CONFIDENTIALTREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS DOCUMENT.EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH ANASTERISK [*], HAS BEEN FILED SEPARATELY WITH THE SECURITIES ANDEXCHANGE COMMISSION.Exhibit 10.4SUBSERVICING AGREEMENTdated as of March 2, 2007betweenPALISADES COLLECTION, L.L.C.,as the Servicer,and[*]as the Subservicer
 

 
SUBSERVICING AGREEMENT     THIS SUBSERVICING AGREEMENT is entered into effective as of March 2, 2007 (as amended,supplemented or otherwise modified from time to time, the “Subservicing Agreement”),between PALISADES COLLECTION, L.L.C., a Delaware limited liability company (together with itssuccessors and assigns, the “Servicer”), and [*] (the “Subservicer”).R E C I T A L S          1. The Servicer has entered into a servicing agreement, of even date herewith (as amended,supplemented or modified from time to time, the “Servicing Agreement”), with PalisadesAcquisition XVI, LLC (the “Borrower”) and BMOCapital Markets Corp. (“BMO CM”), pursuant to which, on the termsand subject to the conditions set forth therein, the Servicer has agreed to service, among otherreceivables, the Receivables for the benefit of the Borrower.          2. The Borrowerand BMO CM, as collateral agent for the benefit of certain securedparties (the “Collateral Agent”) pursuant to the Receivables Financing Agreement, haveentered into a security agreement, of even date herewith, pursuant to which the Borrower hasgranted to the Collateral Agent, security interest in, among other things, collections on theReceivables.          3. The Servicer has requested Subservicer to undertake certain collecting and servicingresponsibilities in respect of the Receivables, and the Subservicer is willing to undertake suchresponsibilities and accept such bailment, acknowledging that such subservicing activities areundertaken for the benefit of both the Borrower and, for as long as a security interest isoutstanding, the Collateral Agent, for the benefit of secured parties.     NOW, THEREFORE, in consideration of the mutual agreements herein contained, the Servicer andthe Subservicer hereby agree as follows:ARTICLE 1.DEFINITIONS     Section 1.01 Definitions.     Whenever used in this Subservicing Agreement, the following words and phrases, unless thecontext otherwise requires, shall have the meanings specified in this Article (such meanings to beequally applicable to both the singular and plural forms of the terms defined and to all genders):     “Administrator”means BMO CM     in such capacity under the Receivables Financing Agreement.
 

 
     “Accepted Servicing Practices” means those accepted, customary and prudent servicingpractices in the industry for the same type of assets as the Receivables and designed in a mannerto maximize the value of the Receivables.     “Bankruptcy Code” means Title 11 of the United States Code, as amended.     “Borrower” has the meaning set forth in the first Recital.     “Business Day” means any day on which commercial banks in Chicago, Illinois, NewJersey or New York City are not authorized or required to be closed.     “Collateral” means all property of the Borrower wherever located, whether now orhereafter existing, owned, licensed, leased, consigned, arising or acquired, including, withoutlimitation, all of the Borrower’s right, title and interest in and to all Receivables and otherReceivable Assets; all funds on deposit in the Collection Account to the extent constitutingpayments or other proceeds of the Receivables, together with all certificates and instruments, ifany, from time to time evidencing the foregoing, and all investments made with such funds, allclaims thereunder or in connection therewith, and interest, dividends, moneys, instruments,securities and other property from time to time received or receivable in respect of any or all ofthe foregoing; and all products and proceeds (including, without limitation, insurance proceeds andLiquidation Proceeds) of, and additions, improvements and accessions to, and books and recordsdescribing or used in connection with, all and any of the property described above.     “Collateral Agent” has the meaning set forth in the second Recital.     “Collection Account” means that certain bank account numbered 379-573-9 maintainedwith the Collection Account Bank, which is identified as the “Palisades Acquisition XVI, LLCCollection Account.”     “Collection Account Bank” means Harris N.A. or any replacement therefor pursuant tothe Receivables Financing Agreement.     “Collections” means, with respect to any Receivable, all funds (net of any LiquidationExpenses) (a) received by the Subservicer from or on behalf of the related Obligors in payment ofany amounts owed (including, without limitation, principal, finance charges, interest and all otheramounts and charges) in respect of such Receivable from and after the Cutoff Date or (b) applied tosuch amounts owed by such Obligors (including, without limitation, through the liquidation ofCollateral or insurance payments or proceeds on account of any casualty loss with respect to anycollateral or property of the Obligor or any other party directly or indirectly liable for paymentof such Receivable and available to be applied thereon).     “Collection Period” means with respect to a Distribution Date, the period from andincluding the first day of the month preceding the month in which such Distribution Date occurs toand including the last day of the month preceding the month of such Distribution Date. EachCollection Period shall consist of a calendar month.     “Cutoff Date” mean the date set forth in the Purchase Agreement.
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     “Exempted Receivables” means Judgment Asset Receivables and Paying Receivables.     “Judgment Asset Receivables” means each Receivable (a) that is in active litigationor (b) for which a judgment has been rendered within the preceding 120 days or (c) that is in postjudgment enforcement or (d) at any time prior the second anniversary of this SubservicingAgreement, that has been identified by the Subservicer as subject to litigation; provided, however,in the case of a sale by the Borrower of Receivables that are judgments that are non-liquidatingand have no post-judgment enforcement activity occurring or imminent, such Receivables shall not bedeemed to be Judgment Asset Receivables.     “Liquidation Expenses” means all court costs, arbitration fees and costs andreasonable out-of-pocket expenses that are incurred by the Subservicer or a vendor in connectionwith the collection or liquidation of any Receivable or related collateral, if any, such expensesincluding, without limitation, legal and arbitration fees and expenses (including, but not limitedto, service of process fees), any file fees and foreclosure or repossession expenses and anyunreimbursed amount expended by the Subservicer or any vendor pursuant to Section 3.02 (tothe extent such amount is reimbursable under the terms of Section 3.02) respecting therelated Receivable.     “Liquidation Proceeds” means cash received in connection with the collection orliquidation of Receivables or related collateral, if any, whether through sale or otherwise.     “List of Receivables” means each of the list of Receivables attached as Schedule 2hereto, as the same may be amended, supplemented or replaced from time to time.     “Material Adverse Effect” means with respect to any event or circumstance, a materialadverse effect on: (a) the business, assets, financial condition or operations of Subservicer; (b)the ability of any of the Subservicer to perform its obligations under the Subservicing Agreement;(c) the validity, enforceability or collectibility of this Subservicing Agreement; (d) the status,existence, perfection or priority of (i) the Borrower’s ownership interest, or the CollateralAgent’s security interest, in the Receivables or the other Collateral or (e) the validity,enforceability or the level of collectibility of a material amount of the Receivables.     “Obligor” means a Person obligated to make payments with respect to a Receivable.     “Officer’s Certificate” means a certificate signed by the Chief Executive Officer, thePresident, the Chief Financial Officer, a Manager or any Vice President of the Subservicer, as thecase may be, and delivered to the Servicer , as required by this Subservicing Agreement.     “Paying Receivables” means each Receivable, the Obligor of which (a) is currentlypaying under a payment plan or (b) accounts that have active garnishments, attachments, lienproceedings or other involuntary, judicial executions or (c) has committed to enter into a paymentplan or to remit the full or agreed settlement amount thereof within the next 60 days.     “Person” means an individual, partnership, corporation (including a business trust),limited liability company, joint stock company, trust, unincorporated association, joint venture,government or any agency or political subdivision thereof or any other entity.
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     “Purchase Agreement” means the purchase and sale agreement, dated as of February 5,2007, between Great Seneca Financial Corporation, Platinum Financial Services Corporation, MonarchCapital Corporation, Colonial Credit Corporation, Centurion Capital Corporation, Sage FinancialLimited and Hawker Financial Corporation and Palisades Acquisition XV, LLC.     “Receivable” means those credit card and other consumer installment credit agreementaccounts and receivables (including, without limitation, judgments) included on the List ofReceivables.     “Receivables Assets” means the assets consisting of (i) the Receivables, includingall interest, finance charges, principal and other amounts received on or with respect to theReceivables (other than payments received on the Receivables before the applicable Cut-off Date);(ii) the Receivable Files; (iii) collateral, if any, that secures a Receivable; (iv) all rights toinsurance proceeds and Liquidation Proceeds; and (v) the proceeds of the foregoing and the rightsto enforce the foregoing.     “Receivable Files” means, with respect to each Receivable, the file (on paper orelectronic medium) containing any original documents, agreements, judgments or instruments relatingto such Receivable in the Subservicer’s possession or control including, without limitation, anybill of sale, loan agreement, any guarantees, any security agreement, any UCC financing statement,any pledge agreements, any indemnification agreements, any judgment or court orders and anyassignment, supplement, reinstatement, extension, endorsement or modification thereof.     “Receivables Financing Agreement” shall mean that certain receivables financingagreement, of even date herewith, among the Borrower, the Servicer,BMO CM, as collateral agent andadministrator, Fairway Finance Company, LLC and Bank of Montreal.     “Servicer” has the meaning set forth in the Preamble.     “Subservicer Termination Event” has the meaning set forth in Section 5.01.     “Servicing Agreement” has the meaning set forth in the Preamble.     “Subservicer” has the meaning set forth in the Preamble.     “Subservicing Agreement” has the meaning set forth in the Preamble.     “Subservicing Fee” means as to any Collection Period and any Receivable, the monthlyfee payable to the Subservicer, which shall be the product of the percentage applicable to theclass of Receivable for such Receivable, as set forth on Schedule 1 hereto, multiplied by theCollections on such Receivable received during such Collection Period.     “Transfer Date” means the Closing Date, as set forth in the Purchase Agreement.     “Unmatured Subservicer Termination Event” shall mean any event that, if it continuesuncured, will, with lapse of time or notice or lapse of time and notice, constitute a SubservicerTermination Event.
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ARTICLE 2.REPRESENTATIONS, WARRANTIES AND COVENANTS     Section 2.01 Representations, Warranties and Covenants of Subservicer. (a) TheSubservicer hereby represents, warrants and covenants to the Servicer that:          (i) the Subservicer is duly organized, validly existing and in good standing as a limitedliability partnership under the laws of the District of Columbia and is qualified to transactbusiness in and is in good standing under the laws of each state in which it is necessary for it tobe so qualified in order to carry on its business as now being conducted and has all licensesnecessary to carry on its business as now being conducted; the Subservicer has the full power andauthority to own its property, to carry on its business as presently conducted, and to execute,deliver and perform this Subservicing Agreement; the execution, delivery and performance of thisSubservicing Agreement and the consummation of the transactions contemplated hereby have been dulyand validly authorized by all necessary limited liability partnership action on the part of theSubservicer; and this Subservicing Agreement evidences the legal, valid, binding and enforceableobligation of the Subservicer, except as enforceability may be limited by applicable bankruptcy,insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally and bygeneral principles of equity;          (ii) except for such consents, licenses, approvals or authorizations obtained on or prior tothe date hereof, the Subservicer is not required to obtain the consent of any other party or obtainthe consent, license, approval or authorization of, or make any registration or declaration with,any governmental authority, bureau or agency in connection with the execution, delivery,performance, validity or enforceability of this Subservicing Agreement;          (iii) the consummation of the transactions contemplated by this Subservicing Agreement andthe fulfillment of the terms hereby will not result in the breach of any term or provision of theorganizational documents of the Subservicer or result in the breach of any term or provision of, orconflict with or constitute a default under or result in the acceleration of any obligation under,any agreement, indenture or loan or credit agreement or other instrument to which the Subserviceror its property is subject, or result in the violation of any law, rule, regulation, order,judgment or decree to which the Subservicer or its property are subject;          (iv) the Subservicer is not a party to, bound by or in breach or violation of any indentureor other agreement or instrument, or subject to or in violation of any statute, order or regulationof any court, regulatory body, administrative agency or governmental body having jurisdiction overit, that materially and adversely affects, or may in the future be reasonably expected tomaterially and adversely affect, the ability of the Subservicer to perform its obligations underthis Subservicing Agreement;          (v) there are no actions, suits or proceedings pending or, to the knowledge of theSubservicer, threatened against the Subservicer, before or by any court, administrative agency,arbitrator or governmental body with respect to any of the transactions contemplated by
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this Subservicing Agreement, that will, if determined adversely to the Subservicer, affect thevalidity or enforceability hereof or materially and adversely affect the Subservicer’s ability toperform its obligations under this Subservicing Agreement;          (vi) [reserved];          (vii) as of the Transfer Date, the Subservicer (i) is not “insolvent” (as such terms isdefined in §101(32)(A) of the Bankruptcy Code), (ii) is able to pay its debts as they become due,and (iii) does not have unreasonably small capital for the business in which it is engaged or forany business or transaction in which it is about to engage;          (viii) all certificates, reports, financial statements and similar writings furnished by theSubservicer at anytime to the Servicer under or in connection with this Subservicing Agreement havebeen, and all such certificates, reports, financial statements and similar writings hereafterfurnished by the Subservicer to such parties will be, true and accurate in every respect materialto the transactions contemplated hereby on the date as of which any such certificate, report,financial statement or similar writing was or will be delivered, and shall not omit to state anymaterial facts or any facts necessary to make the statements contained therein, in light of thecircumstances under which they were made, not materially misleading;          (ix) the Subservicer will comply in all material respects with all applicable laws, rules,regulations and orders of all governmental authorities (including those which relate to theReceivables) the violation of which could have a Material Adverse Effect;          (x) the Subservicer will preserve and maintain its limited liability partnership existence,rights, franchises and privileges in the jurisdiction of its organization, and qualify and remainqualified in good standing as a foreign organization in the jurisdiction where its principal placeof business and its chief executive office are located and in each other jurisdiction where thefailure to preserve and maintain such existence, rights, franchises, privileges and qualificationscould have a Material Adverse Effect.          (xi) the Subservicer will keep books and records that accurately reflect all of Subservicer’sbusiness affairs and transactions, maintain and implement administrative and operating procedures(including, without limitation, an ability to re-create records evidencing the Receivables in theevent of the destruction of the originals thereof) and keep and maintain all documents, books,records and other information reasonably necessary or advisable for the collection of allReceivables;          (xii) except in connection with litigation, actions and proceedings in the ordinary courseand relating to the Receivables relating to the Subservicer’s servicing duties as contemplated bythe Accepted Servicing Practices, the Subservicer will furnish to the Servicer:          (1) As soon as possible, and in any event within three Business Days after, theSubservicer receives notice thereof, any settlement of, judgment
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(including a judgment with respect to the liability phase of a bifurcatedtrial) in or commencement of, any labor controversy, litigation, investigation,action or proceeding of the type described in Section 2.01(v) and, upon theServicer’s request, copies of all non-confidential or non-privileged documentationrelating thereto;          (2) As soon as possible and in any event within three Business Days of theSubservicer’s knowledge thereof, notice of any material adverse development inpreviously disclosed litigation, investigation or proceeding;          (3) Promptly and in any event within three Business Days of the Subservicer’sknowledge thereof, notice of any other event or circumstance that, in the reasonablejudgment of the Subservicer, could have a Material Adverse Effect on theSubservicer;          (4) As soon as possible and in any event within three Business Days after theoccurrence of each Subservicer Termination Event and each Unmatured SubservicerTermination Event, notice of such occurrence setting forth details of such event andthe action that Subservicer proposes to take with respect thereto; and          (5) Promptly, from time to time, such other information, documents, records orreports respecting the Receivables, or the condition or operations, financial orotherwise, of the Subservicer as the Servicer may from time to time reasonablyrequest.          (xiii) subject to Section 2.01(a)(x), the Subservicer will maintain all licenses,permits, charters and registrations which are material to the performance of its obligations underthis Subservicing Agreement;          (xiv) except pursuant to, or as contemplated by, this Subservicing Agreement, the Subservicershall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create orsuffer to exist voluntarily or, for a period in excess of 10 days, involuntarily any Adverse Claimsnaming the Subservicer as debtor upon or with respect to any of the Collateral;          (xv) the Subservicer will not make any change in its instructions to Obligors regardingpayments to be made to the Subservicer that could adversely affect the collectibility of anyReceivable;          (xvi) the Subservicer shall ensure that, with respect to each Receivable (excluding up to$100,000 of Receivables in the aggregate) related to judgments, all required notices and recordingswith respect to the related transfer of such Receivable have been filed or otherwise made of recordwith the applicable court on the first date after the Transfer Date when
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the Subservicer makes any filings or appearances with such court, except where in thereasonable judgment of the Subservicer, filing of such notices and recordings is not cost-effectiveand in the best interests of the Borrower; and          (xvii) the Subservicer will maintain with responsible insurance companies, such insurance asmay be required by any law or governmental regulation or court decree or order applicable to it andsuch other insurance, to such extent and against such hazards and liabilities, as is customarilymaintained by companies similarly situated, including, without limitation (1) an errors andomissions insurance policy and (2) a blanket employee dishonest coverage.     (b) Upon discovery by the Servicer of a breach of any of the representations and warrantiesset forth in this Section 2.01, the party discovering such breach shall give prompt writtennotice thereof to the other parties.     Section 2.02 Servicer Indemnity. The Subservicer hereby agrees to indemnify theServicer (the “Servicer Indemnified Party”) forthwith on demand, from and against any andall damages, losses, claims, liabilities and related costs and expenses, including reasonableattorneys’ fees and disbursements (“Servicer Indemnified Amounts”) awarded against orincurred by such Servicer Indemnified Party arising out of or relating to (a) actions taken oromitted by the Subservicer with respect to the Receivables, including the failure of theSubservicer to perform its obligations in accordance with the provisions of this SubservicingAgreement, excluding, however, Servicer Indemnified Amounts to the extent determined by a court ofcompetent jurisdiction to have resulted from the negligence, bad faith or willful misconduct on thepart of the Servicer Indemnified Party and (b) the breach of any representation or warranty made bythe Subservicer under this Agreement.     Section 2.03 Subservicer Indemnity. Palisades Collection, L.L.C. hereby agrees toindemnify the Subservicer (the “Subservicer Indemnified Party”) forthwith on demand, fromand against any and all damages, losses, claims, liabilities and related costs and expenses,including reasonable attorneys’ fees and disbursements (“Subservicer Indemnified Amounts”)awarded against or incurred by such Subservicer Indemnified Party arising out of or relatingactions taken or omitted by Palisades Collection, L.L.C. with respect to the Receivables,excluding, however, Subservicer Indemnified Amounts (i) to the extent determined by a court ofcompetent jurisdiction to have resulted from the negligence, bad faith or willful misconduct on thepart of the Subservicer Indemnified Party or (ii) arising out of or relating to errors or omissionsin connection with the servicing of the Receivables prior to the Transfer Date or the originationof the Receivables.ARTICLE 3.ADMINISTRATION AND SERVICING OF RECEIVABLES     Section 3.01 Subservicer to Service. The Subservicer shall service and administer theReceivables on behalf of the Borrower and the Collateral Agent (for the benefit of the SecuredParties) and shall have full power and authority, acting alone and/or through third party
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vendors as provided in Section 4.01, to do any and all things that it may deemreasonably necessary or desirable in connection with such servicing and administration and that donot violate any of the material terms of this Subservicing Agreement or the Accepted ServicingPractices. Consistent with the terms of this Subservicing Agreement and the Accepted ServicingPractices, the Subservicer may waive, modify or vary any term of any Receivable or consent to thepostponement of strict compliance with any such term or in any manner, grant indulgence to anyObligor under a Receivable if, in the Servicer’s reasonable determination, such waiver,modification, postponement or indulgence is not adverse to the interests of the Borrower, theCollateral Agent or any of the Secured Parties. The Subservicer shall have 75% settlementauthority on the full balance owed inclusive of interest and costs unless given other settlementauthority by the Servicer in writing. Without limiting the generality of the foregoing, theSubservicer in the name of the Servicer or in the name of the Borrower is hereby authorized andempowered by the Servicer when the Subservicer believes it appropriate in its best judgment toexecute and deliver, on behalf of the Borrower, any and all instruments of satisfaction orcancellation, or of partial or full release or discharge and all other comparable instruments, withrespect to the Receivables. The Subservicer shall maintain on its electronic system of record,data on the accounts containing complete notes and documentation of all payments, credits, and anyother servicing activities.     The Subservicer shall service and administer the Receivables in accordance with applicablelaw, including the Fair Debt Collection Practices Act of 1968, as amended, and comparable statestatutes, and by employing such procedures (including collection procedures) and degree of care, ineach case as are customarily employed by the Subservicer in servicing and administering contractsowned or serviced by the Subservicer comparable to the Receivables. The Subservicer shall take allactions that are necessary or desirable to maintain continuous perfection of security interestsgranted by the Obligors in any collateral securing the Receivables, including, but not limited to,recording, registering, giving notice, obtaining consents, filing, re-recording, re-registering andrefiling security agreements, financing statements, continuation statements, notices, recordings orcommunications with court or other instruments as are necessary to maintain the security interestgranted by the Obligors under the respective Receivables. The Subservicer shall comply at alltimes in all material respects with the Accepted Servicing Practices and shall not take any actionto impair the Collateral Agent’s security interest in any Receivable or related collateral, if any,except to the extent allowed under this Subservicing Agreement, consistent with Accepted ServicingPractices or required by law.     The Subservicer may perform any of its duties pursuant to this Subservicing Agreement,including those delegated to it pursuant to this Subservicing Agreement, through third partyvendors appointed by the Subservicer; provided, that, in each such delegation (i) theServicer shall have the right to look solely to the Subservicer for performance, and (iii) theterms of each third party vendor agreement shall provide that, except with respect to ExemptedReceivables, such agreement and the rights and obligations of the related vendor thereunder shallautomatically, and without any further action by any other Person, terminate upon the terminationof the Subservicer hereunder and that the Subservicer shall provide appropriate notice to each suchvendor). Notwithstanding any such delegation of a duty, the Subservicer shall remain obligated andliable for the performance of such duty as if the Subservicer were performing such duty.
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     The Subservicer may take such actions as are necessary to discharge its duties as theSubservicer in accordance with this Subservicing Agreement, including the power to execute anddeliver on behalf of the Borrower such instruments and documents as may be customary, necessary ordesirable in connection with the performance of the Subservicer’s duties under this SubservicingAgreement (including consents, waivers and discharges relating to the Receivables and relatedcollateral, if any, and such instruments or documents as may be necessary to effect liquidation ofany Receivable or related collateral, if any). In furtherance thereof, the Servicer herebyirrevocably appoints the Subservicer as its attorney-in-fact to execute on its behalf suchdocuments or instruments as are necessary to effect the liquidation of any Receivable or relatedcollateral, if any.     Section 3.02 Collection of Receivable Payments; Collection Account. The Subservicershall comply in all material respects with generally accepted collection industry standards andpolicies and procedures of the Subservicer and shall at all times in all material respects followthe Accepted Servicing Practices in collecting and attempting to collect all payments called forunder the terms and provisions of the Receivables, and shall use servicing procedures generallyaccepted in the collection industry for similar accounts and as otherwise expressly provided bythis Subservicing Agreement; provided, however, that the Subservicer shall not beobligated to institute any action unless it determines in its good faith judgment that LiquidationProceeds that would be realized in connection therewith would be sufficient for the reimbursementin full of the Liquidation Expenses related thereto. If the Subservicer determines that it shallnot commence any legal action with respect to a Receivable pursuant to the provisions of the priorsentence, notwithstanding anything else in this Subservicing Agreement to the contrary, theServicer shall have the right to remove such Receivable from this Subservicing Agreement at anytime thereafter. With respect to 335,161 Receivables in the amount of $896,543,655.18 identifiedas priority and non-priority in the “pre-litigation” category of the Diligence File (as defined inthe Purchase Agreement), if the Subservicer does not initiate litigation within eighteen months ofthe date of this Subservicing Agreement, notwithstanding anything else in this SubservicingAgreement to the contrary, the Servicer shall have the right to remove such applicable Receivablesfrom this Subservicing Agreement at any time thereafter. With respect to all other Receivables inthe “pre-litigation” category, upon written notice from one party to this Subservicing Agreement tothe other that litigation should be initiated with respect to any such Receivable, if theSubservicer does not initiate litigation within 180 days of such notice, notwithstanding anythingelse in this Subservicing Agreement to the contrary, the Servicer shall have the right to removesuch applicable Receivables from this Subservicing Agreement at any time thereafter. In connectionwith such action, the Subservicer shall follow such practices and procedures required bySection 3.01 and make advances of its own funds for any out-of-pocket expenses incurred.The Subservicer shall be reimbursed for Liquidation Expenses (including advances) by retention ofthe required reimbursement from Liquidation Proceeds and shall deposit the excess of such proceedsin the Collection Account.     Subject to Section 3.06 (which provides that, except in the instances set forththerein, the remittance of Collections shall net the related Servicing Fees), the Subservicer shalldeposit in an attorney trust account no later than 1 Business Day following receipt thereof and inthe Collection Account no later than 1 Business Day thereafter:
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               (i) All Liquidation Proceeds, including, without limitation, all principal, finance charges,interest, late payment fees and extension fees, insurance proceeds and all other amounts andcharges but net of (x) charge backs (attributable to errors in posting, returned checks), (y)rights of offset for amounts that should not have been paid or that must be refunded as the resultof a successful claim or defense under bankruptcy or similar laws and (z) proceeds to be retainedby the Servicer for reimbursement of Liquidation Expenses; and               (ii) Any other proceeds of any Receivables or property acquired in respect thereof and anyother Collections received by the Subservicer.From the time of receipt of any of the amounts specified in the preceding two clauses of thisparagraph until deposit thereof in the Collection Account, the Subservicer shall keep such funds inan attorney trust account. The Subservicer shall not deposit or otherwise credit to the CollectionAccount, or cause or permit to be so deposited or credited by any Person, any amounts notrepresenting proceeds of the Collateral. The Subservicer agrees that it has no ownership right orinterest in amounts on deposit in the Collection Account, except that which may arise indirectlythrough a right to receive distributions from the Collection Account under this SubservicingAgreement. The Subservicer shall have the right to request the Servicer request the CollateralAgent to withdraw the following amounts from the Collection Account for payment to the Subserviceron a monthly basis after such time as the Servicer is permitted to request such amounts: (a)chargebacks attributable to errors in posting, returned checks, or rights of offset for amountsthat should not have been paid or that must be refunded as a result of a successful claim ordefense under bankruptcy or similar laws (to the extent such amounts have not already been retainedby the Subservicer pursuant to clause (i) and (ii) of this paragraph) and (b)amounts deposited in error by the Subservicer (and the Servicer may rely on the Subservicer’scalculation of such chargebacks and amounts).     In those cases where a vendor is subservicing a Receivable pursuant to a vendor agreement, theSubservicer shall cause the vendor, pursuant to such agreement, to deposit all Collections receivedby such vendor (in respect of the Receivables being subserviced by such vendor) with theSubservicer within, using reasonable efforts, seven days, but in no event later than one month, andthe Subservicer shall deposit such Collections within 1 Business Day of receipt thereafter into theCollection Account (net of any servicing fee (not in excess of the Subservicing Fee with respectthereto)).     Section 3.03 Custodial Arrangements.          (a) Subject to the terms and conditions of this Section, the Subservicer shall maintaincustody and possession of the Receivable Files with respect to the Receivables (for the benefit ofthe Secured Parties).          (b) To the extent any Receivable Files or any portion thereof are held by the Subservicer inaccordance with Section 3.03(a), the Subservicer agrees to act with reasonable care, usingthat degree of skill and care that it exercises with respect to similar contracts owned and/orserviced by it. The Subservicer shall promptly report to the Servicer any material failure by itto hold such Receivable Files as herein provided and shall promptly take appropriate action
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to remedy such failure. In connection with holding any Receivable Files, the Subserviceragrees not to assert, and shall cause each related vendor not to assert any beneficial ownershipinterests in the Receivables. The Subservicer agrees to indemnify the Servicer, Collateral Agent,the other Secured Parties and the Borrower, and their respective officers, directors, employees,partners and agents for any and all liabilities, obligations, losses, damages, payments, costs, orexpenses of any kind whatsoever that may be imposed on or incurred by any such Person arising fromthe negligence or willful misconduct of the Subservicer in holding of the Receivable Files pursuantto Section 3.03(a); provided, however, that the Subservicer will not beliable to the extent that any such amount resulted from the gross negligence or willful misconductof such Person.          (c) The Subservicer shall not, without the prior consent of the Servicer, deliver or releaseto the Borrower or any other Person any Receivable Files (or the security interest in the relatedcollateral, if any) except (i) to vendors, (ii) in the ordinary course of its business inconnection with the release of collateral securing such Receivable after satisfaction of therelated indebtedness thereunder and (iii) in connection with a sale of a Receivable by theBorrower. Upon the request of the Servicer following the occurrence of a Subservicer TerminationEvent, the Subservicer shall deliver to the Servicer all Receivable Files held by the Subservicerunless the Subservicer is terminated as a result of a termination of the Servicer under theServicing Agreement, in which case the Subservicer shall deliver all Receivables Files to theCollateral Agent.     Section 3.04 Reports to Servicer.          (a) On a weekly basis, the Subservicer shall prepare and deliver a collection report, showing,among other things, (i) collections, (ii) proceeds from sales and (iii) cost reimbursements andcost advance, in each case in the aggregate and by type of Receivable, in a form mutuallyacceptable to the parties hereto.          (b) Upon reasonable request by Servicer, in a format reasonably acceptable to the Servicer,the Subservicer shall furnish the names, addresses and phone numbers of any attorney, collector orother person who is not an employee of the Subservicer and, as of the last day of such calendarquarter, was seeking to collect any account and a list of the accounts that are being collected bysuch person. The Subservicer shall make available on a secure website information with respect tothe accounts containing data available in fields, and in a format, acceptable to the Servicer,including job, bank and pertinent collection information, and shall provide the Servicer withsecure, remote access to such website. From time to time, upon reasonable request, theAdministrator shall have the right to obtain information about the Receivables from theSubservicer. In addition, the Subservicer will monitor all judgments and, on a monthly basis, theSubservicer will identify which of such judgments will and will not be renewed by the Subservicer120 days prior to date of renewal of such Judgments.          (c) The Subservicer shall notify the Servicer immediately in writing if any of the followingshall occur: (i) any Subservicer Termination Event or Unmatured Subservicer Termination Event;(ii) any class action or coordinated multiple plaintiff action shall be instituted
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or threatened in writing with respect to any Receivables or (iii) any governmental officialshall institute, or threaten to institute any investigation or proceeding relating to any account.     Section 3.05 Annual Statement as to Compliance and Audit. The Subservicer willdeliver to the Servicer on or before April 15 of each year, beginning with April 15, 2008, anOfficer’s Certificate stating that (i) a review of the activities of the Subservicer during thepreceding calendar year and of performance under this Subservicing Agreement has been made undersuch officer’s supervision, (ii) to the best of such officer’s knowledge, based on such review, theSubservicer has fulfilled all its obligations under this Subservicing Agreement throughout suchyear, or, if there has been a default in the fulfillment of any such obligation, specifying eachsuch default known to such officer and the nature and status thereof and (iii) to the best of suchofficer’s knowledge, each vendor has fulfilled its obligations, or, if there has been a default inthe fulfillment of such obligations, specifying such default known to such officer and the natureand status thereof.     The Subservicer shall provide to the Servicer, within 120 days of the end of each fiscal year,annual audited financial statements for the Subservicer prepared in accordance with generallyaccepted accounting principles, consistently applied, by an independent certified public accountingfirm of national standing     Section 3.06 Servicing Compensation. The Subservicer, as compensation for itsactivities hereunder, shall be entitled to receive the Subservicing Fee, which shall be payable bythe Servicer no later than the seventh calendar day of each month or, if such day, is not aBusiness Day, the next such Business Day; provided, however, (i) in all instanceswith respect to Exempted Receivables and (ii) in all instances other than with respect to ExemptedReceivables, prior to the occurrence of a Subservicer Termination Event or Unmatured SubservicerTermination Event (which has not been waived), the Subservicer may withhold the Subservicing Feepayable thereto with respect to any Collections from the amount to be deposited thereby into theCollection Account.     The Subservicer shall be required to pay all expenses incurred by it in connection with itsservicing activities hereunder (including payment of the fees and expenses of any vendor) and shallnot be entitled to reimbursement therefor except as specifically provided in Section 3.02.     Section 3.07 Receivable Reviews. To the extent permitted under applicable law anytime during regular business hours and upon at least five Business Days’ prior notice (so long asno Subservicer Termination Event or Unmatured Subservicer Termination Event has occurred withinsuch calendar year), the Subservicer shall permit the Servicer and the Administrator, their agents,representatives or designees (i) to examine and make copies of, and abstracts from, the ReceivableFiles and of all books, records and documents (including, without limitation, computer tapes anddisks) in possession or under control of the Subservicer or any vendor (to the extent permissibleunder the related vendor agreement) relating to the Receivables, (ii) to cause such books andrecords to be audited by independent public accounts selected by the Servicer or its designee and(iii) to visit the offices and properties of the Subservicer for the purposes of examining suchmaterials described above, and to discuss matters
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related to the Receivables with any of the officers and employees of the Subservicer havingknowledge of such matters. Any activities undertaken by the Servicer or its designee in connectionwith items (i) through (iii) above, shall be at the expense of the Servicer; provided,however that the Servicer shall not be required to pay for more than two audits in anycalendar year unless a Subservicer Termination Event or Unmatured Subservicer Termination Event hasoccurred and is continuing, in which event such audits may be as frequently as the Administratormay determine in its sole discretion.ARTICLE 4.VENDORS     Section 4.01 Agreements Between Subservicer and Vendors. The Subservicer, with theprior written consent of the Servicer, may enter into vendor agreement with one or more third partyvendors for the servicing and administration of certain of the Receivables. References in thisSubservicing Agreement to actions taken or to be taken by the Subservicer in servicing theReceivables include actions taken or to be taken by a vendor on behalf of the Subservicer. Eachvendor will service the Receivables in a manner materially consistent with this SubservicingAgreement. The Subservicer hereby acknowledges that it is holding the Receivable Files and anyother items of the Collateral in its possession from time to time for the related Receivables asbailee of Borrower and the Collateral Agent (for the benefit of the Secured Parties) in accordancewith Section 3.03.     Section 4.02 Obligation of Subservicer. Notwithstanding any agreement with a vendor,any of the provisions of this Subservicing Agreement relating to agreements or arrangements betweenthe Subservicer or a vendor or reference to actions taken through a vendor or otherwise, theSubservicer shall remain obligated to the Servicer, the Borrower and the Collateral Agent for theservicing and administering of the Receivables in accordance with the provisions of Section3.01 without diminution of such obligation or liability by virtue of such arrangements or byvirtue of indemnification from a vendor and to the same extent and under the same terms andconditions as if the Subservicer alone were servicing and administering the Receivables. TheSubservicer shall be entitled to enter into any agreement with a vendor for indemnification of theSubservicer and nothing contained in this Subservicing Agreement shall be deemed to limit or modifysuch indemnification.     Section 4.03 No Contractual Relationship Between a Vendor and the Servicer. Anyvendor agreement that may be entered into and any other transactions or services relating to theReceivables involving a vendor in its capacity as such shall be deemed to be between a vendor andthe Subservicer alone and the Servicer shall not be deemed a party thereto and shall have noclaims, rights, obligations, duties or liabilities with respect to a vendor except as set forth inSection 4.04.     Section 4.04 Assumption or Termination of Vendor Agreement by Servicer. In the eventthe Subservicer shall for any reason no longer be the subservicer of the Receivables (including byreason of a Subservicer Termination Event) pursuant to this Subservicing
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Agreement, the Servicer shall have the right, in its sole discretion, to terminate all of therights and obligations of any vendor under the related vendor agreement.ARTICLE 5.SUBSERVICER TERMINATION EVENT     Section 5.01 Subservicer Termination Event. “Subservicer Termination Event,”wherever used herein, means any one of the following events:          (i) the Subservicer shall fail to deposit all amounts required to be deposited in theCollection Account when required to be deposited under this Subservicing Agreement and such failureshall continue unremedied for 1 Business Day after the Subservicer has knowledge or notice thereof,other than with respect to administrative errors not to exceed $10,000 of Collections in anyCollection Period for which such grace period shall be 5 Business Days after the Subservicer hasknowledge or notice thereof; or          (ii) the Subservicer shall fail to observe or perform in any material respect any other ofthe covenants or agreements on the part of the Subservicer contained in this Subservicing Agreementor any other Transaction Document to which it is a party and such failure shall continue unremediedfor a period of twenty (20) days after the Subservicer has knowledge or notice thereof;          (iii) a decree or order of a court or agency or supervisory authority having jurisdiction inthe premises in an involuntary case under any present or future federal or state bankruptcy,insolvency or similar law or appointing a conservator or receiver or liquidator in any insolvency,readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for thewinding-up or liquidation of its affairs, shall have been entered against the Subservicer;          (iv) the Subservicer shall consent to the appointment of a conservator or receiver orliquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similarproceedings of, or relating to, the Subservicer or of, or relating to, all or substantially all ofthe property of the Subservicer;          (v) the Subservicer shall admit in writing its inability to pay its debts generally as theybecome due, file a petition to take advantage of, or commence a voluntary case under, anyapplicable insolvency or reorganization statute, make an assignment for the benefit of itscreditors, or voluntarily suspend payment of its obligations;          (vi) the Subservicer shall have breached any of the representations and warranties set forthin Section 2.01 in any material respect and the Subservicer shall have failed to cure suchbreach within ten (10) days of its receipt of a notice of such breach;          (vii) a Servicer Termination Event shall have occurred under the Servicing Agreement; or
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          (viii) a Termination Event shall have occurred under the Receivables Financing Agreement.     If a Subservicer Termination Event shall occur (which has not been waived), then, and in eachand every such case, the Servicer may, by notice in writing to the Subservicer (with a copy to theAdministrator, the Borrower and the Collateral Agent), terminate all of the rights and obligationsof the Subservicer under this Subservicing Agreement and in and to the Subservicer’s interest inand to the Receivables and the proceeds thereof (except with respect to the Subservicer’s right tocollect Exempted Receivables pursuant to the terms of this Agreement), subject to compensation,rights of reimbursement, indemnity and limitation on liability to which the Subservicer is thenentitled. Upon the effective date of such termination, all authority and power of the Subservicerunder this Subservicing Agreement, whether with respect to the Receivables or otherwise, shallterminate. The Subservicer agrees to cooperate with such responsibilities and rights hereunder,including, without limitation, the transfer pursuant to such termination. If the Subservicer isterminated pursuant to this Section 5.01, then the Subservicer shall bear all of the costsand expenses of transferring the duties and obligations of the Subservicer; provided,however, that if the Subservicer fails to bear all such costs and expenses any successorshall be entitled to reimbursement from amounts realized on the related collateral, if any, byretention of such amounts prior to the distribution of any Collections from the Collection Accountin accordance with the Receivables Financing Agreement.     Section 5.02 Term of Subservicer. (a) Except with respect to Exempted Receivables,upon notice, the Subservicer may be removed by the Servicer, such removal to become effective uponsuch date as specified in such notice upon the consent of the Administrator, which consent shallnot be unreasonably withheld or delayed. The Servicer shall be entitled to sell, on behalf ofBorrower, any and all Receivables (subject to the requirements of the Receivables FinancingAgreement and related documents), including Exempted Receivables; provided, in the case of ExemptedReceivables, except in connection with a Subservicer Termination Event pursuant to clauses (iii),(iv) and (v) of Section 5.01, or occurrences of fraud, theft, willful misconduct or bankruptcy thatthe Subservicer shall be retained as subservicer of such Receivables on terms materially similar tothe ones in this Subservicing Agreement.     (b) The initial term of this Subservicing Agreement, except with respect to ExemptedReceivables, shall be two years, beginning on the date of this Subservicing Agreement, and shall berenewable for additional terms upon the mutual agreement of the Servicer and Subservicer.ARTICLE 6.MISCELLANEOUS PROVISIONS     Section 6.01 Amendments, Etc. No amendment, modification or waiver of, or consentwith respect to, any provision of this Subservicing Agreement shall be effected unless the sameshall be in writing and signed and delivered by each of the parties hereto and consented to by theAdministrator (which consent shall not be unreasonably withheld), and then any such waiver orconsent shall be effected only in the specific instance and for the specific purpose for whichgiven.
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     Section 6.02 Acknowledgment of Subservicer. The Subservicer hereby agrees that uponrequest from the Collateral Agent after the occurrence of a Termination Event which does not havethe effect of terminating the Subservicer under this Subservicing Agreement, the Subservicer shallprovide all services described in this Subservicing Agreement for the benefit of the CollateralAgent (for the benefit of the Secured Parties) in accordance with the terms of this SubservicingAgreement.     Section 6.03 Notices. Any notice required or permitted to be given under thisSubservicing Agreement shall be in writing and shall be mailed by express mail, postage prepaid, orpersonally delivered to an officer of the receiving party. All such communications shall bemailed, sent or delivered to the parties at their respective addresses as set forth opposite theirrespective signatures to this Subservicing Agreement, or as to any party at such other address asshall be designated by such party in a written notice to each other party complying as to deliverywith the terms of this Section. All such notices and other communications shall, if properlyaddressed and sent by pre-paid courier service, be deemed given when received; any notice or othercommunication, if transmitted by facsimile, shall be deemed given when transmitted and receiptthereof has been confirmed by telephone or electronic means.     Section 6.04 GOVERNING LAW. THIS SUBSERVICING AGREEMENT SHALL BE GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK OTHER THAN THOSE SET FORTHIN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK.     Section 6.05 Successors and Assigns. This Subservicing Agreement shall be bindingupon and shall inure to the benefit of the parties hereto, the Borrower, the Collateral Agent, theSecured Parties and their successors and assigns; provided, however, that theSubservicer may not assign its rights, obligations or duties hereunder without the prior writtenconsent of the Servicer and the Administrator (which consent shall not be unreasonably withheld),except as otherwise set forth in this Subservicing Agreement.     Section 6.06 Attorney’s Liens. The Subservicer has and shall be deemed to have waivedany and all attorney’s liens against any Receivables subserviced hereunder. The Subservicer shallrequire any attorney or other vendor engaged to service any Receivables to waive any and allattorney’s liens and such attorneys and other vendors shall be deemed to have made such waiver.     Section 6.07 Quantum Meruit. In the event of a dispute between the Servicer and theSubservicer relating to the performance required hereunder, the Subservicer agrees to waive itsrights to pursue any legal action for payment pursuant to or based upon the equitable remedy ofquantum meruit.     Section 6.08 Employment. The Subservicer hereby covenants and agrees that, for thefirst two years of this Subservicing Agreement, the Subservicer shall remain in the collection
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businessand [*] and [*] will remain employed by the Subservicer in asenior capacity.     Section 6.09 Severability of Provisions. If any one or more of the covenants,agreements, provisions or terms of this Subservicing Agreement shall be for any reason whatsoeverheld invalid, then such covenants, agreements, provisions or terms shall be deemed severable fromthe remaining covenants, agreements, provisions or terms of this Subservicing Agreement and shallin no way affect the validity or enforceability of the other provisions of this SubservicingAgreement.     Section 6.10 Consent to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TOTHIS SUBSERVICING AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITEDSTATES FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND BY EXECUTION AND DELIVERY OF THISSUBSERVICING AGREEMENT, EACH OF THE BORROWER AND THE SERVICER CONSENTS, FOR ITSELF AND IN RESPECTOF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER AND THESERVICER IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANYOBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOWOR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OFTHIS SUBSERVICING AGREEMENT OR ANY DOCUMENT RELATED HERETO.     Section 6.11 Survival. The rights and remedies with respect to the indemnificationprovisions of Section 2.02 shall be continuing and shall survive any termination of this Agreementand any termination of Subservicer’s rights to act as a “Subservicer” hereunder.     Section 6.12 Counterparts. This Subservicing Agreement may be executed in two or morecounterparts, each of which shall be an original, but all of which together shall constitute oneand the same instrument.     Section 6.13 Third Party Beneficiaries. Each party hereto acknowledges and agreesthat the Lender, the Administrator and the Collateral Agent are third party beneficiaries underthis Agreement and shall have the full power to enforce its rights and benefits granted hereunder.[Signature page follows]
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     IN WITNESS WHEREOF, the Servicer and the Subservicer have caused their names to be signedhereto by their respective officers thereunto duly authorized, all as of the day and year firstabove written.               [*],             as subservicer             By: [*]                Name: /s/      [*]                Title: Managing Partner                       ADDRESS:                                                                       *Subservicing Agreement*
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           PALISADES COLLECTION, L.L.C.,     as Servicer             By: /s/ Mitchell Cohen             Name: Mitchell Cohen      Title: Manager             ADDRESS:             210 Sylvan AvenueEnglewood Cliffs, NJ 07632  *Subservicing Agreement*
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SCHEDULE 1SUBSERVICING FEE SCHEDULE     CLASS OF RECEIVABLE PERCENTAGEAll Receivables directly being serviced by the Subservicer;provided, for the purposes of clarification, that anyReceivable subserviced by a vendor under this SubservicingAgreement, will not be deemed to be directly serviced by theSubservicer [*]%     All other Receivables [*]%For the purposes of this Schedule, “Exempted Receivables” shall not be a class hereunder. Whendetermining the applicable class for an “Exempted Receivable,” such class shall instead be relatedto the Receivable underlying such Exempted Receivable.*Subservicing Agreement*
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**TABLE OF CONTENTS**       Page  ARTICLE 1. DEFINITIONS  1 Section 1.01 Definitions  1 ARTICLE 2. REPRESENTATIONS, WARRANTIES AND COVENANTS  5 Section 2.01 Representations, Warranties and Covenants of Subservicer  5 Section 2.02 Servicer Indemnity  8 Section 2.03 Subservicer Indemnity  8 ARTICLE 3. ADMINISTRATION AND SERVICING OF RECEIVABLES  8 Section 3.01 Subservicer to Servicer  8 Section 3.02 Collection of Receivable Payments; Collection Account  10 Section 3.03 Custodial Arrangements  11 Section 3.04 Reports to Servicer  12 Section 3.05 Annual Statement as to Compliance and Audit  13 Section 3.06 Servicing Compensation  13 Section 3.07 Receivable Reviews  13 ARTICLE 4. VENDORS  14 Section 4.01 Agreements Between Subservicer and Vendors  14 Section 4.02 Obligation of Subservicer  14 Section 4.03 No Contractual Relationship Between a Vendor and the Servicer  14 Section 4.04 Assumption or Termination of Vendor Agreement by Servicer  14 ARTICLE 5. SUBSERVICER TERMINATION EVENT  15 Section 5.01 Subservicer Termination Event  15 Section 5.02 Term of Subservicer  16 ARTICLE 6. MISCELLANEOUS PROVISIONS  17 Section 6.01 Amendments, Etc  17 Section 6.02 Acknowledgment of Subservicer  17 Section 6.03 Notices  17 Section 6.04 GOVERNING LAW  17 Section 6.05 Successors and Assigns  17 Section 6.06 Attorney’s Liens  17 Section 6.07 Quantum Meruit  17 Section 6.08 Employment  18 
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**TABLE OF CONTENTS**