby agrees to release to the Issuer from the Loan Assets, and the Issuer
hereby agrees to release to the Trust Depositor, an amount equal to the Released
Amounts immediately upon identification thereof and upon receipt of an Officer’s
Certificate of the Servicer, which release shall be automatic and shall require
no further act by the Indenture Trustee or the Issuer; provided that the
Indenture Trustee and Owner Trustee shall execute and deliver such instruments
of release and assignment or other documents, or otherwise confirm the foregoing
release, as may reasonably be requested by the Trust Depositor in writing. For
the avoidance of doubt, such Retained Interest and Released Amounts shall not
constitute and shall not be included in the Loan Assets.
     (b) Immediately upon the release to the Trust Depositor by the Indenture
Trustee of the Released Amounts, the Trust Depositor hereby irrevocably agrees
to release to the Originator such Released Amounts, which release shall be
automatic and shall require no further act by the Trust Depositor; provided that
the Trust Depositor shall execute and deliver such instruments of release and
assignment, or otherwise confirming the foregoing release of any Released
Amounts, as may be reasonably requested by the Originator.
     Section 2.07. Delivery of Documents in the Loan File.
     The Issuer hereby authorizes and directs the Originator and the Trust
Depositor to deliver possession of all the Loan Files to the Indenture Trustee
at least two Business Days (or such other period of time as mutually agreed
between the Indenture Trustee and the Servicer) prior to the applicable Transfer
Date (with copies to be held by the Servicer) on behalf of and for the account
of the Securityholders. The Originator and the Trust Depositor shall also
identify on the List of Loans (including any deemed amendment thereof associated
with any Substitute Loans), whether by attached schedule or marking or other
effective identifying designation, all Loans that are or are evidenced by such
instruments. With respect to each Loan in the Loan Pool on or before the related
Transfer Date the Trust Depositor will deliver or cause to be delivered to the
Indenture Trustee, to the extent not previously delivered, each of the documents
in the Loan File with respect to such Loan.

72

--------------------------------------------------------------------------------

 

     Section 2.08. Optional Purchase by the Servicer of Certain Loans;
Limitations on Substitution and Repurchase.
     (a) Subject to the limitations set forth in Section 2.08(b), the Servicer
shall have the right, but not the obligation, to substitute or repurchase any
(i) Charged–Off Loan, (ii) Delinquent Loan, (iii) Loan that has a material
covenant default, (iv) Loan which has become subject to a Material Modification
or (v) Loan that has become subject to a Specified Amendment. In the event of a
repurchase, the Servicer shall deposit in the Principal and Interest Account, on
the next succeeding Determination Date, an amount equal to the Repurchase Amount
for such Loan (or applicable portion thereof) as of the date of such purchase.
The Servicer, the Issuer and the Indenture Trustee shall execute and deliver
such instruments, consents or other documents and perform all acts reasonably
requested by the Servicer in order to effect the transfer and release of any of
the Issuer’s interests in the Loans that are being purchased.
     (b) In no event may the aggregate Outstanding Loan Balance of all Loans
purchased pursuant to Section 2.08(a) or substituted pursuant to Section 2.04,
exceed an amount equal to 20% of the Net Purchased Loan Balance; provided that
the aggregate Outstanding Loan Balance of all (i) Charged-Off Loans,
(ii) Delinquent Loans, (iii) Loans that have a material covenant default and
(iv) Loans subject to an amendment, modification, termination, release or
similar undertaking entered into for reasons relating to the applicable
Obligor’s inability to pay principal or interest, which are the subject of an
optional repurchase or substitution by the Servicer may not exceed an amount
equal to 10% of the Net Purchased Loan Balance. For the avoidance of doubt,
there is no limitation on the aggregate Outstanding Loan Balance of Ineligible
Loans which may be subject to mandatory repurchase or substitution pursuant to
Section 11.01.
     Section 2.09. Certification by Indenture Trustee; Possession of Loan Files.
     (a) Review; Certification. On or prior to the applicable Transfer Date, the
Indenture Trustee shall review the portion of the Loan File required to be
delivered pursuant to Section 2.07 and shall deliver to the Originator, the
Trust Depositor and the Servicer a certification in the form attached hereto as
Exhibit L–1 on or prior to such Transfer Date. Within two Business Days after
the Indenture Trustee receives the portion of the Loan File permitted to be
delivered after the applicable Transfer Date pursuant to Section 2.07, the
Indenture Trustee shall deliver to the Originator, the Trust Depositor and the
Servicer a certification in the form attached hereto as Exhibit L–1. Within
360 days after each Transfer Date (or, with respect to any Substitute Loan,
within 360 days after the assignment thereof), the Indenture Trustee shall
deliver to the Originator, the Servicer, the Trust Depositor, S&P and any
Noteholder who requests a copy from the Indenture Trustee a final certification
in the form attached hereto as Exhibit L–2 evidencing the completeness of the
Loan Files with respect to the Loans being transferred on such Transfer Date.
     (b) Non-Conforming Loan Files. If the Indenture Trustee during the process
of reviewing the Loan Files finds any document constituting a part of a Loan
File which is not properly executed, has not been received, is unrelated to a
Loan identified in the List of Loans, or does not conform in a material respect
to the requirements of the definition of Loan File, or the description thereof
as set forth in the List of Loans, the Indenture Trustee shall promptly so

73

--------------------------------------------------------------------------------

 

notify the Originator, the Trust Depositor and the Servicer. In performing any
such review, the Indenture Trustee may conclusively rely on the Originator as to
the purported genuineness of any such document and any signature thereon. It is
understood that the scope of the Indenture Trustee’s review of the Loan Files is
limited solely to confirming that the documents listed in the definition of Loan
File have been executed and received and relate to the Loans identified in the
List of Loans; provided that with respect to the UCC financing statements
referenced in clause (a)(iii) of the definition of Required Loan Documents, the
Indenture Trustee’s sole responsibility will be to confirm that the Loan File
contains UCC financing statements and not to make determinations about the
materiality of such UCC financing statements. For the avoidance of doubt, the
scope of the Indenture Trustee review shall not include the verification of the
Outstanding Principal Balance of any Loan. The Originator agrees to use
reasonable efforts to remedy a material defect in a document constituting part
of a Loan File of which it is so notified by the Indenture Trustee. If, however,
within 30 days after the Indenture Trustee’s notice to it respecting such
material defect the Originator has not remedied the defect and such defect
materially and adversely affects the value of the related Loan, such Loan will
be treated as an “Ineligible Loan” and the Originator will (i) substitute in
lieu of such Loan a Substitute Loan in the manner and subject to the conditions
set forth in Section 11.01 or (ii) repurchase such Loan at a purchase price
equal to the Repurchase Amount, which purchase price shall be deposited in the
Principal and Interest Account within such 30 day period.
     (c) Release of Entire Loan File Upon Substitution or Repurchase. Subject to
Section 5.08(a), upon receipt by the Indenture Trustee of a certification of a
Servicing Officer of the Servicer of such substitution or of such purchase and
the deposit of the amounts then required to be deposited as described in
Section 2.08 or Section 2.09(b), as applicable, in the Principal and Interest
Account (which certification shall be in the form of Exhibit M hereto), the
Indenture Trustee shall release to the Servicer for release to the Originator
the related Loan File and the Indenture Trustee and the Issuer shall execute,
without recourse, and deliver such instruments of transfer necessary to transfer
all right, title and interest in such Loan to the Originator free and clear of
any Liens created by the Transaction Documents. All costs of any such transfer
shall be borne by the Originator.
     (d) Partial Release of Loan File and/or Collateral. Subject to Section
5.08(b), if in connection with taking any action in connection with a Loan
(including, without limitation, the amendment to documents in the Loan File
and/or a revision to Related Property) the Servicer requires any item
constituting part of the Loan File, or the release from the Lien of the related
Loan of all or part of any Related Property, the Servicer shall deliver to the
Indenture Trustee a certificate to such effect in the form attached as Exhibit M
hereto. Subject to Section 5.08(d), upon receipt of such certification, the
Indenture Trustee shall deliver to the Servicer within two Business Days of such
request (if such request was received by 2:00 p.m., central time), the requested
documentation, and the Indenture Trustee shall execute, without recourse, and
deliver such instruments of transfer necessary to release all or the requested
part of the Related Property from the Lien of the related Loan and/or the Lien
under the Transaction Documents.
     (e) Annual Certification. On the Payment Date in April of each year,
commencing April 21, 2008, the Indenture Trustee shall deliver to the
Originator, the Trust Depositor and the Servicer a certification detailing all
transactions with respect to the Loans for which the Indenture Trustee holds the
Loan Files pursuant to this Agreement during the prior calendar year.

74

--------------------------------------------------------------------------------

 

Such certification shall list all Loan Files which were released by or returned
to the Indenture Trustee during the prior calendar year, the date of such
release or return and the reason for such release or return.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
     The Trust Depositor makes, and upon execution of each Subsequent Purchase
Agreement is deemed to make, the representations and warranties in
Sections 3.01, 3.02, and 3.04 and on the Closing Date, the Trust Depositor makes
the representations and warranties in Sections 3.01 through 3.04, on which the
Issuer will rely in purchasing the Initial Loan Assets on the Closing Date (and
any Substitute Loans on any Subsequent Transfer Date), and on which the
Securityholders will rely.
     Such representations and warranties are given as of the execution and
delivery of this Agreement and as of the Closing Date (or Subsequent Transfer
Date, as applicable), but shall survive the sale, transfer and assignment of the
Loan Assets to the Issuer. The repurchase obligation or substitution obligation
of the Trust Depositor set forth in Section 11.01 constitutes the sole remedy
available for a breach of a representation or warranty of the Trust Depositor
set forth in Section 3.01 through Section 3.04 of this Agreement. Except as
otherwise provided in Section 2.04(d)(viii), the Trust Depositor shall not be
deemed to be remaking any of the representations set forth in Section 3.03 on a
Subsequent Transfer Date with respect to the Substitute Loans as such
representations relate solely to the composition of the Initial Loans conveyed
on the Closing Date.
     Section 3.01. Representations and Warranties Regarding the Trust Depositor.
     By its execution of this Agreement and each Subsequent Transfer Agreement,
the Trust Depositor represents and warrants to the Issuer, the Indenture Trustee
and the Securityholders that:
     (a) Organization and Good Standing. The Trust Depositor is a limited
liability company duly organized, validly existing and in good standing under
the laws of Delaware and has the power to own its assets and to transact the
business in which it is currently engaged. The Trust Depositor is duly qualified
to do business as a foreign entity and is in good standing in each jurisdiction
in which the character of the business transacted by it or properties owned or
leased by it requires such qualification and in which the failure so to qualify
would have a material adverse effect on the business, properties, assets, or
condition (financial or otherwise) of the Trust Depositor or the Issuer.
     (b) Authorization; Valid Sale; Binding Obligations. The Trust Depositor has
the power and authority to make, execute, deliver and perform this Agreement and
the other Transaction Documents to which it is a party and all of the
transactions contemplated under this Agreement and the other Transaction
Documents to which it is a party, and to create the Issuer and cause it to make,
execute, deliver and perform its obligations under this Agreement and the other
Transaction Documents to which the Issuer is a party, and the Trust Depositor
has taken all

75

--------------------------------------------------------------------------------

 

necessary limited liability company action to authorize the execution, delivery
and performance of this Agreement and the other Transaction Documents to which
it is a party and to cause the Issuer to be created. This Agreement and each
Subsequent Transfer Agreement, if any, shall effect a valid sale, transfer and
assignment of or grant a security interest in the Loan Assets from the Trust
Depositor to the Issuer, enforceable against the Trust Depositor and creditors
of and purchasers from the Trust Depositor. This Agreement and the other
Transaction Documents to which the Trust Depositor is a party constitute the
legal, valid and binding obligation of the Trust Depositor enforceable in
accordance with their terms, except as enforcement of such terms may be limited
by applicable Insolvency Laws and general principles of equity, whether
considered in a suit at law or in equity.
     (c) No Consent Required. The Trust Depositor is not required to obtain the
consent of any other party (other than those that it has already obtained) or
any consent, license, approval or authorization from, or registration or
declaration with, any Governmental Authority (other than those that it has
already obtained) in connection with the execution, delivery, performance,
validity or enforceability of this Agreement or the other Transaction Documents
to which it is a party.
     (d) No Violations. The execution, delivery and performance of this
Agreement and the other Transaction Documents to which it is a party by the
Trust Depositor, and the consummation of the transactions contemplated hereby
and thereby, will not violate any Applicable Law applicable to the Trust
Depositor, or conflict with, result in a default under or constitute a breach of
the Trust Depositor’s organizational documents or Contractual Obligations to
which the Trust Depositor is a party or by which the Trust Depositor or any of
the Trust Depositor’s properties may be bound, or result in the creation or
imposition of any Lien of any kind upon any of its properties pursuant to the
terms of any such Contractual Obligations, other than as contemplated by the
Transaction Documents.
     (e) Litigation. No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the knowledge
of the Trust Depositor threatened, against the Trust Depositor or any of its
properties or with respect to this Agreement, the other Transaction Documents to
which it is a party or the Securities (i) that, if adversely determined, would
in the reasonable judgment of the Trust Depositor be expected to have a material
adverse effect on the business, properties, assets or condition (financial or
otherwise) of the Trust Depositor or the Issuer or the transactions contemplated
by this Agreement or the other Transaction Documents to which the Trust
Depositor is a party or (ii) seeking to adversely affect the federal income tax
or other federal, state or local tax attributes of the Certificate or Notes.
     (f) Solvency. The Trust Depositor, at the time of and after giving effect
to each conveyance of Loan Assets hereunder, is Solvent on and as of the date
thereof.
     (g) Taxes. The Trust Depositor has filed or caused to be filed all tax
returns which, to its knowledge, are required to be filed and has put all taxes
shown to be due and payable on such returns or on any assessments made against
it or any of its property and all other taxes, fees or other charges imposed on
it or any of its property by any Governmental Authority (other than any amount
of tax due, the validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in accordance with
generally

76

--------------------------------------------------------------------------------

 

accepted accounting principles have been provided on the books of the Trust
Depositor); no tax Lien has been filed and, to the Trust Depositor’s knowledge,
no claim is being asserted, with respect to any such tax, fee or other charge.
     (h) Place of Business; No Changes. The Trust Depositor’s location (within
the meaning of Article 9 of the UCC) is the State of Delaware. The Trust
Depositor has not changed its name, whether by amendment of its certificate of
formation, by reorganization or otherwise, and has not changed its location
within the four months preceding the Closing Date.
     (i) Not an Investment Company. The Trust Depositor is not and, after giving
effect to the transactions contemplated by the Transaction Documents, will not
be required to be registered as an “investment company” under the 1940 Act.
     (j) Sale Treatment. Other than for tax and accounting purposes, the Trust
Depositor has treated the transfer of Loan Assets to the Trust Depositor for all
purposes as a sale and purchase on all of its relevant books and records and
other applicable documents.
     (k) Security Interest.
     (i) This Agreement creates a valid and continuing security interest in
favor of the Issuer (as defined in the applicable UCC) in all right, title and
interest of Trust Depositor in the Loan Assets, which security interest is prior
to all other Liens (except for Permitted Liens), and is enforceable as such
against creditors of and purchasers from the Trust Depositor;
     (ii) the Loans, along with the related Loan Files, constitute either a
“general intangible,” an “instrument,” an “account,” “investment property,” or
“chattel paper,” within the meaning of the applicable UCC;
     (iii) the Trust Depositor owns and has, and upon the sale and transfer
thereof by the Trust Depositor to the Issuer, the Issuer will have, good and
marketable title to the Loan Assets free and clear of any Lien (other than
Permitted Liens), claim or encumbrance of any Person;
     (iv) the Trust Depositor has received all consents and approvals required
by the terms of the Loan Assets to the sale of the Loan Assets hereunder to the
Issuer;
     (v) the Trust Depositor has caused the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the security interest in such Loan Assets
granted to the Issuer under this Agreement;
     (vi) other than the security interest granted to the Issuer pursuant to
this Agreement, the Trust Depositor has not pledged, assigned, sold, granted a
security interest in or otherwise conveyed any of such Loan Assets. The Trust
Depositor has not authorized the filing of and is not aware of any financing
statements naming the Trust Depositor as debtor that include a description of
collateral covering such Loan Assets other than any financing statement
(A) relating to the security interest granted to the Trust

77

--------------------------------------------------------------------------------

 

Depositor under the Loan Sale Agreement, or (B) that has been terminated. The
Trust Depositor is not aware of the filing of any judgment or tax Lien filings
against the Trust Depositor;
     (vii) all original executed copies of each Underlying Note (if any) that
constitute or evidence the Loan Assets have been delivered to the Indenture
Trustee, and in the case of Noteless Loans, a copy of each related Note
Register, certified by a Responsible Officer of the Originator, has been
delivered to the Indenture Trustee;
     (viii) except with respect to Noteless Loans, the Trust Depositor has
received a written acknowledgment from the Indenture Trustee that the Indenture
Trustee or its bailee is holding any Underlying Notes that constitute or
evidence any Loan Assets solely on behalf of and for the benefit of the
Securityholders; and
     (ix) none of the Underlying Notes that constitute or evidence any Loan
Assets has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Issuer and the
Indenture Trustee.
     (l) Value Given. The cash payments and securities of the Issuer received by
the Trust Depositor in respect of the purchase price of the Loans sold hereunder
constitutes reasonably equivalent value in consideration for the transfer to the
Issuer of such Loans under this Agreement, such transfer was not made for or on
account of an antecedent debt owed by the Originator to the Trust Depositor, and
such transfer was not and is not voidable or subject to avoidance under any
Insolvency Law.
     (m) Investment Company. Neither the Issuer nor the Loan Pool is, nor after
giving effect to the transactions contemplated by the Transaction Documents,
will be required to be registered as an “investment company” within the meaning
of the 1940 Act.
     (n) No Defaults. The Trust Depositor is not in default with respect to any
order or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Trust Depositor or its respective properties or
might have consequences that would materially and adversely affect its
performance hereunder.
     (o) Bulk Transfer Laws. The transfer, assignment and conveyance of the
Loans by the Trust Depositor pursuant to this Agreement are not subject to the
bulk transfer laws or any similar statutory provisions in effect in any
applicable jurisdiction.
     (p) Origination and Collection Practices. The origination and collection
practices used with respect to each Loan have been in all material respects
legal, proper and prudent and comply with the Credit and Collection Policy.
     (q) Adequacy of Consideration. The Trust Depositor will receive fair
consideration and reasonably equivalent value in exchange for the sale of the
Loans.

78

--------------------------------------------------------------------------------

 

     (r) Lack of Intent to Hinder, Delay or Defraud. Neither the Trust Depositor
nor any of its Affiliates sold, or will sell, any interest in any Loan with any
intent to hinder, delay or defraud any of their respective creditors.
     (s) Nonconsolidation. The Trust Depositor conducts its affairs such that
the Issuer would not be substantively consolidated in the estate of the Trust
Depositor and their respective separate existences would not be disregarded in
the event of the Trust Depositor’s bankruptcy.
     (t) Accuracy of Information. All written factual information heretofore
furnished by the Trust Depositor for purposes of or in connection with this
Agreement or the other Transaction Documents to which Trust Depositor is a
party, or any transaction contemplated hereby or thereby is, and all such
written factual information hereafter furnished by the Trust Depositor to any
such party will be, true and accurate in every material respect, on the date
such information is stated or certified.
The representations and warranties set forth in Section 3.01(k) may not be
waived by any Person and shall survive the termination of this Agreement. The
Trust Depositor and Issuer (i) shall not, without satisfaction of the S&P Rating
Condition with respect thereto, waive any breach of the representations and
warranties in Section 3.01(k), and (ii) shall provide S&P with prompt written
notice of any breach of the representations and warranties set out in Section
3.01(k).
     Section 3.02. Representations and Warranties Regarding Each Loan and as to
Certain Loans in the Aggregate.
     The Trust Depositor represents and warrants (x) with respect to
Section 3.02(a), Section 3.02(b) and Section 3.02(d) as to each Loan as of the
execution and delivery of this Agreement and on the Closing Date, and as of each
Subsequent Transfer Date with respect to each Substitute Loan, and (y) with
respect to Section 3.02(c), as to the Loan Pool in the aggregate as of the
Initial Cut-Off Date, and as of each Subsequent Transfer Date with respect to
Substitute Loans (after giving effect to the addition of such Substitute Loans
to the Loan Pool), that:
     (a) List of Loans. The information set forth in the List of Loans attached
hereto as Exhibit G (as the same may be amended or deemed amended in respect of
a conveyance of Substitute Loans on a Subsequent Transfer Date) is true,
complete and correct as of the applicable Cut–Off Date.
     (b) Eligible Loan. Such Loan satisfies the criteria for the definition of
Eligible Loan set forth in this Agreement as of the date of its conveyance
hereunder.
     (c) Loans Secured by Real Property. Less than 40% of the Aggregate
Outstanding Loan Balance of the Loan Pool as of the Initial Cut-Off Date
consists of Loans principally secured by real property, and the Trust Depositor
will not effectuate the transfer of a Substitute Loan if such transfer would
cause more than 40% of the Aggregate Outstanding Loan Balance of the Loan Pool
as of any Subsequent Transfer Date to consist of Loans principally secured by
real property.
     (d) Underlying Custodial Agreements. With respect to each Pooled Obligor
Loan, the underlying loan documents and other collateral pledged by the
Underlying Debtors is held by

79

--------------------------------------------------------------------------------

 

an Underlying Custodian for the benefit of the Originator and its assignees. The
Originator’s rights under each such Underlying Custodial Agreement are fully
assignable and have been assigned by it to the Trust Depositor, and assigned by
the Trust Depositor to the Issuer in connection with the transfer of the Loan
Assets.
     Section 3.03. Representations and Warranties Regarding the Initial Loans in
the Aggregate.
     (a) Amounts. The sum of the Aggregate Outstanding Loan Balance of the
Initial Loans as of the Cut-Off Date equals the aggregate principal balance of
the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the
Class E Notes and the Class F Notes.
     (b) Characteristics. The Trust Depositor represents and warrants, on the
Closing Date, that as of the Initial Cut-Off Date, the Initial Loans have the
following additional characteristics: (i) no Loan has a remaining maturity of
more than 84 months; (ii) the date of the final Scheduled Payment on the Loan
with the latest maturity is not later than the date that is 36 months prior to
the Final Maturity Date; and (iii) none of the Initial Loans provide for
Scheduled Payments of interest due on a basis other than monthly, quarterly,
semi-annually or annually.
     Section 3.04. Representations and Warranties Regarding the Loan Files.
     The Trust Depositor represents and warrants on the Closing Date with
respect to the Initial Loans (or as of the Subsequent Transfer Date, with
respect to Substitute Loans), that (i) to the extent any such Loans were pledged
under the Warehouse Facilities or any Prior Term Transaction, immediately prior
to such date (as applicable), the Originator and/or a collateral custodian under
the Warehouse Facilities or such Prior Term Transaction had possession of each
original Underlying Note (except in the case of Noteless Loans) and the related
complete Loan File, and there were no other custodial agreements relating to the
same in effect and (ii) except as otherwise provided in Section 2.07, the
complete Loan File for each Loan is in the possession of the Indenture Trustee.
     Section 3.05. [Reserved].
     Section 3.06. Representations and Warranties Regarding the Servicer.
     The Servicer represents and warrants to the Owner Trustee, the Indenture
Trustee and the Securityholders that:
     (a) Organization and Good Standing. The Servicer is a limited liability
company duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization and has the limited liability company power
to own its assets and to transact the business in which it is currently engaged.
The Servicer is duly qualified to do business as a foreign limited liability
company and is in good standing in each jurisdiction in which the character of
the business transacted by it or properties owned or leased by it requires such
qualification and in which the failure so to qualify would have a material
adverse effect on the business, properties, assets, or condition (financial or
otherwise) of the Servicer or the Issuer. The Servicer is properly licensed in
each jurisdiction to the extent required by the laws of such jurisdiction to
service the Loans in accordance with the terms hereof and in which the failure
to

80

--------------------------------------------------------------------------------

 

so qualify would have a material adverse effect on the business, properties,
assets, or condition (financial or otherwise) of the Servicer or Issuer.
     (b) Authorization; Binding Obligations. The Servicer has the power and
authority to make, execute, deliver and perform this Agreement and the other
Transaction Documents to which the Servicer is a party and all of the
transactions contemplated under this Agreement and the other Transaction
Documents to which the Servicer is a party, and has taken all necessary
corporate action to authorize the execution, delivery and performance of this
Agreement and the other Transaction Documents to which the Servicer is a party.
This Agreement and the other Transaction Documents to which the Servicer is a
party constitute the legal, valid and binding obligation of the Servicer
enforceable in accordance with their terms, except as enforcement of such terms
may be limited by Insolvency Laws and general principles of equity, whether
considered in a suit at law or in equity.
     (c) No Consent Required. The Servicer is not required to obtain the consent
of any other party (other than those that it has already obtained) or any
consent, license, approval or authorization from, or registration or declaration
with, any Governmental Authority (other than those that it has already obtained)
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement and the other Transaction Documents to which
the Servicer is a party.
     (d) No Violations. The execution, delivery and performance of this
Agreement and the other Transaction Documents to which the Servicer is a party
by the Servicer will not violate any Applicable Law applicable to the Servicer,
or conflict with, result in a default under or constitute a breach of the
Servicer’s organizational documents or any Contractual Obligations to which the
Servicer is a party or by which the Servicer or any of the Servicer’s properties
may be bound, or result in the creation of or imposition of any Lien of any kind
upon any of its properties pursuant to the terms of any such Contractual
Obligations, other than as contemplated by the Transaction Documents.
     (e) Litigation. No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the knowledge
of the Servicer threatened, against the Servicer or any of its properties or
with respect to this Agreement, or any other Transaction Document to which the
Servicer is a party that, if adversely determined, would in the reasonable
judgment of the Servicer be expected to have a material adverse effect on the
business, properties, assets or condition (financial or otherwise) of the
Servicer or the Issuer or the transactions contemplated by this Agreement or any
other Transaction Document to which the Servicer is a party.
     (f) Reports. All reports, certificates and other written information
furnished by the Servicer with respect to the Loans are correct in all material
respects.
     Section 3.07. Representations and Warranties of the Backup Servicer.
     The Backup Servicer hereby represents and warrants to the Owner Trustee,
the Indenture Trustee and the Securityholders, as follows:

81

--------------------------------------------------------------------------------

 

     (a) Organization. It is a national banking association duly organized,
validly existing and in good standing under the federal laws of the United
States with all requisite power and authority to own its properties and to
conduct its business as presently conducted and to enter into and perform its
obligations pursuant to this Agreement.
     (b) Good Standing. The Backup Servicer is duly qualified to do business as
a national banking association and is in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the ownership or
lease of its property and the conduct of its business requires such
qualification, licenses or approvals, except where the failure to so qualify or
have such licenses or approvals has not had, and would not be reasonably
expected to have, a material adverse effect on the interests of the
Securityholders.
     (c) Authorization. It has the power and authority to execute and deliver
this Agreement and to carry out its terms. It has duly authorized the execution,
delivery and performance of this Agreement by all requisite action.
     (d) No Violations. The consummation of the transactions contemplated by,
and the fulfillment of the terms of, this Agreement by it will not violate any
Applicable Law or conflict with, result in any breach of any of the terms or
provisions of, or constitute a default under, its organizational documents or
any Contractual Obligations by which it or any of its property is bound or
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any Contractual Obligations.
     (e) No Consent Required. No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any
Governmental Authority having jurisdiction over it or any of its respective
properties is required to be obtained in order for it to enter into this
Agreement or perform its obligations hereunder.
     (f) Binding Obligation. This Agreement constitutes its legal, valid and
binding obligation, enforceable in accordance with its terms, except as such
enforceability may be limited by applicable Insolvency Laws and general
principles of equity (whether considered in a suit at law or in equity).
     (g) Litigation. There are no proceedings or investigations pending or, to
the best of its knowledge, threatened, against it before any Governmental
Authority (i) asserting the invalidity of this Agreement, (ii) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or (iii) seeking any determination or ruling that might (in its
reasonable judgment) have a material adverse effect on the interests of the
Securityholders.
ARTICLE 4.
PERFECTION OF TRANSFER AND
PROTECTION OF SECURITY INTERESTS
     Section 4.01. Custody of Loans.
     The contents of each Loan File shall be held in the custody of the
Indenture Trustee under the Indenture for the benefit of, and as agent for, the
Securityholders.

82

--------------------------------------------------------------------------------

 

     Section 4.02. Filing.
     On or prior to the Closing Date, the Originator, Trust Depositor and
Servicer shall cause the UCC financing statement(s) referred to in
Section 2.02(h) hereof to be filed, and from time to time the Servicer, on
behalf of the Issuer, shall take and cause to be taken such actions and execute
such documents as are necessary or desirable or as the Owner Trustee or
Indenture Trustee (acting at the direction of the Majority Noteholders) may
reasonably request to perfect and protect the Indenture Trustee’s first priority
perfected security interest in the Loan Assets against all other Persons,
including, without limitation, the filing of financing statements, amendments
thereto and continuation statements, the execution of transfer instruments and
the making of notations on or taking possession of all records or documents of
title. Notwithstanding the obligations of the Originator, Trust Depositor and
Servicer set forth in the preceding sentence, the Issuer hereby authorizes the
Servicer to prepare and file, at the expense of the Servicer, UCC financing
statements (including but not limited to renewal, continuation or in lieu
statements) and amendments or supplements thereto or other instruments as the
Servicer may from time to time deem necessary or appropriate in order to perfect
and maintain the security interest granted hereunder in accordance with the UCC.
     Section 4.03. Changes in Name, Corporate Structure or Location.
     (a) During the term of this Agreement, none of the Originator, the
Servicer, the Trust Depositor or the Issuer shall change its name, form of
organization, identity, existence, state of formation or location without first
giving at least 30 days’ prior written notice to the Owner Trustee, the
Indenture Trustee and S&P.
     (b) If any change in either the Servicer’s, the Originator’s or the Trust
Depositor’s name, identity, structure, existence, state of formation, location
or other action would make any financing or continuation statement or notice of
ownership interest or Lien relating to any Loan Asset seriously misleading
within the meaning of applicable provisions of the UCC or any title statute, the
Servicer, no later than five Business Days after the effective date of such
change, shall file such amendments as may be required to preserve and protect
the Indenture Trustee’s security interest in the Loan Assets and the proceeds
thereof. Promptly after taking any of the foregoing actions, the Servicer shall
deliver to the Owner Trustee and the Indenture Trustee an Opinion of Counsel
reasonably acceptable to the Owner Trustee and the Indenture Trustee stating
that, in the opinion of such counsel, all financing statements or amendments
necessary to preserve and protect the Indenture Trustee’s security interest in
the Loan Assets have been filed, and reciting the details of such filing.
     Section 4.04. Costs and Expenses.
     The Servicer agrees to pay all reasonable costs and disbursements in
connection with the perfection and the maintenance of perfection, as against all
third parties, of the Trustees’ and Issuer’s right, title and interest in and to
the Loan Assets (including, without limitation, the security interest in the
Related Property related thereto and the security interests provided for in the
Indenture); provided that to the extent permitted by the Required Loan
Documents, the Servicer may seek reimbursement for such costs and disbursements
from the related Obligors.

83

--------------------------------------------------------------------------------

 

     Section 4.05. Sale Treatment.
     Other than for tax and accounting purposes, the Trust Depositor shall treat
the transfer of Loan Assets made hereunder for all purposes as a sale and
purchase on all of its relevant books and records.
     Section 4.06. Separateness from Trust Depositor.
     The Originator agrees to take or refrain from taking or engaging in with
respect to the Trust Depositor each of the actions or activities specified in
the “substantive consolidation” opinion of Patton Boggs LLP (including any
certificates of the Originator attached thereto) delivered on the Closing Date,
upon which the conclusions therein are based.
ARTICLE 5.
SERVICING OF LOANS
     Section 5.01. Appointment and Acceptance.
     CapitalSource is hereby appointed as Servicer pursuant to this Agreement.
CapitalSource accepts the appointment and agrees to act as the Servicer pursuant
to this Agreement.
     Section 5.02. Duties of the Servicer.
     (a) The Servicer, as an independent contract servicer, shall service and
administer the Loans and shall have full power and authority, acting alone, to
do any and all things in connection with such servicing and administration which
the Servicer may deem necessary or desirable and consistent with the terms of
this Agreement and the Credit and Collection Policy. The Servicer may enter into
Subservicing Agreements for any servicing and administration of Loans with any
entity provided the Rating Agency Condition is satisfied with respect to the
Servicer entering into such Subservicing Agreement. The Servicer shall be
entitled to terminate any Subservicing Agreement in accordance with the terms
and conditions of such Subservicing Agreement and to either directly service the
related Loans itself or enter into a Subservicing Agreement with a successor
Subservicer which qualifies hereunder.
     (b) Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer and a
Subservicer or reference to actions taken through a Subservicer or otherwise, so
long as this Agreement shall remain effective, the Servicer shall remain
obligated and primarily liable to the Indenture Trustee, for itself and on
behalf of the Securityholders, for the servicing and administering of the Loans
in accordance with the provisions of this Agreement and the Credit and
Collection Policy, without diminution of such obligation or liability by virtue
of such Subservicing Agreements or arrangements or by virtue of indemnification
from the Subservicer and to the same extent and under the same terms and
conditions as if the Servicer alone were servicing and administering the Loans.
For purposes of this Agreement, the Servicer shall be deemed to have received
payments on Loans when any Subservicer has received such payments. The Servicer
shall be entitled to enter into any agreement with a Subservicer for
indemnification of the Servicer by

84

--------------------------------------------------------------------------------

 

such Subservicer, and nothing contained in this Agreement shall be deemed to
limit or modify such indemnification.
     (c) Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Loans involving a Subservicer in its
capacity as such and not as an originator shall be deemed to be between the
Subservicer and the Servicer alone, and the Indenture Trustee and the
Securityholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Subservicer
except as set forth in Section 5.02(d). Notwithstanding the foregoing, the
Servicer shall (i) at its expense and without reimbursement, deliver to the
Indenture Trustee a copy of each Subservicing Agreement and (ii) provide notice
of the termination of any Subservicer within a reasonable time after such
Subservicer’s termination to the Indenture Trustee.
     (d) In the event the Servicer shall for any reason no longer be the
Servicer, the Servicer at its expense and without right of reimbursement
therefor, shall, upon request of the Indenture Trustee, deliver to the Successor
Servicer all documents and records (including computer tapes and diskettes)
relating to each Subservicing Agreement and the Loans then being serviced
hereunder and an accounting of amounts collected and held by it hereunder and
otherwise use its best efforts to effect the orderly and efficient transfer of
the Subservicing Agreements to the assuming party.
     (e) Modifications and Waivers Relating to Loans.
     (i) So long as it is consistent with the Credit and Collection Policy, the
Servicer may waive, modify or vary any term of any Loan if in the Servicer’s
determination such waiver, modification or variance will not be materially
adverse to the interests of the Noteholders; provided that the Servicer may not:
     (A) amend, waive, modify or vary any Loan in any manner that would extend
the stated maturity date of such Loan beyond the Final Maturity Date; or
     (B) enter into any amendment, waiver, modification or variance with respect
to any loan for the purpose or with the intention of causing a Substitution
Event to occur with respect to such Loan solely in order to render such loan
eligible for repurchase or substitution hereunder or to otherwise make such Loan
eligible for repurchase pursuant to Section 2.08.
If any Loan is amended, modified, waived or varied due to an Obligor’s inability
to pay principal (excluding payments of principal consisting of excess cash flow
sweeps) or interest, then the Loan shall be treated as a Delinquent Loan as of
the date that is five Business Days in case of Asset Based Revolvers or 60 days
in the case of all other Loans after such delinquent payment was first due if
all delinquencies have not been cured within that one day or 60 day period, as
applicable.
     (ii) Except as expressly set forth in Section 5.02(e)(i), the Servicer may
execute any amendments, waivers, modifications or variances related to such Loan
and any documents related thereto on behalf of the Issuer. The Servicer will
provide each Rating Agency with a written summary of any such amendment, waiver,
modification or

85

--------------------------------------------------------------------------------

 

variance promptly after its execution and, promptly upon request by any Rating
Agency, a copy of any such waiver, modification or variance. Such summary shall
set forth a brief description of the reasons for, and the effect of, such
waiver, modification or variance, and shall indicate whether such waiver,
modification or variance constitutes a Specified Amendment.
     (iii) With respect to each of the modifications described in clause (i) –
(vi) of the definition of Specified Amendment, the Servicer may elect to submit
the modified (or overadvanced, as applicable) Loan to S&P to be re-rated. If the
Servicer does not elect to have such Loan re-rated by S&P, then such Loan shall
be deemed to be a Delinquent Loan as of the date that is 60 days after the
effective date of the relevant Specified Amendment; provided that such Loan
shall cease to be deemed a Delinquent Loan as of such later date as it may be
submitted to S&P for re-rating. Any Loan which is subject to a modification
described in clause (v) of the definition of Specified Amendment will be deemed
to be a Delinquent Loan upon the effectiveness of such Specified Amendment. The
provisions of this Section 5.02(e)(iii) shall not apply to modifications,
amendments or variances that do not constitute Specified Amendments.
     (iv) Although costs incurred by the Servicer or any Subservicer in respect
of Servicing Advances may be added to the amount owing by the Obligor under the
related Loan, such amounts shall not be added for the purposes of calculating
distributions to Noteholders. Any fees and costs imposed in connection therewith
may be retained by the Servicer. Without limiting the generality of the
foregoing, so long as it is consistent with the Credit and Collection Policy,
the Servicer shall continue, and is hereby authorized and empowered to execute
and deliver on behalf of the Indenture Trustee, the Owner Trustee and each
Securityholder, all instruments of amendment, waiver, satisfaction or
cancellation, or of partial or full release, discharge and all other comparable
instruments, with respect to the Loans and with respect to any Related Property.
Such authority shall include, but not be limited to, the authority to substitute
or release items of Related Property consistent with the Credit and Collection
Policy and sell participations or assignments in Loans previously transferred to
the Issuer. In connection with any such sale, the Servicer shall deposit in the
Principal and Interest Account, pursuant to Section 7.03(b), all proceeds
received upon such sale. If reasonably required by the Servicer, the Indenture
Trustee, on behalf of the Issuer, shall furnish the Servicer, within five
Business Days of receipt of the Servicer’s request, with any powers of attorney
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties under this Agreement. Any such request
to the Indenture Trustee, on behalf of the Issuer, shall be accompanied by a
certification in the form of Exhibit L-1 attached hereto signed by a Servicing
Officer. In connection with any substitution of Collateral, the Servicer shall
deliver to the Indenture Trustee the items, and within the time frame, set forth
in Section 2.07, assuming that the date of substitution is the relevant
“Transfer Date.”
     (f) The Servicer, in servicing and administering the Loans, shall act in
good faith, exercise commercially reasonable judgment and reasonable care,
consistent with the Credit and Collection Policy, employ or cause to be employed
procedures (including collection, foreclosure, Foreclosed Property and
Repossessed Collateral management procedures), prudent lending

86

--------------------------------------------------------------------------------

 

standards and exercise a degree of skill and attention not less than that which
it customarily employs and exercises in servicing and administering loans for
its own account and in a manner consistent with those policies and procedures as
are customarily used by reasonable and prudent servicers of national repute in
connection with servicing of assets of the nature and of the character of the
Loans, giving due consideration to the Noteholders’ reliance on the Servicer.
The Servicer shall not permit an Obligor of a Revolving Loan to receive an
Overadvance thereunder for the purpose of making payments of principal or
interest (in whole or in part) due with respect to a Term Loan, where any
portion of such Revolving Loan or Term Loan, as applicable, shall constitute a
part of the Loan Assets hereunder or an asset of any Prior Term Transaction.
     (g) [Reserved].
     (h) In accordance with the power set forth in Section 2.01(a), the Servicer
shall perform the duties of the Issuer and the Owner Trustee under the
Transaction Documents. In furtherance of the foregoing, the Servicer shall
consult with the Owner Trustee as the Servicer deems appropriate regarding the
duties of the Issuer and the Owner Trustee under the Transaction Documents. The
Servicer shall monitor the performance of the Issuer and the Owner Trustee and
shall advise the Owner Trustee when action is necessary to comply with the
Issuer’s or the Owner Trustee’s duties under the Transaction Documents. The
Servicer shall prepare for execution by the Owner Trustee or the Issuer or shall
cause the preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be the duty
of the Issuer or the Owner Trustee to prepare, file or deliver pursuant to the
Transaction Documents.
     (i) In addition to the duties of the Servicer set forth in this Agreement
or any of the Transaction Documents, the Servicer shall perform such
calculations and shall prepare for execution by the Issuer or the Owner Trustee
or shall cause the preparation by other appropriate Persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer to prepare, file or deliver pursuant to state and
federal tax and securities laws. In accordance with the directions of the Issuer
or the Owner Trustee, the Servicer shall administer, perform or supervise the
performance of such other activities in connection with the Issuer as are not
covered by any of the foregoing provisions and as are expressly requested by the
Issuer or the Owner Trustee and are reasonably within the capability of the
Servicer.
     (j) Notwithstanding anything in this Agreement or any of the Transaction
Documents to the contrary, the Servicer shall be responsible for promptly (upon
knowledge thereof) notifying the Owner Trustee and the Paying Agent in the event
that any withholding tax is imposed on the Issuer’s payments (or allocations of
income) to a Securityholder. Any such notice shall be in writing and specify the
amount of any withholding tax required to be withheld by the Owner Trustee or
the Paying Agent pursuant to such provision.
     (k) All tax returns will be signed by the Servicer on behalf of the Issuer.
     (l) The Servicer shall maintain appropriate books of account and records
relating to services performed under this Agreement, which books of account and
records shall be

87

--------------------------------------------------------------------------------

 

reasonably accessible for inspection by the Owner Trustee at any time during
normal business hours.
     (m) Without the prior written consent of the Majority Noteholders and
subject to the satisfaction of the S&P Rating Condition and the Moody’s Rating
Condition, the Servicer shall not agree or consent to, or otherwise permit to
occur, any amendment, modification, change, supplement or rescission of or to
the Credit and Collection Policy, in whole or in part, in any manner that could
have a material adverse effect on the Loans.
     (n) For so long as any of the Notes are outstanding and are “restricted
securities” within the meaning of Rule 144(a)(3) of the Securities Act, (i) the
Servicer will provide or cause to be provided to any holder of such Notes and
any prospective purchaser thereof designated by such holder, upon the request of
such a holder or prospective purchaser, the information required to be provided
to such holder or prospective purchaser by Rule 144A(d)(4) under the Securities
Act; and (ii) the Servicer shall update such information from time to time in
order to prevent such information from becoming false and misleading and will
take such other actions as are necessary to ensure that the safe harbor
exemption from the registration requirements of the Securities Act provided by
Rule 144A is and will be available for resales of such Notes conducted in
accordance with Rule 144A.
     (o) The Servicer will keep in full force and effect its existence, rights
and franchise as a Delaware limited liability company, and the Servicer shall
obtain and preserve its qualification to do business as a foreign limited
liability company in each jurisdiction in which such qualification is or shall
be necessary to protect the validity and enforceability of this Agreement and of
any of the Loans and to perform its duties under this Agreement.
     (p) The Servicer shall be obligated to make the Servicing Advances (but not
Scheduled Payment Advances) incurred in the performance of its servicing duties
hereunder. The Servicer shall be entitled to reimbursement for such Servicing
Advances from the Collections received from the Loan to which such Servicing
Advances relate pursuant to Section 5.10(d) and Section 7.03(h).
     (q) Not later than the Business Day preceding each Payment Date, the
Servicer will cause all amounts in the Reserve Fund to be transferred to the
Note Distribution Account for application in accordance with the Priority of
Payments.
     (r) The Servicer shall not be responsible for any taxes on the Issuer or
any Servicing Fees payable to any Successor Servicer.
     (s) All payments (other than Prepayments) received on Loans will be applied
by the Servicer to amounts due by the Obligor starting with the most recent
Scheduled Payment.
     (t) The Servicer shall be responsible for any tax reporting, disclosure,
record keeping or list maintenance requirements of the Issuer under Internal
Revenue Code Sections 6011(a), 6111(d) or 6112, including, but not limited to,
the preparation of IRS Form 8886 pursuant to Federal Income Tax Regulations
Section 1.6011-4(d) or any successor provision and any required list maintenance
under Federal Income Tax Regulations Section 301.6112-1 or any successor
provision.

88

--------------------------------------------------------------------------------

 

     (u) The Servicer shall notify the Backup Servicer of any material
modification to its servicing system.
     (v) The initial Servicer shall provide to S&P, Moody’s and Fitch
(i) financial statements for each Obligor of a Loan included in the Loan Pool,
as promptly as reasonably practicable (but in any event not later than 135 days)
after the end of the fiscal year of such Obligor, until such time as the related
Loan has been paid in full or is no longer part of the Loan Pool and
(ii) promptly after a Responsible Officer of the Servicer becomes aware thereof,
email notice of any payment default (following the expiration of any applicable
grace period) under a Loan. Any failure by the initial Servicer to provide
financial statements with respect to any Obligor within 135 days after the end
of the fiscal year of each such Obligor shall result in each Loan to the
applicable Obligor being deemed to have an S&P rating of “CCC-” unless such Loan
has been submitted to S&P to be re-rated.
     Section 5.03. Liquidation of Loans.
     (a) In the event that any payment due under any Loan and not postponed
pursuant to Section 5.02 is not paid when the same becomes due and payable, or
in the event the Obligor fails to perform any other covenant or obligation under
the Loan which results in an event of default thereunder, the Servicer in
accordance with the Credit and Collection Policy and any Applicable Law may
pursue enforcement of all appropriate remedies it may deem to be in the best
interests of the Noteholders. Such enforcement shall include, but shall not be
limited to, acceleration of all payments due thereunder to the extent permitted
by the Required Loan Documents and foreclosure upon the Related Property at a
public or private sale or otherwise comparably effect the ownership of Related
Property relating to defaulted Loans for which the related Loan is still
outstanding and as to which no satisfactory arrangements can be made for
collection of delinquent payments in accordance with the provisions of
Section 5.10 and shall act as sales and processing agent for the Related
Property that is repossessed. In connection with such foreclosure or other
conversion and any other liquidation action or enforcement of remedies, the
Servicer shall exercise collection and foreclosure procedures with the same
degree of care and skill in its exercise or use as it would exercise with
respect to its own affairs, in accordance with this Agreement, and in accordance
with the Credit and Collection Policy. To the extent the Servicer or the Issuer
takes possession of any of the Related Property, the Servicer may not sell any
such Related Property without first using commercially reasonable efforts to
obtain bids to purchase such Related Property from at least three Persons (other
than the Servicer or any of its Affiliates). The Servicer may sell the Related
Property to the highest bidder (if any bids are received) or the Servicer or an
Affiliate may purchase the Related Property for a price equal to the highest
bid, but in no event may the Servicer sell any Related Property for less than
the then fair market value of the Related Property. If no bids are received and
the Servicer has used commercially reasonable efforts to obtain such bids, the
Servicer or an Affiliate may purchase the Related Property for a price equal to
the then fair market value of such Related Property. Any such sale of the
Related Property is to be evidenced by a certificate of a Responsible Officer of
the Servicer delivered to the Indenture Trustee setting forth the Loan, the
Related Property, the sale price of the Related Property and certifying that
such sale price is the fair market value of such Related Property. In any case
in which any such Related Property has suffered damage, the Servicer will not
expend funds in connection with any repair or toward the repossession of such
Related Property unless it reasonably determines that such repair and/or

89

--------------------------------------------------------------------------------

 

repossession will increase the Liquidation Proceeds by an amount greater than
the amount of such expenses.
     (b) Prior to undertaking foreclosure of any Loan secured by real property
and any improvements thereon including any Mortgaged Property, the Servicer must
investigate environmental conditions, including, in accordance with the Credit
and Collection Policy, the performance of a Phase I and/or Phase II
environmental site assessment, to ascertain the actual or potential presence of
any hazardous material on or under such property. For purposes of this
Agreement, the term hazardous material includes (1) any hazardous substance, as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. 9601–9675, and (2) petroleum (as that term is defined at 42
U.S.C. §6991) including any derivative, fraction, by–product, constituent or
breakdown product thereof, or additive thereto. In the event that the
environmental investigation determines the existence of any hazardous material
on or under the real property in excess of minimum action levels established by
relevant regulatory agencies, title to such property shall not be taken without
satisfaction of the Rating Agency Condition.
     (c) After a Loan has been liquidated, the Servicer shall promptly prepare
and forward to the Indenture Trustee and upon request, any Securityholder, a
report (the “Liquidation Report”), in the form attached hereto as Exhibit D,
detailing the Liquidation Proceeds received from such Loan, the Liquidation
Expenses incurred with respect thereto, and any loss incurred in connection
therewith.
     Section 5.04. Fidelity Bond.
     The Servicer shall at all times maintain with a responsible company, and at
its own expense, a blanket fidelity bond (the “Fidelity Bond”) in a minimum
aggregate amount equal to $2,000,000, and a maximum deductible of $50,000, with
coverage on all employees acting in any capacity requiring such persons to
handle funds, money, documents or papers relating to the Loans or the Related
Property (“Servicer Employees”). The Fidelity Bond shall provide coverage to the
Indenture Trustee, the Owner Trustee and the Securityholders, their respective
officers and employees, against losses resulting from forgery, theft,
embezzlement or fraud by such Servicer Employees. The Fidelity Bond shall not
relieve the Servicer from its duties or indemnity obligations as set forth in
this Agreement. Upon the request of the Indenture Trustee, the Owner Trustee or
any Securityholder, the Servicer shall cause to be delivered to the Indenture
Trustee, the Owner Trustee or such Securityholder a certified true copy of such
Fidelity Bond.
     Section 5.05. Maintenance of Hazard Insurance.
     (a) The Servicer will use its reasonable best efforts to ensure that each
Obligor maintains an Insurance Policy with respect to any tangible, personal
property collateral (other than accounts receivable) in amounts consistent with
the Credit and Collection Policy and as required by clause (m) of the definition
of Eligible Loan and all of the Originator’s right, title and interest therein
will be fully assigned to the Indenture Trustee. Additionally, other than with
respect to unsecured Loans and Loans in which the sole collateral is the related
Obligor’s accounts receivable, the Servicer will require that each Obligor
maintain property damage

90

--------------------------------------------------------------------------------

 

liability insurance during the term of each Loan in compliance with the Credit
and Collection Policy. If an Obligor fails to maintain property damage
insurance, the Servicer may in its discretion purchase and maintain such
insurance on behalf of, and generally at the expense of, the Obligor to the
extent entitled to do so pursuant to the Required Loan Documents. In connection
with its activities as Servicer, the Servicer agrees to present, on behalf of
the Indenture Trustee and the Securityholders, claims to the insurer under each
Insurance Policy and any such liability policy, and to settle, adjust and
compromise such claims, in each case, consistent with the terms of each Loan.
The Servicer’s Insurance Policies with respect to the Related Property will
insure against liability for physical damage relating to such Related Property
in accordance with the requirements of the Credit and Collection Policy. The
Servicer hereby disclaims any and all right, title and interest in and to any
Insurance Policy and Insurance Proceeds with respect to any Related Property,
including any Insurance Policy with respect to which it is named as loss payee
and as an insured, and agrees that it has no equitable, beneficial or other
interest in the Insurance Polices and Insurance Proceeds other than being named
as loss payee and as an insured. The Servicer acknowledges that with respect to
the Insurance Policies and Insurance Proceeds thereof that it is acting solely
in the capacity as agent for the Indenture Trustee.
     (b) If at origination of a Loan, to the best of the Servicer’s knowledge
after reasonable investigation, the related Mortgaged Property is in an area
identified in the Federal Register by the Flood Emergency Management Agency as
having special flood hazards (and such flood insurance has been made available)
consistent with the Credit and Collection Policy, the Servicer will require the
related Obligor or other creditors to purchase a flood insurance policy covering
each piece of property that is material with a generally acceptable insurance
carrier, in an amount representing coverage not less than the least of (i) the
full insurable value of the Mortgaged Property that is material, or (ii) the
maximum amount of insurance available under the National Flood Insurance Act of
1968, as amended. The Servicer shall also maintain, to the extent such insurance
is available, and required by the Credit and Collection Policy, on Foreclosed
Property constituting real property that is material, fire and hazard insurance
in the amounts described above and liability insurance.
     (c) Any amounts collected by the Servicer under any such Insurance Policies
and which relate to the Loans (other than amounts to be applied to the
restoration or repair of the Related Property, or to be released to the Obligor
or other creditors in accordance with Applicable Law or the governing documents)
shall be deposited in the Principal and Interest Account, subject to withdrawal
pursuant to Section 7.03(h). It is understood and agreed that no earthquake or
other additional insurance need be required by the Servicer of any Obligor or
other creditors or maintained on Foreclosed Property, other than pursuant to
such Applicable Law and regulations as shall at any time be in force and as
shall require such additional insurance. All policies required hereunder (unless
the Seller is a non–agent co–lender with respect to such Loan) shall be endorsed
with standard mortgagee clauses with losses payable to the Servicer or its
Affiliates.
     Section 5.06. Collection of Certain Loan Payments.
     (a) The Servicer shall make reasonable efforts, consistent with the Credit
and Collection Policy, to collect all payments required under the terms and
provisions of the Loans.

91

--------------------------------------------------------------------------------

 

Consistent with the foregoing and the Credit and Collection Policy, the Servicer
may in its discretion waive or permit to be waived any fee or charge which the
Servicer would be entitled to retain hereunder as servicing compensation and
extend the due date for payments due on a Loan as provided in Section 5.02(e).
     (b) The Servicer agrees not to make, or permit to be made, any change, in
the direction of, or instructions with respect to, any payments to be made by an
Obligor Lock–Box Bank from any Obligor Lock–Box or any Obligor Lock–Box Account
in any manner that would diminish, impair, delay or otherwise adversely effect
the timing or receipt of such payments by the Lock–Box Bank without the prior
written consent of the Indenture Trustee and with the consent of the Majority
Noteholders. The Servicer further agrees to provide the Indenture Trustee
promptly, but in no case later than one Business Day after the Servicer’s
receipt, any notice it receives that an Obligor is changing the direction of or
instructions with respect to any payments from any Obligor Lock–Box or any
Obligor Lock–Box Account.
     Section 5.07. Access to Certain Documentation and Information Regarding the
Loans.
     The Servicer shall provide to the Owner Trustee, the Indenture Trustee, the
FDIC, the OCC, the Federal Reserve, the Office of Thrift Supervision and the
supervisory agents and examiners of the foregoing, access to the documentation
regarding the Loans required by applicable local, state and federal regulations,
such access being afforded without charge but only upon reasonable request and
during normal business hours at the offices of the Servicer designated by it and
in a manner that does not unreasonably interfere with the Servicer’s normal
operations or customer or employee relations. The Indenture Trustee and the
Owner Trustee shall and shall cause their representatives to hold in confidence
all such information except to the extent disclosure may be required by law (and
all reasonable applications for confidential treatment are unavailing) and
except to the extent that the Indenture Trustee and the Owner Trustee may
reasonably determine that such disclosure is consistent with their obligations
hereunder.
     Section 5.08. Satisfaction of Mortgages and Related Property and Release of
Loan Files.
     (a) Upon the payment in full of any Loan, the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes or the deposit into the Principal and Interest Account of the
purchase price of any Loan acquired by the Trust Depositor, the Servicer or
another Person pursuant to this Agreement, or any other Transaction Document,
the Servicer will immediately notify the Indenture Trustee by a certification in
the form of Exhibit M attached hereto (which certification shall include a
statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the Principal
and Interest Account pursuant to Section 7.03(b) have been or will be so
deposited) of a Servicing Officer and shall request delivery to it of the Loan
File. Upon receipt of such certification and request, the Indenture Trustee
shall in accordance with Section 2.09(c) release, within two Business Days (if
such request was received by 2:00 p.m. central time), the related Loan File to
the Servicer. Expenses incurred in connection with any instrument of
satisfaction or deed of reconveyance shall be payable by the Servicer and shall
not

92

--------------------------------------------------------------------------------

 

be chargeable to the Principal and Interest Account or the Note Distribution
Account; provided that the Servicer may collect and retain such expenses from
the underlying Obligor.
     (b) From time to time and as appropriate for the servicing or foreclosure
of any Loan, the Indenture Trustee shall, upon request of the Servicer and
delivery to the Indenture Trustee of a certification in the form of Exhibit M
attached hereto signed by a Servicing Officer, release the related Loan File to
the Servicer within two Business Days (if such request was received by 2:00 p.m.
central time), and the Indenture Trustee shall execute such documents as shall
be necessary to the prosecution of any such proceedings. The Servicer shall
return the Loan File to the Indenture Trustee when the need therefor by the
Servicer no longer exists, unless the Loan has been liquidated and the Net
Liquidation Proceeds relating to the Loan have been deposited in the Principal
and Interest Account and remitted to the Indenture Trustee for deposit in the
Note Distribution Account or the Loan File or such document has been delivered
to an attorney, or to a public trustee or other public official as required by
law, for purposes of initiating or pursuing legal action or other proceedings
for the foreclosure or repossession of Related Property either judicially or
non–judicially, and the Servicer has delivered to the Indenture Trustee a
certificate of a Servicing Officer certifying as to the name and address of the
Person to whom such Loan File or such document was delivered and the purpose or
purposes of such delivery. Upon receipt of a certificate of a Servicing Officer
stating that such Loan was liquidated, the servicing receipt relating to such
Loan shall be released by the Indenture Trustee to the Servicer.
     (c) The Indenture Trustee shall execute and deliver to the Servicer any
court pleadings, requests for trustee’s sale or other documents provided to it
necessary to the foreclosure or trustee’s sale in respect of Related Property or
to any legal action brought to obtain judgment against any Obligor on the
related loan agreement (including any Underlying Note or other agreement
securing Related Property) or to obtain a deficiency judgment, or to enforce any
other remedies or rights provided by the related loan agreement (including any
Underlying Note or other agreement securing Related Property) or otherwise
available at law or in equity. Together with such documents or pleadings, the
Servicer shall deliver to the Indenture Trustee a certificate of a Servicing
Officer requesting that such pleadings or documents be executed by the Indenture
Trustee and certifying as to the reason such documents or pleadings are required
and that the execution and delivery thereof by the Indenture Trustee will not
invalidate or otherwise adversely affect the Lien of the agreement securing
Related Property, except for the termination of such a Lien upon completion of
the foreclosure or trustee’s sale. The Indenture Trustee shall, upon receipt of
a written request from a Servicing Officer, execute any document provided to the
Indenture Trustee by the Servicer or take any other action requested in such
request, that is, in the opinion of the Servicer as evidenced by such request,
required or appropriate by any state or other jurisdiction to discharge the Lien
securing Related Property upon the satisfaction thereof and the Indenture
Trustee will sign and post, but will not guarantee receipt of, any such
documents to the Servicer, or such other party as the Servicer may direct,
within five Business Days of the Indenture Trustee’s receipt of such certificate
or documents. Such certificate or documents shall establish to the Indenture
Trustee’s satisfaction that the related Loan has been paid in full by or on
behalf of the Obligor (or subject to a deficiency claim against such Obligor)
and that such payment has been deposited in the Principal and Interest Account.

93

--------------------------------------------------------------------------------

 

     (d) Notwithstanding anything contained in this Section 5.08 to the
contrary, in no event may the Servicer possess in excess of 15 Loan Files
(excluding Loan Files for Loans which have been paid in full or repurchased) at
any given time.
     Section 5.09. Scheduled Payment Advances.
     For each Due Period, if the Servicer determines that any Scheduled Payment
(or portion thereof) that was due and payable pursuant to a Loan in the Loan
Pool during such Due Period was not received prior to the end of such Due Period
or has been received in an Obligor Lock–Box Account but has not yet been
transferred to the Lock–Box Account, the Servicer has the right to elect, but is
not obligated, to make a Scheduled Payment Advance in an amount up to the amount
of such delinquent Scheduled Payment (or portion thereof) if the Servicer
believes in good faith that the advance will be reimbursed or subsequently paid
by the related Obligor. The Servicer will deposit any Scheduled Payment Advances
into the Principal and Interest Account on or prior to 11:00 a.m. (New York City
time) on the related Determination Date, in immediately available funds. The
Servicer will be entitled to be reimbursed for Scheduled Payment Advances
pursuant to Section 7.03, Section 7.05(a) and Section 7.05(b). The application
of Scheduled Payment Advances will not prevent a Loan from becoming a
Charged-Off Loan or a Delinquent Loan, as applicable.
     Section 5.10. Title, Management and Disposition of Foreclosed Property.
     (a) In the event that title to Related Property is acquired in foreclosure
or by deed in lieu of foreclosure or by other legal process, the deed or
certificate of sale, or the Repossessed Collateral, shall be taken in the name
of the Issuer for the benefit of the Securityholders.
     (b) The Servicer, subject to the provisions of this Article 5, shall
manage, conserve, protect and operate each Foreclosed Property or other
Repossessed Collateral for the Securityholders solely for the purpose of its
prudent and prompt disposition and sale. The Servicer shall, either itself or
through an agent selected by the Servicer, manage, conserve, protect and operate
the Foreclosed Property or other Repossessed Collateral in the same manner that
it manages, conserves, protects and operates other foreclosed or repossessed
property for its own account, and in a similar manner to that of similar
property in the same locality as the Foreclosed Property or other Repossessed
Collateral is managed. The Servicer shall attempt to sell the same (and may
temporarily rent the same) on such terms and conditions as the Servicer deems to
be in the best interest of the Securityholders.
     (c) The Servicer shall cause to be deposited in the Principal and Interest
Account, no later than two Business Days after the receipt thereof, all revenues
received with respect to the conservation and disposition of the related
Foreclosed Property or other Repossessed Collateral net of Servicing Advances.
     (d) The Servicer shall, subject to Section 5.02(p) and Section 7.03,
reimburse itself for any related unreimbursed Servicing Advances and unpaid
Servicing Fees, and the Servicer shall deposit in the Principal and Interest
Account the net cash proceeds of the sale of any Foreclosed Property or other
Repossessed Collateral to be distributed to the Securityholders in accordance
with Section 7.05 hereof.

94

--------------------------------------------------------------------------------

 

     Section 5.11. Servicing Compensation.
     (a) As compensation for its servicing activities hereunder and
reimbursement for its expenses, the Servicer shall be entitled to receive a
servicing fee for each month (or portion thereof) calculated and payable monthly
in arrears on each Payment Date prior to the termination of the Issuer (with
respect to each Due Period, the “Servicing Fee”) equal to the sum of the product
of: (i) the Servicing Fee Percentage, (ii) the Aggregate Outstanding Loan
Balance as of the first day of the applicable Due Period (or, with respect to
the first Due Period, as of the Closing Date) and (iii) a fraction, the
numerator of which is equal to the number of days in the applicable Due Period
(or, with respect to the first Due Period, the number of days from the Closing
Date to the end of the first Due Period) and the denominator of which is 360.
The Servicing Fee is payable out of Collections pursuant to Section 7.05(a) and
Section 7.05(b). If the Servicer is replaced, the Originator shall be
responsible for the payment of any fee payable to a Successor Servicer in excess
of the Servicing Fee to the extent such fee is not paid pursuant to
Section 7.05(a) and Section 7.05(b).
     (b) In addition to the Servicing Fee, the Servicer shall be entitled to
retain for itself as additional servicing compensation assumption and other
administrative fees paid or payable in connection with any Loan.
     Section 5.12. Assignment; Resignation.
     The Servicer shall not assign its rights and duties under this Agreement
(other than in connection with a subservicing arrangement) nor resign from the
obligations and duties hereby imposed on it as Servicer except (a) by mutual
consent of the Servicer, the Indenture Trustee, the Majority Noteholders, (b) in
connection with a merger, conversion or consolidation permitted pursuant to
Section 5.13 (in which case the Person resulting from the merger, conversion or
consolidation shall be the successor of the Servicer) or (c) upon the Servicer’s
determination that its duties hereunder are no longer permissible under
Applicable Law or administrative determination and such incapacity cannot be
cured by the Servicer, and in each case subject to delivery by the Servicer of
written notice to S&P within two Business Days following any event specified in
clauses (a) – (c) above. Any such determination permitting the resignation of
the Servicer shall be evidenced by a written Opinion of Counsel (who may be
counsel for the Servicer) to such effect delivered to the Indenture Trustee,
which Opinion of Counsel shall be in form and substance reasonably acceptable to
the Indenture Trustee. Other than with respect to clause (c) of this
Section 5.12, no such resignation shall become effective until a successor has
assumed the Servicer’s responsibilities and obligations hereunder in accordance
with Section 8.03.
     Section 5.13. Merger or Consolidation of Servicer.
     (a) Any Person into which the Servicer may be merged or consolidated, or
any Person resulting from such merger, conversion or consolidation to which the
Servicer is a party, or any Person succeeding to substantially all of the
business of the Servicer, and who shall be an established commercial loan
servicing institution that on a consolidated basis has a net worth of at least
$50,000,000, shall be the Successor Servicer hereunder without execution or
filing of any paper or any further act on the part of any of the parties hereto,
notwithstanding anything herein

95

--------------------------------------------------------------------------------

 

to the contrary; provided that no such merger, conversion or consolidation of
the Servicer or transfer of all or substantially all or the Servicer assets or
business shall be permitted hereunder unless the Rating Agency Condition is
satisfied with respect thereto.
     (b) Upon the occurrence of a change-in-control (including any merger or
consolidation of the Originator or transfer of substantially all of its assets
and its business), the Servicer shall (i) provide the Trust Depositor, the
Indenture Trustee and the Rating Agencies with notice of such change-in-control
within 30 days after completion of the same, and (ii) satisfy the Rating Agency
Condition after completion of the same.
     Section 5.14. Limitation on Liability of the Servicer and Others.
     The Servicer and any director, officer, employee or agent of the Servicer
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities or
persons respecting any matters arising hereunder. Subject to the terms of
Section 12.01 herein, the Servicer shall have no obligation to appear with
respect to, prosecute or defend any legal action which is not incidental to the
Servicer’s duty to service the Loans in accordance with this Agreement. The
Servicer shall not be responsible for the payment of any taxes imposed on or
with respect to the Issuer or for the fees of any Successor Servicer.
     Section 5.15. The Backup Servicer.
     (a) The Issuer, the Indenture Trustee and the Trust Depositor hereby
appoint Wells Fargo Bank, National Association to act as Backup Servicer in
accordance with the terms of this Agreement. Wells Fargo Bank, National
Association hereby accepts such appointment and agrees to perform the duties and
responsibilities with respect thereto set forth herein.
     (b) The Backup Servicer shall perform the following duties and obligations:
     (i) On or before the Closing Date, the Backup Servicer shall accept from
the Servicer delivery of the information required to be set forth in the Monthly
Reports in hard copy and in an agreed upon electronic format.
     (ii) Not later than 12:00 noon New York time four Business Days after the
end of the related Due Period, the Servicer shall provide to the Backup Servicer
and the Backup Servicer shall accept delivery of tape in an agreed upon
electronic format (the “Tape”) from the Servicer, which shall include but not be
limited to the following information: (A) for each Loan, (1) Loan number,
(2) Loan category (i.e., asset based financed, healthcare secured, senior cash
flow, subordinate cash flow or real estate) (3) state of Obligor’s primary
business, (4) NAICS Code, (5) type of Loan (i.e., Partially Funded Term Loan,
Fully Funded Term Loan or Revolving Loan), (6) type of security interest (i.e.,
senior or subordinated), (7) term payment type (i.e., Amortizing Loans, Balloon
Loans or Bullet Loans), (8) origination date, (9) maturity date, (10) benchmark
for Loan Rate, (11) margin, (12) frequency of Scheduled Payments,
(13) controlling interest (i.e., whether the Loan is syndicated and whether the
Issuer holds a majority of the outstanding indebtedness under such syndicated
Loan), (14) the collection status, (15) the Loan status, and (16) the
Outstanding Loan Balance and (B) the Aggregate

96

--------------------------------------------------------------------------------

 

Outstanding Loan Balance.With respect to its duties pursuant to this
Section 5.15(b)(ii), the Backup Servicer shall have no duty to confirm that the
Tape contains the foregoing information.
          (iii) Prior to the Payment Date, the Backup Servicer shall review the
Monthly Report to ensure that it is complete on its face and that the following
items in such Monthly Report have been accurately calculated, if applicable, and
reported: (A) the Aggregate Outstanding Loan Balance, (B) the Backup Servicing
Fee, (C) the Loans that are more than five Business Days delinquent in the case
of Asset Based Revolvers and more than 60 days delinquent in the case of all
other Loans (other than Charged–Off Loans), (D) the Charged–Off Loans, and
(E) the Priority of Payments. The Backup Servicer shall notify the Indenture
Trustee, the Initial Purchasers and the Servicer of any discrepancies with the
Monthly Report based on such review not later than the Business Day preceding
such Payment Date.
          (iv) If the Servicer disagrees with the report provided under
paragraph (iii) above by the Backup Servicer or if the Servicer or any
subservicer has not reconciled such discrepancy, the Backup Servicer agrees to
confer with the Servicer to resolve such disagreement on or prior to the next
succeeding Determination Date and shall settle such discrepancy with the
Servicer if possible, and notify the Indenture Trustee, the Initial Purchasers
and the Rating Agencies of the resolution thereof. The Servicer hereby agrees to
cooperate at its own expense with the Backup Servicer in reconciling any
discrepancies herein. If within 20 days after the delivery of the report
provided under paragraph (iii) above by the Backup Servicer, such discrepancy is
not resolved, the Backup Servicer shall promptly notify the Servicer, Indenture
Trustee, the Initial Purchasers and the Rating Agencies of the continued
existence of such discrepancy. Following receipt of such notice by the Indenture
Trustee, the Initial Purchasers and the Rating Agencies, the Servicer shall
deliver to the Indenture Trustee, the Initial Purchasers, the Backup Servicer
and the Rating Agencies no later than the related Payment Date a certificate
describing the nature and amount of such discrepancies and the actions the
Servicer proposes to take with respect thereto.
     With respect to the foregoing, the Backup Servicer, in the performance of
its duties and obligations hereunder, is entitled to rely conclusively, and
shall be fully protected in so relying, on the contents of each Tape, including,
but not limited to, the completeness and accuracy thereof, provided by the
Servicer.
     (c) After the termination or resignation by the Servicer in accordance with
this Agreement, all authority, power, rights and responsibilities of the
Servicer, under this Agreement, whether with respect to the Loans or otherwise,
shall pass to and be vested in the Successor Servicer or the Backup Servicer, as
applicable in accordance with Section 8.03 and such applicable party shall be
deemed the Successor Servicer, subject to and in accordance with the provisions
of Section 8.03, as long as such named Successor Servicer is not prohibited by
any Applicable Law from fulfilling the same, as evidenced by an Opinion of
Counsel; provided that if Wells Fargo as Backup Servicer becomes the Successor
Servicer, it will not make any Scheduled Payment Advances.

97

--------------------------------------------------------------------------------

 

     (d) Any Person (i) into which the Backup Servicer may be merged or
consolidated, (ii) that may result from any merger or consolidation to which the
Backup Servicer shall be a party, or (iii) that may succeed to the properties
and assets of the Backup Servicer substantially as a whole, which Person in any
of the foregoing cases executes an agreement of assumption to perform every
obligation of the Backup Servicer hereunder, shall be the successor to the
Backup Servicer under this Agreement without further act on the part of any of
the parties to this Agreement.
     (e) As compensation for its backup servicing activities hereunder, the
Backup Servicer shall be entitled to receive the Backup Servicing Fee from the
Servicer. The Backup Servicing Fee shall be calculated and payable monthly in
arrears on each Payment Date. The Backup Servicer’s entitlement to receive the
Backup Servicing Fee (other than due and unpaid Backup Servicing Fees owed
through such date) shall cease on the earliest to occur of: (i) it becoming the
Successor Servicer, (ii) its removal as Backup Servicer, or (iii) the
termination of this Agreement.
     (f) The Backup Servicer may be removed and replaced as provided in
Section 8.10.
     (g) The Backup Servicer undertakes to perform only such duties and
obligations as are specifically set forth in this Agreement, it being expressly
understood by all parties hereto that there are no implied duties or obligations
of the Backup Servicer hereunder. Without limiting the generality of the
foregoing, the Backup Servicer, except as expressly set forth herein, shall have
no obligation to supervise, verify, monitor or administer the performance of the
Servicer. The Backup Servicer may act through its agents, attorneys and
custodians in performing any of its duties and obligations under this Agreement,
it being understood by the parties hereto that the Backup Servicer will be
responsible for any misconduct or negligence on the part of such agents,
attorneys or custodians acting for and on behalf of the Backup Servicer. Neither
the Backup Servicer nor any of its officers, directors, employees or agents
shall be liable, directly or indirectly, for any damages or expenses arising out
of the services performed under this Agreement other than damages or expenses
that result from the negligence or willful misconduct of it or them or the
failure to perform materially in accordance with this Agreement.
     (h) Limitation on Liability. The Backup Servicer shall not be liable for
any obligation of the Servicer contained in this Agreement or for any errors of
the Servicer contained in any Tape, certificate or other data or document
delivered to the Backup Servicer hereunder or on which the Backup Servicer must
rely in order to perform its obligations hereunder, and the parties hereto each
agree to look only to the Servicer to perform such obligations. The Backup
Servicer shall have no responsibility and shall not be in default hereunder or
incur any liability for any failure, error, malfunction or any delay in carrying
out any of its respective duties under this Agreement if such failure or delay
results from the Backup Servicer acting in accordance with information prepared
or supplied by a Person other than the Backup Servicer or the failure of any
such other Person to prepare or provide such information. The Backup Servicer
shall have no responsibility, shall not be in default and shall incur no
liability for (i) any act or failure to act of any third party, including the
Servicer (other than any agent, attorney or custodian acting on behalf of the
Backup Servicer), (ii) any inaccuracy or omission in a notice or communication
received by the Backup Servicer from any third party (other than any agent,
attorney or custodian acting on behalf of the Backup Servicer), (iii) the
invalidity or

98

--------------------------------------------------------------------------------

 

unenforceability of any Loan under Applicable Law, (iv) the breach or inaccuracy
of any representation or warranty made with respect to any Loan, or (v) the acts
or omissions of any Successor Backup Servicer.
     Section 5.16. Covenants of the Backup Servicer.
     The Backup Servicer hereby covenants that:
     (a) The Backup Servicer will comply in all material respects with all
Applicable Law.
     (b) The Backup Servicer will preserve and maintain its existence, rights,
franchises and privileges as a national banking association in good standing
under the federal laws of the United States.
     (c) The Backup Servicer shall perform in all material respects all of its
obligations and duties under this Agreement.
ARTICLE 6.
COVENANTS OF THE TRUST DEPOSITOR
     Section 6.01. Legal Existence.
     During the term of this Agreement, the Trust Depositor will keep in full
force and effect its existence, rights and franchises as a limited liability
company under the laws of the jurisdiction of its organization and will obtain
and preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the other Transaction Documents and each other
instrument or agreement necessary or appropriate to the proper administration of
this Agreement and the transactions contemplated hereby. In addition, all
material transactions and dealings between the Trust Depositor and its
Affiliates will be conducted on an arm’s–length basis.
     Section 6.02. Loans Not to Be Evidenced by Promissory Notes.
     The Trust Depositor will take no action to cause any Loan not originally
evidenced by an Underlying Note to be evidenced by an instrument (as defined in
the UCC), except in connection with the enforcement or collection of such Loan.
     Section 6.03. Security Interests.
     The Trust Depositor will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on any Loan
in the Loan Pool or its interest in any Related Property, whether now existing
or hereafter transferred to the Issuer, or any interest therein. The Trust
Depositor will immediately notify the Owner Trustee and the Indenture Trustee of
the existence of any Lien on any Loan in the Loan Pool or its interest in any
Related Property; and the Trust Depositor shall defend the right, title and
interest of the Issuer in, to and under the Loans in the Loan Pool and its
interest in any Related Property, against all claims of third parties; provided
that nothing in this Section 6.03 shall prevent or be deemed to prohibit the

99

--------------------------------------------------------------------------------

 

Trust Depositor from suffering to exist Permitted Liens upon any of the Loans in
the Loan Pool or its interest in any Related Property.
     Section 6.04. Delivery of Principal Collections and Interest Collections.
     The Trust Depositor agrees to pay to the Servicer promptly (but in no event
later than two Business Days after receipt) all Collections received by the
Trust Depositor in respect of the Loans, for application in accordance with
Section 7.05 hereof.
     Section 6.05. Regulatory Filings.
     The Trust Depositor shall make any filings, reports, notices, applications
and registrations with, and seek any consents or authorizations from, the
Commission and any state securities authority on behalf of the Issuer as may be
necessary or that the Trust Depositor deems advisable to comply with any federal
or state securities or reporting requirements laws.
     Section 6.06. Compliance with Law.
     The Trust Depositor hereby agrees to comply in all material respects with
all Applicable Law applicable to the Trust Depositor except where the failure to
do so would not have a material adverse effect on the Securityholders.
     Section 6.07. Activities; Transfers of Notes or Certificates by Trust
Depositor.
     Except as contemplated by this Agreement or the other Transaction
Documents, the Trust Depositor shall not engage in any business or activity of
any kind, or enter into any transaction or indenture, mortgage, instrument,
agreement, contract, lease or other undertaking, which is not directly related
to the transactions contemplated and authorized by this Agreement or the other
Transaction Documents. Notwithstanding anything to the contrary contained
herein, the Trust Depositor may assign, transfer, convey or finance all or any
portion of any Class of Notes or Certificates owned by it provided such
assignment, transfer, conveyance or financing is done in accordance with the
terms of Section 4.02 of the Indenture.
     Section 6.08. Indebtedness.
     The Trust Depositor shall not create, incur, assume or suffer to exist any
Indebtedness or other liability whatsoever, except (a) obligations incurred
under this Agreement or the other Transaction Documents or to the Originator,
(b) liabilities incident to the maintenance of its limited liability company
existence in good standing or (c) liabilities necessarily incurred to facilitate
transactions permitted by Section 6.07.
     Section 6.09. Guarantees.
     The Trust Depositor shall not become or remain liable, directly or
contingently, in connection with any Indebtedness or other liability of any
other Person, whether by guarantee, endorsement (other than endorsements of
negotiable instruments for deposit or collection in the ordinary course of
business), agreement to purchase or repurchase, agreement to supply or

100

--------------------------------------------------------------------------------

 

advance funds, or otherwise except in connection with the transactions permitted
by Section 6.07.
     Section 6.10. Investments.
     The Trust Depositor shall not make or suffer to exist any loans or advances
to, or extend any credit to, or make any investments (by way of transfer of
property, contributions to capital, purchase of stock or securities or evidences
of indebtedness, acquisition of the business or assets, or otherwise) in, any
Person except for (a) purchases of Loans from the Originator, (b) for
investments in Permitted Investments in accordance with the terms of this
Agreement, (c) as may be necessary to facilitate transactions permitted by
Section 6.07 or (d) the receipt of $62,000,010 in aggregate principal amount of
the Class E Notes, the Class F Notes and the Certificate as consideration for
the transfer of the Loan Assets to the Issuer. Without limiting the generality
of the foregoing, the Trust Depositor shall not (i) provide credit to any
Securityholder for the purpose of enabling such Securityholder to purchase any
Securities or (ii) lend any money to the Issuer.
     Section 6.11. Merger; Sales.
     The Trust Depositor shall not enter into any transaction of merger or
consolidation, or liquidate or dissolve itself (or suffer any liquidation or
dissolution) or acquire or be acquired by any Person, or convey, sell, lease or
otherwise dispose of all or substantially all of its property or business,
except as provided for in this Agreement.
     Section 6.12. Distributions.
     The Trust Depositor shall not declare or pay, directly or indirectly, any
dividend or make any other distribution (whether in cash or other property) with
respect to the profits, assets or capital of the Trust Depositor or any Person’s
interest therein, or purchase, redeem or otherwise acquire for value any of its
members’ interests now or hereafter outstanding, except that, so long as no
Event of Default has occurred and is continuing and no Event of Default would
occur as a result thereof or after giving effect thereto and the Trust Depositor
would continue to be Solvent as a result thereof and after giving effect
thereto, the Trust Depositor may declare and pay distributions to its members.
     Section 6.13. Other Agreements.
     Except as provided in this Agreement or the other Transaction Documents,
the Trust Depositor shall not become a party to, or permit any of its properties
to be bound by, any indenture, mortgage, instrument, contract, agreement, lease
or other undertaking, except this Agreement and the other Transaction Documents
to which it is a party and any agreement relating to another transaction
permitted by Section 6.07; nor shall it amend or modify the provisions of its
organizational documents or issue any power of attorney except to the Owner
Trustee, the Indenture Trustee or the Servicer in accordance with the
Transaction Documents or in connection with another transaction permitted by
Section 6.07.

101

--------------------------------------------------------------------------------

 

     Section 6.14. Separate Legal Existence.
     The Trust Depositor shall:
     (a) Maintain its own deposit account or accounts, separate from those of
any Affiliate, with commercial banking institutions. The funds of the Trust
Depositor will not be diverted to any other Person or for other than authorized
uses of the Trust Depositor.
     (b) Ensure that, to the extent that it shares the same officers or other
employees as any of its members or Affiliates, the salaries of and the expenses
related to providing benefits to such officers and other employees shall be
fairly allocated among such entities, and each such entity shall bear its fair
share of the salary and benefit costs associated with all such common officers
and employees.
     (c) Ensure that, to the extent that it jointly contracts with any of its
members or Affiliates to do business with vendors or service providers or to
share overhead expenses, the costs incurred in so doing shall be allocated
fairly among such entities, and each such entity shall bear its fair share of
such costs. To the extent that the Trust Depositor contracts or does business
with vendors or service providers when the goods and services provided are
partially for the benefit of any other Person, the costs incurred in so doing
shall be fairly allocated to or among such entities for whose benefit the goods
and services are provided, and each such entity shall bear its fair share of
such costs. All material transactions between Trust Depositor and any of its
Affiliates shall be only on an arm’s length basis.
     (d) To the extent that the Trust Depositor and any of its members or
Affiliates have offices in the same location, there shall be a fair and
appropriate allocation of overhead costs among them, and each such entity shall
bear its fair share of such expenses.
     (e) Conduct its affairs strictly in accordance with its organizational
documents and observe all necessary, appropriate and customary limited liability
company formalities, including, but not limited to, holding all regular and
special board of director meetings appropriate to authorize all limited
liability company action, keeping separate and accurate minutes of its meetings,
passing all resolutions or consents necessary to authorize actions taken or to
be taken, and maintaining accurate and separate books, records and accounts,
including, but not limited to, payroll and intercompany transaction accounts.
     (f) Take or refrain from taking, as applicable, each of the activities
specified in the “substantive consolidation” opinion of Patton Boggs LLP,
delivered on the Closing Date, upon which the conclusions expressed therein are
based.
     Section 6.15. Location; Records.
     The Trust Depositor shall (a) not move its location outside the State of
Maryland or its jurisdiction of formation outside of the State of Delaware
without 30 days’ prior written notice to the Owner Trustee and the Indenture
Trustee and (b) will promptly take all actions (if any) required (including, but
not limited to, all filings and other acts necessary or advisable under the UCC
of each relevant jurisdiction) in order to continue the first priority perfected
security interest of the Indenture Trustee in all Loans.

102

--------------------------------------------------------------------------------

 

     Section 6.16. Liability of Trust Depositor.
     The Trust Depositor shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Trust Depositor under
this Agreement.
     Section 6.17. Bankruptcy Limitations.
     The Trust Depositor shall not, without the affirmative vote of a majority
of the managers of the Trust Depositor (which must include the affirmative vote
of at least two duly appointed Independent managers) (a) dissolve or liquidate,
in whole or in part, or institute proceedings to be adjudicated bankrupt or
insolvent, (b) consent to the institution of bankruptcy or insolvency
proceedings against it, (c) file a petition seeking or consent to reorganization
or relief under any applicable federal or state law relating to bankruptcy,
(d) consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the limited liability company or a
substantial part of its property, (e) make a general assignment for the benefit
of creditors, (f) admit in writing its inability to pay its debts generally as
they become due, or (g) take any limited liability company action in furtherance
of the actions set forth in clauses (a) through (f) above; provided that no
manager may be required by any member of the Trust Depositor to consent to the
institution of bankruptcy or insolvency proceedings against the Trust Depositor
so long as it is Solvent.
     Section 6.18. Limitation on Liability of Trust Depositor and Others.
     The Trust Depositor and any director or officer or employee or agent of the
Trust Depositor may rely in good faith on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder. The Trust Depositor and any director or officer or employee or agent
of the Trust Depositor shall be reimbursed by the Indenture Trustee for any
liability or expense incurred by reason of the Indenture Trustee’s willful
misfeasance, bad faith or gross negligence (except errors in judgment) in the
performance of its duties hereunder, or by reason of the Indenture Trustee’s
material breach of the obligations and duties under this Agreement or the
Transaction Documents. The Trust Depositor shall not be under any obligation to
appear in, prosecute or defend any legal action that shall not be incidental to
its obligations under this Agreement, and that in its opinion may involve it in
any expense or liability.
     Section 6.19. Insurance Policies.
     Upon and after an Event of Default or Servicer Default, at the request of
the Indenture Trustee, the Trust Depositor will cause to be performed any and
all acts reasonably required to be performed to preserve the rights and remedies
of the Indenture Trustee and the Issuer in any Insurance Policies applicable to
the Loans including, without limitation, in each case, any necessary
notifications of insurers, assignments of policies or interests therein, and
establishments of co–insured, joint loss payee and mortgagee rights in favor of
the Indenture Trustee, the Issuer or the Successor Servicer, respectively.

103

--------------------------------------------------------------------------------

 

     Section 6.20. Payments from Obligor Lock–Boxes and Obligor Lock–Box
Accounts.
     The Trust Depositor agrees not to make, or permit to be made, any change in
the direction of, or instructions with respect to, any payments to be made by an
Obligor Lock–Box Bank from any Obligor Lock–Box or any Obligor Lock–Box Account
in any manner that would diminish, impair, delay or otherwise adversely effect
the timing or receipt of such payments by the Lock–Box Bank or to change the
name in which an Obligor Lock–Box or Obligor Lock–Box Account is maintained
without the prior written consent of the Indenture Trustee and with the consent
of the Majority Noteholders. The Trust Depositor further agrees to provide the
Indenture Trustee promptly, but in no case later than one Business Day after the
Trust Depositor’s receipt, any notice it receives that an Obligor is changing
the direction of or instructions with respect to any payments from any Obligor
Lock–Box or any Obligor Lock–Box Account or the name in which any Obligor
Lock–Box or Obligor Lock–Box Account is maintained.
ARTICLE 7.
ESTABLISHMENT OF ACCOUNTS;
DISTRIBUTIONS; RESERVE FUND
     Section 7.01. Note Distribution Account, Reserve Fund and Lock–Boxes.
     (a) On or before the Closing Date, the Servicer shall establish the Note
Distribution Account and the Reserve Fund with and in the name of the Indenture
Trustee for the benefit of the Noteholders. The Servicer and Indenture Trustee
are hereby required to ensure that each of the Note Distribution Account and
Reserve Fund is established and maintained as an Eligible Deposit Account with a
Qualified Institution. If any institution with which any of the accounts
established pursuant to this Section 7.01(a) are established ceases to be a
Qualified Institution, the Servicer, or if the Servicer fails to do so, the
Indenture Trustee (as the case may be) shall within ten Business Days establish
a replacement account at a Qualified Institution after notice of such event. In
no event shall the Indenture Trustee be responsible for monitoring whether such
Eligible Institution shall remain a Qualified Institution. Each Qualified
Institution maintaining an Eligible Deposit Account shall agree in writing to
comply with all instructions originated by the Indenture Trustee or, with
respect to the Principal and Interest Account only, the Servicer directing
disposition of the funds in the Eligible Deposit Account without the further
consent of the Trust Depositor.
     (b) If the Servicer so directs (or, if the Servicer does not so direct, the
Trust Depositor has the right to direct), in writing, the Indenture Trustee
shall accept such directions as directions of the Issuer and shall invest the
amounts in the Note Distribution Account and the Reserve Fund in Permitted
Investments of the type specified in such written direction that mature or are
withdrawable not later than the next succeeding Determination Date, except for
investments in Section (vi) of the definition of Permitted Investments. Once
such funds are invested, the Indenture Trustee shall not change the investment
of such funds other than in connection with the withdrawal or liquidation of
such investments and the transfer of such funds as provided herein on or prior
to the next succeeding Determination Date. Funds in the Note Distribution

104

--------------------------------------------------------------------------------

 

Account and Reserve Fund not so invested must be insured to the extent and the
amount permitted by law by BIF or SAIF of the FDIC. Subject to the restrictions
herein, the Servicer or Indenture Trustee may purchase a Permitted Investment
from itself or an Affiliate with respect to investment of funds in the Trust
Accounts. Subject to the other provisions hereof, the Servicer in the case of
the Principal and Interest Account and the Indenture Trustee in the case of all
other Trust Accounts shall have sole control over each such investment and the
income thereon, and any certificate or other instrument evidencing any such
investment, if any, shall be delivered directly to the Servicer or its agent or
the Indenture Trustee or its agent, as applicable, together with each document
of transfer, if any, necessary to transfer title to such investment to the
Servicer or Indenture Trustee, as applicable, in a manner which complies with
this Section 7.01. All Investment Earnings on investments of funds in the Trust
Accounts shall be deposited in the Interest Collection Account pursuant to this
Section 7.01 and distributed on the next Payment Date pursuant to Section 7.05.
The Trust Depositor and the Issuer agree and acknowledge that the Servicer and
Indenture Trustee are to have “control” (within the meaning of the UCC) of
collateral comprised of “Investment Property” (within the meaning of the UCC)
for all purposes of this Agreement. In the absence of timely written direction
from the Servicer or the Trust Depositor, the Indenture Trustee shall invest
amounts in the Note Distribution Account and Reserve Fund Account in Permitted
Investments of the type specified in clause (vi) of the definition of Permitted
Investments herein.
     (c) The Servicer and the Originator have established, or caused to be
established, and will maintain, or caused to be maintained, various Obligor
Lock–Boxes and Obligor Lock–Box Accounts, for the deposit of the amounts
representing payments sent by Obligors with respect to certain Revolving Loans.
The Servicer and the Originator have established, or caused to be established,
and will maintain, or caused to be maintained, the Lock–Box and the Lock–Box
Account, for the deposit of the amounts representing payments sent by Obligors
and Obligor Lock–Box Banks, as applicable, with respect to Loans pledged to the
Indenture Trustee as well as with respect to loans not pledged to the Indenture
Trustee. The Servicer, as agent for the Issuer, and the Originator will cause
each Obligor Lock–Box Bank to deposit within two Business Days of receipt all
Collections that have been sent to such Obligor Lock–Box Bank into the Lock Box
Account, and within two Business Days of the deposit into the Lock–Box or the
Lock Box Account, the Servicer and the Originator will cause the Lock–Box Bank
to cause the amounts in the Lock Box Account to be deposited into the Principal
and Interest Account.
     Section 7.02. Reserved.
     Section 7.03. Principal and Interest Account.
     (a) The Servicer shall cause to be established and maintained one or more
Principal and Interest Accounts (including for each such account two
subaccounts, one designated as the Interest Collection Account and the other
designated as the Principal Collection Account), in one or more Eligible Deposit
Accounts, in the form of time deposit or demand accounts, which may be
interest–bearing or such accounts may be trust accounts wherein the moneys
therein are invested in Permitted Investments, titled “CapitalSource Finance
LLC, as Servicer, in trust for the registered holders of CapitalSource
Commercial Loan Trust 2007-1 Notes, Class A, Class B, Class C, Class D, Class E
Notes and Class F Notes.” All funds in such Principal and Interest Account not
so invested shall be insured to the extent and the amount permitted by the BIF
or

105

--------------------------------------------------------------------------------

 

SAIF of the FDIC to the maximum extent provided by law. The creation of any
Principal and Interest Account shall be evidenced by a letter agreement in the
form of Exhibit E hereto. A copy of such letter agreement shall be furnished to
the Indenture Trustee, the Owner Trustee and, upon request, any Securityholder.
The Servicer may, upon written notice to the Indenture Trustee, transfer any
Principal and Interest Account to a different Eligible Deposit Account.
     (b) The Servicer and each Subservicer shall deposit without duplication
(within two Business Days of receipt thereof) in the applicable Principal and
Interest Account and retain therein the following amounts received by the
Servicer (and shall segregate and deposit Interest Collections into the Interest
Collection Account and Principal Collection into the Principal Collection
Account):
     (i) all Principal collection accruing and received on or after the
applicable Cut–Off Date;
     (ii) all Interest Collections accruing and received on or after the
applicable Cut–Off Date (net of the Servicing Fee with respect to each Loan and
other servicing compensation payable to the Servicer as permitted herein) and
all origination and commitment fees;
     (iii) all Net Liquidation Proceeds (other than Insurance Proceeds covered
under clause (iv) below);
     (iv) all Insurance Proceeds (other than amounts to be applied to
restoration or repair of any Related Property or amounts in excess of the
Outstanding Loan Balance of the related Loan to be released to the Obligor in
accordance with the Credit and Collection Policy);
     (v) all proceeds from any other Related Property securing the Loans (other
than amounts released to the Obligor in accordance with the Credit and
Collection Policy);
     (vi) any amounts paid in connection with the purchase or repurchase of any
Loan;
     (vii) any amount required to be deposited in the Principal and Interest
Account pursuant to Section 5.10 or Section 7.03; and
     (viii) the amount of any gains and interest incurred in connection with
investments in Permitted Investments.
     (c) The Servicer shall have no obligation to deposit into the Principal and
Interest Account any Retained Interest or Released Amounts.
     (d) Not later than the close of business on each Determination Date
immediately preceding a Payment Date, the Servicer will remit to the Principal
and Interest Account any Scheduled Payment Advance that the Servicer determines
to make.

106

--------------------------------------------------------------------------------

 

     (e) Notwithstanding Section 7.03(b), if (i) the Servicer makes a deposit
into the Principal and Interest Account in respect of a Collection of a Loan in
the Loan Pool and such Collection was received by the Servicer in the form of a
check that is not honored for any reason, or (ii) the Servicer makes a mistake
with respect to the amount of any Collection and deposits an amount that is less
than or more than the actual amount of such Collection, the Servicer shall
appropriately adjust the amount subsequently deposited into the Principal and
Interest Account to reflect such dishonored check or mistake. Any Scheduled
Payment in respect of which a dishonored check is received shall be deemed not
to have been paid.
     (f) The foregoing requirements for deposit in the Principal and Interest
Accounts shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, Liquidation Expenses may not be
deposited by the Servicer in the Principal and Interest Account.
     (g) So long as no Servicer Default shall have occurred and be continuing,
and consistent with any requirements of the Code, the Principal and Interest
Account shall either be maintained with an Eligible Deposit Account as an
interest–bearing account meeting the requirements set forth in Section 7.03(a),
or the funds held therein may be invested by the Servicer (to the extent
practicable) in Permitted Investments, as directed in writing by the Servicer,
and, in each case, with a stated maturity (giving effect to any applicable grace
period) no later than the fourth Business Day immediately preceding the Payment
Date next following the Due Period in which the date of investment occurs. All
Permitted Investments must be held by or registered in the name of
“CapitalSource, as Servicer, in trust for the registered holders of
CapitalSource Commercial Loan Trust 2007-1 Notes.” Any Investment Interest
Earnings on funds held in the Principal and Interest Account shall be deemed
part of the Interest Collection Account and shall be deposited therein pursuant
to Section 7.03 and distributed on the next Payment Date pursuant to
Section 7.05. The amount of any losses incurred in connection with the
investment of funds in the Principal and Interest Account in Permitted
Investments shall be deposited in the Principal and Interest Account by the
Servicer from its own funds immediately as realized without reimbursement
therefor.
     (h) The Servicer may (and, for the purposes of clause (ii) below, shall),
at any time upon one Business Day’s notice to the Indenture Trustee, make
withdrawals from the Principal and Interest Account for the following purposes:
     (i) to remit to the Indenture Trustee on the Business Day preceding each
Payment Date, for deposit in the Note Distribution Account, the Interest
Collections and Principal Collections received during the immediately preceding
Due Period;
     (ii) prior to a Servicer Default, and subject to Section 5.02(p), to
reimburse itself for any unreimbursed Servicing Advances to the extent deposited
in the Principal and Interest Account (and not netted from Scheduled Payments
received from the related Loans);
     (iii) to withdraw any amount received from an Obligor that is recoverable
and sought to be recovered as a voidable preference by a trustee in bankruptcy
pursuant to the

107

--------------------------------------------------------------------------------

 

United States Bankruptcy Code in accordance with a final, nonappealable order of
a court having competent jurisdiction;
     (iv) to make investments in Permitted Investments;
     (v) to withdraw any funds deposited in the Principal and Interest Account
that were not required or permitted to be deposited therein or were deposited
therein in error;
     (vi) prior to a Servicer Default, to pay itself certain additional
servicing compensation as permitted under Section 5.11(b) of the Agreement;
     (vii) prior to (A) a payment default on the related Loan (and in the case
of Asset Based Revolvers, a payment default shall mean any failure to make a
payment on the date such payment is due and such failure continues for more than
one calendar day), (B) a Servicer Default or (C) an Event of Default, to advance
to an Obligor in a given Due Period prior to the last day of such Due Period an
amount not to exceed the Principal Collections received from such Obligor during
that Due Period;
     (viii) from the Principal Collection Account to purchase Substitute Loans
as contemplated by Section 2.04(a) to the extent funds have been deposited by
the Originator for such purpose pursuant to Section 2.04(a)(i)(B); and
     (ix) to clear and terminate the Principal and Interest Account upon the
termination of this Agreement.
     Section 7.04. Securityholder Distributions.
     (a) Each Securityholder as of the related Record Date shall be paid on the
next succeeding Payment Date by check mailed to such Securityholder at the
address for such Securityholder appearing on the Note Register or Certificate
Register or by wire transfer if such Securityholder provides written
instructions to the Indenture Trustee, or Owner Trustee, respectively, at least
ten days prior to such Payment Date, which instructions may be in the form of a
standing order.
     (b) The Indenture Trustee shall serve as the Paying Agent hereunder and
shall make the payments to the Securityholder required hereunder. The Indenture
Trustee hereby agrees that all amounts held by it for payment hereunder will be
held in trust for the benefit of the Securityholder.
     Section 7.05. Priority of Payments; Allocations and Distributions.
     (a) On each Payment Date prior to the occurrence of an Event of Default or
a Servicer Default, (i) the Indenture Trustee shall deposit into the Note
Distribution Account all funds on deposit in the Reserve Fund and (ii) the
Servicer shall instruct the Indenture Trustee in writing to withdraw, and on the
related Payment Date the Indenture Trustee shall withdraw from the Note
Distribution Account all amounts on deposit in the Note Distribution Account to
make the following payments. The payments listed below will be made only to the
extent there are sufficient amounts available on the Payment Date. Payments will
be made in the order of

108

--------------------------------------------------------------------------------

 

priority listed below. With respect to pro rata payments of principal as
described herein, payments shall be made pro rata based on the respective
original principal amounts of the Class of Notes with respect to which such
payments are made. If on any Payment Date the Outstanding Principal Balance of
any Class of Notes has been reduced to zero, any pro rata payments of principal
on such date shall be distributed pro rata to the Classes of Notes which then
remain outstanding based on the respective original principal amounts of such
Classes of Notes.
     First, pro rata, based on the amounts owed under this clause First, to the
payment of Administrative Expenses, subject to the limitations set forth in the
definition thereof;
     Second, to the Servicer, from Interest Collections received from the
specific Loans for which such Scheduled Payment Advances of interest were made,
and from Principal Collections received from the specific Loans for which such
Scheduled Payment Advances of principal were made, reimbursement for the amount
of such Scheduled Payment Advances relating to such Loans;
     Third, to the Servicer, an amount equal to the Servicing Fee;
     Fourth, to the Holders of the Class A Notes, the Class A Interest Amount
for the related Interest Accrual Period and any related unpaid Class A Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class A Interest Shortfall at the Note Interest Rate then applicable to the
Class A Notes;
     Fifth, to the Holders of the Class B Notes, the Class B Interest Amount for
the related Interest Accrual Period and any related unpaid Class B Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class B Interest Shortfall at the Note Interest Rate then applicable to the
Class B Notes;
     Sixth, to the Holders of the Class C Notes, the Class C Interest Amount for
the related Interest Accrual Period and any related unpaid Class C Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class C Interest Shortfall at the Note Interest Rate then applicable to the
Class C Notes;
     Seventh, to the Holders of the Class D Notes, the Class D Interest Amount
for the related Interest Accrual Period and any related unpaid Class D Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class D Interest Shortfall at the Note Interest Rate then applicable to the
Class D Notes;
     Eighth, to the Holders of the Class E Notes, the Class E Interest Amount
for the related Interest Accrual Period and any related unpaid Class E Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class E Interest Shortfall at the Note Interest Rate then applicable to the
Class E Notes;
     Ninth, (i) on each Payment Date prior to the occurrence of any Sequential
Pay Event, to the Holders of the Notes as follows:

109

--------------------------------------------------------------------------------

 

  (a)   if on such Payment Date no Available Collections Shortfall exists, to
the Holders of the Class A Notes, the Class B Notes, the Class C Notes, the
Class D Notes, the Class E Notes and the Class F Notes, pro rata, in an amount
up to the Total Principal Payable; and     (b)   if on such Payment Date an
Available Collections Shortfall exists, first, to the Holders of the Class A
Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E
Notes, pro rata in an amount up to the Total Principal Payable until each such
class of Offered Notes is paid in full, and second to the Class F Notes in an
amount up to the Total Principal Payable until the Class F Notes are paid in
full;

     (ii) on each Payment Date on and after the occurrence of a Sequential Pay
Event (other than an Event of Default or a Servicer Default), unless, solely in
the case of a Sequential Pay Event of the type specified in clause (a) of the
definition thereof, the Rating Agency Condition shall have been satisfied with
respect to Moody’s and S&P only with respect to the payment of principal of the
Notes being made in accordance with subclause (i)(a) of this clause Ninth,
sequentially to the Holders of Notes as follows:

  (a)   to the Holders of the Class A Notes until paid in full, in an amount up
to the Total Principal Payable;     (b)   to the Holders of the Class B Notes,
the Class B Accrued Payable, if any;     (c)   to the Holders of the Class B
Notes until paid in full, in an amount up to the remaining Total Principal
Payable after payments to the Class A Notes under this clause Ninth;     (d)  
to the Holders of the Class C Notes, the Class C Accrued Payable, if any;    
(e)   to the Holders of the Class C Notes until paid in full, in an amount up to
the remaining Total Principal Payable after payments to the Class A Notes and
the Class B Notes under this clause Ninth;     (f)   to the Holders of the
Class D Notes, the Class D Accrued Payable, if any;     (g)   to the Holders of
the Class D Notes until paid in full, in an amount up to the remaining Total
Principal Payable after payments to the Class A Notes, the Class B Notes and the
Class C Notes under this clause Ninth;     (h)   to the Holders of the Class E
Notes, the Class E Accrued Payable, if any; and     (i)   to the Holders of the
Class E Notes until paid in full, in an amount up to the remaining Total
Principal Payable after payments to the Class A Notes, the Class B Notes, the
Class C Notes and the Class D Notes under this clause Ninth;

110

--------------------------------------------------------------------------------

 

     Tenth, to the Reserve Fund, an amount, if any, which when so deposited
causes the balance of the Reserve Fund to equal the Required Reserve Amount, and
any amounts on deposit in the Reserve Fund in excess of the Required Reserve
Amount shall be distributed in accordance with the remaining clauses of the
Priority of Payments;
     Eleventh, any amounts due in respect of listing the Listed Notes on the
Irish Stock Exchange;
     Twelfth, to the Servicer, to the extent not reimbursed pursuant to clause
Second above, reimbursement for the amount of any Scheduled Payment Advances
relating to the Loans;
     Thirteenth, pro rata, based on the amounts owed to such Persons under this
clause Thirteenth, to the Indenture Trustee, the Backup Servicer and the Owner
Trustee, to the extent not paid pursuant to clause First due to the limitations
set forth therein, and other amounts, including such amounts related to
indemnification, and, to a Successor Servicer, any Additional Servicing Fee
payable to such Successor Servicer;
     Fourteenth, to the Holders of the Class F Notes until paid in full, in an
amount up to the remaining Total Principal Payable after payments to the Offered
Notes under clause Ninth; and
     Fifteenth, to the Owner Trustee for payment to the Certificateholder, any
remaining amounts.
     (b) On each Payment Date on and after the occurrence of an Event of Default
or a Servicer Default, for so long as the event giving rise to such Event of
Default or Servicer Default has not been cured or waived in accordance with the
applicable Transaction Documents, the Servicer shall instruct the Indenture
Trustee in writing to withdraw, and on the Payment Date the Indenture Trustee
will follow the instructions to withdraw, the Collections and all other funds
available for distributions on deposit in the Note Distribution Account, to the
extent there are sufficient funds, to make the following payments, in the order
of priority listed below.
     First, pro rata, based on the amounts owed under this clause First, to the
payment of Administrative Expenses, subject to the limitations set forth in the
definition thereof;
     Second, to the Servicer, from Interest Collections received from the
specific Loans for which such Scheduled Payment Advances of interest were made,
and from Principal Collections received from the specific Loans for which such
Scheduled Payment Advances of principal were made, reimbursement for the amount
of such Scheduled Payment Advances relating to such Loans;
     Third, to the Servicer, an amount equal to the Servicing Fee;
     Fourth, to the Holders of the Class A Notes, the Class A Interest Amount
for the related Interest Accrual Period and any related unpaid Class A Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class A Interest Shortfall at the Note Interest Rate then applicable to the
Class A Notes;

111

--------------------------------------------------------------------------------

 

     Fifth, to the Holders of the Class B Notes, the Class B Interest Amount for
the related Interest Accrual Period any related unpaid Class B Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class B Interest Shortfall at the Note Interest Rate then applicable to the
Class B Notes;
     Sixth, to the Holders of the Class C Notes, the Class C Interest Amount for
the related Interest Accrual Period and any related unpaid Class C Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class C Interest Shortfall at the Note Interest Rate then applicable to the
Class C Notes;
     Seventh, to the Holders of the Class D Notes, the Class D Interest Amount
for the related Interest Accrual Period and any related unpaid Class D Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class D Interest Shortfall at the Note Interest Rate then applicable to the
Class D Notes;
     Eighth, to the Holders of the Class E Notes, the Class E Interest Amount
for the related Interest Accrual Period and any related unpaid Class E Interest
Shortfall with respect to prior Payment Dates, together with interest on any
Class E Interest Shortfall at the Note Interest Rate then applicable to the
Class E Notes;
     Ninth, sequentially to the Holders of the Notes as follows:

  (a)   to the Holders of the Class A Notes until the Outstanding Principal
Balance of the Class A Notes is reduced to zero;     (b)   to the Holders of the
Class B Notes, the Class B Accrued Payable, if any;     (c)   to the Holders of
the Class B Notes until the Outstanding Principal Balance of the Class B Notes
is reduced to zero;     (d)   to the Holders of the Class C Notes, the Class C
Accrued Payable, if any;     (e)   to the Holders of the Class C Notes until the
Outstanding Principal Balance of the Class C Notes is reduced to zero;     (f)  
to the Holders of the Class D Notes, the Class D Accrued Payable, if any;    
(g)   to the Holders of the Class D Notes until the Outstanding Principal
Balance of the Class D Notes is reduced to zero;     (h)   to the Holders of the
Class E Notes, the Class E Accrued Payable, if any; and     (i)   to the Holders
of the Class E Notes until the Outstanding Principal Balance of the Class E
Notes is reduced to zero;

     Tenth, to the Servicer, to the extent not reimbursed pursuant to clause
Second above, reimbursement for the amount of any Scheduled Payment Advances
relating to the Loans;

112

--------------------------------------------------------------------------------

 

     Eleventh, pro rata, based on the amounts owed to such Persons under this
clause Eleventh, Administrative Expenses, to the extent not paid pursuant to
clause First due to the limitations set forth in the definition thereof, and any
other amounts payable to the Indenture Trustee, the Backup Servicer and the
Owner Trustee, including amounts related to indemnification, and, to a Successor
Servicer for any Additional Servicing Fee payable to such Successor Servicer;
     Twelfth, any amounts due in respect of listing the Listed Notes on the
Irish Stock Exchange;
     Thirteenth, to the Holders of the Class F Notes until the Outstanding
Principal Balance of the Class F Note is reduced to zero; and
     Fourteenth, to the Owner Trustee for payment to the Certificateholder, any
remaining Collections.
     Prior to the Final Maturity Date, amounts to be applied in reduction of the
Outstanding Principal Balance of any Note will not be due and payable, although
the failure of the Trust Depositor or Servicer to remit any amounts available
for payment on the Notes will, after the applicable grace period, constitute an
Event of Default under the Indenture.
     Section 7.06. Determination of LIBOR.
     (a) The Indenture Trustee will determine the interest rate for each
Interest Accrual Period by determining the London interbank offered rate
(“LIBOR”) for deposits in U.S. Dollars for a period of one month (the “One–Month
Index Maturity”) which appears on Reuters Screen LIBOR01 Page as of 11:00 a.m.,
London time, on the day that is two London Banking Days preceding that Interest
Accrual Period (“LIBOR Determination Date”). If such rate does not appear on
Reuters Screen LIBOR01 Page on the related LIBOR Determination Date, the rate
for that Interest Accrual Period will be determined as if the parties had
specified “USD–LIBOR–Reference Banks” as the applicable rate.
“USD–LIBOR–Reference Banks” means that the interest rate for an Interest Accrual
Period will be determined on the basis of the rates at which deposits in U.S.
Dollars are offered by the Reference Banks at approximately 11:00 a.m., London
time, on the related LIBOR Determination Date to prime banks in the London
interbank market for the One–Month Index Maturity commencing on the beginning of
that Interest Accrual Period and in a Representative Amount. The Indenture
Trustee will request the principal London office of each of the Reference Banks
to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that Interest Accrual Period will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, the
rate for that Interest Accrual Period will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the Indenture Trustee, at
11:00 a.m. New York City time, on the beginning of that Interest Accrual Period
for loans in U.S. Dollars to leading European banks for the One–Month Index
Maturity commencing at the beginning of that Interest Accrual Period and in a
Representative Amount.
     (b) The establishment of LIBOR on the applicable London Banking Day by the
Indenture Trustee and the Indenture Trustee’s subsequent calculation of the
rates of interest

113

--------------------------------------------------------------------------------

 

applicable to the Notes for the related Payment Date shall, in the absence of
manifest error, be final and binding. Each such rate of interest may be obtained
by telephoning the Indenture Trustee at (612) 667–8058.
     Section 7.07. Monthly Reconciliation.
     (a) Except as set forth in Section 7.07(b), on each Business Day during
each Due Period that Principal Collections are received in the Principal
Collection Account with respect to any Loan in the Loan Pool, the Servicer will
determine the Outstanding Loan Balance and the principal amount of the portion
of such Loan not owned by the Issuer (if any) with respect to such Loan.
     (b) Prior to (i) a payment default on the related Loan (and in the case of
Asset Based Revolvers, a payment default shall mean any failure to make a
payment on the date such payment is due and such failure continues for more than
five Business Days), (ii) a Servicer Default or (iii) an Event of Default, on
the last day of each Due Period, the Servicer will determine the Outstanding
Loan Balance and principal amount of the portion of such Loan owned by the
Originator, its Affiliate special purpose entities under the Warehouse
Facilities and any co-lenders under the related facility (if any) with respect
to each Revolving Loan secured by Related Property (but specifically excluding
any Revolving Loan that is not secured by any Related Property) in the Loan
Pool, and on and as of such date will determine the net effect of the Principal
Collections received from, and payments from the Principal Collection Account
representing new advances made to, the related Obligor during such Due Period.
Notwithstanding the foregoing, the Servicer will maintain the underlying data of
all Principal Collections received and payments or advances made with respect to
any Revolving Loan secured by Related Property from the Principal Collection
Account on each day during each Due Period, and shall make such underlying data
available pursuant to and in accordance with the provisions of Section 9.03.
ARTICLE 8.
SERVICER DEFAULT; SERVICER TRANSFER
     Section 8.01. Servicer Default.
“Servicer Default” means the occurrence of any of the following:
     (a) any failure by the Servicer to remit or cause to be remitted when due
any payment required to be remitted by the Servicer made under the terms of this
Agreement or the other Transaction Documents, it being understood that the
Servicer shall not be responsible for the failure of either the Owner Trustee or
the Indenture Trustee to remit funds that were received by the Owner Trustee or
the Indenture Trustee from or on behalf of the Servicer in accordance with this
Agreement or the other Transaction Documents; or
     (b) failure by the Servicer duly to observe or perform, in any material
respect, any other covenants, obligations or agreements of the Servicer set
forth in this Agreement or the other Transaction Documents, or any
representation or warranty of the Servicer made in this Agreement or the other
Transaction Documents or in any certificate or other writing delivered

114

--------------------------------------------------------------------------------

 

thereto or in connection therewith proves to have been incorrect when made,
which failure or breach has a material adverse effect on the rights of the
Noteholders and continues unremedied for a period of 30 days (if such failure or
breach can be cured) after the first to occur of (i) the date on which written
notice of such failure requiring the same to be remedied shall have been given
to a Responsible Officer of the Servicer by the Indenture Trustee, or a
Responsible Officer of the Servicer and the Indenture Trustee by any
Securityholder, and (ii) the date on which a Responsible Officer of the Servicer
receives actual knowledge of such failure or breach; or
     (c) a decree or order of a court or agency or supervisory authority having
jurisdiction for the appointment of a conservator or receiver or liquidator in
any Insolvency Proceedings, or for the winding–up or liquidation of its affairs,
shall have been entered against the Servicer and such decree or order shall have
remained in force, undischarged or unstayed for a period of thirty (30) days; or
     (d) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any Insolvency Proceedings of or relating to the
Servicer or of or relating to all or substantially all of the Servicer’s
property; or
     (e) the Servicer shall admit in writing its inability to pay its debts as
they become due, file a petition to take advantage of any applicable Insolvency
Laws, make an assignment for the benefit of its creditors, or voluntarily
suspend payment of its obligations; or
     (f) without the consent of the Majority Noteholders, the Servicer agrees or
consents to, or otherwise permits to occur, any amendment, modification, change,
supplement or rescission of or to the Servicer or the Credit and Collection
Policy, in whole or in part, in any manner that would have a material adverse
effect on the Loans.
     Section 8.02. Servicer Transfer.
     (a) If a Servicer Default has occurred and is continuing, the Majority
Noteholders may, by written notice (a “Termination Notice”) delivered to the
parties hereto, to the Rating Agencies, terminate all (but not less than all) of
the Servicer’s management, administrative, servicing, custodial and collection
functions; provided that no Termination Notice shall be required as a condition
to termination with respect to any Servicer Default described under
Section 8.01(c), Section 8.01(d) and Section 8.01(e).
     (b) Upon delivery of the notice required by Section 8.02(a) (or, if later,
on a date designated therein or, without notice if permitted under
Section 8.02(a)), and on the date that a Successor Servicer shall have been
appointed and accepted such appointment pursuant to Section 8.03 (such
appointment being herein called a “Servicer Transfer”), all rights, benefits,
fees, indemnities, authority and power of the Servicer under this Agreement,
whether with respect to the Loans, the Loan Files or otherwise, shall pass to
and be vested in such successor (the “Successor Servicer”) pursuant to and under
this Section 8.02; and, without limitation, the Successor Servicer is authorized
and empowered to execute and deliver on behalf of the Servicer, as
attorney–in–fact or otherwise, any and all documents and other instruments, and
to do any and all acts or things necessary or appropriate to effect the purposes
of such notice of termination. The Servicer agrees to cooperate with the
Successor Servicer in effecting the

115

--------------------------------------------------------------------------------

 

termination of the responsibilities and rights of the Servicer hereunder,
including, without limitation, the transfer to the Successor Servicer for
administration by it of all cash amounts which shall at the time be held by the
Servicer for deposit, or have been deposited by the Servicer, in the Principal
and Interest Account, or for its own account in connection with its services
hereafter or thereafter received with respect to the Loans. The Servicer shall
transfer to the Successor Servicer (i) all records held by the Servicer relating
to the Loans in such electronic form as the Successor Servicer may reasonably
request and (ii) any Loan Files in the Servicer’s possession. In addition, the
Servicer shall permit access to its premises (including all computer records and
programs) to the Successor Servicer or its designee, and shall pay the
reasonable transition expenses of the Successor Servicer. Upon a Servicer
Transfer, the Successor Servicer shall also be entitled to receive the Servicing
Fee thereafter payable for performing the obligations of the Servicer. Any
indemnities provided in this Agreement or the other Transaction Documents in
favor of the Servicer and any fees, costs, expenses, Servicing Advances or
Scheduled Payment Advances which have accrued and/or are unpaid to the Servicer
shall survive the resignation or termination of the Servicer.
     Section 8.03. Appointment of Successor Servicer; Reconveyance; Successor
Servicer to Act.
     (a) Upon delivery of the notice required by Section 8.02(a) (or, if later,
on a date designated therein), the Servicer shall continue to perform all
servicing functions under this Agreement until the date specified in the
Termination Notice or, if no such date is specified, until a date mutually
agreed by the Servicer and the Indenture Trustee. The Indenture Trustee shall as
promptly as possible after the giving of or receipt of a Termination Notice,
appoint a Successor Servicer, which shall be the Backup Servicer, in accordance
with Section 5.15(c), and named Successor Servicer shall accept its appointment
by a written assumption in a form acceptable to the Indenture Trustee and Owner
Trustee; provided that no appointment of a Successor Servicer or acceptance and
assumption by a proposed Successor Servicer shall be effective without the prior
satisfaction of the Rating Agency Condition. If within 60 days of delivery of a
Termination Notice a Successor Servicer is not appointed and the Servicer shall
have yet to cure the Servicer Default, then the Indenture Trustee shall offer
the Trust Depositor, and the Trust Depositor shall offer the Originator, the
right, without obligation, to accept retransfer of all the Loan Assets, and such
parties may accept retransfer of such Loan Assets in consideration of the Trust
Depositor’s delivery to the Principal and Interest Account on or prior to the
next upcoming Payment Date of a sum equal to the Aggregate Outstanding Principal
Balance of all Securities (other than the Certificates) then outstanding,
together with accrued and unpaid interest thereon through such date of deposit
and all other amounts due and owing to any Person under the Transaction
Documents; provided that the Indenture Trustee, if so directed by the Majority
Noteholders in writing, need not accept and effect such reconveyance in the
absence of evidence (which may include valuations of an investment bank or
similar entity) reasonably acceptable to such Indenture Trustee or Majority
Noteholders that such retransfer would not constitute a fraudulent conveyance of
the Trust Depositor or the Originator.
     (b) The Backup Servicer may, in its discretion, or shall, if it is unable
to so act or if the Majority Noteholders request in writing to the Backup
Servicer, appoint, or petition a court of competent jurisdiction to appoint, any
established servicing institution having a net worth of

116

--------------------------------------------------------------------------------

 

not less than $50,000,000 as the Successor Servicer in the assumption of all or
any part of the responsibilities, duties or liabilities of the Servicer.
     (c) As compensation, any Successor Servicer (including, without limitation,
the Backup Servicer) so appointed shall be entitled to receive the Servicing
Fee, together with any other servicing compensation in the form of assumption
fees, late payment charges or otherwise as provided herein that thereafter are
payable under this Agreement, including, without limitation, all reasonable
costs (including reasonable attorneys’ fees) incurred in connection with
transferring the servicing obligations under the Agreement and amending the
Agreement to reflect such transfer.
     (d) In the event the Backup Servicer is required to solicit bids, the
Backup Servicer shall solicit, by public announcement, bids from banks and
mortgage servicing institutions meeting the qualifications set forth above. Such
public announcement shall specify that the Successor Servicer shall be entitled
to the full amount of the Servicing Fee as servicing compensation, together with
the other servicing compensation in the form of assumption fees, late payment
charges or otherwise that thereafter are payable under this Agreement. Within
30 days after any such public announcement, the Backup Servicer shall negotiate
and effect the sale, transfer and assignment of the servicing rights and
responsibilities hereunder to the qualified party submitting the highest
qualifying bid, if any. The Backup Servicer shall deduct from any sum received
by the Backup Servicer from the successor to the Servicer in respect of such
sale, transfer and assignment all costs and expenses of any public announcement
and of any sale, transfer and assignment of the servicing rights and
responsibilities hereunder and the amount of any unreimbursed Servicing
Advances. After such deductions, the remainder of such sum shall be paid by the
Backup Servicer to the Servicer at the time of such sale, transfer and
assignment to the Servicer’s successor. The Backup Servicer and such successor
shall take such action, consistent with the Agreement, as shall be necessary to
effectuate any such succession. Neither the Indenture Trustee, the Backup
Servicer nor any other Successor Servicer shall be held liable by reason of any
failure to make, or any delay in making, any distribution hereunder or any
portion thereof caused by (i) the failure of the Servicer to deliver, or any
delay in delivering, cash, documents or records to it, or (ii) restrictions
imposed by any regulatory authority having jurisdiction over the Servicer
hereunder. No appointment of a successor to the Servicer under this clause
(d) shall be effective until written notice of such proposed appointment shall
have been provided by the Indenture Trustee to each Securityholder and the
Backup Servicer shall have consented thereto. The Backup Servicer shall not
resign as Servicer until a Successor Servicer has been appointed and accepted
such appointment unless required by Applicable Law or administrative
determination.
     (e) On or after a Servicer Transfer, the Successor Servicer shall be the
successor in all respects to the Servicer in its capacity as servicer under this
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof, and the terminated
Servicer shall be relieved of such responsibilities, duties and liabilities
arising after such Servicer Transfer; provided that (i) the Successor Servicer
will not assume any obligations of the Servicer described in Section 8.02 and
(ii) the Successor Servicer shall not be liable for any acts or omissions of the
Servicer occurring prior to such Servicer Transfer or for any breach by the
Servicer of any of its representations and warranties contained herein or in any
other

117

--------------------------------------------------------------------------------

 

Transaction Document. Notwithstanding anything else herein to the contrary, in
no event shall the Indenture Trustee or the Backup Servicer be liable for any
Servicing Fee or for any differential in the amount of the servicing fee paid
hereunder and the amount necessary to induce any Successor Servicer to act as
Successor Servicer under this Agreement and the transactions set forth or
provided for herein, including any Additional Servicing Fee. The Owner Trustee,
Securityholders and the Indenture Trustee and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession. To the extent the terminated Servicer has made Servicing
Advances, it shall be entitled to reimbursement of the same notwithstanding its
termination hereunder, to the same extent as if it had continued to service the
Loans hereunder.
     Section 8.04. Notification to Securityholders.
     (a) Promptly following the occurrence of any Servicer Default, the Servicer
shall give written notice thereof to the Trustees, the Trust Depositor and each
Rating Agency at the addresses described in Section 13.04 hereof, to the
Noteholders and Certificateholder at their respective addresses appearing on the
Note Register and the Certificate Register, respectively.
     (b) Within 10 days following any termination of the Servicer or appointment
of a Successor Servicer pursuant to this Article 8, the Indenture Trustee shall
give written notice thereof to each Rating Agency and the Trust Depositor at the
addresses described in Section 13.04 hereof, to the Noteholders and
Certificateholder at their respective addresses appearing on the Note Register
and the Certificate Register, respectively.
     Section 8.05. Effect of Transfer.
     (a) After a Servicer Transfer, the terminated Servicer shall have no
further obligations with respect to the management, administration, servicing,
custody or collection of the Loans and the Successor Servicer appointed pursuant
to Section 8.03 shall have all of such obligations, except that the terminated
Servicer will transmit or cause to be transmitted directly to the Successor
Servicer for its own account, promptly on receipt and in the same form in which
received, any amounts (properly endorsed where required for the Successor
Servicer to collect them) received as payments upon or otherwise in connection
with the Loans.
     (b) A Servicer Transfer shall not affect the rights and duties of the
parties hereunder (including but not limited to the indemnities of the Servicer)
other than those relating to the management, administration, servicing, custody
or collection of the Loans.
     Section 8.06. Database File.
     Upon reasonable request by the Indenture Trustee or the Backup Servicer,
the Servicer will provide the Successor Servicer with a magnetic tape or
Microsoft Excel or similar spreadsheet file containing the database file for
each Loan (a) as of the Cut–Off Date, (b) the Subsequent Cut–Off Dates,
(c) thereafter, as of the last day of the preceding Due Period on the
Determination Date prior to a Servicer Default and (d) on and as of the Business
Day before the actual commencement of servicing functions by the Successor
Servicer following the occurrence of a Servicer Default.

118

--------------------------------------------------------------------------------

 

     Section 8.07. Waiver of Defaults.
     The Majority Noteholders may, on behalf of all the Securityholders, and
subject to satisfying the Rating Agency Condition, waive any events permitting
removal of the Servicer pursuant to this Article 8; provided that the Majority
Noteholders may not waive a default in making a required distribution on a Note
without the consent of each holder of such Note. Upon any waiver or cure of a
past default, such default shall cease to exist, and any Servicer Default or
Event of Default arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver or cure shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived.
     Section 8.08. Responsibilities of the Successor Servicer.
     (a) The Successor Servicer will not be responsible for delays attributable
to the Servicer’s failure to deliver information, defects in the information
supplied by the Servicer or other circumstances beyond the control of the
Successor Servicer.
     (b) The Successor Servicer will make arrangements with the Servicer for the
prompt and safe transfer of, and the Servicer shall provide to the Successor
Servicer, all necessary servicing files and records, including (as deemed
necessary by the Successor Servicer at such time): (i) microfiche loan
documentation, (ii) servicing system tapes, (iii) Loan payment history, (iv)
collections history and (v) the trial balances, as of the close of business on
the day immediately preceding conversion to the Successor Servicer, reflecting
all applicable Loan information. The current Servicer shall be obligated to pay
the costs associated with the transfer of the servicing files and records to the
Successor Servicer.
     (c) The Successor Servicer shall have no responsibility and shall not be in
default hereunder nor incur any liability for any failure, error, malfunction or
any delay in carrying out any of its duties under this Agreement if any such
failure or delay results from the Successor Servicer acting in accordance with
information prepared or supplied by a Person other than the Successor Servicer
or the failure of any such Person to prepare or provide such information. The
Successor Servicer shall have no responsibility, shall not be in default and
shall incur no liability (i) for any act or failure to act by any third party,
including the Servicer, the Trust Depositor or the Trustees or for any
inaccuracy or omission in a notice or communication received by the Successor
Servicer from any third party or (ii) which is due to or results from the
invalidity, unenforceability of any Loan with applicable law or the breach or
the inaccuracy of any representation or warranty made with respect to any Loan.
     (d) If the Indenture Trustee or any other Successor Servicer assumes the
role of Successor Servicer hereunder, such Successor Servicer shall be entitled
to the benefits of (and subject to the provisions of) Section 5.02 concerning
delegation of duties to subservicers.
     Section 8.09. Rating Agency Condition for Servicer Transfer.
     Notwithstanding the foregoing provisions relating to a Servicer Transfer,
no Servicer Transfer shall be effective hereunder unless prior written notice
thereof shall have been given to the Rating Agencies, and the Rating Agency
Condition shall have been satisfied with respect thereto.

119

--------------------------------------------------------------------------------

 

     Section 8.10. Appointment of Successor Backup Servicer; Successor Backup
Servicer to Act.
     (a) The Backup Servicer may be removed, with or without cause, by the
Majority Noteholders or the Indenture Trustee, by notice given in writing to the
Backup Servicer (the “Backup Servicer Termination Notice”), a copy of which
shall be provided to S&P promptly after it is delivered to the Backup Servicer.
The Backup Servicer shall continue to perform all backup servicing functions
under this Agreement until the date specified in the Backup Servicer Termination
Notice or, if no such date is specified, until a date mutually agreed by the
Backup Servicer and the Indenture Trustee. The Indenture Trustee shall as
promptly as possible after the giving of a Backup Servicer Termination Notice,
to appoint a Successor Backup Servicer (the “Successor Backup Servicer”) and
such Successor Backup Servicer shall accept its appointment by a written
assumption in a form acceptable to the Indenture Trustee and Owner Trustee.
     (b) In the event that a Successor Backup Servicer has not been appointed
and has not accepted its appointment at the time when the then Backup Servicer
has ceased to act as Backup Servicer, the Indenture Trustee shall petition a
court of competent jurisdiction to appoint any established financial institution
having a net worth of at least $50,000,000 and whose regular business includes
the backup servicing of loans similar to the Loans as the Successor Backup
Servicer hereunder and the Successor Backup Servicer shall be the successor in
all respects to the Backup Servicer in its capacity as Backup Servicer under
this Agreement and the transactions set forth or provided for herein and shall
be subject to all the responsibilities, duties and liabilities relating thereto
placed on the Backup Servicer by the terms and provisions hereof, and the
terminated Backup Servicer shall be relieved of such responsibilities, duties
and liabilities arising after such backup servicer transfer (the “Backup
Servicer Transfer”); provided that the Successor Backup Servicer shall not be
liable for any acts or omissions of the Backup Servicer occurring prior to such
Backup Servicer Transfer or for any breach by the Backup Servicer of any of its
representations and warranties contained herein or in any related document or
agreement. As compensation therefor, the Successor Backup Servicer shall be
entitled to receive reasonable compensation equal to the monthly Backup
Servicing Fee. Notwithstanding anything else herein to the contrary, in no event
shall the Indenture Trustee or the Servicer be liable for any Backup Servicing
Fee or for any differential in the amount of the backup servicing fee paid
hereunder and the amount necessary to induce any Successor Backup Servicer to
act as Backup Servicer under this Agreement and the transactions set forth or
provided for herein. The Owner Trustee, Securityholders and the Indenture
Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession.
ARTICLE 9.
REPORTS
     Section 9.01. Monthly Reports.
     With respect to each Payment Date and the related Due Period, the Servicer
will provide to each Trustee, the Backup Servicer, each Rating Agency and the
Initial Purchasers, on the related Determination Date, a monthly statement (a
“Monthly Report”) substantially in the form of Exhibit H hereto with respect to
the preceding Due Period.

120

--------------------------------------------------------------------------------

 

     Section 9.02. Officer’s Certificate.
     Each Monthly Report delivered pursuant to Section 9.01 shall be accompanied
by a certificate of a Responsible Officer of the Servicer certifying the
accuracy of the Monthly Report and that no Servicer Default or event that with
notice or lapse of time or both would become a Servicer Default has occurred, or
if such event has occurred and is continuing, specifying the event and its
status.
     Section 9.03. Other Data; Obligor Financial Information.
     (a) The Servicer shall, upon the request of any Trustees, the Backup
Servicer, or any Rating Agency, furnish such Trustee, Rating Agency or the
Backup Servicer, as the case may be, such underlying data used to generate a
Monthly Report as may be reasonably requested.
     (b) The Servicer will forward to the Indenture Trustee, the Owner Trustee,
each Rating Agency and Citigroup (a) within 60 days after each calendar quarter
(except the fourth calendar quarter), commencing with the quarter beginning
June 30, 2007, the unaudited quarterly financial statements of the Servicer and
(b) within 90 days after each fiscal year of the Servicer, commencing with the
fiscal year ending December 31, 2007, the audited annual financial statements of
the Servicer, together with the related report of the independent accountants to
the Servicer. On the Payment Date following the receipt of each such financial
statements and report, the Indenture Trustee will forward to each Noteholder of
record a copy of such financial statements and report.
     (c) The Servicer will forward to Moody’s and S&P within 30 days after
receipt by the Servicer, copies of all financial statements of Obligors then
received by the Servicer with respect to the prior fiscal year of each Obligor.
     (d) The Servicer will forward to Moody’s and S&P promptly upon request any
additional financial information as Moody’s and S&P shall reasonably request
with respect to an obligor as to which any Scheduled Payment is past due for at
least ten days.
     (e) The Servicer will forward to Moody’s and S&P promptly upon any Loan
becoming a Delinquent Loan, and without any request therefor by Moody’s and S&P,
updated financial information with respect to the related Obligor.
     (f) The Servicer will provide to the Rating Agencies such financial
information, documents and other materials as the Rating Agencies shall
reasonably request in connection with any annual review and/or re-grading of the
Loans in the Loan Pool and the related Obligors which the Rating Agencies may
undertake.
      Section 9.04. Annual Report of Accountants.
     The Servicer shall cause a firm of nationally recognized independent
certified public accountants (the “Independent Accountants”), who may also
render other services to the Servicer or its Affiliates, to deliver to the
Indenture Trustee, the Owner Trustee, the Backup Servicer and each Rating
Agency, on or before March 31, of each year, beginning on March 31, 2008, a
report addressed to the Board of Managers of the Servicer, the Indenture Trustee
and the Owner Trustee

121

--------------------------------------------------------------------------------

 

indicating that (a) with respect to the 12-months ended the immediately
preceding December 31, to the effect that such Independent Accountants have
audited the financial statements of the Servicer, that as part of that audit,
nothing came to the attention of such Independent Accountants that causes them
to believe that the Servicer was not in compliance with any of the terms,
covenants, provisions or conditions of the relevant sections of this Agreement,
insofar as they relate to accounting matters, except for such exceptions as such
Independent Accountants shall believe to be immaterial and such other exceptions
as shall be set forth in such report, (b) in connection with the Independent
Accountants’ audit of the Servicer, there were no exceptions or errors in
records related to Loans serviced by the Servicer, except for such exceptions as
such Independent Accountants shall believe to be immaterial and such other
exceptions as shall be set forth in such report, (c) the payment testing for
Asset Based Revolvers has been reviewed and such testing is in compliance with
the terms of the related Required Loan Documents and (d) the Independent
Accountants have performed certain procedures as agreed by the Servicer, the
Indenture Trustee and the Owner Trustee, whereby the Independent Accountants
will obtain the Monthly Report for four months with respect to the 12 months
ended the immediately preceding December 31 and, for each Monthly Report, the
Independent Accountants will agree all amounts in the Monthly Report to the
Servicer’s computer, accounting and other reports, which will include in such
report any amounts which were not in agreement. In the event such firm of
Independent Accountants requires the Indenture Trustee to agree to the
procedures performed by such firm of Independent Accountants, the Servicer shall
direct the Indenture Trustee in writing to so agree; it being understood and
agreed that the Indenture Trustee will deliver such letter of agreement in
conclusive reliance upon the direction of the Servicer, and the Indenture
Trustee will not make any independent inquiry or investigation as to, and shall
have no obligation or liability in respect of, the sufficiency, validity or
correctness of such procedures. The Independent Accountants’ report shall also
indicate that the firm is independent of the Servicer within the meaning of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants.
     Section 9.05. Annual Statement of Compliance from Servicer.
     The Servicer will deliver to the Trustees and S&P within 90 days of the end
of each fiscal year commencing with the year ending December 31, 2007, an
Officer’s Certificate stating that (a) the Servicer has fully complied in all
material respects with certain provisions of the Agreement relating to servicing
of the Loans and payments on the Notes, (b) a review of the activities of the
Servicer during the prior calendar year and of its performance under this
Agreement was made under the supervision of the officer signing such certificate
and (c) to the best of such officer’s knowledge, based on such review, the
Servicer has fully performed or caused to be performed in all material respects
all its obligations under this Agreement for such year, or, if there has been a
Servicer Default or default in any of its obligations, which, with notice or
passage of time, could reasonably be expected to become a Servicer Default,
specifying each such Servicer Default or default known to such officer and the
nature and status thereof and the steps being taken or necessary to be taken to
remedy such event. A copy of such certificate may be obtained by any
Securityholder by a request in writing to the Indenture Trustee, with respect to
any Noteholder, or the Owner Trustee, with respect to any Certificateholder.

122

--------------------------------------------------------------------------------

 

     Section 9.06. [Reserved]
     Section 9.07. Notices of Event of Default or Servicer Default.
     (a) The Servicer shall furnish to the Indenture Trustee and S&P
(i) promptly, copies of any material and adverse notices (including, without
limitation, notices of defaults, breaches, potential defaults or potential
breaches) given to or received from its other lenders and (ii) immediately,
notice of the occurrence of any Event of Default or Servicer Default or of any
situation which the Servicer reasonably expects to develop into an Event of
Default or Servicer Default.
     (b) The Servicer also agrees to make available on a reasonable basis to any
Noteholder or S&P a knowledgeable financial or accounting officer for the
purpose of answering reasonable questions respecting recent developments
affecting the Servicer or the financial statements of the Servicer and to permit
any Noteholder upon reasonable advance notice and subject to reasonable
confidentiality restrictions to inspect the Servicer’s servicing facilities
during normal business hours and in a manner that does not unreasonably
interfere with the Servicer’s normal operations or customer or employee
relations for the purpose of satisfying such Noteholder that the Servicer has
the ability to service the Loans in accordance with this Agreement.
     Section 9.08. Indenture Trustee’s Right to Examine Servicer Records and
Audit Operations.
     The Indenture Trustee shall have the right upon reasonable prior notice,
during normal business hours, in a manner that does not unreasonably interfere
with the Servicer’s normal operations or customer or employee relations, and as
often as reasonably required, to examine and audit any and all of the books,
records or other information of the Servicer, whether held by the Servicer or by
another on behalf of the Servicer, which may be relevant to the performance or
observance by the Servicer of the terms, covenants or conditions of this
Agreement. No amounts payable in respect of the foregoing shall be paid from the
Loan Assets.
ARTICLE 10.
TERMINATION
     Section 10.01. Optional Repurchase of Offered Notes.
     (a) At any time during the Call Period, the Issuer shall have the option to
repurchase for the Repurchase Price the Offered Notes then outstanding, in whole
but not in part, at the direction of the Holders of 662/3% of the Outstanding
Principal Balance of the Class F Notes, on any Payment Date after the date on
which the Holders of 662/3% of the Outstanding Principal Balance of the Class F
Notes provide at least ten days’ notice of the election to cause the repurchase
of the Notes pursuant to the Indenture and the other Transaction Documents. To
exercise such option, the Issuer shall deposit, or cause to be deposited, in the
Note Distribution Account, by no later than 12:00 p.m. (New York City time) on
the Repurchase Date, an amount equal to the Repurchase Price and such repurchase
shall otherwise comply with the requirements of Section 10.01 of the Indenture.

123

--------------------------------------------------------------------------------

 

     (b) Notice of any repurchase pursuant to Section 10.01(a) shall be given by
the Issuer to the Indenture Trustee and the Rating Agencies at least ten days
prior to the Repurchase Date and the Indenture Trustee will provide a
corresponding notice to each Noteholder affected thereby.
     (c) Following the satisfaction and discharge of the Indenture and the
payment in full of the principal of and interest on the Notes, the
Certificateholders will succeed to the rights of the Noteholders hereunder and
the Owner Trustee will succeed to the rights of the Indenture Trustee pursuant
to this Agreement.
     Section 10.02. Termination.
     (a) This Agreement shall terminate upon notice to the Indenture Trustee of
the earlier of the following events: (i) the final payment on or the disposition
or other liquidation by the Issuer of the last Loan (including, without
limitation, in connection with a purchase by the Servicer of all outstanding
Loan Assets pursuant to Section 10.01) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Loan and the
remittance of all funds due thereunder, or (ii) mutual written consent of the
Servicer, the Trust Depositor, Indenture Trustee, the Originator and all
Securityholders.
     (b) Notice of any termination, specifying the Payment Date upon which the
Issuer will terminate and that the Noteholders shall surrender their Notes to
the Indenture Trustee for payment of the final distribution and cancellation
shall be given promptly by the Servicer by letter to all Noteholders mailed
during the month of such final distribution before the Determination Date in
such month, specifying (i) the Payment Date upon which final payment of the
Notes (or Repurchase Price, as applicable) will be made upon presentation and
surrender of Notes at the office of the Indenture Trustee therein designated,
(ii) the amount of any such final payment and (iii) that the Record Date
otherwise applicable to such Payment Date is not applicable, payments being made
only upon presentation and surrender of the Notes at the office of the Indenture
Trustee therein specified. The Servicer shall give such notice to the Indenture
Trustee at the time such notice is given to Noteholders.
ARTICLE 11.
REMEDIES UPON MISREPRESENTATION;
REPURCHASE OPTION
     Section 11.01. Repurchases of, or Substitution for, Loans for Breach of
Representations and Warranties.
     Upon a discovery or receipt of notice by a Responsible Officer of the
Servicer or any subservicer, a Responsible Officer of the Owner Trustee or the
Indenture Trustee of a breach of a representation or warranty as set forth in
Section 3.01, Section 3.02, Section 3.03 or Section 3.04 or as made or deemed
made in any Addition Notice or any Subsequent Purchase Agreement relating to
Substitute Loans that materially and adversely affects the value of the Loans or
the interests of the Noteholders therein or which materially and adversely
affects the interests of the Noteholders in the related Loan in the case of a
representation or warranty relating to a particular

124

--------------------------------------------------------------------------------

 

Loan (notwithstanding that such representation or warranty was made to the
Originator’s or the Trust Depositor’s best knowledge) (an “Ineligible Loan”),
the party discovering or receiving notice of the breach shall give prompt
written notice to the other parties; provided that the Indenture Trustee shall
have no duty or obligation to inquire or to investigate the breach of any of
such representations or warranties. If, within 30 days of the earlier of its
discovery or its receipt of notice of any such breach of a representation or
warranty, the Originator or Trust Depositor has not cured such breach in all
material respects, then the Originator or Trust Depositor must either
(i) repurchase such Ineligible Loan by depositing into the Principal and
Interest Account, an amount equal to the Repurchase Amount, or (ii) substitute
an Eligible Loan for such Ineligible Loan, not later than the date a repurchase
of such affected Loan would be required hereunder; provided that with respect to
a breach of a representation or warranty relating to the Loans in the aggregate
and not to any particular Loan, the Originator may select Loans (without adverse
selection) to repurchase (or substitute for) such that had such Loans not been
included as part of the Loan Assets (and, in the case of a substitution, had
such Substitute Loan been included as part of the Loan Assets instead of the
selected Loan) there would have been no breach of such representation or
warranty. The Repurchase Amount for a Loan may equal, exceed or be less than the
fair market value of such Loan on the date of repurchase.
     Section 11.02. Reassignment of Repurchased or Substituted Loans.
     Upon receipt by the Indenture Trustee for deposit in the Principal and
Interest Account of the amounts described in Section 11.01 (or upon the
Subsequent Transfer Date related to a Substitute Loan described in
Section 11.01), the Indenture Trustee shall assign to the Trust Depositor and
the Trust Depositor shall assign to the Originator all of the Issuer’s (or Trust
Depositor’s, as applicable) right, title and interest in the repurchased or
substituted Loan and related Loan Assets without recourse, representation or
warranty. Such reassigned Loan shall no longer thereafter be included in any
calculations of Outstanding Loan Balances required to be made hereunder or
otherwise be deemed a part of the Issuer.
ARTICLE 12.
INDEMNITIES
     Section 12.01. Indemnification by Servicer.
     The Servicer agrees to indemnify, defend and hold the Indenture Trustee (as
such and in its individual capacity), the Owner Trustee (as such and in its
individual capacity), the Backup Servicer and each Securityholder harmless from
and against any and all claims, losses, penalties, fines, forfeitures,
reasonable legal fees and related costs, judgments, and any other reasonable
costs, fees and expenses that such Person may sustain as a result of the
Servicer’s fraud or the failure of the Servicer to perform its duties and
service the Loans in compliance in all material respects with the terms of this
Agreement, except to the extent arising from the gross negligence, willful
misconduct or fraud by the Person claiming indemnification. The Servicer shall
immediately notify the Indenture Trustee and the Owner Trustee if a claim is
made by any party with respect to this Agreement, and the Servicer shall assume
(with the consent of the indemnified party) the defense and any settlement of
any such claim and pay all expenses in connection therewith, including
reasonable counsel fees, and promptly pay, discharge and satisfy

125

--------------------------------------------------------------------------------

 

any judgment or decree which may be entered against the indemnified party in
respect of such claim.
     Section 12.02. Indemnification by Trust Depositor.
     The Trust Depositor agrees to indemnify, defend, and hold the Indenture
Trustee (as such and in its individual capacity), the Owner Trustee (as such and
in its individual capacity) and each Securityholder harmless from and against
any and all claims, losses, penalties, fines, forfeitures, reasonable legal fees
and related costs, judgments, and any other reasonable costs, fees and expenses
that such Person may sustain as a result of the Trust Depositor’s fraud or the
failure of the Trust Depositor to perform its duties in compliance with the
terms of this Agreement and in the best interests of the Securityholders, except
to the extent arising from the gross negligence, willful misconduct or fraud by
the Person claiming indemnification. The Trust Depositor shall immediately
notify the Indenture Trustee and the Owner Trustee if a claim is made by a third
party with respect to this Agreement, and the Trust Depositor shall assume (with
the consent of the indemnified party) the defense and any settlement of any such
claim and pay all expenses in connection therewith, including reasonable counsel
fees, and promptly pay, discharge and satisfy any judgment or decree which may
be entered against the indemnified party in respect of such claim.
ARTICLE 13.
MISCELLANEOUS
     Section 13.01. Amendment.
     (a) This Agreement may be amended from time to time by the parties hereto
by written agreement, with the prior written consent of the Indenture Trustee
but without notice to or consent of the Securityholders, (i) to cure any
ambiguity or manifest error, to correct or supplement any provisions herein,
which may be defective or inconsistent with any other provision or make any
modification that is of a formal, minor or technical nature; (ii) to convey any
property to or with the Issuer, including any Substitute Loan and any Related
Property; (iii) to comply with any changes in the Code; (iv) to conform this
Agreement to the Offering Memorandum; (v) to amend the Portfolio Criteria or any
other provision of this Agreement to reflect any written change in the
guidelines, methodology or standards established by any Rating Agency that are
applicable to this Agreement; or (vi) to make any other provisions with respect
to matters or questions arising under this Agreement which shall not be
inconsistent with the provisions of this Agreement; provided that (x) such
action shall not, as evidenced by an Opinion of Counsel delivered to the
Indenture Trustee other than with respect to item (iv) above, adversely affect
in any material respect the interests of any Securityholders; and (y) no such
amendment shall reduce in any manner the amount of, or delay the timing of, any
amounts received on Loans which are required to be distributed on any Note or
Certificate without the consent of the Holder of such Note or Certificate, or
change the rights or obligations of any other party hereto without the consent
of such party.
     (b) This Agreement may be amended from time to time by the parties hereto
by written agreement, with the prior written consent of the Indenture Trustee
and with the consent

126

--------------------------------------------------------------------------------

 

of the Majority Noteholders, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the Holders of the Notes or
Certificates; provided that (i) no such amendment shall reduce in any manner the
amount of, or delay the timing of, any amounts which are required to be
distributed on any Note or Certificate without the consent of the Holder of such
Note or Certificate or reduce the percentage of Holders of any Note or
Certificate which are required to consent to any such amendment without the
consent of the Holders of 100% of the Notes affected thereby and (ii) no
amendment affecting only one Class shall require the approval of the Holders of
any other Class.
     (c) Prior to the execution of any such amendment or consent, the Indenture
Trustee shall furnish written notification of the substance of such amendment or
consent, together with a copy of such amendment or consent, to each Rating
Agency. Prior to the execution of any amendment pursuant to Section 13.01, the
Issuer shall obtain written confirmation from Moody’s and S&P that entry into
such amendment satisfies the Moody’s Rating Condition and the S&P Rating
Condition.
     (d) Promptly after the execution of any such amendment or consent, the
Owner Trustee and the Indenture Trustee, as the case may be, shall furnish
written notification of the substance of such amendment or consent to each
Securityholder. It shall not be necessary for the consent of the Securityholders
pursuant to Section 13.01(b) to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization by the Securityholders of the execution thereof shall be
subject to such reasonable requirements as the Owner Trustee or the Indenture
Trustee may prescribe.
     (e) Prior to the execution of any amendment to this Agreement, the Owner
Trustee and the Indenture Trustee shall be entitled to receive and conclusively
rely upon an Opinion of Counsel stating that the execution of such amendment is
authorized and permitted by this Agreement. Such Trustee may, but shall not be
obligated to, enter into any such amendment that affects such Trustee’s own
rights, duties, indemnities or immunities under this Agreement or otherwise.
     Section 13.02. Protection of Title to Issuer.
     The Servicer shall execute and file such financing statements and cause to
be executed and filed such continuation statements, all in such manner and in
such places as may be required by law fully to preserve, maintain and protect
the interest of the Issuer, the Securityholders, the Indenture Trustee and the
Owner Trustee in the Loans and in the proceeds thereof. The Servicer shall
deliver (or cause to be delivered) to the Owner Trustee and the Indenture
Trustee file–stamped copies of, or filing receipts for, any document filed as
provided above, as soon as available following such filing.
     Section 13.03. Governing Law.
     (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT

127

--------------------------------------------------------------------------------

 

REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS, AND
REMEDIES OF THE PARTIES UNDER THE AGREEMENT SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS.
     (b) EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT. EACH PARTY HERETO (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 13.03(b).
     Section 13.04. Notices.
     All notices, demands, certificates, requests and communications hereunder
(“notices”) shall be in writing and shall be effective (a) upon receipt when
sent through the U.S. mails, registered or certified mail, return receipt
requested, postage prepaid, with such receipt to be effective the date of
delivery indicated on the return receipt, or (b) one Business Day after delivery
to an overnight courier, or (c) on the date personally delivered to an
Responsible Officer of the party to which sent, or (d) on the date transmitted
by legible telecopier transmission with a confirmation of receipt, in all cases
addressed to the recipient as follows:

  (i)   if to the Servicer or the Originator:         CapitalSource Finance LLC
4445 Willard Avenue
12th Floor
Chevy Chase, Maryland 20815
Attention: Securitization Department
Facsimile No.: (301) 841–2375         with a copy to:         Patton Boggs LLP
2001 Ross Avenue
Suite 3000
Dallas, Texas 75201
Attention: Jay Baker
Fax: (214) 758-1550     (ii)   if to the Trust Depositor:         CapitalSource
Commercial Loan LLC, 2007-1
4445 Willard Avenue

128

--------------------------------------------------------------------------------

 

      12th Floor
Chevy Chase, Maryland 20815
Attention: Securitization Department
Facsimile No.: (301) 841–2375         with a copy to:         Patton Boggs LLP
2001 Ross Avenue
Suite 3000
Dallas, Texas 75201
Attention: Jay Baker
Fax: (214) 758-1550     (iii)   if to the Indenture Trustee:         Wells Fargo
Bank, National Association
Sixth Street and Marquette Avenue
MAC N9311–161
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services/Asset Backed Administration
Facsimile No.: (612) 667–3464     (iv)   if to the Owner Trustee:        
Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Facsimile No.: (302) 636-4140         with a copy to:         the Originator and
the Servicer as provided in clause (i) above     (v)   if to the Issuer:        
CapitalSource Commercial Loan Trust 2007-1
c/o Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Facsimile No.: (302) 636-4140         with a copy to:         the Originator and
the Servicer as provided in clause (i) above

129

--------------------------------------------------------------------------------

 

  (vi)   if to S&P:         Standard and Poor’s Ratings Services Inc.,
a division of The McGraw-Hill Companies
55 Water Street
41st Floor
New York, New York 10041
Attention: Surveillance: Asset–Backed Services
Facsimile No.: (212) 438–2662
Email: cdo_surveillance@sandp.com (all Monthly Reports)     (vii)   if to
Moody’s:         Moody’s Investors Service
99 Church Street
New York, New York 10007
Attention: CDO Monitoring Department
Facsimile No.: (212) 553–0344
Email: cdomonitoring@moodys.com     (viii)   if to Fitch:         Fitch, Inc.
One State Street Plaza
New York, New York 10004
Attention: CDO Surveillance
Facsimile No.: (212) 514–6501     (ix)   if to the Initial Purchasers:        
Citigroup Global Markets Inc.
390 Greenwich Street
New York, NY 10013
Attention: Asset-Backed Finance
Facsimile No.: (212) 723-8591;

     Each party hereto may, by notice given in accordance herewith to each of
the other parties hereto, designate any further or different address to which
subsequent notices shall be sent.
     Section 13.05. Severability of Provisions.
     If one or more of the covenants, agreements, provisions or terms of this
Agreement shall be for any reason whatsoever held invalid, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Agreement,
the Notes or Certificates or the rights of the Securityholders, and any such

130

--------------------------------------------------------------------------------

 

prohibition, invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such covenants, agreements, provisions or
terms in any other jurisdiction.
     Section 13.06. Third Party Beneficiaries.
     Except as otherwise specifically provided herein, the parties hereto hereby
manifest their intent that no third party (other than the Owner Trustee) shall
be deemed a third party beneficiary of this Agreement, and specifically that the
Obligors are not third party beneficiaries of this Agreement.
     Section 13.07. Counterparts.
     This Agreement may be executed by facsimile signature and in several
counterparts, each of which shall be an original and all of which shall together
constitute but one and the same instrument.
     Section 13.08. Headings.
     The headings of the various Articles and Sections herein are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
     Section 13.09. No Bankruptcy Petition; Disclaimer.
     (a) Each of the Originator, the Indenture Trustee, the Servicer, the Issuer
acting through the Owner Trustee and each Holder (by acceptance of the
applicable Securities) covenants and agrees that, prior to the date that is one
year and one day (or, if longer, the then applicable preference period and one
day) after the payment in full of all amounts owing in respect of all
outstanding Classes of Notes rated by any Rating Agency, it will not institute
against the Trust Depositor or the Issuer, or join any other Person in
instituting against the Trust Depositor or the Issuer, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceedings under the laws of the United States or any state of the
United States; provided that nothing herein shall prohibit the Indenture Trustee
from filing proofs of claim or otherwise participating in any such proceedings
instituted by any other Person. This Section 13.09 will survive the termination
of this Agreement.
     (b) The Issuer acknowledges and agrees that the Certificates represent a
beneficial interest in the Issuer and Loan Assets only and the Securities do not
represent an interest in any assets (other than the Loan Assets) of the Trust
Depositor (including by virtue of any deficiency claim in respect of obligations
not paid or otherwise satisfied from the Loan Assets and proceeds thereof). In
furtherance of and not in derogation of the foregoing, to the extent that the
Trust Depositor enters into other transactions as contemplated in Section 6.07,
the Issuer acknowledges and agrees that it shall have no right, title or
interest in or to any assets (or interests therein), other than the Loan Assets,
conveyed or purported to be conveyed (whether by way of a sale, capital
contribution or by the granting of a Lien) by the Trust Depositor to any Person
other than the Issuer (the “Other Assets”).
     (c) To the extent that notwithstanding the agreements contained in this
Section 13.09, the Issuer or any Securityholder, either (i) asserts an interest
in or claim to, or benefit from any

131

--------------------------------------------------------------------------------

 

Other Assets, whether asserted against or through the Trust Depositor or any
other Person owned by the Trust Depositor, or (ii) is deemed to have any
interest, claim or benefit in or from any Other Assets, whether by operation of
law, legal process, pursuant to applicable provisions of Insolvency Laws or
otherwise (including without limitation pursuant to Section 1111(b) of the
federal Bankruptcy Code, as amended) and whether deemed asserted against or
through the Trust Depositor or any other Person owned by the Trust Depositor,
then the Issuer and each Securityholder by accepting a Note or Certificate
further acknowledges and agrees that any such interest, claim or benefit in or
from the Other Assets is and shall be expressly subordinated to the indefeasible
payment in full of all obligations and liabilities of the Trust Depositor that,
under the terms of the documents relating to the securitization of the Other
Assets, are entitled to be paid from, entitled to the benefits of, or otherwise
secured by such Other Assets (whether or not any such entitlement or security
interest is legally perfected or otherwise entitled to a priority of
distribution under applicable law, including Insolvency Laws, and whether
asserted against the Trust Depositor or any other Person owned by the Trust
Depositor) including, without limitation, the payment of post–petition interest
on such other obligations and liabilities. This subordination agreement shall be
deemed a subordination agreement within the meaning of Section 510(a) of the
Bankruptcy Code. Each of the Issuer and the Securityholders is deemed to have
acknowledged and agreed that no adequate remedy at law exists for a breach of
this Section 13.09 and that the terms and provisions of this Section 13.09 may
be enforced by an action for specific performance.
     (d) The provisions of this Section 13.09 shall be for the third party
benefit of those entitled to rely thereon, including the Securityholders, and
shall survive the termination of this Agreement.
     Section 13.10. Jurisdiction.
     Any legal action or proceeding with respect to this Agreement may be
brought in the courts of the United States for the Southern District of New
York, and by execution and delivery of this Agreement, each party hereto
consents, for itself and in respect of its property, to the non–exclusive
jurisdiction of those courts. Each such party irrevocably waives any objection,
including any objection to the laying of venue or based on the grounds of forum
non conveniens, which it may now or hereafter have to the bringing of any action
or proceeding in such jurisdiction in respect of this Agreement or any document
related hereto.
     Section 13.11. Tax Characterization.
     Notwithstanding the provisions of Section 2.01 and Section 2.04 hereof, the
Trust Depositor and Owner Trustee agree that, pursuant to Treasury Regulations
Section 301.7701–3(b)(1) and for federal income tax purposes, in the event that
the Certificates and the Class F Notes are owned by more than one Holder, the
Issuer will be treated as a partnership the partners of which are the
Certificateholders and the Holders of the Class F Notes, and in the event that
the Certificates and the Class F Notes are owned by a single Holder, the Issuer
will be treated as a division of such Holder.

132

--------------------------------------------------------------------------------

 

     Section 13.12. Prohibited Transactions with Respect to the Issuer.
     The Originator shall not:
     (a) Provide credit to any Noteholder or Certificateholder for the purpose
of enabling such Noteholder or Certificateholder to purchase Notes or
Certificates, respectively;
     (b) Purchase any Notes or Certificates in an agency or trustee capacity; or
     (c) Except in its capacity as Servicer as provided in this Agreement, lend
any money to the Issuer.
     Section 13.13. Limitation of Liability of Owner Trustee.
     Wilmington Trust Company acts on behalf of the Issuer solely as Owner
Trustee hereunder and not in its individual capacity, and all Persons having any
claim against the Issuer by reason of the transactions contemplated by this
Agreement or any other Transaction Document shall look only to the Trust Estate
under the Trust Agreement for payment or satisfaction thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement,
any other Transaction Document or the Notes, or of any Loan or related
documents. The Owner Trustee shall at no time have any responsibility or
liability for or with respect to the legality, validity and enforceability of
any Loan, or the perfection and priority of any security interest created by any
Loan in any Related Property or the maintenance of any such perfection and
priority, or for or with respect to the sufficiency of the Trust Estate under
the Trust Agreement or its ability to generate the payments to be distributed to
the Certificateholder under the Trust Agreement or the Noteholders under the
Indenture, including, without limitation, the existence, condition and ownership
of any Related Property; the existence and enforceability of any insurance
thereon; the existence and contents of any Loan on any computer or other record
thereof; the validity of the assignment of any Loan to the Issuer or of any
intervening assignment; the completeness of any Loan; the performance or
enforcement of any Loan; the compliance by the Issuer, the Trust Depositor or
the Servicer with any covenant, agreement or other obligation or any warranty or
representation made under any Transaction Document or in any related document or
the accuracy of any such warranty or representation; or any action of the
Indenture Trustee or the Servicer or any subservicer taken in the name of the
Owner Trustee or the Issuer.
     Section 13.14. Allocation of Payments with Respect to Loans.
     (a) With respect to any Partially Funded Term Loans and any Revolving
Loans, the Issuer will own only the principal portion of such Loans outstanding
as of the applicable Cut–Off Date. Principal Collections received by the
Servicer on any Revolving Loans (other than Loans to SPE Obligors) will be
allocated first to the portion of such Loan owned by the Originator, its
Affiliate special purpose entities under the Warehouse Facilities, any
co-lenders under the facility and portions owned by the issuers in a Prior Term
Transaction (or any similar future transactions entered into after the date
hereof), until the principal amount of such portion is reduced to zero, and then
to the portion owned by the Issuer; provided that if (i) a payment default
occurs with respect to any of the related Loans (and in the case of Asset Based
Revolvers, a payment default shall mean any failure to make a payment on the
date such payment is due and

133

--------------------------------------------------------------------------------

 

such failure continues for more than five Business Days), (ii) the Originator
has determined in its sole discretion that an Obligor’s credit has deteriorated
such that it materially and adversely affects the value of the related Loans or
the Originator has determined in its sole discretion to reduce its commitment to
an Obligor, (iii) an Event of Default occurs or (iv) a Servicer Default occurs,
then Principal Collections received on (A) the applicable Loan (in the case of
clause (i) or (ii) above) or (B) all the Revolving Loans (in the case of clauses
(iii) and (iv) above) will be allocated between the portion owned by the
Originator, its Affiliate special purpose entities under the Warehouse
Facilities (or any similar facilities entered into after the date hereof) and
any co-lenders under the facility, portions owned by issuers in a Prior Term
Transaction (or any similar future transactions entered into after the date
hereof) and the portion owned by the Issuer pro rata based upon the outstanding
principal amount of each such portion. So long as there is no (1) payment
default on the related Loans (and in the case of Asset Based Revolvers, a
payment default shall mean any failure to make a payment on the date such
payment is due and such failure continues for more than five Business Days), (2)
Servicer Default or (3) Event of Default, the Servicer will determine the
Outstanding Loan Balance, the Retained Interest (if any) and the Principal
Collections received with respect to any Revolving Loan secured by Related
Property on the last day of each Due Period, and all other Loans (including
Revolving Loans not secured by any Related Property) and in all other cases on
each Business Day, pursuant to Section 7.07.
     (b) With respect to each of the Loans, Collections received by the Servicer
will be allocated between the portion owned by the Originator, its Affiliate
special purpose entities under the Warehouse Facilities and Prior Term
Transactions or any similar future transactions, and any co-lenders under the
facility and the portion owned by issuers in a Prior Term Transaction (or
similar future transactions entered into after the date hereof) on a pro rata
basis according to the outstanding principal amount of each such portion,
except, in the case of Principal Collections on Revolving Loans (other than
Loans to SPE Obligors).
     Section 13.15. No Partnership.
     Nothing herein contained shall be deemed or construed to create a
co–partnership or joint venture between the parties hereto, and the services of
the Servicer shall be rendered as an independent contractor and not as agent for
the Securityholders.
     Section 13.16. Successors and Assigns.
     This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
     Section 13.17. Acts of Holders.
     Except as otherwise specifically provided herein, whenever Holder action,
consent or approval is required under this Agreement, such action, consent or
approval shall be deemed to have been taken or given on behalf of, and shall be
binding upon, all Holders if the Majority Noteholders agree to take such action
or give such consent or approval.

134

--------------------------------------------------------------------------------

 

     Section 13.18. Duration of Agreement.
     This Agreement shall continue in existence and effect until terminated as
herein provided.
     Section 13.19. Limited Recourse.
     (a) The obligations of the Trust Depositor, the Originator, the Issuer and
the Servicer under this Agreement are solely the obligations of the Trust
Depositor, the Originator, the Issuer and the Servicer. No recourse shall be had
for the payment of any amount owing by the Trust Depositor, the Originator, the
Issuer or the Servicer under this Agreement or for the payment by the Trust
Depositor, the Originator, the Issuer or the Servicer of any fee in respect
hereof or any other obligation or claim of or against the Trust Depositor, the
Originator, the Issuer or the Servicer arising out of or based upon this
Agreement, against any employee, officer, director, Affiliate, shareholder,
partner or member of the Trust Depositor, the Originator, the Issuer or the
Servicer or against the employee, officer, director, shareholder, partner or
member or any Affiliate of such Person. The provisions of this Section 13.19(a)
shall survive termination of this Agreement.
     (b) Notwithstanding any other provisions of this Agreement or any other
Transaction Document, the obligations of the Issuer under this Agreement and any
other Transaction Document are limited recourse obligations of the Issuer
payable solely from the Collateral in accordance with the Priority of Payments
and, following realization of the Collateral and distribution in accordance with
the Priority of Payments, any claims of the Noteholders, and any other parties
to any Transaction Document shall be extinguished.
     Section 13.20. Confidentiality.
     Each of the Issuer, the Trust Depositor, the Servicer (if other than
CapitalSource), the Indenture Trustee and the Backup Servicer shall maintain and
shall cause each of its employees, officers, agents and Affiliates to maintain
the confidentiality of material non-public information concerning CapitalSource
Inc., its subsidiaries and its Public Securities or about the Obligors obtained
by it or them in connection with the structuring, negotiating, execution and
performance of the transactions contemplated by the Transaction Documents,
except that each such party and its employees, officers, agents and Affiliates
may disclose such information to other parties to the Transaction Documents and
to its external accountants, attorneys, any potential subservicers and the
agents of such Persons provided such Persons expressly agree to maintain the
confidentiality of such information, and as required by an applicable law or
order of any judicial or administrative proceeding.
     Section 13.21. Non-Confidentiality of Tax Treatment.
     All parties hereto agree that each of them and each of their employees,
representatives, and other agents may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the transaction
and all materials of any kind (including opinions or other tax analyses) that
are provided to any of them relating to such tax treatment and tax structure.
“Tax treatment” and “tax structure” shall have the same meaning as such terms
have for purposes of Treasury Regulation Section 1.6011-4.

135

--------------------------------------------------------------------------------

 

     Section 13.22. Alternative Exchange Listing.
     In the event that the Issuer is required to prepare financial statements in
accordance with the International Financial Reporting Standards as a condition
of the continued listing of the Offered Notes on the Irish Stock Exchange, the
Issuer may terminate the listing of the Offered Notes on such exchange and, if
such listing is so terminated, the Issuer shall use its best commercially
reasonable efforts to obtain the listing of the Offered Notes on an exchange
that is a member of the International Federation of Stock Exchanges and is
organized or incorporated in a state that is a member of the Organization for
Economic Cooperation and Development; provided that the Issuer shall not be
required to obtain such a replacement listing if maintaining such a listing
would require the Issuer to restate its accounts or would otherwise be unduly
burdensome or costly to the Issuer.
[Remainder of Page Intentionally Left Blank]

136

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.

                  CAPITALSOURCE COMMERCIAL LOAN TRUST 2007-1,
as the Issuer    
 
           
 
  By:   WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as
Owner Trustee on behalf of the Issuer    
 
           
 
  By:
Name:   /s/ MICHELLE C. HARRA
 
Michelle C. Harra    
 
  Title:   Financial Services Officer    
 
                CAPITALSOURCE COMMERCIAL LOAN LLC, 2007-1, as the Trust
Depositor    
 
           
 
  By:   /s/ NAV SWAMY    
 
  Name:  
 
Nav Swamy    
 
  Title:   Authorized Signatory    
 
                CAPITALSOURCE FINANCE LLC, as the Originator and as the Servicer
   
 
           
 
  By:   /s/ NAV SWAMY    
 
  Name:  
 
Nav Swamy    
 
  Title:   Authorized Signatory    

CapitalSource Commercial Loan Trust 2007-1
Sale and Servicing Agreement
[Signatures Continued on the Following Page]

 

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.

                  WELLS FARGO BANK, NATIONAL ASSOCIATION, not in its individual
capacity but as the Indenture Trustee and as the Backup Servicer    
 
           
 
  By:
Name:   /s/ BENJAMIN J. KRUEGER
 
Benjamin J. Krueger    
 
  Title:   Vice President    

CapitalSource Commercial Loan Trust 2007-1
Sale and Servicing Agreement