Document:

Exhibit 10.1

 

EXECUTION COPY       

 

REGISTRATION RIGHTS AGREEMENT

 

THIS
REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered into as of April 9,
2009, by and among Deerfield Capital Corp., a Maryland corporation (the “Company “), and
Pegasus Deerfield (AIV), LLC (the “Investor “).

 

WHEREAS,
the Investor and the Company desire to enter into this Agreement to provide for
certain rights relating to the registration of shares of Common Stock;

 

NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1.               DEFINITIONS.  The following capitalized terms used herein
have the following meanings:

 

“Agreement” means this
Agreement, as amended, restated, supplemented, or otherwise modified from time
to time in accordance with its terms.

 

“Commission” means the
Securities and Exchange Commission, or any other federal agency then
administering the Securities Act or the Exchange Act.

 

“Common Stock” means
the common stock, par value $0.001 per share, of the Company.

 

“Company” is defined
in the preamble to this Agreement.

 

“Demand Registration”
is defined in Section 2.1.1.

 

“Demanding Holder” is
defined in Section 2.1.1.

 

“Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission promulgated thereunder, all as the same shall be
in effect at the time.

 

“Form S-3” is
defined in Section 2.3.

 

“Form S-3 Registration”
is defined in Section 2.3.

 

“Indemnified Party” is
defined in Section 4.3.

 

“Indemnifying Party”
is defined in Section 4.3.

 

“Investor” is defined
in the preamble to this Agreement.

 

“Investor Indemnified Party”
is defined in Section 4.1.

 

“Investor Parties”
means, collectively, the Investor and the transferees of the Investor to whom
rights and obligations under this Agreement are assigned by the Investor in
accordance with Section 6.2.

 

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“Majority-in-Interest”
is defined in Section 2.1.1.

 

“Maximum Number of Securities”
is defined in Section 2.1.4.

 

“Person” means an
individual or a corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind.

 

“Piggy-Back Registration”
is defined in Section 2.2.1.

 

“Pro Rata” is defined
in Section 2.1.3.

 

“Register,” “Registered” and “Registration” mean a
registration effected by preparing and filing a Registration Statement or
similar document in compliance with the requirements of the Securities Act, and
the applicable rules and regulations promulgated thereunder, and such
Registration Statement becoming effective.

 

“Registrable Securities”
means (i) all of the shares of Common Stock, and the shares of Common
Stock issuable pursuant to the exercise of a Warrant, owned or held by the
Investor Parties, and (ii) any shares of capital stock or other securities
of the Company issued as a dividend or other distribution with respect to or in
exchange for or in replacement of any of the Registrable Securities described
in (i) above; provided, however, that, as to any particular
Registrable Securities, such securities shall cease to be Registrable
Securities when: (a) a Registration Statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been sold, transferred, disposed of or exchanged pursuant
to such Registration Statement; (b) such securities shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not require registration under the
Securities Act; (c) such securities shall have ceased to be outstanding,
or (d) such securities are saleable under Rule 144 of the Securities
Act without regard to any volume limitation requirements under Rule 144 of
the Securities Act.

 

“Registration Statement”
means a registration statement filed by the Company with the Commission in
compliance with the Securities Act and the rules and regulations
promulgated thereunder for a public offering and sale of Registrable Securities
(other than a registration statement on Form S-4 or Form S-8, or
their successors, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another entity).

 

“Securities Act” means
the Securities Act of 1933, as amended, or any successor act, and the rules and
regulations of the Commission promulgated thereunder, all as the same shall be
in effect at the time.

 

“Underwriter” means a
securities dealer who purchases any Registrable Securities as principal in an
underwritten offering and not as part of such dealer’s market-making
activities.

 

“Warrant A” means the
warrant exercisable for 2,500,000 shares of Common Stock at a price per share
of $4.25 held by the Investor and issued on April 9, 2009.

 

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“Warrant B” means the
warrant exercisable for 500,000 shares of Common Stock at a price per share of
$10.00 held by the Investor and issued on April 9, 2009.

 

“Warrant” or “Warrants” means,
respectively, Warrant A or Warrant B as the context requires, and Warrant A and
Warrant B together.

 

2.               REGISTRATION
RIGHTS.

 

2.1 Demand Registration.

 

2.1.1 Request for Registration.  At any time and from time to time, the
holders of a majority-in-interest of the Registrable Securities held by the
Investor Parties in respect of a Warrant (determined on a fully diluted basis,
and assuming the issuance of all Registrable Securities underlying such
Warrant, the “Majority-in-Interest
“), may make a written demand for registration under the Securities Act of all
or part of their Registrable Securities (a “Demand Registration “).  Any such demand for a Demand Registration
shall specify the number of shares of Registrable Securities proposed to be
sold and the intended method(s) of distribution thereof.  The Company shall promptly notify all
Investor Parties holding Registrable Securities of such demand, and each
Investor Party who wishes to include all or a portion of such Investor Party’s
Registrable Securities in the Demand Registration (each such Investor Party
including Registrable Securities in such registration, a “Demanding Holder “)
shall so notify the Company within fifteen (15) days after the receipt by
the Investor Party of the notice from the Company.  Upon any such request, the Demanding Holders
shall be entitled to have their Registrable Securities included in the Demand
Registration, subject to Section 2.1.4 and the provisos set forth in Section 3.1.1.  The Company shall not be obligated to effect
more than two (2) Demand Registrations under this Section 2.1.1 in
respect of the Registrable Securities underlying each Warrant (i.e., an aggregate of four (4) Demand
Registrations in total); provided, however,
that the Company shall not be obligated to cause the Registration Statement
with respect to any such Demand Registration to become effective at any time
prior to the date that is two years following the Initial Closing Date (as
defined in the Warrants).

 

2.1.2 Effective Registration.  A registration will not count as a Demand
Registration until the Registration Statement filed with the Commission with
respect to such Demand Registration registering all of the Registrable
Securities specified in the notice received pursuant to Section 2.1.1,
determined on the basis described in Section 2.1.1, has been declared
effective and the Company has complied with all of its obligations under this
Agreement with respect thereto;  provided,  however,
that if, after such Registration Statement has been declared effective, the
offering of Registrable Securities pursuant to a Demand Registration is
interfered with by any stop order or injunction of the Commission or any other
governmental agency or court, the Registration Statement with respect to such
Demand Registration will be deemed not to have been declared effective, unless
and until, (i) such stop order or injunction is removed, rescinded or
otherwise terminated, and (ii) a Majority-in-Interest of the Demanding
Holders thereafter elects to continue the offering.

 

2.1.3 Reduction of Offering.  If the Company chooses to engage in an
underwritten public offering of a Demand Registration and if the managing
Underwriter or Underwriters for a Demand Registration that is to be an
underwritten offering advises the Company and the

 

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Demanding
Holders in writing that the dollar amount or number of Registrable Securities
which the Demanding Holders desire to sell, taken together with all other
shares of Common Stock or other securities which the Company desires to sell
and the shares of Common Stock or other securities, if any, as to which
registration has been requested pursuant to written contractual piggy-back
registration rights held by other stockholders of the Company who desire to
sell, exceeds the maximum dollar amount or maximum number of securities that
can be sold in such offering without adversely affecting the proposed offering
price, the timing, the distribution method, or the probability of success of
such offering (such maximum dollar amount or maximum number of securities, as
applicable, the “Maximum
Number of Securities “), then the Company shall include in such
registration: (i) first, the Registrable Securities as to which Demand
Registration has been requested by the Demanding Holders and the Registrable
Securities, if any, as to which a Piggy- Back Registration has been requested
by Investor Parties pursuant to Section 2.2.1 (pro rata in accordance with
the number of securities that each such Person has requested be included in
such registration, regardless of the number of securities held by each such
Person (such proportion is referred to herein as “Pro Rata “)) that can be sold without
exceeding the Maximum Number of Securities; (ii) second, to the extent
that the Maximum Number of Securities has not been reached under the foregoing
clause (i), the shares of Common Stock or other securities that the Company
desires to sell that can be sold without exceeding the Maximum Number of Securities;
(iii) third, to the extent that the Maximum Number of Securities has not
been reached under the foregoing clauses (i) and (ii), the shares of
Common Stock or other securities for the account of other Persons that the
Company is obligated to register pursuant to written contractual arrangements
with such Persons and that can be sold without exceeding the Maximum Number of
Securities.

 

2.1.4 Withdrawal.  If a Majority-in-Interest of the Demanding
Holders disapproves of the terms of any underwriting or are not entitled to
include all of their Registrable Securities in any offering, such
Majority-in-Interest of the Demanding Holders may elect to withdraw from such
offering by giving written notice to the Company and the Underwriter or
Underwriters of their request to withdraw prior to the effectiveness of the
Registration Statement filed with the Commission with respect to such Demand
Registration.  If the
Majority-in-Interest of the Demanding Holders withdraws from a proposed
offering relating to a Demand Registration, then such registration shall not
count as a Demand Registration provided for in Section 2.1.1.
Notwithstanding any such withdrawal, the Company shall pay all expenses
incurred by the holders of Registrable Securities in connection with such Demand
Registration or proposed offering as provided in Section 3.3.

 

2.2         Piggy-Back
Registration.

 

2.2.1 Piggy-Back Rights.  If at any time the Company proposes to file a
Registration Statement under the Securities Act with respect to an offering of
equity securities, or securities or other obligations exercisable or
exchangeable for, or convertible into, equity securities, by the Company for
its own account or for stockholders of the Company for their account (or by the
Company and by stockholders of the Company including, without limitation,
pursuant to Section 2.1 or 2.3), other than a Registration Statement (i) filed
in connection with any employee stock option or other benefit plan, (ii) for
an exchange offer or offering of securities solely to the Company’s existing
stockholders, (iii) for an offering of debt that is convertible into
equity securities of the Company, or (iv) for a dividend reinvestment
plan, then the Company shall

 

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(x) give
written notice of such proposed filing to the holders of all Registrable
Securities as soon as practicable but in no event less than ten (10) days
before the anticipated filing date, which notice shall describe the amount and
type of securities to be included in such offering, the intended method(s) of
distribution, and the name of the proposed managing Underwriter or
Underwriters, if any, of the offering, and (y) offer to the holders of all
Registrable Securities in such notice the opportunity to register the sale of such
number of Registrable Securities as such holders may request in writing within
ten (10) days following receipt of such notice (a “Piggy-Back Registration
“).  The Company shall cause such
Registrable Securities to be included in such registration and shall use its
reasonable best efforts to cause the managing Underwriter or Underwriters of a
proposed underwritten offering to permit the Registrable Securities requested
to be included in a Piggy-Back Registration on the same terms and conditions as
any similar securities of the Company and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method(s) of distribution thereof. 
All holders of Registrable Securities proposing to distribute their
securities through a Piggy-Back Registration that involves an Underwriter or
Underwriters shall enter into an underwriting agreement in customary form with
the Underwriter or Underwriters selected for such Piggy-Back Registration.

 

2.2.2 Reduction of Offering.  If the managing Underwriter or Underwriters
for a Piggy-Back Registration that is to be an underwritten offering advises
the Company and the holders of Registrable Securities in writing that the
dollar amount or number of securities which the Company desires to sell, taken
together with shares of Common Stock or other securities, if any, as to which
registration has been demanded pursuant to written contractual arrangements
with Persons other than the holders of Registrable Securities hereunder, the
Registrable Securities as to which registration has been requested under this Section 2.2,
and the shares of Common Stock or other securities, if any, as to which
registration has been requested pursuant to the written contractual piggy-back
registration rights of other stockholders of the Company, exceeds the Maximum
Number of Securities, then the Company shall include in any such registration:

 

i.  If the Registration is a
Demand Registration or a Form S-3 Registration, the provisions of Section 2.1.3
shall apply and references to Demand Registration in Section 2.1.3 shall
be deemed to refer to a Form S-3 Registration as required;

 

ii.  If the registration is
undertaken for the Company’s account: (A) first, the shares of Common
Stock or other securities that the Company desires to sell that can be sold
without exceeding the Maximum Number of Securities; (B) second, to the
extent that the Maximum Number of Securities has not been reached under the
foregoing clause (A), the shares of Common Stock or other securities, if any,
that are Registrable Securities, as to which registration has been requested
pursuant to the applicable written contractual piggy-back registration rights
of such security holders, Pro Rata, that can be sold without exceeding the
Maximum Number of Securities; and (C) third, to the extent that the
Maximum Number of Securities has not been reached under the foregoing clauses (A) and
(B), the shares of Common Stock or other securities for the account of other
Persons that the Company is obligated to register pursuant to written
contractual piggy-back registration rights with such Persons and that can be
sold without exceeding the Maximum Number of Securities; and

 

iii.  If the registration is a “demand”
registration undertaken at the demand of Persons other than the holders of
Registrable Securities pursuant to written contractual arrangements with

 

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such
Persons, (A) first, the shares of Common Stock or other securities for the
account of the demanding Persons that can be sold without exceeding the Maximum
Number of Securities; (B) second, to the extent that the Maximum Number of
Securities has not been reached under the foregoing clause (A), the shares of
Common Stock or other securities comprised of Registrable Securities, Pro Rata,
as to which registration has been requested pursuant to the terms hereof, that
can be sold without exceeding the Maximum Number of Securities; (C) third,
to the extent that the Maximum Number of Securities has not been reached under
the foregoing clauses (A) and (B), the shares of Common Stock or other
securities that the Company desires to sell that can be sold without exceeding
the Maximum Number of Securities; and (D) fourth, to the extent that the
Maximum Number of Securities has not been reached under the foregoing clauses
(A), (B) and (C), the shares of Common Stock or other securities for the
account of other Persons that the Company is obligated to register pursuant to
written contractual arrangements with such Persons, that can be sold without
exceeding the Maximum Number of Securities.

 

2.2.3 Withdrawal.  Any holder of Registrable Securities may
elect to withdraw such holder’s request for inclusion of Registrable Securities
in any Piggy-Back Registration by giving written notice to the Company of such
request to withdraw prior to the effectiveness of the Registration
Statement.  The Company (whether on its
own determination or as the result of a withdrawal by Persons making a demand pursuant
to written contractual obligations) may withdraw a Registration Statement at
any time prior to the effectiveness of the Registration Statement.  Notwithstanding any such withdrawal, the
Company shall pay all expenses incurred by the holders of Registrable
Securities in connection with such Piggy-Back Registration as provided in Section 3.3.

 

2.3 Registrations on Form S-3.  Any Investor Party may at any time and from
time to time, request in writing that the Company register (a “Form S-3 Registration
“) the resale of any or all of such Investor Party’s Registrable Securities on Form S-3
or any similar short-form registration which may be available at such time (“Form S-3 “).  Upon receipt of such written request, the
Company will promptly give written notice of the proposed registration to all
other holders of Registrable Securities that are Investor Parties, and, as soon
as practicable thereafter, subject to the provisions on Section 2.2,
effect the registration of all or such portion of such holder’s or holders’
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities or other securities of the Company,
if any, of any other holder or holders that are Investor Parties joining in
such request as are specified in a written request given within fifteen
(15) days after receipt of such written notice from the Company;  provided,  however,
that the Company shall not be obligated to effect any such registration
pursuant to this Section 2.3 (i) if Form S-3 is not available
for such offering, (ii) if the holders of the Registrable Securities,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at any aggregate price to the public of less than
$500,000, or (iii) at any time prior to the date that is two years
following the Initial Closing Date (as defined in the Warrants).  Registrations effected pursuant to this Section 2.3
shall not be counted as Demand Registrations effected pursuant to Section 2.1.

 

3.               REGISTRATION
PROCEDURES.

 

3.1 Filings; Information.  Whenever the Company is required to effect
the registration of any

 

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Registrable
Securities pursuant to Section 2, the Company shall use its reasonable
best efforts to effect the registration and sale of such Registrable Securities
in accordance with the intended method(s) of distribution thereof as
expeditiously as practicable, and in connection with any such request:

 

3.1.1 Filing Registration Statement.  The Company shall, as expeditiously as
possible and in any event within forty-five (45) days after receipt of a
request for a Demand Registration pursuant to Section 2.1, prepare and
file with the Commission a Registration Statement on any form for which the
Company then qualifies or which counsel for the Company shall deem appropriate
and which form shall be available for the sale of all Registrable Securities to
be registered thereunder in accordance with the intended method(s) of
distribution thereof, and shall use its reasonable best efforts to cause such
Registration Statement to become and remain effective for the period required
by Section 3.1.3;  provided,  however,
that the Company shall have the right to defer any Demand Registration for up
to sixty (60) days, and any Piggy-Back Registration for such period as may
be applicable to deferment of any demand registration to which such Piggy-Back
Registration relates, in each case if the Company shall furnish to the holders
a certificate signed by the Chief Executive Officer or Chairman of the Board of
the Company stating that, in the good faith judgment of the Board of Directors
of the Company, it would be materially detrimental to the Company and its stockholders
for such Registration Statement to be effected at such time;  provided
further,  however, that the Company shall
not have the right to exercise the right set forth in the immediately preceding
proviso more than once in any 365-day period in respect of a Demand
Registration hereunder.

 

3.1.2 Copies.  The Company shall, prior to filing a
Registration Statement or prospectus, or any amendment or supplement thereto,
furnish without charge to the holders of Registrable Securities included in
such registration, and such holders’ legal counsel, copies of such Registration
Statement as proposed to be filed, each amendment and supplement to such
Registration Statement (in each case including all exhibits thereto and
documents incorporated by reference therein), the prospectus included in such
Registration Statement (including each preliminary prospectus), and such other
documents as the holders of Registrable Securities included in such
registration or legal counsel for any such holders may request in order to facilitate
the disposition of the Registrable Securities owned by such holders.

 

3.1.3 Amendments and Supplements.  The Company shall prepare and file with the
Commission such amendments, including post-effective amendments, and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective and in compliance with the provisions of the Securities Act until all
Registrable Securities and other securities covered by such Registration
Statement have been disposed of in accordance with the intended method(s) of
distribution set forth in such Registration Statement or such securities have
been withdrawn.

 

3.1.4 Notification.  After the filing of a Registration Statement,
the Company shall promptly, and in no event more than two (2) business
days after such filing, notify the holders of Registrable Securities included
in such Registration Statement of such filing, and shall further notify such
holders promptly and confirm such advice in writing in all events within two (2) business
days of the occurrence of any of the following: (i) when such Registration
Statement becomes effective; (ii) when any post- effective amendment to
such Registration Statement

 

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becomes
effective; (iii) the issuance or threatened issuance by the Commission of
any stop order (and the Company shall take all actions required to prevent the
entry of such stop order or to remove it if entered); and (iv) any request
by the Commission for any amendment or supplement to such Registration
Statement or any prospectus relating thereto or for additional information or
of the occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of the securities covered by such Registration Statement, such prospectus will
not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and promptly make available to the holders of
Registrable Securities included in such Registration Statement any such
supplement or amendment; except that before filing with the Commission a Registration
Statement or prospectus or any amendment or supplement thereto, including
documents incorporated by reference, the Company shall furnish to the holders
of all Registrable Securities included in such Registration Statement and to
the legal counsel for any such holders, copies of all such documents proposed
to be filed sufficiently in advance of filing to provide such holders and legal
counsel with a reasonable opportunity to review such documents and comment
thereon, and the Company shall not file any Registration Statement or
prospectus or amendment or supplement thereto, including documents incorporated
by reference, to which such holders or their legal counsel shall object.

 

3.1.5 State Securities Laws
Compliance.  The Company shall
(i) register or qualify the Registrable Securities covered by the
Registration Statement under such securities or “blue sky” laws of such
jurisdictions in the United States as the holders of Registrable Securities
included in such Registration Statement (in light of their intended plan of
distribution) may request and (ii) take such action necessary to cause
such Registrable Securities covered by the Registration Statement to be
registered with or approved by such other governmental authorities as may be
necessary by virtue of the business and operations of the Company and do any
and all other acts and things that may be necessary or advisable to enable the
holders of Registrable Securities included in such Registration Statement to
consummate the disposition of such Registrable Securities in such
jurisdictions;  provided,  however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this paragraph or subject itself to taxation in any such jurisdiction.

 

3.1.6 Agreements for Disposition.  The Company shall enter into customary
agreements (including, if applicable, an underwriting agreement in customary
form) and take such other actions as are reasonably required in order to expedite
or facilitate the disposition of any Registrable Securities.  The representations, warranties and covenants
of the Company in any underwriting agreement which are made to or for the
benefit of any Underwriters, to the extent applicable, shall also be made to
and for the benefit of the holders of Registrable Securities included in such
Registration Statement.  No holder of
Registrable Securities included in such Registration Statement shall be
required to make any representations or warranties in the underwriting
agreement except, if applicable, with respect to such holder’s organization,
good standing, authority, title to Registrable Securities, lack of conflict of
such sale with such holder’s material agreements and organizational documents,
and with respect to written information relating to such holder that such
holder has furnished in writing expressly for inclusion in such Registration
Statement.  Holders of Registrable
Securities shall agree to such covenants and indemnification and contribution
obligations for selling stockholders as are customarily contained in agreements
of that type.  Further, such holders
shall cooperate fully in the

 

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preparation
of the Registration Statement and other documents relating to any offering in
which they include securities pursuant to Section 2 hereof.  Each holder shall also furnish to the Company
such information regarding itself, the Registrable Securities held by such
holder, as applicable, and the intended method of disposition of such
securities as shall be reasonably required to effect the registration of the
Registrable Securities.

 

3.1.7 Cooperation.  The principal executive officer of the
Company and all other officers and members of the management of the Company
shall, and the Company shall cause such Persons to, cooperate fully in any
offering of Registrable Securities hereunder, which cooperation shall include,
without limitation, the preparation of the Registration Statement with respect
to such offering and all other offering materials and related documents, and
participation in meetings, including without limitation, any meetings conducted
for the purpose of due diligence, with Underwriters, attorneys, accountants and
potential investors.

 

3.1.8 Records.  The Company shall make available for
inspection by the holders of Registrable Securities included in such
Registration Statement, any Underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
professional retained by any holder of Registrable Securities included in such
Registration Statement or any Underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, as shall be
necessary to enable them to exercise their due diligence responsibility, and
cause the Company’s officers, directors and employees to supply all information
requested by any of them in connection with such Registration Statement.

 

3.1.9 Opinions and Comfort Letters.  The Company shall furnish to each holder of
Registrable Securities included in any Registration Statement a signed
counterpart, addressed to such holder, of (i) any opinion of counsel to
the Company delivered to any Underwriter, and (ii) any comfort letter from
the Company’s independent public accountants delivered to any Underwriter.  In the event no legal opinion is delivered to
any Underwriter, the Company shall furnish to each holder of Registrable
Securities included in such Registration Statement, at any time that such
holder elects to use a prospectus, an opinion of counsel to the Company to the
effect that the Registration Statement containing such prospectus has been
declared effective and that no stop order is in effect.

 

3.1.10 Earnings Statement.  The Company shall comply with all applicable rules and
regulations of the Commission and the Securities Act, and make available to its
stockholders, as soon as practicable, an earnings statement covering a period
of twelve (12) months, beginning within three (3) months after the
effective date of the Registration Statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.

 

3.1.11 Listing.  The Company shall use its reasonable best
efforts to cause all Registrable Securities included in any registration to be
listed on such exchanges or otherwise designated for trading in the same manner
as similar securities issued by the Company are then listed or designated or,
if no such similar securities are then listed or designated, in a manner
satisfactory to the holders of a Majority-in-Interest of the Registrable
Securities included in such registration, and in any event no later than the
effective date of the corresponding Registration Statement.

 

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3.1.12 Certificates.  The Company shall facilitate the timely
preparation and delivery of certificates representing the Registrable
Securities sold or to be sold pursuant to a Registration Statement, which certificates
shall not bear any restrictive legends, and shall cause such Registrable
Securities to be in such names as the applicable holder(s) of such
Registrable Securities may request in writing at least three (3) business
days prior to any sale of such Registrable Securities.

 

3.2 Obligation to Suspend Distribution.  Upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3.1.4(iv),
or, in the case of a resale registration on Form S-3 pursuant to Section 2.3
hereof, upon any suspension by the Company, pursuant to a written insider
trading compliance program adopted by the Company’s Board of Directors, of the
ability of all “insiders” covered by such program to transact in the Company’s
securities because of the existence of material non-public information, each
holder of Registrable Securities included in any registration shall immediately
discontinue disposition of such Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such holder
receives the supplemented or amended prospectus contemplated by Section 3.1.4(iv) or
the restriction on the ability of “insiders” to transact in the Company’s
securities is removed, as applicable, and, if so directed by the Company, each
such holder will deliver to the Company all copies, other than permanent file
copies then in such holder’s possession, of the most recent prospectus covering
such Registrable Securities at the time of receipt of such notice.

 

3.3 Registration Expenses.  The Company shall bear all costs and expenses
incurred in connection with any Demand Registration pursuant to Section 2.1,
any Piggy-Back Registration pursuant to Section 2.2, and any registration
on Form S-3 effected pursuant to Section 2.3, and all expenses
incurred in performing or complying with its other obligations under this
Agreement, whether or not the Registration Statement becomes effective,
including, without limitation: (i) all registration and filing fees; (ii) fees
and expenses of compliance with securities or “blue sky” laws (including fees
and disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities); (iii) printing expenses; (iv) the Company’s
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees); (v) the fees and expenses incurred in
connection with the listing of the Registrable Securities as required by Section 3.1.11;
(vi) Financial Industry Regulatory Authority, Inc.  fees; (vii) fees and disbursements of
counsel for the Company and fees and expenses for independent certified public
accountants retained by the Company (including the expenses or costs associated
with the delivery of any opinions or comfort letters requested pursuant to Section 3.1.9);
(viii) the fees and expenses of any special experts retained by the
Company in connection with such registration; and (ix) the fees and
expenses of one legal counsel selected by the holders of a Majority-in-Interest
of the Registrable Securities included in such registration.  The Company shall have no obligation to pay
any underwriting discounts or selling commissions attributable to the
Registrable Securities being sold by the holders thereof, which underwriting
discounts or selling commissions shall be borne by such holders.  Additionally, in an underwritten offering,
all selling stockholders and the Company shall bear the expenses of the
Underwriter pro rata in proportion to the respective amount of shares each is
selling in such offering.

 

3.4 Information.  The holders of Registrable Securities shall
provide such information as may reasonably be requested by the Company, or the
managing Underwriter, if any, in connection

 

10

 

with
the preparation of any Registration Statement, including amendments and
supplements thereto, in order to effect the registration of any Registrable
Securities under the Securities Act pursuant to Section 2 and in
connection with the Company’s obligation to comply with federal and applicable
state securities laws.

 

4.               INDEMNIFICATION AND
CONTRIBUTION.

 

4.1 Indemnification by the Company.  The Company agrees to indemnify and hold
harmless the Investor and each other holder of Registrable Securities, and each
of their respective officers, employees, affiliates, directors, partners,
members, attorneys and agents, and each Person, if any, who controls the
Investor or any other holder of Registrable Securities (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) (each, an “Investor Indemnified Party
“), from and against any expenses, losses, judgments, claims, damages or
liabilities, whether joint or several, arising out of or based upon any untrue
statement (or allegedly untrue statement) of a material fact contained in any
Registration Statement under which the sale of such Registrable Securities was
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained in the Registration Statement, or
any amendment or supplement to such Registration Statement, or arising out of
or based upon any omission (or alleged omission) to state a material fact
required to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act or any rule or
regulation promulgated thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration; and the Company shall promptly reimburse the Investor Indemnified
Party for any legal and any other expenses reasonably incurred by such Investor
Indemnified Party in connection with investigating and defending any such
expense, loss, judgment, claim, damage, liability or action;  provided, however, that the Company will not be
liable in any such case to the extent that any such expense, loss, claim,
damage or liability arises out of or is based upon any untrue statement or
allegedly untrue statement or omission or alleged omission made in such
Registration Statement, preliminary prospectus, final prospectus, or summary
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by the selling
holder with which such Investor Indemnified Party is affiliated expressly for
use therein.  The Company also shall
indemnify any Underwriter of the Registrable Securities, their officers,
affiliates, directors, partners, members and agents and each Person who
controls such Underwriter on substantially the same basis as that of the
indemnification provided above in this Section 4.1.

 

4.2 Indemnification by Holders of Registrable Securities.  Each selling holder of Registrable Securities
will, in the event that any registration is being effected under the Securities
Act pursuant to this Agreement of any Registrable Securities held by such
selling holder, indemnify and hold harmless the Company, each of its directors
and officers and each Underwriter (if any), and each other selling holder and
each other Person, if any, who controls another selling holder or such
Underwriter within the meaning of the Securities Act, against any losses,
claims, judgments, damages or liabilities, whether joint or several, insofar as
such losses, claims, judgments, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement (or allegedly
untrue statement) of a material fact contained in any Registration Statement
under which the sale of such Registrable Securities was registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus

 

11

 

contained
in the Registration Statement, or any amendment or supplement to the
Registration Statement, or arise out of or are based upon any omission (or
alleged omission) to state a material fact required to be stated therein or
necessary to make the statement therein not misleading, if the statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Company by such selling holder expressly for use therein, and
shall reimburse the Company, its directors and officers, and each other selling
holder or controlling Person for any legal or other expenses reasonably
incurred by any of them in connection with investigation or defending any such
loss, claim, damage, liability or action. 
Each selling holder’s indemnification obligations hereunder shall be
several and not joint and shall be limited to the amount of any net proceeds
actually received by such selling holder from the sale of Registrable
Securities which gave rise to such indemnification obligation.

 

4.3 Conduct of Indemnification Proceedings.  Promptly after receipt by any Person of any
notice of any loss, claim, damage or liability or any action in respect of
which indemnity may be sought pursuant to Section 4.1 or 4.2, such Person
(the “Indemnified Party
“) shall, if a claim in respect thereof is to be made against any other Person
for indemnification hereunder, notify such other Person (the “Indemnifying Party “)
in writing of the loss, claim, judgment, damage, liability or action;  provided, however, that the failure by the
Indemnified Party to notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability which the Indemnifying Party may have to
such Indemnified Party hereunder, except and solely to the extent the
Indemnifying Party is actually and materially prejudiced by such failure.  If the Indemnified Party is seeking
indemnification with respect to any claim or action brought against the
Indemnified Party, then the Indemnifying Party shall be entitled to participate
in such claim or action, and, to the extent that it wishes, jointly with all
other Indemnifying Parties, to assume control of the defense thereof with
counsel reasonably satisfactory to the Indemnified Party.  After notice from the Indemnifying Party to
the Indemnified Party of its election to assume control of the defense of such
claim or action, the Indemnifying Party shall not be liable to the Indemnified
Party for any legal or other expenses subsequently incurred by the Indemnified
Party in connection with the defense thereof other than reasonable costs of
investigation;  provided, however, that in any action in which both
the Indemnified Party and the Indemnifying Party are named as defendants, the
Indemnified Party shall have the right to employ separate counsel (but no more
than one such separate counsel) to represent the Indemnified Party and its
controlling Persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, with the fees and expenses of such counsel to be paid by
such Indemnifying Party if, based upon the written opinion of counsel of such
Indemnified Party, representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, consent to entry of judgment or
effect any settlement of any claim or pending or threatened proceeding in
respect of which the Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such judgment or settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such claim or proceeding.

 

4.4 Contribution.

 

4.4.1 If the indemnification provided for in the foregoing
Sections 4.1, 4.2 and 4.3 is

 

12

 

unavailable
to any Indemnified Party in respect of any loss, claim, damage, liability or
action referred to herein, then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, claim, damage,
liability or action in such proportion as is appropriate to reflect the
relative fault of the Indemnified Parties and the Indemnifying Parties in
connection with the actions or omissions which resulted in such loss, claim,
damage, liability or action, as well as any other relevant equitable
considerations.  The relative fault of
any Indemnified Party and any Indemnifying Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such Indemnified Party or such
Indemnifying Party and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

 

4.4.2 The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 4.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding Section 4.4.1.

 

4.4.3 The amount paid or payable by an Indemnified Party as a result of
any loss, claim, damage, liability or action referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.  Notwithstanding the provisions of this Section 4.4,
no holder of Registrable Securities shall be required to contribute any amount
in excess of the dollar amount of the net proceeds (after payment of any
underwriting fees, discounts, commissions or taxes) actually received by such
holder from the sale of Registrable Securities which gave rise to such
contribution obligation.  No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

 

5.               UNDERWRITING AND
DISTRIBUTION.

 

5.1  Rule 144.  The Company covenants that it shall use its
commercially reasonable best efforts to (a) file any reports required to
be filed by it under the Securities Act and the Exchange Act in order to
maintain its status as a “reporting issuer” under Rule 144(c)(1) under
the Securities Act, (b) obtain eligibility to use Form S-3, and (c) take
such further action as the holders of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holders to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 under the
Securities Act, as such rules may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission.

 

6.               MISCELLANEOUS.

 

6.1 Other Registration Rights.  The Company represents and warrants to each
party hereto that no Person, other than a holder of the Registrable Securities,
has any right to require the Company to register any shares of the Company’s
capital stock for sale or to include shares of

 

13

 

the
Company’s capital stock in any registration filed by the Company for the sale
of shares of capital stock for its own account or for the account of any other
Person.

 

6.2 Assignment; No Third Party Beneficiaries.  This Agreement and the rights, duties and
obligations of the Company hereunder may not be assigned or delegated by the
Company in whole or in part.  This
Agreement and the rights, duties and obligations of each holder of Registrable
Securities hereunder may be freely assigned by each such holder of Registrable
Securities in conjunction with and to the extent of any transfer thereof by any
holder to any party who signs a joinder agreement to this Agreement in a form
reasonably satisfactory to the Company. 
This Agreement and the provisions hereof shall be binding upon and shall
inure to the benefit of each of the parties hereto and their respective
successors and the permitted assigns of each holder of Registrable Securities
or of any assignee of any holder of Registrable Securities.  This Agreement is not intended to confer any
rights or benefits on any Persons that are not party hereto other than as
expressly set forth in Article 4 and this Section 6.2.

 

6.3 Notices. 
All notices, requests, demands, claims and other communications that are
required or may be given pursuant to this Agreement must be in writing and
delivered personally against written receipt, by facsimile or by reputable
domestic or international overnight courier to the parties at the following
addresses (or to the attention of such other Person or at such other address as
any party may provide to the other party by notice in accordance with this Section 8.04):

 

If
to any Investor Party:

 

Pegasus
Deerfield (AIV), LLC

505
Park Avenue, 22nd Floor

New
York, NY 10022

Attention:
Rodney Cohen

Telephone:
(212) 710-2500

Facsimile:
(212) 355-2303

 

with a copy to (which shall not constitute notice):

 

Pegasus
Capital Advisors, L.P.

505
Park Avenue, 22nd Floor

New
York, NY 10022

Attention:
Rodney Cohen

Telephone:
(212) 710-2500

Facsimile:
(212) 355-2303

 

and with a copy (which shall not constitute notice) to:

 

Akin Gump Strauss Hauer & Feld LLP

590
Madison Avenue

New
York, NY 10022

Attention: Bruce S.  Mendelsohn, Esq.

Telephone:
(212) 872-1000

Facsimile:
(212) 872-1002

 

14

 

If
to the Company:

 

Deerfield
Capital Corp.

6250 North River Road

Rosemont, IL 
60018

Attention: Jonathan Trutter

Telephone: (773) 380-1600

Facsimile: (773) 380-1695

 

with a copy (which shall not
constitute notice) to:

 

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY 
10022

Attention: Paul Watterson

Telephone: (212) 756-2000

Facsimile: (212) 593-5955

 

Any
such notice, request, demand, claim or other communication will be deemed to
have been given (a) if personally delivered, when so delivered, (b) if
sent by facsimile, upon transmission with electronic confirmation thereof or (c) if
sent by reputable domestic or international overnight courier, when received.

 

6.4 Severability.  This Agreement shall be deemed severable, and
the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term or
provision hereof.  Furthermore, in lieu
of any such invalid or unenforceable term or provision, the parties hereto
intend that there shall be added as a part of this Agreement a provision as
similar in terms to such invalid or unenforceable provision as may be possible
that is valid and enforceable.

 

6.5 Counterparts.  This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.

 

6.6 Entire Agreement.  This Agreement (including all agreements
entered into pursuant hereto and all certificates and instruments delivered
pursuant hereto and thereto) constitute the entire agreement of the parties
with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements, representations, understandings, negotiations and
discussions between the parties, whether oral or written.

 

6.7 Modifications and Amendments.  No amendment, modification or termination of
this Agreement shall be binding upon any party unless executed in writing by
such party.

 

6.8 Titles and Headings.  Titles and headings of Sections of this
Agreement are for convenience only and shall not affect the construction of any
provision of this Agreement.

 

6.9 Waivers and Extensions.  Any party to this Agreement may waive any
right, breach or default which such party has the right to waive, provided that
such waiver will not be effective

 

15

 

against
the waiving party unless it is in writing, is signed by such party, and
specifically refers to this Agreement. 
Waivers may be made in advance or after the right waived has arisen or
the breach or default waived has occurred. 
Any waiver may be conditional.  No
waiver of any breach of any agreement or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof nor of any other
agreement or provision herein contained. 
No waiver or extension of time for performance of any obligations or
acts shall be deemed a waiver or extension of the time for performance of any
other obligations or acts.

 

6.10  Remedies Cumulative.  In the event that the Company fails to
observe or perform any covenant or agreement to be observed or performed under
this Agreement, the Investor or any other holder of Registrable Securities may
proceed to protect and enforce its rights by suit in equity or action at law,
whether for specific performance of any term contained in this Agreement or for
an injunction against the breach of any such term or in aid of the exercise of
any power granted in this Agreement or to enforce any other legal or equitable
right, or to take any one or more of such actions, without being required to
post a bond.  None of the rights, powers
or remedies conferred under this Agreement shall be mutually exclusive, and
each such right, power or remedy shall be cumulative and in addition to any
other right, power or remedy, whether conferred by this Agreement or now or
hereafter available at law, in equity, by statute or otherwise.

 

6.11  Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to conflicts of law principles that would result in the application of
the substantive laws of another jurisdiction. 
Each of the parties hereby agrees that any action, proceeding or claim
against it arising out of or relating in any way to this Agreement shall be
brought and enforced in the courts of the State of New York or the United
States District Court for the Southern District of New York, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive.  Each of the parties hereby waives any
objection to such exclusive jurisdiction and that such courts represent an
inconvenient forum.

 

6.12 Waiver of Trial by Jury.  EACH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT,
COUNTERCLAIM OR OTHER PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF, CONNECTED WITH OR RELATING TO THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREBY, OR THE ACTIONS OF THE INVESTOR IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.

 

[REMAINDER OF
PAGE INTENTIONALLY LEFT BLANK]

 

16

 

IN
WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to
be executed and delivered by their duly authorized representatives as of the
date first written above.

 

 

	
   

  	
  DEERFIELD
  CAPITAL CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Robert A. Contreras

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Robert
  A. Contreras

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  General
  Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PEGASUS
  DEERFIELD (AIV), LLC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Pegasus
  Investors IV, L.P.,

  
	
   

  	
   

  	
  its
  managing member

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Pegasus
  Investors IV GP, L.L.C.,

  
	
   

  	
   

  	
  its
  general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Rodney Cohen

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Rodney
  Cohen

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Vice
  PresidentExhibit 10.2

 

Portions of this exhibit have been omitted and filed separately
pursuant to a request for confidential treatment filed with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  Omissions are
designated as [***].

 

Execution Copy

 

Deerfield Pegasus Loan
Capital LP

DPLC General Partner LLC

Deerfield Capital Corp.

Deerfield Capital Management
LLC

 

April 9, 2009

 

Pegasus
Deerfield (AIV), LLC

PGS Management, LLC

 

Ladies and Gentlemen:

 

This letter agreement (this “Agreement”)
records our understanding regarding certain matters relating to the
Transactions (as defined below), including the acquisition by Pegasus Deerfield
(AIV), LLC (“Investor”) of a limited partner interest in Deerfield Pegasus Loan Capital LP,
a Delaware  limited partnership (“Fund
I”), pursuant to (a) the Amended and Restated Limited Partnership
Agreement of Fund I, dated April 9, 2009 (as amended from time
to time, the “Fund I LPA”), among DPLC
General Partner LLC as general partner of Fund I (“DLC
GP”), Investor and the other limited partners of Fund I and (b) the
Subscription Agreement executed by Investor, dated April 9, 2009 (the “Subscription
Agreement”).

 

Investor is acquiring a
limited partner interest in Fund I and a limited liability company interest in
the DLC GP.  In connection with such
purchase, the parties hereto hereby agree as follows:

 

1.                                       Definitions.  As used herein, the capitalized terms listed
below shall have the following respective meanings:

 

Acquiring Person:  the
meaning set forth in Section 3(d).

 

Advisory Agreement:  the investment advisory agreement of even
date herewith by and between Fund I and DCM as may be amended from time to
time.

 

Affirmation:  the meaning set forth in Section 3(d).

 

Agreement:  the meaning
set forth in the first paragraph of this Agreement.

 

Affiliate: when used with reference to a specified Person,
any Person that directly, or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, such Person.

 

 

Competitive Opportunity: the meaning set fort in Section 24.

 

Confidential Information:  the meaning set forth in Section 12(b).

 

Consulting Agreement:  the consulting agreement of even date
herewith by and between DCM and PM.

 

Control (and its corollaries):  the possession, directly or indirectly, of
the power to cause the direction of the management and policies of a Person,
whether through the ownership of voting securities or otherwise.

 

Covered Managed Account: any managed account for a
single investor or a group of affiliated investors for which DCM, DFR, any DFR
Affiliate or any DFR Related Entity provides investment advisory services, on a
discretionary basis, in return for a fee and which invests primarily in broadly
syndicated bank loans to non-investment grade borrowers and bonds issued by
non-investment grade borrowers but shall exclude (i) any collateralized
debt obligation or collateralized loan obligation and (ii) any managed
account for a single investor or a group of affiliated investors that has an
investment strategy that is materially different than the investment strategy
of Fund I.

 

Covered Loan Fund: any alternative investment fund with or
targeting third party investors for which DCM, DFR, any DFR Affiliate or any
DFR Related Entity provides investment advisory services, on a discretionary
basis, in return for a fee and which invests primarily in broadly syndicated
bank loans to non-investment grade borrowers and bonds issued by non-investment
grade borrowers but shall exclude (i) any collateralized debt obligation
or collateralized loan obligation, (ii) any fund that was originally
advised by an advisor (other than DCM or an Affiliate of DCM) and for which DCM
becomes the replacement advisor and (iii) any managed account.

 

DCM:  Deerfield Capital Management LLC, a Delaware
limited liability company.

 

DFR:  Deerfield Capital Corp., a Maryland
corporation and any successor thereto.

 

DFR Affiliate:  any
direct or indirect subsidiary of DFR.

 

DFR Common Stock:  the
common stock, par value $.01 per share, of DFR.

 

DFR Entities: the meaning set forth in Section 24.

 

DFR Related Entity:  any Affiliate of DFR
for whom one or more of the Key Investment Professionals renders services or
which uses the track record of any Covered Loan Fund.

 

DLC GP:  the meaning
set forth in the first paragraph of this Agreement.

 

DLC GP Agreement:  the
amended and restated limited liability company agreement of DLC GP dated as of
the date hereof, as may be amended from time to time.

 

Fund I:  the meaning set forth in the first paragraph
of this Agreement.

 

Fund I LPA:  the meaning
set forth in the first paragraph of this Agreement.

 

Fund Investment Protocol:  the meaning set forth in the DLC GP
Agreement.

 

2

 

Initial Closing Date:  The date on which Investor or any Affiliate
thereof makes the Initial Investor Contribution and acquires a limited partner
interest in Fund I and a limited liability company interest in the DLC GP.

 

Initial Investor Contribution: $5,000,000.

 

Investor:  the meaning set forth in the first paragraph
of this Agreement.

 

Investor Parent: Pegasus
Partners IV, L.P.

 

Investor
Permitted Transferee:  the meaning set forth in Section 19.

 

Key Investment Professionals:  the meaning set forth in Section 11(b).

 

Lender
Transfer:  any pledge,
hypothecation or other customary encumbrance of (i) an interest in DCM to
or by the current lenders of DFR in connection with the debt of DFR and
the DFR Affiliates existing as of the date hereof or any DFR Affiliate or
upon the refinancing of such existing debt, and (ii)  an interest in
any non-material assets of DCM (currently owned or acquired in the
future) in connection with the purchase of such assets and to secure the
repayment of the purchase price therefor, and which purchase and corresponding
pledge, hypothecation or encumbrance occurs in the ordinary course, consistent
with past practice.

 

Material Deviation:  the meaning set forth in Section 4(g).

 

Pegasus Entities: the meaning set forth in Section 24.

 

Person:  any
corporation, association, joint venture, partnership, limited liability
company, government or political subdivision thereof, government agency, trust
or other entity or an individual.

 

PM:  PGS
Management, LLC, a Delaware  limited
liability company.

 

Registration Rights Agreement:  the registration rights agreement of even
date herewith by and between Investor and DFR in respect of the DFR Common
Stock underlying the Warrants.

 

Restrictive Covenant
Agreements:  the meaning
set forth in Section 11(b).

 

Special Limited Partner Withdrawal Right:  the meaning ascribed to such term in the Fund
I LPA.

 

Structuring Fee:  the
meaning set forth in Section 2(a).

 

Subscription Agreement:  the meaning set forth in the first paragraph
of this Agreement.

 

Tag Along Right:  the
meaning set forth in Section 19.

 

Transaction Documents:  the DLC GP Agreement, the Fund I LPA, the
Subscription Agreement, this Agreement, the Advisory Agreement, the Consulting
Agreement, the Registration Rights Agreement, any of the Warrants and any other
document, instrument or certificate executed and delivered in connection with
any of the foregoing or the consummation of the Transactions.

 

Transaction Information:  the meaning set forth in Section 12(a).

 

3

 

Portions of this exhibit have been omitted and filed separately
pursuant to a request for confidential treatment filed with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  Omissions are
designated as [***].

 

Transactions:  the
transactions contemplated by the Transaction Documents.

 

Transfer:  any direct
or indirect sale, transfer, assignment, gift, distribution,
conveyance, issuance, pledge, hypothecation or other encumbrance or
disposition (whether voluntary or involuntary or by operation of law), whether
in one or a series of transactions and whether by means of a direct purchase,
merger, recapitalization, reorganization, consolidation, refinancing or
otherwise.  For the avoidance of doubt,
the Transfer of an asset of a Person shall be deemed to have occurred upon a
direct or indirect change in Control of the beneficial ownership of
such Person.

 

Valuation Consent Event:  the meaning set forth in Section 4(h).

 

Warrants:  (a) the
warrant to purchase 2,500,000 shares of DFR Common Stock at $4.25 per share,
and (b) the warrant to purchase 500,000 shares of DFR Common Stock at
$10.00 per share, in each case as issued to Investor as of the date hereof.

 

2.                                       Structuring Fee and Compensation.

 

(a)                                  On the Initial Closing Date, Fund I shall pay to (1) Pegasus
Capital Advisors IV, L.P. a structuring fee in an amount equal to [***] percent
([***]%) of the Investor’s aggregate capital commitments to Fund I and DLC GP,
less $[***], $[***] of which shall be payable to Albany Pegasus Capital, LLC
and $[***] of which shall be payable to Channel Investment Advisors, Inc.
(such amounts, including the $[***] payable to the foregoing entities, the “Structuring
Fee”), and Fund I shall debit such fee solely from the capital account of
the Investor, and (2) DCM (or its Affiliates) a structuring fee in an
amount equal to [***] percent ([***]%) of the aggregate capital commitments of
DCM (or its Affiliates) to Fund I and DLC GP and Fund I shall debit such fee
solely from the capital account of DLC GP, and DLC GP shall debit such fee
solely from the capital account of DCM (or its Affiliates) that are investing
in DLC GP.

 

(b)                                 To the extent there are any third party placement fees and expenses
incurred in respect of Fund I, such fees shall be (i) paid by Fund I and offset
against the management fees received by DCM (or if applicable, any Affiliate
thereof) in respect of third party investors of Fund I (and reduce pro rata
payments under the Consulting Agreement) or (ii) be borne by each
of DCM and PM on a pro rata basis by deducting the portion of the
management fee or incentive allocation paid to the third party placement agent prior to
calculating the incentive allocation or consulting fee payable or allocable to
Investor, provided that with respect to Fund I,
notwithstanding the foregoing, in no event shall DCM’s
quarterly advisory fee be reduced below $[***] or Investor’s quarterly consulting fee
payable to PM pursuant to the Consulting Agreement be reduced below $[***] as a result of any payments to a placement
agent without the consent of the affected party.

 

4

 

3.                                       Investor Approval.  Each of the following actions may not be
taken without the prior written consent of Investor:

 

(a)                                  Any action by DFR or any DFR Affiliate that could have a
material adverse effect on (i)  Fund I, DLC GP, the Investor or any
Affiliate thereof that has an interest in Fund I or DLC GP or (ii) any
other Affiliate of the Investor to which DFR or any DFR Affiliate has knowledge
and to which DFR or any DFR Affiliate has knowledge that such action could have
a material adverse effect on such Affiliate.

 

(b)                                 Entry into any material agreement with respect to Fund I by
DFR or any DFR Affiliate, including, without limitation, any joint venture,
joint marketing or joint development agreement other than customary agreements
for acquiring or disposing of securities, debt obligations, loans and
derivatives transactions.

 

(c)                                  Any amendment to the Advisory Agreement that could have an
adverse effect on the Investor with respect to its interests in Fund I, provided, that, for the avoidance of
doubt, any amendment to the final two paragraphs of section 1(b) of the
Advisory Agreement shall be deemed to have an adverse effect on the Investor.

 

(d)                                 (i)  the Transfer to any Person of all or a
substantial segment of the properties and assets of DCM (for the avoidance of
doubt, any Transfer of the Advisory Agreement shall be deemed a Transfer of a
substantial segment of the properties and assets of DCM); or (ii) the
Transfer of any debt or equity securities or other interests in DCM, other than
in each case, to a Person (A) who is a wholly-owned subsidiary of DFR, or (B) who
is also acquiring 51% or more of the properties and assets of DFR (each Person
acquiring properties and assets or securities or other interests in any
Transfer of the type described in (i) or (ii) above (whether or not
Investor consent is required), an “Acquiring Person”).  Each Acquiring Person in connection with the
direct Transfer of any Transaction Document shall execute and deliver to
Investor such documents as Investor may reasonably request wherein such
Acquiring Person agrees to assume and perform all of the respective obligations
of DCM and DFR under the Transaction Documents, as applicable (an “Affirmation”).  Further, the transferor in any Transfer to an
Acquiring Person shall remain liable for the performance of any and all
obligations of such transferor under the Transaction Documents so
Transferred.  DFR hereby represents that
the debt of DFR and the DFR Affiliates as of December 31, 2008 is as set
forth in DFR’s audited consolidated balance sheet as of December 31, 2008,
a true, correct and complete copy of which has been provided to Investor, and
that the amount of the debt of DFR and the DFR Affiliates existing as of the
date hereof has not materially increased from the amount of consolidated debt
reflected on such balance sheet.  Notwithstanding
the foregoing, neither (A) a Lender Transfer, nor (B) the acquisition
of an equity or other interest in DFR by a Person who is not also directly
acquiring an equity or other interest in DCM or any of its Affiliates
(other than DFR), shall be a Transfer that requires consent of Investor or an
Affirmation pursuant to this Section 3(d).

 

 (e)                               The exercise by
DLC GP, DCM or any Affiliate thereof of any power of attorney on behalf of
Investor or any Affiliate thereof that (1) correlates to actions that are
not ministerial in nature, (2) are material to DLC GP or Fund I or (3) could
have an adverse effect on any of the Investor or any of its Affiliates.

 

(f)                                    DFR or the
applicable DFR Affiliate shall cause the DLC GP tax matters partner to not take
any of the following actions without the consent of Investor, such consent not
to be unreasonably withheld, conditioned or delayed: (1) make or change
any material tax election, (2) change an annual accounting period, (3) adopt
a different accounting method or change the accounting method initially used by
Fund I (which shall be the accrual method), (4) file any amended tax
return, (5) enter into any closing agreement, (6) settle any material
tax claim or assessment relating to Fund I, (7) surrender any 

 

5

 

right to claim a refund of
taxes, or (8) consent to any extension or waiver of the limitation period
applicable to any tax claim or assessment relating to Fund I.

 

4.                                       Additional Governance Matters.

 

(a)                                  The services specified in the Advisory Agreement with
respect to Fund I shall be performed by DCM pursuant to the Advisory Agreement.

 

(b)                                 DCM shall engage PM as a consultant to DCM for Fund I, and
PM shall provide consulting services to DCM in accordance with the terms of the
Consulting Agreement.  During the
marketing period for Fund I, DCM shall provide Investor with timely updates on
fundraising efforts for Fund I, including, without limitation, a list of
prospective investors on a quarterly basis and in any event prior to such
prospective investor’s admission to Fund I.  
Investor shall have the right to reject any prospective investor in Fund
I if Investor can demonstrate a reasonable basis for such rejection.

 

(c)                                  None of DCM,
DFR or any DFR Affiliate shall amend or waive any provision of any Restrictive
Covenant Agreement without the consent of Investor.  In the event DCM in good faith elects not to
pay severance pursuant to section 4(b) of any Restrictive Covenant
Agreement, the Investor shall have the right to cause DCM to make severance
payments in accordance with the provisions thereof in such amounts as
determined by the Investor, provided that
the Investor shall reimburse DCM for all severance payments it causes DCM to
pay pursuant to this clause (c).

 

(d)                                 DCM shall not retain any sub-adviser or any consultant that
shares in any portion of the Fund I advisory fees (other than PM) to Fund I
without Investor’s consent.

 

(e)                                  During Fund I’s investment period, DCM and DFR shall, and
DCM shall cause each Key Investment Professional to, and DFR shall cause each
DFR Affiliate to, offer to Fund I investment opportunities that are presented
to such Person that are consistent with Fund I’s investment objectives to the
extent set forth in DCM’s Allocation Policy (attached as exhibit A to the Fund
Investment Protocol).

 

(f)                                    Neither Fund I nor DLC GP shall engage in transactions with
DCM or any DFR Affiliate thereof relating to Fund I to the extent such
transactions are prohibited by DCM’s Related Party Transaction Policy (attached
as exhibit B to the Fund Investment Protocol).

 

(g)                                 DCM shall
provide the annual budget of DCM (solely as it relates to Fund I) to Investor
for its review and consent at least 30 days prior to the commencement of the
fiscal year to which such budget relates (and if Investor does not consent to
such budget, the last budget approved by Investor shall remain in effect until
DCM and Investor agree otherwise).  Such
budgets of DCM (solely as it relates to Fund I) shall be prepared in good faith
and shall include DCM’s reasonable estimates of applicable expenses.  DCM shall not incur any expense that
constitutes a Material Deviation without Investor’s consent.  A “Material Deviation” is any expense
that results in any category of budgeted expenses exceeding 120% or more of
such category’s budgeted expenses as set forth in the applicable budget or any
expense that results in the aggregate expenses equaling 115% or more of
aggregate budgeted expenses set forth in the applicable budget.

 

(h)                                 In the event Investor objects to any valuation by DCM of any
interest in, or any asset of, Fund I or DLC GP in connection with the
redemption of any of Investor’s interests therein, Investor shall provide
prompt written notice to DCM of such objection (such written notice to be
provided within 10 days of such valuation being provided to Investor), and if
DCM and Investor cannot agree on such valuation, Investor shall have the option
to accept an in-kind pro rata distribution of its interest in such interest or
asset.  In the event that the
administrator is required to value an investment based on a 

 

6

 

valuation model provided by DCM
pursuant to section 4.10 of the Fund I LPA (such event, a “Valuation Consent
Event”), DCM shall promptly notify Investor of such Valuation Consent Event
and shall consult with Investor regarding the valuation of such investment, and
no valuation of such investment shall be conclusive or final without Investor’s
consent; provided that if
Investor does not give such consent within three Business Days from the date on
which DCM delivers to Investor written notification of such Valuation Consent
Event, Investor and DCM shall have three Business Days to appoint a mutually
agreed upon independent valuation agent to value such investment; and provided,
further, that in the event that Investor and DCM are unable to agree
upon an independent valuation agent within the prescribed period described
above, each of Investor and DCM shall have an additional two Business Days to
appoint an independent valuation agent selected by it to value such investment
(and shall notify the other party promptly of such appointment), and the
average of the valuations provided by the two such independent valuation agents
shall be the value of such investment; and provided, finally, that if only one of DCM and
Investor appoints an independent valuation agent within the prescribed period
described above, the valuation of such investment shall be the valuation
provided by the single appointed independent valuation agent.  All investment valuations determined in
accordance with the preceding sentence shall be conclusive and final.  For the avoidance of doubt, any fees payable
to independent valuation agents appointed pursuant to this Section 4(h) shall
be borne by Fund I.  In addition,
notwithstanding anything to the contrary set forth in any Transaction Document,
any fees payable to a valuation agent pursuant to this Section 4(h) shall
be deemed not to constitute (1) a Material Deviation (as defined herein or
under the DLC GP Agreement, as applicable) or (2) a breach of any
provision of any Transaction Document.

 

(i)                                     Investor will be entitled to appoint one non-voting
representative (and replacement thereto) to the advisory board of Fund I.  In the event such representative is unable to
attend any meeting, Investor shall be entitled to appoint an alternate to
attend such meeting.

 

(j)                                     To the extent
one or more third party limited partners representing a significant
amount of capital committed to Fund I objects to the provisions
surrounding the removal and replacement of the Investment Advisor, the Investor
agrees that it will negotiate such provisions in good faith with DCM, Fund I
and such third party limited partners.

 

(k)                                  Investor shall make capital contributions to Fund I and DLC
GP in respect of its $75,000,000 capital commitment to Fund I and DLC GP in
accordance with the capital contribution schedule set forth on Exhibit E, provided that there are sufficient, viable
investment opportunities in which Fund I can invest as evidenced by the
sufficiency of “Approved Investments” pursuant to the Fund Investment Protocol,
and, provided, further, that such capital commitments may
be called earlier than as set forth on Exhibit E if Investor consents,
and, provided, finally, that if there are not sufficient,
viable investment opportunities (i.e., “Approved Investments” pursuant to the
Fund Investment Protocol) in which Fund I can invest, DLC GP agrees that a
failure by Investor to make a capital contribution to Fund I shall not cause
the Investor to be a “defaulting partner” pursuant to the Fund I LPA.

 

(l)                                     None of the aggregate capital commitment of DFR and its
Affiliates to DLC GP may be made by employees, officers, directors, consultants
or similarly situated individuals of any of the foregoing entities, provided that up to $500,000 of the $15
million capital commitment of DFR and its Affiliates to DLC GP may be satisfied
by capital commitments or capital contributions to Fund I by employees, officers,
directors, consultants or similarly situated individuals of any of the
foregoing entities.

 

(m)                               DCM shall notify Investor upon each of Tranche 2, Tranche 3
and Tranche 4 (as described on Exhibit E) becoming 80% invested pursuant
to the Fund I LPA.

 

7

 

5.                                       Removal of DCM
as Investment Advisor and DCM representatives from the Board of Managers.               Investor shall have the
right to terminate DCM as Investment Advisor to Fund I and DCM appointees on
the DLC GP board of managers as set forth in the Fund I LPA and the DLC GP
Agreement.

 

6.                                       Mutual Non-Disparagement.  Each of Investor and DFR shall not make, and
Investor shall cause its Affiliates not to make, and DFR shall cause its
Affiliates not to make, any comment, statement or other communication that
shall disparage the good name or business or professional reputation of the
other party or such party’s Affiliates. 
To the fullest extent permitted by law, the only exception to the
foregoing shall be those circumstances in which a party is obligated to provide
information in response to an investigation by a duly authorized governmental
entity in connection with legal proceedings, and then only after consultation
with the other parties to the extent that such consultation is reasonably
possible and, in such event, only to the extent that such responses shall be
true and correct.

 

7.                                       [Intentionally Omitted]

 

8.                                       Use of Name.

 

(a)                                  Except with the prior written consent of Investor or as
required by applicable law, rule or regulation (including for the purpose
of making any filing or other disclosure but only if the procedures described
in Section 12 regarding disclosures required by applicable law, rule or
regulation are followed) or as authorized pursuant to Section 12, none of (1) Fund
I, DLC GP, DFR, DCM or any DFR Affiliate, or (2) any member, partner,
manager, director, officer, employee, agent or service provider of a Person
listed in clause (1), may disclose, use or otherwise refer to in any written
material the name “Pegasus” or any derivative thereof or the names of any
Affiliate, member, partner, director, officer or employee of Investor or any
investment fund or other entity associated with Investor.

 

(b)                                 Except with the prior written consent of DFR or as required
by applicable law, rule or regulation  (including for the purpose of making any filing or other
disclosure but only if the procedures described in Section 12 regarding
disclosures required by applicable law, rule or regulation are followed)
or as authorized pursuant to Section 12, none of (1) Investor or any
of its respective Affiliates, or (2) any member, partner, manager,
director, officer, employee, agent or service provider of a Person listed in
clause (1), may disclose, use or otherwise refer to in any written material the
name “Deerfield” or any derivative thereof or the names of any Affiliate,
member, partner, director, officer or employee of DFR or any investment fund or
other entity associated with DFR.

 

(c)                                  Notwithstanding Section 12(a), the following may be
disclosed without the prior written consent of Investor in a communication to
an actual or prospective investor in Fund I or in any securities filing if
required by law, rule or regulation:

 

(1)                                  The terms “Pegasus” or “Deerfield” in the title of Fund I
and references to the name of Fund I;

 

(2)                                  Investor’s role as a limited partner in Fund I and the
amount of its investment in such capacity, if any;

 

(3)                                  Investor’s role as a holder of interests in DLC GP; other
than with respect to the specific terms and economic interests of Investor
therein; and

 

8

 

(4)                                  the identity of Investor’s representatives on the investment
committee of DLC GP, the board of managers of DLC GP or any other committee;

 

(5)                                  this side letter among the parties hereto (the actual
reproduction of the letter as opposed to any descriptions thereof);  and

 

(d)                                 Notwithstanding Section 12(a), DCM may disclose
Investor’s name, it’s jurisdiction of formation and its interest in DLC GP and
Fund I (but not for the avoidance of doubt, the identities of the Investor Parent’s limited partners) for purposes of making any disclosure required by trading
counterparties (including disclosure required by LCDS and hedge counterparties
and disclosure required in order to comply with requests to provide “KYC”
information and similar information to counterparties and service providers),
provided that any service provider receiving such information agrees to be
bound by customary confidentiality provisions and, provided, further,
that if Investor consents to the disclosure of more information than is
permitted by this clause (d) to any-counter party, DCM shall be permitted
to disclose such information to future counter-parties.

 

(e)                                  For the avoidance of doubt,
nothing in this Agreement shall authorize DFR, DCM or any Affiliate thereof on
the one hand, or Investor or any Affiliate on the other hand, to issue a press
release referring to the other party (or any Affiliate thereof) without such
other party’s consent.

 

(f)                                    Except as provided in Sections 8(c)(1),(2), (4) and
(5), Investor shall have the right to approve any description or disclosure of
Investor or any Affiliate thereof in any offering or other materials
disseminated to any prospective investor in Fund I.

 

9.                                       Services of Investor.  Except as expressly set
forth herein or in the Consulting Agreement, none of Investor or any Affiliate
thereof shall be obligated to provide any support services to DCM, Fund I, DLC
GP, any portfolio company of Fund I or any Affiliate of any of the foregoing.

 

10.                                 Information and Records.

 

(a)                                  Each of DCM, Fund I and DLC GP shall preserve, during such
entity’s existence and for six (6) years thereafter, adequate financial
and accounting records pertaining to the operating agreement of the applicable
entity to verify the amounts, recipients, and uses of all material
disbursements made in connection with each such entity and the activities
thereof (but with respect to DCM solely as it relates to Fund I).  With respect to each such entity (but with
respect to DCM solely as it relates to Fund I), during such period, Investor
(so long as Investor or any Affiliate thereof is a beneficial interest holder
in such entity), upon reasonable notice to the applicable entity and during normal
business hours, shall have the right to audit such financial and accounting
records to the fullest extent authorized and permitted by applicable law.

 

(b)                                 Subject to the
same confidentiality obligations of DCM, Investor shall (i) be provided
access to the custodian and administrator of Fund I that is equivalent to the
access that is provided to DCM, provided, that
Investor shall not be able to direct such custodians and administrators to take
any action and (ii) receive all reports and correspondence set forth on Exhibit B
from such service providers in connection with Fund I.

 

11.                                 Non-Competition.

 

(a)                                  Non-Competition.  Without
Investor’s consent, none of DFR, DCM, any DFR Affiliate or any DFR Related
Entity shall, during the period commencing on the Initial Closing Date and
ending on the termination of Fund I’s marketing period (as
may be extended pursuant to the provisions of the Fund

 

9

 

I LPA), manage any (1) Covered Managed Account
that is not existing as of the date hereof or (2) any successor to any
Covered Managed Account that is existing as of the date hereof or sponsor any
subsequent Covered Loan Fund with a target size of less than $400 million of
third party capital contributions.

 

(b)                                 Each of the persons listed on Exhibit D  (and any replacement to the foregoing that is approved by
Investor) (the “Key Investment Professionals”) shall enter into
restrictive covenants agreements with DCM, the forms of which shall be attached
hereto or otherwise satisfactory to Investor, that contain devotion of time,
non-competition, non-solicitation, non-disparagement and cooperation provisions
(the “Restrictive Covenant Agreements”).

 

12.                                 Confidentiality.

 

(a)                                  Except as set forth in Section 12(c), without the consent
of the other party, each of Investor and DFR shall keep confidential and shall
not disclose the specific terms, conditions and provisions of this Agreement,
the transactions contemplated hereby and any other agreement referenced herein
or relating hereto (the “Transaction Information”) and shall cause each
Person to whom it provides the Transaction Information pursuant to Section 12(c) to
keep confidential and not disclose the Transaction Information.

 

(b)                                 Except as set forth in Section 12(c), (1) without
the consent of DFR, Investor shall keep confidential and shall not disclose or
use (except in connection with this Agreement and its interests in Fund I) any
confidential or proprietary information relating to DCM, DFR or any Affiliate
thereof and (2) without the consent of Investor, DFR and DCM shall keep
confidential and shall not disclose or use (except in connection with this
Agreement and its interests in Fund I) any confidential or proprietary
information relating to Investor or any Affiliate thereof (collectively, “Confidential
Information”).  Confidential
Information shall not include information which (1) is or becomes
generally available to the public other than as a result of a disclosure by a
party in breach of this Agreement or any of the Transaction Documents (it being
understood that information disclosed to investors in a fund is not considered
generally available to the public), (2) was in a party’s possession prior
to its disclosure to such party, or (3) was received by a party from a Person
who is not known by such party to be bound by an applicable confidentiality
agreement. Notwithstanding anything to the contrary herein, DFR, DCM or any DFR
Affiliate may disclose, subject to applicable securities laws, the track record
of Fund I for purposes of preparing and disclosing investment performance data
of Fund I when soliciting investors for Fund I or any other investment vehicle
sponsored by DFR, DCM or any DFR Affiliate; provided
that DCM shall include a disclaimer in such marketing materials that states
that only DCM, DFR and/or any DFR Affiliate had a role in the calculation or
presentation of the information contained therein.

 

(c)                                  The parties (except as otherwise specified below) may
disclose Transaction Information and Confidential Information:

 

(1)                                  to their Affiliates and to their directors and officers and
legal and accounting personnel or outside accountants or lawyers and to the
directors and officers and legal and accounting personnel or outside
accountants or lawyers of any Affiliate or other representatives and in the
case of Investor, to the Investor Parent’s limited partners or to any lender of
DFR, Investor Parent or any of their respective Affiliates, provided that any such Person is notified of the
confidentiality obligations herein and agrees to be bound thereto or in the
case of Investor Parent’s limited partners, bound by comparable confidentiality
provisions;

 

10

 

(2)                                  to regulatory authorities in connection with the preparation
or submission of financial reports, tax returns or reports required by law to
be submitted or made available to any governmental or regulatory agency;

 

(3)                                  as required by applicable laws, rules and regulations
(including for purposes of making any filing or other disclosure); provided that in the case of (2) and
(3), except as required in connection with securities filings, the party
required to disclose such information notifies the other party in advance of
such disclosure, cooperates with such party should it choose to seek a
protective order, and use its best efforts to obtain confidential treatment for
such information, and, provided, further, that in connection with any securities filings, the
party required to make the filing shall provide a draft of any securities
filing that references the other party or any of their Affiliates within a
reasonable time prior to the applicable filing date and shall incorporate such
party’s reasonable comments thereto;

 

(4)                                  with the prior written consent of Investor or DFR, as
applicable; and

 

(5)                                  in connection with any proposed authorized Transfer of any
of their respective interests in DFR, DCM, PM, Fund I and DLC GP or any DFR
Affiliate.

 

(d)                                 The foregoing shall not limit the disclosure of the tax
treatment or tax structure of Fund I (or any transactions undertaken by Fund
I).  As used herein, the term “tax
treatment” refers to the purported or claimed tax treatment and the term “tax
structure” refers to any fact that may be applicable to understanding the
purported or claimed tax treatment, provided that,
for the avoidance of doubt, (1) except to the extent otherwise established
in published guidance, tax treatment and tax structure shall not include the
name of or contact information for, or any other similar identifying
information regarding, Fund I, any related investment fund or any of their
investments (including, without limitation, the names of any employees or
Affiliates thereof) and (2) nothing in this Section 12 shall limit
the ability of a limited partner of Fund I to make any disclosure to such
limited partner’s tax advisors or to the U.S. Internal Revenue Service or any
other taxing authority.

 

13.                                 Compliance with Applicable Laws; Insurance.

 

(a)                                  Each party hereto shall
perform its obligations under the Transaction Documents in compliance with all
applicable laws.  In addition, DFR shall
use reasonable best efforts to cause each of DCM, Fund I and DLC GP to comply
with all laws, rules and regulations applicable to such entities,
including, without limitation, all applicable securities and anti-money
laundering laws, rules and regulations in all material respects.

 

(b)                                 DFR shall
procure and maintain insurance as set forth and described on Exhibit C
hereto.

 

14.                                 [Intentionally
Omitted]

 

15.                                 Fund I Tax Information and
Reports.  (a)  DCM shall cause DLC GP to provide
to Investor within 90 days after the end of each fiscal year, an estimate of
Investor’s distributive share of each item of income, gain, loss, deduction or
credit in respect of Fund I for such fiscal year, and such other information as
may be required to enable Investor to file its U.S. federal, state and local
tax returns.  Within 120 days after the
end of each fiscal year, DLC GP shall use its reasonable best efforts to
deliver to Investor a Schedule K-1 in respect of its Fund I interest, provided that if DLC GP is unable to deliver the Schedule
K-1 within such period, DLC GP shall notify Investor and provide the Schedule
K-1 to Investor no later than 150 days after the end of such fiscal year.

 

11

 

(b)  DCM shall cause
DLC GP to provide the annual report referred to in section 8.04 of the Fund I
LPA to Investor no later than 90 days following the close of such year and
the quarterly reports referred to therein to Investor no later than 45 days
following the close of such quarter.

 

16.                                 Prior Agreements.  Except as otherwise
disclosed to Investor, prior to the date hereof, neither Fund I nor DLC GP  has entered into any
agreement, whether written or oral, other than the Fund I LPA or a subscription
agreement, with any Person in connection with the acquisition by such Person of
a limited partner interest in Fund I.  DLC GP shall disclose to Investor all agreements, whether written
or oral, other than any subscription agreement, with any Person in connection
with the acquisition by such Person of a limited partner interest in Fund I.

 

17.                                 Preferences.  (a)                                                           Prior to the liquidation of Fund I, (i) no amounts
distributable pursuant to section 6.04(b) of the Fund I LPA shall be
distributed from Fund I or DLC GP to DCM, DFR or any DFR Affiliate (other than
incentive allocations and earnings thereon, tax distributions and any amounts
distributable pursuant to the Advisory Agreement) until Investor has received cumulative
distributions (other than
distributions for taxes), plus any amounts withdrawn by Investor from its
capital account in Fund I or DLC GP, equal to or greater than the amount of aggregate capital
contributions by Investor to Fund I and DLC GP;
and (ii) none of DCM, DFR or any DFR Affiliate may withdraw any portion of
its interest in Fund I or DLC GP (other than incentive allocations and earnings
thereon) unless Investor has withdrawn or is simultaneously withdrawing a
portion of its interest in Fund I or DLC GP, in which case DFR and any DFR Affiliate shall
be entitled to withdraw (either directly from Fund I or indirectly through DLC
GP) an equivalent proportion of its interest in Fund I or DLC GP (based on the
applicable capital account balances of each of Deerfield and Pegasus at the
time of such withdrawal), provided that
such withdrawal rights of DFR and DFR Affiliates (other
than with respect to incentive allocations and earnings thereon) shall only be available if
Investor’s capital account balance as of such date is equal to or greater than
the amount of aggregate capital contributions by Investor to Fund I and DLC GP less prior distributions made to Investor (other than
distributions for taxes).

 

(b)                                 Upon the liquidation of Fund I or any complete withdrawal of
Investor’s interest in Fund I, no amounts shall be distributed from Fund I or
DLC GP to DCM, DFR or any DFR Affiliate (other than incentive allocations and
earnings thereon, amounts distributable pursuant to the Advisory Agreement and
tax distributions) until Investor has received aggregate distributions (which,
for the avoidance of doubt, shall not include any tax distributions made to the
Investor) from the Initial Closing Date through the date of determination at
least equal to its aggregate capital contributions to Fund I and DLC GP.

 

18.                                 Termination of Certain Rights.

 

(a)                                  The rights of Investor
specified in Sections 3(b), 4 (other than Section 4(c)), 5 and 16 of this
Agreement and the rights set forth in sections 3.2
(other than sections 3.2(b)(i); 3.2(c)(i); 3.2(c)(ii)(x); 3.2(c)(ii)(z);
3.2(c)(xii) (except with respect to section 10.08 of the Fund I LPA);
3.2(c)(xiii); 3.2(c)(xxi)(but only in respect of determination under sections 5.2, 5.6, 8.1
and 8.2 of the DLC GP Agreement) and 3.2(c)(xxiii)
and 3.2(d)), 3.3, 3.4, 3.6(b), 3.6(c), 3.7, 3.8, and 5.8 of the DLC GP
Agreement shall terminate (1) upon Investor’s exercise of the Special
Limited Partner Withdrawal Right in respect of its entire interest in Fund I
and Fund I’s payment in full of all amounts due to Investor in connection
therewith or (2) in the event that the net
asset value of Investor’s capital account is less than $1 million as a result
of Investor previous partial withdrawals from Fund I (as opposed to decline in
value due to investment performance or market conditions).  For purposes of the foregoing the definition
of the Special Limited Partner Withdrawal Right shall be set forth in the Fund
I LPA.

 

12

 

(b)                                 In the event that (1) the sum of (i) the cumulative
distributions received by Investor from DLC GP and Fund I, (ii) any
consulting fees in excess of $750,000 per annum, (iii) the Structuring Fee, and (iv) any realized gains by Investor (or an applicable
Affiliate) in connection with its exercise of all or any portion of its
Warrants, equals or exceeds the amount of original
capital contributions made by Investor and its Affiliates to Fund I and
DLC GP multiplied by 2.5 and (2) the net
asset value of Investor’s capital account is less than the greater of (i) $15
million and (ii) the net asset value of the capital account of DFR (or an
applicable Affiliate) excluding any amounts attributable to incentive
allocations, the rights of Investor specified in Sections 4(b)(with respect
to timely updates on fundraising efforts for Fund I only), 4(g), 5 and 16 and
the rights set forth in sections 3.2(b)(ii);
3.2(b)(iv); 3.2(b)(v); 3.2(b)(vi); 3.2(c)(iv); 3.2(c)(xi); 3.6(b), 3.6(c) and
3.7 of the DLC GP Agreement shall terminate.

 

(c)                                  In the event that as a result of Investor’s withdrawal of all or a
portion of its capital account in Fund I (as opposed to decline in value due to
investment performance or market conditions), the net asset value of Investor’s
capital account is less than the lesser of (1) $15 million and (2) the
net asset value of the capital account of DFR (or an applicable Affiliate), the
rights of Investor specified in Sections 4(b)(with respect
to timely updates on fundraising efforts for Fund I only), 4(g), 5 and 16 of
this Agreement and the rights set forth in sections 3.2(b)(ii),
3.2(c)(iv), 3.6(b), 3.6(c) and 3.7 of the DLC GP Agreement shall terminate.

 

(d)                                 References herein to the net asset value shall refer to the net asset
value as calculated pursuant to the Fund I LPA as modified by this Agreement.

 

19.                                 Transfers of Interests
in Deerfield Pegasus Funds and DLC GP.   
Notwithstanding anything to the contrary contained in any Transaction Document,
(a) Investor may Transfer any of its interests in DLC GP or Fund I and its
corresponding rights and obligations pursuant to the Transaction
Documents to an Investor Permitted Transferee without the consent of DCM or any
Affiliate thereof, (b) Investor may Transfer any of its economic interests
in Fund I or DLC GP, including its economic rights pursuant to the Transaction
Documents (but not any governance rights specific to Investor under this
Agreement or any of the Transaction Documents) to any non-Affiliate of Investor
without the consent of DCM or any Affiliate thereof, (c) DCM (or its
Affiliates) may Transfer its interests in DLC GP and its corresponding
rights and obligations pursuant to Transaction Documents to
any wholly-owned subsidiary of DFR or to any non-DFR Affiliate in
connection with the Transfer to such non-DFR Affiliate of 51% or more of the
properties and assets of DFR as set forth in Section 3(d), without the
consent of Investor; provided, that
in connection with a Transfer by DCM or an Affiliate of an interest in DLC GP
to any non-DFR Affiliate, Investor shall be entitled to Transfer its interests
therein on the same terms and conditions as DCM or its Affiliate, as
applicable, as set forth in Section 6.2 of the DLC GP Agreement (the “Tag
Along Right”); and provided, further
that each transferee in connection with the direct Transfer by DCM or
any Affiliate of DCM of any Transaction Document shall execute and deliver to
Investor an Affirmation and, provided, finally, that any such Transfer shall comply with section
6.2(e) of the DLC GP Agreement. 
Further, the transferor in any Transfer by DCM or any Affiliate of DCM
of any interest in DLC GP or Fund I, if applicable, shall remain liable for the
performance of any and all obligations of such transferor under the Transaction
Documents that such transferor has so Transferred.  Any other Transfer by DCM (or its Affiliates)
of any of its interests in DLC GP, Fund I or the Transaction Documents not
expressly permitted by the terms contained in this Section 19 shall
require the consent of Investor; provided that
no Transfer by DCM (or its Affiliates) of an interest in DLC GP or Fund I which
is a Lender Transfer or a Transfer in connection with the acquisition of an
equity or other interest in DFR by a Person who is not also directly acquiring
an equity or other interest in DCM or any of its Affiliates (other than
DFR), shall be a Transfer that requires consent of Investor pursuant to this Section 19
or that triggers the Tag Along Right. 
For the avoidance of doubt, the parties hereto agree that DLC GP is an
Affiliate of DCM.   “Investor
Permitted Transferee” shall mean any Affiliate of Investor, any operating 

 

13

 

adviser
of Pegasus Capital Advisors and any employee, officer, director, shareholder,
member or partner of such entities.

 

20.                                 Assignment by Parties.   Except as expressly set forth in
Sections 3 and 19, no party may Transfer or delegate any of its rights or
obligations pursuant to this Agreement without the consent of the other parties
hereto.  All rights and obligations of a
Person hereunder shall, to the fullest extent provided by law, become the
rights and obligations of any successor to that Person, whether through merger,
reorganization or other transaction.

 

Notwithstanding anything to the contrary
herein, none of DCM, Investor or any of their respective Affiliates may
Transfer any of its interests in Fund I unless, based upon advice from tax
counsel that is reasonably satisfactory to Fund I’s counsel, such Transfer will
not cause Fund I to be treated as a publicly traded partnership taxable as a
corporation for U.S. federal tax purposes.

 

21.                                 Notice.  Any notice or other communication
contemplated by any provision of this Agreement shall be in writing and may be
delivered personally, sent by telecopy, commercial courier or mailed by
certified mail, postage prepaid, return receipt requested, addressed to such
party at the address, or sent to its telecopy number, as follows:

 

	
  If to Investor:

  	
  Pegasus Partners
  IV, L.P.

  
	
   

  	
  505 Park
  Avenue

  
	
   

  	
  New York, NY 10022

  
	
   

  	
  Attn: Rodney Cohen

  
	
   

  	
  Fax No.:
  212-355-2303

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Jason Schaefer

  
	
   

  	
  Fax No.: 212-710-2551

  
	
   

  
	
  With a copy to: Akin
  Gump Strauss Hauer & Feld LLP

  
	
   

  	
   

  
	
   

  	
  One Bryant Park

  
	
   

  	
  New York, NY 10036

  
	
   

  	
  Attn: Patrick Fenn

  
	
   

  	
  Fax No.:
  212-872-1002

  
	
   

  	
   

  
	
  If to DFR:

  	
  Deerfield Capital
  Corp.

  
	
   

  	
  6250 North
  River Road

  
	
   

  	
  Rosemont,
  Illinois 60018

  
	
   

  	
  Attn: Jonathan
  Trutter

  
	
   

  	
  Fax No.: (773) 867-5186

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  General Counsel

  
	
   

  	
  Fax No.:  (773) 380-1695

  

 

14

 

	
  With a copy to:  Schulte
  Roth & Zabel LLP

  
	
   

  	
   

  
	
   

  	
  919 Third Avenue

  
	
   

  	
  New York, New York
  10022

  
	
   

  	
  Attn: Paul
  Watterson

  
	
   

  	
  Fax
  No.:  212-593-5955

  

 

Notice sent by
telecopy shall be deemed given when confirmation of transmission is received, and
notice sent by any other means shall be deemed given when received at the
address set forth above; but any party may designate a different address by a
notice similarly given to the other party.

 

22.                                 Attorneys’ Fees.  All reasonable and documented costs and
expenses (including, without limitation, the fees and expenses of counsel,
accountants and financial advisors) incurred in connection with the
consummation of the Transactions shall be paid by the party incurring such
costs and expenses, including, without limitation, the fees and expenses of
their respective counsel and financial advisers.  Notwithstanding the foregoing, on the Initial
Closing Date, Fund I shall pay all reasonable and documented costs and expenses
(including, without limitation, the fees and expenses of counsel and financial
advisors) of Investor and DCM and DFR incurred in connection with the
consummation of the Transactions.

 

23.                                 Conflicts.  To the extent there is any conflict between
this Agreement and the limited partnership agreement of Fund I (including,
without limitation, any side letter relating thereto), the DLC GP Agreement or
the Advisory Agreement, the provisions of this Agreement shall apply with
respect to the parties hereto.

 

24.                                 Related Party Transactions.(1) 
If Investor or any Affiliate thereof or any of such person’s partners,
members, shareholders, directors, managers, officers, agents or operating
advisors (collectively, the “Pegasus Entities”), acquires knowledge
of a potential transaction or matter which may be an investment or business
opportunity or prospective economic or competitive advantage in which DFR,
DCM, DLC GP, Fund I or any Affiliate thereof or any of such entity’s partners,
members, shareholders, directors, managers, officers, agents or advisors (collectively,
the “DFR Entities”) could have an interest or expectancy (a “Competitive
Opportunity”) or otherwise is then exploiting any Competitive
Opportunity, none of the DFR Entities will have any interest in, and
no expectation that, such Competitive Opportunity be offered
to any DFR Entity.  To the
fullest extent provided by law, any such interest or expectation is hereby
renounced so that none of the Pegasus
Entities shall have any duty to communicate or present such
Competitive Opportunity to any DFR Entity and each Pegasus Entity
shall have the right to either hold any such Competitive Opportunity for
such Pegasus Entity’s (and its agents’, partners’ or Affiliates’) own account
and benefit or to recommend, assign or otherwise transfer such Competitive Opportunity
to Persons other than to a DFR Entity.

 

25.                                 Determinations of the Investor.  Except as otherwise
expressly provided in the Transaction Documents, notwithstanding any applicable
provision of law or equity, to the fullest extent permitted by law, whenever
Investor or any of its Affiliates is permitted to make a decision or consent to
any action pursuant to this Agreement or any other Transaction Document, any of
the Investor and its Affiliates shall be permitted to make such decision or
provide or withhold such consent in its “sole discretion” and shall be entitled
to consider only such interests and factors as it desires, including its own 

 

(1)                                  To the extent there is 3rd party capital; to include similar
language in the PPM; including a disclaimer relating to Investor’s liability
under the Fund Agreement (i.e., notwithstanding Investor’s various consent and
other rights, Investor is not acting in the capacity of a general partner and
no person has any rights against Investor in connection therewith).

 

15

 

interests,
and shall have no duty or obligation to give any consideration to any interest
of or factors affecting any other Person.

 

26.                                 Representations and
Warranties.  Each of the
parties makes representations and warranties as set forth in Exhibit A
attached hereto, as applicable, as of the date hereof.

 

27.                                 Amendments and Waivers.  This Agreement may be amended and the
observance of any provision of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only
with the written consent of each party hereto.

 

28.                                 Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
permitted assigns of the parties hereto.

 

29.                                 Termination.  Except as set forth in Sections 6, 8, 9, and
12 which shall survive indefinitely and except expressly set forth herein, this
Agreement shall terminate on the date when the Investor no longer has any
interest in, or any obligation in respect of, Fund I or DLC GP.

 

30.                                 Miscellaneous.  This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
without regard to conflict of laws principles. 
The parties hereto hereby submit to the nonexclusive jurisdiction of the
federal and state courts located in New York, New York for the resolution of
all matters pertaining to the enforcement and interpretation of this
Agreement.  This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original and all of which taken together shall constitute one and the same
instrument.

 

16

 

If the
above correctly reflects our understanding and agreement with respect to the
foregoing matters, please so confirm by signing the enclosed copy of this
Agreement in the space provided below.

 

 

	
   

  	
  DEERFIELD
  PEGASUS LOAN CAPITAL LP

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  DPLC
  General Partner LLC, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert A. Contreras

  
	
   

  	
   

  	
  Name:

  	
  Robert A. Contreras

  
	
   

  	
   

  	
  Title:

  	
  Deerfield Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  DPLC
  General Partner LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert A. Contreras

  
	
   

  	
   

  	
  Name:

  	
  Robert A. Contreras

  
	
   

  	
   

  	
  Title:

  	
  Deerfield Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  DEERFIELD CAPITAL CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert A. Contreras

  
	
   

  	
   

  	
  Name:

  	
  Robert A. Contreras

  
	
   

  	
   

  	
  Title:

  	
  General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
  DEERFIELD CAPITAL
  MANAGEMENT LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert A. Contreras

  
	
   

  	
   

  	
  Name:

  	
  Robert A. Contreras

  
	
   

  	
   

  	
  Title:

  	
  General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
  PEGASUS DEERFIELD (AIV),
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Pegasus Investors IV, L.P., its managing member

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Pegasus Investors IV GP,
  L.L.C., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Rodney Cohen

  
	
   

  	
  Name:

  	
  Rodney Cohen

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  PGS MANAGEMENT, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Pegasus Capital Advisors IV, L.P., its managing member

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Pegasus Capital Advisors
  IV GP, L.L.C., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Rodney Cohen

  
	
   

  	
  Name:

  	
  Rodney Cohen

  
	
   

  	
  Title:

  	
  Authorised
  Person

  
					

 

Signature
page

 

 

Exhibit A

 

Representations and Warranties

 

1.                                       Representations and Warranties of Each Party.  Each
party to the Agreement represents and warrants to the other parties as follows:

 

(a)                                  Organization and Qualification.  Such party is a duly organized or formed, as applicable, and
subsisting legal entity under the laws of the state of its organization or
formation, as applicable.  Such party has
the requisite legal power and authority to conduct its business as currently
conducted.  Such party is duly qualified or
licensed to do business and is in good standing in every jurisdiction where its
business so requires, except for such failures to be so qualified or licensed
as would not, individually or in the aggregate, be reasonably expected to have
a material adverse effect with respect to such party.

 

(b)                                 Authority.  Such party has full legal  power
and authority to enter into the Agreement and each other Transaction Document
to which it is a party, to perform its obligations hereunder and thereunder,
and to carry out the Transactions.  Such
party has taken all requisite action necessary to be taken by it to authorize
the execution, delivery, and performance of this Agreement and each other
Transaction Document to which it is a party, and no further company action, or
action on the part of its owners, is necessary to authorize this Agreement or
any other Transaction Document to which it is a party or to consummate the
Transactions.  This Agreement and each
other Transaction Document to which such party is a party have been (or, when
executed and delivered, will be) duly executed and delivered by such party, and
are (or, when executed and delivered, will constitute) valid and legally
binding agreements and obligations of such party, enforceable against it in
accordance with its terms, except as may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors’ rights generally and subject to general
principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law.

 

(c)                                  No Violations.  The execution, delivery and
performance of this Agreement and the other Transaction Documents by such
party, and the consummation of the Transactions, will not breach or violate any
provision of any governing document of such party, nor breach or violate the
terms of any material agreement to which it is a party or by which its assets
or properties are bound or any applicable law to which it is subject or by
which it is obligated or any of its properties or assets are bound, other than
breaches and violations that would not, individually or in the aggregate,
affect (a) the validity or enforceability of this Agreement or any other
Transaction Document, or (b) materially and adversely affect such party’s
business, Fund I, the Transactions or the performance by such party of its
obligations under the Transaction Documents.

 

(d)                                 No Consents.  There is no consent of any Person, or any declaration to or
filing or registration with, any governmental authority, that is required on
the part of such party in connection with the execution, delivery and
performance of this Agreement and the other Transaction Documents or the
consummation of the Transactions.

 

(e)                                  Litigation.  No litigation is pending or, to such party’s knowledge,
threatened against (a) such party arising out of, resulting from or
relating to such party’s business, or (b) arising out of, resulting from
or relating to this Agreement, any other Transaction Document or the
Transactions that would, individually or in the aggregate, affect (a) the
validity or enforceability of this Agreement or any other Transaction Document,
or (b) materially and adversely affect such party’s business, Fund I, the
Transactions or the performance by such party of its obligations under the
Transaction Documents and, in each case, such party has no knowledge of any
events, facts or circumstances that could reasonably likely serve as the basis
for any such litigation.  There are, and
within the past five years have been, no outstanding judgments, decrees,
injunctions, stipulations or orders against or relating to such party.  

 

 

There
are no consent decrees or similar arrangements entered into with a governmental
authority or other Person by, or relating to, such party or such party’s
business that are still in effect or were in effect within the past five years.

 

2.                                       Representations and Warranties
of DCM.  DCM represents and warrants to Investor as follows:

 

(a)                                  Eligibility.  DCM is not ineligible (whether by virtue of
its own conduct, acts or omissions or by virtue of the conduct, acts or
omissions of DFR or the DFR Affiliates) under Section 9(a) or 9(b) of
the Investment Company Act of 1940, as amended (the “1940 Act”) to serve
as an investment adviser (or in any other capacity contemplated by the 1940
Act) to a registered investment company. 
Neither DCM nor any “person associated with an investment adviser” (as
defined in the Investment Advisers Act of 1940, as amended (the “Advisers
Act”)) with respect to DCM is ineligible pursuant to Section 203 of
the Advisers Act to serve as an investment adviser or as a person associated
with an investment adviser, or pursuant to Rule 206(4)-3 under the
Advisers Act to serve as a solicitor, and has not been the subject of any legal
or disciplinary event that must be disclosed to clients pursuant to Rule 206(4)-4
promulgated under the Advisers Act. Neither DCM nor any “person associated with
an investment adviser” with respect to DCM as contemplated above is otherwise
ineligible under any other applicable law from providing investment management
or advisory services (or any other services provided by DCM).  There is no judicial or administrative
action, suit, proceeding, investigation or other litigation, pending or, to DCM’s
knowledge, threatened that could reasonably be expected to result in DCM, DFR
or any DFR Affiliate thereof (or any “person associated with an investment
adviser” with respect to DCM as contemplated above) becoming ineligible to
serve in such positions or capacity or requiring disclosure to clients of DCM.

 

(b)                                 Compliance and Certain Other Matters.

 

(i)                                     DCM is duly
registered as an investment adviser under the Advisers Act and each other state
or jurisdiction in which DCM is required to make a “notice filing” under
applicable law.  The governmental
approvals and other consents needed to perform its obligations under the
Transaction Documents  have been
duly obtained, and are in full force and effect and all such governmental
approvals, consents and other filings and registrations were prepared in
accordance with applicable law and did not when filed contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements in them not misleading in light of the circumstances under which
they were made.  DCM has provided to
Investor true, accurate and complete copies of all filings, registrations and
other governmental approvals and consents filed, given or made in the two years
immediately preceding the date hereof in connection with DCM’s operations as an
investment adviser.

 

(ii)                                  DCM has
complied and is in compliance in all material respects with all applicable laws
(such as, for example and without limitation, Section 206 of the Advisers
Act, Section 36 of the 1940 Act, and the regulations promulgated
thereunder, governing or imposing fiduciary duties, and all laws applicable to
the investment advisory agreements pursuant to which DCM provides investment
advisory or management services) relating to the conduct of its business, and
with the material provisions of all advisory agreements to which it is a party,
and has been and is in material compliance with all required governmental
approvals and other consents.  None of
DCM, DFR or any DFR Affiliate thereof has received notice of a material violation
of any applicable law (including, without limitation, as applicable, Rule 3a-4
under the 1940 Act) by DCM, DFR or any DFR Affiliate, and DCM does not have
knowledge of any such material violation.

 

A-2

 

(iii)                               No exemptive
orders, “no-action” letters or similar exemptions or regulatory relief have
been obtained, nor are any requests pending therefor, by or with respect to
DCM, its business or, to DCM’s or DFR’s knowledge, DCM’s directors, officers or
employees, with respect to, or that are necessary for, DCM’s operation of its
business (including, without limitation, its provision of investment
management, advisory and other services to it clients).

 

(iv)                              There have been
no material violations of DCM’s insider trading, privacy, proxy voting and other
compliance policies and procedures by DCM or, to its actual knowledge, its
officers, directors, managers, employees, representatives, agents, service
providers, or other supervised persons or access persons.  DCM has provided or made available to Investor
copies of DCM’s compliance policies and procedures.

 

(v)                                 DCM has
delivered or made available to Investor copies of all material correspondence
(which shall include for the avoidance of doubt any correspondence in
connection with any deficiency letters issued by the Securities and Exchange
Commission (the “Commission”)) between DCM and the Commission or other
governmental authority relating to any examination or inquiry by the Commission
or other governmental authority with respect to DCM’s compliance with
applicable law, including with respect to the Commission’s ongoing
investigation of certain practices associated with the offer, purchase or sale
of Collateralized Mortgage Obligations and Real Estate Mortgage Investment
Conduits and the creation of re-REMICS. 
During the ten years immediately preceding the date hereof, none of DCM
nor, to DCM’s knowledge, any of DCM’s directors, officers or employees have
been enjoined, indicted, convicted or made the subject of any investigations
(excluding routine examinations by regulatory or self-regulatory
organizations), disciplinary proceedings, consent decrees, administrative
orders or other litigation on account of a violation (or alleged violation) of
any applicable securities law or similar law applicable to the business of DFR
and the DFR Affiliates, any felony or any misdemeanor involving moral
turpitude, except as set forth in the correspondence referenced in the first
sentence of this Section2(b)(v) or has otherwise been disclosed in writing
by DCM to Investor.

 

(vi)                              The insurance
policies or bonds of DCM that insure against errors and omissions, professional
negligence and other liabilities arising out of, resulting from or relating to
the conduct of its business or the provision of services to its clients, or
liabilities of its clients, are commercially reasonable in terms of the policy
limits, coverages and exceptions, and are valid and binding, in full force and
effect, and enforceable against the policyholders, and, to DCM’s knowledge, the
insurers, according to their terms, and no material default has been committed
by DCM, or to DCM’s knowledge, the insurer, under any of such policies.

 

(c)                                  Competitive Restrictions.  None of DCM nor, to DCM’s knowledge, any of
its employees, officers or directors is subject to a competitive restriction in
any agreement that would prevent DCM or such employees, officers or directors
from performing its obligations under the Transaction Documents.

 

(d)                                 Solvency.     DFR
is not now insolvent, will not be rendered insolvent by any of the Transactions
contemplated by the Transaction Documents and, to the best of DFR’s
knowledge, there are no conditions or occurrences currently existing or
reasonably likely to arise or occur that would render DFR insolvent, other than
the failure to obtain by April 1, 2010 a waiver of compliance with the net
worth covenant contained in the agreements governing DFR’s trust preferred
securities, provided, DFR has no reason to believe
that it will be unsuccessful in obtaining such waiver.  As used in this clause (d) “insolvent”
means, with respect to any Person (together with such Person’s affiliates, as
applicable) that (i) the sum of the obligations and other
liabilities of a Person (as set forth on the most recent balance sheet of
such Person audited in accordance with generally accepted accounting
principles) exceeds the sum of the value of such Person’s (1) assets
(as set forth on the most recent balance sheet of such Person

 

A-3

 

audited in accordance with generally accepted accounting
principles), (2) deferred tax assets associated with the NOL carry-forward
which for purposes of this add-back calculation shall not be offset by any
valuation allowance amount recorded in the most recent balance sheet of such
Person audited in accordance with generally accepted accounting
principles) and (3) Negative Market Square CLO equity (to the extent
there is no actual legal liability of the Company relating thereto) as set
forth on the most recent published financial statements of such Person audited
in accordance with generally accepted accounting principles; such Negative
Market Square CLO equity for the period ending December 31, 2008 is as set
forth under “Economic Book Value Per Share” in DFR’s Form 10-K filed with
the SEC on March 16, 2009, (ii) a Person is unable to pay such
Person’s liabilities as they become due in the usual course of business; (iii) that
a Person has unreasonably small capital with which to conduct its
businesses and affairs, or (iv) final judgments against a Person in
all pending and threatened litigation could be reasonably anticipated to
be rendered at a time when, or in amounts such that, such Person would be
unable to satisfy any such judgments promptly in accordance with their terms,
as well as all other existing obligations of such Person, and taking
into account all other anticipated uses of cash.

 

(e)                                  Contracts; No
Adverse Conditions.     DFR and the DFR
Affiliates are in compliance in all material respects with the terms and conditions
of each material contract or agreement to which any of them is a
party.  There does not exist under any
such contract or agreement any breach or other event of default,
or event or condition that, after notice or lapse of time or both, would constitute
a breach or other event of default under such contract or agreement, on
the part of DFR or any DFR Affiliates or, to DFR’s knowledge, on the
part of any other party thereto, which breach or other event of default would
have or could reasonably be expected to have a material adverse effect on DFR
or any DFR Affiliate or the business, operations, prospects or status
as going concerns of any of them (a “Material Adverse Effect”). 
DFR is not aware of any conditions or occurrences currently existing, nor has
there been any change since December 31, 2008, in the condition (financial
or otherwise), business operations, assets, earnings, business or prospects of
DFR or any DFR Affiliate (including any actual or potential competitive factors
in the markets in which DFR and the DFR Affiliates participate) that has, or
could reasonably be expected to have, a Material Adverse Effect.  DFR represents that the failure by DFR to
maintain its listing on the NYSE Amex will not result in a breach of any
material agreement of DFR or DCM, including any debt documents or management
agreements to which any of DFR or DCM is a party.

 

(f)                                    USTB Covenant.  DCM will use reasonable best efforts to
operate Fund I so as not to cause Investor (or any direct or indirect
beneficial owner of Investor if Investor is a partnership or other flow-through
entity for U.S. Federal income tax purposes), solely as a result of investments
of and income realized by Fund I, to be engaged in a trade or business within
the United States for U.S. Federal income tax purposes, provided that Investor
shall cooperate fully with DCM in respect of this covenant.  Without
limiting the foregoing, DCM shall not, without the written consent of Investor,
(i) engage (directly or indirectly, including through derivative
instruments) in loan origination activities; (ii) modify the terms of any
debt instrument in a manner that would result in a deemed exchange of the debt
instrument for U.S. Federal income tax purposes; or (iii) acquire
(including pursuant to a foreclosure) any U.S. real property interest (as
defined in section 897(c)(1) of the Code).

 

A-4

 

Exhibit B

 

Reports and Correspondence

 

1.                                       Fund I Balance
Sheet

2.                                       Fund I Income
Statement

3.                                       Investor
Capital Rollforward including Return by Investor

4.                                       Individual
Partner Statement

5.                                       Fund I Holdings
Report

 

 

Exhibit C

 

Insurance Policies

 

DFR
shall procure and maintain sufficient, customary and necessary (1) directors
and officers and (2) errors and omissions insurance from an insurance
carrier with an AM Best rating of A or better (at the time each
policy is obtained or renewed) for each of DCM and DLC GP, provided
that in the event such carrier’s rating is downgraded to an AM Best rating of
below A, DFR shall use commercially reasonable best efforts to replace
such carrier with an insurance carrier with an AM Best rating of A or better
within 90 days of such downgrade, and provided, further, that the parties agree that to the extent Fund
I raises capital from third party investors, additional insurance may be
required.  DFR has previously delivered
all such insurance policies currently in effect to Investor and no changes have
been made thereto since such delivery. 
DFR hereby represents and warrants that such policies are currently in
full force and effect.  DFR shall
instruct each insurance carrier to provide Pegasus with advance notice prior to
any change in coverage or termination.

 

 

Portions of this exhibit have been omitted and filed separately
pursuant to a request for confidential treatment filed with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  Omissions are
designated as [***].

 

Exhibit D

 

Key Investment Professionals

 

[***]

 

 

Portions of this exhibit have been omitted and filed separately
pursuant to a request for confidential treatment filed with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  Omissions are
designated as [***].

 

Exhibit E

 

Capital Contribution Schedule

 

Investor’s
$75,000,000 capital commitment to Fund I and DLC GP shall be called according
to the following schedule:

 

Tranche
1 - $5,000,000 — contributed to Fund I upon the Initial Closing

 

Tranche
2 - $[***] — contributed to Fund I once DCM demonstrates to
Investor an ability to invest at least $[***] of such tranche
to purchase Fund I investments that meet the conditions of the Fund Investment
Protocol

 

Tranche
3 - $[***] — contributed to Fund I once (a) $[***] of Tranche 2 is
invested and (b) DCM demonstrates to Investor an ability to invest at
least $[***] of such tranche to purchase Fund I investments that
meet the conditions of the Fund Investment Protocol

 

Tranche
4 – $[***] — contributed to Fund I once (a) $[***] of Tranche 3 is
invested and (b) DCM demonstrates to Investor an ability to invest at
least $[***] of such tranche to purchase Fund I investments that
meet the conditions of the Fund Investment Protocol

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