Document:

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EXHIBIT 10.12

                             NOTE PURCHASE AGREEMENT

         THIS NOTE PURCHASE AGREEMENT, dated as of November 15, 2005 (as
amended, supplemented, restated or otherwise modified from time to time in
accordance with the terms hereof, this "AGREEMENT"), is made among PAGE THREE
FUNDING LLC, a Delaware limited liability company (the "ISSUER"), CONSUMER
PORTFOLIO SERVICES, INC., a California corporation ("CPS" or the "SERVICER"),
and BEAR, STEARNS INTERNATIONAL LIMITED, a limited liability company incorporate
in England and Wales, as Note Purchaser (in such capacity, together with any
successors in such capacity, the "NOTE PURCHASER").

                                 R E C I T A L S
                                 ---------------

                  1. Contemporaneously with the execution and delivery of this
Agreement, the Issuer and Wells Fargo Bank, National Association, a national
banking association, as trustee (together with its successors in trust
thereunder as provided in the Indenture referred to below, the "TRUSTEE"), are
entering into the Indenture, of even date herewith (as the same may be amended,
supplemented, restated or otherwise modified from time to time in accordance
with the terms thereof, the "INDENTURE"), pursuant to which the Issuer will
issue a class of Variable Funding Notes (the "NOTES").

                  2. The security for the Notes will include retail installment
sale contracts secured by the new and used automobiles, vans, minivans and light
trucks financed thereby and certain other Conveyed Property. The Receivables
will initially be serviced by CPS. The Notes will be secured by the Receivables,
which will be pledged by the Issuer to the Trustee from time to time pursuant to
the Indenture.

                  3. The Issuer will acquire a pool of Receivables (the "INITIAL
RECEIVABLES") from CPS pursuant to a Sale and Servicing Agreement, dated as of
November 15, 2005 (such date, the "INITIAL CUTOFF DATE" and such agreement, the
"SALE AND SERVICING AGREEMENT"), among the Issuer, as purchaser, CPS, as seller
and servicer (in such capacities, the "SELLER" and the "SERVICER,"
respectively), and the Trustee. The Issuer will in turn pledge the Initial
Receivables to the Trustee pursuant to the Indenture. From time to time prior to
the Facility Termination Date pursuant to the Sale and Servicing Agreement, the
Seller will sell, and the Issuer will purchase, additional pools of Receivables
(the "ADDITIONAL RECEIVABLES" and, together with the Initial Receivables, the
"RECEIVABLES") secured by the new and used automobiles, vans, minivans and light
trucks financed thereby and certain other Conveyed Property. The Initial
Receivables and the Additional Receivables will be described in the schedules to
one or more assignments by the Seller to the Issuer (each, an "ASSIGNMENT")
dated as of the cutoff date specified therein (such date, a "CUTOFF DATE" and
each date of transfer, a "FUNDING DATE", in each case with respect to the
related Receivables and other Collateral). The Issuer will in turn pledge the
Additional Receivables to the Trustee pursuant to the Indenture. In addition to
the Receivables, repayment of the Notes will be secured by a security interest
in the other Collateral.

                  4. The Issuer wishes to issue the Notes in favor of the Note
Purchaser and obtain the agreement of the Note Purchaser to purchase the Notes
and to purchase increases in the Notes from time to time (each, an "ADVANCE"),
all of which Advances (including the Initial Advance) will constitute Advances,
and all of which Advances (including the Initial Advance) will be evidenced by

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the Notes purchased in connection herewith. Each Advance and all Advance Amounts
with respect thereto will rank pari passu and will be secured by all of the
Collateral regardless of whether a particular Receivable was pledged to the
Trustee prior to, on the date of, or subsequent to the date of such Advance or
Advance Amount without preference or priority of any kind. Subject to the terms
and conditions of this Agreement and the other Basic Documents, the Note
Purchaser is willing to purchase Advances from time to time in an aggregate
outstanding amount up to the Maximum Invested Amount until the Facility
Termination Date. CPS has joined in this Agreement to confirm certain
representations, warranties and covenants made by it as Servicer and as Seller
for the benefit of the Note Purchaser.

                                   ARTICLE I
                                   DEFINITIONS

         SECTION 1.01 DEFINITIONS. As used in this Agreement and unless the
context requires a different meaning, capitalized terms used but not defined
herein (including the preamble and the recitals hereto) shall have the meanings
assigned to such terms in Annex A to the Sale and Servicing Agreement. The
definitions of such terms are applicable to the singular as well as the plural
form of such terms and to the masculine as well as the feminine and neuter
genders of such terms:

                                   ARTICLE II
                          PURCHASE AND SALE OF THE NOTE

         SECTION 2.01 THE INITIAL NOTE PURCHASE. On the terms and conditions set
forth in the Indenture, the Sale and Servicing Agreement and this Agreement, and
in reliance on the covenants, representations and agreements set forth herein
and therein, the Issuer shall issue and cause the Trustee to authenticate and
deliver to the Note Purchaser the Notes on the Closing Date. The Notes shall be
dated the Closing Date, registered in the name of "Bear, Stearns Securities
Corp.", the nominee of the Note Purchaser, and duly authenticated in accordance
with the provisions of the Indenture.

         SECTION 2.02 ADVANCES. Upon the Issuer's request, delivered in
accordance with the provisions of SECTION 2.03, subject to the satisfaction of
all conditions precedent thereto and to the terms and conditions of the Basic
Documents, and in reliance upon the representations and warranties set forth
herein and therein, the Note Purchaser shall purchase Advances from time to time
during the Term at the relevant Advance Amount; provided that no Advance shall
be required or permitted to be purchased on any date if, after giving effect to
such Advance, (a) the Invested Amount would exceed the Maximum Invested Amount
or (b) a Borrowing Base Deficiency exists or would exist. Subject to the terms
and conditions of this Agreement and the Indenture, the aggregate principal
amount of the Notes outstanding may be increased, to a maximum amount not to
exceed the Maximum Advance Amount, or decreased from time to time.

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         SECTION 2.03 ADVANCE AND PREPAYMENT PROCEDURES.

                  (a) Whenever the Issuer wishes the Note Purchaser to purchase
an Advance, the Issuer shall (or shall cause the Servicer to) notify the Note
Purchaser by telephone, promptly followed by written notice, with an electronic
copy of such notice sent to the Note Purchaser, substantially in the form of
EXHIBIT B hereto (each such request, an "ADVANCE REQUEST"), together with the
related Addition Notice, a Borrowing Base Certificate and a data tape or other
electronic file containing information regarding the Related Receivables to be
transferred on such Funding Date delivered to the Note Purchaser no later than
2:00 p.m. (New York City time) four (4) Business Days prior to the proposed
Funding Date. Each such Advance Request shall be irrevocable and shall in each
case refer to this Agreement and specify the aggregate amount of the requested
Advance to be purchased on such date, which amount shall be not less than
$2,000,000. The Note Purchaser shall promptly thereafter (but in no event later
than 11:00 a.m. New York City time on the proposed Funding Date) notify the
Issuer whether the Note Purchaser has determined to purchase the requested
Advance. On the Funding Date, subject to the other conditions set forth herein,
in the Indenture, and in the Sale and Servicing Agreement, the Note Purchaser
shall pay the Advance Amount for such Advance to or at the direction of the
Issuer, by wire transfer in U.S. dollars of such amount in same day funds to an
account designated by the Issuer or its designee on the related Funding Date.
The Issuer hereby directs the Note Purchaser to pay the Advance Amount for each
Advance to CPS for the benefit of the Issuer.

                  (b) No later than three (3) Business Days prior to a proposed
Funding Date, the Seller shall either (i) transmit to the Note Purchaser or its
designee in electronic format or (ii) make scanned copies available to the Note
Purchaser or its designee for review by the Note Purchaser or its designee at
the Seller's offices during normal business hours, of a statistically
significant sample of the credit files of the Related Receivables, such sample
size to be determined and sample selected in the discretion of the Note
Purchaser.

                  (c) The Notes may be prepaid in whole or in part in accordance
with Article X of the Indenture.

         SECTION 2.04 THE NOTES. On each date an Advance is purchased,
increasing the outstanding principal amount of the Notes, and on each date the
outstanding principal amount of the Notes is reduced, a duly authorized officer,
employee or agent of the Note Purchaser shall make appropriate notations in its
books and records of the amount of such Advance and the amount of such
reduction, as applicable. Every such notation shall be dispositive of the
accuracy of the information so recorded and shall be conclusive and binding on
the Issuer absent manifest error.

         SECTION 2.05 COMMITMENT TERM; OPTIONAL RENEWAL. The "TERM" of the
Commitment hereunder shall be for a period commencing on the Closing Date and
ending on the Facility Termination Date. Thereafter, the Term may be extended
for one or two additional 364-day periods in the respective discretion, and upon
the mutual agreement. of the parties, which agreement may take the form of
changing the specified "Facility Termination Date" together with such other
terms upon which the parties may agree. Notwithstanding the foregoing, nothing
contained in this SECTION 2.05 shall obligate any of the parties hereto to
extend any Term unless it shall desire to do so in its sole discretion.

         SECTION 2.06 APPOINTMENT OF TRUSTEE UNDER INDENTURE. The Note Purchaser
hereby acknowledges and approves the appointment of Wells Fargo Bank, National
Association as the Trustee with respect to the Collateral pursuant to Section
6.13 of the Indenture.

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                                  ARTICLE III
                                      FEES

         SECTION 3.01 FEES.

                  (a) On the Closing Date, the Issuer and the Servicer shall
jointly and severally pay or cause to be paid to the Note Purchaser a
structuring fee equal to the product of (x) 0.50% and (y) the Maximum Invested
Amount.

                  (b) On each Settlement Date, the Issuer and the Servicer will,
jointly and severally, pay or cause to be paid the Commitment Fee to the Note
Purchaser pursuant to Section 5.8(a)(iv) of the Sale and Servicing Agreement.

                  (c) The Issuer and the Servicer shall jointly and severally
pay or reimburse Note Purchaser on the Closing Date and thereafter within 30
days following presentment of invoices for all its reasonable out-of-pocket
fees, costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, modification or supplement to,
or any waiver under, any Basic Document and any other document prepared in
connection therewith, and the consummation and administration of the
transactions contemplated thereby, including, without limitation, the reasonable
fees and disbursements of counsel to Note Purchaser with respect to any of the
foregoing, including, without limitation, such fees and disbursements incurred
in advising Note Purchaser from time to time as to its rights and remedies under
any Basic Document. Such expenses related to the establishment of this facility
shall be capped at $100,000 and shall be payable by the Issuer whether or not
the transaction closes.

                  (d) The Issuer and the Seller each hereby, jointly and
severally, grant the Note Purchaser (including any of its Affiliates) the right
to place a minimum of $300 million of investment grade notes collateralized by
certain Eligible Receivables during the Term. On the closing date for each such
securitization, the Issuer and the Seller, jointly and severally hereby agree to
pay, and shall pay or cause to be paid, a placement fee to the Note Purchaser
(or such Affiliate of the Note Purchaser) in an amount equal to 0.40% of the
aggregate par amount of the investment-grade notes sold pursuant to such
securitization. If less than $300 million in par amount of such investment grade
securities are sold through the Note Purchaser (or its Affiliate) pursuant to
securitizations during the Term, the Issuer and the Seller jointly and severally
hereby agree to pay, and shall pay or cause to be paid, the Minimum Placement
Fee to the Note Purchaser (or such Affiliate). Such Minimum Placement Fee will
be due and payable to the Note Purchaser (or its Affiliate) on the Minimum
Placement Fee Payment Date whether or not the Seller provides the Note Purchaser
(or its Affiliate) the opportunity to place such investment-grade notes. The
Seller will pay all reasonable out-of-pocket expenses in connection with each
such securitization transaction, including, without limitation, rating agency
fees and legal due diligence expenses. In addition, the Seller hereby grants the
Note Purchaser the exclusive right to act as placement agent for sales of
non-investment grade securities issued in connection with each such

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securitization for a placement fee for such transaction that will be equal to
the greater of (x) the product of 200 basis points and the aggregate par amount
of non-investment grade securities sold in such securitization and (y) $100,000.
Such placement fee will be subject to the sale of such non-investment grade
securities upon terms that are acceptable to the Seller in its sole discretion.

         SECTION 3.02 INCREASED COSTS, ETC. The Issuer agrees to reimburse the
Note Purchaser for an increase in the cost of, or any reduction in the amount of
any sum receivable by the Note Purchaser, including reductions in the rate of
return on the Note Purchaser's capital, in respect of making, continuing or
maintaining (or of its obligation to make, continue or maintain) any Advances
that arise in connection with any change in, or the introduction, adoption,
effectiveness, interpretation reinterpretation or phase-in, in each case, after
the date hereof, of any law or regulation, directive, guideline, accounting
rule, decision or request (whether or not having the force of law) of any court,
central bank, regulator or other Governmental Authority, except for such changes
with respect to increased capital costs and taxes which are governed by SECTIONS
3.03 and 3.04, respectively. Each such demand shall be provided to the Issuer in
writing and shall state, in reasonable detail, the reasons therefor and the
additional amount required fully to compensate the Note Purchaser for such
increased cost or reduced amount or return. Such additional amounts shall be
payable by the Issuer to the Note Purchaser within five (5) Business Days of its
receipt of such notice, and such notice shall, in the absence of manifest error,
be conclusive and binding on the Issuer.

         SECTION 3.03 INCREASED CAPITAL COSTS. If any change in, or the
introduction, adoption, effectiveness, interpretation or reinterpretation or
phase-in, in each case after the date hereof, of any law or regulation,
directive, guideline, accounting rule, decision or request (whether or not
having the force of law) of any court, central bank, regulator or other
Governmental Authority affects or would affect the amount of capital required or
reasonably expected to be maintained by the Note Purchaser or any Person
controlling the Note Purchaser and the Note Purchaser reasonably determines that
the rate of return on its or such controlling Person's capital as a consequence
of its commitment or the purchases of Advances or the maintenance of the Notes
by the Note Purchaser is reduced to a level below that which the Note Purchaser
or such controlling Person would have achieved but for the occurrence of any
such circumstance, then, in any such case after notice from time to time by the
Note Purchaser to the Issuer, the Issuer shall pay to the Note Purchaser an
incremental commitment fee sufficient to compensate the Note Purchaser or such
controlling Person for such reduction in rate of return. A statement of the Note
Purchaser as to any such additional amount or amounts (including calculations
thereof in reasonable detail), in the absence of manifest error, shall be
conclusive and binding on the Issuer; and PROVIDED, FURTHER, that the initial
payment of such increased commitment fee shall include a payment for accrued
amounts due under this SECTION 3.03 prior to such initial payment. In
determining such additional amount, the Note Purchaser may use any method of
averaging and attribution that it shall reasonably deem applicable so long as it
applies such method to other similar transactions.

         SECTION 3.04 TAXES. All payments by the Issuer of principal of, and
interest on, the Notes and all other amounts payable hereunder (including fees)
and/or thereunder shall be made free and clear of and without deduction for any
present or future income, excise, stamp or franchise taxes and other taxes,
fees, duties, withholdings or other charges of any nature whatsoever imposed by

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any taxing authority, but excluding in the case of the Note Purchaser, taxes
imposed by the United States on or measured by its overall net income, overall
receipts or overall assets and franchise taxes imposed on it by the jurisdiction
in which the Note Purchaser is organized or is operating or any political
subdivision thereof (such non-excluded items being called "TAXES"); PROVIDED
THAT, notwithstanding anything herein to the contrary, the Issuer shall not be
required to increase any amounts payable to the Note Purchaser with respect to
any Taxes that are imposed on the Note Purchaser at the time of acquisition of
the Notes by the Note Purchaser. In the event that any withholding or deduction
from any payment to be made by the Issuer hereunder and/or thereunder is
required in respect of any Taxes pursuant to any applicable law, rule or
regulation, then the Issuer will:

                  (a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;

                  (b) promptly forward to the Note Purchaser or its agent an
official receipt or other documentation evidencing such payment to such
authority; and

                  (c) pay to the Note Purchaser or its agent such additional
amount or amounts as is necessary to ensure that the net amount actually
received by the Note Purchaser will equal the full amount the Note Purchaser
would have received had no such withholding or deduction been required.

                  Moreover, if any Taxes are directly asserted against the Note
Purchaser with respect to any payment received by the Note Purchaser, the Note
Purchaser or such agent may pay such Taxes and the Issuer will promptly upon
receipt of prior written notice stating the amount of such Taxes pay such
additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by such person after the payment
of such Taxes (including any Taxes on such additional amount) shall equal the
amount the Note Purchaser would have received had not such Taxes been asserted.
The Note Purchaser shall make all reasonable efforts to avoid the imposition of
any Taxes that would give rise to an additional payment under this SECTION 3.04.

                  If the Issuer fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Note Purchaser the
required receipts or other required documentary evidence, the Issuer shall
indemnify the Note Purchaser for any Taxes and incremental Taxes, interest or
penalties that may become payable by the Note Purchaser as a result of any such
failure. For purposes of this SECTION 3.04, a distribution hereunder by the
agent for the Note Purchaser shall be deemed a payment by the Issuer.

         SECTION 3.05 MARK-TO-MARKET ADJUSTMENTS.

                  (a) In the event that a Borrowing Base Deficiency exists on
any date of determination as determined by the Note Purchaser in its sole
discretion, the Issuer shall on the same Business Day of the receipt of notice
from the Note Purchaser (or if notice is received after 10:01 a.m. New York
time, then on the next Business Day), prepay the Invested Amount by an amount
equal to such Borrowing Base Deficiency by paying such amount to or at the
direction of the Note Purchaser. If a Borrowing Base Deficiency is not fully
paid by the Issuer pursuant to the immediately preceding sentence, then (i) on

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any Funding Date, the Note Purchaser shall net and set-off the amount of any
outstanding Borrowing Base Deficiency against the amount of the Advance to be
made on such Funding Date and (ii) on each Settlement Date as of which any
portion of such Borrowing Base Deficiency shall remain outstanding, any amount
otherwise payable to the Issuer on such Settlement Date pursuant to Section
5.7(a)(viii) of the Sale and Servicing Agreement shall instead be paid to the
Note Purchaser on such Settlement Date as a prepayment of the Invested Amount
(the "Margin Call").

                  (b) The Servicer, the Seller and the Issuer shall cooperate
with the Note Purchaser and will execute and deliver, or cause to be executed
and delivered, all such documents that may be reasonably necessary to calculate
the Market Value, and will take all such other actions, as Note Purchaser may
reasonably request from time to time in order to calculate the Market Value. On
each Tuesday and each Thursday (provided such Tuesday or Thursday is a Business
Day) of each calendar week during the Term, the Note Purchaser shall advise the
Servicer of the Market Value, as calculated by the Note Purchaser in its sole
discretion.

         SECTION 3.06 ILLEGALITY; SUBSTITUTED INTEREST RATES.

                  Notwithstanding any other provisions herein, (a) if any
Requirement of Law or any change therein or in the interpretation or application
thereof shall make it unlawful for the Note Purchaser to make or maintain any
Notes at the LIBOR rate as contemplated by this Agreement, or (b) in the event
that the Note Purchaser shall have determined (which determination shall be
conclusive and binding upon the Issuer) that by reason of circumstances
affecting the LIBOR interbank market neither adequate nor reasonable means exist
for ascertaining the LIBOR rate, or (c) the Note Purchaser shall have determined
(which determination shall be conclusive and binding on the Issuer) that the
applicable LIBOR rate will not adequately and fairly reflect the cost to the
Note Purchaser of maintaining or funding the Notes based on such applicable
LIBOR rate (provided that the parties hereto acknowledge and agree that the Note
Purchaser shall only make such determination if the published LIBOR rate used by
the Note Purchaser does not accurately reflect the actual LIBOR rate), (x) the
obligation of the Note Purchaser to make or maintain the Notes at the LIBOR rate
shall forthwith be suspended and the Note Purchaser shall promptly notify the
Issuer thereof (by telephone confirmed in writing) and (y) each Note then
outstanding, if any, shall, from and including the date that is forty-five (45)
days after the Issuer's receipt of notice from the Note Purchaser of the
occurrence of any condition set forth in clauses (a), (b) or (c), or at such
earlier date as may be required by law, until payment in full thereof, bear
interest at the rate per annum equal to the greater of (i) the Prime Rate and
(ii) the rate of interest (including the Applicable Margin) in effect on the
date immediately preceding the date any event described in clause (a), (b) or
(c) occurred (calculated on the basis of the actual number of days elapsed in a
year of 360 days). If subsequent to such suspension of the obligation of the
Note Purchaser to make or maintain the Notes at the LIBOR rate it becomes lawful
for the Note Purchaser to make or maintain the Notes at the LIBOR rate, or the
circumstances described in clause (b) or (c) above no longer exist, the Note
Purchaser shall so notify the Issuer and its obligation to do so shall be
reinstated effective as of the date it becomes lawful for the Note Purchaser to
make or maintain the Notes at the LIBOR rate or the circumstances described in
clause (b) or (c) above no longer exist.

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                                   ARTICLE IV
                               OTHER PAYMENT TERMS

         SECTION 4.01 TIME AND METHOD OF PAYMENT. Unless otherwise specified
herein, all amounts payable to the Note Purchaser hereunder or with respect to
the Note shall be made by wire transfer of immediately available funds in
Dollars not later than 5:00 p.m., New York City time, on the due date therefor.
Any funds received after that time will be deemed to have been received on the
next Business Day.

                                   ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

         SECTION 5.01 REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer
makes the following representations and warranties, on which Note Purchaser
relies in purchasing the Notes and in making each Advance, and on which the
Trustee relies in receiving a security interest in the Receivables and the other
Collateral related thereto under the Indenture. Such representations are made as
of the date of this Agreement and as of each Funding Date, and shall survive the
issuance of the Notes, the making of each Advance and the grant of a security
interest in the Receivables and the other Collateral related thereto to the
Trustee under the Indenture.

                  (a) SALE AND SERVICING AGREEMENT. Each of the representations
and warranties of the Purchaser set forth in Section 7.1 of the Sale and
Servicing Agreement is true and correct.

                  (b) OTHER OBLIGATIONS. The Issuer is not in default in the
performance, observance or fulfillment of any obligation, covenant or condition
in any of the Basic Documents to which it is a party or in any other agreement
or instrument to which it is a party or by which it is bound.

                  (c) REGULATIONS T, U AND X. No proceeds of any Advance will be
used, directly or indirectly, by the Issuer for the purpose of purchasing or
carrying any Margin Stock (as defined in Regulation U of the Board of Governors
of the Federal Reserve System) or for the purpose of reducing or retiring any
indebtedness that was originally incurred to purchase or carry Margin Stock or
for any other purpose which might cause any Advance to be a "purpose credit"
within the meaning of Regulation U. Neither the making of any Advance hereunder,
nor the use of the proceeds thereof, will violate or otherwise conflict with the
provisions of Regulations T, U or X of the Board of Governors of the Federal
Reserve System.

                  (d) INVESTMENT COMPANY STATUS. The Issuer is not, nor will the
consummation of the transactions contemplated by the Basic Documents cause the
Issuer to be, an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended (the
"INVESTMENT COMPANY ACT"), or a company "controlled" by an investment company
within the meaning of the Investment Company Act. The consummation of the
transactions contemplated by the Basic Documents will not violate any provision
of such Act or any rule, regulation or order issued by the Securities and
Exchange Commission thereunder. The Issuer is not subject to regulation under
any applicable law (other than Regulation X of the Board of Governors of the
Federal Reserve System) that limits its ability to incur Indebtedness.

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                  (e) FULL DISCLOSURE. The information, reports, financial
statements, exhibits, schedules, officer's certificates and other documents
furnished by or on behalf of the Issuer to the Seller, the Servicer, the Note
Purchaser, the Trustee or the Backup Servicer in connection with any particular
Advance or the negotiation, preparation, delivery or performance of this
Agreement, the Notes, the Indenture, the Sale and Servicing Agreement and the
other Basic Documents or included herein or therein or delivered pursuant hereto
or thereto, taken as a whole, are true and correct (or, in the case of
projections, are based on good faith reasonable estimates) on the date as of
which such information is stated or certified and do not and will not contain an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements herein or therein contained, in the light of
the circumstances under which they were made, not misleading. All such financial
statements fairly present the financial condition of the Issuer as of the date
specified therein (subject to normal year-end audit adjustments) all in
accordance with GAAP. On such date, the Issuer had no material contingent
liabilities, liabilities for taxes, or unusual or anticipated losses from any
unfavorable commitments, except as referred to or reflected in such financial
statements as of such date. There is no fact known to the Issuer, after due
inquiry, that would have a Material Adverse Effect and that has not been
disclosed herein, in the other Basic Documents or in a report, financial
statement, exhibit, schedule, disclosure letter or other writing furnished to
the Note Purchaser for use in connection with the transactions contemplated
hereby or thereby.

                  (f) COLLATERAL SECURITY.

                           (i) The Issuer owns and will own each item that it
         pledges as Collateral, free and clear of any and all Liens (including,
         without limitation, any tax liens), other than Liens created in favor
         of the Trustee pursuant to the Indenture. No security agreement,
         financing statement or other public notice similar in effect with
         respect to all or any part of the Collateral is or will be on file or
         of record in any public office or authorized by the Issuer, except such
         as have been or may hereinafter be filed pursuant to the Basic
         Documents and except such as shall be terminated as to the Collateral
         no later than concurrently with the pledge of such Collateral to the
         Trustee under the Indenture.

                           (ii) The Indenture is effective to create, as
         collateral security for the Notes, a valid and enforceable Lien on the
         Collateral in favor of the Trustee.

                           (iii) Upon filing of the financing statement
         delivered to the Note Purchaser and the Trustee by the Issuer on or
         prior to the Closing Date with the Secretary of State of the State of
         Delaware (which financing statement is in proper form for filing in
         such jurisdiction and accurately describes the Collateral), the Lien
         created pursuant to the Indenture will constitute a perfected security
         interest in the Collateral in favor of the Trustee, which Lien will be
         prior to all other Liens of all other Persons that may be perfected by
         filing a financing statement under Article 9 of the Uniform Commercial
         Code and which Lien is enforceable as such as against all other
         Persons.

                           (iv) Upon delivery of Contracts evidencing the
         Receivables to the Trustee in accordance with Section 2.1(a) of the
         Sale and Servicing Agreement, the Lien created pursuant to the
         Indenture will constitute a perfected security interest in such

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         Contracts in favor of the Trustee, which Lien will be prior to all
         other Liens of all other Persons that may be perfected by possession of
         such Contracts under Article 9 of the Uniform Commercial Code and which
         Lien is enforceable as such as against all other Persons.

                  (g) OWNERSHIP OF PROPERTIES. The Issuer has good and
marketable title to any and all of its properties and assets, subject only to a
Lien under the Indenture.

                  (h) LEGAL COUNSEL, ETC. The Issuer has consulted with its own
legal counsel and independent accountants to the extent it has deemed necessary
regarding the tax, accounting and regulatory consequences of the transactions
contemplated by this Agreement and the other Basic Documents, and the Issuer is
not participating in such transactions in reliance on any representations of the
Note Purchaser or its Affiliates, or its counsel, with respect to tax,
accounting, regulatory or any other matters.

                  (i) THE INDENTURE. Each of the representations and warranties
of the Issuer contained in the Indenture is true and correct. No party to any
Basic Document is in default under any of its obligations thereunder.

                  (j) ELIGIBLE RECEIVABLES. All of the Receivables included in
the Borrowing Base are Eligible Receivables.

                  (k) NO FRAUDULENT CONVEYANCE. As of the Closing Date and
immediately after giving effect to each Borrowing, the fair value of the assets
of the Issuer is greater than the fair value of its liabilities (including,
without limitation, contingent liabilities of the Issuer), and the Issuer is and
will be solvent, does and will pay its debts as they mature and does not and
will not have an unreasonably small capital to engage in the business in which
it is engaged and proposes to engage. The Issuer does not intend to incur, or
believe that it has incurred, debts beyond its ability to pay such debts as they
mature. The Issuer is not in default under any material obligation to pay money
to any Person. The Issuer is not contemplating the commencement of insolvency,
bankruptcy, liquidation or consolidation proceedings or the appointment of a
receiver, liquidator, conservator, trustee or similar official in respect of the
Issuer or any of its assets. The Issuer is not transferring any Collateral with
any intent to hinder, delay or defraud any of its creditors. The Issuer will not
use the proceeds from the transactions contemplated by this Agreement or any
other Basic Document to give any preference to any creditor or class of
creditors. The Issuer has given fair consideration and reasonably equivalent
value in exchange for the sale of the Receivables by CPS under the Sale and
Servicing Agreement.

                  (l) NO OTHER BUSINESS. The Issuer engages in no business
activities other than the purchase of the Receivables and the Other Conveyed
Property, pledging the Receivables and the other Collateral to the Trustee under
the Indenture, transferring Receivables and the Other Conveyed Property in
connection with securitizations and in connection with whole-loan sales, issuing
the Notes and other activities relating to the foregoing to the extent permitted
by the organizational documents of the Issuer as in effect on the date hereof,
or as amended with the prior written consent of Note Purchaser. Without
limitation of the foregoing, the Issuer is not an issuer of securities other
than the Notes or a borrower under any loan or financing agreement, facility or
other arrangement other than the facility established pursuant to this Agreement
and the other Basic Documents.

                                      -10-
<PAGE>

                  (m) NO INDEBTEDNESS. The Issuer has no Indebtedness, other
than Indebtedness incurred under (or contemplated by) the terms of the Notes,
the Indenture, the Sale and Servicing Agreement and this Agreement.

                  (n) ERISA. The Issuer does not maintain any Plans, and the
Issuer agrees to notify the Note Purchaser in advance of forming any Plans.
Neither the Issuer nor any Affiliate of the Issuer (other than MFN under the MFN
Financial Corporation Pension Plan and CPS under its defined contribution
(401(k)) plan) has any obligations or liabilities with respect to any Plans or
Multiemployer Plans, nor have any such Persons had any obligations or
liabilities with respect to any such Plans during the five year period prior to
the date this representation is made or deemed made. The Issuer will give notice
to the Note Purchaser if at any time it or any Affiliate has any obligations or
liabilities with respect to any Plan or Multiemployer Plan. All Plans maintained
by the Issuer or any Affiliate are in substantial compliance with all applicable
laws (including ERISA). The Issuer is not an employer under any Multiemployer
Plan.

         SECTION 5.02 REPRESENTATIONS AND WARRANTIES OF CPS. CPS makes the
following representations and warranties, on which the Issuer relies in
purchasing the Receivables and the Other Conveyed Property related thereto, and
on which the Note Purchaser relies in purchasing the Notes. Such representations
and warranties are made as of the date of this Agreement and as of each Funding
Date, and shall survive the sale by CPS to the Issuer of the Receivables and the
Other Conveyed Property related thereto under the Sale and Servicing Agreement,
the issuance of the Notes, the purchase of each Advance and the grant of a
security interest in the Receivables and the other Collateral related thereto by
the Issuer to the Trustee under the Indenture.

                  (a) SALE AND SERVICING AGREEMENT. Each of the representations,
warranties and covenants of the Seller and the Servicer in the Sale and
Servicing Agreement is true and correct.

                  (b) INVESTMENT COMPANY STATUS. CPS is not, nor will the
consummation of the transactions contemplated by the Basic Documents cause CPS
to be, an "investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act or a company "controlled by" an investment company
within the meaning of the Investment Company Act. The consummation of the
transactions contemplated by this Agreement and each other Basic Document to
which CPS is a party will not violate any provision of such Act or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder.
CPS is not subject to regulation under any applicable law (other than Regulation
X of the Board of Governors of the Federal Reserve System) that limits its
ability to incur Indebtedness.

                  (c) NO MATERIAL ADVERSE EFFECT; NO DEFAULT. (i) CPS is not a
party to any indenture, loan or credit agreement or any lease or other agreement
or instrument or subject to any charter or corporate restriction that could
have, and no provision of applicable law or governmental regulation has had or
would have a Material Adverse Effect and (ii) CPS is not in default under or
with respect to any contract, agreement, lease or other instrument to which CPS

                                      -11-
<PAGE>

is a party and which is material to CPS's condition (financial or otherwise),
business, operations or properties, and CPS has not delivered or received any
notice of default thereunder, other than such defaults as have been waived.

                  (d) REGULATIONS T, U AND X. No proceeds of any sale hereunder
will be used, directly or indirectly, by CPS for the purpose of purchasing or
carrying any Margin Stock (as defined in Regulation U of the Board of Governors
of the Federal Reserve System) or for the purpose of reducing or retiring any
indebtedness that was originally incurred to purchase or carry Margin Stock or
for any other purpose which might cause any sale hereunder to be a "purpose
credit" within the meaning of Regulation U. Neither the making of any Advance
hereunder, nor the use of the proceeds thereof, will violate or otherwise
conflict with the provisions of Regulations T, U or X of the Board of Governors
of the Federal Reserve System.

                  (e) SECURITY INTEREST. Notwithstanding the intent of the
parties set forth in Section 2.2 of the Sale and Servicing Agreement, the Sale
and Servicing Agreement is effective to create valid and enforceable Liens on
the Receivables and the Other Conveyed Property in favor of the Issuer. Upon
filing of the financing statement delivered to the Note Purchaser and the
Trustee by CPS on or prior to the Closing Date in each jurisdiction (including,
without limitation, the State of California) in which required by applicable law
(which financing statement is in proper form for filing in each such
jurisdiction and accurately describes the Collateral), the Lien created pursuant
to the Sale and Servicing Agreement will constitute a first priority perfected
security interest in the Receivables and the Other Conveyed Property in favor of
the Purchaser, which Lien will be prior to all other Liens and which Lien is
enforceable as such as against all Persons.

                  (f) FULL DISCLOSURE. The information, reports, financial
statements, exhibits, schedules, officer's certificates and other documents
furnished by or on behalf of CPS, the Servicer, the Seller or any of their
respective Affiliates to the Issuer, the Purchaser, the Note Purchaser, the
Trustee or the Backup Servicer in connection with any particular Advance or the
negotiation, preparation, delivery or performance of this Agreement, the Notes
and the other Basic Documents or included herein or therein or delivered
pursuant hereto or thereto, taken as a whole, are true and correct in every
material respect (or, in the case of projections, are based on good faith
reasonable estimates) on the date as of which such information is stated or
certified and do not and will not contain an untrue statement of a material
fact, or omit to state any material fact necessary to make the statements herein
or therein contained, in the light of the circumstances under which they were
made, not misleading. All such financial statements fairly present the financial
condition of CPS or such Affiliates as of the date specified therein (subject to
normal year-end audit adjustments) all in accordance with GAAP. On such date,
neither CPS nor any of its Affiliates had any material contingent liabilities,
liabilities for taxes, or unusual or anticipated losses from any unfavorable
commitments, except as referred to or reflected in such financial statements as
of such date. There is no fact known to CPS or any of its Affiliates, after due
inquiry, that would have a Material Adverse Effect and that has not been
disclosed herein, in the other Basic Documents or in a report, financial
statement, exhibit, schedule, disclosure letter or other writing furnished to
the Note Purchaser for use in connection with the transactions contemplated
hereby or thereby.

                                      -12-
<PAGE>

(g) ERISA. Neither CPS nor any of its Affiliates maintain any Plans (other than
CPS's defined contribution (401(k)) plan and the MFN Financial Corporation
Pension Plan), and CPS agrees to notify the Note Purchaser in advance of forming
any Plans. Neither CPS nor any of its Affiliates has any obligations or
liabilities with respect to any Plans or Multiemployer Plans (other than CPS's
defined contribution (401(k)) plan and the MFN Financial Corporation Pension
Plan), nor have any such Persons had any obligations or liabilities with respect
to any such Plans during the five year period prior to the date this
representation is made or deemed made. CPS will give notice to the Note
Purchaser if at any time it or any Affiliate has any obligations or liabilities
with respect to any Plan or Multiemployer Plan. All Plans maintained by CPS or
any of its Affiliates are in substantial compliance with all applicable laws
(including ERISA). CPS is not an employer under any Multiemployer Plan.

                  (h) INSURANCE. During the Term, CPS shall maintain such
insurance as is generally acceptable to prudent institutional investors and
usual and customary for similar companies in its industry.

         SECTION 5.03 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE NOTE
PURCHASER. The Note Purchaser hereby covenants to the Issuer and the Servicer
that it will perform the obligations required of it under the Basic Documents in
accordance with the terms of the Basic Documents. In addition, the Note
Purchaser represents and warrants to the Issuer and the Servicer, as of the date
hereof (or as of a subsequent date on which a successor or assignee of the Note
Purchaser shall become a party hereto, in which case such successor or assignee
hereby represents and warrants to the Issuer and the Servicer), that:

                  (a) it has had an opportunity to discuss the Issuer's and the
Servicer's business, management and financial affairs, and the terms and
conditions of the transactions contemplated by the Basic Documents, with the
Issuer and the Servicer and their respective representatives;

                  (b) it is either (i) a "qualified institutional buyer" as such
term is defined under Rule 144A of the Securities Act or (ii) an "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act and has sufficient knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of investing in, and is able and prepared to bear the economic risk of investing
in, the Notes;

                  (c) it is purchasing the Notes for its own account, or for the
account of one or more (i) "qualified institutional buyers" within the meaning
of Rule 144A of the Securities Act or (ii) "accredited investors" within the
meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act that meet the criteria described in SUBSECTION (B), and for which it is
acting with complete investment discretion, for investment purposes only and not
with a view to distribution, subject, nevertheless, to the understanding that
the disposition of its property shall at all times be and remain within its
control;

                  (d) it understands that the Notes have not been and will not
be registered or qualified under the Securities Act or any applicable state
securities laws or the securities laws of any other jurisdiction and are being
offered only in a transaction not involving any public offering within the
meaning of the Securities Act and may not be resold or otherwise transferred
unless so registered or qualified or unless an exemption from registration or
qualification is available, that the Issuer is not required to register the
Notes, and that any transfer must comply with provisions of SECTION 2.5 of the
Indenture and SECTION 8.03(B) of this Agreement;

                                      -13-
<PAGE>

                  (e) it understands that the Notes will bear the legend set out
in the form of Note attached as EXHIBIT A-1 to the Indenture and be subject to
the restrictions on transfer described in such legend;

                  (f) it will comply with all applicable federal and state
securities laws in connection with any subsequent resale of the Notes;

                  (g) it understands that the Notes may be offered, resold,
pledged or otherwise transferred only (A) to the Issuer, (B) in a transaction
meeting the requirements of Rule 144A under the Securities Act, (C) outside the
United States to a foreign person in a transaction meeting the requirements of
Regulation S under the Securities Act, or (D) in a transaction complying with or
exempt from the registration requirements of the Securities Act and in
accordance with any applicable securities laws of any state of the United States
or any other jurisdiction;

                  (h) if it desires to offer, sell or otherwise transfer, pledge
or hypothecate the Notes as described in clause (B), (C) or (D) of the preceding
paragraph, the transferee of the Notes will be required to deliver a certificate
and may under certain circumstances be required to deliver an opinion of
counsel, in each case, as described in the Indenture, reasonably satisfactory in
form and substance to the Trustee, that an exemption from the registration
requirements of the Securities Act applies to such offer, sale, transfer or
hypothecation. The Note Purchaser understands that the registrar and transfer
agent for the Notes will not be required to accept for registration of transfer
the Notes acquired by it unless the terms and conditions of Sections 2.4 and 2.5
of the Indenture have been satisfied;

                  (i) it will obtain from any purchaser of the Notes
substantially the same representations and warranties contained in the foregoing
paragraphs; and

                  (j) this Agreement has been duly and validly authorized,
executed and delivered by the Note Purchaser and constitutes a legal, valid,
binding obligation of the Note Purchaser, enforceable against the Note Purchaser
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such enforcement is
considered in a proceeding in equity or at law.

                                   ARTICLE VI
                                   CONDITIONS

         SECTION 6.01 CONDITIONS TO PURCHASE. The Note Purchaser will have no
obligation to purchase the Notes hereunder unless:

                  (a) each of the Basic Documents shall be in full force and
effect and all consents, waivers and approvals necessary for the consummation of
the transactions contemplated by the Basic Documents shall have been obtained
and shall be in full force and effect;

                                      -14-
<PAGE>

                  (b) at the time of such issuance, all conditions to the
issuance of the Notes under the Indenture and under SECTION 2.1(B) of the Sale
and Servicing Agreement shall have been satisfied and all conditions to the
initial Advance set forth under SECTION 6.02 hereof have been satisfied;

                  (c) the Note Purchaser shall have received a duly executed,
authorized and authenticated Note registered in its name and stating that the
principal amount thereof shall not exceed the Maximum Invested Amount;

                  (d) the Issuer shall have paid all fees required to be paid by
it on the Closing Date, including all fees required under SECTION 3.01 hereof;

                  (e) the Notes purchased by the Note Purchaser hereunder shall
be entitled to the benefit of the security provided in the Indenture and shall
constitute the legal, valid and binding obligations of the Issuer, enforceable
against the Issuer in accordance with their terms;

                  (f) no Material Adverse Change shall have occurred with
respect to CPS or the Issuer since September 30, 2005;

                  (g) the Note Purchaser shall have received:

                           (i) a duly executed and delivered original
         counterpart of each Basic Document (other than any Basic Document that
         contemplates delivery on a date after the Closing Date), each such
         document being in full force and effect;

                           (ii) certified copies of charter documents and each
         amendment thereto, and resolutions of (A) the Board of Directors of
         each of the Issuer and the Servicer authorizing or ratifying the
         execution, delivery and performance, respectively, of all Basic
         Documents to which it is a party, (B) the issuance of Notes
         contemplated hereunder and (C) the granting of the security interest
         contemplated under the Indenture, certified by the Secretary or an
         Assistant Secretary of each of the Issuer and the Servicer as of the
         Closing Date, which certificate shall state that the resolutions
         thereby certified have not been amended, modified, revoked or rescinded
         as of the date of such certificate;

                           (iii) a certificate of the Secretary or an Assistant
         Secretary of the Issuer and the Servicer, as applicable, certifying the
         names and the signatures of its officer or officers authorized to sign
         all transaction documents to which it is a party;

                           (iv) a certificate of a senior officer of CPS to the
         effect that the representations and warranties of the Seller and the
         Servicer in this Agreement and the other Basic Documents to which it is
         a party are true and correct as of the Closing Date, and that the
         Seller and the Servicer have complied in all material respects with all
         agreements and satisfied all conditions on their part to be performed
         or satisfied at or prior to the Closing Date;

                                      -15-
<PAGE>

                           (v) a certificate of a senior officer of the Issuer
         to the effect that the representations and warranties of the Issuer and
         the Purchaser in this Agreement and the other Basic Documents to which
         it is a party are true and correct as of the Closing Date and that the
         Issuer and the Purchaser have complied in all material respects with
         all agreements and satisfied all conditions on their part to be
         performed or satisfied at or prior to the Closing Date;

                           (vi) legal opinions (including opinions relating to
         true sale, non-consolidation, UCC, enforceability and corporate
         matters) in form and substance satisfactory to the Note Purchaser;

                           (vii) evidence satisfactory to the Note Purchaser of
         completion of all necessary UCC filings and search reports;

                           (viii) payment of Note Purchaser's reasonable
         out-of-pocket fees and expenses in accordance with SECTION 3.01(C)
         hereof;

                           (ix) copies of certificates (long form) or other
         evidence from the Secretary of State or other appropriate authority of
         the States of Delaware and California, evidencing the good standing of
         the Issuer and the Servicer in the States of Delaware and California,
         in each case, dated no earlier than 15 days prior to the Closing Date;

                           (x) copies (which may be delivered in electronic
         format) of any commitment or agreement between the Issuer and the
         Servicer and any lender or other financial institution, other than any
         such commitment or agreement (or portion thereof) which the Note
         Purchaser specifically agrees are not required to be delivered
         hereunder; and

                           (xi) such other documents, opinions and information
         as the Note Purchaser may reasonably request; and

                  (h) the Note Purchaser shall have completed to its
satisfaction its due diligence review of the Issuer and the Servicer and its
respective management, controlling stockholders, systems, underwriting,
servicing and collection operations, static pool performance and its loan files.

         SECTION 6.02 CONDITIONS TO EACH ADVANCE. The obligation of the Note
Purchaser to fund any Advance on any day (including the Initial Advance) shall
be subject to the conditions precedent that on the date of such Advance, before
and after giving effect thereto and to the application of any proceeds
therefrom, the following statements shall be true:

                  (a) no Funding Termination Event shall have occurred and be
continuing;

                  (b) the Facility Termination Date shall not have occurred and
will not occur as a result of making such Advance and no default under or breach
of the Sale and Servicing Agreement or any other Basic Document exists or will
exist;

                                      -16-
<PAGE>

                  (c) no later than four (4) Business Days prior to the
requested Funding Date, the Note Purchaser shall have received a properly
completed Borrowing Base Certificate from the Servicer in the form of EXHIBIT A
hereto;

                  (d) no later than four (4) Business Days prior to the
requested Funding Date, the Note Purchaser shall have received a properly
completed and executed Advance Request, together with timely receipt of each
other item required pursuant to SECTION 2.03 hereof;

                  (e) the Servicer shall have delivered to the Note Purchaser
the Servicer's Certificate for the immediately preceding Accrual Period pursuant
to Section 4.9 of the Sale and Servicing Agreement;

                  (f) such Advance is in an amount not less than $2,000,000;

                  (g) such Advance shall not be made in the same calendar week
as any prior Advance;

                  (h) after giving effect to such Advance, the Invested Amount
of the Notes will not exceed the Maximum Invested Amount;

                  (i) the representations and warranties made by the Servicer,
the Seller, the Purchaser and the Issuer in the Basic Documents are true and
correct as of the date of such requested Advance, with the same effect as though
made on the date of such Advance, and the Note Purchaser shall have received (I)
a certificate from the Servicer and the Seller to such effect with respect to
its representations and warranties and that the Servicer and the Seller have
complied in all material respects with all agreement and satisfied all
conditions on their part to be performed or satisfied at or prior to the related
Funding Date, and (II) a certificate from the Issuer and the Purchaser to such
effect with respect to its representations and warranties and that the Issuer
and the Purchaser have complied in all material respects with all agreement and
satisfied all conditions on their part to be performed or satisfied at or prior
to the related Funding Date, which certifications, in each case, may be included
in the related Advance Request;

                  (j) the Trustee shall (in accordance with the procedures
contemplated in SECTION 3.4 of the Sale and Servicing Agreement) have confirmed
receipt of the related Receivable File for each Eligible Receivable included in
the Borrowing Base calculation and shall have delivered to the Note Purchaser,
with a copy to the Noteholders, (1) a Trust Receipt with respect to the
Receivable Files related to the Related Receivables to be purchased on such
Funding Date, or (2) if requested by the Note Purchaser, an aggregate Trust
Receipt with respect to the Receivable Files for all of the Receivables;

                  (k) after giving effect to such Advance, there shall be no
Borrowing Base Deficiency;

                  (l) all limitations and conditions specified in SECTION 2.02
of this Agreement and in SECTION 2.1(B) of the Sale and Servicing Agreement
shall have been satisfied with respect to the making of such Advance;

                                      -17-
<PAGE>

                  (m) after giving effect to such Advance, no Material Adverse
Change with respect to CPS or the Issuer shall have occurred and there shall
have been no Material Adverse Effect;

                  (n) neither the Issuer nor the Servicer shall have breached
any of its covenants under the Basic Documents in any material respect;

                  (o) the Issuer shall have provided the Note Purchaser with all
other information that the Note Purchaser may reasonably require, if the Note
Purchaser shall have given the Issuer reasonable advance notice of such
requirements;

                  (p) all amounts due and owing to the Note Purchaser under this
Agreement or any of the other Basic Documents shall have been paid in full;

                  (q) after giving effect to such Advance and the application of
proceeds therefrom, no Default or Event of Default shall have occurred and be
continuing on and as of the requested Funding Date; and

                  (r) on and as of the requested Funding Date, each of the
representations and warranties set forth in Section 3.1 of the Sale and
Servicing Agreement is true and correct for all Related Receivables being
pledged by the Issuer to the Trustee for the benefit of the Noteholders and the
Note Purchaser under the Indenture on such date and each Related Receivable is
an Eligible Receivable. No such Related Receivable was originated in any
jurisdiction in which the Seller is required to be licensed in order to own such
Related Receivable unless the Seller has obtained such license prior to owning
such Related Receivable. With respect to each such Related Receivable, the
applicable Dealer has either been paid or received credit from Seller for all
proceeds from the sale of such Related Receivable to the Seller.

                  The giving of any notice pursuant to SECTION 2.03 shall
constitute a representation and warranty by the Issuer and the Servicer that all
conditions precedent to such Advance have been satisfied.

                                  ARTICLE VII
                                    COVENANTS

         SECTION 7.01 AFFIRMATIVE COVENANTS

         Until the Facility Termination Date:

                  (a) NOTICE OF DEFAULTS, OTHER FUNDING TERMINATION EVENTS,
LITIGATION, ADVERSE JUDGMENTS, ETC. CPS or the Issuer, as applicable, shall give
notice to Note Purchaser promptly:

                           (i) upon CPS or the Issuer, as the case may be,
         becoming aware of, and in any event within three (3) Business Days
         after, the occurrence of any Event of Default or Default or any event
         of default or default under any other Basic Document or any other
         material agreement of CPS;

                                      -18-
<PAGE>

                           (ii) upon CPS or the Issuer, as the case may be,
         becoming aware of, and in any event within three (3) Business Days
         after, the occurrence of any Funding Termination Event,

                           (iii) upon, and in any event within three (3)
         Business Days after, service of process on CPS or the Issuer, as the
         case may be, or any agent thereof for service of process, in respect of
         any legal or arbitrable proceedings affecting CPS or the Issuer (x)
         that questions or challenges the validity or enforceability of any of
         the Basic Documents, (y) in which the amount in controversy exceeds
         $1,000,000 or (z) that, if adversely determined, would cause a Material
         Adverse Effect;

                           (iv) upon, and in any event within three (3) Business
         Days after, CPS or the Issuer, as the case may be, becoming aware of
         any event or change in circumstances that could have a Material Adverse
         Effect, constitute a Material Adverse Change or cause an Event of
         Default; and

                           (v) upon, and in any event within three (3) Business
         Days after, CPS or the Issuer, as the case may be, becoming aware of
         entry of a judgment or decree in respect of CPS or the Issuer, its
         respective assets or any of the Collateral in an amount in excess of
         $1,000,000.

         Each notice pursuant to this subsection (a) shall be accompanied by a
         statement of an officer of CPS or the Issuer, as applicable, setting
         forth details of the occurrence referred to therein and stating what
         action CPS and the Issuer, as the case may be, have taken or propose to
         take with respect thereto.

                  (b) TAXES. Each of CPS and the Issuer shall pay and discharge
all taxes and governmental charges upon it or against any of its properties or
assets or its income prior to the date after which penalties attach for failure
to pay, except to the extent that CPS or the Issuer, as applicable, shall be
contesting in good faith in appropriate proceedings its obligation to pay such
taxes or charges, adequate reserves having been set aside for the payment
thereof in accordance with GAAP.

                  (c) CONTINUITY OF BUSINESS AND COMPLIANCE WITH AGREEMENT AND
LAW. Each of CPS and the Issuer shall:

                           (i) preserve and maintain its legal existence;

                           (ii) comply with the requirements of all applicable
         laws, rules, regulations and orders of governmental authorities and
         other Requirements of Law (including, without limitation, Consumer Laws
         and all environmental laws);

                           (iii) keep adequate records and books of account, in
         which complete entries will be made in accordance with GAAP
         consistently applied;

                           (iv) not move its chief executive office or chief
         operating office from the addresses referred to herein or change its
         jurisdiction of organization unless it shall have provided the Note
         Purchaser 30 days prior written notice of such change;

                                      -19-
<PAGE>

                           (v) pay and discharge all taxes, assessments and
         governmental charges or levies imposed on it or on its income or
         profits or on any of its property prior to the date on which penalties
         attach thereto, except for any such tax, assessment, charge or levy the
         payment of which is being contested in good faith and by proper
         proceedings and against which adequate reserves are being maintained;
         and

                           (vi) continue in business in a prudent, reasonable
         and lawful manner with all licenses, rights, permits, franchises and
         qualifications necessary to perform its respective obligations under
         this Agreement, the Sale and Servicing Agreement, the Notes and the
         other Basic Documents.

                  (d) OWNERSHIP OF THE ISSUER. CPS shall own beneficially and of
record 100% of the membership interests in the Issuer free and clear of all
Liens other than the Lien created pursuant to the Pledge Agreement.

                  (e) BORROWING BASE CERTIFICATES. The Issuer shall deliver to
the Note Purchaser, together with each Advance Request, a Borrowing Base
Certificate in accordance with Section 2.03(a) hereof.

                  (f) COLLATERAL STATEMENTS. The Issuer will furnish or cause to
be furnished to the Note Purchaser from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as Note Purchaser may reasonably request, all in
reasonable detail, including without limitation each statement, certificate and
report required to be delivered to the Trustee or the Noteholders under any
Basic Document.

                  (g) ACTIONS TO ENFORCE RIGHTS UNDER CONTRACTS. CPS and the
Issuer shall take such reasonable and lawful actions as the Note Purchaser shall
request to enforce Note Purchaser's rights under the Collateral, and, following
the occurrence of an Event of Default, shall take such reasonable and lawful
actions as are necessary to enable Note Purchaser to exercise such rights in
Note Purchaser's own name.

                  (h) HEDGING STRATEGY. The Issuer shall implement and maintain
a hedging strategy that is reasonably acceptable to the Note Purchaser;
PROVIDED, THAT, for purposes of this subparagraph (h), a hedging strategy
consisting of the Seller sponsoring one or more securitizations of pools of
Receivables at least every 120 days during the term of the Notes shall be deemed
acceptable to the Note Purchaser.

                  (i) MONTHLY SERVICER'S CERTIFICATE. The Issuer shall, or shall
cause the Servicer (so long as CPS is Servicer) to, deliver to Note Purchaser,
the Trustee and the Backup Servicer, no later than 12:00 noon, New York City
time, on each Determination Date, in a computer-readable format reasonably
acceptable to each such Person, a Servicer's Certificate executed by a
Responsible Officer or agent of Servicer containing all information required to
be included in such Servicer's Certificate under Section 4.9 of the Sale and
Servicing Agreement and related monthly data. The Issuer shall, or shall cause
the Servicer (so long as the CPS is Servicer) to, deliver to Note Purchaser, the
Trustee and the Backup Servicer a hard copy of any such Servicer's Certificate
upon request of such Person.

                                      -20-
<PAGE>

                  (j) SEPARATE EXISTENCE; NO COMMINGLING. During each Term, the
Issuer shall limit its activities to such activities as are incident to and
necessary or convenient to accomplish the following purposes: (i) to acquire,
own, hold, pledge, finance and otherwise deal with Receivables to be pledged to
the Trustee for the benefit of the Note Purchaser and the Noteholders pursuant
to the Indenture and (ii) to sell, securitize or otherwise liquidate all or any
portion of such Receivables in accordance with the provisions of the Basic
Documents. In addition, during the Term, the Issuer shall observe and comply
with the applicable legal requirements for the recognition of the Issuer as a
legal entity separate and apart from its Affiliates, including without
limitation, those requirements set forth in Section 9(b)(iv) of the Issuer's
Limited Liability Company Agreement. Without limiting the foregoing, the Issuer
shall, and CPS shall cause itself and any other Affiliates of the Issuer to,
maintain the truth and accuracy of all facts assumed by Andrews Kurth LLP in the
true sale and non consolidation opinions of Andrews Kurth LLP; provided that in
the event that any request is made for the Note Purchaser to consent to or
approve any matter that, if effectuated or consummated, would result in a change
to the continuing truth and accuracy of any of the factual assumptions in the
true sale or non consolidation opinions of Andrews Kurth LLP, such request shall
be accompanied by an opinion of Andrews Kurth LLP, or such other counsel as may
be reasonably satisfactory to the Note Purchaser, that the conclusions set forth
in the true sale and non consolidation opinions of Andrews Kurth LLP will be
unaffected by such change.

                  (k) OTHER LIENS OR INTERESTS. Except for the conveyances under
the Sale and Servicing Agreement, CPS shall not sell, pledge, assign or transfer
to any other Person, or grant, create, incur, assume or suffer to exist any lien
on or any interest in, the Receivables or the Other Conveyed Property. Except
for the pledge pursuant to the Indenture, the Issuer shall not sell, pledge,
assign or transfer to any other Person, or grant, create, incur, assume or
suffer to exist any lien on or any interest in, the Receivables and the other
Collateral. CPS and the Issuer shall, at their own expense, defend the
Collateral against, and will take such other action as is necessary to remove,
any Lien, security interest or claim on, in or to the Collateral, other than the
security interests created under the Sale and Servicing Agreement and the
Indenture, respectively, and CPS and the Issuer will defend the right, title and
interest of the Note Purchaser in and to any of the Collateral against the
claims and demands of all Persons whomsoever.

                  (l) BOOKS AND RECORDS; OTHER INFORMATION.

                           (i) Each of CPS and the Issuer shall maintain
         accounts and records as to each Receivable accurately and in sufficient
         detail to permit the reader thereof to know at any time the status of
         such Receivable, including payments and recoveries made and payments
         owing (and the nature of each). CPS shall maintain accurate and
         complete books and records with respect to the Receivables and the
         Other Conveyed Property and with respect to CPS's business. The Issuer
         shall maintain accurate and complete books and records with respect to
         the Collateral and the Issuer's business. All accounting books and
         records shall be maintained in accordance with GAAP.

                           (ii) CPS and the Issuer shall, and shall cause each
         of their respective Affiliates to, permit any representative of the
         Note Purchaser to visit and inspect any of the properties of the Issuer
         and such Affiliates and to examine the books and records of CPS or the
         Issuer and such Affiliates, as applicable, and to make copies and take

                                      -21-
<PAGE>

         extracts therefrom, and to discuss the business, operations,
         properties, condition (financial or otherwise) or prospects of CPS or
         the Issuer and each such Affiliate, as applicable, or any of the
         Collateral with the officers and independent public accountants thereof
         and as often as the Note Purchaser may reasonably request, and so long
         as no Default or Event of Default shall have occurred and be
         continuing, all at such reasonable times during normal business hours
         upon reasonable written notice; provided that, after a Default or Event
         of Default shall have occurred and be continuing, the Note Purchaser
         shall make such inspections, examine such documents, make such copies,
         take such extracts and conduct such discussions at such times as it may
         determine in its sole discretion during CPS's and the Issuer's normal
         business hours.

                           (iii) Each of CPS and the Issuer shall promptly
         provide to the Note Purchaser all information regarding its respective
         operations and practices and the Collateral as the Note Purchaser shall
         reasonably request.

                           (iv) CPS shall maintain its computer systems so that,
         from and after the time of each sale of Receivables under the Sale and
         Servicing Agreement to the Issuer, CPS's master computer records
         (including any back-up archives) that refer to a Receivable shall
         indicate clearly that such Receivable has been sold by CPS to the
         Issuer and that such Receivable has been pledged by the Issuer to the
         Trustee. Indication of the Trustee's interest in such Receivable shall
         be deleted from or modified on CPS's computer systems when, and only
         when, the Receivable shall have been released from the Lien of the
         Indenture in accordance with the terms of the Indenture, and indication
         of the Issuer's interest in such Receivable shall be deleted from or
         modified on CPS's computer systems when, and only when, the Receivable
         shall have been paid in full or repurchased from the Issuer by CPS.

                           (v) Upon request, CPS shall furnish to the Note
         Purchaser, within five (5) Business Days, (x) a list of all Receivables
         (by contract number and name of Obligor) then owned by the Issuer,
         together with a reconciliation of such list to the Schedule of
         Receivables, and (y) such other information as the Note Purchaser may
         reasonably request.

                           (vi) If at any time CPS shall propose to sell, grant
         a security interest in, or otherwise transfer any interest in any
         automobile, van, sport utility vehicle or light duty truck receivables
         (other than the Receivables) to any prospective purchaser, lender, or
         other transferee, and if CPS shall give to such prospective purchaser,
         lender or other transferee computer tapes, records, or print-outs
         (including any restored from back-up archives, collectively "data
         records") that refer in any manner whatsoever to any Receivable, such
         data records shall indicate clearly that such Receivable has been sold
         by CPS to the Issuer and pledged by the Issuer to Trustee unless such
         Receivable shall have been released from the Lien of the Indenture in
         accordance with the terms of the Indenture and shall have been paid in
         full or repurchased from the Issuer by CPS.

                  (m) FULFILLMENT OF OBLIGATIONS. Each of CPS and the Issuer
shall pay and perform, as and when due, all of its obligations of whatever
nature, except where the amount or validity thereof is currently being contested
in good faith by appropriate proceedings and reserves in conformity with GAAP
with respect thereto have been provided on the books of CPS or the Issuer, as
applicable.

                                      -22-
<PAGE>

                  (n) COMPLIANCE WITH LAWS, ETC. Each of CPS and the Issuer
shall, and CPS shall cause each of its Subsidiaries to, comply (i) in all
material respects with all Requirements of Law and any change therein or in the
application, administration or interpretation thereof (including, without
limitation any request, directive, guideline or policy, whether or not having
the force of law) by any Governmental Authority charged with the administration
or interpretation thereof; and (ii) with all indentures, mortgages, deeds of
trust, agreements, or other instruments or contractual obligations to which it
is a party, including without limitation, each Basic Document to which it is a
party, or by which it or any of its properties may be bound or affected, or
which may affect the Receivables.

                  (o) COMPLIANCE WITH BASIC DOCUMENTS. CPS, in its capacity as
Seller and Servicer, or otherwise, shall comply with each of its covenants
contained in the Basic Documents.

                  (p) FINANCING STATEMENTS. At the request of the Note
Purchaser, CPS and the Issuer shall file such financing statements as the Note
Purchaser determines may be required by law to perfect, maintain and protect the
interest of the Note Purchaser in the Collateral and the proceeds thereof.

                  (q) PAYMENT OF FEES AND EXPENSES. CPS and the Issuer shall pay
to the Note Purchaser, on demand, any and all fees, costs or expenses that the
Note Purchaser pays to a bank or other similar institution arising out of or in
connection with the return of payments from CPS or the Issuer deposited for
collection by the Note Purchaser.

                  (r) FINANCIAL STATEMENTS AND ACCESS TO RECORDS. CPS shall
provide the Note Purchaser with quarterly unaudited financial statements within
sixty (60) days of the end of each of CPS's first three fiscal quarters, and CPS
will provide the Note Purchaser with audited financial statements within one
hundred twenty (120) days of each of CPS's fiscal year-end audited by a
nationally recognized independent certified public accounting firm. Upon request
of the Note Purchaser, CPS shall provide the Note Purchaser with unaudited
monthly financial statements. CPS shall deliver to the Note Purchaser with each
financial statement a certificate by CPS's chief financial officer, certifying
that such financial statements are complete and correct in all material respects
and that, except as noted in such certificate, such chief financial officer has
no knowledge of any Default, Event of Default, Funding Termination Event or
Servicer Termination Event. Notwithstanding the foregoing, CPS shall have no
obligation to deliver any of the foregoing financial statements to the Note
Purchaser for so long as CPS is subject to, and in compliance with, the
reporting requirements under Section 13(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). In connection with each report filed by
CPS under Section 13(a) of the Exchange Act during the Term, CPS shall be deemed
to have represented and warranted to the Note Purchaser that, as of the related
filing date, the financial statements contained in such report are complete and
correct in all material respects and that, unless otherwise specified in such
report, CPS has no knowledge of any Default, Event of Default, Funding
Termination Event or Servicer Termination Event as of such filing date.

                                      -23-
<PAGE>

                  (s) LITIGATION MATTERS. CPS shall notify the Note Purchaser in
writing, promptly upon its learning thereof, of any litigation, arbitration or
administrative proceeding which may reasonably be expected to have a Material
Adverse Effect or result in a Material Adverse Change.

                  (t) NOTICE OF CHANGE OF CHIEF EXECUTIVE OFFICE. CPS and the
Issuer shall provide the Note Purchaser with not less than thirty (30) days
prior written notice of any change in the chief executive office or jurisdiction
of incorporation or organization of CPS or the Issuer to permit the Note
Purchaser to make any additional filings necessary to continue the Note
Purchaser's perfected security interest in the Collateral.

                  (u) CONSOLIDATED TOTAL ADJUSTED EQUITY. CPS shall maintain
minimum Consolidated Total Adjusted Equity of $60,000,000 as of the end of each
fiscal quarter.

                  (v) MAXIMUM LEVERAGE RATIO. CPS shall maintain a maximum
leverage ratio (total liabilities less all non-recourse debt/Consolidated Total
Adjusted Equity) of less than six times as of the end of each fiscal quarter.

                  (w) LIQUIDITY. CPS shall maintain cash and cash equivalents of
at least $8.5 million as of the end of each calendar month.

                  (x) DEPOSIT ACCOUNT. All distributions made by the Issuer to
CPS in respect of CPS's equity interest in the Issuer shall be deposited
directly into the Deposit Account.

         SECTION 7.02 NEGATIVE COVENANTS. Until the Facility Termination Date:

                  (a) ADVERSE TRANSACTIONS. Neither CPS nor the Issuer shall
enter into any transaction that adversely affects the Collateral, the Note
Purchaser's rights under this Agreement, the Notes or any other Basic Document,
the Issuer's interest in the Receivables and the Other Conveyed Property
pursuant to the Sale and Servicing Agreement, the Trustee's security interest in
the Collateral pursuant to the Indenture, or that could reasonably be expected
to result in a Material Adverse Change with respect to the Issuer or CPS or a
Material Adverse Event.

                  (b) GUARANTEES. The Issuer shall not guarantee or otherwise in
any way become liable with respect to the obligations or liabilities of any
other Person.

                  (c) DIVIDENDS. The Issuer shall not declare or pay any
dividends except (i) to the extent of funds legally available therefor from
payments received by the Issuer pursuant to Section 5.7(a) of the Sale and
Servicing Agreement, or (ii) pursuant to Section 5.10 of the Sale and Servicing
Agreement. Notwithstanding the foregoing, the Issuer shall not declare or pay
any dividends on any date as of which a Default or an Event of Default shall
have occurred and is continuing.

                  (d) INVESTMENTS. The Issuer shall not make any investment in
any Person through the direct or indirect holding of securities or otherwise,
other than in the ordinary course of business or in connection with the future
securitization of Receivables.

                                      -24-
<PAGE>

                  (e) CHANGES IN CAPITAL STRUCTURE OR BUSINESS OBJECTIVES OF THE
ISSUER. The Issuer shall not do any of the following if it will adversely affect
the payment or performance of, or the Issuer's ability to pay and/or perform,
its obligations to the Note Purchaser with respect to this Agreement or any
other Basic Document to which it is a party, or the Notes, or if it could
reasonably be expected to result in a Material Adverse Change with respect to
the Issuer or CPS or a Material Adverse Event: (i) cancel any of the membership
interests in the Issuer, (ii) make any change in the capital structure of the
Issuer, or (iii) make any material change in any of its business objectives,
purposes or operations that would adversely affect the payment or performance
of, or the Issuer's ability to pay and/or perform, its obligations to Note
Purchaser with respect to this Agreement or any other Basic Document to which it
is a party, or the Notes.

                  (f) ASSET SALES. The Issuer will not sell any Receivables or
other Collateral related thereto if, following such sale, the Invested Amount
would exceed the Borrowing Base after giving effect to the application of
proceeds of such sale; PROVIDED that in the event that the Issuer or CPS shall
intend to sell any Receivables in a whole-loan transfer to any third party, the
Issuer or CPS shall inform Note Purchaser of such prospective sale and Note
Purchaser shall be permitted to bid on such Receivables in the same bidding
process as that in which any third party is permitted to bid on such
Receivables.

                  (g) NO LIENS ON EQUITY INTERESTS IN THE ISSUER. CPS shall not
grant or otherwise create any Lien on the membership interests in the Issuer (or
any other equity interest in the Issuer) without the prior written consent of
the Note Purchaser.

                  (h) NO INDEBTEDNESS. The Issuer will not at any time incur any
Indebtedness, other than Indebtedness incurred under (or contemplated by) the
terms of the Notes, the Indenture, the Sale and Servicing Agreement and this
Agreement, which consent is deemed given with respect to the security interest
created by the Pledge Agreement.

                  (i) NO OTHER BUSINESS. The Issuer will not at any time engage
in any other business activities than the purchase of the Receivables and the
Other Conveyed Property, pledging the Receivables and the other Collateral to
the Trustee under the Indenture, transferring the Receivables and the Other
Conveyed Property in connection with securitizations and in connection with
whole-loan sales, issuing the Notes and other activities relating to the
foregoing to the extent permitted by the organizational documents of the Issuer
as in effect on the date hereof, or as amended with the prior written consent of
the Note Purchaser. Without limitation of the foregoing, the Issuer will not at
any time be an issuer of securities other than the Notes or a borrower under any
loan or financing agreement, facility or other arrangement other than the
facility established pursuant to this Agreement and the other Basic Documents.

                  (j) NO AMENDMENT TO ISSUER'S OPERATING AGREEMENT OR ANY BASIC
DOCUMENT WITHOUT CONSENT. Neither the Limited Liability Company Agreement of the
Issuer, nor any Basic Document, shall be amended, supplemented or otherwise
modified without the prior written consent of the Note Purchaser.

                  (k) TRANSACTIONS WITH AFFILIATES. The Issuer shall not enter
into, or be a party to, any transaction with any of its Affiliates, except in
accordance with the requirements set forth in Section 9(b)(iv) of its Limited
Liability Company Agreement.

                                      -25-
<PAGE>

                  (l) NONPETITION. Notwithstanding any prior termination of this
Agreement, neither the Servicer nor the Seller will, prior to the date that is
one year and one day after the day upon which the outstanding principal amount
of the Notes has been reduced to zero and all Secured Obligations have been paid
in full, acquiesce, petition or otherwise invoke or cause the Issuer to invoke
the process of any court or government authority for the purpose of commencing
or sustaining a case against the Issuer 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 any
substantial part of its property, or ordering the winding up or liquidation of
the affairs of the Issuer.

                  (m) PROTECTION OF TITLE TO COLLATERAL. None of the Seller, the
Servicer, the Purchaser or the Issuer shall change its name, identity,
jurisdiction of organization, form of organization or corporate structure in any
manner that would, could or might make any financing statement or continuation
statement filed with respect to the Collateral seriously misleading within the
meaning of Section 9-506(a) of the UCC, unless it shall have given the Note
Purchaser at least 30 days' prior written notice thereof and shall have promptly
filed appropriate amendments to all previously filed financing statements or
continuation statements.

                                  ARTICLE VIII
                            MISCELLANEOUS PROVISIONS

         SECTION 8.01 AMENDMENTS. No amendment to or waiver of any provision of
this Agreement, nor consent to any departure by CPS, the Issuer or the Note
Purchaser therefrom, shall in any event be effective unless the same shall be in
writing and signed by CPS, the Issuer and the Note Purchaser.

         SECTION 8.02 NO WAIVER; REMEDIES. Any waiver, consent or approval given
by any party hereto shall be effective only in the specific instance and for the
specific purpose for which given, and no waiver by a party of any breach or
default under this Agreement or any other Basic Document shall be deemed a
waiver of any other breach or default. No failure on the part of any party
hereto to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder, or any abandonment or discontinuation of steps to enforce the
right, power or privilege, preclude any other or further exercise thereof or the
exercise of any other right. No notice to or demand on any party hereto in any
case shall entitle such party to any other or further notice or demand in the
same, similar or other circumstances. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

         SECTION 8.03 BINDING ON SUCCESSORS AND ASSIGNS.

                  (a) This Agreement shall be binding upon, and inure to the
benefit of, the Issuer, the Purchaser, the Seller, the Servicer, the Note
Purchaser and their respective successors and assigns; PROVIDED, HOWEVER, that
none of the Issuer, the Purchaser, the Seller or the Servicer may assign its
rights or obligations hereunder or in connection herewith or any interest herein
(voluntarily, by operation of law or otherwise) without the prior written
consent of the Note Purchaser. Nothing expressed herein is intended or shall be
construed to give any Person other than the Persons referred to in the preceding
sentence any legal or equitable right, remedy or claim under or in respect of
this Agreement.

                                      -26-
<PAGE>

                  (b) The Note Purchaser may at any time grant a security
interest in and Lien on all of its interests under this Agreement, the Notes and
all Basic Documents to any Person who, at any time now or in the future,
provides program liquidity or credit enhancement, including without limitation,
a surety bond or financial guaranty insurance policy for the benefit of the Note
Purchaser. The Note Purchaser may assign its Commitment or all of its interest
under the Notes, this Agreement and the Basic Documents to (i) any Affiliate of
the Note Purchaser at any time (ii) to any other Person at any time that a
Default has occurred and is continuing and (iii) at any other time with the
prior written consent of the Issuer. Notwithstanding the foregoing, it is
understood and agreed by the Issuer that the Notes may be sold, transferred or
pledged without the consent of the Issuer in compliance with, and as provided
for under, SECTION 5.03(G). Notwithstanding any other provisions set forth in
this Agreement, the Note Purchaser may at any time create a security interest in
all of its rights under this Agreement, the Notes and the Basic Documents in
favor of any Federal Reserve Bank in accordance with Regulation A of the Board
of Governors of the Federal Reserve System.

                  (c) If, on or after the date of this Agreement, the Note
Purchaser reasonably determines that the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Note Purchaser with any request or
directive issued on or after the date of this Agreement (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
made or would be likely to make it unlawful for the Note Purchaser to purchase
the Advances, hold the Notes or otherwise to perform the transactions
contemplated to be performed by it pursuant to this Agreement and those
contemplated to be performed by it pursuant to the Basic Documents to which the
Note Purchaser is a party, then (i) the Note Purchaser shall so notify the
Issuer; (ii) the obligation of the Note Purchaser to purchase Advances from time
to time as contemplated hereunder shall be suspended; and (iii) the Note
Purchaser may assign its rights and obligations hereunder and under the Basic
Documents, the Notes and its interests therein pursuant to Section 8.03(b);
provided that a Funding Termination Event shall occur if the Issuer or the
Servicer fails to accept the proposed assignee chosen by the Note Purchaser.

         SECTION 8.04 TERMINATION; SURVIVAL. The obligations and
responsibilities of the Note Purchaser created hereby shall terminate on the
Termination Date. Notwithstanding the foregoing, all covenants, agreements,
representations, warranties and indemnities made by the Servicer, the Seller,
the Purchaser and/or the Issuer herein and/or in the Notes delivered pursuant
hereto shall survive the purchase and the repayment of the Advances and the
execution and delivery of this Agreement and the Notes and shall continue in
full force and effect until all interest and principal on the Notes and other
amounts owed hereunder and under the other Basic Documents have been paid in
full and the commitment of the Note Purchaser hereunder has been terminated. In
addition, the obligations of the Issuer under SECTIONS 3.02, 3.03, 3.04, 8.05,
8.11, 8.12 and 8.13 shall survive the termination of this Agreement.

                                      -27-
<PAGE>

         SECTION 8.05 INDEMNIFICATION. In consideration of the execution and
delivery of this Agreement by the Note Purchaser, the Issuer and the Servicer,
jointly and severally, hereby indemnify and hold the Note Purchaser and each of
its officers, directors, employees and agents (collectively, the "INDEMNIFIED
PARTIES") harmless from and against any and all actions, causes of action,
suits, losses, costs, liabilities and damages, and reasonable expenses incurred
in connection therewith, as incurred (irrespective of whether any such
Indemnified Party is a party to the action for which indemnification hereunder
is sought and including, without limitation, any liability in connection with
the offering and sale of the Notes), including reasonable attorneys' fees and
disbursements (collectively, the "INDEMNIFIED LIABILITIES"), incurred by the
Indemnified Parties or any of them (whether in prosecuting or defending against
such actions, suits or claims) as a result of, or arising out of, or relating
to:

                           (i) any transaction financed or to be financed in
         whole or in part (including, without limitation, any Receivable
         constituting part of the Collateral), directly or indirectly, with the
         proceeds of any Advance including, without limitation, any claim, suit
         or action related to such transaction, which claim is based on a
         violation of Consumer Laws or any applicable vicarious liability
         statutes, or the use or operation of any Financed Vehicle by any
         Person; or

                           (ii) this Agreement or any other Basic Document, or
         the entering into and performance of this Agreement or any other Basic
         Document by any of the Indemnified Parties,

except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence, bad faith or willful misconduct and, with respect to the Servicer,
excluding any Indemnified Liabilities that would constitute recourse to the
Servicer for loss by reason of the bankruptcy, insolvency (or other credit
condition) of, or credit-related default by the related Obligor on any
Receivable and not arising from defaults by the related Obligor arising from a
claim by the related Obligor that any part of the debt evidenced by the
Receivables is not due as a result of wrongful action by any Person, such as a
breach of Consumer Laws. If and to the extent that the foregoing undertaking may
be unenforceable for any reason, the Issuer and the Servicer hereby jointly and
severally agree to make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnity set forth in this SECTION 8.05 shall in no event include
indemnification for any Taxes (which indemnification is provided in SECTION
3.04). Upon the written request of the Note Purchaser pursuant to this Section
8.05, the Issuer and the Servicer shall promptly reimburse the Note Purchaser
for the amount of any such Indemnified Liabilities incurred by the Note
Purchaser.

         SECTION 8.06 CHARACTERIZATION AS BASIC DOCUMENT; ENTIRE AGREEMENT. This
Agreement shall be deemed to be a Basic Document for all purposes of the
Indenture and the other Basic Documents. This Agreement, together with the
Indenture, the Sale and Servicing Agreement, the documents delivered pursuant to
SECTION 6.01 and the other Basic Documents, including the exhibits and schedules
thereto, contains a final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, superseding all previous oral statements and other
writings with respect thereto.

                                      -28-
<PAGE>

         SECTION 8.07 NOTICES. All notices, amendments, waivers, consents and
other communications provided to any party hereto under this Agreement shall be
in writing and addressed, delivered or transmitted to such party at its address
or facsimile number set forth below its signature hereto or at such other
address or facsimile number as may be designated by such party in a notice to
the other parties. Any notice, if mailed and properly addressed with postage
prepaid or if properly addressed and sent by pre-paid courier service, shall be
deemed given when received; any notice, if transmitted by facsimile, shall be
deemed given when transmitted and accompanied by telephonic confirmation of
receipt.

         SECTION 8.08 SEVERABILITY OF PROVISIONS. Any covenant, provision,
agreement or term of this Agreement that is prohibited or is held to be void or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of the prohibition or unenforceability without invalidating the
remaining provisions of this Agreement.

         SECTION 8.09 TAX CHARACTERIZATION. Each party to this Agreement (a)
acknowledges that it is the intent of the parties to this Agreement that, for
accounting purposes and for all Federal, state and local income and franchise
tax purposes, the Notes will be treated as evidence of indebtedness issued by
the Issuer, (b) agrees to treat the Notes for all such purposes as indebtedness
and (c) agrees that the provisions of the Basic Documents shall be construed to
further these intentions.

         SECTION 8.10 FULL RECOURSE TO ISSUER. The obligations of the Issuer
under this Agreement and the other Basic Documents shall be full recourse
obligations of the Issuer. Notwithstanding the foregoing, no recourse shall be
had for the payment of any amount owing in respect of this Agreement, including
the payment of any fee hereunder or any other obligation or claim arising out of
or based upon this Agreement, against any certificateholder, member, employee,
officer, manager, director, affiliate or trustee of the Issuer; PROVIDED,
HOWEVER, nothing in this SECTION 8.10 shall relieve any of the foregoing Persons
from any liability that any such Person may otherwise have as expressly set
forth in any Basic Document or for its gross negligence, bad faith or willful
misconduct. Nothing contained in this Section shall limit or be deemed to limit
any obligations of the Issuer, the Purchaser, the Seller or the Servicer
hereunder or under any other Basic Document, which obligations are full recourse
obligations of the Issuer, the Purchaser, the Seller and the Servicer,
respectively.

         SECTION 8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

         SECTION 8.12 SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO CONSENTS,
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF

                                      -29-
<PAGE>

THOSE COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, OR ANY LEGAL PROCESS WITH RESPECT TO ITSELF OR ANY OF ITS
PROPERTY, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. EACH OF THE PARTIES HERETO WAIVES PERSONAL SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY NEW YORK LAW.

         SECTION 8.13 WAIVER OF JURY TRIAL. THE PARTIES HERETO EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY
PARTY AGAINST THE OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS OR OTHERWISE. THE PARTIES HERETO EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT.

         SECTION 8.14 COUNTERPARTS. This Agreement may be executed in any number
of counterparts (which may include facsimile) and by the different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original, and all of which together shall constitute one and the same
instrument. Any signature page to this Agreement containing a manual signature
may be delivered by facsimile transmission or other electronic communication
device capable of transmitting or creating a printable written record, and when
so delivered shall have the effect of delivery of an original manually signed
signature page.

         SECTION 8.15 SET-OFF. The obligations of the Issuer, the Purchaser, the
Seller and the Servicer hereunder are absolute and unconditional and each of the
Issuer, the Purchaser, the Seller and the Servicer expressly waives any and all
rights of set-off, abatement, diminution or deduction that the Issuer, the
Purchaser, the Seller or the Servicer may otherwise at any time have under
applicable law.

                  (b) In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of such rights, during the
continuance of any Event of Default hereunder:

                           (i) the Note Purchaser is hereby authorized at any
         time and from time to time, without notice to the Purchaser or the
         Issuer, such notice being hereby expressly waived, to set-off any
         obligation owing by the Note Purchaser or any of its Affiliates to the

                                      -30-
<PAGE>

         Purchaser or the Issuer, or against any funds or other property of the
         Purchaser or the Issuer, held by or otherwise in the possession of the
         Note Purchaser or any of its Affiliates, the respective obligations of
         the Purchaser and the Issuer to the Note Purchaser under this Agreement
         and the other Basic Documents and irrespective of whether or not the
         Note Purchaser shall have made any demand hereunder or thereunder; and

                           (ii) the Note Purchaser is hereby authorized at any
         time and from time to time, without notice to the Seller or the
         Servicer, such notice being hereby expressly waived, to set-off any
         obligation owing by the Note Purchaser or any of its Affiliates to the
         Seller or the Servicer, or against any funds or other property of the
         Seller or the Servicer held by or otherwise in the possession of the
         Note Purchaser or any of its Affiliates, the respective obligations of
         the Seller and the Servicer to the Note Purchaser under this Agreement
         and the other Basic Documents and irrespective of whether or not the
         Note Purchaser shall have made any demand hereunder or thereunder.

         SECTION 8.16 NONPETITION COVENANTS. Notwithstanding any prior
termination of this Agreement, the Servicer and the Seller shall not, prior to
the date that is one year and one day after the day upon which the outstanding
principal amount of the Notes has been reduced to zero and all Secured
Obligations have been paid in full, acquiesce, petition or otherwise invoke or
cause the Purchaser or the Issuer to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Purchaser or the Issuer 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 Purchaser of the Issuer or any
substantial part of its property, or ordering the winding up or liquidation of
the affairs of the Purchaser or the Issuer.

         SECTION 8.17 SERVICER REFERENCES. All references to the Servicer herein
shall apply to CPS, in its capacity as the initial Servicer, and not to a
successor Servicer.

         SECTION 8.18 CONFIDENTIALITY; PRESS RELEASES. Unless required by law or
regulation to do so, neither the Note Purchaser on the one hand, nor any of the
Seller, the Servicer, the Purchaser or the Issuer on the other hand, shall
publish or otherwise disclose any information relating to the material terms of
the Commitment, any of the Basic Documents or the transactions contemplated
hereby or thereby to any Person (other than its own advisors to the extent
reasonably necessary) without the prior written consent of the other; provided
that nothing herein shall be construed to prohibit any party from issuing a
press release announcing the consummation of the transactions contemplated by
the Basic Documents. Any party hereto issuing any such press release hereby
agrees to provide the other parties hereto with a reasonable opportunity to
review and comment on such press release prior to the issuance thereof. No party
shall publish any press release naming the other party to which such other
parties shall have reasonably objected. For avoidance of doubt, it is agreed
that Seller is required by law (i) to report its entry into this Agreement and
the other Basic Documents in a current report on Form 8-K of the Securities and
Exchange Commission, which report must file as exhibits at least this Agreement,
the Sale and Servicing Agreement, and the Indenture, and (ii) to make reference
to such agreements and the Commitment in its periodic reports to be filed
respecting time periods that include all or part of the Term. This
confidentiality agreement shall apply to any and all information relating to the
Commitment, any of the Basic Documents and the transactions contemplated hereby
and thereby at any time on or after the date hereof.

                     [Remainder of Page Intentionally Blank]

                                      -31-
<PAGE>

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

                                        PAGE THREE FUNDING LLC

                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________

                                        Address:    16355 Laguna Canyon Road
                                                    Irvine, California  92618
                                        Attention:  Company Secretary
                                        Telephone:  949-753-6800
                                        Facsimile:  949-753-6897

                                        CONSUMER PORTFOLIO SERVICES, INC.

                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________

                                        Address:    16355 Laguna Canyon Road
                                                    Irvine, California  92618
                                        Attention:  Corporate Secretary
                                        Telephone:  (949) 785-6691
                                        Facsimile:  (888) 577-7923

                                      -32-
<PAGE>

                                        BEAR, STEARNS INTERNATIONAL LIMITED,
                                        AS NOTE PURCHASER

                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________

                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________

                                        Bear, Stearns & Co. Inc.,
                                        as agent for Bear, Stearns International
                                        Limited
                                        383 Madison Ave., 10th Floor
                                        Attention:  Clark MacKenzie
                                        New York, New York  10179

                                        Telephone: 212-272-4076
                                        Facsimile:  917-849-1151

                                        w/ a copy to:

                                        Bear, Stearns & Co. Inc.,
                                        as agent for Bear, Stearns International
                                        Limited
                                        383 Madison Ave., 10th Floor
                                        Attention:  General Counsel
                                        New York, New York  10179

                                        Telephone: 212-272-7850
                                        Facsimile: 917-849-1072

                                      -33-<PAGE>
EXHIBIT 4.1
                                                                         ANNEX I
                                                                              TO
                                                   SECURITIES PURCHASE AGREEMENT
                                                   (PROTOTYPE FOR EACH ISSUANCE)

[NOTE: EACH BUYER WILL BE ISSUED TWO DEBENTURE CERTIFICATES, EACH REPRESENTING
HALF OF THE TOTAL PRINCIPAL OF THE DEBENTURES TO BE ISSUED TO SUCH BUYER. SEE
SECTION 4(O)(III) OF SECURITIES PURCHASE AGREEMENT.]

                                FORM OF DEBENTURE

         THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
         SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
         STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
         ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

No. 06-01C-(1-2)                                               US $__________(3)

                            RIM SEMICONDUCTOR COMPANY

                     7% SENIOR SECURED CONVERTIBLE DEBENTURE
                       SERIES 06-01C DUE ________, 200_(4)

        THIS DEBENTURE is one of a duly authorized issue of up to $_________(5)
in Debentures of RIM SEMICONDUCTOR COMPANY, a corporation organized and existing
under the laws of the State of Utah (the "Company") designated as its 7% Senior
Secured Convertible Debentures Series 06-01C.

        FOR VALUE RECEIVED, the Company promises to pay to _____________, The
registered holder hereof (the "Holder"), the principal sum of
_______________________ and 00/100

__________________
(1) Insert unique Debenture number for each issuance.

(2) Insert "A" for one Debenture and "B" for second Debenture.

(3) Insert principal amount equal to fifty percent (50%) of Buyer's Purchase
Price for each of "A" Debenture and "B" Debenture (aggregate equal to one
hundred percent (100%) of the Purchase Price).

(4) Insert date which is second anniversary of the Closing Date

(5) Insert amount equal to the Aggregate Purchase Price.

                                       1
<PAGE>

Dollars (US $__________________)(6) on _____________________, 200_(7), (the
"Maturity Date") and to pay interest, on a compound basis, on the principal sum
outstanding from time to time in arrears at the rate of 7% per annum, accruing
from _______________, 200_(8), the date of initial issuance of this Debenture
(the "Issue Date"), on the date (each, an "Interest Payment Date") which is the
earlier of (i) the last calendar day of June and December of each calendar year
(each, a "Scheduled Interest Payment Date"), except that the first Scheduled
Interest Payment Date shall be June 30, 2006, (ii) a Conversion Date (as defined
below) or (iii) the Maturity Date, as the case may be. Interest shall accrue
semi-annually (pro-rated on a daily basis for any period longer or shorter than
a half year) from the later of the Issue Date or the previous Interest Payment
Date) and shall be payable in cash or, at the Company's option but subject to
the other provisions of this Debenture, in Common Stock. If not paid in full on
an Interest Payment Date, interest shall be fully cumulative and shall accrue on
a daily basis, based on a 365-day year semi-annually or until paid, whichever is
earlier. Additional provisions regarding the payment of interest are provided in
Section 4(D) below (the terms of which shall govern as if this sentence were not
included in this Debenture).

         This Debenture is being issued pursuant to the terms of the Securities
Purchase Agreement, dated March 6, 2006 (the "Securities Purchase Agreement"),
to which the Company and the Holder (or the Holder's predecessor in interest)
are parties. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Securities Purchase Agreement.

         This Debenture is subject to the following additional provisions:

        1. The Debentures will initially be issued in denominations determined
by the Company, but are exchangeable for an equal aggregate principal amount of
Debentures of different denominations, as requested by the Holder surrendering
the same. No service charge will be made for such registration or transfer or
exchange.

        2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.

        3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws and the terms of the Securities
Purchase Agreement. In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the name of such
other person, that it receive reasonable transfer documentation that is
sufficient to evidence that such proposed transfer

_____________________

(6) See footnote 3.

(7) See footnote 4.

(8) Insert the Closing Date.

                                       2
<PAGE>

complies with the Act and other applicable state and foreign securities laws and
the terms of the Securities Purchase Agreement. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.

         4. A. (i) At any time on or after the Commencement Date (as defined
below) and prior to the time this Debenture is paid in full in accordance with
its terms (including, without limitation, after the Prepayment Date, as defined
below, and after the occurrence of an Event of Default, as those terms are
defined below, or, if the Debenture is not fully paid or converted after the
Maturity Date), the Holder of this Debenture is entitled, at its option, subject
to the following provisions of this Section 4, to convert this Debenture at any
time into shares of Common Stock, $0.001 par value ("Common Stock"), of the
Company at the Conversion Price (as defined below). The minimum principal amount
of each conversion shall be $10,000 or, if the outstanding principal amount of
this Debenture is less than $10,000, the outstanding principal balance of this
Debenture.

                (ii) On the Maturity Date the Company shall pay the principal
and accrued interest (through the actual date of payment) of any portion of this
Debenture which is then outstanding.

                (iii) For purposes of this Debenture, the following terms shall
have the meanings indicated below:

         "Commencement Date" means the earlier of (x) the date which is
         sixty-five (65) days after the Issue Date, or (y) the Effective Date.

         "Conversion Price" means the lower of (x) the Variable Conversion Price
         or (y) the Lowest Fixed Conversion Price (each of which amount is
         subject to adjustment as provided herein).

         "Variable Conversion Price" means the amount equal to (x) the VWAP for
         the twenty (20) Regular Trading Days ending on the Trading Day
         immediately preceding the relevant Conversion Date, multiplied by (y)
         (1) one hundred percent (100%), less (2) the Effective Percentage.

         "VWAP" means the volume weighted average price of the Common Stock on
         the Principal Trading Market for the relevant Regular Trading Day(s),
         as reported by the Reporting Service.

         "Reporting Service" means Bloomberg LP or if that service is not then
         reporting the relevant information regarding the Common Stock, a
         comparable reporting service of national reputation selected by a
         Majority in Interest of the Holders and reasonably acceptable to the
         Company.

                                       3
<PAGE>

         "Effective Percentage" means thirty percent (30%), which percentage is
         subject to increase under certain conditions as contemplated in the
         Securities Purchase Agreement.

         "Lowest Fixed Conversion Price" means the lowest New Transaction Price
         from any New Transaction (as those terms are defined in the Securities
         Purchase Agreement) (which amount, if any, is subject to subsequent
         adjustment as provided herein).

        B. Conversion shall be effectuated by faxing a Notice of Conversion (as
defined below) to the Company as provided in this paragraph. The Notice of
Conversion shall be executed by the Holder of this Debenture and shall evidence
such Holder's intention to convert this Debenture or a specified portion hereof
in the form annexed hereto as Exhibit A. If paid in Common Stock as contemplated
hereby, interest accrued or accruing from the Issue Date to the relevant
Interest Payment Date and not previously paid shall be paid in Common Stock at
the Conversion Price applicable as of such Interest Payment Date. No fractional
shares of Common Stock or scrip representing fractions of shares will be issued
on conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The date on which notice of conversion is given (the "Conversion
Date") shall be deemed to be the date on which the Holder faxes or otherwise
delivers the conversion notice ("Notice of Conversion") to the Company so that
it is received by the Company on or before such specified date, provided that,
if such conversion would convert the entire remaining principal of this
Debenture, the Holder shall deliver to the Company the original Debentures being
converted no later than five (5) Trading Days thereafter. Delivery of the Notice
of Conversion shall be accepted by the Company by hand, mail or courier delivery
at the address specified in said Exhibit A or at the facsimile number specified
in said Exhibit A (each of such address or facsimile number may be changed by
notice given to the Holder in the manner provided in the Securities Purchase
Agreement). Certificates representing Common Stock upon conversion ("Conversion
Certificates") will be delivered to the Holder at the address specified in the
Notice of Conversion (which may be the Holder's address for notices as
contemplated by the Securities Purchase Agreement or a different address), via
express courier, by electronic transfer or otherwise, within three (3) Trading
Days (such third Trading Day, the "Delivery Date") after the relevant Conversion
Date and, if interest is paid by Common Stock with respect to any other Interest
Payment Date, the Interest Payment Date. The Holder shall be deemed to be the
holder of the shares issuable to it in accordance with the provisions of this
Section 4(B) on the Conversion Date.

        C. Notwithstanding any other provision hereof or of any of the other
Transaction Agreements, in no event (except (i) as specifically provided herein
as an exception to this provision, or (ii) while there is outstanding a tender
offer for any or all of the shares of the Company's Common Stock) shall the
Holder be entitled to convert any portion of this Debenture, or shall the
Company have the obligation to convert such Debenture (and the Company shall not
have the right to pay interest hereon in shares of Common Stock) to the extent
that, after such conversion or issuance of stock in payment of interest, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures or other convertible securities or of the unexercised portion of
warrants or other rights to purchase Common Stock), and (2) the number of shares
of Common Stock issuable upon the conversion of

                                       4
<PAGE>

the Debentures with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock (after taking into
account the shares to be issued to the Holder upon such conversion). For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, except as otherwise provided in clause (1) of
such sentence. The Holder, by its acceptance of this Debenture, further agrees
that if the Holder transfers or assigns any of the Debentures to a party who or
which would not be considered such an affiliate, such assignment shall be made
subject to the transferee's or assignee's specific agreement to be bound by the
provisions of this Section 4(C) as if such transferee or assignee were the
original Holder hereof. Nothing herein shall preclude the Holder from disposing
of a sufficient number of other shares of Common Stock beneficially owned by the
Holder so as to thereafter permit the continued conversion of this Debenture.

        D. (i) Subject to the terms of Section 4(C) and to the other terms of
this Section 4(D), interest on the principal amount of this Debenture converted
pursuant to a Notice of Conversion shall be due and payable, at the option of
the Company, in cash or Common Stock on the Interest Payment Date.

                (ii) If the interest is to be paid in cash, the Company shall
make such payment within three (3) Trading Days of the Interest Payment Date. If
the interest is not paid by such third Trading Day, the interest must be paid in
Common Stock in accordance with the provisions of this Section 4(D), unless the
Holder consents otherwise in each specific instance.

                (iii) If interest is to be paid in Common Stock (whether at the
election of the Company or as required hereunder), the number of shares of
Common Stock to be received shall be determined by dividing the dollar amount of
the interest by the Conversion Price in effect on the relevant Interest Payment
Date. In such event, the Common Stock shall be delivered to the Holder, or per
Holder's instructions, (i) if being issued in connection with a conversion of
this Debenture, on the Delivery Date for the related Conversion Certificates
pursuant to the preceding provisions of this Section 4 (such date, a "Delivery
Date"), and (ii) with respect to all other instances, within five (5) Trading
Days after the Interest Payment Date (such fifth Trading Day, a "Delivery
Date"), with the shares issuable then based on the cumulative accrued interest
through such effective date.

                (iv) If not paid in full on an Interest Payment Date, interest
shall be fully cumulative and shall accrue on a daily basis, based on a 365-day
year, semi-annually or until paid, whichever is earlier.

        E. Reference is made to the provisions of Section 4(g) of the Securities
Purchase Agreement, the terms of which are incorporated herein by reference. The
Conversion Price and other provisions of this Debenture shall be adjusted as
provided in the applicable provisions of said Section 4(g) of the Securities
Purchase Agreement.

        F. (i) Anything in the other provisions of this Debenture or any of the
other Transaction Agreements to the contrary notwithstanding, the Company shall
have the right to prepay

                                       5
<PAGE>

the outstanding principal of this Debenture, together with all accrued interest
thereon, in whole or in part, on the terms and conditions provided in this
Section 4(F). If the Company elects to make such a prepayment, the Company shall
give the Holder a written notice (the "Prepayment Notice") of its election to
prepay all or a portion of then outstanding Debenture. The prepayment amount
shall be equal to one hundred twenty percent (120%) of the sum of (x) the
principal of this Debenture being prepaid, plus (y) accrued interest thereon
through the Prepayment Date. Additional terms regarding this prepayment right
are provided below. The Company's rights under this Section 4(F) may only be
exercised if the Registration Statement is effective on the date the Prepayment
Notice is given and on each Trading Day thereafter through and including the
Prepayment Date.

                (ii) The Prepayment Notice shall specify (x) the principal
amount of the Debenture being prepaid by the Company (the "Prepayment Principal
Amount"), (y) the date (the "Prepayment Date"), which shall be not less than ten
(10) Trading Days after the Prepayment Notice is received by the Holder, on
which such prepayment will be made, and (z) identify the bank (the "Prepayment
Bank") where the Prepayment Funds (as defined below) have been deposited. The
Prepayment Notice shall be accompanied by the Prepayment Bank's confirmation to
the Holder that funds (the "Prepayment Funds") equal to the Prepayment Principal
Amount plus all accrued but unpaid interest thereon through the Prepayment Date
have been deposited with the Prepayment Bank and instructions for the method by
which the Holder can provide instructions to the Prepayment Bank to make payment
of the Prepayment Funds to the Holder (such payment to made by check or wire, as
specified by the Holder) on the Prepayment Date.

                (iii) Even after the issuance of a Prepayment Notice, the Holder
may continue to convert this Debenture as provided in the other provisions of
this Debenture until this Debenture is paid in full. If the Holder converts any
portion of this Debenture after the date of the Prepayment Notice and prior to
the payment of the Prepayment Funds to the Holder (the "Prepayment Conversion
Period"), so that the then outstanding principal of this Debenture is less than
the Prepayment Principal Amount, the Holder shall notify the Prepayment Bank of
the then outstanding principal of this Debenture; provided, however, if the
Prepayment Principal Amount is less than the principal of the then Unconverted
Debenture, any such conversions made during the Prepayment Conversion Period
shall be deemed made in the following order of priority: (x) first, out of
principal of the Unconverted Debenture in excess of the Prepayment Principal
Amount, and (y) then, out of the Prepayment Principal Amount. To the extent that
any conversions made during the Prepayment Conversion Period are deemed made out
of the Prepayment Principal Amount, the Prepayment Funds will then be adjusted
to and be deemed to be equal such outstanding principal plus all accrued but
unpaid interest thereon through the Prepayment Date.

                (iv) If the Prepayment Funds are not timely paid or made
available to the Holder, the Holder will have the option, exercisable at any
time prior to the actual payment of the Prepayment Funds (together with any
additional interest accruing on the Prepayment Principal Amount after the
Prepayment Date) to effect either or both of the following actions: (x)
cancellation, ab initio, of the prepayment contemplated by the Prepayment Notice
and (y) cancellation of the Company's prepayment right under this Section 4(F).

                                       6
<PAGE>

        5. A. Subject to the terms of the Securities Purchase Agreement, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin or currency or,
where contemplated herein, in shares of its Common Stock, as applicable, as
herein prescribed. This Debenture and all other Debentures now or hereafter
issued of similar terms are direct obligations of the Company.

        B. Payment of this Debenture is secured pursuant to the terms of the
Security Interest Agreement, dated as of March 6, 2006 (the "Security Interest
Agreement") executed by the Company, as debtor, in favor of the Buyer and the
Other Buyers, as secured parties. The terms of the Security Interest Agreement
are incorporated herein by reference.

        6. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.

        7. All payments contemplated hereby to be made "in cash" shall be made
in immediately available good funds of United States of America currency by wire
transfer to an account designated in writing by the Holder to the Company (which
account may be changed by notice similarly given). All payments of cash and each
delivery of shares of Common Stock issuable to the Holder as contemplated hereby
shall be made to the Holder at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder from time to
time; except that the Holder can designate, by notice to the Company, a
different delivery address for any one or more specific payments or deliveries.

        8. If, for as long as this Debenture remains outstanding, the Company
enters into a merger (other than where the Company is the surviving entity) or
consolidation with another corporation or other entity or a sale or transfer of
all or substantially all of the assets of the Company to another person
(collectively, a "Sale"), the Company will require, in the agreements reflecting
such transaction, that the surviving entity expressly assume the obligations of
the Company hereunder. Notwithstanding the foregoing, if the Company enters into
a Sale and the holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common Stock, then as a
condition of such Sale, the Company and any such successor, purchaser or
transferee will agree that the Debenture may thereafter be converted on the
terms and subject to the conditions set forth above into the kind and amount of
stock, securities or property receivable upon such merger, consolidation, sale
or transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable. In the event of any such proposed Sale, (i)
the Holder hereof shall have the right to convert by delivering a Notice of
Conversion to the Company within fifteen (15) days of receipt of notice of such
Sale from the Company, except that Section 4(C) shall not apply to such
conversion.

                                       7
<PAGE>

        9. If, at any time while any portion of this Debenture remains
outstanding, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes of all or of a part of its assets in a
transaction (the "Spin Off") in which the Company, in addition to or in lieu of
any other compensation received and retained by the Company for such business,
operations or assets, causes securities of another entity (the "Spin Off
Securities") to be issued to security holders of the Company, the Company shall
cause (i) to be reserved Spin Off Securities equal to the number thereof which
would have been issued to the Holder had all of the Holder's Debentures
outstanding on the record date (the "Record Date") for determining the amount
and number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Debentures") been converted as of the close of
business on the Trading Day immediately before the Record Date (the "Reserved
Spin Off Shares"), and (ii) to be issued to the Holder on the conversion of all
or any of the Outstanding Debentures, such amount of the Reserved Spin Off
Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction,
of which (I) the numerator is the principal amount of the Outstanding Debentures
then being converted, and (II) the denominator is the principal amount of the
Outstanding Debentures.

        10. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Conversion Price or the Lowest Fixed Conversion Price, if any,
and any other fixed amounts calculated as contemplated hereby or by any of the
other Transaction Agreements shall be equitably adjusted to reflect such action.
By way of illustration, and not in limitation, of the foregoing, (i) if the
Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to
any conversion for which the Company issues shares after the record date of such
split, the Lowest Fixed Conversion Price, if any, shall be deemed to be one-half
of what it had been immediately prior to such split; (ii) if the Company
effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect
to any conversion for which the Company issues shares after the record date of
such reverse split, the Lowest Fixed Conversion Price shall be deemed to be ten
times what it had been calculated to be immediately prior to such split; and
(iii) if the Company declares a stock dividend of one share of Common Stock for
every 10 shares outstanding, thereafter, with respect to any conversion for
which the Company issues shares after the record date of such dividend, the
Conversion Price (whether or not based on a Lowest Fixed Conversion Price) shall
be deemed to be such amount multiplied by a fraction, of which the numerator is
the number of shares (10 in the example) for which a dividend share will be
issued and the denominator is such number of shares plus the dividend share(s)
issuable or issued thereon (11 in the example).

        11. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.

        12. This Debenture shall be governed by and construed in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the exclusive

                                       8
<PAGE>

jurisdiction of the federal courts whose districts encompass any part of the
County of New York or the state courts of the State of New York sitting in the
County of New York in connection with any dispute arising under this Debenture
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on FORUM NON COVENIENS, to the bringing of any
such proceeding in such jurisdictions. To the extent determined by such court,
the Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Debenture.

        13. JURY TRIAL WAIVER. The Company and the Holder hereby waive a trial
by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out of or in
connection with this Debenture.

        14. (i) Prior to the Maturity Date, the following shall constitute an
"Event of Default":

                a.      The Company shall default in the payment of principal or
                        interest on this Debenture or any other Debenture in
                        this Series or any other amount due hereunder or
                        thereunder, and, (i) with respect to a payment of
                        interest on a Scheduled Interest Payment Date, such
                        default shall continue for a period of five (5) Trading
                        Days after the Holder gives the Company's written notice
                        thereof, and (ii) in all other instances, such default
                        shall continue for a period of five (5) Trading Days; or

                b.      Any of the representations or warranties made by the
                        Company herein, in the Securities Purchase Agreement or
                        any of the other Transaction Agreements or in any
                        certificate or financial or other written statements
                        heretofore or hereafter furnished by the Company in
                        connection with the execution and delivery of this
                        Debenture or the Securities Purchase Agreement shall be
                        false or misleading in any material respect at the time
                        made; or

                c.      Subject to the terms of the Securities Purchase
                        Agreement, the Company fails to authorize or to cause
                        its Transfer Agent to issue shares of Common Stock upon
                        exercise by the Holder of the conversion rights of the
                        Holder in accordance with the terms of this Debenture
                        (provided, however, that for purposes of this provision,
                        such failure to cause the Transfer Agent to issue such
                        shares shall not be deemed to occur until two (2)
                        Trading Days after the Delivery Date), fails to transfer
                        or to cause its Transfer Agent to transfer any
                        certificate for shares of Common Stock issued to the
                        Holder upon conversion of this Debenture and when
                        required by this Debenture or any other Transaction
                        Agreement, and such transfer is otherwise lawful, or
                        fails to remove any restrictive legend on any
                        certificate or fails to cause its Transfer Agent to
                        remove such restricted legend, in each case where such
                        removal is lawful, as and when required by this
                        Debenture, or any other Transaction Agreement, and any
                        such failure shall continue uncured for ten (10) Trading
                        Days; or

                                        9

<PAGE>

                d.      The Company shall fail to perform or observe, in any
                        material respect, any other covenant, term, provision,
                        condition, agreement or obligation of any Debenture in
                        this series and such failure shall continue uncured for
                        a period of thirty (30) days after the Company's receipt
                        written notice from the Holder of such failure; or

                e.      The Company shall fail to perform or observe, in any
                        material respect, any covenant, term, provision,
                        condition, agreement or obligation of the Company under
                        any of the Transaction Agreements and such failure, if
                        capable of being cured, shall continue uncured for a
                        period of thirty (30) days after the Holder gives the
                        Company written notice thereof (but if not capable of
                        being cured, such thirty day period shall be deemed
                        expired immediately upon the giving of such notice); or

                f.      The Company shall (1) admit in writing its inability to
                        pay its debts generally as they mature; (2) make an
                        assignment for the benefit of creditors or commence
                        proceedings for its dissolution; or (3) apply for or
                        consent to the appointment of a trustee, liquidator or
                        receiver for its or for a substantial part of its
                        property or business; or

                g.      A trustee, liquidator or receiver shall be appointed for
                        the Company or for a substantial part of its property or
                        business without its consent and shall not be discharged
                        within sixty (60) days after such appointment; or

                h.      Any governmental agency or any court of competent
                        jurisdiction at the instance of any governmental agency
                        shall assume custody or control of the whole or any
                        substantial portion of the properties or assets of the
                        Company and shall not be dismissed within sixty (60)
                        days thereafter; or

                i.      Any money judgment, writ or warrant of attachment, or
                        similar process in excess of Five Hundred Thousand
                        ($500,000) Dollars in the aggregate shall be entered or
                        filed against the Company or any of its properties or
                        other assets and shall remain unpaid, unvacated,
                        unbonded or unstayed for a period of forty-five (45)
                        days or in any event later than five (5) days prior to
                        the date of any proposed sale thereunder; or

                j.      Bankruptcy, reorganization, insolvency or liquidation
                        proceedings or other proceedings for relief under any
                        bankruptcy law or any law for the relief of debtors
                        shall be instituted by or against the Company and, if
                        instituted against the Company, shall not be dismissed
                        within sixty (60) days after such institution or the
                        Company shall by any action or answer approve of,
                        consent to, or acquiesce in any such proceedings or
                        admit the material allegations of, or default in
                        answering a petition filed in any such proceeding; or

                                      10
<PAGE>

                k.      The Company shall have its Common Stock suspended from
                        trading on, or delisted from, the Principal Trading
                        Market for in excess of five (5) Trading Days.

                (ii)    After the Maturity Date, the term "Event of Default"
                        shall mean:

                a.      The Company shall default in the payment of principal or
                        interest on this Debenture or any other amount due
                        hereunder, and, in any such instance, the same shall
                        continue for a period of five (5) Trading Days; or

                b.      Subject to the terms of the Securities Purchase
                        Agreement, the Company fails to authorize or to cause
                        its Transfer Agent to issue shares of Common Stock upon
                        exercise by the Holder of the conversion rights of the
                        Holder in accordance with the terms of this Debenture
                        (provided, however, that for purposes of this provision,
                        such failure to cause the Transfer Agent to issue such
                        shares shall not be deemed to occur until two (2)
                        Trading Days after the Delivery Date), fails to transfer
                        or to cause its Transfer Agent to transfer any
                        certificate for shares of Common Stock issued to the
                        Holder upon conversion of this Debenture and when
                        required by this Debenture or any other Transaction
                        Agreement, and such transfer is otherwise lawful, or
                        fails to remove any restrictive legend on any
                        certificate or fails to cause its Transfer Agent to
                        remove such restricted legend, in each case where such
                        removal is lawful, as and when required by this
                        Debenture, or any other Transaction Agreement, and any
                        such failure shall continue uncured for ten (10) Trading
                        Days.

                (iii) If an Event of Default shall have occurred and is
continuing, then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been cured or waived in writing by the
Holder (which waiver shall not be deemed to be a waiver of any subsequent
default), at the option of the Holder and in the Holder's sole discretion, the
Holder may elect to redeem all or part of the Unconverted Debenture (as defined
below) on the terms provided in Section 15 hereof.

        15. A. The Company acknowledges that if there is an Event of Default,
the Holder may require the Company to immediately redeem all or any part of the
outstanding portion of this Debenture for an amount equal to the Redemption
Amount (as defined below).

                B. For purposes of this Debenture, the following terms shall
have the meanings indicated below:

         "Unconverted Debenture" means the principal amount of this Debenture
         which has not been converted as of the relevant date.

         "Redemption Payment Date" means the date on which the Company actually
         pays the Redemption Amount.

                                       11
<PAGE>

         "Redemption Amount" means the amount equal to:

                      V                              x           M
                  --------
                     CP

                  where:

                        "V" means the principal of an Unconverted Debenture plus
                any accrued but unpaid interest thereon;

                        "CP" means the Conversion Price in effect on the the
                Redemption Notice Date (as defined below); and

                        "M" means the highest closing price per share of the
                Common Stock during the period beginning on the Redemption
                Notice Date and ending on the Redemption Payment Date.

        C. The Holder of an Unconverted Debenture may elect to redeem a portion
of such Unconverted Debenture without electing to redeem the balance of the
Unconverted Debenture. The Holder's option to redeem all or part of the
Unconverted Debenture shall be exercised by the Holder giving written notice of
the exercise of this provision by the Holder (a "Redemption Notice") at any time
after a relevant Event of Default has occurred. The Redemption Notice shall
specify (a) the date (the "Redemption Due Date") on which the Redemption Amount
shall be paid, which date shall be at least five (5) Trading Days after the date
(a "Redemption Notice Date") on which the Holder Redemption Notice is given, and
(b) the wire instructions for the account to which the Redemption Amount is to
be paid; provided, however, that the Company shall have the right to accelerate
the date of such payment.

        D. If all of the Unconverted Debentures are being redeemed pursuant to
this Section 5, then, upon payment in full of the Redemption Amount for all of
the Unconverted Debentures in accordance with the provisions of this Section 5,
the Holder shall deliver the Debenture to the Company marked "paid in full".

        E. If the Redemption Amount is not timely paid by the Company, the
Holder may declare the Redemption Amount due under this Debenture immediately
due and payable, without presentment, demand, protest or notice of any kinds,
all of which are hereby expressly waived, anything herein or in any note or
other instruments contained to the contrary notwithstanding, and the Holder may
immediately enforce any and all of the Holder's rights and remedies provided
herein or any other rights or remedies afforded by law, including, but not
necessarily limited to, the equitable remedy of specific performance and
injunctive relief. If such outstanding amount is not timely paid in full by the
Company, the unpaid amount computed as of such date will bear interest at the
rate of eighteen percent (18%) or the highest rate allowed by law, whichever is
lower, from the date of the Event of Default until and including the date
actually paid. Any partial payments shall be applied first to all accrued
interest and then to principal.

                                       12
<PAGE>

        16. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.

        17. Any notice required or permitted hereunder shall be given in manner
provided in the Section headed "NOTICES" in the Securities Purchase Agreement,
the terms of which are incorporated herein by reference.

                      [Balance of page intentionally blank]

                                       13

<PAGE>

        18. In the event for any reason, any payment by or act of the Company or
the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then IPSO FACTO the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section or
otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section shall control every other provision
of this Debenture.

        IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.

Dated: ___________________, 200_

                                          RIM SEMICONDUCTOR COMPANY

                                          By: __________________________________

                                          ______________________________________
                                          (Print Name)

                                          ______________________________________
                                          (Title)

<PAGE>

                                    EXHIBIT A
                            RIM SEMICONDUCTOR COMPANY

                              NOTICE OF CONVERSION
                                       OF
                     7% SENIOR SECURED CONVERTIBLE DEBENTURE
                            SERIES 06-01 C DUE 1200 -
   (To be Executed by the Registered Holder in Order to Convert the Debenture)

TO: RIM SEMICONDUCTOR COMPANY                           VIA FAX: (503) 257-6622
    305 NE 102nd Ave., Suite 105
    Portland, OR 97220
    Attn: President

FROM:  ______________________________________________________________("Holder")

DATE: _________________________________________________ (the "Conversion Date")

RE:     Conversion of $________________ principal amount (the "Converted
        Debenture") of the 7% Convertible Debenture Series 06-01 C-__
        Due__________, 200_ (the "Debenture") of RIM SEMICONDUCTOR COMPANY (the
        "Company") into _______________ shares (the "Conversion Shares") of
        Common Stock (defined below)

         The captioned Holder hereby gives notice to the Company, pursuant to
the Debenture of RIM SEMICONDUCTOR COMPANY that the Holder elects to convert the
Converted Debenture into fully paid and non-assessable shares of Common Stock,
$0.001 par value (the "Common Stock"), of the Company as of the Conversion Date
specified above. Said conversion shall be based on the following Conversion
Price

       [ ]      $___________, representing the Variable Conversion Price (as
                defined in the Debenture)

       [ ]      $___________, representing the Lowest Fixed Conversion Price (as
                defined in the Debenture)

       [ ]      $___________, representing the Lowest Fixed Conversion Price,
                adjusted in accordance with the provisions of the Debenture

                                       1

<PAGE>

Based on this Conversion Price, the number of Conversion Shares indicated above
should be issued in the following name(s):

            Name and Record Address                    Conversion Shares
            ________________________________           _________________
            ________________________________           _________________
            ________________________________           _________________

         It is the intention of the Holder to comply with the provisions of
Section 4(C) of the Debenture regarding certain limits on the Holder's right to
convert thereunder. Based on the analysis on the attached Worksheet Schedule,
the Holder believe this conversion complies with the provisions of said Section
4(C). Nonetheless, to the extent that, pursuant to the conversion effected
hereby, the Holder would have more shares than permitted under said Section,
this notice should be amended and revised, ab initio, to refer to the conversion
which would result in the issuance of shares consistent with such provision. Any
conversion above such amount is hereby deemed void and revoked.

         As contemplated by the Debenture, this Notice of Conversion is being
sent by facsimile to the telecopier number and officer indicated above.

         If this Notice of Conversion represents the full conversion of the
outstanding balance of the Converted Debenture, the Holder either (1) has
previously surrendered the Converted Debenture to the Company or (2) will
surrender (or cause to be surrendered) the Converted Debenture to the Company at
the address indicated above by express courier within five (5) Trading Days
after delivery or facsimile transmission of this Notice of Conversion.

         The certificates representing the Conversion Shares should be
transmitted by the Company to the Holder via express courier or by electronic
transfer within the time contemplated by the Debenture after receipt of this
Notice of Conversion (by facsimile transmission or otherwise) to:

          _____________________________
          _____________________________
          _____________________________

                                       2
<PAGE>

         As contemplated by the Debenture, the Company should also pay all
accrued but unpaid interest on the Converted Debenture to the Holder.

        --      If the Company elects to pay such interest in Common Stock, as
                contemplated by and subject to the provisions of the Debenture,
                such shares should be issued in the name of the Holder and
                delivered in the same manner as, and together with, the
                Conversion Shares.

        --      If the Company elects or is required to pay the dividends in
                cash, such payment should be made by wire transfer as
                follows:(9)

          _____________________________

          _____________________________

          _____________________________

                                            ____________________________________
                                                    (Print name of Holder)

                                            By: ________________________________
                                                (Signature of Authorized Person)

                                            ____________________________________
                                            (Printed Name and Title)

___________________

(9) Information should include the following:

         All Wires:
               (1) Bank Name
               (2) Bank Address (including street, city, state)
               (3) ABA or Wire Routing No.
               (4) Account Name
               (5) Account Number

         If Wire is going to International (Non-US) Bank, all of the above PLUS:
               (6) SWIFT Number

                                       3
<PAGE>

                              NOTICE OF CONVERSION
                               WORKSHEET SCHEDULE

1. Current Common Stock holdings of Holder and Affiliates            __________

2. Shares to be issued on current conversion(1)                      __________

3. Other shares to be issued on other current conversion(s) and
      other current exercise(s)                                      __________

4. Other shares eligible to be acquired within next 60 days
      without restriction                                            __________

5. Total [sum of Lines 1 through 4]                                  __________

6. Outstanding shares of Common Stock(2)                             __________

7. Adjustments to Outstanding

      a. Shares known to Holder as previously issued
          to Holder or others but not included in Line 6             __________
      b. Shares to be issued per Line(s) 2 and 3                     __________
      c. Total Adjustments [Lines 7a and 7b]                         __________

8. Total Adjusted Outstanding [Lines 6 plus 7c]                      __________

9. Holder's Percentage [Line 5 divided by Line 8]                    __________%

[Note: Line 9 not to be above 4.99%]

________________

(1) Includes conversion of principal and assumes interest will be paid in Common
Stock at the Conversion Price.

(2) Based on latest SEC filing by Company or information provided by executive
officer of Company, counsel to Company or transfer agent.

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