exv10w27w1



 





Exhibit 10.27.1




EXECUTION VERSION




AMENDED AND RESTATED SALE AND SERVICING AGREEMENT




among




CAPITALSOURCE FUNDING II TRUST,




as Issuer




and




CS FUNDING II DEPOSITOR LLC,




as Depositor




and




CAPITALSOURCE FINANCE LLC,




as Loan Originator and Servicer




and




WELLS FARGO BANK, NATIONAL ASSOCIATION,



as Indenture Trustee, Collateral Custodian and Backup Servicer




Dated as of September 17, 2003 and Amended and Restated as of October 7, 2004




COMMERCIAL LOAN BACKED NOTES




 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page

	ARTICLE I 
	 	 	 	 
	DEFINITIONS
	 	 	 	 
	Section 1.01 Definitions
	 	 	1	 
	Section 1.02 Other Definitional Provisions
	 	 	29	 
	ARTICLE II
	 	 	 	 
	CONVEYANCE OF THE COLLATERAL; ADDITIONAL NOTE PRINCIPAL BALANCES
	 	 	 	 
	Section 2.01 Conveyance of the Collateral; Additional Note Principal Balances
	 	 	30	 
	Section 2.02 Ownership and Possession of Loan Files
	 	 	32	 
	Section 2.03 Books and Records; Intention of the Parties
	 	 	32	 
	Section 2.04 Delivery of Loan Documents
	 	 	32	 
	Section 2.05 Acceptance by the Indenture Trustee of the Loans; Certain Substitutions
and Repurchases; Certification by the Collateral Custodian
	 	 	33	 
	Section 2.06 Conditions Precedent to Transfer Dates
	 	 	35	 
	Section 2.07 Additional Advances by Initial Noteholder
	 	 	37	 
	Section 2.08 Termination of Revolving Period or Amortization Period
	 	 	37	 
	Section 2.09 Correction of Errors
	 	 	37	 
	Section 2.10 Commencement of Amortization Period
	 	 	38	 
	ARTICLE III
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES
	 	 	 	 
	Section 3.01 Representations and Warranties of the Depositor
	 	 	38	 
	Section 3.02 Representations and Warranties of the Loan Originator
	 	 	40	 
	Section 3.03 [RESERVED]
	 	 	42	 
	Section 3.04 Representations and Warranties Regarding Eligible Loans
	 	 	42	 
	Section 3.05 Purchase and Substitution
	 	 	48	 
	Section 3.06 Dispositions
	 	 	51	 
	Section 3.07 Removal or Repurchase of Call Loans
	 	 	53	 
	Section 3.08 Underwriting Guidelines; Modifications
	 	 	53	 
	ARTICLE IV
	 	 	 	 
	ADMINISTRATION AND SERVICING OF THE LOANS
	 	 	 	 
	Section 4.01 Servicer’s Servicing Obligations
	 	 	54	 
	Section 4.02 Loan Register
	 	 	54	 
	Section 4.03 The Backup Servicer; Duties of the Backup Servicer
	 	 	55	 







i 









 






	 	 	 	 	 
	 	 	Page

	ARTICLE V
	 	 	 	 
	ESTABLISHMENT OF TRUST ACCOUNTS
	 	 	 	 
	Section 5.01 Collection Account, Principal Collections Account and Distribution
Account
	 	 	56	 
	Section 5.02 Payments to Securityholders
	 	 	61	 
	Section 5.03 Trust Accounts; Trust Account Property
	 	 	61	 
	ARTICLE VI
	 	 	 	 
	STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
	 	 	 	 
	Section 6.01 Statements
	 	 	63	 
	Section 6.02 Specification of Certain Tax Matters
	 	 	63	 
	ARTICLE VII
	 	 	 	 
	COVENANTS
	 	 	 	 
	Section 7.01 Financial Covenants of CapitalSource
	 	 	64	 
	Section 7.02 Financial Statements of CapitalSource
	 	 	64	 
	ARTICLE VIII
	 	 	 	 
	THE SERVICER AND THE BACKUP SERVICER
	 	 	 	 
	Section 8.01 Indemnification; Third Party Claims
	 	 	64	 
	Section 8.02 Merger or Consolidation of the Servicer and Backup Servicer
	 	 	66	 
	Section 8.03 Limitation on Liability of the Servicer and the Backup Servicer
	 	 	67	 
	Section 8.04 No Resignation; Assignment
	 	 	68	 
	Section 8.05 Relationship of Servicer to Issuer and the Indenture Trustee
	 	 	69	 
	Section 8.06 Servicer May own Securities
	 	 	69	 
	Section 8.07 Indemnification of the Indenture Trustee and Initial Noteholder
	 	 	69	 
	ARTICLE IX
	 	 	 	 
	SERVICER EVENTS OF DEFAULT
	 	 	 	 
	Section 9.01 Servicer Events of Default
	 	 	70	 
	Section 9.02 Appointment of Successor
	 	 	72	 
	Section 9.03 Waiver of Defaults
	 	 	74	 
	Section 9.04 Accounting Upon Termination of Servicer
	 	 	74	 
	Section 9.05 Removal of Backup Servicer
	 	 	75	 
	ARTICLE X
	 	 	 	 
	THE COLLATERAL CUSTODIAN
	 	 	 	 
	Section 10.01 Appointment
	 	 	75	 
	Section 10.02 No Representations
	 	 	75	 







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	 	 	Page

	Section 10.03 Custody of Custodial Loan Files
	 	 	75	 
	Section 10.04 Standard of Care
	 	 	75	 
	Section 10.05 Acknowledgment
	 	 	76	 
	ARTICLE XI
	 	 	 	 
	RESERVED
	 	 	 	 
	ARTICLE XII
	 	 	 	 
	TERMINATION
	 	 	 	 
	Section 12.01 Termination
	 	 	76	 
	Section 12.02 Optional Termination
	 	 	76	 
	Section 12.03 Notice of Termination
	 	 	77	 
	ARTICLE XIII
	 	 	 	 
	MISCELLANEOUS PROVISIONS
	 	 	 	 
	Section 13.01 Acts of Securityholders
	 	 	77	 
	Section 13.02 Amendment
	 	 	77	 
	Section 13.03 Recordation of Agreement
	 	 	78	 
	Section 13.04 Duration of Agreement
	 	 	78	 
	Section 13.05 Governing Law
	 	 	78	 
	Section 13.06 Notices
	 	 	78	 
	Section 13.07 Severability of Provisions
	 	 	79	 
	Section 13.08 No Partnership
	 	 	79	 
	Section 13.09 Counterparts
	 	 	79	 
	Section 13.10 Successors and Assigns
	 	 	79	 
	Section 13.11 Headings
	 	 	80	 
	Section 13.12 Actions of Securityholders
	 	 	80	 
	Section 13.13 Non-Petition Agreement
	 	 	80	 
	Section 13.14 Holders of the Securities
	 	 	80	 
	Section 13.15 Due Diligence
	 	 	81	 
	Section 13.16 No Reliance
	 	 	81	 
	Section 13.17 Conflicts
	 	 	82	 
	Section 13.18 Limitation on Liability
	 	 	82	 
	Section 13.19 No Agency
	 	 	82	 
	Section 13.20 Third Party Beneficiaries
	 	 	82	 
	Section 13.21 Performance by Wells Fargo Bank, National Association
	 	 	82	 
	Section 13.22 Amendment and Restatement
	 	 	83	 
	Section 13.23 Conversion
	 	 	83	 







iii 









 






	 	 	 
	EXHIBIT A

	 	Form of Notice of Additional Note Principal Balance
	EXHIBIT B

	 	Form of Monthly Servicer Report
	EXHIBIT C

	 	Form of S&SA Assignment
	EXHIBIT D

	 	Form of Loan Schedule
	EXHIBIT E-1

	 	Form of Initial Certification
	EXHIBIT E-2

	 	Form of Final Certification
	EXHIBIT F

	 	Form of Borrowing Base Certificate
	EXHIBIT G

	 	List of Investors
	EXHIBIT H

	 	CIG Payment Accounts
	EXHIBIT I

	 	CIG Underlying Loans
	EXHIBIT J

	 	CIG Loan Agreement
	EXHIBIT K

	 	Exceptions to Section 3.04 Representations and Warranties
	EXHIBIT L

	 	Monthly Officer’s Certification







iv 









 






AMENDED AND RESTATED SALE AND SERVICING AGREEMENT




          This Amended and Restated Sale and Servicing Agreement is entered into
effective as of September 17, 2003 and amended and restated as of October 7,
2004, among CapitalSource Funding II Trust, a Delaware statutory trust (the
“Issuer”), CS Funding II Depositor LLC, a Delaware limited liability company,
as Depositor (in such capacity, the “Depositor”), CapitalSource Finance LLC, a
Delaware limited liability company (“CapitalSource”), as Loan Originator (in
such capacity, the “Loan Originator”) and as Servicer (in such capacity, the
“Servicer”) and Wells Fargo Bank, National Association, a national banking
association, as Indenture Trustee on behalf of the Noteholders (in such
capacity, the “Indenture Trustee”), as Collateral Custodian (the “Collateral
Custodian”) and as Backup Servicer (the “Backup Servicer”).



W I T N E S S E T H:




          In consideration of the mutual agreements herein contained, the parties
hereto hereby agree as follows for the benefit of each of them and for the
benefit of the holders of the Securities:



ARTICLE I




DEFINITIONS




          Section 1.01 Definitions.



          Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.



          Accepted Servicing Practices: The servicing practices and collection
procedures of the Servicer that are in accordance with the Underwriting
Guidelines, the Required Loan Documents and applicable law and which are, in
any event, customary servicing practices of prudent institutions which service
loans similar to the Loans for their own account.



          Accrual Period: With respect to the Notes, the period commencing on and
including the preceding Payment Date (or, in the case of the first Payment
Date, the period commencing on and including the first Transfer Date (which
first Transfer Date is the first date on which the Note Principal Balance is
greater than zero)) and ending on the day preceding the related Payment Date.



          Act or Securities Act: The Securities Act of 1933.



          Acquired Loan: A Loan that is originated by a Person other than the Loan
Originator and is acquired by the Loan Originator in a “true sale” transaction
pursuant to an acquisition agreement and is otherwise acceptable to the Initial
Noteholder.



          Additional Note Principal Balance: With respect to each Transfer Date,
the aggregate Sales Price of all Loans conveyed to the Issuer on such date.



 









 





          Administration Agreement: The Administration Agreement, dated as of
September 17, 2003, between the Issuer and the Administrator, as the same may
be amended and supplemented from time to time.



          Administrator: CapitalSource Finance LLC, in its capacity as Administrator
under the Administration Agreement.



          Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, “control” when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms “controlling” and
“controlled” have meanings correlative to the foregoing.



          Agreement: This Sale and Servicing Agreement, as the same may be amended
and supplemented from time to time.



          Alarm Service Loan: An Eligible Loan to a Dealer (or any other Person
agreed to by the Issuer and the Initial Noteholder) that has secured its
repayment obligations with the payments from one or more individuals,
businesses or other entities which have entered into security alarm monitoring
or security alarm monitoring and maintenance contracts to receive the security
alarm monitoring or security alarm monitoring and maintenance services provided
thereby.



          Amortization Period: The period commencing on the date of termination of
the Revolving Period (other than pursuant to Section 2.08) and terminating on
the earlier of (i) the date which is twelve (12) months following the end of
the Revolving Period, and (ii) the date on which the Amortization Period is
terminated pursuant to Section 2.08. In the event that the Revolving Period is
terminated pursuant to Section 2.08 prior to the commencement of the
Amortization Period, the Amortization Period shall not be applicable.



          Assigned Loan: A Loan originated by a Person other than the Loan
Originator in which a constant percentage or a fixed principal amount has been
assigned to the Loan Originator or in which a participation interest has been
granted to the Loan Originator by such Person in accordance with the Loan
Originator’s Underwriting Guidelines and (a) such transaction has been fully
consummated prior to such Loan becoming subject to this Agreement; (b) except
with respect to participation interests, the Loan Originator is not a party to
(but is instead an assignee of) the underlying loan documents; (c) upon the
sale of any Underlying Notes or related Participation Certificates to the
Depositor under the Loan Sale Agreement and sale to the Issuer by the Depositor
under this Agreement, any such Underlying Notes or Participation Certificates,
as the case may be, will be endorsed in blank and held by the Collateral
Custodian on behalf of the Indenture Trustee for the benefit of the
Noteholders; (d) the Issuer, as assignee of any Underlying Notes or
Participation Certificates, as applicable, will have all of the rights (but
none of the obligations) of the Loan Originator with respect to any such
Underlying Notes or Participation Certificates, as applicable and the Loan
Originator’s right, title and interest in and to the Loan Collateral; (e) any
Underlying Notes are secured by, and the Participation Certificates represent,
an undivided interest in any and all Loan Collateral that also secures and is
shared by, on a pro rata basis, all other holders of such Obligor’s notes of
equal



2









 





priority; and (f) 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.




          Assignment: A LPA Assignment or S&SA Assignment.



          Backup Servicer: Wells Fargo Bank, National Association or any successor
thereto appointed as provided herein.



          Backup Servicer Fee Letter: Shall mean that certain fee letter, dated as
of September 12, 2003, among the Loan Originator, the Servicer, Citigroup
Global Markets Inc. and the Backup Servicer.



          Backup Servicing Fee: Shall have the meaning given such term in the
Backup Servicer Fee Letter.



          Backup Servicer Termination Notice: Has the meaning set forth in Section
9.05(a) hereof.



          Bankruptcy Code: Title 11 of the United States Code.



          Bankruptcy Event: With respect to a Person, shall be deemed to have
occurred if either:




     (a) a case or other proceeding shall be commenced, without the
application or consent of such Person, in any court seeking the
liquidation, reorganization, debt arrangement, dissolution, winding up,
or composition or readjustment of debts of such Person, the appointment
of a trustee, receiver, custodian, liquidator, assignee, sequestrator or
the like for such Person or for all or substantially all of its assets,
or any similar action with respect to such Person under any law relating
to bankruptcy, insolvency, reorganization, winding up or composition or
adjustment of debts, and such case or proceeding shall continue
undismissed or unstayed, and in effect, for a period of 60 consecutive
days; or an order for relief in respect of such Person shall be entered
in an involuntary case under the Bankruptcy Code or other similar laws
now or hereafter in effect, or




     (b) such Person shall commence a voluntary case or other proceeding
under any applicable bankruptcy, insolvency, reorganization, debt
arrangement, dissolution or other similar law now or hereafter in effect,
or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) for such Person or for any substantial part of
its assets, or shall make any general assignment for the benefit of
creditors, or shall fail to, or admit in writing its inability to, pay
its debts generally as they become due, or, if a corporation or similar
entity, its board of directors shall vote to implement any of the
foregoing.



          Basic Documents: This Agreement, the Indenture, the Loan Sale Agreement,
the Note Purchase Agreement, the Trust Agreement, the Lockbox Agreement, the
Intercreditor Agreement, the Administration Agreement and, as and when required
to be executed and delivered, the Assignments.



3









 





          Borrowing Base: On any date of determination, the sum of




	(i)	 	the product of (A) the outstanding
unpaid principal balance of all Eligible Loans included
in the Loan Pool (other than the CIG Loan) prior to such
date of determination minus the amount (calculated
without duplication) by which such Eligible Loans exceed
any applicable Concentration Limitations and minus, with
respect to Charged-Off Loans, (x) 50% of the outstanding
unpaid principal balance of all Charged-Off Loans for
which any Scheduled Payment is at least ninety (90) days
but less than one hundred eighty (180) days delinquent
as of such date of determination and (y) the outstanding
unpaid principal balance of all Charged-Off Loans that
are Charged-Off Loans for any reason other than the
Scheduled Payment delinquency referenced in clause (x)
above and (B) the applicable Purchase Price Percentages
(determined on such date), and
	 
	(ii)	 	the amount on deposit in the
Principal Collections Account on such date of
determination, but only to the extent such amount has
been applied to reduce the outstanding principal balance
of the related Loans (without duplication), and
	 
	(iii)	 	until the CIG Loan Ineligible Date,
an amount equal to the lesser of (A) Sixty Million
Dollars ($60,000,000), and (B) the product of (x) the
then unpaid principal balance of all CIG Underlying
Loans, and (y) sixty percent (60%).





          Borrowing Base Certificate: The certificate in the form attached hereto as
Exhibit F.



          Borrowing Base Deficiency: With respect to any date of determination, an
amount equal to excess of the Note Principal Balance over the Borrowing Base as
of such date of determination.



          Borrowing Base Excess: With respect to any date of determination, an
amount equal to the excess of the Borrowing Base over the Note Principal
Balance, in each case as of such date of determination.



          Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day
on which banking institutions in New York City or in the city in which the
Corporate Trust Office of the Indenture Trustee or the Paying Agent is located
or the city in which the Servicer’s servicing operations are located are
authorized or obligated by law or executive order to be closed.



          Call Loan: As of any date of Disposition, any Loan which does not meet
criteria established by independent rating agencies or surety agency conditions
for securitizations at the time of such Disposition.



          Certificateholder: A holder of a Trust Certificate.



4









 





         
 Change
of Control: Shall occur if either (a) Any “Person” or
“group” (as such terms are used in Sections 13(d) and 14(d) of
the Securities and Exchange
Act of 1934, as amended), other than the Investors, shall become the
“beneficial owner” (as defined in Section 13(d)-3 and 13(d)-5 under such Act),
directly or indirectly, of shares representing more than the greater of (i) 20%
of the shares outstanding of CapitalSource Inc. and (ii) the percentage of the
aggregate then outstanding voting stock of CapitalSource Inc. owned
beneficially, directly or indirectly, by the Investors; or (b) the board of
directors of CapitalSource Inc. shall not consist of at least a majority of
Continuing Directors.



          Charged-Off Loan: A Loan in the Loan Pool as to which there has occurred
and is continuing one or more of the following: (i) the occurrence of both (A)
all or any portion of a payment of interest on or principal of such Loan is not
paid when due (without giving effect to any grace period) 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
(B) within ninety (90) calendar days of when such delinquent payment was first
due, all delinquencies have not been cured, (ii) a Bankruptcy Event has
occurred with respect to the related Obligor, (iii) the related Obligor has
suffered any material adverse change that materially affects its viability as a
going concern, (iv) the Servicer has determined, in its sole discretion, in
accordance with the Underwriting Guidelines, that all or a portion of such Loan
is not collectible, or (v) any 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 Loan Originator or an entity controlled by the Loan Originator to the
Obligor or any of its Affiliates.



          CIG: CIG International LLC, a limited liability company organized and
existing under the laws of the State of Delaware, which is wholly-owned by the
Loan Originator, and its successors and permitted assigns.



          CIG Allocated Principal Balance: As of any date of determination, an
amount equal to the excess of (1) the sum of all Noteholder CIG Advances funded
on or after the Effective Date, over (2) the product of (A) sixty percent (60%)
and (B) all principal payments (including prepayments) actually received by the
Issuer with respect to the CIG Loan (including all principal payments on all
CIG Underlying Loans) since the Effective Date. Such amount is represented by
the Incremental Note.



          CIG Loan: The loan made by the Loan Originator to CIG pursuant to the
terms of the CIG Loan Agreement.



          CIG Loan Agreement: Any or all, as the context may require, of the loan
agreement, the security agreement and the note, each dated June 29, 2004 and
between CIG, as borrower, and the Loan Originator, as lender, and substantially
in the form attached as Exhibit J hereto, as each such agreement may be
amended, modified or supplemented from time to time in accordance with its
respective terms and the terms of this Amendment.



          CIG Loan Ineligible Date: The earliest to occur of (i) the first date on
which an event of default occurs under the CIG Loan Agreement, and (ii) the
date on which the number of CIG Underlying Loans pledged as collateral security
for the CIG Loan is less than ten (10).



          CIG Loan LIBOR Margin: Two and one quarter percent (2.25%) per annum.



5









 





          CIG Loan Default Rate: Five percent (5%) per annum.



          CIG Loan Interest Rate: With respect to each Accrual Period, a per annum
interest rate equal to One-Month LIBOR for the related LIBOR Determination Date
plus the CIG Loan LIBOR Margin.



          CIG Payment Account: Each deposit account set forth on Exhibit H hereto
to which the obligors on the CIG Underlying Loans remit payments.



          CIG Underlying Loan: Each mezzanine and gap equity loan pledged by CIG as
collateral security for its obligations under the CIG Loan Agreement. A
listing of such loans as of the Effective Date is set forth on Exhibit I
hereto.



          Clean-up Call Date: The first Payment Date occurring after the end of the
Revolving Period on which the Note Principal Balance declines to 10% or less of
the aggregate Note Principal Balance as of the end of the Revolving Period.



          Closing Date: September 17, 2003.



          Code: The Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated by the United States Treasury thereunder.



          Collateral: Has the meaning set forth in the Indenture.



          Collateral Custodian: Wells Fargo Bank, National Association.



          Collection Account: The account designated as such, established and
maintained by the Servicer in accordance with Section 5.01(a)(1) hereof.



          Collection Date: The date following the Termination Date on which the Note
Principal Balance has been reduced to zero and paid in full.



          Commission: The Securities and Exchange Commission.



          Concentration Limitations: On any day, each of the Concentration
Limitations set forth below:




	 	(i)	 	the aggregate Principal Balance of all Loans made
to a single Obligor shall not exceed $30,000,000;
	 
	 	(ii)	 	no more than 25% of the aggregate Principal
Balance of all Loans shall have a Principal Balance in excess
of $20,000,000;
	 
	 	(iii)	 	(A) the aggregate Principal Balance of all Loans
the Obligors of which are domiciled within a single state
(other than Florida and California) shall not exceed the
greater of (x) $20,000,000 and (y) 20% of the aggregate
Principal Balance of all Loans and (B) the aggregate Principal
Balance of all Loans in either the state of Florida or the
state of California shall not exceed the greater of (x)
$20,000,000 and (y) 30% of the aggregate Principal Balance of
all Loans;




6









 






	 	(iv)	 	the aggregate Principal Balance of Loans for
which the Obligor is domiciled outside of the United States or
Canada shall not exceed the greater of (x) $20,000,000 and (y)
10% of the aggregate Principal Balance of all Loans;
	 
	 	(v)	 	the aggregate Principal Balance of Loans within a
single industry (which shall be determined by the Loan
Originator based on the four digit NAIC code and included on
the Loan Schedule) shall not exceed the greater of (x)
$20,000,000 and (y) 30% of the aggregate Principal Balance of
all Loans;
	 
	 	(vi)	 	the aggregate Principal Balance of Subordinated
Loans shall not exceed the greater of (x) $20,000,000 and (y)
20% of the aggregate Principal Balance of all Loans;
	 
	 	(vii)	 	the aggregate Principal Balance of Revolving
Loans shall not exceed the greater of (x) $60,000,000 and (y)
60% of the aggregate Principal Balance of all Loans;
	 
	 	(viii)	 	the aggregate Principal Balance of Loans assigned Loan
Rating 4 or Loan Rating 5 shall not exceed 15% of the
aggregate Principal Balance of all Loans;
	 
	 	(ix)	 	the aggregate Principal Balance of DIP Loans
shall not exceed the greater of (x) $20,000,000 or (y) 20% of
the aggregate Principal Balance of all Loans;
	 
	 	(x)	 	the aggregate Principal Balance of Loans subject
to Scheduled Payments of interest on a basis other than
monthly shall not exceed the greater of (x) $20,000,000 and
(y) 20% of the aggregate Principal Balance of all Loans;
	 
	 	(xi)	 	the aggregate Principal Balance of all Senior
B-Note Loans shall not exceed the greater of (x) $20,000,000
and (y) 20% of the aggregate Principal Balance of all Loans;
provided, however that any Senior B-Note Loan or portion
thereof in excess of this limitation shall be considered a
Subordinated Loan for purposes of determining eligibility;
	 
	 	(xii)	 	the aggregate Principal Balance of Loans to
Obligors principally engaged in the origination of mortgage
loans to borrowers who have less than perfect (i.e., less than
“A”) credit histories, higher debt to income ratios or whose
loans otherwise were underwritten with exceptions to customary
“A” quality underwriting guidelines or who present other risks
(other than the CIG Loan) shall not exceed $40,000,000;
	 
	 	(xiii)	 	the aggregate Principal Balance of Assigned Loans shall not
exceed the greater of (x) $20,000,000 and (y) 20% of the
aggregate Principal Balance of all Loans;




7









 






	 	(xiv)	 	the aggregate Principal Balance of Acquired
Loans shall not exceed 50% of the aggregate Principal Balance
of all Loans;
	 
	 	(xv)	 	the aggregate Principal Balance of any single
bulk purchase of Acquired Loans shall not exceed the greater
of (x) $20,000,000 and (y) 20% of the aggregate Principal
Balance of all Loans without the approval of the Initial
Noteholder;
	 
	 	(xvi)	 	the weighted average life of the Loan Pool shall
not exceed 4.0 years;
	 
	 	(xvii)	 	the Loan Margin shall not be less than 4.00%;
	 
	 	(xviii)	 	the sum of (a) the aggregate Principal Balance of Senior
Loans and Senior B-Note Loans with an original term to
maturity of 7 years or greater and (b) the aggregate Principal
Balance of Subordinated Loans with an original term to
maturity of 10 years or greater shall not exceed $100,000,000;
	 
	 	(xix)	 	the aggregate Principal Balance of all Loans
made in respect of the construction or development of
unimproved land and Enhanced Mezzanine Loans shall not as of
such date exceed ten percent (10%) of the aggregate Principal
Balance of all Loans; and
	 
	 	(xx)	 	the aggregate Principal Balance of any Loan made
in respect of the construction or development of unimproved
land or Enhanced Mezzanine Loans does not exceed Seven Million
Five Hundred Thousand Dollars ($7,500,000).





          Continued Errors: Has the meaning set forth in Section 9.02(d) hereof.



          Continuing Directors: The directors of CapitalSource Inc. on the Closing
Date, and each other director if, in each case, such other director’s
nomination for election to the board of directors is recommended by majority of
the then Continuing Directors or such other director receives the vote of the
Investors in his or her election by the stockholders of CapitalSource Inc.



          Conversion: The conversion of the Depositor from a Delaware limited
liability company to a Delaware corporation. The Conversion is anticipated to
be completed prior to December 31, 2004. The Depositor shall not be permitted
to make any substantive change with respect to the permitted activities of, or
the restrictions related to the activities of, the Depositor.



          Custodial Loan File: With respect to each Eligible Loan, the documents
delivered to the Collateral Custodian, as agent for the Indenture Trustee, for
the benefit of the Noteholders pursuant to Section 2.04 hereof.



          Daily Interest Accrual Amount: With respect to each day and the related
Accrual Period, an amount equal to the sum of (i) interest accrued at the Note
Interest Rate with respect to such Accrual Period on an amount equal to the
excess of (x) the Note Principal Balance, over (y) the CIG Allocated Principal
Balance, in each case determined as of the preceding Business Day after giving
effect to all changes to the Note Principal Balance and the CIG Allocated



8









 





Principal Balance on or prior to such preceding Business Day, and (ii)
interest accrued at the CIG Loan Interest Rate with respect to such Accrual
Period on the CIG Allocated Principal Balance, determined as of the preceding
Business Day after giving effect to all changes to the CIG Allocated Principal
Balance on such Date.



          Dealer: The security alarm dealer who sells one or more security alarm
monitoring or security alarm monitoring and maintenance contracts to one or
more Persons obligated to pay for the service(s) provided under such
contract(s).



          Default: Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.



          Deleted Loan: An Eligible Loan replaced or to be replaced by one or more
Qualified Substitute Loans.



          Delinquent Loan: A Loan (other than a Charged-Off Loan) in the Loan Pool
as to which there has occurred one or more of the following: (i) the occurrence
of both (A) all or any portion of a payment of interest on or principal of such
Loan is not paid when due (without giving effect to any grace period) 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 (B) within sixty (60) calendar days of when such
delinquent payment was first due, all delinquencies have not been cured or (ii)
consistent with the Loan Originator’s Underwriting Guidelines such Loan would
be classified as delinquent by the Servicer or the Loan Originator.



          Delivery: When used with respect to Trust Account Property means:




     (a) with respect to bankers’ acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
“instruments” within the meaning of Section 9-105(l)(i) of the UCC and
are susceptible of physical delivery (except with respect to Trust
Account Property consisting of certificated securities (as defined in
Section 8-102(a)(4) of the UCC)), physical delivery to the Indenture
Trustee or its custodian (or the related Securities Intermediary)
endorsed to the Indenture Trustee or its custodian (or the related
Securities Intermediary) or endorsed in blank (and if delivered and
endorsed to the Securities Intermediary, by continuous credit thereof by
book entry to the related Trust Account);




     (b) with respect to a certificated security (i) delivery of such
certificated security endorsed to, or registered in the name of, the
Indenture Trustee or endorsed in blank to its custodian or the related
Securities Intermediary and the making by such Securities Intermediary of
appropriate entries in its records identifying such certificated
securities as credited to the related Trust Account, or (ii) by delivery
thereof to a “clearing corporation” (as defined in Section 8-102(5) of
the UCC) and the making by such clearing corporation of appropriate
entries in its records crediting the securities account of the related
Securities Intermediary by the amount of such certificated security and
the making by such Securities Intermediary of appropriate entries in its
records identifying such certificated securities as credited to the
related Trust Account (all of the Trust Account Property described in
Subsections (a) and (b), “Physical Property”);



9









 






     and, in any event, any such Physical Property in registered form
shall be in the name of the Indenture Trustee or its nominee or custodian
(or the related Securities Intermediary); and such additional or
alternative procedures as may hereafter become appropriate to effect the
complete transfer of ownership of any such Trust Account Property to the
Indenture Trustee or its nominee or custodian, consistent with changes in
applicable law or regulations or the interpretation thereof;




     (c) with respect to any security issued by the U.S. Treasury, Fannie
Mae or Freddie Mac that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable
federal regulations and Articles 8 and 9 of the UCC: the making by a
Federal Reserve Bank of an appropriate entry crediting such Trust Account
Property to an account of the related Securities Intermediary or the
securities intermediary that is (x) also a “participant” pursuant to
applicable federal regulations and (y) is acting as securities
intermediary on behalf of the Securities Intermediary with respect to
such Trust Account Property; the making by such Securities Intermediary
or securities intermediary of appropriate entries in its records
crediting such book-entry security held through the Federal Reserve
System pursuant to federal book-entry regulations and Articles 8 and 9 of
the UCC to the related Trust Account; and such additional or alternative
procedures as may hereafter become appropriate to effect complete
transfer of ownership of any such Trust Account Property to the Indenture
Trustee or its nominee or custodian, consistent with changes in
applicable law or regulations or the interpretation thereof; and




     (d) with respect to any item of Trust Account Property that is an
uncertificated security (as defined in Section 8-102(a)(18) of the UCC)
and that is not governed by clause (c) above, registration in the records
of the issuer thereof in the name of the related Securities Intermediary,
and the making by such Securities Intermediary of appropriate entries in
its records crediting such uncertificated security to the related Trust
Account.



          Depositor: CS Funding II Depositor LLC, a Delaware limited liability
company.



          Designated Depository Institution: With respect to an Eligible Account,
an institution whose deposits are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the FDIC, the long-term deposits of which
shall be rated “A” or better by S&P or “A2” or better by Moody’s and the
short-term deposits of which shall be rated “P-1” or better by Moody’s and
“A-1” or better by S&P, unless otherwise approved in writing by the Initial
Noteholder and which is any of the following: (A) a federal savings and loan
association duly organized, validly existing and in good standing under the
federal banking laws, (B) an institution duly organized, validly existing and
in good standing under the applicable banking laws of any state, (C) a national
banking association duly organized, validly existing and in good standing under
the federal banking laws, (D) a principal subsidiary of a bank holding company
or (E) approved in writing by the Initial Noteholder and, in each case acting
or designated by the Servicer as the depository institution for the Eligible
Account; provided, however, that any such institution or association shall have
combined capital, surplus and undivided profits of at least $50,000,000.



10









 





          DIP Loan: A Loan to an Obligor that is a “debtor-in-possession” as defined
under the Bankruptcy Code.



          Disposition: A Securitization, Whole Loan Sale transaction, or other
disposition of Loans, including, without limitation, pursuant to Section 3.06.



          Disposition Participant: As applicable, with respect to a Disposition,
any “depositor” with respect to such Disposition, the Majority Noteholders, the
Issuer, the Servicer, the related trustee and the related custodian, any
nationally recognized credit rating agency, the related underwriters, the
related placement agent, the related credit enhancer, the related whole-loan
purchaser, the related purchaser of securities and/or any other party necessary
or, in the good faith belief of any of the foregoing, desirable to effect a
Disposition.



          Disposition Proceeds: With respect to a Disposition, (x) the proceeds of
the Disposition remitted to the Issuer in respect of the Loans transferred on
the date of and with respect to such Disposition, including without limitation,
any cash less all costs, fees and expenses incurred in connection with such
Disposition, including, without limitation, all amounts deposited into any
reserve accounts upon the closing thereof plus or minus (y) all other amounts
agreed upon in writing by the Initial Noteholder, the Issuer and the Servicer.



          Distribution Account: The account established and maintained pursuant to
Section 5.01(a)(3) hereof.



          Due Date: The day of the month on which the Scheduled Payment is due from
the Obligor with respect to an Eligible Loan.



          Effective Date: July 1, 2004, the date upon which the acquisition of the
equity interests of CIG was consummated by the Loan Originator.



          Eligible Account: At any time, an account which is: (i) maintained with a
Designated Depository Institution; or (ii) fully insured by either the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC; or (iii)
a trust account (which shall be a “segregated trust account”) maintained with
the corporate trust department of a federal or state chartered depository
institution or trust company with trust powers and acting in its fiduciary
capacity for the benefit of the Indenture Trustee and the Issuer, which
depository institution or trust company shall have capital and surplus of not
less than $50,000,000; or (iv) with the prior written consent of the Majority
Noteholders, any other account.



          Eligible Loan: With respect to any date of determination, both of the
following: (i) any Loan (other than the CIG Loan) which complies with the
representations and warranties set forth in Section 3.04 with respect to such
Loan and (ii) until the CIG Loan Ineligible Date, the CIG Loan.



          Eligible Obligor: For any date of determination, any Obligor that (i) is
either (x) a legal operating entity or holding company or (y) an Obligor which
is a special purpose entity, and not a natural person, (ii) has not entered
into the Loan primarily for personal, family or household purposes, (iii) is
not a Governmental Authority, (iv) is not in the gaming, nuclear waste,
biotechnology or natural resources industry, (v) except with respect to a DIP
Loan, is not the subject of a Bankruptcy Event, and (vi) is not an Obligor of a
Charged-Off Loan or



11









 





Delinquent Loan; provided however that the foregoing clause (iv) shall not
be deemed to prohibit an Obligor in the biotechnology industry from being an
Eligible Obligor, except for where such Obligor’s business consists of
conducting proprietary research on new drug development, if it otherwise
satisfies each of the foregoing criteria for eligibility.




          Eligible Servicer: (x) CapitalSource or (y) any other Person to which the
Majority Noteholders may consent in writing.



          Enhanced Mezzanine Loan: Any Loan that (a) is ratably secured among all
lenders by a Lien on real property or the membership or other equity interests
of the owner of such real property and has a subordinated right to payment
relative to the senior lenders, (b) has a Loan-to-Value Ratio of less than or
equal to 90% (with the denominator of such ratio calculated using the projected
completed value of the property) and (c) at least 80% of the underlying real
property is planned residential.



          Errors: Has the meaning set forth in Section 9.02(d) hereof.



          Event of Default: Either a Servicer Event of Default or an Event of
Default under the Indenture.



          Excess Spread: For any date of determination, a percentage equal to the
positive difference between (x) the weighted average Loan Interest Rate of the
Loan Pool (determined based on the unpaid principal balance of the Loans in the
Loan Pool) and (y) the sum of (i) the Note Interest Rate and (ii) the rate at
which the Trust Fees and Expenses accrue.



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



          Excluded Amounts: (a) Any amount received in the Lock-Box by, on or with
respect to any Loan in the Loan Pool, which is required to be remitted in
payment of any tax, fee or other charge imposed by any Governmental Authority
on such Loan, (b) any amount representing a reimbursement of insurance premiums
which are required to be paid to the related Obligor and (c) any amount with
respect to any Loan retransferred or substituted for that is otherwise replaced
by a Qualified Substitute Loan, to the extent such amount is attributable to a
time after the effective date of such replacement.



          Fannie Mae: The Federal National Mortgage Association and any successor
thereto.



          FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.



          Final Certification: Has the meaning set forth in Section 2.05(b)(ii)
hereof.



          Fitch: Fitch Ratings or any successor in interest.



          Foreclosed Loan: As of any date of determination, any Eligible Loan that
as of the end of the preceding Remittance Period has been discharged as a
result of (i) the completion of foreclosure or comparable proceedings on the
Loan Collateral by the Servicer on behalf of the Issuer; (ii) in respect of any
Loan secured by real property, the acceptance of the deed or other



12









 





evidence of title to the related Mortgaged Property in lieu of foreclosure
or other comparable proceeding; or (iii) the acquisition of title to the
related Loan Collateral by operation of law.




          Foreclosure Property: Any real property securing a Foreclosed Loan that
has been acquired by the Servicer on behalf of the Issuer through foreclosure,
deed in lieu of foreclosure or similar proceedings in respect of the related
Foreclosed Loan.



          Freddie Mac: The Federal Home Loan Mortgage Corporation and any successor
thereto.



          GAAP: Generally Accepted Accounting Principles as in effect in the United
States.



          Governmental Authority: With respect to any Person, any national,
government, state or other political division 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 any court or arbitrator having jurisdiction over such Person.



          Indemnified Parties: Has the meaning set forth in Section 8.01(c) hereof.



          Indenture: The Indenture dated as of September 17, 2003, between the
Issuer and the Indenture Trustee, as the same may be amended or supplemented
from time to time.



          Indenture Trustee: Wells Fargo Bank, National Association, a national
banking association, as Indenture Trustee under the Indenture, or any successor
indenture trustee under the Indenture.



          Indenture Trustee Fee: Shall have the meaning given such term in the
Backup Servicer Fee Letter.



          Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of the Loan Originator, the Servicer, the Depositor
or any of their respective Affiliates, (ii) does not have any direct financial
interest in, or any material indirect financial interest in, the Loan
Originator, the Servicer, the Depositor or any of their respective Affiliates
and (iii) is not connected with the Loan Originator, the Depositor, the
Servicer or any of their respective Affiliates, as an officer, employee,
promoter, underwriter, trustee, partner, director or Person performing similar
functions; provided, however, that a Person shall not fail to be Independent of
the Loan Originator, the Depositor, the Servicer or any of their respective
Affiliates merely because such Person is the beneficial owner of 1% or less of
any class of securities issued by the Loan Originator, the Depositor, the
Servicer or any of their respective Affiliates, as the case may be.



          Initial Certification: Has the meaning set forth in Section 2.05(a)
hereof.



          Initial Noteholder: Citigroup Global Markets Realty Corp., a New York
corporation.



          Initial Term: Has the meaning set forth in Section 9.01(c) hereof.



13









 





          Insurance Policies: With respect to any Eligible Loan, any insurance
policy covering liability and physical damage to or loss of the related Loan
Collateral, including, but not limited to, any hazard, flood, title,
environmental, flood, accident or life insurance policy.



          Insurance Proceeds: All amounts collected in respect of any Loan, Loan
Collateral or related property under any Insurance Policy and not required
either pursuant to applicable law or the related Loan Documents to be applied
to the restoration of the related Loan Collateral or paid to the related
Obligor.



          Intercreditor Agreement: The Third Amended and Restated Intercreditor and
Lockbox Administration Agreement, dated as of November 25, 2003, by and among
Wells Fargo Bank, National Association (as successor-by-merger to Wells Fargo
Bank Minnesota, National Association), as the indenture trustee under the Trust
Documents (as defined therein) and under the Citi Conduit Documents (as defined
therein), Bank of America, N.A., as the lockbox bank, SWI, as the
administrative agent, each Securitization Agent (as defined therein), the Loan
Originator, as the original servicer and as the lockbox servicer, and
CapitalSource Funding, LLC, as the owner of the account and as the owner of the
lockbox, as amended from time to time.



          Interest Carry-Forward Amount: With respect to any Payment Date is equal
to the amount, if any, by which the Interest Payment Amount for the immediately
preceding Payment Date exceeded the amount in respect of interest that was
actually paid from the Distribution Account on the immediately preceding
Payment Date, together with any Interest Carry-Forward Amount remaining unpaid
from the previous Payment Date.



          Interest Payment Amount: With respect to any Payment Date, the sum of the
Daily Interest Accrual Amounts for all days in the related Accrual Period.



          Investors: Shall mean the investors listed on Exhibit G attached hereto.



          LIBOR Business Day: Any day on which banks in the City of London are open
and conducting transactions in United States dollars.



          LIBOR Determination Date: With respect to each Accrual Period, the second
Business Day prior to the end of the month immediately preceding the month in
which such Accrual Period commenced.



          LIBOR Margin: For each day, 0.90% with respect to all Notes other than
the Incremental Note; provided that an additional 3.00% shall be added to the
applicable LIBOR Margin upon the occurrence of an Event of Default or a Trigger
Event.



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



          Liquidated Loan: Any Delinquent Loan with respect to which the Servicer
has recovered, whether through a trustee’s sale, foreclosure sale or otherwise,
all amounts it expects to recover from or on account of such Delinquent Loan.



14









 





          Loan: Any loan sold to the Issuer hereunder and pledged to the Indenture
Trustee, which loan includes, without limitation, (i) the Required Loan
Documents and the Loan File and (ii) all right, title and interest of the Loan
Originator in and to the Loan and the related Loan Collateral.



          Loan Collateral: The collateral securing an Underlying Note which,
depending on the type of Loan, typically consists of accounts receivable,
inventory, real estate and/or other tangible and intangible assets of the
Obligors.



          Loan Documents: With respect to an Eligible Loan, the documents
comprising the Custodial Loan File for such Eligible Loan.



          Loan File: With respect to each Eligible Loan, the Custodial Loan File
and the Servicer’s Loan File.



          Loan Interest Rate: With respect to each Eligible Loan, the annual rate
of interest borne by the related Underlying Note, as shown on the Loan
Schedule, and, in the case of an adjustable rate Loan, as the same may be
periodically adjusted in accordance with the terms of such Eligible Loan.



          Loan Margin: With respect to all Eligible Loans and for any date of
determination, the positive difference between (x) the weighted average Loan
Interest Rate of the Loan Pool based on the unpaid principal balance of the
Loans in the Loan Pool and (y) the then-current value of One-Month LIBOR.



          Loan Maturity Date: With respect to any Eligible Loan as of any date of
determination, the date on which the last payment of principal is due and
payable under the related Underlying Note, after taking into account all
principal prepayments received before such date of determination and any
extension permitted under the related Loan Documents (as in effect on the
Closing Date) and this Agreement, but without giving effect to: (a) any
acceleration of the principal of such Eligible Loan by reason of default
thereunder, (b) any grace period permitted by the related Underlying Note, (c)
any modification, waiver or amendment of such Eligible Loan (other than any
such permitted extension), or (d) any anticipated repayment date for such
Eligible Loan.



          Loan Originator: CapitalSource and its permitted successors and assigns.



          Loan Pool: As of any date of determination, the pool of all Loans
conveyed to the Issuer pursuant to this Agreement on all Transfer Dates up to
and including such date of determination, which Loans have not been released
from the Lien of the Indenture pursuant to the terms of the Basic Documents,
together with the rights and obligations of a holder thereof, and the payments
thereon and proceeds therefrom received on and after the applicable Transfer
Date, as identified from time to time on the Loan Schedule.



          Loan Rating: Shall mean either Loan Rating 1, Loan Rating 2, Loan Rating
3, Loan Rating 4, Loan Rating 5 or Loan Rating 6, as applicable.



          Loan Rating 1: Shall mean a rating of 1 pursuant to the Underwriting
Guidelines of the Loan Originator.



15









 





          Loan Rating 2: Shall mean a rating of 2 pursuant to the Underwriting
Guidelines of the Loan Originator.



          Loan Rating 3: Shall mean a rating of 3 pursuant to the Underwriting
Guidelines of the Loan Originator.



          Loan Rating 4: Shall mean a rating of 4 pursuant to the Underwriting
Guidelines of the Loan Originator.



          Loan Rating 5: Shall mean a rating of 5 pursuant to the Underwriting
Guidelines of the Loan Originator.



          Loan Rating 6: Shall mean a rating of 6 pursuant to the Underwriting
Guidelines of the Loan Originator.



          Loan Register: Shall have the meaning set forth in Section 4.02 hereof.



          Loan Sale Agreement: The Loan Sale Agreement, between CapitalSource, as
seller, and the Depositor, as purchaser, dated as of September 17, 2003, and
all supplements and amendments thereto.



          Loan Schedule: The schedule of Loans conveyed to the Issuer on the
Closing Date and on each Transfer Date and delivered to the Initial Noteholder
and the Collateral Custodian in the form of a computer-readable transmission
specifying the information set forth on Exhibit D.



          Loan-to-Value Ratio or LTV: 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 total commitment amount of such Loan as of the date of
its origination (or with respect to any Revolving Loans, the amount funded
under such Loan at such date of determination) and (ii) the denominator of
which is equal to the total discounted collateral value of the collateral
securing such Loan.



          Lock-Box: The post office box to which collections on the Loans are
remitted for retrieval by a Lock-Box Bank and deposited by such Lock-Box Bank
into a Lock-Box Account.



          Lock-Box Account: means any of account numbers 003930559738, 003938703751,
0039393996662 or 003922575610, as applicable, held by CapitalSource or one of
its Affiliates at Bank of America, N.A.



          Lock-Box Agreement: 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 Bank, National Association (as
successor-by-merger to Wells Fargo Bank Minnesota, National Association), as
the indenture trustee under the Trust Documents (as defined therein) and the
Citi Conduit Documents (as defined therein), Bank of America, N.A. as the
lockbox, WSI, as the administrative agent, each Securitization Agent (as
defined therein), the Loan Originator, as the original servicer and as the
lockbox servicer, and CapitalSource Funding LLC, as the owner of the account
and as the owner of the lockbox as amended from time to time.



16









 





          Lock-Box Bank: Bank of America, N.A., or any of the banks or other
financial institutions holding one or more Lock-Box Accounts.



          LPA Assignment: The Assignment of Loans from the Loan Originator to the
Depositor under the Loan Sale Agreement.



          Majority Certificateholders: Has the meaning set forth in the Trust
Agreement.



          Majority Noteholders: The holder or holders of in excess of 50% of the
Note Principal Balance. In the event of the release of the Lien of the
Indenture in accordance with the terms thereof, the Majority Noteholders shall
mean the Majority Certificateholders.



          Maximum Note Principal Balance: Has the meaning set forth in Section 1.01
of the Note Purchase Agreement.



          Monthly Servicer Report: Has the meaning set forth in Section 4.03(b)(2)
hereof.



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



          Mortgage: With respect to any Eligible Loan secured by real property, the
mortgage, deed of trust or other instrument securing the related Underlying
Note, which creates a lien on a fee interest in commercial real property and/or
a lien on a leasehold estate in commercial real property and the assignment of
rents and leases related thereto.



          Mortgaged Property: With respect to an Eligible Loan secured by real
property, the related Obligor’s fee and/or leasehold interest in the commercial
real property (and/or all improvements, buildings, fixtures, building equipment
and personal property thereon (to the extent applicable) and all additions,
alterations and replacements made at any time with respect to the foregoing)
and all other collateral securing repayment of all amounts payable under such
Eligible Loan and the other Required Loan Documents.



          Net Proceeds: With respect to any Payment Date, Proceeds received during
the prior Remittance Period, net of any reimbursements to the Servicer made
from such amounts for any unreimbursed Servicing Compensation and Servicing
Advances (including Nonrecoverable Servicing Advances) made and any other fees
and expenses paid in connection with the foreclosure, inspection, conservation,
liquidation, exchange or other disposition of the related Loans or Loan
Collateral.



          Net Loan Losses: With respect to any Delinquent Loan that is subject to a
modification, an amount equal to the portion of the Principal Balance, if any,
released in connection with such modification.



          Net Worth: With respect to any Person, the excess of total assets of such
Person, over total liabilities of such Person, determined in accordance with
GAAP.



          Nonrecoverable Servicing Advance: With respect to any Eligible Loan or
any Foreclosure Property, (a) any Servicing Advance previously made and not
reimbursed from late collections, condemnation proceeds, Proceeds or Insurance
Proceeds on the related Eligible Loan or Foreclosure Property or (b) a
Servicing Advance proposed to be made in respect of an Eligible



17









 





Loan or Foreclosure Property either of which, in the good faith business
judgment of the Servicer, as evidenced by an Officer’s Certificate of a
Servicing Officer delivered to the Initial Noteholder and the Indenture
Trustee, would not be ultimately recoverable.




          Nonutilization Fee: A fee payable by the Issuer to the Initial Noteholder
on each Payment Date in an amount equal to (a) 0.15% times (b) $600,000,000
less the average daily amount for the immediately preceding month of the Note
Principal Balance divided by (c) 360 and multiplied by (d) the actual number of
calendar days that have elapsed since the immediately preceding Payment Date
(or, with respect to the first Payment Date, the Closing Date).



          Note: Has the meaning set forth in the Indenture.



          Noteholder: Has the meaning set forth in the Indenture.



          Noteholder CIG Advance: Each advance of funds made by the Noteholders to
the Issuer pursuant to the terms of the Basic Documents that allow the Issuer
to fund or maintain its investment in the CIG Loan.



          Note Interest Rate: With respect to each Accrual Period, a per annum
interest rate equal to One-Month LIBOR for the related LIBOR Determination Date
plus the LIBOR Margin for such Accrual Period.



          Noteless Loan: A Loan with respect to which the underlying Loan Documents
do not require the Obligor to execute and deliver a promissory note to evidence
the indebtedness created under such Loan.



          Note Principal Balance: With respect to the Notes, as of any date of
determination (a) the sum of the Additional Note Principal Balances purchased
on or prior to such date of determination pursuant to the Note Purchase
Agreement less (b) all amounts previously distributed in respect of principal
of the Notes on or prior to such date of determination.



          Note Purchase Agreement: The Amended and Restated Note Purchase Agreement
among the Initial Noteholder, the Issuer and the Depositor, dated as of
September 17, 2003 and amended and restated as of October 7, 2004, as the same
may be amended or supplemented from time to time.



          Note Redemption Amount: As of any Record Date, an amount without
duplication equal to the sum of (i) the then outstanding Note Principal Balance
of the Notes, plus the Interest Payment Amount for the related Payment Date,
(ii) any Trust Fees and Expenses due and unpaid on the related Payment Date and
(iii) any Servicing Advance Reimbursement Amount as of such Record Date.



          Obligor: With respect to any Eligible Loan, means the obligor(s) under the
related Required Loan Documents on an Underlying Note, including any Person
that has acquired the related Loan Collateral and assumed the obligations of
the original obligor under the related Required Loan Documents.



18









 





          Officer’s Certificate: A certificate signed by a Responsible Officer of
the Depositor, the Loan Originator, the Servicer or the Issuer, in each case,
as required by this Agreement.



          One-Month LIBOR: With respect to each Accrual Period, the rate determined
by the Indenture Trustee on the related LIBOR Determination Date on the basis
of the offered rate for one-month U.S. dollar deposits, as such rate appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on such LIBOR Determination
Date; provided that if such rate does not appear on Telerate Page 3750, the
rate for such date will be determined on the basis of the offered rates of the
Reference Banks for one-month U.S. dollar deposits, as of 11:00 a.m. (London
time) on such LIBOR Determination Date. In such event, the Indenture Trustee
will request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If on such LIBOR Determination Date, two or
more Reference Banks provide such offered quotations, One-Month LIBOR for the
related Accrual Period shall be the arithmetic mean of all such offered
quotations (rounded to the nearest whole multiple of 1/16%). If on such LIBOR
Determination Date, fewer than two Reference Banks provide such offered
quotations, One-Month LIBOR for the Accrual Period shall be the higher of (i)
LIBOR as determined on the previous LIBOR Determination Date and (ii) the
Reserve Interest Rate. Notwithstanding the foregoing, if, under the priorities
described above, One-Month LIBOR for a LIBOR Determination Date would be based
on One-Month LIBOR for the previous LIBOR Determination Date for the third
consecutive LIBOR Determination Date, the Indenture Trustee shall select an
alternative comparable index (over which the Indenture Trustee has no control),
used for determining one-month Eurodollar lending rates that is calculated and
published (or otherwise made available) by an independent party.



          Opinion of Counsel: A written opinion of counsel who may be employed by
the Servicer, the Depositor, the Loan Originator or any of their respective
Affiliates.



          Optional Disposition Date: Any Business Day, provided one Business Day’s
prior written notice is given.



          Originator Indemnified Party: Has the meaning set forth in Section 8.01(c)
hereof.



          Owner Trustee: Wilmington Trust Company, a Delaware banking corporation,
not in its individual capacity but solely as Owner Trustee under this
Agreement, and any successor owner trustee under the Trust Agreement.



          Owner Trustee Fee: Shall mean the fee payable in the Fee Letter dated as
of the date hereof, among the Loan Originator, the Depositor and the Owner
Trustee.



          Participation Certificate: A valid and enforceable certificate issued
pursuant to a standard participation agreement between the Loan Originator and
the originator of the related Loan, evidencing that the registered owner is the
beneficial owner of an undivided participating ownership interest in the
related Loan.



          Participation Loan: A Loan, originated by the Loan Originator and serviced
by the Servicer in the ordinary course of its business and in accordance with
Accepted Servicing Practices, in which a participation interest has been
granted to another Person in accordance with



19









 





the Underwriting Guidelines and such transaction has been fully
consummated, pursuant to a standard participation agreement.




          Paying Agent: A Person that meets the eligibility standards for the
Indenture Trustee specified in Section 3.03 of the Indenture and is authorized
by the Issuer to make payments to and distributions from the Distribution
Account, including payment of principal of or interest on the Notes on behalf
of the Issuer. The initial Paying Agent shall be the Indenture Trustee.



          Payment Date: The 15th day of each calendar month commencing on the first
such 15th day to occur after the first Transfer Date, or if any such day is not
a Business Day, the first Business Day immediately following such day.



          Percentage Interest: Has the meaning set forth in the Trust Agreement and
the Indenture, as applicable.



          Permitted Investments: Each of the following:




     (a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully
and unconditionally guaranteed, the timely payment or the guarantee of
which constitutes a full faith and credit obligation of the United
States.




     (b) Federal Housing Administration debentures rated “Aa2” or higher
by Moody’s and “AA” or better by S&P.




     (c) Freddie Mac senior debt obligations rated “Aa2” or higher by
Moody’s and “AA” or better by S&P.




     (d) Federal Home Loan Banks’ consolidated senior debt obligations
rated “Aa2” or higher by Moody’s and “AA” or better by S&P.




     (e) Fannie Mae senior debt obligations rated “Aa2” or higher by
Moody’s.




     (f) Federal funds, certificates of deposit, time and demand
deposits, and bankers’ acceptances (having original maturities of not
more than 365 days) of any domestic bank, the short-term debt obligations
of which have been rated “A-1” or better by S&P and “P-1” or better by
Moody’s.




     (g) Investment agreements approved by the Initial Noteholder
provided:




	1.	 	the agreement is with a bank or insurance company
which has an unsecured, uninsured and unguaranteed obligation
(or claims-paying ability) rated “Aa2” or better by Moody’s
and “AA” or better by S&P; and
	 
	2.	 	monies invested thereunder may be withdrawn
without any penalty, premium or charge upon not more than one
day’s notice (provided such notice may be amended or canceled
at any time prior to the withdrawal date); and




20









 






	3.	 	the agreement is not subordinated to any other
obligations of such insurance company or bank; and
	 
	4.	 	the same guaranteed interest rate will be paid on
any future deposits made pursuant to such agreement; and
	 
	5.	 	the Indenture Trustee and the Initial Noteholder
receive an opinion of counsel that such agreement is an
enforceable obligation of such insurance company or bank.






     (h) Commercial paper (having original maturities of not more than
365 days) rated “A-1” or better by S&P and “P-1” or better by Moody’s.




     (i) Investments in money market funds rated “AAAM” or “AAAM-G” by
S&P and “Aaa” or “P-1” by Moody’s.




     (j) Investments approved in writing by the Initial Noteholder;



provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to
any instrument described above, such instrument qualifies as a “permitted
investment” within the meaning of Section 860G(a)(5) of the Code and the
regulations thereunder.




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



          Permitted Liens: Means (i) Liens for state, municipal or other local taxes
if such taxes shall not at the time be due and payable and (ii) liens imposed
by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s
liens and other similar liens arising in the ordinary course of business
securing obligations that are not overdue for a period of more than thirty (30)
days.



          Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.



          Physical Property: Has the meaning set forth in clause (b) of the
definition of “Delivery” above.



          Pool Charged-Off Ratio: With respect to any date of determination, the
aggregate Principal Balance of all Charged-Off Loans as of such date of
determination divided by the Pool Principal Balance as of such date of
determination.



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          Pool Principal Balance: With respect to any date of determination, the
aggregate Principal Balances of the Loans as of such date of determination.



          Pool Purchase Price: With respect to any date of determination, an amount
equal to the sum of the Principal Balance of each Loan as of such date of
determination multiplied by the Purchase Price Percentage relating to each
Loan.



          Predecessor Servicer Work Product: Has the meaning set forth in Section
9.02(d) hereof.



          Principal Balance: With respect to any Loan, (i) at the Transfer Date,
the Transfer Date Principal Balance and (ii) with respect to any other date of
determination, the outstanding unpaid principal balance of the Loan as of such
date of determination (after giving effect to all payments received thereon and
the allocation of any Net Loan Losses with respect thereto for a Delinquent
Loan prior to such date of determination); provided, however, that any
Liquidated Loan shall be deemed to have a Principal Balance of zero.



          Principal Collections Account: The account designated as such,
established and maintained by the Servicer in accordance with Section
5.01(a)(2) hereof.



          Proceeding: Any suit in equity, action at law or other judicial or
administrative proceeding.



          Proceeds: With respect to a Liquidated Loan, any cash amounts received in
connection with the liquidation of such Loan, whether through sale, foreclosure
sale, liquidation, exchange or other disposition, whether such disposition is
voluntary or involuntary, and any other amounts required to be deposited in the
Collection Account pursuant to Section 5.01(b) hereof, in each case other than
Insurance Proceeds.



          Purchase Price Percentage: On any Business Day, with respect to
each Loan, a percentage determined as follows:




          (a) with respect to all Senior Secured Loans assigned Loan
Rating 1, Loan Rating 2, Loan Rating 3 or Loan Rating 4, 80%;




          (b) with respect to all Subordinated Loans assigned Loan
Rating 1, Loan Rating 2, Loan Rating 3 or Loan Rating 4, 50%;




          (c) with respect to all Senior Secured Loans assigned Loan
Rating 5, 50%;




          (d) with respect to all Subordinated Loans assigned Loan
Rating 5, 25%; and




          (e) with respect to all Loans assigned Loan Rating 6, 0%.



          Qualified Substitute Loan: An Eligible Loan or Eligible Loans substituted
for a Deleted Loan or other Loan pursuant to Section 3.05 hereof, which (i)
complies or comply as of the date of substitution with each representation and
warranty set forth in Section 3.04 and (ii) is



22









 





or are not Delinquent as of the date of substitution for such Deleted
Loan(s), Loan(s) or Unqualified Loan(s), as the case may be.




          Rating Agencies: S&P, Moody’s and Fitch or such other nationally
recognized credit rating agencies as may from time to time be designated in
writing by the Majority Noteholders in their sole discretion.



          Record Date: With respect to each Payment Date, the close of business two
(2) Business Days before such Payment Date.



          Reference Banks: Bankers Trust Company, Barclay’s Bank PLC, The Tokyo
Mitsubishi Bank and National Westminster Bank PLC and their successors in
interest; provided, however, that if the Initial Noteholder determines that any
of the foregoing banks are not suitable to serve as a Reference Bank, then any
leading banks selected by the Initial Noteholder with the approval of the
Issuer, which approval shall not be unreasonably withheld, which are engaged in
transactions in Eurodollar deposits in the international Eurocurrency market
(i) with an established place of business in London and (ii) which have been
designated as such by the Initial Noteholder.



          Remittance Date: The Business Day immediately preceding each Payment
Date.



          Remittance Period: With respect to any Payment Date, the period
commencing immediately following the Record Date for the preceding Payment Date
(or, in the case of the initial Payment Date, commencing immediately following
the initial Transfer Date) and ending on and including the related Record Date.



          Repurchase Price: With respect to a Loan the product of the applicable
Purchase Price Percentage multiplied by the Principal Balance thereof as of
such date of repurchase.



          Required Equity Contribution: On any date of determination, an amount
equal to the excess of (a) the sum of (i) the Borrowing Base on such date plus
(ii) all collections on deposit in the Principal Collections Account on such
date, minus (b) the Note Principal Balance on such date, which amount shall at
all times be equal to at least $10,000,000.



          Required Interest Coverage Amount: (a) For any date of determination
occurring during the Revolving Period, an amount equal to the sum of (x) the
product of (i) the Maximum Note Principal Balance, (ii) the sum of (A) the Note
Interest Rate and (B) the per annum rate at which the Trust Fees and Expenses
accrue, divided by 12 and (iii) 1.20 and (y) the Interest Carry-Forward Amount
for the preceding Payment Date and (b) for any other date of determination, an
amount equal to amounts collected with respect to the Loans, including without
limitation, all Proceeds, Insurance Proceeds and proceeds in connection with
the repurchase or substitution of any Loan pursuant to the terms hereof.



          Required Loan Documents: With respect to: (a) any Eligible Loan (other
than an Assigned Loan, a Participation Loan, an Alarm Service Loan or a
Noteless Loan), the duly executed original of the Underlying Note and an
assignment (which may be by endorsement or allonge) of such Underlying Note,
signed by an officer of the Loan Originator; any related loan agreement, the
Loan Schedule, participation agreement (if set forth on the Loan Schedule),
together with originals or copies of each of the following: the acquisition
agreement (if set forth



23









 





on the Loan Schedule), subordination agreement (if set forth on the Loan
Schedule), intercreditor agreement (if set forth on the Loan Schedule),
security agreements or instruments (to the extent any security interest in
collateral has been granted and as set forth in the Loan Schedule or the Loan
Register), UCC financing statements (to the extent any security interest in
collateral has been granted and as set forth in the Loan Schedule or the Loan
Register), guarantee (if set forth on the Loan Schedule), for each Eligible
Loan secured by a Mortgaged Property, an original Assignment of Mortgage and an
original Assignment of Leases and Rents; and (b) any Eligible Loan which is an
Assigned Loan (if such Eligible Loan is identified as an Assigned Loan on the
Loan Schedule), (i) the duly executed original of each of the following: the
Underlying Note including an assignment (which may be by endorsement or
allonge), signed by an officer of the Loan Originator and the assignment
agreement and (ii) duly executed originals or copies of each of the following:
any related loan agreement, subordination agreement (if set forth on the Loan
Schedule), intercreditor agreement (if set forth on the Loan Schedule),
security agreements or instruments (to the extent any security interest in
collateral has been granted and as set forth in the Loan Schedule or the Loan
Register), UCC financing statements (to the extent any security interest in
collateral has been granted and as set forth in the Loan Schedule or the Loan
Register), guarantee (if set forth on the Loan Schedule), for each Assigned
Loan secured by a Mortgaged Property, an original Assignment of Mortgage and an
original Assignment of Leases and Rents; and (c) any Assigned Loan which is a
participation interest, (i) the duly executed original or copy of each of the
following: the participation agreement, signed by an officer of the Loan
Originator, and the related Participation Certificate and (ii) duly executed
originals or copies of each of the following: any related loan agreement,
subordination agreement (if set forth on the Loan Schedule), intercreditor
agreement (if set forth on the Loan Schedule), security agreements or
instruments (to the extent any security interest in collateral has been granted
and as set forth in the Loan Schedule or the Loan Register), UCC financing
statements (to the extent any security interest in collateral has been granted
and as set forth in the Loan Schedule or the Loan Register) and guarantee (if
set forth on the Loan Schedule); and (d) any Eligible Loan which is an Alarm
Service Loan, the duly executed of each of the following: the original (and to
the extent it exists, the sole chattel paper counterpart) master purchase
agreement and, if any, security agreement and a copy of the purchase statement
related to each Alarm Service Loan, signed by an officer of the originator of
such Alarm Service Loan together with copies of any related assignment
agreements, the Loan Schedule, subordination agreement (if set forth on the
Loan Schedule), intercreditor agreement (if set forth on the Loan Schedule),
security agreements or instruments (to the extent any security interest in
collateral has been granted and as set forth in the Loan Schedule or the Loan
Register), UCC financing statements (to the extent any security interest in
collateral has been granted and as set forth in the Loan Schedule or the Loan
Register) and guarantee (if set forth on the Loan Schedule); and (e) any
Eligible Loan which is a Noteless Loan, a copy of the Loan Register (together
with a certificate of a Responsible Officer of the Servicer certifying to the
accuracy of such Loan Register as of the date such Loan is included as a part
of the Collateral) and the other documents required by clause (a) above other
than an executed original Underlying Note and related allonge.




          Required Overcollateralization Amount: With respect to any Business Day,
an amount equal to the greatest of (a) the positive difference between (i) the
Pool Principal Balance on such Business Day and (ii) the Pool Purchase Price
(reduced by the amount, without duplication, of any Loan in excess of the
Concentration Limitations); (b) an amount equal to 25% of the aggregate
Principal Balance of the Eligible Loans; and (c) the Required Equity
Contribution).



24









 





          Reserve Interest Rate: With respect to any LIBOR Determination Date, the
rate per annum that the Initial Noteholder determines to be either (i) the
arithmetic mean (rounded to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Initial Noteholder are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market or
(ii) in the event that the Initial Noteholder can determine no such arithmetic
mean, the lowest one-month U.S. dollar lending rate which New York City banks
selected by the Initial Noteholder are quoting on such LIBOR Determination Date
to leading European banks.



          Responsible Officer: When used with respect to the Indenture Trustee or
Collateral Custodian, any officer within the Corporate Trust Office of such
Person, including any Vice President, Assistant Vice President, Secretary,
Assistant Secretary or any other officer of such Person 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 Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and any officer of the Administrator who is identified
on the list of Authorized Officers delivered by the Administrator on the date
hereof (as such list may be modified or supplemented from time to time
thereafter) to the Indenture Trustee and the Owner Trustee. When used with
respect to the Depositor, the Servicer, the Loan Originator or any Affiliate of
any of them, the Controller, the President, any Vice President or the Treasurer
of such Person.



          Review Criteria: Has the meaning set forth in Section 2.05(b)(ii) hereof.



          Revolving Loan: A Loan that is a line of credit arising from an extension
of credit by the Loan Originator to an Obligor.



          Revolving Period: With respect to the Notes, the period commencing on
September 17, 2003 and ending on the earlier of (i) 364 days after October 7_,
2004 unless extended by the mutual agreement of CapitalSource and the Initial
Noteholder within thirty (30) days prior to the expiration date, and (ii) the
date on which the Revolving Period is terminated pursuant to Section 2.08.



          Sales Price: For any Transfer Date and any Eligible Loan, the product of
(i) the applicable Purchase Price Percentage multiplied by (b) the Principal
Balance of such Eligible Loan as of such Transfer Date.



          S&SA Assignment: An Assignment, in the form of Exhibit C hereto, of Loans
and other property from the Depositor to the Issuer pursuant to this Agreement.



          Scheduled Payment: 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 Transfer Date, as adjusted pursuant to the terms of
the related Required Loan Documents, and any such payment received after the
related Transfer Date.



          Securities: The Notes and the Trust Certificates.



25









 





          Securities Intermediary: A “securities intermediary” as defined in
Section 8-102(a)(14) of the UCC that is holding a Trust Account for the
Indenture Trustee as the sole “entitlement holder” as defined in Section
8-102(a)(7) of the UCC.



          Securitization: A sale or transfer of Loans by the Issuer to any other
Person in order to effect one or a series of structured-finance securitization
transactions, including but not limited to transactions involving the issuance
of securities which may be treated for federal income tax purposes as
indebtedness of CapitalSource or one or more of its wholly owned subsidiaries.



          Securityholder: Any Noteholder or Certificateholder.



          Senior Loan: A Loan that (i) is secured by a first priority lien on all of
the Obligor’s assets constituting Loan Collateral for such Loan (subject to
Permitted Liens), (ii) has a Loan-to-Value Ratio less than or equal to 90% and
(iii) 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.



          Senior B-Note Loan: Any multilender Loan that (i) is secured by a first
priority lien on all the Obligor’s assets constituting Loan Collateral for such
Loan (subject to Permitted Liens), (ii) has a Loan-to-Value Ratio less than or
equal to 90%, and (iii) 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 Loan Collateral, 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 Secured Loan: Either a Senior Loan or a Senior B-Note Loan.



          Servicer: CapitalSource, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.



          Servicer Event of Default: Has the meaning set forth in Section 9.01
hereof.



          Servicer Indemnified Party: Has the meaning set forth in Section 8.01(a)
hereof.



          Servicer Extension Notice: Has the meaning set forth in Section 9.01(c)
hereof.



          Servicer’s Loan File: With respect to each Eligible Loan, all documents
(or electronic images thereof) relating to such Eligible Loan, including,
without limitation, copies of all of the Loan Documents included in the related
Custodial Loan File.



          Servicing Advance Reimbursement Amount: With respect to any Record Date,
the amount of any Servicing Advances that have not been reimbursed as of such
date, including Nonrecoverable Servicing Advances.



          Servicing Advances: Advances that are made by the Servicer in conformity
with the Underwriting Guidelines.



          Servicing Compensation: The Servicing Fee, assumption fees, late payment
charges and other ancillary income with respect to any Loan.



26









 





          Servicing Fee: With respect to each Eligible Loan (including any Eligible
Loan that has been foreclosed and for which the related Mortgaged Property has
become a Foreclosure Property, but excluding any Liquidated Loan), for each
Remittance Period, a per annum fee equal to the sum of (i) 1.00% of the
Principal Balance of each Loan (other than Revolving Loans) and (ii) 1.25% of
the Principal Balance of each Revolving Loan, in each case at the beginning of
such Remittance Period payable to the Servicer for the servicing of such
Eligible Loan out of Scheduled Payments made by the Obligor thereunder in an
amount determined in the manner in effect on the related Transfer Date.



          Servicing Officer: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Eligible Loans whose
name and specimen signature appears on a list of servicing officers annexed to
an Officer’s Certificate furnished by the Servicer on the date hereof to the
Issuer and the Indenture Trustee, on behalf of the Noteholders, as such list
may from time to time be amended.



          S&P: Standard & Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc.



          State: Any one of the states of the United States of America or the
District of Columbia.



          Subordinated Loan: Any Loan other than a Senior Loan or a Senior B-Note
Loan.



          Subsidiary: With respect to any Person, any corporation, partnership or
other entity of which at least a majority of the securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.



          Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Section 2.05 or Section 3.05 hereof, the amount, if any, by which
(a) the aggregate principal balance of any Qualified Substitute Loans (after
application of principal payments received on or before the related Transfer
Date) is less than (b) the aggregate of the Principal Balances of the related
Deleted Loans as of any date of determination.



          Tangible Net Worth: With respect to any Person, as of any date of
determination, the consolidated Net Worth of such Person and its Subsidiaries,
less the consolidated net book value of all assets of such Person and its
Subsidiaries (to the extent reflected as an asset in the balance sheet of such
Person or any Subsidiary at such date) which will be treated as intangibles
under GAAP, including, without limitation, such items as deferred financing
expenses, net leasehold improvements, good will, trademarks, trade names,
service marks, copyrights, patents, licenses and unamortized debt discount and
expense; provided, that residual securities issued by such Person or its
Subsidiaries shall not be treated as intangibles for purposes of this
definition.



          Term Event: Has the meaning set forth in Section 9.01(c) hereof.



27









 





          Termination Date: The earliest of (a) the date of termination of the
Revolving Period, pursuant to Section 2.08, (b) the date upon which this
Agreement terminates pursuant to Section 12.01 or is optionally terminated by
the Servicer pursuant to Section 12.02, (c) the date of declaration of the
Termination Date pursuant to Section 9.01(d) or the date of the automatic
occurrence of the Termination Date pursuant to Section 9.01(e), (d) the
Maturity Date and (e) the termination of the Amortization Period.



          Termination Price: Has the meaning set forth in Section 12.02 hereof.



          Third Party Claim: Has the meaning set forth in Section 8.01(d) hereof.



          Transfer Date: With respect to each Eligible Loan, the day such Loan is
sold and conveyed to the Depositor by the Loan Originator pursuant to the Loan
Sale Agreement and to the Issuer by the Depositor pursuant to Section 2.01
hereof, which results in an increase in the Note Principal Balance by the
related Additional Note Principal Balance. With respect to any Qualified
Substitute Loan, the Transfer Date shall be the day such Loan is conveyed to
the Issuer pursuant to Section 2.05 or 3.05. No Transfer Date shall occur
following the termination of the Revolving Period or during the Amortization
Period.



          Transfer Date Principal Balance: As to each Loan, its Principal Balance as
of the close of business on the Transfer Date (after giving effect to any
payments received on the Loan on or before the Transfer Date).



          Transition Costs: Has the meaning set forth in Section 9.02(a) hereof.



          Trigger Event: Shall exist, as of any Record Date, if any of the
following events shall have occurred and be continuing for fifteen (15) days
(i) the available Excess Spread is less than 2.00% (determined at all times
using a LIBOR Margin of 0.90%); (ii) the weighted average Loan Rating of the
Loan Pool exceeds 3.0; (iii) the aggregate Principal Balance of all Delinquent
Loans and Foreclosed Loans as of such Record Date divided by the Pool Principal
Balance as of such Record Date is greater than 10%; (iv) the Pool Charged-Off
Ratio as of such Record Date is greater than 5%; (v) a Borrowing Base
Deficiency shall have occurred and shall not have been cured within five (5)
Business Days of the occurrence thereof; (vi) a Servicer Event of Default shall
have occurred; (vii) a Change of Control of CapitalSource shall have occurred;
(viii) CapitalSource shall have breached any financial covenant set forth in
Section 7.01 hereof; (ix) the cumulative sum of all Delinquent and Charged-Off
Loans in the loan pools pledged as part of all Securitizations effected by the
Loan Originator prior to such date of determination exceed 7.5% of the
aggregate original pool principal balance of such loan pools; or (x)
CapitalSource shall have suffered an event of default with respect to any
indebtedness for an amount in excess of $10,000,000.



          Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.



          Trust Accounts: The Distribution Account, the Collection Account and the
Principal Collections Account.



28









 





          Trust Agreement: The Trust Agreement dated as of September 17, 2003
between the Depositor and the Owner Trustee, as the same may be amended and
supplemented from time to time.



          Trust Certificate: Has the meaning set forth in the Trust Agreement.



          Trust Fees and Expenses: As of each Payment Date, an amount equal to the
Servicing Compensation, the Owner Trustee Fee, if applicable, and the Indenture
Trustee Fee, if any, the Backup Servicing Fee, and any expenses of the
foregoing.



          UCC: The Uniform Commercial Code as in effect in the State of New York.



          UCC Assignment: A form “UCC-2” or “UCC-3” statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction to
reflect an assignment of a secured party’s interest in collateral.



          UCC-1 Financing Statement: A financing statement meeting the requirements
of the Uniform Commercial Code of the relevant jurisdiction.



          Underlying Note: With respect to an Eligible Loan, the executed
promissory note or other evidence of the indebtedness (including, without
limitation, the related Loan Register to the extent no physical promissory note
or other instrument was executed) of the related Obligor or Obligors.



          Underwriting Guidelines: The written credit and collection policies and
procedures manual of the Loan Originator, as the same may be amended from time
to time.



          Unqualified Loan: Has the meaning set forth in Section 3.05(a) hereof.
Whole Loan Sale: A Disposition of Loans pursuant to a whole-loan sale.



          Section 1.02 Other Definitional Provisions.



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



          (b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto unless otherwise defined therein.



          (c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under GAAP. To the extent that the definitions of accounting terms in this
Agreement or in any such certificate or other document are inconsistent with
the meanings



29









 





of such terms under GAAP, the definitions contained in this Agreement or
in any such certificate or other document shall control.




          (d) The words “hereof”, “herein”, “hereunder” and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Article, Section, Schedule and
Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term “including” shall mean “including without limitation”.



          (e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.



ARTICLE II




CONVEYANCE OF THE COLLATERAL;



ADDITIONAL NOTE PRINCIPAL BALANCES




          Section 2.01 Conveyance of the Collateral; Additional Note
Principal Balances.



          (a) (i) On each Transfer Date during the Revolving Period, the Depositor
agrees to offer for sale and to sell to the Issuer each of the Loans sold and
contributed to the Depositor pursuant to the Loan Sale Agreement on such
Transfer Date and the Issuer agrees to purchase such Loans offered for sale by
the Depositor. No Transfer Date shall occur following the termination of the
Revolving Period or during the Amortization Period. In addition, on each
Transfer Date, the Depositor agrees to offer for sale to the Issuer and the
Issuer agrees to purchase from the Depositor additional Loans in an amount
sufficient to maintain the Required Overcollateralization Amount.




     (ii) In consideration of the payment of the Additional Note Principal
Balance pursuant to Section 2.06 hereof, (A) the Depositor as of the
related Transfer Date and concurrently with the execution and delivery
hereof, hereby sells and assigns to the Issuer, without recourse, but
subject to the other terms and provisions of this Agreement, all of the
right, title and interest of the Depositor in and to the Loans and the
Loan Collateral transferred on such date and (B) the Issuer grants and
pledges such Loans and such Loan Collateral to the Indenture Trustee on
behalf of the Noteholders as security for the Issuer’s obligations under
the Indenture and the other Basic Documents.




     (iii) During the Revolving Period, on each Transfer Date, subject to
the conditions precedent set forth in Section 2.06 and in accordance with
the procedures set forth in Section 2.01(c), the Depositor, pursuant to a
S&SA Assignment, will assign to the Issuer without recourse all of its
respective right, title and interest, in and to the Loans and all
proceeds thereof listed on the Loan Schedule attached to such S&SA
Assignment, including all interest and principal on or with respect to
such Loans on or after the related Transfer Date, together with all
right, title and interest in and to the proceeds of any related Insurance
Policies and all of the Depositor’s rights, title and interest in and to
(but none of its obligations under) the Loan Sale Agreement and all
proceeds of the foregoing.



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          (b) As of the Closing Date and as of each Transfer Date, the Issuer
acknowledges (or will acknowledge pursuant to the S&SA Assignment) the
conveyance to it of the Loans and Loan Collateral, including all rights, title
and interest of the Depositor in and to the Loans and the Loan Collateral,
receipt of which is hereby acknowledged by the Issuer. Concurrently with such
delivery, as of the Closing Date and as of each Transfer Date, pursuant to the
Indenture the Issuer pledges the Loans and the Loan Collateral to the Indenture
Trustee. In addition, concurrently with such delivery on the Closing Date and
in exchange therefor, the Owner Trustee, pursuant to the instructions of the
Depositor, has executed (not in its individual capacity, but solely as Owner
Trustee on behalf of the Issuer) and caused the Trust Certificates to be
authenticated and delivered (which may be by facsimile transmission or in an
electronic format) to or at the direction of the Depositor.



          (c) (i) Pursuant to and subject to the Note Purchase Agreement, the Issuer
may, at its sole option, from time to time request that the Initial Noteholder
advance on any Transfer Date Additional Note Principal Balances and, upon
satisfaction of the conditions precedent to such advance in accordance with the
Note Purchase Agreement, the Initial Noteholder shall remit on such Transfer
Date, to or at the direction of the Depositor, an amount equal to such
Additional Note Principal Balances.




     (ii) Notwithstanding anything to the contrary herein, in no event
shall the Issuer be required to purchase Loans and the Initial Noteholder
shall not be required to advance Additional Note Principal Balances on a
Transfer Date if the conditions precedent to a transfer of the Loans
under Section 2.06 and the conditions precedent to the purchase of
Additional Note Principal Balances set forth in Section 3.01 of the Note
Purchase Agreement have not been fulfilled.




     (iii) The Servicer shall appropriately note such Additional Note
Principal Balance (and the increased Note Principal Balance) in the next
succeeding Monthly Servicer Report; provided, however, that failure to
make any such notation in such Monthly Servicer Report or any error in
such notation shall not adversely affect any Noteholder’s rights with
respect to its Note Principal Balance and its right to receive interest
and principal payments in respect of the Note Principal Balance held by
such Noteholder. The Initial Noteholder shall record on the schedule
attached to such Noteholder’s Note, the date and amount of any Additional
Note Principal Balance advanced by it; provided, that failure to make
such recordation on such schedule or any error in such schedule shall not
adversely affect any Noteholder’s rights with respect to its Note
Principal Balance and its right to receive interest payments in respect
of the Note Principal Balance held by such Noteholder.




     (iv) Absent manifest error, the Note Principal Balance of each Note
as set forth in the Initial Noteholder’s records shall be binding upon
the Indenture Trustee, the Noteholders and the Issuer, notwithstanding
any notation made by the Servicer in its Monthly Servicer Report pursuant
to the preceding paragraph.



          (d) The Depositor shall, at its own expense, within one Business Day
following the Transfer Date, indicate in its computer files that the Loans
identified in each S&SA Assignment have been sold to the Issuer pursuant to
this Agreement.



31









 





          (e) Subject to Section 3.01(o), the parties hereto intend that each of the
conveyances contemplated hereby be sales from the Depositor to the Issuer of
all of the Depositor’s right, title and interest in and to the Loans and the
Loan Collateral. In the event the transactions set forth herein are deemed not
to be a sale, the Depositor hereby grants to the Issuer a security interest in
all of the Depositor’s right, title and interest in, to and under the Loans and
the Loan Collateral related thereto, whether now existing or hereafter created,
to secure all of the Depositor’s obligations hereunder, and this Agreement
shall constitute a security agreement under applicable law.



          Section 2.02 Ownership and Possession of Loan Files.



          With respect to each Loan, as of the related Transfer Date the ownership
of the related Required Loan Documents and the contents of the related
Servicer’s Loan File and Custodial Loan File shall be vested in the Issuer as
part of the Collateral for the benefit of the Securityholders, and with respect
to each Eligible Loan, as of the related Transfer Date, the related Required
Loan Documents and the contents of the related Servicer’s Loan File and
Custodial Loan File shall be Granted (as defined in the Indenture) and pledged
to the Indenture Trustee on behalf of the Securityholders, and the Collateral
Custodian shall take possession of the Custodial Loan Files as contemplated in
Section 2.05 hereof.



          Section 2.03 Books and Records; Intention of the Parties.



          On the Closing Date, the Depositor shall, at such party’s sole expense,
cause to be filed UCC-1 Financing Statements naming the Issuer as “secured
party” and describing the Collateral being sold by the Depositor to the Issuer
with the office of the Secretary of State of the state in which the Depositor
is located and in any other jurisdictions as shall be necessary to perfect a
security interest in the Collateral. In addition, on the Closing Date, the Loan
Originator shall, at its expense, cause to be filed UCC-1 Financing Statements
naming the Depositor as “secured party” and describing the Loans being sold by
the Loan Originator to the Depositor with the office of the Secretary of the
State in which the Loan Originator is located and in such other jurisdictions
as shall be necessary to perfect a security interest in the Collateral.



          Section 2.04 Delivery of Loan Documents.



          (a) The Loan Originator shall (i) no later than 12:00 noon New York time
on the Business Day prior to the related Transfer Date, deliver or cause to be
delivered to the Collateral Custodian, as the designated agent of the Indenture
Trustee, by facsimile transmission or in an electronic format mutually agreed
to by the parties, a Loan Schedule and, with regard to each Loan (other than an
Alarm Service Loan) a copy of the executed Underlying Note endorsed in blank or
the related Loan Register and Assignment of Mortgage, if any, endorsed in blank
and (ii) with respect to each Alarm Service Loan transferred to the Issuer on
such Transfer Date, within four Business Days after such Transfer Date, deliver
(or caused to be delivered) to the Collateral Custodian, the original (and to
the extent it exists, the sole chattel paper counterpart) master purchase
agreement and, if any, security agreement and a copy of the purchase statement
related to each Alarm Service Loan, and all other Required Loan Documents for
each Alarm Service Loan, and (iii) with respect to each Loan (other than an
Alarm Service Loan) transferred to the Issuer on such Transfer Date, within two
Business Days after such Transfer Date, deliver (or caused to be delivered) to
the Collateral Custodian the original and duly executed Underlying Note (if
any) and Assignment of Mortgage (if any), any security agreement related to
each Loan



32









 





(other than an Alarm Service Loan) transferred to the Issuer, and all
other Required Loan Documents for each Loan (other than an Alarm Service Loan)
(other than those documents required to be retained by the Servicer in
connection with the servicing and administration of the Loans) (with respect to
each Loan (including each Alarm Service Loan), a “Custodial Loan File”).



          (b) The Loan Originator shall, within two (2) Business Days after the
related Transfer Date, deliver or cause to be delivered to the Servicer the
related Servicer’s Loan File for the benefit of, and as agent for, the
Indenture Trustee, on behalf of the Noteholders.



          (c) The Indenture Trustee shall cause the Collateral Custodian to take and
maintain continuous physical possession of the Custodial Loan Files in the
State of Minnesota and, in connection therewith, shall act solely as agent for
the Noteholders in accordance with the terms hereof and not as agent for the
Loan Originator, the Servicer or any other party.



          (d) Upon discovery by any of the Issuer, the Depositor, the Loan
Originator, the Servicer, the Indenture Trustee, the Paying Agent, the
Collateral Custodian, the Backup Servicer and/or a Noteholder of the Loan
Originator’s or the Depositor’s failure to deliver in accordance with the terms
and conditions of this Agreement and the other Basic Documents any of the
Required Loan Documents required to be included in the Loan File for an Alarm
Service Loan, the Person discovering such breach shall give prompt written
notice of such failure to the Issuer, the Depositor, the Loan Originator, the
Servicer, the Indenture Trustee, the Paying Agent, the Collateral Custodian,
the Backup Servicer and each Noteholder; provided, however, that the failure to
give such notice shall not affect the obligations of the Loan Originator and
the Depositor hereunder. Unless such breach has been waived by the Initial
Noteholder or Depositor shall not have cured such breach within five (5)
Business Days of the earlier of notice of such breach or knowledge thereof
(provided that, with respect to the original (and to the extent it exists, the
sole chattel paper counterpart) master purchase agreement and, if any, security
agreement related to an Alarm Service Loan, there shall be no right to cure
such breach), the Depositor shall repurchase from the Issuer, and the Loan
Originator shall repurchase from the Depositor, the Loan(s) for which such
failure has occurred by paying to the Indenture Trustee the Sales Price
therefor.



Section 2.05 Acceptance by the Indenture Trustee of the Loans;
Certain Substitutions and Repurchases; Certification by the
Collateral Custodian.



          (a) Based on the initial certification received by it from the Collateral
Custodian in the form of Exhibit E-1 attached hereto (the “Initial
Certification”), the Indenture Trustee acknowledges receipt of, subject to the
further review and exceptions reported by the Collateral Custodian pursuant to
the procedures described below, the documents (or certified copies thereof)
delivered to the Indenture Trustee or the Collateral Custodian on its behalf
pursuant to Section 2.04 and declares that it holds and will continue to hold
directly those documents and any amendments, replacements or supplements
thereto and all other assets constituting the Collateral delivered to it in
trust for the use and benefit of all present and future Noteholders.



          (b) (i) On or before 11:00 a.m. New York City time on the related Transfer
Date, the Collateral Custodian will deliver to the Initial Noteholder, with a
copy to the Indenture



33









 





Trustee, an Initial Certification, confirming whether or not it has
received, by facsimile transmission or in electronic format mutually agreed
upon by the parties, a copy of either the executed Underlying Note or Loan
Register and the Assignment of Mortgage, if any, in each case other than the
Loan Register, endorsed in blank, for each Loan which the Issuer will request
the Initial Noteholder to advance Additional Note Principal Balances on such
Transfer Date pursuant to, and subject to the conditions of, the Note Purchase
Agreement.





     (ii) Within five (5) Business Days of its receipt of the remaining
Required Loan Documents for each such Loan, the Collateral Custodian
shall review the related Loan and Required Loan Documents to confirm that
(A) any Underlying Note has been properly executed and has no missing or
mutilated pages, (B) Uniform Commercial Code Financing Statements and
other filings (required by the Required Loan Documents) have been made,
(C) other than with respect to a Loan the Loan Collateral for which
consists of receivables only as indicated on the Loan Schedule, an
Insurance Policy is contained in such Required Loan Documents with
respect to any real or personal property constituting the Loan
Collateral, and (D) the related Principal Balance, Loan number and
Obligor name with respect to such Loan is referenced on the related Loan
List and is not a duplicate Loan (collectively, the “Review Criteria”).
In order to facilitate the foregoing review by the Collateral Custodian,
in connection with each delivery of Required Loan Documents hereunder to
the Collateral Custodian, the Servicer shall provide to the Collateral
Custodian an electronic file (in Excel or a comparable format) that
contains the related Loan Schedule or that otherwise contains the Loan
number and the name of the Obligor with respect to each related Loan.
Upon completion of such review the Collateral Custodian will deliver a
final certification in the form attached hereto as Exhibit E-2 (the
“Final Certification”) to the Initial Noteholder, with a copy to the
Indenture Trustee and the Loan Originator, confirming its receipt of the
Required Loan Documents. The Final Certification will also contain an
exception report attached as an exhibit thereto which will identify any
Loans for which (i) the Collateral Custodian has not received a Required
Loan Document or (ii) any Review Criteria is not satisfied.




     (iii) The Loan Originator shall have ten (10) Business Days to
deliver any missing Required Loan Documents or correct any non-compliance
with a Review Criteria. If after the conclusion of such time period the
Loan Originator has not delivered such missing Required Loan Document or
cured any non-compliance by a Loan with a Review Criteria and such
failure has a material adverse effect on the value or enforceability of
any Eligible Loan or the interests of the Securityholders in any Eligible
Loan, the Loan Originator shall repurchase such Eligible Loan within one
(1) Business Day of notice thereof from the Indenture Trustee or the
Initial Noteholder at the Repurchase Price thereof with respect to such
Eligible Loan by depositing such Repurchase Price in the Collection
Account; provided, however that the Loan Originator shall only be
required to pay the Repurchase Price with respect to any such Loan to the
extent that, at the time such repurchase is required pursuant to terms
hereof, a Borrowing Base Deficiency would exist. In lieu of such a
repurchase, the Depositor and Loan Originator may comply with the
substitution provisions of Section 3.05 hereof; provided, however that
the Loan Originator shall only be required to comply with the
substitution provisions to the extent that a Borrowing Base Deficiency
would exist at the time of such proposed substitution. The Loan
Originator shall provide the Servicer, the Indenture Trustee, the Issuer
and the Initial Noteholder with a certification of a Responsible Officer



34









 





on or prior to such repurchase or substitution indicating that the
Loan Originator intends to repurchase or substitute such Eligible Loan.




     (iv) It is understood and agreed that the obligation of the Loan
Originator to repurchase or substitute any such Loan pursuant to this
Section 2.05(b) shall constitute the sole remedy with respect to such
failure to comply with the foregoing delivery requirements.



          (c) In performing its reviews of the Custodial Loan Files, the Collateral
Custodian shall have no responsibility to determine the genuineness of any
document contained therein and any signature thereon. The Collateral Custodian
shall not have any responsibility for determining whether any document is valid
and binding, whether the text of any assignment or endorsement is in proper or
recordable form, whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or whether a blanket assignment is
permitted in any applicable jurisdiction.



          (d) The Servicer’s Loan File shall be held in the custody of the Servicer
for the benefit of the Indenture Trustee, on behalf of the Noteholders. It is
intended that, by the Servicer’s agreement pursuant to this Section 2.05(d),
the Indenture Trustee shall be deemed to have possession of the Servicer’s Loan
Files for purposes of Section 9-313 of the UCC of the state in which such
documents or instruments are located. The Servicer shall promptly report to
the Indenture Trustee any failure by it to hold the Servicer’s Loan File as
herein provided and shall promptly take appropriate action to remedy any such
failure. In acting as custodian of such documents and instruments, the
Servicer agrees not to assert any legal or beneficial ownership interest in the
Eligible Loans or such documents or instruments. Subject to Section 8.01(d),
the Servicer agrees to indemnify the Securityholders and the Indenture Trustee,
their officers, directors, employees, agents and “control persons” as such term
is used under the Act and under the Securities Exchange Act of 1934, as amended
for any and all liabilities, obligations, losses, damages, payments, costs or
expenses of any kind whatsoever which may be imposed on, incurred by or
asserted against the Securityholders or the Indenture Trustee as the result of
the gross negligence or willful misfeasance by the Servicer relating to the
maintenance and custody of such documents or instruments which have been
delivered to the Servicer; provided, however, that the Servicer will not be
liable for any portion of any such amount resulting from the gross negligence
or willful misconduct of any Securityholders or the Indenture Trustee; and
provided, further, that the Servicer will not be liable for any portion of any
such amount resulting from the Servicer’s compliance with any instructions or
directions consistent with this Agreement issued to the Servicer by the
Indenture Trustee or the Majority Noteholders. The Indenture Trustee shall have
no duty to monitor or otherwise oversee the Servicer’s performance as custodian
of the Servicer Loan File hereunder.



          Section 2.06 Conditions Precedent to Transfer Dates.



          At least one (1) Business Day prior to each proposed Transfer Date, the
Issuer shall give notice to the Initial Noteholder, the Indenture Trustee and
the Paying Agent of such proposed upcoming Transfer Date and provide an
estimate of the number of Loans and aggregate Principal Balance of such Loans
proposed to be transferred on such Transfer Date. On the Business Day prior to
each Transfer Date, the Issuer shall provide the Initial Noteholder with a
final Loan Schedule with respect to the Loans proposed to be transferred on
such Transfer Date.



35









 





On each Transfer Date, the Depositor shall convey to the Issuer the Loans
and the other property and rights related thereto described in the related S&SA
Assignment and the Issuer shall, pursuant to the Indenture, grant and pledge to
the Indenture Trustee the Loans and Loan Collateral, and the Issuer, only upon
the satisfaction of each of the conditions set forth below on or prior to such
Transfer Date, shall pay or cause to be paid cash in the amount of the
Additional Note Principal Balance received from the Initial Noteholder in
respect of the Loans to or at the direction of the Depositor.



          As of the Closing Date and each Transfer Date:




     (i) The Servicer shall have delivered to the Issuer and the Initial
Noteholder (with a copy to the Collateral Custodian and the Backup
Servicer), no later than 12:00 p.m. New York City time, one (1) Business
Day prior to the related Transfer Date in a form and substance reasonably
satisfactory to the Initial Noteholder, (A) a Notice of Additional Note
Principal Balance, a Borrowing Base Certificate and Loan Schedule, (B) a
S&SA Assignment and (C) a copy of the fully executed LPA Assignment
evidencing the sale of the Loans proposed to be sold on such Transfer
Date from the Loan Originator to the Depositor;




     (ii) the Initial Noteholder shall have received the Initial
Certification prepared by the Collateral Custodian with respect to the
Loans;




     (iii) the amount of the Additional Note Principal Balance requested
on such Transfer Date shall be at least equal to $1,000,000;




     (iv) On and as of such day, after giving effect to such transfer,
the Note Principal Balance shall not exceed the lesser of (x) the Maximum
Note Principal Balance and (y) the Borrowing Base;




     (v) the Depositor shall have deposited, or caused to be deposited,
in the Collection Account all collections received with respect to each
of the Eligible Loans on and after the applicable Transfer Date;




     (vi) a Bankruptcy Event shall not have occurred with respect to the
Loan Originator or the Depositor;




     (vii) the Termination Date shall not have occurred;




     (viii) the Required Overcollateralization Amount shall have been
maintained (after giving effect to the sale of Loans on such Transfer
Date);




     (ix) each of the representations and warranties made by the Loan
Originator contained in Section 3.04 with respect to the Eligible Loans
purchased and pledged on a Transfer Date shall be true and correct as of
such Transfer Date with the same effect as if then made and each of the
Depositor and the Loan Originator shall have performed all obligations to
be performed by it under the Basic Documents on or prior to such Transfer
Date; provided that, if any representation or warranty made by the Loan
Originator pursuant to Section 3.04 herein shall be incorrect as of any
Transfer Date with respect to any Loan to be purchased on such date, the
Issuer shall only be relieved of its obligation



36









 






to purchase such Loan and, assuming satisfaction or waiver of the
other conditions set forth in this clause (ix), the Issuer shall
nonetheless be obligated to purchase all Loans to be purchased on such
date that are unaffected by such breach;




     (x) the Depositor shall have taken any action reasonably requested
by the Indenture Trustee, the Issuer or the Noteholders required to
maintain the ownership interest of the Issuer in the Collateral and the
security interest of the Indenture Trustee in the Collateral;




     (xi) all conditions precedent to the Depositor’s purchase and
contribution of Loans pursuant to the Loan Sale Agreement shall have
been fulfilled as of such Transfer Date; and




     (xii) all conditions precedent to the Noteholders’ purchase of the
Additional Note Principal Balance pursuant to the Note Purchase Agreement
shall have been fulfilled as of such Transfer Date.



          Section 2.07 Additional Advances by Initial Noteholder.



     If on any date of determination, there exists a Borrowing Base Excess, the
Issuer may, upon one (1) Business Days’ notice to the Initial Noteholder, at
its option, request an additional advance from the Initial Noteholder up to an
amount equal to such Borrowing Base Excess. Any advance pursuant to this
Section 2.07 shall be subject to the following conditions:




     (i) as of such date, neither the Loan Originator nor the Depositor
shall (A) be subject to a Bankruptcy Event or (B) have reason to believe
that its insolvency is imminent;




     (ii) the Revolving Period shall not have terminated; and




     (iii) as of such date (after giving effect to such advance), the
Required Overcollateralization Amount shall have been maintained.



          Section 2.08 Termination of Revolving Period or Amortization
Period.



          Upon the occurrence of (i) a Default or (ii) a Trigger Event, the Initial
Noteholder may, in any such case, in its sole discretion and upon written
notice to the Servicer, terminate the Revolving Period or the Amortization
Period as the case may be.



          Section 2.09 Correction of Errors.



          The parties hereto who have relevant information shall cooperate to
reconcile any errors in calculating the Sales Price of the Eligible Loans from
and after the related Transfer Date. In the event that an error in the Sales
Price of the Eligible Loans is discovered by either party, any miscalculations
of Principal Balance, accrued interest, miscalculation of the Required
Overcollateralization Amount or aggregate unreimbursed Servicing Advances
attributable to the applicable Eligible Loan, or any prepayments not properly
credited, such party shall give prompt notice to the other parties hereto, and
the party that shall have benefited from such error shall



37









 





promptly remit to the other, by wire transfer of immediately available
funds, the amount of such error with no interest thereon.




          Section 2.10 Commencement of Amortization Period.



          In the event that the Revolving Period is not extended by the mutual
agreement of CapitalSource and the Initial Noteholder, the Amortization Period
shall automatically commence on the day following the end of the Revolving
Period and shall continue for a period of six months unless terminated by the
Initial Noteholder pursuant to Section 2.08 hereof.



ARTICLE III




REPRESENTATIONS AND WARRANTIES




          Section 3.01 Representations and Warranties of the Depositor.



          The Depositor hereby represents, warrants and covenants to the other
parties hereto and the Securityholders that as of the Closing Date and as of
each Transfer Date:



          (a) The Depositor is a limited liability company (or, after the
Conversion, a corporation) duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has, and
had at all relevant times, full power to own its property, to carry on its
business as currently conducted and to enter into and perform its obligations
under each Basic Document to which it is a party;



          (b) The execution and delivery by the Depositor of each Basic Document to
which the Depositor is a party and its performance of and compliance with all
of the terms thereof will not violate the Depositor’s organizational documents
or constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
the Depositor is a party or which are applicable to the Depositor or any of its
assets;



          (c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by each Basic Document to which the
Depositor is a party, has duly authorized the execution, delivery and
performance of each Basic Document to which it is a party and has duly executed
and delivered each Basic Document to which it is a party; each Basic Document
to which it is a party, assuming due authorization, execution and delivery by
the other party or parties thereto, constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the
terms thereof, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);



          (d) The Depositor is not in violation of, and the execution and delivery
by the Depositor of each Basic Document to which the Depositor is a party and
its performance and compliance with the terms of each Basic Document to which
the Depositor is a party will not constitute a violation with respect to any
order or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation



38









 





would materially and adversely affect the financial condition or
operations of the Depositor or any of its properties or materially and
adversely affect the performance of any of its duties hereunder;




          (e) There are no actions or proceedings against, or investigations of, the
Depositor currently pending with regard to which the Depositor has received
service of process and no action or proceeding against, or investigation of,
the Depositor is, to the knowledge of the Depositor, threatened or otherwise
pending before any court, administrative agency or other tribunal that (A)
would prohibit its entering into any of the Basic Documents to which it is a
party or render the Securities invalid, (B) seeks to prevent the issuance of
the Securities or the consummation of any of the transactions contemplated by
any of the Basic Documents to which it is a party or (C) would prohibit or
materially and adversely affect the performance by the Depositor of its
obligations under, or the validity or enforceability of, any of the Basic
Documents to which it is a party or the Securities;



          (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, any of
the Basic Documents to which the Depositor is a party or the Securities, or for
the consummation of the transactions contemplated by any of the Basic Documents
to which the Depositor is a party, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to such date;



          (g) The Depositor is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
any of the Basic Documents to which it is a party or the assumption of any of
its obligations thereunder; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the Depositor;



          (h) The Depositor did not transfer the Loans sold to the Issuer with any
intent to hinder, delay or defraud any of its creditors; nor will the Depositor
be rendered insolvent as a result of such sale or pledge;



          (i) The Depositor had good and valid title to, and was the sole owner of
each Loan sold by the Depositor to the Issuer, free and clear of any lien other
than any such lien released simultaneously with the sale contemplated herein,
and, immediately upon each transfer and assignment herein contemplated, the
Depositor will have delivered to the Issuer good and valid title to, and the
Issuer will be the sole owner of, each Loan transferred by the Depositor and,
subject to the Indenture, the Indenture Trustee will have a first priority
perfected security interest in each Loan, in each case free and clear of any
lien;



          (j) The Depositor acquired title to each of the Loans in good faith,
without notice of any adverse claim;



          (k) None of the Basic Documents to which the Depositor is a party, nor any
Officer’s Certificate, statement, report or other document prepared by the
Depositor and furnished or to be furnished by it pursuant to any of the Basic
Documents to which it is a party or in connection with the transactions
contemplated thereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading;



39









 





          (l) The Depositor is not required to be registered as an “investment
company,” under the Investment Company Act of 1940, as amended;



          (m) The Depositor’s principal place of business and chief executive
offices are located at 4445 Willard Avenue, Chevy Chase, Maryland 20815, or at
such other address as shall be designated by such party in a written notice to
the other parties hereto;



          (n) The Depositor covenants that during the continuance of this Agreement
it will comply in all respects with the provisions of its organizational
documents in effect from time to time; and



          (o) The transfer of the Loans by the Depositor to the Issuer pursuant to
the Basic Documents upon completion pursuant to the Basic Documents of the sale
of the Notes by the Issuer to the Initial Noteholder, was intended to
constitute a financing of such Loans for tax and consolidated accounting
purposes (with a notation that it is treating the transfers as a sale for legal
and all other purposes on its books, records and financial statements, in each
case, consistent with GAAP).



          Section 3.02 Representations and Warranties of the Loan
Originator.



          The Loan Originator hereby represents and warrants to the other parties
hereto and the Securityholders that as of the Closing Date and as of each
Transfer Date:



          (a) The Loan Originator is a limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and (i) is duly qualified, in good standing and licensed to carry
on its business in each state where any Loan Collateral related to a Loan sold
by it is located to the extent necessary to ensure the enforceability of each
Loan and the servicing of the Loan in accordance with Accepted Servicing
Practices and (ii) is in compliance with the laws of any such jurisdiction, in
both cases, to the extent necessary to ensure the enforceability of such Loan
in accordance with the terms thereof and had at all relevant times, full power
to originate such Loan, to own its property, to carry on its business as
currently conducted and to enter into and perform its obligations under each
Basic Document to which it is a party;



          (b) The execution and delivery by The Loan Originator of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate The Loan Originator’s organizational documents
or constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
The Loan Originator is a party or which may be applicable to The Loan
Originator or any of its assets in each case that is likely to affect
materially and adversely its ability to carry out the transactions contemplated
hereby;



          (c) The Loan Originator has the full power and authority to enter into and
consummate all transactions contemplated by the Basic Documents to be
consummated by it, has duly authorized the execution, delivery and performance
of each Basic Document to which it is a party and has duly executed and
delivered each Basic Document to which it is a party; each Basic Document to
which it is a party, assuming due authorization, execution and delivery by each
of the other parties thereto, constitutes a valid, legal and binding obligation
of The Loan



40









 





Originator, enforceable against it in accordance with the terms hereof,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);




          (d) The Loan Originator is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Loan Originator
and its performance and compliance with the terms of each Basic Document to
which it is a party will not constitute a violation with respect to, any order
or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the financial condition, business or operations
of the Loan Originator or its properties or materially and adversely affect the
performance of its duties under any Basic Document to which it is a party;



          (e) There are no actions or proceedings against, or investigations of, the
Loan Originator currently pending with regard to which the Loan Originator has
received service of process and no action or proceeding against, or
investigation of, the Loan Originator is, to the Loan Originator’s knowledge,
threatened or otherwise pending before any court, administrative agency or
other tribunal that (A) would prohibit its entering into any Basic Document to
which it is a party or render the Securities invalid, (B) seeks to prevent the
issuance of the Securities or the consummation of any of the transactions
contemplated by any Basic Document to which it is a party or (C) would prohibit
or materially and adversely affect the sale of the Loans to the Depositor, the
performance by the Loan Originator of its obligations under, or the validity or
enforceability of, any Basic Document to which it is a party or the Securities;



          (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Loan Originator of, or compliance by the Loan Originator
with, any Basic Document to which it is a party, (2) the sale and contribution
of the Eligible Loans to the Depositor, or (3) the consummation of the
transactions required of it by any Basic Document to which it is a party,
except such as shall have been obtained before such date, other than: (A) the
filing or recording of financing statements, instruments of assignment and
other similar documents necessary in connection with the sale of the Loans to
the Issuer, (B) such consents, approvals, authorizations, qualifications,
registrations, filings or notices as have been obtained or made and (C) where
the lack of such consent, approval, authorization, qualification, registration,
filing or notice is unlikely to have a material adverse effect on its
performance hereunder;



          (g) Immediately prior to the sale of any Loans to the Depositor, the Loan
Originator had good and valid title to the Loans sold by it on such date free
and clear of all Liens other than Permitted Liens;



          (h) The Loan Originator is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations under each Basic Document to which it is a party; it will not be
rendered insolvent by the execution and delivery of this Agreement or by the
performance of its obligations under each Basic Document to which it is a
party; no petition of bankruptcy (or similar insolvency proceeding) has been
filed by or against the Loan Originator prior to the date hereof;



41









 





          (i) The Loan Originator has transferred the Loans transferred by it on or
prior to such Transfer Date without any intent to hinder, delay or defraud any
of its creditors;



          (j) The Loan Originator has received fair consideration and reasonably
equivalent value in exchange for the Loans sold and contributed by it on such
Transfer Date to the Depositor;



          (k) The Loan Originator has not dealt with any broker or agent or other
Person who might be entitled to a fee, commission or compensation in connection
with the transaction contemplated by this Agreement;



          (l) The Loan Originator’s principal place of business and chief executive
offices are located at 4445 Willard Avenue, Chevy Chase, Maryland, Maryland
20815 or at such other address as shall be designated by such party in a
written notice to the other parties hereto;



          (m) The Loan Originator acknowledges and agrees that the Servicing
Compensation represents reasonable compensation for the performance of its
services hereunder and that the entire Servicing Compensation shall be treated
by the Loan Originator, for accounting purposes, as compensation for the
servicing and administration of the Loans pursuant to this Agreement; and



          (n) The Loan Originator is in compliance with the financial covenants set
forth in Section 7.01.



          It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the respective Custodial
Loan Files to the Collateral Custodian (as the agent of the Indenture Trustee)
and shall inure to the benefit of the Securityholders, the Depositor, the
Servicer, the Indenture Trustee, the Owner Trustee and the Issuer. Upon
discovery by the Loan Originator, the Servicer, the Indenture Trustee or the
Issuer of a breach of any of the foregoing representations and warranties that
materially and adversely affects the value of any Loan or the interests of the
Securityholders in any Eligible Loan or in the Securities, the party
discovering such breach shall give prompt written notice to the other parties.
The obligations of the Loan Originator set forth in Sections 2.05 and 3.05
hereof to cure any breach or to substitute for or repurchase an affected Loan
shall constitute the sole remedies available hereunder to the Securityholders,
the Depositor, the Servicer, the Indenture Trustee or the Issuer respecting a
breach of the representations and warranties contained in this Section 3.02.
The fact that the Initial Noteholder has conducted or has failed to conduct any
partial or complete due diligence investigation of the Loan Files shall not
affect the Securityholders’ rights to demand repurchase or substitution as
provided under this Agreement.



          Section 3.03 [RESERVED].



          Section 3.04 Representations and Warranties Regarding Eligible Loans.



          With respect to each Loan sold to the Issuer on a Transfer Date, the Loan
Originator hereby represents and warrants to the Indenture Trustee, for the
benefit of the Noteholders, as of such Transfer Date and with respect to such
Loan, that:



42









 





          (a) the Loan, together with the Loan Collateral, has been originated or
acquired by the Loan Originator and immediately before the transfer, sale and
conveyance thereof to the Depositor pursuant to (and in accordance with) the
Loan Sale Agreement, the Loan Originator had good and valid title to, and was
the sole owner and holder of, such Loan, free and clear of all Liens. Such
transfer, sale and conveyance validly assigns ownership of such Loan to the
Depositor, free and clear of any Liens;



          (b) at the time such Loan is included in the Loan Pool, the Loan is not a
Charged-Off Loan and the Loan is not more than ten (10) days past due (after
giving effect to the five (5) day grace period set forth in the Loan
Originator’s Underwriting Guidelines in determining the number of days past
due), with respect to payments of principal or interest provided, however that
any Loan previously included in the Loan Pool which was a Charged-Off Loan, but
was subsequently assigned Loan Rating 1, Loan Rating 2 or Loan Rating 3 shall
not violate the representation contained in this clause (b);



          (c) the Loan is an “eligible asset” as defined in Rule 3a-7 under the
Investment Company Act of 1940;



          (d) the Loan has been subject to a grant in favor of the Indenture Trustee
for the benefit of the Noteholders of a first priority perfected security
interest and other than with respect to Subordinated Loans, at the time of the
sale of the Loan to the Depositor pursuant to the Loan Sale Agreement, the Loan
Originator had a first priority perfected security interest in the Loan
Collateral relating to such Loan, subject to Permitted Liens;



          (e) the Loan is an “account”, “chattel paper”, “instrument” or a “general
intangible” within the meaning of Article 9 of the UCC of all applicable
jurisdictions; provided, however, if the Loan constitutes “chattel paper”,
there is not more than one (1) “secured party’s original” counterpart of the
Loan and the sole manually executed counterpart of the Loan is in the
possession of and has been properly endorsed to the Collateral Custodian;



          (f) the Loan is to an Eligible Obligor and is denominated and payable only
in United States dollars in the United States;



          (g) the Loan is evidenced by a promissory note, an entry on the Loan
Register, a security agreement or an instrument and related loan documents that
have been duly authorized and 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 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;



          (h) the Loan does not contravene in any material respect any applicable
laws (including, without limitation, laws, rules and regulations relating to
truth in lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices, licensing and privacy);



43









 





          (i) the Loan, (i) satisfies all applicable requirements of and was
originated or acquired, underwritten and closed in accordance with the Loan
Originator’s Underwriting Guidelines (including without limitation the
execution by the Obligor of all documentation required by the Underwriting
Guidelines); (ii) does not contain a confidentiality provision that restricts
or purports to restrict the ability of the Indenture Trustee, on behalf of the
Securityholders, to exercise its rights under this Agreement, 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 Loan
Originator’s business; (iv) arises pursuant to loan documentation with respect
to which the Loan Originator has performed all obligations required to be
performed by it thereunder; (v) is not subject to a guaranty by the Loan
Originator or any Affiliate thereof; and (vi) other than with respect to
Assigned Loans, is executed on forms substantially similar to those in use by
the Loan Originator on the date hereof or in such other form as shall be
adopted by the Loan Originator and approved in writing by the Initial
Noteholder at least ten (10) days prior to such Loan becoming part of the Loan
Pool hereunder;



          (j) neither the transfer, sale and assignment of the Loan under the Loan
Sale Agreement by the Loan Originator to the Depositor, the sale of the Loan by
the Depositor to the Issuer hereunder or the pledge of the Loan and the
granting of a security interest therein to the Indenture Trustee, for the
benefit of the Noteholders, pursuant to the Indenture by the Issuer violates,
conflicts with or contravenes any applicable laws or any contractual or other
restriction, limitation or encumbrance applicable to Loan Originator, Depositor
and Issuer;



          (k) on or before the applicable Transfer Date, the Obligor of such Loan
shall have been directed to make all payments to the Lock-Box or directly to
the Lock-Box Account;



          (l) except with respect to a Loan the Loan Collateral for which consists
of receivables only, the Loan requires the Obligor thereof to maintain adequate
property damage and liability insurance with respect to the real or personal
property constituting the Loan Collateral and the same has been at all times
covered by adequate physical damage and liability insurance policies issued by
generally accepted carriers;



          (m) the Loan Collateral (i) has not been foreclosed on, or repossessed
from the current Obligor, by the Servicer, and (ii) since origination or
acquisition has not suffered any material loss or damage that has not been
repaired or restored;



          (n) the Obligor’s payment obligations are absolute and unconditional with
no right of setoff or counterclaim for any reason against the Loan Originator
or any assignee and the Loan contains a clause that has the effect of
unconditionally and irrevocably obligating the Obligor to make periodic
payments (including taxes) which is applicable notwithstanding any rights the
Obligor may have against the assignee and notwithstanding any damage to,
defects in or destruction of the Loan Collateral or any other event, including
obsolescence of any property or improvements;



          (o) the Loan is not subject to any litigation, valid right of rescission,
set-off, counterclaim or defense, including without limitation the defense of
usury, nor will the operation of any of the terms of the Loan Documents, or the
exercise of any right thereunder, render either the Underlying Note
unenforceable, in whole or in part, or subject to any such right of rescission,
set-off, counterclaim or defense, including without limitation the defense of
usury, and no such right of rescission, set-off, counterclaim or defense has
been asserted with respect thereto;



44









 





          (p) the Loan requires the Obligor to maintain the Loan Collateral in good
condition and to bear all the costs of operating and maintaining same,
including taxes and insurance relating thereto;



          (q) the Loan provides (i) for periodic contract payments, which are due
and payable on a monthly or quarterly basis unless otherwise consented to in
writing by the Initial Noteholder, and (ii) that the Servicer may accelerate
all payments on the Loan if the Obligor is in default under the Loan;



          (r) 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 Basic Documents would be unlawful, void or voidable;



          (s) the Loan, together with the Required Loan Documents is assignable and
does not require the consent of or notice to the Obligor to consummate the
transactions contemplated by the Basic Documents or contain any other
restriction on the transfer or the assignment of the Loan for the purpose of
consummating the transactions contemplated by the Basic Documents, 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 Depositor;



          (t) the Obligor of such Loan is legally responsible for all taxes relating
to the Loan Collateral or other security relating to such Loan, and all
payments in respect of the Loan will be made free and clear of, and without
deduction or withholding for or on account of, any taxes, unless such
withholding or deduction is required by applicable law;



          (u) the Loan complies in all material respects with the representations
and warranties made by the Loan Originator hereunder and all information with
respect to the Loan is true and correct in all material respects;



          (v) other than with respect to Participation Loans, the Loan and the Loan
Collateral have not been sold, transferred, assigned or pledged by the Loan
Originator to any Person other than as contemplated under the Basic Documents;



          (w) other than Participation Loans and Assigned Loans, with respect to the
Loan Originator’s obligation to fund and the actual funding of the Loan by the
Loan Originator, the Loan Originator has not assigned its obligations, or
granted participations, in whole or in part, to any Person;



          (x) the Loan has not been compromised, adjusted, extended, satisfied,
rescinded, set-off or modified by the Depositor, the Loan Originator or, from
and after March 31, 2003 with regard to each Alarm Service Loan, the Obligor
with respect thereto and, with respect to each other Loan, 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, termination or modification,
whether arising out of transactions concerning the Loan, or otherwise, by the
Depositor, the Loan Originator or, from and after March 31, 2003 with regard to
each Alarm Service Loan, the Obligor with respect thereto and, with respect to
each other Loan, the Obligor with respect thereto except for amendments to such
Loan otherwise permitted under this Agreement and in accordance with the
Underwriting Guidelines;



45









 





          (y) the particular Loan is not one as to which the Loan Originator has
knowledge which should lead it to expect such Loan will not be paid in full;



          (z) with respect to any DIP Loan, the Loan Originator or its assignee has
been granted a first priority lien status in respect of all or certain of the
Obligor’s assets by final order of the applicable federal bankruptcy or
district court;



          (aa) except with respect to DIP Loans, the Obligor of such Loan is not the
subject of a Bankruptcy Event; provided that, Vytaltek Security Services, Inc.
is subject to a Bankruptcy Event but Vytaltek Security Services, Inc. is fully
performing its obligations under the related Alarm Service Loan and has
assumed, but not assigned, its obligations under the related Loan. For greater
certainty, the Alarm Service Loan to Vytaltek Security Services, Inc. is not a
DIP Loan;



          (bb) the Loan does not represent capitalized interest or payment
obligations relating to “put” rights;



          (cc) the Loan is not a Loan or extension of credit by the Loan Originator
to the Obligor for the purpose of making any past due principal, interest or
other payments due on such Loan;



          (dd) the Loan is secured by a valid, perfected, first priority (other than
with respect to Subordinated Loans) security interest (subject to Permitted
Liens) in all assets that constitute the collateral for the Loan;



          (ee) 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;



          (ff) the Loan Originator (i) has completed to its satisfaction, in
accordance with the Underwriting Guidelines, 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 Securityholders with respect
to the Loan, the Loan Collateral, the Scheduled Payments or any income or
Proceeds therefrom;



          (gg) the Loan is a Senior Secured Loan or Subordinated Loan;



          (hh) no provision of the Loan (other than an Alarm Service Loan) has been
waived, modified or altered in any respect and, from and after March 31, 2003,
no provision of an Alarm Service Loan has been waived, modified or altered in
any respect, in each case except in accordance with the Underwriting Guidelines
and by instruments duly authorized and executed and contained in the Required
Loan Documents;



          (ii) except with respect to Subordinated Loans and Senior-B Note Loans,
the Loan is not subordinated to any other loan or financing to the related
Obligor;



          (jj) the face amount of the Loan is the dollar amount thereof shown on the
books and records of the Loan Originator and the Depositor;



46









 





          (kk) with respect to Subordinated Loans, the Loan Originator has entered
into an intercreditor agreement or subordination agreement with, or provisions
for the benefit of, the senior lender, which agreement or provisions are
assignable to and have been assigned to the Depositor, and which provide that
any standstill of remedies by the Loan Originator or its assignee is limited
(A) such that there shall be no standstill of remedies (x) until after a
payment default in respect of the senior debt, the occurrence of a default in
respect of the senior debt not requiring notice, or the Loan Originator’s or
assignee’s receipt from the senior lender or Obligor of a notice of other
default by the Obligor under the senior debt and (y) unless a covenant or
payment default is also in effect, and (B) provided the Subordinated Loan has
not been accelerated or if a payment default is in effect, to no longer than
180 days in duration in the aggregate in any given year;



          (ll) with respect to any Acquired Loan or Assigned Loan, such Loan has
been re-underwritten by the Loan Originator and satisfies all of the Loan
Originator’s underwriting criteria as set forth in the Underwriting Guidelines;



          (mm) with respect to any Acquired Loan that is originated by an Affiliate
or subsidiary of the Loan Originator, the Depositor has received a satisfactory
legal opinion concerning the acquisition of such Loan by the Loan Originator in
a true sale transaction;



          (nn) with respect to any Acquired Loan that was acquired in a pool by the
Loan Originator along with one (1) or more other Acquired Loans, the Initial
Noteholder has approved in writing such Loan for inclusion in the Loan Pool and
has completed its own due diligence with respect to such Loan;



          (oo) at origination or acquisition by the Loan Originator, such Loan was
assigned Loan Rating 1, Loan Rating 2 or Loan Rating 3 and, as of any date
thereafter, such Loan is assigned Loan Rating 1, Loan Rating 2, Loan Rating 3,
Loan Rating 4 or Loan Rating 5;



          (pp) each Subordinated Loan must either (i) have an interest coverage
ratio that is not less than 1.25:1, (ii) be an Enhanced Mezzanine Loan or (iii)
be made in respect of construction or development of unimproved land;



          (qq) the Loan was not an Enhanced Mezzanine Loan or a Loan made in
connection with (a) the construction or development of unimproved land unless
(A) the outstanding Principal Balance of such Loan together with all other
Enhanced Mezzanine Loans and Loans made in respect of construction or
development of unimproved land does not exceed ten percent (10%) of the
aggregate Principal Balance of all Loans and (B) the aggregate outstanding
principal balance of such Loan does not exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000) or (b) facilitating the trade-in or exchange of
the related mortgaged property;



          (rr) with respect to each Loan that is an Alarm Service Loan:




	(i)	 	the Dealer is a Person with a place
of business in the United States or, with respect to two
(2) of the Alarm Service Loans, Canada;
	 
	(ii)	 	the Dealer has all necessary
licenses, permits and other authorizations to conduct
security alarm sales, installation,




47









 











	 	 	monitoring and maintenance services in the jurisdiction
in which it conducts business;

	 
	(iii)	 	the Loan Originator has disclosed on
the related Transfer Date its calculation of the
notional minimum amount of recurring monthly revenue to
be received from each security alarm monitoring or
security alarm monitoring and maintenance contract;
	 
	(iv)	 	the Loan Originator makes, mutatis
mutandis, the applicable representations and warranties
set forth in clauses (a) through (pp) of this Section
3.04 with respect to (x) the accounts receivable or
accounts (as defined in the UCC) payable pursuant to a
security alarm monitoring or a security alarm monitoring
and maintenance contract, (y) each security alarm
monitoring or security alarm monitoring and maintenance
contract and (z) each Dealer; and
	 
	(v)	 	the scheduled payments under each
security alarm monitoring or security alarm monitoring
and maintenance contract as set forth in the related
Alarm Service Loan are true and correct and accurately
represent the recurring monthly revenue to be received
from each security alarm monitoring or security alarm
monitoring and maintenance contract;





          (ss) with respect to each CIG Underlying Loan:




	(i)	 	except as set forth in Exhibit K
hereto, the Loan Originator makes, mutatis mutandis, the
applicable representations and warranties set forth in
clauses (a) through (qq) of this Section 3.04 with
respect to each CIG Underlying Loan as if such CIG
Underlying Loan was treated as a Loan;
	 
	(ii)	 	the scheduled payments owing to the
Loan Originator under each CIG Underlying Loan have
been, or will be, remitted by the related obligor
directly to the applicable CIG Payment Account.





          The parties hereto acknowledge and agree that CIG and the Loan Originator
are Affiliates. Accordingly, any restriction contained in the Sale and
Servicing Agreement to the inclusion of a Loan for which the related Obligor is
an Affiliate is waived solely with respect to the CIG Loan until the CIG Loan
Ineligible Date.



          It is understood and agreed that the representations and warranties set
forth herein shall survive delivery of the respective Custodial Loan Files to
the Issuer and/or the Collateral Custodian and shall inure to the benefit of
the Issuer or Depositor, as applicable, and their successors and assigns,
notwithstanding any restrictive or qualified endorsement or assignment.



          Section 3.05 Purchase and Substitution.



          (a) (i) It is understood and agreed that the representations and
warranties set forth in Section 3.04 hereto shall survive the conveyance of the
Eligible Loans to the Indenture



48









 





Trustee on behalf of the Issuer or the Depositor, as applicable, and the
delivery of the Securities to the Securityholders. Upon discovery by the
Depositor, the Servicer, the Loan Originator, the Collateral Custodian, the
Issuer, the Indenture Trustee or any Securityholder of a breach of any of such
representations and warranties or the representations and warranties of the
Loan Originator set forth in Section 3.02 or 3.04 which materially and
adversely affects the value or enforceability of any Eligible Loan or the
interests of the Securityholders, in any Eligible Loan any party discovering
such breach shall give prompt written notice to the others; provided, however,
that for purposes of the repurchase and substitution provisions contained in
this Section 3.05, a breach of a representation or warranty set forth in
Section 3.04 shall mean that such representation or warranty was incorrect as
of the date such representation or warranty was made by the Loan Originator.
The Loan Originator shall within 90 days of the earlier of the Loan
Originator’s discovery or the Loan Originator’s receiving notice of any breach
of a representation or warranty, promptly cure such breach in all material
respects. If within 90 days after the earlier of the Loan Originator’s
discovery of such breach or the Loan Originator’s receiving notice thereof such
breach has not been remedied by the Loan Originator and such breach materially
and adversely affects the interests of the Securityholders in the related
Eligible Loan (an “Unqualified Loan”), the Loan Originator shall promptly upon
receipt of written instructions from the Initial Noteholder or the Indenture
Trustee either (i) remove such Unqualified Loan from the Collateral (in which
case it shall become a Deleted Loan) and substitute one or more Qualified
Substitute Loans in the manner and subject to the conditions set forth in this
Section 3.05 (except to the extent that no Borrowing Base Deficiency occurs
following the removal of such Unqualified Loan) or (ii) purchase such
Unqualified Loan at a purchase price equal to the Repurchase Price with respect
to such Unqualified Loan by depositing or causing to be deposited such
Repurchase Price in the Collection Account; provided, however, that unless a
Borrowing Base Deficiency exists, the Loan Originator shall only be required to
remove such Unqualified Loan from the Collateral and shall not be required to
pay a Repurchase Price or substitute a Qualified Substitute Loan therefor.





     (ii) On any day prior to the occurrence of the Termination Date, the
Issuer may recommend in writing to the Initial Noteholder (with a copy to
the Collateral Custodian) that any Loan be replaced with one or more
Qualified Substitute Loans.



          Any substitution of Eligible Loans pursuant to this Section 3.05(a) shall
be accompanied by payment by the Loan Originator of the Substitution
Adjustment, if any, remitted to the Noteholders in accordance with Section
5.01(b)(4).



          (b) As to any Deleted Loan or Eligible Loan for which the Loan Originator
substitutes a Qualified Substitute Loan or Loans, the Loan Originator shall
effect such substitution by delivering to the Indenture Trustee and Initial
Noteholder an Officer’s Certificate of the Loan Originator to the effect that
the Substitution Adjustment has been remitted to the Servicer for deposit in
the Collection Account. As to any Deleted Loan or Eligible Loan for which the
Loan Originator substitutes a Qualified Substitute Loan or Loans, the Loan
Originator shall effect such substitution by delivering to the Collateral
Custodian the documents constituting the Custodial Loan File for such Qualified
Substitute Loan or Loans.



          The Servicer shall deposit in the Collection Account all payments received
in connection with each Qualified Substitute Loan after the date of such
substitution. Scheduled Payments received with respect to Qualified Substitute
Loans on or before the date of



49









 





substitution will be retained by the Loan Originator. The Depositor or the
Issuer, as applicable, will be entitled to all payments received on the
Deleted Loan or substituted Eligible Loan on or before the date of substitution
and the Loan Originator shall thereafter be entitled to retain all amounts
subsequently received in respect of such Deleted Loan or substituted Eligible
Loan. The Loan Originator shall give written notice to the Depositor, the
Issuer, the Servicer, the Indenture Trustee and Initial Noteholder that such
substitution has taken place and the Servicer shall amend the Loan Schedule to
reflect (i) the removal of such Deleted Loan or substituted Eligible Loan from
the terms of this Agreement and (ii) the substitution of the Qualified
Substitute Loan. The Servicer shall promptly deliver to the Depositor, Issuer,
the Loan Originator, the Indenture Trustee and Initial Noteholder, a copy of
the amended Loan Schedule. Upon such substitution, such Qualified Substitute
Loan or Loans shall be subject to the terms of this Agreement in all respects,
and the Loan Originator shall be deemed to have made with respect to such
Qualified Substitute Loan or Loans, as of the date of substitution, the
covenants, representations and warranties set forth in Section 3.04 hereto. On
the date of such substitution, the Indenture Trustee shall release the Deleted
Loan from the lien of the Indenture and the Servicer will cause such Qualified
Substitute Loan to be pledged to the Indenture Trustee under the Indenture as
part of the Collateral.




          (c) With respect to all Unqualified Loans or other Eligible Loans
repurchased by the Loan Originator pursuant to this Agreement, upon the deposit
of the Repurchase Price therefor into the Collection Account, (i) the Issuer or
the Depositor, as applicable, shall assign to the Loan Originator, without
representation or warranty, all of the Issuer’s or the Depositor’s right, title
and interest in and to such Unqualified Loan or other Eligible Loan repurchased
by the Loan Originator and (ii) the Indenture Trustee shall assign to the Loan
Originator, without recourse, representation or warranty, all the Indenture
Trustee’s right, title and interest in and to such Unqualified Loans or
Eligible Loans, which right, title and interest were conveyed to the Indenture
Trustee pursuant to Section 2.01 hereof and the Indenture. The Issuer or the
Depositor, as applicable, and the Indenture Trustee shall, at the expense of
the Loan Originator, take any actions as shall be reasonably requested by the
Loan Originator to effect the repurchase of any such Loans, to have the
Collateral Custodian return the Custodial Loan File of such Loans to the
Servicer and to execute any termination statements and other releases or
instruments prepared by the Loan Originator and acceptable to the Indenture
Trustee to effect the release of the lien of the Indenture Trustee and transfer
of such Loans.



          (d) It is understood and agreed that the obligations of the Loan
Originator set forth in this Section 3.05 to cure, purchase or substitute for
an Unqualified Loan constitute the sole remedies hereunder of the Depositor,
the Issuer, the Indenture Trustee, the Owner Trustee and the Securityholders
respecting a breach of the representations and warranties contained in Sections
3.02 and 3.04 hereof. Any cause of action against the Loan Originator relating
to or arising out of a defect in a Custodial Loan File or against the Loan
Originator relating to or arising out of a breach of any representations and
warranties made in Sections 3.02 and 3.04 hereto shall accrue as to any
Eligible Loan upon (i) discovery of such defect or breach by any party and
notice thereof to the Loan Originator or notice thereof by the Loan Originator
to the Indenture Trustee, (ii) failure by the Loan Originator to cure such
defect or breach or purchase or substitute such Eligible Loan as specified
above, and (iii) demand upon the Loan Originator, as applicable, by the Issuer,
the Indenture Trustee or the Majority Noteholders for all amounts payable in
respect of such Eligible Loan.



50









 





          (e) Neither the Issuer nor the Indenture Trustee shall have any duty to
conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any condition requiring the repurchase
or substitution of any Eligible Loan pursuant to this Section or the
eligibility of any Eligible Loan for purposes of this Agreement.



          (f) Notwithstanding anything to the contrary contained herein, the Loan
Originator may, at its option, remove or repurchase any Loan subject to this
Agreement at any time during the term hereof; provided, however, that the Loan
Originator shall not be required to remit a Repurchase Price with respect
thereto unless at the time of such removal or repurchase thereof, a Borrowing
Base Deficiency exists or after giving effect to such removal or repurchase a
Borrowing Base Deficiency would exist.



          Section 3.06 Dispositions.



          (a) On any Optional Disposition Date, the Issuer shall have the right to
prepay all or a portion of the Note Principal Balance in connection with a
Disposition in accordance with the Basic Documents and this Section 3.06. In
addition, in connection with the Issuer’s obligation to maintain the Required
Overcollateralization Amount hereunder, the Issuer shall, if directed by
Initial Noteholder, effect Dispositions in accordance with the Basic Documents
and this Section 3.06.



          (b) (i) In consideration of the consideration received from the Depositor
under the Loan Sale Agreement, the Loan Originator hereby agrees and covenants
that in connection with each Disposition:




     (A) After giving effect to the Disposition on any Optional
Disposition Date, the remaining Note Principal Balance shall not
exceed the lesser of the Maximum Note Principal Balance and the
Borrowing Base;




     (B) it shall make such representations and warranties
concerning the Eligible Loans as of the “cut-off date” of the
related Disposition to the Disposition Participants as may be
necessary to effect the Disposition and such additional
representations and warranties as may be necessary, in the
reasonable opinion of any of the Disposition Participants, to
effect such Disposition; provided, that, to the extent that the
Loan Originator has at the time of the Disposition actual knowledge
of any facts or circumstances that would render any of such
representations and warranties materially false, the Loan
Originator may notify the Disposition Participants of such facts or
circumstances and, in such event, shall have no obligation to make
such materially false representation and warranty;




     (C) it shall supply such information, opinions of counsel,
letters from law and/or accounting firms and other documentation
and certificates regarding the origination of the Eligible Loans as
any Disposition Participant shall reasonably request to effect a
Disposition and enter into such indemnification agreements
customary for such transaction relating to or in connection with
the Disposition as the Disposition Participants may reasonably
require;



51









 






     (D) it shall make itself available for and engage in good
faith consultation with the Disposition Participants concerning
information to be contained in any document, agreement, private
placement memorandum, or filing with the Securities and Exchange
Commission relating to the Loan Originator or the Eligible Loans in
connection with a Disposition and shall use reasonable efforts to
compile any information and prepare any reports and certificates,
into a form, whether written or electronic, suitable for inclusion
in such documentation;




     (E) to implement the foregoing and to otherwise effect a
Disposition, it shall enter into, or arrange for its Affiliates to
enter into insurance and indemnity agreements, underwriting or
placement agreements, servicing agreements, purchase agreements and
any other documentation which may reasonably be required of or
reasonably deemed appropriate by the Disposition Participants in
order to effect a Disposition;




     (F) it shall use its commercially reasonable efforts to
maximize the cash proceeds received in connection with any such
Disposition; and




     (G) it shall take such further actions as may be reasonably
necessary to effect the foregoing;



provided, that notwithstanding anything to the contrary, (a) the Loan
Originator shall have no liability for the Eligible Loans arising from or
relating to the ongoing ability of the related Obligors to pay under the
Eligible Loans; (b) none of the indemnities hereunder shall constitute an
unconditional guarantee by the Loan Originator of collectibility of the
Eligible Loans; and (c) the Loan Originator shall have no obligation with
respect to the financial inability of any Obligor to pay principal, interest or
other amount owing by such Obligor under an Eligible Loan.





     (ii) [RESERVED]




     (iii) As long as no Servicer Event of Default or Default shall have
occurred and be continuing under this Agreement or the Indenture, the
Servicer may continue to service the Eligible Loans included in any
Disposition subject to any applicable “term-to-term” servicing provisions
in Section 9.01(c) and subject to any required amendments to the related
servicing provisions as may be necessary to effect the related
Disposition including but not limited to the obligation to make
recoverable principal and interest advances on the Eligible Loans.



          The Initial Noteholder shall have the right, in its sole discretion, upon
and following the termination of the Revolving Period (or if later, the
termination of the Amortization Period), to direct the Loan Originator, the
Issuer and the Depositor to effect a Disposition. Any such Disposition shall
be effected by the Loan Originator, the Issuer and the Depositor in a
commercially reasonable manner.



          (c) In connection with any Disposition under this Section 3.06, the Issuer
agrees to assist the Loan Originator in such Dispositions and accordingly it
shall:



52









 






     (i) transfer, deliver and sell all or a portion of the Loans, as of
the “cut-off dates” of the related Dispositions, to such Disposition
Participants as may be necessary to effect the Dispositions;




     (ii) deposit the cash Disposition Proceeds into the Distribution
Account pursuant to Section 5.01(c)(2)(D); and




     (iii) take such further actions, including executing and delivering
documents, certificates and agreements, as may be reasonably necessary to
effect such Dispositions.



          (d) The Servicer hereby covenants that it will take such actions as may be
reasonably necessary to effect Dispositions as the Disposition Participants may
request and direct, including without limitation providing the Loan Originator
such information as may be required to make representations and warranties
required hereunder, and covenants that it will make such representations and
warranties regarding its servicing of the Loans hereunder as of the “cut-off
date” of the related Disposition as reasonably required by the Disposition
Participants.



          (e) Except as otherwise expressly set forth under this Section 3.06, the
parties’ rights and obligations under this Section 3.06 shall continue
notwithstanding the occurrence of an Event of Default.



          (f) The Disposition Participants shall be independent contractors to the
Issuer and shall have no fiduciary obligations to the Issuer or any of its
Affiliates. The Disposition Participants shall not be liable for any error of
judgment made in good faith and shall not be liable with respect to any action
they take or omit to take in good faith in the performance of their duties.



          Section 3.07 Removal or Repurchase of Call Loans.



          The Depositor shall be required to remove or repurchase any Loan which has
become a Call Loan within thirty (30) days of the date such Loan became a Call
Loan. If a Borrowing Base Deficiency exists at the time such Loan has become a
Call Loan, the Depositor shall effect such repurchase by deposit of the
Repurchase Price therefor into the Collection Account.



          Section 3.08 Underwriting Guidelines; Modifications.



          The Loan Originator shall provide the Initial Noteholder with the
Underwriting Guidelines from time to time on reasonable request by the Initial
Noteholder. The Loan Originator shall give the Initial Noteholder prompt
written notification of any modification or change to the Underwriting
Guidelines. If the Initial Noteholder objects in writing to such modification
or change to the Underwriting Guidelines within 15 days after receipt of such
notice, no Loans may be conveyed to the Issuer pursuant to this Agreement
unless such Loans have been originated pursuant to the Underwriting Guidelines
without giving effect to such modification or change. Notwithstanding anything
contained in this Agreement to the contrary, any Loan conveyed to the Issuer
pursuant to this Agreement pursuant to a modification or change to the
Underwriting Guidelines that has been rejected by the Initial Noteholder or
which the Initial Noteholder did not receive notice of, such Loan shall be
deemed an Unqualified Loan and be repurchased or substituted for in accordance
with Section 3.05.



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ARTICLE IV




ADMINISTRATION AND SERVICING OF THE LOANS




          Section 4.01 Servicer’s Servicing Obligations.



          The Servicer, as independent contract servicer, shall service and
administer the Eligible Loans in accordance with Accepted Servicing Practices.



          Section 4.02 Loan Register.



          (a) The Servicer shall maintain with respect to each Noteless Loan a
register in the name of or for the benefit of the Collateral Custodian (each, a
“Loan Register”) in which it will record (v) the amount of such Loan, (w) the
amount of any principal or interest due and payable or to become due and
payable from the Obligor thereunder, (x) the amount of any sum in respect of
such Loan received from the Obligor, (y) the date of origination of such Loan
and (z) the maturity date of such Loan. The entries made in each Loan Register
maintained pursuant to this Section 4.02(a) shall be prima facie evidence of
the existence and amounts of the obligations therein recorded; provided,
however, that the failure of the Servicer to maintain any such Loan Register or
any error therein shall not in any manner affect the obligations of the Obligor
to repay the related Loans in accordance with their terms. If at any time the
Collateral Custodian shall receive a notice from the Indenture Trustee or the
Noteholders directing transfer of such Loan Register or other orders concerning
such Loan Register from the Indenture Trustee or the Noteholders, the
Collateral Custodian shall comply with such orders without further consent of
the Servicer or the Depositor or the Issuer. In connection with any such
notice the Servicer shall take whatever action as is requested and reasonably
necessary or advisable to effectuate the foregoing. The Collateral Custodian
may rely upon the contents of any notice or instructions that the Collateral
Custodian believes in good faith to be from the Noteholders or the Indenture
Trustee, as the case may be, without any independent investigation. The
Collateral Custodian shall have no duty to inquire into the authority of the
person giving such notice or instruction. In the event that the Collateral
Custodian receives conflicting notices or instructions, any notice received
from the Noteholders shall govern and supersede any and all conflicting
notices.



          (b) At any time a Noteless Loan is included as part of the Collateral
pursuant to this Agreement, the Servicer shall deliver to the Collateral
Custodian a copy of the Loan Register, together with a certificate of a
Responsible Officer of the Servicer certifying to the accuracy of such Loan
Register as of the date such Loan is included as part of the Collateral.



          (c) The Noteholders may terminate the Servicer’s right to maintain such
Loan Register at any time and require that all such Noteless Loans be evidenced
by an originally executed Underlying Note.



          (d) The 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
or as expressly provided in this Agreement.



54









 





          Section 4.03 The Backup Servicer; Duties of the Backup
Servicer.



          (a) The parties hereto hereby appoint Wells Fargo Bank, National
Association to act as Backup Servicer, for the benefit of the Noteholders. The
Backup Servicer hereby accepts such appointment and agrees to perform the
duties and obligations with respect thereto set forth herein.



          (b) (1) 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 Servicer Report (as described below) in hard copy and on computer tape;
provided, however, the computer tape is in an MS DOS, PC readable ASCII format
or other format to be agreed upon by the Backup Servicer and the Servicer on or
prior to closing.




     (2) Not later than 12:00 noon New York City time on each
Record Date, the Servicer shall deliver to the Backup Servicer a
data loan tape and report (together, the “Monthly Servicer Report”)
in the form of Exhibit B attached hereto, which shall include but
not be limited to the information necessary to enable the Backup
Servicer to perform the following duties:




     (A) compare the information contained in the Monthly Servicer
Report to the definition of Concentration Limitations;




     (B) determine whether or not a Trigger Event described in
clauses (i), (ii), (iii), (iv) or (ix) of such definition has
occurred; and




     (C) prepare a trend analysis for the Initial Noteholder
comparing the Concentration Limitations and Trigger Events as set
forth in the Monthly Servicer Report to those set forth in the
Monthly Servicer Reports delivered to the Backup Servicer by the
Servicer during the prior twelve months.



     The Backup Servicer shall provide a report which summarizes the results of
the performance of the above duties to the Initial Noteholder before 12:00 noon
New York City time on the Payment Date immediately following the Record Date on
which such Monthly Servicer Report was delivered to the Backup Servicer by the
Servicer.




     (3) On a weekly basis to the extent a Borrowing Base
Certificate and Loan Schedule has not been received pursuant to a
Transfer Date during the immediately preceding 7 days, not later
than 12:00 noon New York City time, the Servicer shall deliver to
the Backup Servicer, with a copy to the Initial Noteholder, a
Borrowing Base Certificate and Loan Schedule. Upon the receipt of
a Borrowing Base Certificate and Loan Schedule pursuant to this
Section 4.03(b)(3) or any other provision this Agreement, the
Backup Servicer shall:




     (A) track the Principal Balances of the Eligible Loans and
verify the Eligible Loans with the Loan Schedule;




     (B) compare the advance rates set forth in the Borrowing Base
Certificate to the percentages set forth under the definition of
“Purchase Price Percentage” herein;



55









 






     (C) compare the delinquent and charged-off Loans set forth in
the Borrowing Base Certificate to the definition of “Delinquent”
and “Charged-Off Loans” set forth herein;




     (D) compare the “Subordinated Loans” and “Senior B-Note Loans”
set forth in the Borrowing Base Certificate to the definitions of
such terms set forth herein; and




     (E) calculate the Borrowing Base, Borrowing Base Excess (if
applicable), Borrowing Base Deficiency (if applicable), Required
Overcollateralization Amount and Required Interest Coverage Amount.



          The Backup Servicer shall provide a report which summarizes the results of
the performance of the above duties to the Initial Noteholder within one (1)
Business Day immediately following the day on which any such Borrowing Base
Certificate and Loan Schedule is delivered to the Backup Servicer.



          (c) With respect to the duties described in Section 4.03(b)(2) and (3),
the Backup Servicer is entitled to rely conclusively, and shall be fully
protected in so relying, on the contents of each Monthly Servicer Report,
Borrowing Base Certificate, Loan Schedule and all other reports, including, but
not limited to, the completeness and accuracy thereof, provided by the Servicer
to the Backup Servicer as described in this Agreement.



ARTICLE V




ESTABLISHMENT OF TRUST ACCOUNTS




          Section 5.01 Collection Account, Principal Collections Account
and Distribution Account.



          (a) (1) Establishment of Collection Account. The Servicer, for the benefit
of the Indenture Trustee and the Noteholders, shall cause to be established and
maintained one or more Collection Accounts (collectively, the “Collection
Account”), which shall be separate Eligible Accounts entitled “CapitalSource
Funding II Trust Collection Account, CapitalSource Finance LLC, as Servicer,
for the benefit of the Indenture Trustee and the holders of Commercial Loan
Backed Notes.” The Collection Account shall be maintained with a depository
institution and shall satisfy the requirements set forth in the definition of
Eligible Account. Funds in the Collection Account shall be invested in
accordance with Section 5.03 hereof. Net investment earnings shall not be
considered part of funds available in the Collection Account.




     (2) Establishment of Principal Collections Account. The
Servicer, for the benefit of the Indenture Trustee and the
Noteholders, shall cause to be established and maintained one or
more Principal Collections Accounts (collectively, the “Principal
Collections Account”), which shall be separate Eligible Accounts
entitled “CapitalSource Funding II Trust Principal Collections
Account, CapitalSource Finance LLC, as Servicer, for the benefit of
the Indenture Trustee and the holders of Commercial Loan Backed
Notes.” The Principal Collections Account shall be maintained with
a depository institution and shall satisfy the requirements set
forth in the definition of Eligible Account. Funds in



56









 





the Principal Collections Account shall be invested in
accordance with Section 5.03 hereof. Net investment earnings shall
not be considered part of funds available in the Principal
Collections Account.




     (3) Establishment of Distribution Account. The Indenture
Trustee, for the benefit of the Noteholders, shall cause to be
established and maintained, one or more Distribution Accounts
(collectively, the “Distribution Account”), which shall be separate
Eligible Accounts, entitled “CapitalSource Funding II Trust
Distribution Account.” The Distribution Account shall be
maintained with a depository institution and shall satisfy the
requirements set forth in the definition of Eligible Account.
Funds in the Distribution Account shall remain uninvested.




     (4) The Servicer will inform the Indenture Trustee of the
location of the Collection Account and the Principal Collections
Account, including any location to which an account is transferred.



          (b) Deposits to Collection Account. The Servicer shall deposit or cause
to be deposited (without duplication):




     (1) all payments on or in respect of each Eligible Loan
collected on or after the related Transfer Date (net, in each case,
of any Servicing Compensation retained therefrom by the Servicer
(if other than CapitalSource)) within two (2) Business Days after
receipt thereof;




     (2) all Net Proceeds within two (2) Business Days after
receipt thereof;




     (3) all Insurance Proceeds within two (2) Business Days after
receipt thereof;




     (4) any amounts payable in connection with the repurchase of
any Loan and the amount of any Substitution Adjustment, if any,
pursuant to Sections 2.05, 3.05 and 3.07 hereof concurrently with
payment thereof;




     (5) the deposit of the Termination Price under Section 12.02
hereof concurrently with payment thereof;




     (6) the proceeds from any Disposition of the Loans pursuant to
Section 3.06 hereof within one (1) Business Day after receipt
thereof; and




     (7) any amount required to be remitted by CapitalSource
pursuant to Section 10.01 of the Note Purchase Agreement within one
(1) Business Day after receipt of notice thereof.



          Except as otherwise expressly provided in Section 5.01(c)(5)(i), the
Servicer agrees that it will cause the Loan Originator, Depositor, Obligor or
other appropriate Person paying such amounts, as the case may be, to remit
directly to the Lock-Box Accounts for deposit into the Collection Account all
amounts referenced in clauses (1) through (6) to the extent such amounts are in
excess of a Scheduled Payment on the related Loan. To the extent the Servicer



57









 





receives any such amounts, it will deposit them into the Collection
Account on the Business Day following receipt thereof.




          (c) Withdrawals From Collection Account; Deposits to the Principal
Collections Account and the Distribution Account.




     (1) Withdrawals From Collection Account — Reimbursement Items.
The Servicer shall periodically but in any event on each
Remittance Date, make the following withdrawals from the Collection
Account prior to any other withdrawals, in no particular order of
priority:




	(i)	 	to withdraw any amount not required
to be deposited in the Collection Account or deposited
therein in error,
	 
	(ii)	 	to withdraw the Required Interest
Coverage Amount and remit to the Indenture Trustee for
deposit in the Distribution Account for payments
required pursuant to Section 5.01(c)(5) and Section
5.01(c)(6);
	 
	(iii)	 	to deposit into the Principal
Collections Account as described in Section 5.01(c)(2)
below; and
	 
	(iv)	 	to clear and terminate the Collection
Account in connection with the termination of this
Agreement.






     (2) Deposits to Principal Collections Account. On any date of
determination occurring during the Revolving Period, the Servicer,
at its option, may deposit into the Principal Collections Account
an amount equal to the excess of (i) the amount on deposit in the
Collection Account over the Required Interest Coverage Amount.




     (3) Withdrawals From the Principal Collections Account. On
any date of determination occurring during the Revolving Period,
the Servicer may withdraw the amount on deposit in the Principal
Collections Account and use such amounts to originate or acquire
new Eligible Loans or to pay such amounts as principal on the
Notes.




     (4) Reserved.




     (5) Withdrawals From Distribution Account During the Revolving
Period— Payment Dates. On each Payment Date occurring during the
Revolving Period, to the extent funds are available in the
Distribution Account, the Paying Agent (based on the information
provided by the Servicer contained in the Monthly Servicer Report
for such Payment Date) shall make withdrawals therefrom for
application in the following order of priority:




	(i)	 	to distribute on such Payment Date
the following amounts in the following order: (a) to the
Indenture Trustee, an amount equal to one-twelfth of the
annual Indenture Trustee Fee and all unpaid




58









 









	 	 	 	Indenture Trustee Fees from prior Payment Dates and all
amounts owing to the Indenture Trustee pursuant to
Section 6.07 of the Indenture, (b) to the Servicer, an
amount equal to the Servicing Compensation (only if
CapitalSource is not the Servicer and such amounts were
not previously retained by the Servicer) and any
Servicing Advance Reimbursement Amounts, (c) to the
reimbursement or payment of any expenses incurred by
the Indenture Trustee in connection with the
appointment of a successor Servicer pursuant to Section
9.02 hereof, (d) to the Back-up Servicer, an amount
equal to one-twelfth of the annual Backup Servicer Fee
and (e) on each anniversary of the Closing Date, to the
Owner Trustee, an amount equal to the Owner Trustee
Fee;
	 
	 	(ii)	 	to the holders of the Notes pro rata,
the sum of the Interest Payment Amount for such Payment
Date and the Interest Carry-Forward Amount for the
preceding Payment Date;
	 
	 	(iii)	 	to the Initial Noteholder, the
Nonutilization Fee for such Payment Date, together with
any Nonutilization Fees unpaid from any prior Payment
Dates;
	 
	 	(iv)	 	to the holders of the Notes pro rata,
the amount required to maintain the Required
Overcollateralization Amount for such Payment Date;
provided, however, that if (a) a Trigger Event shall
have occurred and be continuing, (b) an Event of Default
under the Indenture or Default shall have occurred and
be continuing or (c) the Revolving Period shall have
terminated, the holders of the Notes shall receive, in
respect of principal of the Notes, all remaining amounts
on deposit in the Distribution Account;
	 
	 	(v)	 	if CapitalSource is the Servicer, to
the Servicer, an amount equal to the Servicing
Compensation, all unpaid Servicing Compensation from
prior Payment Dates and any Servicing Advance
Reimbursement Amounts;
	 
	 	(vi)	 	to the appropriate Person, amounts in
respect of Issuer/Depositor Indemnities (as defined in
the Trust Agreement) until such amounts are paid in
full;
	 
	 	(vii)	 	to the Owner Trustee all amounts
owing to the Owner Trustee pursuant to the Trust
Agreement and not otherwise paid; and
	 
	 	(viii)	 	to the Paying Agent, for distribution to the holders
of the Trust Certificates, in accordance with Section
5.2(b) of the Trust Agreement, all amounts remaining
therein.






     (6) Withdrawals From Distribution Account During the
Amortization Period. Notwithstanding anything herein to the
contrary, on each Payment Date during the Amortization Period, to
the extent funds are available in the



59









 





Distribution Account, the Paying Agent (based on the
information provided by the Servicer contained in the Monthly
Servicer Report for such Payment Date) shall make withdrawals
therefrom for application in the following order of priority:




	 	(i)	 	to distribute on such Payment Date
the following amounts in the following order: (a) the
Indenture Trustee, an amount equal to one-twelfth of the
annual Indenture Trustee Fee and all unpaid Indenture
Trustee Fees from prior Payment Dates and all amounts
owing to the Indenture Trustee pursuant to Section 6.07
of the Indenture, (b) to the Servicer, an amount equal
to the Servicing Compensation (only if CapitalSource is
not the Servicer and such amounts were not previously
retained by the Servicer) and any Servicing Advance
Reimbursement Amounts, (c) to the reimbursement or
payment of any expenses incurred by the Indenture
Trustee in connection with the appointment of a
successor Servicer pursuant to Section 9.02 hereof, (d)
to the Back-up Servicer, an amount equal to one-twelfth
of the annual Backup Servicer Fee and (e) on each
anniversary of the Closing Date, to the Owner Trustee,
an amount equal to the Owner Trustee Fee;
	 
	 	(ii)	 	to the holders of the Notes pro rata,
the sum of the Interest Payment Amount for such Payment
Date and the Interest Carry-Forward Amount for the
preceding Payment Date;
	 
	 	(iii)	 	to the holders of the Notes pro
rata, in accordance with the amount of the Note
Principal Balance for the account of the applicable
holder, the amount necessary to reduce the Note
Principal Balance to zero;
	 
	 	(iv)	 	if CapitalSource is the Servicer, to
the Servicer, an amount equal to the Servicing
Compensation, all unpaid Servicing Compensation from
prior Payment Dates and any Servicing Advance
Reimbursement Amounts;
	 
	 	(v)	 	to the appropriate Person, amounts in
respect of Issuer/Depositor Indemnities (as defined in
the Trust Agreement) until such amounts are paid in
full;
	 
	 	(vi)	 	to the Owner Trustee, all amounts
owing to the Owner Trustee pursuant to the Trust
Agreement and not otherwise paid; and
	 
	 	(vii)	 	to the Paying Agent, for
distribution to the holders of the Trust Certificates,
in accordance with Section 5.2(b) of the Trust
Agreement, all amounts remaining therein.






     (7) With the prior written consent of the Initial Noteholder,
which consent shall not be unreasonably withheld (a copy of which
will be provided by the Servicer to the Backup Servicer), the
Servicer may withdraw from the Collection Account any deposits
thereto constituting Excluded Amounts if the



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Servicer has prior to such withdrawal and consent, delivered
to the Initial Noteholder a report setting forth the calculation of
such Excluded Amounts in a format satisfactory to the Initial
Noteholder in its sole discretion.



          Notwithstanding that the Notes have been paid in full, the Paying Agent
and the Servicer shall continue to maintain the Distribution Account, the
Collection Account and the Principal Collections Account hereunder until this
Agreement has been terminated.



          Section 5.02 Payments to Securityholders.



          (a) All distributions made on the Notes on each Payment Date or pursuant
to Section 5.04(b) of the Indenture will be made on a pro rata basis among the
Noteholders of record of the Notes on the next preceding Record Date based on
the Percentage Interest represented by their respective Notes, without
preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account such Noteholder shall have so notified the
Paying Agent five (5) Business Days prior to the related Record Date, and
otherwise by check mailed to the address of such Noteholder appearing in the
Notes Register. The final distribution on each Note will be made in like
manner, but only upon presentment and surrender of such Note at the location
specified in the notice to Noteholders of such final distribution.



          (b) All distributions made on the Trust Certificates on each Payment Date
or pursuant to Section 5.04(b) of the Indenture will be made in accordance with
the Percentage Interest among the holders of the Trust Certificates of record
on the next preceding Record Date based on their Percentage Interests on the
date of distribution, without preference or priority of any kind, and, except
as otherwise provided in the next succeeding sentence, shall be made by wire
transfer of immediately available funds to the account of each such holder, if
such holder shall own of record a Trust Certificate in an original denomination
aggregating at least 25% of the Percentage Interests and shall have so notified
the Paying Agent and the Indenture Trustee five (5) Business Days prior to the
related Record Date, and otherwise by check mailed to the address of such
Certificateholder appearing in the Certificate Register. The final
distribution on each Trust Certificate will be made in like manner, but only
upon presentment and surrender of such Trust Certificate at the location
specified in the notice to holders of the Trust Certificates of such final
distribution. Any amount distributed to the holders of the Trust Certificates
on any Payment Date shall not be subject to any claim or interest of the
Noteholders.



          Section 5.03 Trust Accounts; Trust Account Property.



          (a) Control of Trust Accounts. Each of the Trust Accounts established
hereunder has been pledged by the Issuer to the Indenture Trustee under the
Indenture and shall be subject to the lien of the Indenture. Amounts
distributed from each Trust Account in accordance with the terms of this
Agreement shall be released for the benefit of the Securityholders from the
Collateral upon such distribution thereunder or hereunder. The Indenture
Trustee shall possess all right, title and interest in and to all funds on
deposit from time to time in the Trust Accounts and in all proceeds thereof
(including all income thereon) and all such funds, investments, proceeds and
income shall be part of the Trust Account Property and the Collateral. If, at
any time, any Trust Account ceases to be an Eligible Account, the Servicer
shall, within ten Business Days (i) establish a new Trust Account as an
Eligible Account, (ii)



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terminate the ineligible Trust Account, and (iii) transfer any cash and
investments from such ineligible Trust Account to such new Trust Account.




          With respect to the Trust Accounts, the Issuer and the Indenture Trustee
agree, that the Collection Account and the Principal Collections Account shall
be subject to the sole and exclusive dominion, custody and control of the
Servicer and the Distribution Account shall be subject to the sole and
exclusive dominion, custody and control of the Paying Agent on behalf of the
Indenture Trustee, in each case, for the benefit of the Noteholders, and the
Servicer and the Paying Agent on behalf of the Indenture Trustee and the
Indenture Trustee, as applicable, shall have sole signature and withdrawal
authority with respect thereto.



          (b) (1) Investment of Funds. Funds held in the Collection Account and the
Principal Collections Account may be invested (to the extent practicable and
consistent with any requirements of the Code) in Permitted Investments by or at
the direction of the Servicer. In any case, funds in the Collection Account
and the Principal Collections Account must be available for withdrawal without
penalty, and any Permitted Investments must mature or otherwise be available
for withdrawal, one Business Day prior to the next Remittance Date and shall
not be sold or disposed of prior to its maturity subject to Subsection (b)(2)
of this Section. All interest and any other investment earnings on amounts or
investments held in the Collection Account shall be retained by the Servicer.




     (2) Insufficiency and Losses in Trust Accounts. If any amounts
are needed for disbursement from the Collection Account or the
Principal Collections Account and sufficient uninvested funds are
not available to make such disbursement, the Servicer shall cause
to be sold or otherwise converted to cash a sufficient amount of
the investments in the Collection Account. The Servicer shall be
liable for any investment loss or other charge resulting therefrom.



          If any losses are realized in connection with any investment in the
Collection Account or Principal Collections Account pursuant to this Agreement,
then the Servicer shall deposit the amount of such losses (to the extent not
offset by income from other investments in the Collection Account or Principal
Collections Account) into the Collection Account or Principal Collections
Account promptly upon the realization of such loss.



          (c) Subject to Section 6.01 of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein.



          (d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:




     (1) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Accounts, subject to
the last sentence of Subsection (a) of this Section 5.03; and each
such Eligible Account shall be subject to the sole and exclusive
dominion, custody and control of the Paying Agent on behalf of the
Indenture Trustee; and, without limitation on the foregoing, the
Paying Agent on behalf of the Indenture Trustee shall have sole
signature authority with respect thereto;




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     (2) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee or the Paying
Agent on behalf of the Indenture Trustee in accordance with
paragraphs (a) and (b) of the definition of “Delivery” in Section
1.01 hereof and shall be held, pending maturity or disposition,
solely by the Paying Agent on behalf of the Indenture Trustee or
the Indenture Trustee or a securities intermediary (as such term is
defined in Section 8-102(a)(14) of the UCC) acting solely for the
Indenture Trustee;




     (3) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal
book-entry regulations shall be delivered in accordance with
paragraph (c) of the definition of “Delivery” in Section 1.01
hereof and shall be maintained by the Paying Agent on behalf of the
Indenture Trustee or the Indenture Trustee, pending maturity or
disposition, through continued book-entry registration of such
Trust Account Property as described in such paragraph; and




     (4) any Trust Account Property that is an “uncertificated
security” under Article 8 of the UCC and that is not governed by
clause (3) above shall be delivered to the Paying Agent on behalf
of the Indenture Trustee or the Indenture Trustee in accordance
with paragraph (d) of the definition of “Delivery” in Section 1.01
hereof and shall be maintained by the Paying Agent on behalf of the
Indenture Trustee or the Indenture Trustee, pending maturity or
disposition, through continued registration of the Paying Agent on
behalf of the Indenture Trustee or the Indenture Trustee’s (or its
nominee’s) ownership of such security.



ARTICLE VI




STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS




          Section 6.01 Statements.



          No later than 12:00 noon (New York City time) on each Record Date, the
Servicer shall deliver to the Indenture Trustee and the Initial Noteholder by
electronic transmission, the Monthly Servicer Report, setting forth the date of
such Report (day, month and year), the name of the Issuer (i.e., “CapitalSource
Funding II Trust”), and the date of this Agreement, all in substantially the
form set out in Exhibit B hereto. In addition, the Servicer shall provide to
the Noteholders and the Indenture Trustee such additional reports and
information regarding the Loans as the Majority Noteholders or the Indenture
Trustee may reasonably request from time to time.



          Section 6.02 Specification of Certain Tax Matters.



          The Paying Agent shall comply with all requirements of the Code and
applicable state and local law with respect to the withholding from any
distributions made to any Securityholder of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith, giving due effect to any applicable exemptions from such
withholding and effective certifications or forms provided by the recipient.
Any amounts withheld pursuant to this Section 6.02 shall be deemed to have been
distributed to the Securityholders, as the case may be, for all purposes of
this Agreement.



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Neither the Paying Agent nor the Indenture Trustee shall have any
responsibility for preparing or filing any tax returns.



ARTICLE VII




COVENANTS




          Section 7.01 Financial Covenants of CapitalSource.



          (a) At all times during the term of this Agreement, CapitalSource shall
maintain a minimum consolidated Tangible Net Worth of $650,000,000.



          (b) CapitalSource may not exceed a maximum leverage ratio (the ratio of
total consolidated liabilities (exclusive of non-recourse debt but including,
without limitation, any convertible debt), determined in accordance with GAAP,
to its consolidated Tangible Net Worth) of 5:1 as of any date of determination.



          Section 7.02 Financial Statements of CapitalSource.



          CapitalSource shall furnish or cause to be furnished to Initial Noteholder
the following financial statements: (x) As soon as available and in any event
within ninety (90) days after the end of each fiscal year of CapitalSource,
CapitalSource’s consolidated, audited balance sheets as of the end of each
fiscal year, and CapitalSource’s consolidated, audited financial statements of
income and changes in equity and audited statement of cash flows, each for such
fiscal year and (y) as soon as available and in any event within forty-five
(45) days after the end of the first three quarters of each fiscal year of
CapitalSource, CapitalSource’s consolidated, unaudited balance sheets as of the
end of each quarter, and CapitalSource’s unaudited financial statements of
income and changes in equity and unaudited statement of cash flows, each for
the portion of the fiscal year then ended. Each of the financial statements in
(x) and (y) shall have been prepared in accordance with GAAP (subject to
year-end adjustments in the case of interim statements) and certified by a
Responsible Officer of CapitalSource in the form of a compliance certificate to
be delivered along with the above financial statements. Together with each
financial statement delivered pursuant to the foregoing clause (x) or (y),
CapitalSource shall execute and deliver to the Initial Noteholder an officer’s
certification substantially in the form of Exhibit L attached hereto.
Each such financial statement and certificate shall be delivered to the Initial
Noteholder at the following electronic mail address (or such other contact
information as may be provided by the Initial Noteholder):
cmwarehouse.monitoring@citigroup.com. CapitalSource shall furnish or cause to
be furnished to Initial Noteholder any other financial information regarding
CapitalSource reasonably requested by Initial Noteholder.



ARTICLE VIII




THE SERVICER AND THE BACKUP SERVICER




          Section 8.01 Indemnification; Third Party Claims.



          (a) The Servicer shall indemnify the Loan Originator, the Owner Trustee,
the Issuer, the Paying Agent, the Depositor, the Indenture Trustee and the
Noteholders, their respective officers, directors, employees, agents and
“control persons,” as such term is used



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under the Act and under the Securities Exchange Act of 1934 as amended
(each a “Servicer Indemnified Party”) and hold harmless each of them against
any and all claims, losses, damages, penalties, fines, forfeitures, reasonable
legal fees and related costs, judgments, and other costs and expenses resulting
from any claim, demand, defense or assertion based on or grounded upon, or
resulting from, a breach of any of the Servicer’s representations and
warranties and covenants contained in this Agreement or in any way relating to
the failure of the Servicer to perform its duties and service the Eligible
Loans in compliance with the terms of this Agreement except to the extent such
loss arises out of such Servicer Indemnified Party’s fraud, gross negligence or
willful misconduct; provided, however, that if the Servicer is not liable
pursuant to the provisions of Section 8.01(b) hereof for its failure to perform
its duties and service the Eligible Loans in compliance with the terms of this
Agreement, then the provisions of this Section 8.01 shall have no force and
effect with respect to such failure; provided, further that no successor
Servicer shall be liable for the actions or omissions of a predecessor
Servicer.



          (b) None of the Depositor or the Servicer or any of their respective
Affiliates, directors, officers, employees or agents shall be under any
liability to the Owner Trustee, the Issuer, the Indenture Trustee or the
Securityholders for any action taken, or for refraining from the taking of any
action, in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Depositor, the
Servicer or any of their respective Affiliates, directors, officers, employees,
agents against the remedies provided herein for the breach of any warranties,
representations or covenants made herein, or against any expense or liability
specifically required to be borne by such party without right of reimbursement
pursuant to the terms hereof, or against any expense or liability which would
otherwise be imposed by reason of misfeasance, bad faith or negligence in the
performance of the respective duties of the Servicer, the Depositor or the Loan
Originator, as the case may be. The Loan Originator, the Depositor, the
Servicer and any of their respective Affiliates, directors, officers,
employees, agents may rely in good faith on any document of any kind which,
prima facie, is properly executed and submitted by any Person respecting any
matters arising hereunder.



          (c) The Loan Originator agrees to indemnify and hold harmless the
Depositor, the Indenture Trustee and the Noteholders, as the ultimate assignees
from the Depositor (each an “Originator Indemnified Party,” together with the
Servicer Indemnified Parties, the “Indemnified Parties”), from and against any
loss, liability, expense, damage, claim or injury arising out of or based on
(i) any breach of any representation, warranty or covenant of the Loan
Originator, the Servicer or their Affiliates, in any Basic Document, including,
without limitation, the origination or prior servicing of the Loans by reason
of any acts, omissions, or alleged acts or omissions arising out of activities
of the Loan Originator, the Servicer or their Affiliates, and (ii) any untrue
statement by the Loan Originator, the Servicer or its Affiliates of any
material fact, including, without limitation, any Officer’s Certificate,
statement, report or other document or information prepared by any such Person
and furnished or to be furnished by it pursuant to or in connection with the
transactions contemplated thereby and not corrected prior to completion of the
relevant transaction including, without limitation, such written information as
may have been and may be furnished in connection with any due diligence
investigation with respect to the Eligible Loans or any such Person’s business,
operations or financial condition, including reasonable attorneys’ fees and
other costs or expenses incurred in connection with the defense of any actual
or threatened action, proceeding or claim; provided that the Loan Originator
shall not indemnify an Originator Indemnified Party to the extent such loss,
liability, expense, damage or injury is due



65









 







to either an Originator Indemnified Party’s willful misfeasance, bad faith
or negligence or by reason of an Originator Indemnified Party’s reckless
disregard of its obligations hereunder; provided, further, that the Loan
Originator shall not be so required to indemnify an Originator Indemnified
Party or to otherwise be liable to an Originator Indemnified Party for any
losses in respect of the performance of the Eligible Loans, the
creditworthiness of the Mortgagors under the Eligible Loans, changes in the
market value of the Eligible Loans or other similar investment risks associated
with the Eligible Loans arising from a breach of any representation or warranty
set forth in Section 3.04 hereto, a remedy for the breach of which is provided
in Section 3.05 hereof. The provisions of this indemnity shall run directly to
and be enforceable by an Originator Indemnified Party subject to the
limitations hereof.



          (d) With respect to a claim subject to indemnity hereunder made by any
Person against an Indemnified Party (a “Third Party Claim”), such Indemnified
Party shall notify the related indemnifying parties (each an “Indemnifying
Party”) in writing of the Third Party Claim within a reasonable time after
receipt by such Indemnified Party of written notice of the Third Party Claim
unless the Indemnifying Parties shall have previously obtained actual knowledge
thereof. Thereafter, the Indemnified Party shall deliver to the Indemnifying
Parties, within a reasonable time after the Indemnified Party’s receipt
thereof, copies of all notices and documents (including court papers) received
by the Indemnified Party relating to the Third Party Claim. No failure to give
such notice or deliver such documents shall effect the rights to indemnity
hereunder. Each Indemnifying Party shall promptly notify the Indenture Trustee
and the Indemnified Party (if other than the Indenture Trustee) of any claim of
which it has been notified and shall promptly notify the Indenture Trustee and
the Indemnified Party (if applicable) of its intended course of action with
respect to any claim.



          (e) If a Third Party Claim is made against an Indemnified Party, while
maintaining control over its own defense, the Indemnified Party shall cooperate
and consult fully with the Indemnifying Party in preparing such defense, and
the Indemnified Party may defend the same in such manner as it may deem
appropriate, including settling such claim or litigation after giving notice to
the Indemnifying Party of such terms and the Indemnifying Party will promptly
reimburse the Indemnified Party upon written request; provided, however, that
the Indemnified Party may not settle any claim or litigation without the
consent of the Indemnifying Party; provided, further, that the Indemnifying
Party shall have the right to reject the selection of counsel by the
Indemnified Party if the Indemnifying Party reasonably determines that such
counsel is inappropriate in light of the nature of the claim or litigation and
shall have the right to assume the defense of such claim or litigation if the
Indemnifying Party determines that the manner of defense of such claim or
litigation is unreasonable.



          Section 8.02 Merger or Consolidation of the Servicer and Backup
Servicer.



          The Servicer shall keep in full effect its existence, rights and
franchises as a limited liability company, and will obtain and preserve its
qualification to do business as a foreign entity and maintain such other
licenses and permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the
Eligible Loans and to perform its duties under each Basic Document to which it
is a party; provided, however, that the Servicer may merge or consolidate with
any other corporation upon the satisfaction of the conditions set forth in the
following paragraph.



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          Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such
merger, conversion, consolidation or succession to the Indenture Trustee and
the Issuer.



          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 provided such Person is
organized under the laws of the United States of America or any one of the
States thereof or the District of Columbia (or any domestic branch of a foreign
bank), (i) (a) that has either (1) a long-term unsecured debt rating of “A” or
better by S&P and “A2” or better by Moody’s or (2) a short-term unsecured debt
rating or certificate of deposit rating of “A-1” or better by S&P or “P-1” or
better by Moody’s, (b) the parent corporation which has either (1) a long-term
unsecured debt rating of “A” or better by S&P and “A2” or better by Moody’s or
(2) a short-term unsecured debt rating or certificate of deposit rating of
“A-1” or better by S&P and “P-1” or better by Moody’s or (c) is otherwise
acceptable to the Initial Noteholder.



          Section 8.03 Limitation on Liability of the Servicer and the
Backup Servicer.



          (a) 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 respecting any matters arising hereunder. Subject to the terms of
Section 8.01 hereof, 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 Eligible Loans in accordance with this
Agreement.



          (b) 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,
nominees, attorneys and custodians in performing any of its duties and
obligations under this Agreement, it being understood by the parties hereto
that the Backup Servicer will be responsible for any misconduct or negligence
on the part of such agents, attorneys or custodians acting on the routine and
ordinary day-to-day operations for and on behalf of the Backup Servicer.
Neither the Backup Servicer nor any of its officers, directors, employees or
agents shall be liable, directly or indirectly, for any damages or expenses
arising out of the services performed under this Agreement other than damages
or expenses that result from the negligence or willful misconduct of it or them
or the failure to perform materially in accordance with this Agreement.



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          (c) The Backup Servicer shall not be liable for any obligation of the
Servicer contained in this Agreement or for any errors of the Servicer
contained in any computer tape, certificate or other data or document delivered
to the Backup Servicer hereunder or on which the Backup Servicer must rely in
order to perform its obligations hereunder, and the Indenture Trustee, the
Noteholders and the Collateral Custodian 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 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, (ii) any inaccuracy or
omission in a notice or communication received by the Backup Servicer from any
third party, (iii) the invalidity or unenforceability of any Loan 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 8.04 No Resignation; Assignment.



          (a) The Servicer shall not resign from the obligations and duties hereby
imposed on it except (i) with the consent of the Majority Noteholders or (ii)
upon determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (ii) of the preceding
sentence permitting the resignation of the Servicer shall be evidenced by an
Independent opinion of counsel to such effect delivered (at the expense of the
Servicer) to the Indenture Trustee and the Majority Noteholders. No
resignation of the Servicer shall become effective until a successor Servicer,
appointed pursuant to the provisions of Section 9.02 hereof shall have assumed
the Servicer’s responsibilities, duties, liabilities (other than those
liabilities arising prior to the appointment of such successor) and obligations
under this Agreement.



          Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed
by the Servicer hereunder and any agreement, instrument or act purporting to
effect any such assignment, transfer, delegation or appointment shall be void.



          The Servicer agrees to cooperate with any successor Servicer in effecting
the transfer of the Servicer’s servicing responsibilities and rights hereunder
pursuant to the first paragraph of this Section 8.04, including, without
limitation, the transfer to such successor of all relevant records and
documents (including any Loan Files in the possession of the Servicer) and all
amounts received with respect to the Loans and not otherwise permitted to be
retained by the Servicer pursuant to this Agreement. In addition, the
Servicer, at its sole cost and expense, shall prepare, execute and deliver any
and all documents and instruments to the successor Servicer including all Loan
Files in its possession and do or accomplish all other acts reasonably
necessary or appropriate to effect such termination and transfer of servicing
responsibilities.



          (b) The Backup Servicer shall not resign (except with prior consent of the
Initial Noteholder which consent shall not be unreasonably withheld) from the
obligations and



68









 







duties hereby imposed on it except upon the Backup Servicer’s
determination that (i) the performance of its duties hereunder is or has become
impermissible under applicable law and (ii) there is no reasonable action that
the Backup Servicer could take to make the performance of its duties hereunder
permissible under applicable law. Any such determination permitting the
resignation of the Backup Servicer shall be evidenced as to clause (i) above by
an Opinion of Counsel to such effect delivered to the Indenture Trustee and the
Initial Noteholder. No such resignation shall become effective until a
successor Backup Servicer shall have assumed the responsibilities and
obligations of the Backup Servicer hereunder.



          Section 8.05 Relationship of Servicer to Issuer and the
Indenture Trustee.



          The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Issuer, the Owner Trustee and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the Issuer, the Owner Trustee or the Indenture Trustee.



          Section 8.06 Servicer May own Securities.



          Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein; provided, however,
that at any time that CapitalSource or any of its Affiliates is the Servicer,
neither the Servicer nor any of its Affiliates (other than an Affiliate which
is a corporation whose purpose is limited to holding securities and related
activities and which cannot incur recourse debt) may be a Noteholder.
Securities so owned by or pledged to the Servicer or such Affiliate shall have
an equal and proportionate benefit under the provisions of this Agreement,
without preference, priority, or distinction as among all of the Securities;
provided, however, that any Securities owned by the Servicer or any Affiliate
thereof, during the time such Securities are owned by them, shall be without
voting rights for any purpose set forth in this Agreement unless the Servicer
or such Affiliate owns all outstanding Securities of the related class. The
Servicer shall notify the Indenture Trustee promptly after it or any of its
Affiliates becomes the owner or pledgee of a Security.



          Section 8.07 Indemnification of the Indenture Trustee and
Initial Noteholder.



          CapitalSource agrees to indemnify the Indenture Trustee and its employees,
officers, directors and agents, and reimburse its reasonable out-of-pocket
expenses in accordance with Section 6.07 of the Indenture as if it was a
signatory thereto. CapitalSource agrees to indemnify the Initial Noteholder in
accordance with Section 9.01 of the Note Purchase Agreement as if it were a
signatory thereto. CapitalSource agrees to indemnify the Owner Trustee in
accordance with Section 8.2 of the Trust Agreement as if it were a signatory
thereto. In addition to the foregoing indemnity, each of CapitalSource and the
Depositor, jointly and severally, hereby agrees to indemnify and hold harmless
the Noteholders from any liability, loss, claim or expense incurred as a result
of the Loan Originator’s or the Depositor’s failure to deliver to the
Collateral Custodian the originally executed (and to the extent it exists, the
sole chattel paper counterpart) master purchase agreement and, if any, security
agreement related to any Alarm Service Loan. This Section 8.07 shall survive
the termination of this Agreement.



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ARTICLE IX




SERVICER EVENTS OF DEFAULT




          Section 9.01 Servicer Events of Default.



          (a) In case one or more of the following Servicer Events of Default shall
occur and be continuing, that is to say:




     (1) any failure by Servicer to deposit into the Collection
Account or the Distribution Account or any failure by Servicer to
make any of the required payments therefrom which continues
unremedied for two (2) Business Day; or




     (2) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the material covenants
or agreements on the part of the Servicer, contained in any Basic
Document to which it is a party, which continues unremedied for a
period of 30 days (or, in the case of payment of insurance premiums
with respect to Loans for which the Servicer is required pursuant
to the Loan Documents to escrow such premiums, for a period of 15
days) after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the
Servicer by any other party hereto or to the Servicer (with copy to
each other party hereto), by Holders of 25% of the Percentage
Interests of the Notes or the Trust Certificates; or




     (3) any breach on the part of the Servicer of any
representation or warranty contained in any Basic Document to which
it is a party that has a material adverse affect on the interests
of any of the parties hereto or any Securityholder and which
continues unremedied for a period of 30 days after the date on
which notice of such breach, requiring the same to be remedied,
shall have been given to the Servicer by any other party hereto or
to the Servicer (with copy to each other party hereto) by the
Initial Noteholder or Holders of 25% of the Percentage Interests of
the Notes; or




     (4) a Bankruptcy Event shall occur with respect to the
Servicer;




     (5) so long as the Servicer or the Loan Originator is an
Affiliate of either of the Depositor or the Issuer, any “event of
default” by any such party occurs under any of the Basic Documents;
or




     (6) CapitalSource fails to comply with the financial covenants
set forth in Section 7.01.



          (b) Then, and in each and every such case, so long as a Servicer Event of
Default shall not have been remedied, the Indenture Trustee or the Majority
Noteholders, by notice in writing to the Servicer may, in addition to whatever
rights such Person may have at law or in equity to damages, including
injunctive relief and specific performance, on thirty days’ notice, terminate
all the rights and obligations of the Servicer under this Agreement and in and
to the Loans and the proceeds thereof, as servicer under this Agreement. Within
a commercially reasonable time following receipt by the Servicer of such
written notice, all authority and power



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of the Servicer under this Agreement, whether with respect to the Loans or
otherwise, shall, subject to Section 9.02 hereof, pass to and be vested in a
successor servicer, and the successor servicer is hereby 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
do or cause to be done all other acts or things necessary or appropriate to
effect the purposes of such notice of termination, including, but not limited
to, the transfer and endorsement or assignment of the Loans and related
documents. The Servicer agrees to cooperate with the successor servicer in
effecting the termination of the Servicer’s responsibilities and rights
hereunder, including, without limitation, the transfer to the successor
servicer for administration by it of all amounts which shall at the time be
credited by the Servicer to each Collection Account or thereafter received with
respect to the Loans.



          (c) Upon the occurrence, and during the continuation, of (i) an Event of
Default or Default under any of the Basic Documents, (ii) a Servicer Event of
Default under this Agreement, (iii) a Trigger Event or (iv) a material adverse
change in the business or financial conditions of the Servicer (each, a “Term
Event”), the Servicer’s right to service the Loans pursuant to the terms of
this Agreement shall be in effect for an initial period commencing on the date
on which such Term Event occurred and shall automatically terminate at 5:00
p.m. (New York City time), on the last business day of the calendar month in
which such Term Event occurred (the “Initial Term”). Thereafter, the Initial
Term shall be extendible in the sole discretion of the Initial Noteholder by
written notice (each, a “Servicer Extension Notice”) of the Initial Noteholder
for successive one-month terms (each such term ending at 5:00 p.m. (New York
City time), on the last business day of the related month). Following a Term
Event, the Servicer hereby agrees that the Servicer shall be bound for the
duration of the Initial Term and the term covered by any such Servicer
Extension Notice to act as the Servicer pursuant to this Agreement. Following a
Term Event, the Servicer agrees that if, as of 3:00 p.m. (New York City time)
on the last business day of any month, the Servicer shall not have received a
Servicer Extension Notice from the Initial Noteholder, the Servicer shall give
written notice of such non-receipt to the Initial Noteholder by 4:00 p.m. (New
York City time). Following a Term Event, the failure of the Initial Noteholder
to deliver a Servicer Extension Notice by 5:00 p.m. (New York City time) shall
result in the termination of the Servicer upon the completion of the transfer
of the servicing (the “Servicer Termination Date”). The Servicer and the
Initial Noteholder shall comply with all applicable laws in connection with
such transfer and the Servicer shall continue to service the Loans until
completion of such transfer.



          (d) Upon the occurrence of a Term Event (other than the occurrence of a
Bankruptcy Event with respect to the Servicer, the Depositor or the Issuer),
the Indenture Trustee shall, at the request of, or may, with the consent of the
Initial Noteholder, by notice to the Issuer and the Servicer, declare the
Termination Date to have occurred and all amounts due the Noteholders, the
Indenture Trustee and the Owner Trustee shall be immediately due and payable.



          (e) Upon the occurrence of a Bankruptcy Event with respect to the
Servicer, the Depositor or the Issuer, the Termination Date shall occur
immediately and all amounts due and payable to the Noteholders, the Indenture
Trustee and the Owner Trustee shall be immediately due and payable.



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          Section 9.02 Appointment of Successor.



          (a) On and after the date the Servicer receives a notice of termination
pursuant to Section 9.01 hereof or is terminated pursuant to Section 9.01(c)
hereof, or the Owner Trustee receives the resignation of the Servicer evidenced
by an Opinion of Counsel or accompanied by the consents required by Section
8.04 hereof, or the Servicer is removed as servicer pursuant to this Article
IX, then, Backup Servicer shall automatically succeed and assume all
obligations of the Servicer hereunder, and all authority and power of the
Servicer under this Agreement shall pass to and be vested in the Backup
Servicer. As compensation therefor, the Backup Servicer shall be entitled to
the Servicing Fee, together with other servicing compensation in the form of
assumption fees, late payment charges or otherwise as provided herein;
including, without limitation, expenses incurred by the Backup Servicer in
connection with the transition of the servicing obligations (“Transition
Costs”). In the event that there is no Backup Servicer or the Backup Servicer
is unable to assume such obligations on such date, the Indenture Trustee shall
submit to CapitalSource the name of a proposed successor servicer (the
“Successor Servicer”). CapitalSource shall have the right to reject one
proposed Successor Servicer within two (2) Business Days of the Indenture
Trustee’s submission and, upon such rejection CapitalSource shall have no
further consent rights with respect to the appointment of any Successor
Servicer. If CapitalSource shall not have rejected such proposed Successor
Servicer within such two (2) Business Day period, the Indenture Trustee shall,
as promptly as possible, appoint such Successor Servicer as servicer hereunder
so long as such proposed Successor Servicer is acceptable to the Initial
Noteholder. The Successor Servicer shall accept its appointment by a written
assumption in a form acceptable to the Indenture Trustee and the Noteholders.
In the event that a Successor Servicer has not accepted its appointment at the
time when the Servicer ceases to act as Servicer, the Indenture Trustee shall
petition a court of competent jurisdiction to appoint any established financial
institution, having a net worth of not less than United States $50,000,000 and
whose regular business includes the servicing of loans similar to the Loans, as
the Successor Servicer hereunder.



          (b) Upon its appointment, the Backup Servicer or the Successor Servicer,
as applicable, shall be the successor in all respects to the Servicer with
respect to servicing functions under this Agreement and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof, and all references in this
Agreement to the Servicer shall be deemed to refer to the Backup Servicer or
the Successor Servicer, as applicable; provided, however, that the Backup
Servicer or Successor Servicer, as applicable, shall have (i) no liability with
respect to any action performed by the terminated Servicer prior to the date
that the Backup Servicer or Successor Servicer, as applicable, becomes the
successor to the Servicer or any claim of a third party based on any alleged
action or inaction of the terminated Servicer, (ii) no obligation to perform
any advancing obligations, if any, of the Servicer unless it elects to in its
sole discretion, (iii) no obligation to pay any taxes required to be paid by
the Servicer (provided that the Backup Servicer or Successor Servicer, as
applicable, shall pay any income taxes for which it is liable), (iv) no
obligation to pay any of the fees and expenses of any other party to the
transactions contemplated hereby, and (v) no liability or obligation with
respect to any indemnification obligations of any prior Servicer, including the
original Servicer. The indemnification obligations of the Backup Servicer or
the Successor Servicer, as applicable, upon becoming a Successor Servicer, are
expressly limited to those instances of negligence or willful misconduct of the
Backup Servicer or Successor Servicer, as applicable.



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          (c) All authority and power granted to the Servicer under this Agreement
shall automatically cease and terminate upon termination of this Agreement and
shall pass to and be vested in the Issuer and, without limitation, the Issuer
is hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, all documents and other
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of such transfer of servicing rights. The
Servicer agrees to cooperate with the Seller in effecting the termination of
the responsibilities and rights of the Servicer to conduct servicing of the
Loans.



          (d) Upon the Backup Servicer receiving notice that it is required to serve
as the Servicer hereunder pursuant to the foregoing provisions of this Section
9.02, the Backup Servicer will promptly begin the transition to its role as
Servicer. Notwithstanding the foregoing, the Backup Servicer may, in its
discretion, appoint, or petition a court of competent jurisdiction to appoint,
any established servicing institution as the successor to the Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Servicer hereunder. As compensation, any Successor
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 accrued prior thereto,
including, without limitation, Transition Costs. In the event the Backup
Servicer is required to solicit bids as provided herein, the Backup Servicer
shall solicit, by public announcement, bids from banks and mortgage servicing
institutions meeting the qualifications set forth in this Section 9.02. 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 accrued prior thereto. Within thirty (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. 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 this Agreement, as shall be necessary
to effectuate any such succession. No appointment of a successor to the
Servicer hereunder shall be effective until written notice of such proposed
appointment shall have been provided by the Backup Servicer to the Indenture
Trustee and the Noteholders 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. Notwithstanding
anything to the contrary contained herein, in no event shall Wells Fargo Bank,
National Association, in any capacity, 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 under this Agreement and the
transactions set forth or provided for by this Agreement.



          If Wells Fargo Bank, National Association becomes the Successor Servicer,
Wells Fargo Bank, National Association shall not be required to service the
Loans in accordance with the terms of the Underwriting Guidelines but rather it
shall be required to service the Loans in accordance with applicable law, the
Required Loan Documents and current industry standards.



73









 





          Notwithstanding anything contained in this Agreement to the contrary,
Wells Fargo Bank, National Association as successor Servicer is authorized to
accept and rely on all of the accounting, records (including computer records)
and work of the prior Servicer relating to the Loans (collectively, the
“Predecessor Servicer Work Product”) without any audit or other examination
thereof, and Wells Fargo Bank, National Association shall have no duty,
responsibility, obligation or liability for the acts and omissions of the prior
Servicer. If any error, inaccuracy, omission or incorrect or non-standard
practice or procedure (collectively, “Errors”) exist in any Predecessor
Servicer Work Product and such Errors make it materially more difficult to
service or should cause or materially contribute to Wells Fargo Bank, National
Association making or continuing any Errors (collectively, “Continued Errors”),
Wells Fargo Bank, National Association shall have no duty, responsibility,
obligation or liability to perform servicing or for such Continued Errors;
provided, however, that Wells Fargo Bank, National Association agrees to use
its best efforts to prevent further Continued Errors. In the event that Wells
Fargo Bank, National Association becomes aware of Errors or Continued Errors,
Wells Fargo Bank, National Association shall, with the prior consent of the
Initial Noteholder, use its best efforts to reconstruct and reconcile such data
as is commercially reasonable to correct such Errors and Continued Errors and
to prevent future Continued Errors. Wells Fargo Bank, National Association
shall be entitled to recover its costs thereby expended in accordance with
Section 5.01(c)(5)(i) of this Agreement or Section 5.04(b) of the Indenture, as
applicable.



          Section 9.03 Waiver of Defaults.



          The Initial Noteholder may waive any events permitting removal of the
Servicer as servicer pursuant to this Article IX. Upon any waiver of a past
default, such default shall cease to exist and any Servicer Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereto except to the extent expressly so
waived.



          Section 9.04 Accounting Upon Termination of Servicer.



          Upon termination of the Servicer under this Article IX, the Servicer
shall, at its own expense:



          (a) deliver to its successor or, if none shall yet have been appointed, to
the Paying Agent the funds in the Collection Account;



          (b) deliver to its successor or, if none shall yet have been appointed, to
the Collateral Custodian all Loan Files and related documents and statements
held by it hereunder and a Loan portfolio computer tape;



          (c) deliver to its successor, the Indenture Trustee, the Issuer and the
Securityholders a full accounting of all funds, including a statement showing
the Scheduled Payments collected by it and a statement of monies held in trust
by it for payments or charges with respect to the Loans; and



          (d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Loans to its successor and to more fully and definitively vest in such
successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.



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          Section 9.05 Removal of Backup Servicer.



          (a) The Backup Servicer may be removed, with or without cause, by the
Indenture Trustee, at the direction of the Initial Noteholder, by notice given
in writing to the Backup Servicer (the “Backup Servicer Termination Notice”).
In the event of any such removal, a replacement Backup Servicer may be
appointed by the Initial Noteholder or the Indenture Trustee with the consent
of the Initial Noteholder.



          (b) Upon the Backup Servicer’s receipt of a Backup Servicer Termination
Notice from the Indenture Trustee of the designation of a replacement Backup
Servicer, the Backup Servicer agrees that it will terminate its activities as
Backup Servicer hereunder.



ARTICLE X




THE COLLATERAL CUSTODIAN




          Section 10.01 Appointment.



          The Indenture Trustee, at the direction of the Initial Noteholder, hereby
appoints Wells Fargo Bank, National Association to act as Collateral Custodian,
for the benefit of the Indenture Trustee, as agent for the Noteholders. The
Collateral Custodian hereby accepts such appointment and agrees to perform the
duties and obligation with respect thereto set forth herein.



          Section 10.02 No Representations.



          In taking and retaining custody of the Required Loan Documents, the
Collateral Custodian shall be deemed to be acting as the agent of the
Noteholders; provided, however, that the Collateral Custodian makes no
representations as to the existence, perfection or priority of any Lien on the
Required Loan Documents or the instruments therein; and provided, further,
that, the Collateral Custodian’s duties as agent shall be limited to those
expressly contemplated herein.



          Section 10.03 Custody of Custodial Loan Files.



          All Custodial Loan Files shall be kept in fire resistant vaults, rooms or
cabinets at the office of the Collateral Custodian set forth in Section 13.06
hereof, or at such other office as shall be specified to the Indenture Trustee
by the Collateral Custodian in a written notice delivered at least forty- five
(45) days prior to such change. All Custodial Loan Files shall be placed
together with an appropriate identifying label and maintained in such a manner
so as to permit retrieval and access. All Custodial Loan Files shall be clearly
segregated from any other documents or instruments maintained by the Collateral
Custodian.



          Section 10.04 Standard of Care.



          In performing its duties, the Collateral Custodian shall use the same
degree of care and attention as it employs with respect to loans similar to the
Loans that it holds as Collateral Custodian.



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          Section 10.05 Acknowledgment.



          The parties hereto hereby acknowledge and agree that the Collateral
Custodian’s execution of this Agreement shall constitute the Collateral
Custodian’s written acknowledgment and agreement that the Collateral Custodian
is holding any Collateral it receives that may be perfected by possession under
the UCC on behalf of and for the benefit of the Indenture Trustee and the
Noteholders.



ARTICLE XI




RESERVED




ARTICLE XII




TERMINATION




          Section 12.01 Termination.



          (a) This Agreement shall terminate upon either: (A) the later of (i) the
satisfaction and discharge of the Indenture and the provisions thereof, and
payment to the Noteholders of all amounts due and owing in accordance with the
provisions hereof or (ii) the disposition of all funds with respect to the last
Loan and the remittance of all funds due hereunder and the payment of all
amounts due and payable, including, in both cases, without limitation,
indemnification payments payable pursuant to any Basic Document to the
Indenture Trustee, the Owner Trustee, the Issuer, the Servicer and the
Collateral Custodian, written notice of the occurrence of either of which shall
be provided to the Indenture Trustee by the Servicer; or (B) the mutual consent
of the Servicer, the Depositor and all Securityholders in writing and delivered
to the Indenture Trustee by the Servicer.



          (b) The Securities shall be subject to an early redemption or termination
at the option of the Servicer and the Initial Noteholder in the manner and
subject to the provisions of Section 12.02 of this Agreement.



          (c) Except as provided in this Article XII, none of the Depositor, the
Servicer nor any Certificateholder or Noteholder shall be entitled to revoke or
terminate the Issuer.



          Section 12.02 Optional Termination.



          The Servicer may, at its option, effect an early termination of this
Agreement and the Collateral on any Business Day on or after the Clean-up Call
Date. The Servicer shall effect such early termination by providing notice
thereof to the Indenture Trustee and Owner Trustee and paying all amounts due
the Indenture Trustee, the Owner Trustee and the Noteholders hereunder (the
“Termination Price”).



          Any such early termination by the Servicer shall be accomplished by
depositing into the Collection Account on the third Business Day prior to the
Payment Date on which the purchase is to occur the amount of the Termination
Price to be paid. The Termination Price and any amounts then on deposit in the
Collection Account (other than any amounts withdrawable pursuant to Section
5.01(c)(1) hereof) shall be deposited in the Distribution Account and



76









 







distributed by the Paying Agent pursuant to Section 5.01(c)(5) of this
Agreement and Section 9.1 of the Trust Agreement on the next succeeding Payment
Date; and any amounts received with respect to the Loans and Foreclosure
Properties subsequent to the final Payment Date shall belong to the purchaser
thereof.



          Section 12.03 Notice of Termination.



          Notice of termination of this Agreement or of early redemption and
termination of the Issuer pursuant to Section 12.01 shall be sent by the
Indenture Trustee to the Noteholders (in accordance with Section 12.02 of the
Indenture).



ARTICLE XIII




MISCELLANEOUS PROVISIONS




          Section 13.01 Acts of Securityholders.



          Except as otherwise specifically provided herein and except with respect
to Section 13.02(b), whenever action, consent or approval of the
Securityholders 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 Securityholders if the Majority Noteholders agree to take
such action or give such consent or approval.



          Section 13.02 Amendment.



          (a) This Agreement may be amended from time to time by the Depositor, the
Servicer, the Paying Agent, the Loan Originator, the Collateral Custodian, the
Backup Servicer, the Indenture Trustee and the Issuer by written agreement with
notice thereof to the Securityholders, without the consent of any of the
Securityholders, to cure any error or ambiguity, to correct or supplement any
provisions hereof which may be defective or inconsistent with any other
provisions hereof or to add any other provisions with respect to matters or
questions arising under this Agreement; provided, however, that such action
will not adversely affect in any material respect the interests of the
Securityholders, as evidenced by an Opinion of Counsel to such effect provided
at the expense of the party requesting such Amendment.



          (b) This Agreement may also be amended from time to time by the Depositor,
the Servicer, the Paying Agent, the Loan Originator, the Collateral Custodian,
the Backup Servicer, the Indenture Trustee and the Issuer by written agreement,
with the prior written consent 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
Securityholders; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, collections of payments on
Loans or distributions which are required to be made on any Security, without
the consent of the holders of 100% of the Securities, (ii) adversely affect in
any material respect the interests of any of the holders of the Securities in
any manner other than as described in clause (i), without the consent of the
holders of 100% of the Securities, or (iii) reduce the percentage of the
Securities, the consent of which is required for any such amendment, without
the consent of the holders of 100% of the Securities.



77









 





          (c) It shall not be necessary for the consent of Securityholders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.



          Prior to the execution of any amendment to this Agreement, the Issuer and
the Indenture Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement. The Issuer and the Indenture Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Issuer’s own
rights, duties or immunities of the Issuer or the Indenture Trustee, as the
case may be, under this Agreement.



          Any amendment to this Agreement which affects the rights or duties of the
Owner Trustee shall require the prior written consent of the Owner Trustee.



          Section 13.03 Recordation of Agreement.



          To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Property is
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Securityholders’ expense
on direction of the Majority Noteholders but only when accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Securityholders or is necessary for
the administration or servicing of the Loans.



          Section 13.04 Duration of Agreement.



          This Agreement shall continue in existence and effect until terminated as
herein provided.



          Section 13.05 Governing Law.



          THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.



          Section 13.06 Notices.



All demands, notices and communications hereunder shall be in writing and shall
be deemed to have been duly given if (i) delivered personally, mailed by
overnight mail, certified mail or registered mail, postage prepaid, or (ii)
transmitted by telecopy, upon telephone confirmation of receipt thereof, as
follows: (A) in the case of the Depositor, to CS Funding II Depositor LLC, 4445
Willard Avenue, Chevy Chase, Maryland 20815, Attention: Controller, telecopy
number (301) 841-2380, or such other addresses or telecopy or telephone numbers
as may hereafter be furnished to the Securityholders and the other parties
hereto in writing by the Depositor; (B) in the case of the Issuer, to
CapitalSource Funding II Trust, c/o Wilmington Trust Company, as Owner
Trustee, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890,




78









 








telecopy (302) 636-4140, telephone (302) 651-1000, or such other address or
telecopy or telephone numbers as may hereafter be furnished to the Noteholders
and the other parties hereto in writing by the Issuer; (C) in the case of the
Loan Originator, to CapitalSource Finance LLC, 4445 Willard Avenue, Chevy
Chase, Maryland 20815, Attention: Controller, telecopy number (301) 841-2380,
or such other addresses or telecopy or telephone numbers as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Loan Originator, (D) in the case of the Servicer, to CapitalSource, 4445
Willard Avenue, Chevy Chase, Maryland 20815, Attention: Controller, telecopy
number (301) 841-2380, or such other addresses or telecopy or telephone numbers
as may hereafter be furnished to the Securityholders and the other parties
hereto in writing by the Servicer; (E) in the case of the Collateral Custodian,
to Wells Fargo Bank, National Association, 751 Kasota Avenue, MAC N9328-011,
Minneapolis, Minnesota, Attention: Corporate Trust Services/Asset-Backed
Securities Vault, telecopy number (612) 667-1080, or such other addresses or
telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Collateral
Custodian; (F) in the case of the Backup Servicer, to Wells Fargo Bank,
National Association, MAC N9311-161, Sixth Street and Marquette, Minneapolis,
Minnesota 55479, Attention: Corporate Trust Services/Asset-Backed
Administration, telecopy number (612) 667-3539, or such other addresses or
telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Backup Servicer;
(G) in the case of the Indenture Trustee, at the Corporate Trust Office, as
defined in the Indenture; and (H) in the case of the Initial Noteholder, to
Warehouse Monitoring Group, Credit Risk Management, Citigroup Global Markets
Realty Corp., 250 West Street, 8th Floor, New York, NY 10013, telecopy number (
)  -  ; any such notices shall be deemed to be effective with respect to
any party hereto upon the receipt of such notice or telephone confirmation
thereof by such party.




          Section 13.07 Severability of Provisions.



          If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, 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 covenants,
agreements, provisions or terms of this Agreement.



          Section 13.08 No Partnership.



          Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.



          Section 13.09 Counterparts.



          This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.



          Section 13.10 Successors and Assigns.



          This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Loan Originator, the Depositor, the Indenture Trustee, the Issuer
and the Securityholders and their respective successors and permitted assigns.



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          Section 13.11 Headings.



          The headings of the various Sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.



          Section 13.12 Actions of Securityholders.



          (a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by an
agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Depositor, the Servicer or the Issuer. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Agreement and conclusive in favor
of the Depositor, the Servicer and the Issuer if made in the manner provided in
this Section 13.12.



          (b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer may deem sufficient.



          (c) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Securityholder shall bind every holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, or omitted to be done, by the
Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.



          (d) The Depositor, the Servicer or the Issuer may require additional proof
of any matter referred to in this Section 13.12 as it shall deem necessary.



          Section 13.13 Non-Petition Agreement.



          Notwithstanding any prior termination of any Basic Document, the Loan
Originator, the Paying Agent, the Servicer, the Depositor and the Indenture
Trustee each severally and not jointly covenants that it shall not, prior to
the date which is one year and one day after the payment in full of the all of
the Notes, acquiesce, petition or otherwise, directly or indirectly, invoke or
cause the Issuer or the Depositor to invoke the process of any governmental
authority for the purpose of commencing or sustaining a case against the Issuer
or Depositor under any Federal or state bankruptcy, insolvency or similar law
or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer or Depositor or any
substantial part of their respective property or ordering the winding up or
liquidation of the affairs of the Issuer or the Depositor.



          Section 13.14 Holders of the Securities.



          (a) Any sums to be distributed or otherwise paid hereunder or under this
Agreement to the holders of the Securities shall be paid to such holders pro
rata based on their Percentage Interests;



80









 





          (b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Securities, such consent or approval
shall be capable of being given by the holder or holders evidencing in the
aggregate not less than 51% of the Percentage Interests.



          Section 13.15 Due Diligence.



          The Loan Originator acknowledges that the Initial Noteholder may purchase
Notes and Additional Note Principal Balances and may enter into transactions
based solely upon the information provided by the Loan Originator to the
Initial Noteholder in the Loan Schedule and the representations, warranties and
covenants contained herein, and that the Initial Noteholder, at its option, has
the right prior to such purchase of the Notes or Additional Note Principal
Balance therein or such Transactions to conduct a partial or complete due
diligence review on some or all of the Eligible Loans securing such purchase,
including without limitation ordering new credit reports on the related
Mortgaged Properties and otherwise re-generating the information used to
originate such Loan. The Initial Noteholder may underwrite such Loans itself
or engage a mutually agreed upon third party underwriter to perform such
underwriting. The Loan Originator agrees to cooperate with the Initial
Noteholder and any third party underwriter in connection with such
underwriting, including, but not limited to, providing the Initial Noteholder
and any third party underwriter with access to any and all documents, records,
agreements, instruments or information relating to such Loans in the
possession, or under the control, of the Servicer. The Loan Originator also
shall make available to the Initial Noteholder a knowledgeable financial or
accounting officer for the purpose of answering questions respecting the Loan
Files and the Loans. Each Noteholder agrees (on behalf of itself and its
Affiliates, directors, officers, employees and representatives) to use
reasonable precaution to keep confidential, in accordance with its customary
procedures for handling confidential information and in accordance with safe
and sound practices, and not to disclose to any third party, any non-public
information supplied to it or otherwise obtained by it hereunder with respect
to the Loan Originator or any of its Affiliates (including, but not limited to,
the Loan File); provided, however, that nothing herein shall prohibit the
disclosure of any such information to the extent required by statute, rule,
regulation or judicial process; provided, further that, unless specifically
prohibited by applicable law or court order, the Noteholder shall, prior to
disclosure thereof, notify the Loan Originator of any request for disclosure of
any such non-public information. The Noteholder further agrees not to use any
such non-public information for any purpose unrelated to this Agreement and
that each such Noteholder shall not disclose such non-public information to any
third party underwriter in connection with a potential Disposition without
obtaining a written agreement from such third party underwriter to comply with
the confidentiality provisions of this Section 13.15.



          Section 13.16 No Reliance.



          Each of the Loan Originator, the Depositor and the Issuer hereby
acknowledges that it has not relied on the Initial Noteholder or any of its
officers, directors, employees, agents and “control persons” as such term is
used under the Act and under the Securities Exchange Act of 1934, as amended,
for any tax, accounting, legal or other professional advice in connection with
the transactions contemplated by the Basic Documents, that each of the Loan
Originator, the Depositor and the Issuer has retained and been advised by such
tax, accounting, legal and other professionals as it has deemed necessary in
connection with the transactions contemplated by the



81









 







Basic Documents and that the Initial Noteholder makes no representation or
warranty, and shall have no liability with respect to, the tax, accounting or
legal treatment or implications relating to the transactions contemplated by
the Basic Documents.



          Section 13.17 Conflicts.



          Notwithstanding anything contained in the Basic Documents to the contrary,
in the event of the conflict between the terms of this Agreement and any other
Basic Document, the terms of this Agreement shall control.



          Section 13.18 Limitation on Liability.



          It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of CapitalSource
Funding II Trust, in the exercise of the powers and authority conferred and
vested in it, (b) each of the representations, undertakings and agreements
herein made on the part of the Issuer is made and intended not as personal
representations, undertakings and agreements by Wilmington Trust Company but is
made and intended for the purpose for binding only the Issuer, (c) nothing
herein contained shall be construed as creating any liability on Wilmington
Trust Company, individually or personally, to perform any covenant either
expressed or implied contained herein, all such liability, if any, being
expressly waived by the parties hereto and by any Person claiming by, through
or under the parties hereto and (d) under no circumstances shall Wilmington
Trust Company be personally liable for the payment of any indebtedness or
expenses of the Issuer or be liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by the
Issuer under this Agreement or any other related documents.



          Section 13.19 No Agency.



          Nothing contained herein or in the Basic Documents shall be construed to
create an agency or fiduciary relationship between the Initial Noteholder, the
Noteholders or any of their Affiliates and the Issuer, the Depositor, the Loan
Originator or the Servicer. None of the Initial Noteholder, any Noteholders or
any of their Affiliates shall be liable for any acts or actions affected in
connection with a Disposition including without limitation, any Securitization
pursuant to Section 3.06 nor any Whole Loan Sale pursuant to Section 3.06
hereof.



          Section 13.20 Third Party Beneficiaries.



          The Owner Trustee is an intended third party beneficiary of this
Agreement.



          Section 13.21 Performance by Wells Fargo Bank, National
Association.



          The parties expressly acknowledge and consent to Wells Fargo Bank,
National Association acting in the capacities of successor Servicer and in the
capacity as Indenture Trustee, Backup Servicer and Collateral Custodian. Wells
Fargo Bank, National Association may, in such dual capacity, discharge its
separate functions fully, without hindrance or regard to conflict of interest
principles, duty of loyalty principles or other breach of fiduciary duties to
the extent that any such conflict or breach arises from the performance by
Wells Fargo Bank, National Association of express duties set forth in this
Agreement in any of such capacities, all



82









 







of which defenses, claims or assertions are hereby expressly waived by the
other parties hereto except in the case of negligence (other than errors in
judgment) and willful misconduct by Wells Fargo Bank, National Association.



          Section 13.22 Amendment and Restatement.



          This Agreement is an amendment and restatement of the Sale and Servicing
Agreement dated as of September 17, 2003 (the “Old Sale and Servicing
Agreement”). On and after the effective date of this Agreement, each reference
herein and in the Note Purchase Agreement and each other Basic Document to the
“Sale and Servicing Agreement,” “thereunder,” “thereof,” “therein” or any other
expression of like import referring to the Old Sale and Servicing Agreement
shall mean and be a reference to this Agreement. The execution, delivery and
effectiveness of this Sale and Servicing Agreement shall not operate as a
waiver of any right, power or remedy hereunder or constitute a waiver of any
provision hereof. This amended and restated Sale and Servicing Agreement does
not constitute a novation or termination of the “Sale and Servicing Agreement”
or any other Basic Document and all obligations under the Old Sale and
Servicing Agreement are in all respects continuing as hereby amended.



          Section 13.23 Conversion.



          Notwithstanding anything to the contrary contained in this Agreement or
any of the other Basic Documents, the Depositor shall be entitled and permitted
to effectuate the Conversion. Upon the occurrence of the Conversion (i) all
references to limited liability company to the organizational documents and
activities related to such an organization that are applicable to the Depositor
shall be deemed to be an analogous reference to a corporation and/or to the
organizational documents and activities related to such an organization and
(ii) the Depositor shall ratify and acknowledge each of its obligations under
this Agreement and the other Basic Documents, such obligations to continue and
to be unaffected by the Conversion. Without in any way limiting the foregoing,
the Depositor agrees to provide, from time to time, any additional
documentation and to execute additional acknowledgements, amendments,
instruments or other agreements as may be requested and reasonably required by
any of the parties to this Agreement or any of the Basic Documents to
effectuate the foregoing.



(SIGNATURE PAGE FOLLOWS)




83









 








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



	 	 	 	 	 
	 	 	CAPITALSOURCE FUNDING II TRUST,
	 
	 	 	 	 
	

	 	By:
	 	Wilmington Trust Company, not in its

individual capacity but solely as

Owner Trustee
	 
	 	 	 	 
	

	 	By:
	 	/s/ R. K. MANEY
	

	 	 	 	
 
	

	 	 	 	Name: Roseline K. Maney
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	 	 	CS FUNDING II DEPOSITOR LLC, as Depositor
	 
	 	 	 	 
	

	 	By:
	 	/s/ STEVEN A. MUSELES
	

	 	 	 	
 
	

	 	 	 	Name: Steven A. Museles
	

	 	 	 	Title: Senior Vice President
	 
	 	 	 	 
	 	 	CAPITALSOURCE FINANCE LLC, as Loan
Originator and Servicer
	 
	 	 	 	 
	

	 	By:
	 	/s/ STEVEN A. MUSELES
	

	 	 	 	
 
	

	 	 	 	Name: Steven A. Museles
	

	 	 	 	Title: Senior Vice President
	 
	 	 	 	 
	 	 	WELLS FARGO BANK, NATIONAL ASSOCIATION, as
Indenture Trustee, Collateral Custodian and
Backup Servicer
	 
	 	 	 	 
	

	 	BY:
	 	/s/ JEANINE C. CASEY
	

	 	 	 	
 
	

	 	 	 	Name: Jeanine C. Casey
	

	 	 	 	Title: Corporate Trust Officer







Amended And Restated Sale And Servicing Agreement




 









 








EXHIBIT A

FORM OF NOTICE OF ADDITIONAL NOTE PRINCIPAL BALANCE




[LETTERHEAD OF                                       ]




	 	 	 
	

	 	[Date]
	 
	 	 
	CAPITALSOURCE FUNDING II TRUST

	 	CITIGROUP GLOBAL MARKETS REALTY CORP.
	 
	 	 
	WELLS FARGO BANK,

NATIONAL ASSOCIATION
	 	 







     Re: CapitalSource Funding II Trust Commercial Loan-Backed Notes



     Reference is made to the Amended and Restated Sale and Servicing
Agreement, dated as of September 17, 2003 and amended and restated as of
October 7, 2004 (the “Sale and Servicing Agreement”), among CapitalSource
Funding II Trust, as Issuer, CS Funding II Depositor LLC, as Depositor,
CapitalSource Finance LLC, as Loan Originator and Servicer, and Wells Fargo
Bank, National Association, as Indenture Trustee, Collateral Custodian and
Backup Servicer. Capitalized terms not defined herein shall have the meanings
assigned to such terms in the Sale and Servicing Agreement.



     The undersigned                    , a duly appointed                    
of                                      , acting in such capacity, hereby requests an advance of
Additional Note Principal Balance in an amount of $                   , such amount to be
advanced on                    , 200     
, a Business Day at least [one Business Day] from the
date hereof.



	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	CS FUNDING II DEPOSITOR LLC
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	
 
	

	 	Name:	 	 
	

	 	Title:	 	 








A-1









 





EXHIBIT B




FORM OF MONTHLY SERVICER REPORT




B-1









 








EXHIBIT C

FORM OF S&SA ASSIGNMENT




         ASSIGNMENT
NO.        OF LOANS (“S&SA Assignment”), dated              , (the
“Transfer Date”), by CS Funding II Depositor LLC, (the “Depositor”) to
CapitalSource Funding II Trust (the “Issuer”) pursuant to the Sale and
Servicing Agreement referred to below.



WITNESSETH:




         WHEREAS, the Depositor and the Issuer are parties to the Amended and
Restated Sale and Servicing Agreement dated as of September 17, 2003 and
amended and restated as of October 7, 2004 (the “Sale and Servicing Agreement”)
among the Depositor, the Issuer, the Servicer, the Loan Originator and the
Indenture Trustee on behalf of the Noteholders, hereinafter as such agreement
may have been, or may from time to time be, amended, supplemented or otherwise
modified;



         WHEREAS, pursuant to the Sale and Servicing Agreement, the Depositor
wishes to sell, convey, transfer and assign Loans to the Issuer in exchange for
cash consideration, the Trust Certificates and other good and valid
consideration the receipt and sufficiency of which is hereby acknowledged; and



         WHEREAS, the Issuer is willing to acquire such Loans subject to the terms
and conditions hereof and of the Sale and Servicing Agreement;



         NOW THEREFORE, the Depositor and the Issuer hereby agree as follows:



         1. Defined Terms. All capitalized terms defined in the Sale and Servicing
Agreement and used herein shall have such defined meanings when used herein,
unless otherwise defined herein.



         2. Designation of Loans. The Depositor does hereby deliver herewith a
Loan Schedule containing a true and complete list of each Loan to be conveyed
on the Transfer Date. Such list is marked as Schedule A to this S&SA
Assignment and is hereby incorporated into and made a part of this S&SA
Assignment.



         3. Conveyance of Loans. The Depositor hereby sells, transfers, assigns
and conveys to the Issuer, without recourse, all of the right, title and
interest of the Depositor in and to the Loans and all proceeds thereof listed
on the Loan Schedule attached hereto, including all interest and principal
received by the Depositor or the Servicer on or with respect to the Loans on or
after the related Transfer Date together with all right, title and interest in
and to the proceeds of any related Insurance Policies and the related Loan
Collateral.



         4. Issuer Acknowledges Assignment. As of the Transfer Date, pursuant to
this S&SA Assignment and Section 2.01(a) of the Sale and Servicing Agreement,
the Issuer acknowledges its receipt of the Loans listed on the attached Loan
Schedule and all other related property in the Collateral.



C-1









 





         5. Acceptance of Rights But Not Obligations. The foregoing sale,
transfer, assignment, set over and conveyance does not, and is not intended to,
result in a creation or an assumption by the Issuer of any obligation of the
Depositor, the Loan Originator or any other Person in connection with this S&SA
Assignment or under any agreement or instrument relating thereto except as
specifically set forth herein.



         6. Depositor Acknowledges Receipt of Sales Price. The Depositor hereby
acknowledges receipt of the Sales Price or that is otherwise distributed at its
direction.



         7. Conditions Precedent. The conditions precedent in Section 2.06(a) of
the Sale and Servicing Agreement have been satisfied.



         8. Amendment of the Sale and Servicing Agreement. The Sale and Servicing
Agreement is hereby amended by providing that all references to the “Sale and
Servicing Agreement”, “this Agreement” and “herein” shall be deemed from and
after the Transfer Date to be a dual reference to the Sale and Servicing
Agreement as supplemented by this S&SA Assignment. Except as expressly amended
hereby, all of the representations, warranties, terms, covenants and conditions
of the Sale and Servicing Agreement shall remain unamended and the Sale and
Servicing Agreement shall continue to be, and shall remain, in full force and
effect in accordance with its terms and except as expressly provided herein,
this S&SA Assignment shall not constitute or be deemed to constitute a waiver
of compliance with or consent to noncompliance with any term or provision of
the Sale and Servicing Agreement.



         9. Counterparts. This S&SA Assignment may be executed in any number of
counterparts all of which taken together shall constitute one and the same
instrument.



C-2









 





     IN WITNESS WHEREOF, the undersigned have caused this S&SA Assignment to be
duly executed and delivered by their respective duly authorized officers on the
day and year first above written.


	 	 	 	 	 
	 	CS FUNDING II DEPOSITOR LLC,

as Depositor

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



	 	 	 	 	 
	 	CAPITALSOURCE FUNDING II TRUST, 

as Issuer

 	 
	 	By:  	CapitalSource Finance LLC, as Servicer and Administrator
 	 
	 	 	 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 




C-3









 






	 	 	 	 	 



EXHIBIT D

FORM OF LOAN SCHEDULE





     The Loan Schedule shall set forth the following information with respect
to each Eligible Loan:



[TO BE PROVIDED]




D-1









 








EXHIBIT E-1

FORM OF INITIAL CERTIFICATION




BY FACSIMILE:




Citigroup Global Markets Realty Corp.

390 Greenwich St.

New York, NY 10013



	 	 	 
	Re:

	 	Amended and Restated Sale and Servicing Agreement dated as of September
17, 2003 as amended and restated as of October 7, 2004 (the “Agreement”),
by and among CapitalSource Funding II Trust as Issuer, CS Funding II
Depositor LLC, as Depositor, CapitalSource Finance LLC as the Loan
Originator and Servicer, and Wells Fargo Bank, National Association, as
Indenture Trustee, Backup Servicer and as Collateral Custodian.







Ladies and Gentlemen:




     In
accordance with the provisions of Section 2.05(b)(i) of the
above-referenced Agreement, the undersigned, as the Collateral Custodian,
hereby certifies as to each Loan in the Loan List that it has received by
facsimile transmission or in an electronic format acceptable to the Collateral
Custodian a copy of the executed Underlying Note and/or a copy of the Loan
Register reflecting the indebtedness of such Underlying Note and the Assignment
of Mortgage (if any), in each case other than the Loan Register, endorsed in
blank and with respect to each Noteless Loan, a copy of the Loan Register
acknowledging the Collateral Custodian is the entitlement holder on behalf of
the Noteholders and will comply with only these entitlement orders originated
by the Noteholders, along with the exception of the missing items listed
therein. The Collateral Custodian makes no representations as to (i) the
validity, legality, enforceability, sufficiency, due authorization or
genuineness of any of the documents contained in each Loan File or of any of
the Loans or (ii) the collectibility, insurability, effectiveness or
suitability of any such Loan.



     The Collateral Custodian hereby confirms that it is holding each such Loan
Document as agent and bailee of, and custodian for the exclusive use and
benefit, and subject to the sole direction, of the Deal Agent pursuant to the
terms and conditions of the Agreement.



     The Collateral Custodian will accept and act on instructions with respect
to the Loans subject hereto upon surrender of this Trust Receipt and Initial
Certification at its office at Sixth Street and Marquette Avenue, N9311-161,
Minneapolis, Minnesota 55479.



E-1-1









 





     Capitalized terms used herein shall have the meaning ascribed to them in
the Agreement.


	 	 	 	 	 
	 	WELLS FARGO BANK, NATIONAL

ASSOCIATION, as
Collateral Custodian
	 
	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 




E-1-2









 






	 	 	 	 	 



EXHIBIT E-2

FORM OF FINAL CERTIFICATION




BY FACSIMILE:




Citigroup Global Markets Realty Corp.

390 Greenwich St.

New York, NY 10013



	 	 	 
	Re:

	 	Amended and Restated Sale and Servicing Agreement dated as of
September 17, 2003 as amended and restated as of October 7, 2004
(the “Agreement”), by and among CapitalSource Funding II Trust as
Issuer, CS Funding II Depositor LLC, as Depositor, CapitalSource
Finance LLC as the Loan Originator and Servicer, and Wells Fargo
Bank, National Association, as Indenture Trustee, Backup Servicer
and as Collateral Custodian.







Ladies and Gentlemen:




     In
accordance with the provisions of Section 2.05(b)(ii) of the
above-referenced Agreement, the undersigned, as the Collateral Custodian,
hereby certifies as to each Loan in the Loan List that it has received the
Required Loan Documents with respect to each Loan identified on the Loan List
attached hereto, along with the exception of the missing items listed therein.
The Collateral Custodian makes no representations as to (i) the validity,
legality, enforceability, sufficiency, due authorization or genuineness of any
of the documents contained in each Loan File or of any of the Loans or (ii) the
collectibility, insurability, effectiveness or suitability of any such Loan.



     The Collateral Custodian hereby confirms that it is holding each such Loan
Document as agent and bailee of, and custodian for the exclusive use and
benefit, and subject to the sole direction, of the Noteholders pursuant to the
terms and conditions of the Agreement.



     The Collateral Custodian will accept and act on instructions with respect
to the Loans subject hereto upon surrender of this Trust Receipt and Initial
Certification at its office at Sixth Street and Marquette Avenue, N9311-161,
Minneapolis, Minnesota 55479.



     Capitalized terms used herein shall have the meaning ascribed to them in
the Agreement.


	 	 	 	 	 
	 	WELLS FARGO BANK, NATIONAL
ASSOCIATION, as
Collateral Custodian

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 




E-2-1









 






	 	 	 	 	 



EXHIBIT F

FORM OF BORROWING BASE CERTIFICATE




[DATE]



Citigroup Global Markets Realty Corp.

390 Greenwich Street

New York, New York 10013

Attention:



Ladies and Gentlemen:





     This Borrowing Base Certificate is delivered to you pursuant to (i)
Section 2.02 of the Amended and Restated Note Purchase Agreement (the “Note
Purchase Agreement”), dated as of September 17, 2003 and amended and restated
as of October 7, 2004, among CapitalSource Funding II Trust, as Issuer, CS
Funding II Depositor LLC, as Depositor, CapitalSource Finance LLC, as Loan
Originator and Servicer (“CapitalSource”) and Citigroup Global Markets Realty
Corp., as Purchaser and (ii) Section 2.06 of the Amended and Restated Sale and
Servicing Agreement (the “Sale and Servicing Agreement”; and together with the
Purchase Agreement, the “Agreements”), dated as of September 17, 2003 and
amended and restated as of October 7, 2004, among the Issuer, the Depositor,
CapitalSource, as Loan Originator and Servicer and Wells Fargo Bank, National
Association, as Indenture Trustee, Backup Servicer and Collateral Custodian.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Agreements.



     As of the date hereof, CapitalSource hereby makes the following
representations and warranties:




	(1)	 	Attached hereto as Schedule 1 is a true, correct and complete
copy of the borrowing base report (the “Borrowing Base Report”),
which sets forth the calculation of the Borrowing Base and all
components thereof;
	 
	(2)	 	All conditions precedent to the related Transfer Date set
forth in Section 2.06 of the Sale and Servicing Agreement have been
satisfied as of the date hereof and will remain satisfied on the
related Transfer Date;
	 
	(3)	 	All of the representations and warranties set forth in
Article III of the Sale and Servicing Agreement are true and correct
as of the date hereof and as of the related Transfer Date;
	 
	(4)	 	All of the conditions precedent set forth in Section 3.01 of
the Note Purchase Agreement have been satisfied as of the date
hereof and will remain satisfied on the related Transfer Date;
	 
	(5)	 	All of the representations and warranties set forth in
Article V of the Note Purchase Agreement are true and correct as of
the date hereof and as of the related Transfer Date;




F-1









 






	(6)	 	No Trigger Event shall have occurred and be continuing; and
	 
	(7)	 	Each of the Loan Originator, the Servicer, the Issuer and the
Depositor is in compliance with the covenants set forth in the Basic
Documents.






F-2









 





          IN WITNESS WHEREOF, the undersigned have executed this Borrowing Base
Certificate this                     day of                    , 200_.



	 	 	 
	

	 	CAPITALSOURCE FINANCE LLC, as Loan

Originator and Servicer
	 
	 	 
	

	 	By:                                                                             
       Name:
       Title:







F-3









 






Schedule 1




BORROWING BASE REPORT




F-4









 








EXHIBIT G




LIST OF INVESTORS




G-1









 








EXHIBIT H




LISTING OF CIG PAYMENT ACCOUNTS




	 	 	 
	

	 	1730 Rhode Island Avenue
	Branch Banking & Trust Co.

	 	Washington, D.C. 20036
	5162279930

	 	CIG International, LLC BIDA Account
	5160082234

	 	CIG International, LLC Checking
	5160081815

	 	CIG International, LLC Checking







H-1









 






EXHIBIT I




LISTING OF CIG UNDERLYING LOANS ON EFFECTIVE DATE




	 	 	 
	Borrower

	 	Facility
	Jubilation, LLC

	 	191026 · N/R — Ashwood Cape San Blas
	Powell 98 LLC

	 	191027 · N/R — Heron Landings
	MHI-Washington Boulevard, LLC

	 	191032 · N/R — Madison Mews
	Insignia Glenview, LLC

	 	191052 · N/R — Insignia Glenview, LLC
	Gatewest, LLC

	 	191061 · N/R — Westgate Townhomes
	Ravinia Park Place LLC

	 	191071 · N/R — Ravinia Park Place
	New Legacy I LLC

	 	191081 · N/R — Cedar Crossing
	Pinnacle West Hartford Developers, LLC

	 	191111 · N/R — Pinnacle at Promenade
	Watertown Developers, LLC

	 	191112 · N/R — Pinnacle at Watertown
	Saintsbury Plaza, LLC

	 	191328 · N/R — Saintsbury Plaza
	Chambord PCI, LLC

	 	191329 · N/R — Frenchman’s Reserve
	RL Homes, LLC

	 	191461 · N/R — Valencia
	RL Homes II, LLC

	 	191462 · N/R — Bonita Grand Estates
	Waterbrook II, Inc.

	 	191471 · N/R — One Ocean Blvd.
	Sangamon, LLC

	 	191481 · N/R — Lofthaus
	Flint Creek LLC

	 	191531 · N/R — Flint Creek
	Laramie Park LLC

	 	191532 · N/R — Laramie Park
	The Metropolitan at Lake Eola LLC

	 	191541 · N/R — Lake Eola
	Place des Arts Holding LLC

	 	191561 · N/R — Place des Arts
	Logan II, LLC

	 	191571 · N/R — The Phaeton
	Oakshire Group, LLC

	 	191581 · N/R — Monmouth
	Greystone Vinings of Tallahassee, LLC

	 	191611 · N/R — Greystone Condos
	Eagle Homes — Wineberry, LLC

	 	191741 · N/R — Wineberry
	Inverness One L.L.C.

	 	191751 · N/R — Inverness







I-1









 






	 	 	 
	Borrower

	 	Facility
	Liberty Row LLC

	 	191771 · N/R — Liberty Row, LLC
	Uptown Partners, LLC

	 	191781 · N/R — Langston Lofts
	Potterville Properties Development LLC

	 	191791 · N/R — Walden Ridge Estates
	OL Vineyard PRC LLC

	 	191811 · N/R — Vineyards
	Forest Trails, LLP

	 	191821 · Forest Trails
	League City Investors, LTD

	 	191831 · N/R — Whispering Lakes
	M.G.C.C. Group, INC

	 	191841 · Crystal Creek
	M.G.O. Group, INC

	 	191842 · N/R — Wayside Hills
	M.G.S. Group, INC

	 	191843 · N/R — Beekman
	Sterling & Seventh LLC

	 	191851 · Vermeil — Pinson
	Equus Properties, LLC

	 	191881 · N/R — Equus Properties
	Uptown Village, LTD

	 	191891 · Uptown Village
	Liberty Sweetwater LLC

	 	191992 · Sweetwater
	1111 South Wabash, LLC

	 	191991 · 1111 South Wabash
	Park North at Cheney Place, LLC

	 	19149 · Park North at Cheney Place, LLC
	Woodstock Development, LLC

	 	191732 · N/R — Woodstock
	1035 North Dearborn, LLC

	 	191591 · N/R — Maple Tower
	1418 W Street, LLC

	 	191161 · N/R — 1418 W Street
	545 Newburyport, LLC

	 	191171 · N/R 545 Newburyport
	Windwater Development — Flamingo
Island, LLC

	 	191871 Flamingo Island, LLC
	ASESD, LLC

	 	Attorney Street (no facility number
available as of 7/1/04)
	RL Homes IX, LLC

	 	Old Cutler Pointe (no facility number
available as of 7/1/04)







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EXHIBIT J




COPY OF CIG LOAN AGREEMENT




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EXHIBIT K




EXCEPTIONS TO SECTION 3.04




REPRESENTATIONS AND WARRANTIES




          The Loan Originator does not make any representation or warranty with
respect to the conformity of any CIG Underlying Loan with the representations
and warranties (a) set forth in clauses (j), (k), (s) or (kk) of Section 3.04
of the Sale and Servicing Agreement and (b) set forth in clause (b) of Section
3.04 of the Sale and Servicing Agreement with respect to Liberty Sweetwater,
LLC, Rivinia Park Place, LLC and Sterling & Seventh, LLC.



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EXHIBIT L




SECTION 7.02 CERTIFICATION




          I,                                       ,                                        of CapitalSource Finance LLC, a
Delaware limited liability company (the “Company”), do hereby certify that:




               (i) the Company is in compliance with all provisions and terms of
the Amended and Restated Sale and Servicing Agreement, dated as of
September 17, 2003 and amended and restated as of October 7, 2004 (the
“Sale and Servicing Agreement”), by and among CapitalSource Funding II
Trust, a Delaware statutory trust, CS Funding II Depositor LLC, a
Delaware limited liability company, as Depositor, the Company, as Loan
Originator and as Servicer, and Wells Fargo Bank, National Association, a
national banking association, as Indenture Trustee on behalf of the
Noteholders, as Collateral Custodian and as Backup Servicer;




               (ii) no Default has occurred under the Sale and Servicing Agreement;




               (iii) the consolidated Tangible Net Worth of the Company is not less
than $650,000,000;




               (iv) the maximum leverage ratio (the ratio of the Company’s total
consolidated liabilities (exclusive of non recourse debt but including,
without limitation, any convertible debt), determined in accordance with
GAAP, to its consolidated Tangible Net Worth) of the Company does not
exceed 5:1; and




               (v) calculations of the Company’s consolidated Tangible Net Worth
and leverage ratio are set forth on Schedule I attached hereto.



          Capitalized terms used but not defined herein shall have the meanings
assigned thereto in the Sale and Servicing Agreement.



          IN WITNESS WHEREOF, I have signed this certificate.



          Date:                                       , 200                   



	 	 	 	 	 
	

	 	 	 	CAPITALSOURCE FINANCE LLC
	 
	 	 	 	 
	

	 	 	 	By:                                      

Name:

Title:







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SCHEDULE I TO SECTION 7.02 CERTIFICATION




Consolidated Tangible Net Worth Calculation:




	 	 	 	 	 
	Line

	 	Item
	 	Total (in US$)
	1

	 	Total Consolidated Assets	 	 
	2

	 	Total Consolidated Liabilities	 	 
	3

	 	Consolidated Net Worth (Line 1 minus Line 2)	 	 
	4

	 	Consolidated Net Book Value of Intangibles	 	 
	5

	 	Consolidated Tangible Net Worth (Line 3 minus Line 4)	 	 







Leverage Ratio Calculation:




	 	 	 	 	 
	Line

	 	Item
	 	Total
	1

	 	Total Consolidated Liabilities (exclusive of non recourse
debt but including, without limitation, any convertible
debt)
	$	 
	2

	 	Consolidated Tangible Net Worth (from above)
	$	 
	3

	 	Leverage Ratio (Line 1 divided by Line 2)
	 	_:1








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