Document:

Exhibit 10.5

COLLATERAL MANAGEMENT AGREEMENT

This Collateral
Management Agreement, dated as of August 24, 2006 (this “Agreement”), is
entered into by and between GRAMERCY REAL ESTATE CDO 2006-1, Ltd., an exempted
company incorporated with limited liability under the laws of the Cayman
Islands (together with successors and assigns permitted hereunder, the “Issuer”), and GKK
MANAGER LLC, a limited liability company organized under the laws of the State
of Delaware (together with its successors and assigns, the “Collateral Manager”).  Capitalized terms used herein but not
otherwise defined herein shall have the respective meanings ascribed thereto in
the indenture, dated as of August 24, 2006 (the “Indenture”), by and among the Issuer, Gramercy
Real Estate CDO 2006-1 LLC, as co-issuer (the “Co-Issuer”), Wells Fargo Bank, National
Association, as trustee (in such capacity, the “Trustee”), paying agent, calculation agent,
transfer agent, custodial securities intermediary, backup advancing agent and
notes registrar, and GKK Liquidity LLC, as advancing agent.

WHEREAS, the Issuer
desires to engage the Collateral Manager to provide the services described
herein and the Collateral Manager desires to provide such services;

NOW, THEREFORE, in
consideration of the mutual covenants and agreements set forth herein, the
parties hereto hereby agree as follows:

1.             Management Services.  The Collateral Manager is hereby appointed as
the Issuer’s exclusive agent to provide the Issuer with certain services in
relation to the Assets specified herein and in the Indenture.  Accordingly, the Collateral Manager accepts
such appointment and shall provide the Issuer with the following services (in
accordance with all applicable requirements of the Indenture, the CDO Servicing
Agreement and this Agreement, including, without limitation, the Collateral
Manager Servicing Standard, as applicable):

(a)           determining specific Collateral Debt Securities to be
purchased or Collateral Debt Securities to be sold and the timing of such
purchases and sales, in each case, as permitted by the Indenture;

(b)           determining specific Eligible Investments to be purchased
or sold and the timing of such purchases and sales, in each case, as permitted
by the Indenture;

(c)           effecting or directing the purchase of Collateral Debt
Securities and Eligible Investments, effecting or directing the sale of
Collateral Debt Securities and Eligible Investments, and directing the
investment or reinvestment of proceeds therefrom, in each case as permitted by
the Indenture;

(d)           negotiating with the issuers of Collateral Debt Securities
as to proposed modifications or waivers of the documentation governing such
Collateral Debt Securities as permitted under the Indenture;

 

(e)           subject to the applicable provisions of the Asset
Servicing Agreement, taking action, or advising the Trustee with respect to
actions to be taken, with respect to the Issuer’s exercise of any rights
(including, without limitation, voting rights, tender rights and rights arising
in connection with the bankruptcy or insolvency of an issuer or the consensual
or non-judicial restructuring of the debt or equity of an issuer) or
remedies in connection with the Collateral Debt Securities and Eligible
Investments, as provided in the related Underlying Instruments, including in
connection with an Offer or a default, and participating in the committees or
other groups formed by creditors of an issuer, or taking any other action with
respect to Collateral Debt Securities and Eligible Investments which the
Collateral Manager determines in the reasonable exercise of the Collateral
Manager’s business judgment is in the best interests of the Noteholders in
accordance with, and as permitted by, the terms of the Indenture, any servicing
agreement and this Agreement;

(f)            consulting with the Rating Agencies at such times as may
be reasonably requested by the Rating Agencies and providing the Rating
Agencies with any information reasonably requested in connection with the
Rating Agencies’ maintenance of their ratings of the Notes and their assigning
credit indicators to prospective Collateral Debt Securities, if applicable;

(g)           determining whether specific Collateral Debt Securities
are Credit Risk Securities, Defaulted Securities or Written Down Securities and
determining whether such Collateral Debt Securities, and any other Collateral
Debt Securities that are permitted or required to be sold pursuant to the
Indenture, should be sold, and directing the Trustee to effect a disposition of
any such Collateral Debt Securities, subject to, and in accordance with the
terms and conditions of the Indenture;

(h)           (i) monitoring the Assets on an ongoing basis and
(ii) providing or causing to be provided to the Issuer and/or the other
applicable parties specified in the Indenture all reports, schedules and
certificates which relate to the Assets and which the Issuer is required to
prepare and deliver under the Indenture, which are not prepared and delivered
by the Trustee, on behalf of the Issuer, under the Indenture, in the form and
containing all information required thereby (including, in the case of the
Monthly Reports and the Notes Valuation Reports, providing the information to
the Trustee as specified in Sections 10.9(c) and 10.9(e) of the Indenture in
sufficient time for the Trustee to prepare the Monthly Report and the Notes
Valuation Report) and, if applicable, in sufficient time for the Issuer to
review such required reports and schedules and to deliver them to the parties
entitled thereto under the Indenture;

(i)            managing the Issuer’s Collateral Debt Securities and
Eligible Investments in accordance with the Indenture, including the
limitations relating to the Eligibility Criteria, the Coverage Tests, the
Collateral Quality Tests, the Reinvestment Criteria and the other requirements
of the Indenture and this Agreement, and, subject to the Asset Servicing
Agreement, taking any action that the Collateral Manager deems appropriate and
consistent with the Indenture, the Collateral Manager Servicing Standard and
the standard of care set forth herein with respect to any portion of the Assets
that does not constitute Collateral Debt Securities or Eligible Investments as
required or permitted by the Indenture;

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(j)            monitoring all Hedge Agreements and determining whether
and when the Issuer should exercise any rights available under any Hedge
Agreement, and causing the Issuer to enter into additional or replacement Hedge
Agreements or terminating (in part or in whole) existing Hedge Agreements, in
each case, in accordance with the Indenture and the terms of such Hedge
Agreements;

(k)           providing notification promptly, in writing, to the
Trustee and the Issuer upon receiving actual notice that a Collateral Debt
Security is subject to an Offer or has become a Defaulted Security, a Written
Down Security or a Credit Risk Security;

(l)            providing notification promptly, in writing, to the
Trustee and the Issuer upon becoming actually aware of a Default or an Event of
Default under the Indenture;

(m)          determining (subject to the Indenture) whether, in light of
the composition of Collateral Debt Securities, general market conditions and
other factors considered pertinent by the Collateral Manager, investments in
additional Collateral Debt Securities would, at any time during the
Reinvestment Period, either be impractical or not beneficial to the Holders of
the Preferred Shares;

(n)           if the Collateral Manager elects to amortize the Notes
pursuant to and in accordance with Section 9.7 of the Indenture, providing
notification, in writing, to the Trustee, the Issuer, the Co-Issuer and each
Hedge Counterparty of (A) such election and (B) the amount of such proceeds
that will be used to so amortize the Notes;

(o)           taking reasonable action on behalf of the Issuer to effect
any Optional Redemption, any Tax Redemption, any Auction Call Redemption or any
Clean-up Call in accordance with the Indenture;

(p)           on the Stated Maturity of the Notes, or in connection with
any Optional Redemption, any Tax Redemption, any Auction Call Redemption or any
Clean-up Call, liquidating any remaining Hedge Agreements in accordance with
the terms thereof and the Indenture;

(q)           monitoring the ratings of the Collateral Debt Securities
and the Issuer’s compliance with the covenants by the Issuer in the Indenture;

(r)            assisting the Issuer in (i) taking any action in
order to effect and/or maintain the listing of any of the Notes on the Irish
Stock Exchange or (ii) obtaining any waiver from the Irish Stock Exchange,
or (iii) providing other information related to the Issuer that is
reasonably available to the Collateral Manager, in each case, when specifically
requested by the Irish Stock Exchange;

(s)           complying with such other duties and responsibilities as
may be specifically required of the Collateral Manager by the Indenture or this
Agreement;

(t)            complying in all material respects with the Investment
Advisers Act of 1940, as amended (the “Advisers Act”), with respect to the Issuer;

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(u)           in order to render the Securities eligible for resale
pursuant to Rule 144A under the Securities Act, while any of such Securities
remain outstanding, making available, upon request, to any Holder or
prospective purchaser of such Securities, additional information regarding the
Issuer and the Assets if such information is reasonably available to the
Collateral Manager and constitutes Rule 144A Information required to be
furnished by the Issuer pursuant to Section 7.13 of the Indenture, unless the
Issuer furnishes information to the United States Securities and Exchange
Commission (the “Commission”)
pursuant to Section 13 or Section 15(d) of the Exchange Act;

(v)           upon reasonable request, assisting the Trustee or the
Issuer with respect to such actions to be taken after the Closing Date, as is
necessary to maintain the clearing and transfer of the Notes through DTC and
Euroclear; and

(w)          in accordance with the Collateral Manager Servicing
Standard, enforcing the rights of the Issuer as holder of the Collateral Debt
Securities, including, without limitation, taking such action as is necessary
to enforce the Issuer’s rights with respect to remedies related to breaches of
representations, warranties or covenants in the Underlying Instruments for the
benefit of the Issuer.

In furtherance of the
foregoing, the Issuer hereby appoints the Collateral Manager the Issuer’s true
and lawful agent and attorney-in-fact, with full power of substitution and full
authority in the Issuer’s name, place and stead and without any necessary
further approval of the Issuer, in connection with the performance of the
Collateral Manager’s duties provided for in this Agreement, including the
following powers:  (i) in accordance
with the terms and conditions of the Indenture and this Agreement, to buy,
sell, exchange, convert and otherwise trade Collateral Debt Securities and
Eligible Investments, and (ii) to execute (under hand, under seal or as a
deed) and deliver all necessary and appropriate documents and instruments on
behalf of the Issuer to the extent necessary or appropriate to perform the
services referred to in (a) through (w) above of this Section 1 and under
the Indenture.  The foregoing power of
attorney is a continuing power, coupled with an interest, and shall remain in
full force and effect until revoked by the Issuer in writing by virtue of the
termination of this Agreement pursuant to Section 12 hereof or an
assignment of this Agreement pursuant to Section 17 hereof; provided
that any such revocation shall not affect any transaction initiated prior to
such revocation.  Nevertheless, if so
requested by the Collateral Manager, a purchaser of a Collateral Debt Security
or Eligible Investment or a Hedge Counterparty, the Issuer shall ratify and
confirm any such sale or other disposition by executing and delivering to the
Collateral Manager, such purchaser or such Hedge Counterparty all proper bills
of sale, assignments, releases and other instruments as may be designated in
any such request.

The Collateral Manager
does not hereby guarantee that sufficient funds will be available on each
Payment Date to satisfy any such payment obligations.  The Collateral Manager shall perform its
obligations hereunder and under the Indenture with reasonable care and in good
faith, using a degree of skill and attention no less than that which it
(a) exercises with respect to comparable assets that it manages for itself
and (b) exercises with respect to comparable assets that it manages for
others, and in a manner consistent with the practices and procedures then in
effect followed by reasonable and prudent institutional managers of national
standing relating to assets of the nature and character of the Assets, except
as expressly provided

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in this Agreement or in the Indenture.  In addition, the Collateral Manager shall use
commercially reasonable efforts to ensure that directions to the Trustee with
respect to the purchase of Eligible Investments are made by the Collateral
Manager only if, in the Collateral Manager’s commercially reasonable judgment
at the time of such direction, payment at settlement in respect of any such
purchase could be made without any breach or violation of, or default under,
the terms of the Indenture or this Agreement. 
The Collateral Manager shall comply with and perform all the duties and
functions that have been specifically delegated to the Collateral Manager under
the Indenture.  The Collateral Manager
shall be bound to follow any amendment, supplement or modification to the
Indenture of which it has received written notice at least ten (10) Business
Days prior to the execution and delivery thereof by the parties thereto; provided,
however, that, with respect to any amendment, supplement, modification
or waiver to the Indenture which may affect the Collateral Manager, the
Collateral Manager shall not be bound thereby (and the Issuer agrees that it
will not permit any such amendment, supplement, modification or waiver to
become effective) unless the Collateral Manager has been given prior written
notice thereof and gives its written consent thereto (which consent shall not
be unreasonably withheld) to the Trustee and the Issuer prior to the effectiveness
thereof.

The Collateral Manager
shall take all actions reasonably requested by the Trustee to facilitate the
perfection of the Trustee’s security interest in the Assets pursuant to the
Indenture.

Notwithstanding anything
contained herein to the contrary, (i) any cash advance the Collateral Manager
makes with respect to cure payments and actions taken in connection therewith
and (ii) any voting, consent, consultation or control rights exercised by the
Collateral Manager with respect to a Collateral Debt Security that is a B Note,
Participation or junior interest in a Mezzanine Loan, in each case, shall be
subject to the applicable provisions of the Asset Servicing Agreement.

2.             Delegation of Duties.  The Collateral Manager may delegate to third
parties (including its Affiliates), which it shall select with reasonable care,
and employ third parties to execute any or all of the duties assigned to the
Collateral Manager hereunder; provided, however, that
(i) the Collateral Manager shall not be relieved of any of its duties or
obligations hereunder as a result of such delegation to or employment of third
parties, (ii) the Collateral Manager shall be solely responsible for the
fees and expenses payable to any such third party, except as set forth in Section 6
hereof, and (iii) such delegation does not constitute an “assignment”
under the Advisers Act.

3.             Purchase and Sale Transactions;
Brokerage.

(a)           The Collateral Manager shall seek to obtain the best
overall terms for all orders placed with respect to the Assets, considering all
reasonable circumstances, including, if applicable, the conditions or terms of
early redemption of the Securities, it being understood that the Collateral
Manager has no obligation to obtain the lowest prices available.  Subject to the foregoing objective, the
Collateral Manager may take into consideration all factors the Collateral
Manager reasonably determines to be relevant, including, without limitation,
timing, general relevant trends and research and other brokerage services and support
equipment and services related thereto furnished to the Collateral Manager or
its Affiliates by brokers and dealers in

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compliance with Section 28(e) of the
Exchange Act or, if Section 28(e) of the Exchange Act is not applicable, in
accordance with the provisions set forth herein.  Such services may be used in connection with
the other advisory activities or investment operations of the Collateral
Manager and/or its Affiliates.  In
addition, the Collateral Manager may take into account available prices, rates
of brokerage commissions and size and difficulty of the order, in addition to
other relevant factors (such as, without limitation, execution capabilities,
reliability (based on total trading rather than individual trading), integrity,
financial condition in general, execution and operational capabilities of
competing brokers and/or dealers, and the value of the ongoing relationship
with such brokers and/or dealers), without having to demonstrate that such
factors are of a direct benefit to the Issuer in any specific transaction.  The Issuer acknowledges and agrees that (i)
the determination by the Collateral Manager of any benefit to the Issuer is
subjective and represents the Collateral Manager’s evaluation at the time that
the Issuer will be benefited by relatively better purchase or sales prices,
lower brokerage commissions and beneficial timing of transactions or a
combination of any of these and/or other factors and (ii) the Collateral
Manager shall be fully protected with respect to any such determination to the
extent the Collateral Manager acts in good faith, and in accordance with the
Collateral Manager Servicing Standard and in accordance with the standard of
care set forth in Section 1 hereof, and without gross negligence, willful misconduct
or reckless disregard of the obligations of the Issuer hereunder or under the
terms of the Indenture.

The Collateral Manager
may aggregate sales and purchase orders of securities placed with respect to
the Assets with similar orders being made simultaneously for other accounts
managed by the Collateral Manager or with accounts of the Affiliates of the
Collateral Manager if, in the Collateral Manager’s sole judgment, exercised in
good faith, such aggregation will not have an adverse effect on the Issuer.  When any such aggregate sales or purchase
orders occur, the objective of the Collateral Manager (and any of its
Affiliates involved in such transactions) shall be to allocate the executions
among the accounts in a manner fair and equitable to all such accounts and
generally to seek to allocate securities available for investment to all such
accounts pro rata in proportion to the optimum
amount sought by the Collateral Manager for each respective account.  In connection with the foregoing, the
objective of the Collateral Manager shall be to allocate investment
opportunities and the purchases or sales of instruments in a manner believed by
the Collateral Manager, in good faith, taking into account the Collateral
Manager’s Servicing Standard and in accordance with the standard of care set
forth in Section 1 hereof, to be fair and equitable.

In connection with any
purchase of a portfolio of assets other than securities, the objective of the
Collateral Manager shall be to allocate such assets (and the aggregate purchase
price paid for such assets) among the Collateral Manager’s clients (including
the Issuer) in a manner believed by the Collateral Manager to be fair and
equitable.  The Issuer acknowledges and
agrees that the Collateral Manager shall be fully protected with respect to any
such allocation to the extent the Collateral Manager acts in good faith, taking
into account the Collateral Manager’s Servicing Standard and in accordance with
the standard of care set forth in Section 1 hereof, and without gross negligence,
willful misconduct or reckless disregard of the obligations of the Issuer
hereunder or under the terms of the Indenture.

All purchases and sales
of Eligible Investments and Collateral Debt Securities by the Collateral
Manager on behalf of the Issuer shall be conducted in compliance with all

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applicable laws (including, without limitation,
Section 206(3) of the Advisers Act) and the terms of the Indenture.  After (and excluding) the Closing Date, the
Collateral Manager shall cause any purchase or sale of any Collateral Debt
Security or Eligible Investment to be conducted on an arm’s-length basis or, if
applicable, in compliance with Section 3(b) hereof.  The parties hereto acknowledge and agree that
all purchases (including, without limitation, purchases from Affiliates of the
Collateral Manager) of Eligible Investments and Collateral Debt Securities by
the Collateral Manager on behalf of the Issuer on the Closing Date (including,
without limitation, all such purchases from Affiliates of the Collateral
Manager) in a manner contemplated by the final Offering Memorandum, dated
August 23, 2006 (the “Offering Memorandum”), related to the Classes of
Notes offered thereby (or any supplement thereto) are hereby approved.

(b)           The Collateral Manager, subject to and in accordance with
the terms and conditions of the Indenture, may effect direct trades between the
Issuer and the Collateral Manager or any of its Affiliates acting as principal
or agent (any such transaction, a “Related Party Trade”); provided,
however, that a Related Party Trade after (and excluding) the Closing
Date, other than Credit Risk/Defaulted Security Cash Purchases, sales of
property or securities in accordance with the Origination Agreement and sales
of Assets pursuant to an auction in connection with an Auction Call Redemption
or in connection with a redemption of the Notes pursuant to Article 9 of the
Indenture, may be effected only (i) upon disclosure to and with the prior
consent of an advisory committee containing at least one member independent
from the Collateral Manager (whose affirmative vote will be required to grant
such consent) acting as a surrogate for, and in the best interest of, the
holders of the Securities that has been appointed from time to time as needed
by the Issuer or by the Collateral Manager following the resignation of any
member (the “Advisory Committee”) and based on the Advisory Committee’s
determination that such transaction is on terms substantially as favorable to
the Issuer as would be the case if a such transaction were effected with
Persons not so affiliated with the Collateral Manager or any of its Affiliates,
(ii) subject to a requirement that the purchase price in respect of any
Collateral Debt Security acquired by the Issuer from a Seller pursuant to such
a direct trade may not exceed the Principal Balance thereof, plus accrued and
unpaid interest thereon (or, in the case of a Preferred Equity Security, all
accrued and unpaid dividends or other distributions not attributable to the
return of capital by its governing documents) and (iii) if such purchase or
sale, as the case may be, is in accordance with the terms of the
Indenture.  The Advisory Committee, if
any, shall be formed subject to the Advisory Committee Guidelines attached
hereto as Exhibit A (the “Advisory Committee Guidelines”).  The Issuer consents and agrees that, if any
transaction relating to the Issuer, including any transaction effected between
the Issuer and the Collateral Manager or its Affiliates, shall be subject to
the disclosure and consent requirements of Section 206(3) of the Advisers Act,
such requirements shall be satisfied with respect to the Issuer and all Holders
of the Securities if disclosure shall be given to, and consent obtained from,
the Advisory Committee.  For avoidance of
doubt, it is hereby understood and agreed by the parties hereto that no
disclosure to, or consent of, the Advisory Committee shall be required with
respect to Credit Risk/Defaulted Security Cash Purchases, sales of property or
securities in accordance with the Origination Agreement and sales of Assets
pursuant to an auction in connection with an Auction Call Redemption or in
connection with a redemption of the Notes pursuant to Article 9 of the
Indenture.  Notwithstanding the
foregoing, to the extent such provisions are determined not to satisfy the
requirements of the Advisers Act, the Collateral Manager shall take such
actions in connection with any Related Party Trade as will satisfy the
requirements of Section 206(3) of the Advisers Act.

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4.             Representations and Warranties of the Issuer.  The Issuer represents and warrants to the
Collateral Manager that:

(a)           the Issuer (i) has been duly incorporated and
registered as an exempted company and is validly existing under the laws of the
Cayman Islands, (ii) has full power and authority to own the Issuer’s
assets and the securities proposed to be owned by the Issuer and included among
the Assets and to transact the business for which the Issuer was organized, and
(iii) is duly qualified under the laws of each jurisdiction where the
Issuer’s ownership or lease of property or the conduct of the Issuer’s business
requires or the performance of the Issuer’s obligations under this Agreement
and the Indenture would require such qualification, except for failures to be
so qualified that would not in the aggregate have a material adverse effect on
the business, operations, assets or financial condition of the Issuer or the
ability of the Issuer to perform its obligations under, or on the validity or
enforceability of, this Agreement and the Indenture; the Issuer has full power
and authority to execute, deliver and perform the Issuer’s obligations
hereunder and thereunder; this Agreement and the Indenture have been duly
authorized, executed and delivered by the Issuer and constitute legal, valid
and binding agreements enforceable against the Issuer in accordance with their
terms except that the enforceability thereof may be subject to
(a) bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship or other similar laws now or hereafter in effect relating to
creditors’ rights and (b) general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law);

(b)           no consent, approval, authorization or order of or
declaration or filing with any government, governmental instrumentality or
court or other Person is required for the performance by the Issuer of its
duties hereunder or under the Indenture, except those that may be required
under state securities or “blue sky” laws or the applicable laws of any
jurisdiction outside of the United States, and such as have been duly made or
obtained;

(c)           neither the execution, delivery and performance of this
Agreement or the Indenture nor the performance by the Issuer of its duties
hereunder or under the Indenture (i) conflicts with or will violate or
result in a default under the Issuer’s Governing Documents or any material
contract or agreement to which the Issuer is a party or by which it or its
assets may be bound, or any law, decree, order, rule, or regulation applicable
to the Issuer of any court or regulatory, administrative or governmental
agency, body or authority or arbitrator having jurisdiction over the Issuer or
its properties, or (other than as contemplated or permitted by the Indenture)
will result in a lien on any of the property of the Issuer and (ii) would
have a material adverse effect upon the ability of the Issuer to perform its
duties under this Agreement or the Indenture;

(d)           the Issuer and its Affiliates are not in violation of any
federal, state or Cayman Islands laws or regulations, and there is no charge,
investigation, action, suit or proceeding before or by any court or regulatory
agency pending or, to the best knowledge of the Issuer, threatened that, in any
case, would have a material adverse effect upon the ability of the Issuer to
perform its duties under this Agreement or the Indenture;

(e)           the Issuer is not an “investment company” under the
Investment Company Act; and

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(f)            the assets of the Issuer do not and will not at any time
constitute the assets of any plan subject to the fiduciary responsibility
provisions of ERISA or of any plan within the meaning of
Section 4975(e)(1) of the Code.

5.             Representations and Warranties
of the Collateral Manager.  The
Collateral Manager represents and warrants to the Issuer that:

(a)           the Collateral Manager (i) has
been duly organized, is validly existing and is in good standing under the laws
of the State of Delaware, (ii) has full power and authority to own the
Collateral Manager’s assets and to transact the business in which it is
currently engaged and (iii) is duly qualified and in good standing under
the laws of each jurisdiction where the Collateral Manager’s ownership or lease
of property or the conduct of the Collateral Manager’s business requires, or
the performance of this Agreement and the Indenture would require, such
qualification, except for failures to be so qualified that would not in the
aggregate have a material adverse effect on the business, operations, assets or
financial condition of the Collateral Manager or the ability of the Collateral
Manager to perform its obligations under, or on the validity or enforceability
of, this Agreement and the provisions of the Indenture applicable to the Collateral
Manager; the Collateral Manager has full power and authority to execute,
deliver and perform this Agreement and the Collateral Manager’s obligations
hereunder and the provisions of the Indenture applicable to the Collateral
Manager; this Agreement has been duly authorized, executed and delivered by the
Collateral Manager and constitutes a legal, valid and binding agreement of the
Collateral Manager, enforceable against it in accordance with the terms hereof,
except that the enforceability hereof may be subject to (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors’ rights and (b) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law);

(b)           neither the Collateral Manager nor any of its Affiliates
is in violation of any federal or state securities law or regulation
promulgated thereunder that would have a material adverse effect upon the
ability of the Collateral Manager to perform its duties under this Agreement or
the Indenture, and there is no charge, investigation, action, suit or
proceeding before or by any court or regulatory agency pending or, to the best
knowledge of the Collateral Manager, threatened which could reasonably be
expected to have a material adverse effect upon the ability of the Collateral
Manager to perform its duties under this Agreement or the Indenture;

(c)           neither the execution and delivery of this Agreement nor
the performance by the Collateral Manager of its duties hereunder or under the
Indenture conflicts with or will violate or result in a breach or violation of
any of the terms or provisions of, or constitutes a default under:  (i) the limited liability company
agreement of the Collateral Manager, (ii) the terms of any indenture,
contract, operating agreement, lease, mortgage, deed of trust, note agreement
or other evidence of indebtedness or other agreement, obligation, condition,
covenant or instrument to which the Collateral Manager is a party or by which
the Collateral Manager is bound, (iii) any law, decree, order, rule or
regulation applicable to the Collateral Manager of any court or regulatory,
administrative or governmental agency, body or authority or arbitrator having jurisdiction
over the Collateral Manager or its properties, and which would have, in the
case of any of (i), (ii) or (iii) of this subsection (c), either
individually or in the aggregate, a material adverse effect on the business,
operations, assets or financial condition of the Collateral

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Manager or the ability of the Collateral
Manager to perform its obligations under this Agreement or the Indenture;

(d)           no consent, approval, authorization or order of or
declaration or filing with any government, governmental instrumentality or
court or other Person is required for the performance by the Collateral Manager
of its duties hereunder and under the Indenture, except such as have been duly
made or obtained;

(e)           the Sections entitled “Summary—The Collateral Manager” and
“The Collateral Manager” in the Offering Memorandum, as of the date thereof
(including as of the date of any supplement thereto) and as of the Closing
Date, do not contain any untrue statement of a material fact and do not omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; and

(f)            the Collateral Manager is not required to register as an
investment adviser under the Advisers Act.

6.             Expenses.  Both parties hereto acknowledge and agree
that a portion of the gross proceeds received from the issuance and sale of the
Securities will be used to pay certain organizational and structuring fees and
expenses of the Co-Issuers, including the legal fees and expenses of counsel to
the Collateral Manager.  The Collateral
Manager shall pay all expenses and costs incurred by it in the course of
performing its obligations under this Agreement; provided, however,
that the Collateral Manager shall not be liable for, and (subject to the
Priority of Payments set forth in the Indenture and to the extent funds are
available therefor) the Issuer shall be responsible for the payment of,
reasonable expenses and costs (including, without limitation, reasonable travel
expenses) of (i) independent accountants, consultants and other advisers
retained by the Issuer or by the Collateral Manager on behalf of the Issuer in
connection with the services provided by the Collateral Manager hereunder, (ii)
legal advisers retained by the Issuer or by the Collateral Manager on behalf of
the Issuer in connection with the services provided by the Collateral Manager
hereunder and (iii) the Collateral Manager (A) to the extent of reasonable
expenses disbursed or allocated in valuing the Assets, disbursed or allocated
software and technology expenditures relating to the monitoring and
administration of the Assets and any other reasonable expenses incurred by the
Collateral Manager in connection with matters arising in the performance by the
Collateral Manager of its duties under this Agreement and (B) for an allocable
share of the cost of certain credit databases used by the Collateral Manager in
providing services to the Issuer under this Agreement.

7.             Fees.  As compensation for the performance of its obligations
as Collateral Manager hereunder and under the Indenture, the Collateral Manager
will be entitled to receive (i) a fee, payable quarterly in arrears on
each Payment Date in accordance with the Priority of Payments, equal to 0.15% per annum of the Net Outstanding Portfolio
Balance (the “Senior Collateral
Management Fee”) and (ii) an additional fee, payable
quarterly in arrears on each Payment Date in accordance with the Priority of
Payments, equal to 0.25% per annum
of the Net Outstanding Portfolio Balance (the “Subordinate Collateral Management Fee” and,
together with the Senior Collateral Management Fee, the “Collateral Management Fee”).  Each Collateral Management Fee will be
calculated for each Interest Accrual Period assuming a 360-day year

 10
 

 

with twelve (12)
thirty-day months.  The Collateral
Management Fee will be calculated based on the Net Outstanding Portfolio
Balance as of the first day of the applicable Interest Accrual Period.  If on any Payment Date there are insufficient
funds to pay such fees (and/or any other amounts due and payable to the
Collateral Manager) in full, in accordance with the Priority of Payments, the
amount not so paid shall be deferred and such amounts shall be payable on such
later Payment Date on which funds are available therefor as provided in the
Priority of Payments set forth in the Indenture.  Any accrued and unpaid Senior Collateral
Management Fee that is deferred due to the operation of the Priority of
Payments shall accrue interest at a per
annum rate equal to LIBOR in effect for the applicable Interest
Accrual Period computed on an actual 360-day basis.  Any accrued and unpaid Subordinate Collateral
Management Fee that is deferred due to the operation of the Priority of Payments
shall accrue interest at a per annum
rate equal to LIBOR in effect for the applicable Interest Accrual Period on an
actual 360-day basis.  Notwithstanding
any other provision hereof, the aggregate amount of all accrued but unpaid
Subordinate Collateral Management Fee payable on the final Payment Date or, if
earlier, following the winding up of the Issuer shall be equal to the lesser of
(a) the nominal amount thereof and (b) the amount available for payment under
the Priority of Payments. The Collateral Manager hereby agrees not to cause the
filing of a petition in bankruptcy against the Issuer for the nonpayment to the
Collateral Manager of any amounts due it hereunder except in accordance with
Section 18 hereof and, subject to the provisions of Section 12, to
continue to serve as Collateral Manager. 
If this Agreement is terminated pursuant to Section 12 hereof or
otherwise, the accrued fees payable to the Collateral Manager shall be prorated
for any partial periods between the Payment Dates during which this Agreement
was in effect and shall be due and payable on the first Payment Date following
the date of such termination, together with all expenses payable to the
Collateral Manager in accordance with Section 6 hereof, and subject to the
provisions of the Indenture and the Priority of Payments.

8.             Non-Exclusivity.  Nothing herein shall prevent the Collateral
Manager or any of its Affiliates or any of their officers or directors from
engaging in any other businesses or providing investment management, advisory
or any other types of services to any Persons, including the Issuer, the
Trustee and the Noteholders, to the fullest extent permitted by applicable law;
provided, however, that the Collateral Manager may not take any
of the foregoing actions which the Collateral Manager knows or reasonably
should know would require the Issuer or the pool of Assets to register as an “investment
company” under the Investment Company Act.

9.             Conflicts of Interest.

(a)           After (but excluding) the Closing Date and the sales by
Affiliates of the Collateral Manager of Collateral Debt Securities to the
Issuer on the Closing Date (and except in the case of Credit Risk/Defaulted
Security Cash Purchases, sales of property or securities in accordance with the
Origination Agreement and sales of Assets pursuant to an auction in connection
with an Auction Call Redemption or in connection with a redemption of the Notes
pursuant to Article 9 of the Indenture), the Collateral Manager will not cause
the Issuer to enter into any transaction with the Collateral Manager or any of
its Affiliates as principal, unless the applicable terms and conditions set
forth in Section 1 and Section 3(b) are complied with.

 11
 

 

(b)           The Collateral Manager shall perform its obligations
hereunder in accordance with the requirements of the Advisers Act and the
Indenture. The Issuer acknowledges that (i) the Collateral Manager and/or
its Affiliates will acquire on the Closing Date 100% of each of the Class J
Notes, the Class K Notes and the Preferred Shares, (ii) Affiliates of the
Collateral Manager will sell Collateral Debt Securities to the Issuer on or
prior to the Closing Date, and (iii) the Collateral Manager, its
Affiliates and funds or accounts for which the Collateral Manager or its
Affiliates acts as investment adviser may at times own Notes of one or more
additional Classes.  After the Closing
Date, the Collateral Manager agrees to provide the Trustee with written notice
upon the acquisition or transfer (after, but excluding, the Closing Date) of
any Securities held by the Collateral Manager, any of its Affiliates or any
fund managed or controlled by the Collateral Manager or any Affiliate thereof.

(c)           Nothing herein shall prevent the
Collateral Manager or any of its Affiliates or officers and directors of the
Collateral Manager from engaging in other businesses (including financing,
purchasing, owning, holding, originating or disposing of any assets or
investments), or from rendering services of any kind to the Issuer and its
Affiliates, the Trustee, the Holders or any other Person or entity, whether or
not any of the foregoing may be competitive with the business of the Issuer or
the Co-Issuer so long as the Collateral Manager complies with the standard of
care set forth in Section 1 hereof. 
Without prejudice to the generality of the foregoing, directors,
officers, members, partners, employees and agents of the Collateral Manager,
Affiliates of the Collateral Manager, and the Collateral Manager may so long as
the Collateral Manager complies with the standard of care set forth in Section
1 hereof, subject to the terms and conditions of the Indenture, among other
things:

(i)            serve as directors
(whether supervisory or managing), officers, employees, partners, members,
managers, agents, nominees or signatories for the Issuer or any Affiliate
thereof, or for any obligor in respect of any of the Collateral Debt Securities
or Eligible Investments, or any of their respective Affiliates, except to the
extent prohibited by their respective Underlying Instruments, as from time to
time amended; provided that (x) in the reasonable judgment of the
Collateral Manager, such activity will not have a material adverse effect on
the ability of the Issuer or the Trustee to enforce its respective rights with
respect to any Assets and (y) nothing in this paragraph shall be deemed to
limit the duties of the Collateral Manager set forth in Section 1 hereof;

(ii)           perform, and
receive fees for the performance of, services of whatever nature rendered to an
obligor in respect of any of the Collateral Debt Securities or Eligible
Investments, including acting as master servicer, sub-servicer or special
servicer with respect to any CMBS Securities or with respect to any commercial
mortgage loan constituting or underlying any Collateral Debt Security; provided
that, in the reasonable judgment of the Collateral Manager, such activity will
not have a material adverse effect on the ability of the Issuer or the Trustee
to enforce its respective rights with respect to any of the Assets; provided,
further, with respect to such services, the Collateral Manager is not
acting as an agent for the Issuer;

(iii)          be retained to
provide services unrelated to this Agreement to the Issuer or its Affiliates
and be paid therefor;

 12
 

 

(iv)          be a secured or
unsecured creditor of, or hold an equity interest in, the Issuer, its
Affiliates or any obligor of any Collateral Debt Security or Eligible
Investment; provided, however, that the Collateral Manager may
not be such a creditor or hold any of such interests if, in the opinion of
counsel to the Issuer, the existence of such interest would require
registration of the Issuer or the Assts as an “investment company” under the
Investment Company Act or violate any provisions of federal or applicable state
law or any law, rule or regulation of any governmental body or agency having
jurisdiction over the Issuer;

(v)           own equity in or own
or make loans to any issuer of REIT Debt Securities including any issuer of
REIT Debt Securities obligated on any of the Collateral Debt Securities, so
long as that doing so will not cause any such Collateral Debt Security to fail
to comply with the Eligibility Criteria;

(vi)          make, hold or sell
an investment in an issuer’s securities that may be pari passu,
senior or junior in ranking to a Collateral Debt Security;

(vii)         except as otherwise
provided in this Section 9, sell any Collateral Debt Security or Eligible
Investment to, or purchase any Collateral Debt Security from, the Issuer while
acting in the capacity of principal or agent; and

(viii)        subject to its
obligations in Section 1 hereof to protect the Holders, serve as a member
of any “creditors’ board” with respect to any Defaulted Security, Eligible
Investment or with respect to any commercial mortgage loan underlying or
constituting any Collateral Debt Security or the respective borrower for any
such commercial mortgage loan.

It is understood that the
Collateral Manager and any of its Affiliates may engage in any other business,
whether or not any of the foregoing may be competitive with the business of the
Issuer or the Co-Issuer (including financing, purchasing, owning, holding,
originating or disposing of any assets or investments), and furnish investment
management and advisory services to others, including Persons that may have
investment policies similar to those followed by the Collateral Manager with
respect to the Assets and that may own instruments of the same class, or of the
same type, as the Collateral Debt Securities or other instruments of the
issuers of Collateral Debt Securities and may manage portfolios similar to the
Assets.  The Collateral Manager and its
Affiliates shall be free, in their sole discretion, to make recommendations to
others, or effect transactions on behalf of themselves or for others, which may
be the same as or different from those the Collateral Manager causes the Issuer
to effect with respect to the Assets.

The Collateral Manager
and its Affiliates may, and may cause or advise their respective clients to,
invest in assets, investments or instruments that would be appropriate for the
Issuer or the Co-Issuer or as security for the Notes and shall have no duty or
obligation to offer any such asset, investment or instrument to the Issuer or
the Co-Issuer.  Such investments may be
different from those made to or on behalf of the Issuer.  The Collateral Manager, its Affiliates and
their respective clients may have ongoing relationships with Persons whose
instruments are pledged to secure the Notes and may own instruments issued by,
or loans to, issuers of the Collateral Debt Securities or to any borrower or
Affiliate of any borrower on any

 13
 

 

commercial mortgage loans underlying or constituting
the Collateral Debt Securities or the Eligible Investments.  The Collateral Manager and its Affiliates may
cause or advise their respective clients to invest in instruments that are
senior to, or have interests different from or adverse to, the instruments that
are pledged to secure the Notes.

Nothing contained in this
Agreement shall prevent the Collateral Manager or any of its Affiliates from
themselves buying or selling, or from recommending to or directing any other
account to buy or sell, at any time, securities of the same kind or class, or
securities of a different kind or class of the same issuer, as those directed
by the Collateral Manager to be purchased or sold hereunder.  It is understood that, to the extent
permitted by applicable law, the Collateral Manager, its Affiliates, and any
member, manager, officer, director, stockholder or employee of the Collateral
Manager or any such Affiliate or any member of their families or a Person
advised by the Collateral Manager may have an interest in a particular
transaction or in securities of the same kind or class, or securities of a
different kind or class of the same issuer, as those purchased or sold by the
Collateral Manager hereunder.  Subject to
applicable law, the requirements of the Indenture and this Agreement, when the
Collateral Manager is considering purchases or sales for the Issuer and one or
more of such other accounts at the same time, the Collateral Manager shall
allocate available investments or opportunities for sales in its discretion and
make investment recommendations and decisions that may be the same as or
different from those made with respect to the Issuer’s investments, in
accordance with applicable law and the Collateral Manager Servicing Standard,
to the extent applicable.

Subject to the Indenture
and the provisions of this Agreement, the Collateral Manager shall not be
obligated to pursue any specific investment strategy or opportunity that may
arise with respect to the Assets.

The Issuer hereby
acknowledges and consents to the various potential and actual conflicts of
interests that may exist with respect to the Collateral Manager as described
above; provided, however, that nothing contained in this
Section 9 shall be construed as altering the duties of the Collateral
Manager set forth in this Agreement or in the Indenture.

10.           Records; Confidentiality.  The Collateral Manager shall maintain
appropriate books of account and records relating to services performed
hereunder, and such books of account and records shall be accessible for
inspection by an authorized representative of the Issuer, the Trustee and the
Independent accountants appointed by the Issuer pursuant to the Indenture at a
mutually agreed-upon time during normal business hours and upon reasonable
prior notice; provided that the Collateral Manager shall not be
obligated to provide access to any non-public information if the Collateral
Manager in good faith determines that the disclosure of such information would
violate any applicable law, regulation or contractual arrangement.  The Collateral Manager shall follow its
customary procedures to keep confidential all information obtained in connection
with the services rendered hereunder and shall not disclose any such
information except (i) with the prior written consent of the Issuer (which
consent shall not be unreasonably withheld), (ii) such information as the
Rating Agencies shall reasonably request in connection with their rating or
evaluation of the Notes and/or the Collateral Manager, as applicable,
(iii) as required by law, regulation, court order or the rules,
regulations, or request of any regulatory or self-regulating organization, body
or official (including any securities exchange on which the Notes may be listed
from time to time) having jurisdiction over the

 14
 

 

Collateral Manager or as
otherwise required by law or judicial process, (iv) such information as
shall have been publicly disclosed other than in violation of this Agreement,
(v) to its members, officers, directors, and employees, and to its
attorneys, accountants and other professional advisers in conjunction with the
transactions described herein, (vi) such information as may be necessary
or desirable in order for the Collateral Manager to prepare, publish and
distribute to any Person any information relating to the investment performance
of the Assets, (vii) in connection with the enforcement of the Collateral
Manager’s rights hereunder or in any dispute or proceeding related hereto,
(viii) to the Trustee, (ix) to the extent required pursuant to any
Hedge Agreement of the Issuer and (x) to Holders and potential purchasers
of any of the Securities.

Subject to compliance
with the requirements of any law, rule or regulation applicable to the
Collateral Manager, nothing contained herein shall prevent the Collateral
Manager from discussing its activities hereunder in a general way in the normal
course of its business, including, without limitation, general discussions with
other Persons regarding its ability to act as a collateral manager and its past
performance in such capacity.  In
addition, subject to compliance with the requirements of any law, rule or
regulation applicable to the Collateral Manager, with respect to information
that the Collateral Manager obtains or develops regarding the Collateral Debt
Securities or Eligible Investments (including, without limitation, information
regarding ratings, yield, creditworthiness, financial condition and prospects
of any issuer thereof) in connection with the performance of its services
hereunder, nothing in this Section 10 shall prevent the Collateral Manager or
its Affiliates, in the conduct of their respective businesses, from using such
information or disclosing such information to others so long as such other use
does not, in its reasonable judgment, disadvantage the Issuer.  Notwithstanding anything to the contrary
contained in this Agreement, all Persons may disclose to any and all Persons,
without limitation of any kind, the U.S. federal, state and local tax treatment
of the Securities and the Co-Issuers, any fact that may be relevant to
understanding the U.S. federal, state and local tax treatment of the Securities
and the Issuers, and all materials of any kind (including opinions or other tax
analyses) relating to such U.S. federal, state and local tax treatment and that
may be relevant to understanding such tax treatment.

11.           Term.  This Agreement shall become effective on the
Closing Date and shall continue in full force and effect until the first to
occur of the following:  (a) the
payment in full of the Notes and the termination of the Indenture in accordance
with its terms, (b) the liquidation of the Assets and the final
distribution of the proceeds of such liquidation to the Holders and the Issuer
or (c) the termination of this Agreement pursuant to Section 12
hereof.

12.           Termination.  (a)  The Collateral Manager may be
removed upon at least thirty (30) days prior written notice if (A) Holders of
at least 75% by Aggregate Outstanding Amount of each Class of Notes (voting as
a separate Class) and (B) Holders of at least 75% of the Preferred Shares give
written notice to the Collateral Manager, the Issuer, each Hedge Counterparty
and the Trustee of such removal (including in any such calculation any
Securities held by the Collateral Manager, any of its Affiliates or by any fund
managed or controlled by the Collateral Manager or any Affiliate thereof); provided
that if the Collateral Manager is removed pursuant to this clause (a), any
successor Collateral Manager will not be permitted to be a Holder of or an
Affiliate of any Holder of Securities. 
Notice of any such removal shall be delivered by

 15
 

 

the Trustee, on behalf of
the Issuer, to the Holders of each Class of Notes, the Holders of the Preferred
Shares, each Rating Agency and each Hedge Counterparty.

(b)           This Agreement may be terminated, and the Collateral
Manager may be removed, by the Issuer or the Trustee for cause, upon thirty
(30) days prior written notice by the Issuer, at the direction of (A) so long
as the Class A-1 Notes are the Controlling Class, the Holders of at least a
majority of the outstanding principal amount of the Class A-1 Notes and (B) at
any other time (i) the Holders of at least a majority by Aggregate Outstanding
Amount of each Class of Notes (excluding any Notes owned by the Collateral
Manager or any of its Affiliates or any fund managed or controlled by the
Collateral Manager or any Affiliate thereof, each voting as a separate Class)
and (ii) the Holders of at least a Majority of the Preferred Shares (excluding
any Preferred Shares owned by the Collateral Manager or any of its Affiliates
or any fund managed or controlled by the Collateral Manager or any Affiliate
thereof); provided, however, upon the occurrence of an event
described in clause (iii) of this Section 12(b), termination of the Collateral
Manager will be automatic and without advance notice required from the Issuer,
the Trustee or any other Person.  Notice
of any such removal for cause shall be delivered by the Trustee, on behalf of
the Issuer, to each Rating Agency, each Hedge Counterparty and the Holders of
the Notes and the Preferred Shares.  In
no event will the Trustee be required to determine whether or not cause exists
for the removal of the Collateral Manager. 
As used in this Section 12, “cause” means any of the following events:

(i)            the Collateral
Manager (A) willfully breaches, or takes any action that it knows violates, any
provision of this Agreement or any term of the Indenture applicable to the
Collateral Manager (not including a willful breach or knowing violation that
results from a good faith dispute regarding alternative courses of action or
interpretation of instructions), which breach or action has (or could reasonably
be expected to have) a material adverse effect on the Noteholders and (B) fails
to cure such breach within thirty (30) days after the first to occur of
(1) notice of such failure is given to the Collateral Manager or
(2) the Collateral Manager having actual knowledge of such breach or
violation;

(ii)           the Collateral
Manager breaches in any material respect any provision of this Agreement or any
material terms of the Indenture applicable to the Collateral Manager and fails
to cure such breach within ninety (90) days after the first to occur of
(A) notice of such failure is given to the Collateral Manager or
(B) the Collateral Manager having actual knowledge of such breach;

(iii)          the Collateral
Manager (A) ceases to be able to, or admits in writing the Collateral
Manager’s inability to, pay the Collateral Manager’s debts when and as they
become due, (B) files, or consents by answer or otherwise to the filing
against the Collateral Manager of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or takes
advantage of any bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (C) makes an assignment for the benefit
of the Collateral Manager’s creditors, (D) consents to the appointment of
a custodian, receiver, trustee or other officer with similar powers with
respect to the Collateral Manager or with respect to any substantial part of
the Collateral Manager’s property or (E) is adjudicated as insolvent or to
be liquidated;

 16
 

 

(iv)          the occurrence of an
act by the Collateral Manager or any of its Affiliates that constitutes fraud
or criminal activity in the performance of its obligations under this Agreement
or the indictment of the Collateral Manager or any of its respective officers
or directors for a criminal offense involving an investment or
investment-related business, fraud, false statements or omissions, wrongful
taking of property, bribery, forgery, counterfeiting or extortion;

(v)           the failure of any
representation, warranty, certificate or statement of the Collateral Manager in
or pursuant to this Agreement or the Indenture to be correct in any material
respect and (x) such failure has (or could reasonably be expected to have)
a material adverse effect on the Noteholders, the Issuer or the Co-Issuer and
(y) if such failure can be cured, no correction is made for forty-five
(45) days after the Collateral Manager becomes aware of such failure or
receives notice thereof in writing from the Trustee;

(vi)          the occurrence and
continuation of any of the Events of Default described in Sections 5.1(a)
or 5.1(b) of the Indenture;

(vii)         so long as the Class
A-1 Notes are the Controlling Class, the Class A/B Par Value is less than
101.87% on any Measurement Date; or

(viii)        the Collateral
Manager consolidates or amalgamates with, or merges with or into, or transfers
all or substantially all its assets to, another Person and either (A) at
the time of such consolidation, amalgamation, merger or transfer, the
resulting, surviving or transferee Person fails to or cannot assume all the
obligations of the Collateral Manager under this Agreement or (B) the
resulting, surviving or transferee Person lacks the legal capacity to perform
the obligations of the Collateral Manager hereunder and under the Indenture.

The Collateral Manager
shall notify the Trustee, the Rating Agencies and the Issuer in writing
promptly upon becoming aware of any event that constitutes cause under this
Section 12(b).

(c)           The Collateral Manager may resign, upon thirty (30) days
prior written notice to the Issuer, the Co-Issuer, the Trustee, each Rating
Agency and each Hedge Counterparty; provided, however, that
(i) no such termination or resignation shall be effective until the date
as of which a successor collateral manager shall have agreed in writing to
assume all of the Collateral Manager’s duties and obligations pursuant to this
Agreement and (ii) the Issuer shall use its best efforts to appoint a
successor collateral manager to assume such duties and obligations.  Notwithstanding the notice required above,
the Collateral Manager shall have the right to resign without prior notice if,
due to a change in any applicable law or regulation or interpretation thereof,
the performance by the Collateral Manager of its duties under the Collateral
Management Agreement would (i) adversely affect (A) Gramercy Capital Corp.’s
status as a REIT, (B) Gramercy Investment Trust’s status as a REIT, (C) SL
Green Realty Corp.’s status as a REIT or (D) the Issuer’s status as a qualified
REIT subsidiary (within the meaning of Section 856(i)(2) of the Code) or (ii)
constitute a violation of any applicable law or regulation.

 17
 

 

(d)           No removal, termination or resignation of the Collateral
Manager or termination of this Agreement shall be effective unless (x) a
successor collateral manager (a “Replacement
Manager”) has been appointed by the Issuer and has agreed in
writing to assume all of the Collateral Manager’s duties and obligations
pursuant to this Agreement and (y) written notification shall have been
provided in accordance with Sections 12(a), (b) or (c), as applicable.  The appointment of any Replacement Manager
shall be subject to satisfaction of the Rating Agency Condition and each such
Replacement Manager (i) shall have demonstrated an ability to
professionally and competently perform duties similar to those imposed upon the
Collateral Manager, (ii) is legally qualified and has the capacity to act
as collateral manager, (iii) by its appointment will not cause the Issuer,
the Co-Issuer or the pool of Assets to, or result in the Issuer, the Co-Issuer
or the pool of Assets becoming, an “investment company” under the Investment
Company Act, (iv) has accepted its appointment in writing and (v) by
its appointment will not cause the Issuer, the Co-Issuer or the pool of Assets
to become subject to income or withholding tax that would not have been imposed
but for such appointment.

(e)           Upon any resignation or removal of the Collateral Manager
while any of the Notes are Outstanding, (A) so long as the Class A-1 Notes are
the Controlling Class, the Holders of at least a majority of the outstanding
principal amount of the Class A-1 Notes and (B) at any other time, the Holders
of at least a Majority of the Preferred Shares shall have the right to instruct
the Issuer to appoint an institution identified by such Holders as Replacement
Manager; provided that (i) the Issuer provides to the Noteholders notice
of such appointment and a majority by Aggregate Outstanding Amount of each
Class of Notes (excluding any Notes owned by the Collateral Manager or any of
its Affiliates or any fund managed or controlled by the Collateral Manager or
any Affiliate thereof, each voting as a separate Class) does not object to such
appointment within thirty (30) days, (ii) the Rating Agency Condition has been
satisfied with respect to such appointment and (iii) the requirements set forth
in Section 12(d)(i) through (v) above have been satisfied.  If the Holders of the Class A-1 Notes or the
Preferred Shares, as the case may be, identify two (2) institutions for
appointment as described in Section 12(d)(i) or Section 12(d)(ii) above and
both are objected to as described in this clause (B)(i) above, a majority of
the outstanding principal amount or notional amount, as the case may be, of
such Holders shall have the right to appoint any institution not previously
identified by such holders as Replacement Manager (subject to compliance with
the conditions described in Section 12(d)(i) and Section 12(d)(ii) above).

(f)            In the event that the Collateral Manager resigns pursuant
to Section 12(c) or is terminated pursuant to Sections 12(a) or (b)
hereof and the Issuer has not appointed a successor prior to the day following
the termination (or resignation) date specified in such notice, the Collateral
Manager will be entitled to propose a successor and will so appoint such
proposed entity as successor thirty (30) days thereafter, unless a majority of
any Class of Notes objects to such appointment with such thirty (30) day period
in which case the Controlling Class of Notes (excluding any Notes owned by the
Collateral Manager or any of its Affiliates or any fund managed or controlled
by the Collateral Manager or any Affiliate thereof, each voting as a separate
Class) will be entitled to propose a successor and will appoint such proposed
entity as successor thirty (30) days thereafter unless a majority by Aggregate
Outstanding Amount of any other Class of Notes (excluding any Notes owned by
the Collateral Manager or any of its Affiliates or any fund managed or
controlled by the Collateral Manager or any Affiliate thereof, each voting as a
separate Class) objects to such appointment within such thirty (30) day period,

 18
 

 

in each case subject to the requirements set
forth in Section 12(d) above. 
In the event a proposed successor Collateral Manager is not appointed
pursuant to the foregoing procedures, the resigning or removed Collateral
Manager may petition any court of competent jurisdiction for the appointment of
a successor collateral manager, which appointment will not require the consent
of, or be subject to the disapproval of, the Issuer, any Noteholder or any
Holder of the Preferred Shares.

Notwithstanding any
provision contained in this Agreement, the Indenture or otherwise, so long as
the Collateral Manager continues to perform its obligations hereunder, the
Collateral Management Fee shall continue to accrue for the benefit of the
Collateral Manager until termination of this Agreement under this
Section 12 shall become effective as set forth herein.  In addition, the Collateral Manager shall,
subject to Section 6, be entitled to reimbursement of out-of-pocket
expenses incurred in cooperating with the Replacement Manager, including in
connection with the delivery of any documents or property.  In the event that the Collateral Manager is
removed or resigns and a Replacement Manager is appointed, such former
Collateral Manager nonetheless shall be entitled to receive payment of all
unpaid Collateral Management Fees, including the Senior Collateral Management
Fee and the Subordinated Collateral Management Fee, accrued through the
effective date of the removal or resignation, to the extent that funds are
available for that purpose in accordance with the Priority of Payments, and
such payments shall rank in the Priority of Payments pari passu
with the Collateral Management Fees due to the Replacement Manager.  In addition, following the removal or
resignation of the Collateral Manager hereunder, the removed or resigning
Collateral Manager shall be granted access to the books of account and records
of the Issuer and the Trustee to the extent such removed or resigning
Collateral Manager deems necessary to confirm the proper payment of any amounts
owing to such removed or resigning Collateral Manager hereunder.

(g)           Upon the effective date of termination of this Agreement,
the Collateral Manager shall as soon as practicable:

(i)            deliver to the
Issuer (or as the Issuer may reasonably request) all property and documents of
the Trustee or the Issuer or otherwise relating to the Assets then in the
custody of the Collateral Manager (although the Collateral Manager may keep
copies of such documents for its records); and

(ii)           deliver to the
Trustee an accounting with respect to the books and records delivered to the
Issuer or the Replacement Manager appointed pursuant to this Section 12
hereof.

The Collateral Manager
shall reasonably assist and cooperate with the Trustee and the Issuer (as
reasonably requested by the Trustee or the Issuer) in the assumption of the
Collateral Manager’s duties by any Replacement Manager as provided for in this
Agreement, as applicable. 
Notwithstanding such termination, the Collateral Manager shall remain
liable to the extent set forth herein (but subject to Section 13 hereof)
for the Collateral Manager’s acts or omissions hereunder arising prior to its
termination as Collateral Manager hereunder and for any expenses, losses,
damages, liabilities, demands, charges and claims (including reasonable
attorneys’ fees) in respect of or arising out of a breach of the
representations and warranties

 19
 

 

made by it in Section 5 hereof or from any
failure of the Collateral Manager to comply with the provisions of this
Section 12(g).

(h)           The Collateral Manager agrees that, notwithstanding any
termination, the Collateral Manager shall reasonably cooperate in any
Proceeding arising in connection with this Agreement, the Indenture or any of
the Assets (excluding any such Proceeding in which claims are asserted against
the Collateral Manager or any Affiliate of the Collateral Manager) so long as
the Collateral Manager shall have been offered (in its judgment) reasonable
security, indemnity or other provision against the cost, expenses and
liabilities that might be incurred in connection therewith, but, in any event,
shall not be required to make any admission or to take any action against the
Collateral Manager’s own interests or the interests of other funds and accounts
advised by the Collateral Manager.

(i)            If this Agreement is terminated pursuant to
Section 12(a), (b) or (c) hereof, such termination shall be without any
further liability or obligation of the Issuer or the Collateral Manager to the
other, except as provided in Sections 6, 7, 12 and 13 and the last
sentence of Section 10 hereof.

(j)            Upon expiration of the applicable notice period with
respect to termination specified in Section 12(d) hereof, all authority
and power of the Collateral Manager under this Agreement and the Indenture,
whether with respect to the Assets or otherwise, shall automatically and
without further action by any person or entity pass to and be vested in the
Replacement Manager.

13.           Liability of Collateral Manager.  (a)  The Collateral Manager assumes
no responsibility under this Agreement other than to render the services called
for from the Collateral Manager hereunder and under the Indenture in the manner
prescribed herein and therein.  The
Collateral Manager and its Affiliates, and each of their respective partners,
shareholders, members, managers, officers, directors, employees, agents,
accountants and attorneys shall have no liability to the Noteholders, the
Holders of the Preferred Shares, the Trustee, the Issuer, the Co-Issuer, any
Hedge Counterparty, the Initial Purchaser, or any of their respective
Affiliates, partners, shareholders, officers, directors, employees, agents,
accountants and attorneys, or any other Person, for any error of judgment,
mistake of law, or for any claim, loss, liability, damage, settlement, costs,
or other expenses (including reasonable attorneys’ fees and court costs) of any
nature whatsoever (collectively “Liabilities”)
that arise out of or in connection with any act or omissions of the Collateral
Manager in the performance of its duties under this Agreement or the Indenture
or for any decrease in the value of the Collateral Debt Securities or Eligible
Investments, except (i) by reason of acts or omissions constituting bad faith,
willful misconduct or gross negligence in the performance of, or reckless
disregard of, the duties of the Collateral Manager hereunder and under the
terms of the Indenture and (ii) with respect to the information concerning the
Collateral Manager under the headings “Summary—The Collateral Manager” and “The
Collateral Manager” in the Offering Memorandum containing any untrue statement
of material fact or omitting to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.  The Issuer
agrees that the Collateral Manager shall not be liable for any consequential,
special, exemplary or punitive damages hereunder.  The acts, failure to act or

 20
 

 

breaches described in
this clause (a) are collectively referred to for purposes of this
Section 13 as “Collateral Manager Breaches.”

(b)           The Collateral Manager shall indemnify, defend and hold
harmless the Issuer and each of its partners, shareholders, members, managers,
officers, directors, employees, agents, accountants and attorneys (each, an “Issuer Indemnified Party”)
from and against any claims that may be made against an Issuer Indemnified
Party by third parties and any damages, losses, claims, liabilities, costs or
expenses (including all reasonable legal and other expenses) which are incurred
as a direct consequence of the Collateral Manager Breaches, except for
liability to which such Issuer Indemnified Party would be subject by reason of
willful misconduct, bad faith, gross negligence in the performance of, or
reckless disregard of the obligations of the Issuer hereunder and under the
terms of the Indenture.

(c)           The Issuer shall reimburse, indemnify and hold harmless
the Collateral Manager, its members, managers, directors, officers,
stockholders, partners, agents and employees and any Affiliate of the
Collateral Manager and its directors, officers, stockholders, partners,
members, agents, employees, accountants and attorneys (the Collateral Manager
and such other persons collectively, the “Collateral Manager Indemnified Parties”) from any
and all Liabilities, as are incurred in investigating, preparing, pursuing or
defending any claim, action, proceeding or investigation (whether or not such
Collateral Manager Indemnified Party is a party) caused by, or arising out of
or in connection with this Agreement, the Indenture and the transactions
contemplated hereby and thereby, including the issuance of the Notes, or any
acts or omissions of any Collateral Manager Indemnified Parties except those
that are the result of Collateral Manager Breaches.  Any amounts payable by the Issuer under this
Section 13(c) shall be payable only subject to the Priority of Payments
set forth in the Indenture and to the extent Assets are available therefor.

(d)           With respect to any claim made or threatened against an
Issuer Indemnified Party or a Collateral Manager Indemnified Party (each an “Indemnified Party”),
or compulsory process or request or other notice of any loss, claim, damage or
liability served upon an Indemnified Party, for which such Indemnified Party is
or may be entitled to indemnification under this Section 13, such
Indemnified Party shall (or, with respect to Indemnified Parties that are
directors, managers, officers, stockholders, members, managers, agents or
employees of the Issuer or the Collateral Manager, the Issuer or the Collateral
Manager, as the case may be, shall cause such Indemnified Party to):

(i)            give written notice
to the indemnifying party of such claim within ten (10) Business Days after
such Indemnified Party’s receipt of actual notice that such claim is made or
threatened, which notice to the indemnifying party shall specify in reasonable
detail the nature of the claim and the amount (or an estimate of the amount) of
the claim; provided, however, that the failure of any Indemnified
Party to provide such notice to the indemnifying party shall not relieve the
indemnifying party of its obligations under this Section 13 unless the
rights or defenses available to the Indemnified Party are materially prejudiced
or otherwise forfeited by reason of such failure;

(ii)           at the indemnifying
party’s expense, provide the indemnifying party such information and
cooperation with respect to such claim as the indemnifying party may

 21
 

 

reasonably
require, including making appropriate personnel available to the indemnifying
party at such reasonable times as the indemnifying party may request;

(iii)          at the indemnifying
party’s expense, cooperate and take all such steps as the indemnifying party
may reasonably request to preserve and protect any defense to such claim;

(iv)          in the event suit is
brought with respect to such claim, upon reasonable prior notice, afford to the
indemnifying party the right, which the indemnifying party may exercise in its
sole discretion and at its expense, to participate in the investigation,
defense and settlement of such claim;

(v)           neither incur any
material expense to defend against nor release or settle any such claim or make
any admission with respect thereto (other than routine or incontestable
admissions or factual admissions the failure to make of which would expose such
Indemnified Party to unindemnified liability) nor permit a default or consent
to the entry of any judgment in respect thereof, in each case without the prior
written consent of the indemnifying party; and

(vi)          upon reasonable
prior notice, afford to the indemnifying party the right, in such party’s sole
discretion and at such party’s sole expense, to assume the defense of such
claim, including the right to designate counsel reasonably acceptable to the
Indemnified Party and to control all negotiations, litigation, arbitration,
settlements, compromises and appeals of such claim; provided that, if
the indemnifying party assumes the defense of such claim, it shall not be
liable for any fees and expenses of counsel for any Indemnified Party incurred
thereafter in connection with such claim except that, if such Indemnified Party
reasonably determines that counsel designated by the indemnifying party has a
conflict of interest, such indemnifying party shall pay the reasonable fees and
disbursements of one counsel (in addition to any local counsel) separate from
such indemnifying party’s own counsel for all Indemnified Parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances; and provided,
further, that the indemnifying party shall not have the right, without
the Indemnified Party’s written consent, to settle any such claim if, in a case
where the Issuer is the indemnifying party, the Issuer does not make available
(in accordance with the Priority of Payments), in a segregated account
available only for this purpose, the full amount required to pay any amounts
due from the Indemnified Party under such settlement or, in any case, such
settlement (A) arises from or is part of any criminal action, suit or
proceeding, (B) contains a stipulation to, confession of judgment with
respect to, or admission or acknowledgement of, any liability or wrongdoing on
the part of the Indemnified Party, (C) relates to any federal, state or local
tax matters or (D) provides for injunctive relief, or other relief other
than damages, which is binding on the Indemnified Party.

(e)           In the event that any Indemnified Party waives its right
to indemnification hereunder, the indemnifying party shall not be entitled to
appoint counsel to represent such

 22
 

 

Indemnified Party nor shall the indemnifying
party reimburse such Indemnified Party for any costs of counsel to such
Indemnified Party.

(f)            Nothing herein shall in any way constitute a waiver or
limitation of any rights that the Issuer or the Collateral Manager may have
under any United States federal or state securities laws.

14.           Obligations of Collateral Manager.  (a) The Collateral Manager to the extent
required under the Indenture, and on behalf of the Issuer, shall:  (i) engage the services of an
Independent certified accountant to prepare any United States federal, state or
local income tax or information returns and any non-United States income
tax or information returns that the Issuer may from time to time be required to
file under applicable law (each a “Tax Return”), (ii) deliver, at least thirty
(30) days before any applicable due date upon which penalties and interest
would accrue, each Tax Return, properly completed, to the Company Administrator
for signature by an Authorized Officer of the Issuer and (iii) file or
deliver such Tax Return on behalf of the Issuer within any applicable time
limit with any authority or Person as required under applicable law.

(b)           Unless otherwise required by any provision of the
Indenture or this Agreement or by applicable law, the Collateral Manager shall
not take any action which it knows, or acting with gross negligence, would (a)
materially adversely affect the Issuer for purposes of United States federal or
state law or any other law known to the Collateral Manager to be applicable to
the Issuer, (b) not be permitted under the Issuer’s Memorandum and Articles of
Association or the Co-Issuer’s limited liability company agreement, (c) require
registration of the Issuer, the Co-Issuer or the Assets as an “investment
company” under the Investment Company Act or (d) cause the Issuer to violate
the terms of the Indenture, including any representation or certification to be
given by the Issuer thereunder or pursuant thereto, it being understood that in
connection with the foregoing the Collateral Manager will not be required to
make any independent investigation of any facts or laws not otherwise known to
it in connection with its obligations under this Agreement and the Indenture or
the conduct of its business generally. 
The Collateral Manager will perform its duties under this Agreement and
the Indenture in a manner reasonably intended not to subject the Issuer to U.S.
federal or state income taxation, it being understood that, notwithstanding
anything to the contrary set forth herein or in the Indenture, the Collateral
Manager shall be deemed to have complied with the requirements of the Indenture
and any certifications, certificates or other related documents required
pursuant to the Indenture in connection with not subjecting the Issuer to U.S.
federal or state income taxation, if it satisfies the requirements set forth in
this sentence and will not be liable to the Trustee, the Holders of the Notes,
the Co-Issuers, the Co-Issuers’ creditors or any other Person as a result of
the Issuer engaging, or a determination that the Issuer has engaged, in a U.S.
trade or business for U.S. federal income tax purposes if it has complied with
this section.  The Collateral Manager shall
use all commercially reasonable efforts to ensure that no action is taken by
it, and shall not intentionally or with reckless disregard take any action,
which the Collateral Manager knows or reasonably should know would have a
materially adverse United States federal or state income tax effect on the
Issuer.

(c)           Notwithstanding
anything to the contrary herein, but subject to the standard set forth in
Section 1 hereof, the Collateral Manager or any of its Affiliates may take

 23
 

 

any action that is not specifically prohibited by the Indenture, this
Agreement or applicable law that the Collateral Manager or any Affiliate of the
Collateral Managers deems to be in its (or in its portfolio’s) best interest
regardless of its impact on the Collateral Debt Securities.

15.           No Partnership or Joint Venture.  The Issuer and the Collateral Manager are not
partners or joint venturers with each other, and nothing herein shall be
construed to make them such partners or joint venturers or impose any liability
as such on either of them.  The
Collateral Manager’s relation to the Issuer shall be that of an independent
contractor and not a general agent. 
Except as expressly provided in this Agreement and in the Indenture, the
Collateral Manager shall not have authority to act for or represent the Issuer
in any way and shall not otherwise be deemed to be the Issuer’s agent.

16.           Notices.  Any notice from a party under this Agreement
shall be in writing and sent by answer-back facsimile or addressed and
delivered or sent by certified mail, postage prepaid, return receipt requested
or sent by overnight courier service guaranteeing next day delivery to the
other party at such address as such other party may designate for the receipt
of such notice.  Until further notice to
the other party, it is agreed that the address of the Issuer for this purpose
shall be:

Gramercy Real Estate CDO
2006-1, Ltd.

c/o Maples Finance Limited

P.O. Box 1093GT

Queensgate House

South Church Street

George Town

Grand Cayman, Cayman Islands

Attention:  The Directors

Fax:  +1 345 945 7099

Telephone:  +1 345 945 7100

with two copies to the Collateral Manager (as
addressed below).

the address of the
Collateral Manager for this purpose shall be:

GKK Manager LLC

c/o SL Green Realty Corp.

420 Lexington Avenue

19th Floor

New York, New York 10170

Telephone:  212-594-2700

Fax:  212-216-1785

Attention:  Marc Holliday

Attention:  Andrew Levine

17.           Succession; Assignment.  (a) 
This Agreement shall inure to the benefit of and be binding upon the
successors to the parties hereto. No assignment of this Agreement shall be made
without the consent of the other party except as set forth below and without
satisfaction of the Rating Agency Condition (except as permitted under clauses
(b) and (c) below), provided

 24
 

 

that the Issuer may
collaterally assign its interest in this Agreement to the Trustee under the
Indenture.

(b)           Upon satisfaction of the Rating Agency Condition, this
Agreement may be assigned by the Collateral Manager to an Affiliate thereof
that has substantially the same personnel, or personnel with comparable
expertise, as the Collateral Manager and that is capable of performing the
obligations of the Collateral Manager under this Agreement; provided
that satisfaction of the Rating Agency Condition shall not be required in
connection with any assignment involving an internalization of the Collateral
Manager or any assignment to a successor upon merger or acquisition.  Notwithstanding the foregoing, the Collateral
Manager shall provide S&P with prompt notice of any assignment involving an
internalization of the Collateral Manager.

(c)           This Agreement may be assigned by the Collateral Manager
to any Person other than an Affiliate only upon satisfaction of the Rating
Agency Condition and approval by a Majority of the Controlling Class.

(d)           Upon the execution and delivery of such a counterpart by
the assignee, the Collateral Manager shall be released from further obligations
pursuant to this Agreement, except with respect to the Collateral Manager’s
obligations arising under Section 13 of this Agreement prior to such assignment
and except with respect to the Collateral Manager’s obligations under the last
sentence of Section 10 and Sections 7 and 12 hereof

18.           No Bankruptcy Petition/Limited
Recourse.  The Collateral Manager
covenants and agrees that, prior to the date that is one year and one day (or,
if longer, the applicable preference period then in effect) after the payment
in full of all Notes issued by the Issuer under the Indenture, the Collateral
Manager will not institute against, or join any other Person in instituting
against, the Issuer or the Co-Issuer any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other proceedings under
any bankruptcy, insolvency, reorganization or similar law of any jurisdiction; provided,
however, that nothing in this Section 18 shall preclude, or be deemed to
stop, the Collateral Manager from taking any action prior to the expiration of
the aforementioned one year and one day period (or, if longer, the applicable
preference period then in effect) in (x) any case or proceeding
voluntarily filed or commenced by the Issuer or the Co-Issuer, as the case may
be or (y) any involuntary insolvency proceeding filed or commenced against
the Issuer or the Co-Issuer, as the case may be, by a Person other than the
Collateral Manager.  The Collateral
Manager hereby acknowledges and agrees that the Issuer’s obligations hereunder
will be solely the corporate obligations of the Issuer, and the Collateral
Manager will not have recourse to any of the directors, officers, employees,
shareholders or affiliates of the Issuer, or any members of the Advisory
Committee, with respect to any claims, losses, damages, liabilities,
indemnities or other obligations in connection with any transaction
contemplated hereby.  Notwithstanding any
provision hereof, all obligations of the Issuer and any claims arising from
this Agreement or any transactions contemplated by this Agreement shall be
limited solely to the Collateral Debt Securities and the other Assets and
payable in accordance with the Priority of Payments.  If payments on any such claims from the
Assets are insufficient, no other assets shall be available for payment of the
deficiency and, following liquidation of all the Assets, any claims of the
Collateral Manager arising from this Agreement and the obligations of the
Issuer to pay such deficiencies shall be

 25
 

 

extinguished.  The Issuer hereby acknowledges and agrees
that the Collateral Manager’s obligations hereunder shall be solely the limited
liability company obligations of the Collateral Manager, and the Issuer shall
not have any recourse to any of the members, managers, directors, officers,
employees, shareholders or Affiliates of the Collateral Manager with respect to
any claims, losses, damages, liabilities, indemnities or other obligations in
connection with any transactions contemplated hereby.  The provisions of this Section 18 shall
survive the termination of this Agreement for any reason whatsoever.

19.           Miscellaneous.  (a)  This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York without regard to the conflict of laws principles thereof other than
Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York.  With respect to any suit, action or
proceedings relating to this Agreement (“Proceedings”), each party irrevocably
(i) submits to the nonexclusive jurisdiction of the courts of the State of
New York and the United States District Court located in the Borough of
Manhattan in New York City and (ii) waives any objection that such party
may have at any time to the laying of venue of any Proceedings brought in any
such court, waives any claim that such Proceedings have been brought in an
inconvenient forum and further waives the right to object, with respect to such
Proceedings, that such court does not have any jurisdiction over such
party.  Nothing in this Agreement
precludes either party from bringing Proceedings in any other jurisdiction, nor
shall the bringing of Proceedings in any one or more jurisdictions preclude the
bringing of Proceedings in any other jurisdiction.  The Collateral Manager irrevocably consents
to the service of any and all process in any action or proceeding by the
mailing or delivery of copies of such process to the Collateral Manager at the
office of the Collateral Manager, c/o SL Green Realty Corp., 420 Lexington
Avenue, 19th Floor, New York, New York 10170, Attention:  Andrew Levine, or such other address as the
Collateral Manager may advise the Issuer in writing.  The Issuer irrevocably consents to the
service of any and all process in any action or proceeding by the mailing or
delivery of copies of such process to CT Corporation System, 111 8th Avenue, 13th Floor, New York,
New York 10011 (and any successor entity), as its authorized agent to receive
and forward on its behalf service of any and all process which may be served in
any such suit, action or proceeding in any such court and agrees that service
of process upon CT Corporation System shall be deemed in every respect
effective service of process upon it in any such suit, action or proceeding and
shall be taken and held to be valid personal service upon it.  Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.

EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

(b)           The captions in this Agreement are included for
convenience only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.

 26
 

 

(c)           In the event any provision of this Agreement shall be held
invalid or unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provision hereof.

(d)           This Agreement (including Exhibit A attached
hereto) may not be amended or modified or any provision thereof waived
(i) except by an instrument in writing signed by both of the parties
hereto or, in the case of a waiver, by the party waiving compliance and (ii) in
each case, in compliance with Section 15.1(f) of the Indenture, including
with respect to satisfaction of the Rating Agency Condition.  This Agreement (including Exhibit A
attached hereto) may be modified without the prior written consent of the Trustee,
any Hedge Counterparty or the holders of Notes to correct any inconsistency or
cure any ambiguity or mistake.  Any other
amendment of this Agreement (including Exhibit A attached hereto) shall require
the prior written consent of the Trustee and each Hedge Counterparty, which
consent shall not be unreasonably withheld and is subject to the satisfaction
of the Rating Agency Condition.

(e)           This Agreement constitutes the entire understanding and
agreement between the parties hereto and supersedes all other prior and
contemporaneous understandings and agreements, whether written or oral, between
the parties hereto concerning this subject matter (other than the Indenture).

(f)            The Collateral Manager hereby agrees and consents to the
terms of Section 15.1(f) of the Indenture applicable to the Collateral
Manager and shall perform any provisions of the Indenture made applicable to
the Collateral Manager by the Indenture as required by Section 15.1(f) of
the Indenture.

(g)           This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.

(h)           The words “include,” “includes” and “including” shall be
deemed to be followed by the phrase “but not limited to.”

(i)            Subject to the last sentence of the penultimate paragraph
of Section 1 hereof, in the event of a conflict between the terms of this
Agreement and the Indenture, including with respect to the obligations of the
Collateral Manager hereunder and thereunder, the terms of this Agreement shall
be controlling.

(j)            No failure or delay on the part of any party hereto to
exercise any right or remedy under this Agreement shall operate as a waiver
thereof, and no waiver shall be effective unless it is in writing and signed by
the party granting such waiver.

(k)           This Agreement is made solely for the benefit of the
Issuer, the Collateral Manager and the Trustee, on behalf of the Noteholders,
the Holders of Preferred Shares and each Hedge Counterparty, their successors
and assigns, and no other person shall have any right, benefit or interest
under or because of this Agreement.

 27
 

 

(l)            The Collateral Manager hereby irrevocably waives any
rights it may have to set off against the Assets.

 28
 

 

IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be executed (as a deed in the case of the
Issuer) by their respective authorized representatives as of the day and year
first above written.

 

	
  

  	
  Executed as a Deed

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GRAMERCY REAL
  ESTATE CDO 2006-1,

  LTD., as Issuer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Witness:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GKK MANAGER LLC,

  as Collateral Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 29Exhibit 4.1

 

XYRATEX
LTD

2006 INCENTIVE AWARD PLAN

ARTICLE
1.

PURPOSE

The purpose of the Xyratex Ltd 2006 Incentive Award
Plan (the “Plan”) is to promote the success and enhance the value of Xyratex
Ltd (the “Company”) by linking the personal interests of the members of
the Board, Employees, and Consultants to those of Company shareholders and by
providing such individuals with an incentive for outstanding performance to
generate superior returns to Company shareholders.  The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract, and retain the
services of members of the Board, Employees, and Consultants upon whose
judgment, interest, and special effort the successful conduct of the Company’s
operation is largely dependent.

ARTICLE
2.

DEFINITIONS
AND CONSTRUCTION

Wherever the following terms are used in the Plan they
shall have the meanings specified below, unless the context clearly indicates
otherwise.  The singular pronoun shall
include the plural where the context so indicates.

2.1           “Award” means an Option, a Restricted Stock award,
a Stock Appreciation Right award, a Performance Share award, a Performance
Stock Unit award, a Dividend Equivalents award, a Stock Payment award, a
Deferred Stock award, a Restricted Stock Unit award, a Performance Bonus Award,
or a Performance-Based Award granted to a Participant pursuant to the Plan.

2.2           “Award Agreement” means any written agreement,
contract, or other instrument or document evidencing an Award, including
through electronic medium.

2.3           “Board”
means the Board of Directors of the Company.

2.4           “Change of Control” means and includes each of the
following:

(a)           the acquisition, directly or indirectly, by any “person”
or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of
the Exchange Act and the rules thereunder) of “beneficial ownership” (as
determined pursuant to Rule 13d-3 under the Exchange Act) of securities
entitled to vote generally in the election of directors (“voting securities”)
of the Company that represent 50% or more of the combined voting power of the
Company’s then outstanding voting securities, other than

(i)            an acquisition by a trustee or other fiduciary holding
securities under any employee benefit plan (or related trust) sponsored or
maintained by the Company or 

 

any person controlled by the Company or by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any person controlled by the Company, or

(ii)           an acquisition of voting securities by the Company or a
corporation owned, directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of the shares of the
Company, or

(iii)          an acquisition of voting securities pursuant to a
transaction described in clause (c) of this Section 2.4 that would not be a
Change of Control under clause (c);

Notwithstanding the
foregoing, the following event shall not constitute an “acquisition” by any
person or group for purposes of this Section 2.4: an acquisition of the Company’s
securities by the Company which causes the Company’s voting securities
beneficially owned by a person or group to represent 50% or more of the
combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or
group shall become the beneficial owner of 50% or more of the combined voting
power of the Company’s then outstanding voting securities by reason of share
acquisitions by the Company as described above and shall, after such share
acquisitions by the Company, become the beneficial owner of any additional
voting securities of the Company, then such acquisition shall constitute a
Change of Control; or

(b)           during any period of two consecutive years, individuals
who, at the beginning of such period, constitute the Board together with any
new director(s) (other than a director designated by a person who shall have
entered into an agreement with the Company to effect a transaction described in
clauses (a) or (c) of this Section 2.4) whose election by the Board
or nomination for election by the Company’s shareholders was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of the two year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or

(c)           the consummation by the Company (whether directly
involving the Company or indirectly involving the Company through one or more
intermediaries) of (X) a merger, consolidation, reorganization, or
business combination or (Y) a sale or other disposition of all or
substantially all of the Company’s assets or (Z) the acquisition of assets
or shares of another entity, in each case other than a transaction

(i)            which results in the Company’s voting securities
outstanding immediately before the transaction continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
Company or the person that, as a result of the transaction, controls, directly
or indirectly, the Company or owns, directly or indirectly, all or
substantially all of the Company’s assets or otherwise succeeds to the business
of the Company (the Company or such person, the “Successor Entity”))
directly or indirectly, at least a majority of the combined voting power of the
Successor Entity’s outstanding voting securities immediately after the
transaction, and

 2
 

 

 

(ii)           after which no person or group beneficially owns voting
securities representing 50% or more of the combined voting power of the
Successor Entity; provided, however,
that no person or group shall be treated for purposes of this clause (B)
as beneficially owning 50% or more of combined voting power of the Successor
Entity solely as a result of the voting power held in the Company prior to the
consummation of the transaction; or

(d)           the Company’s shareholders approve a liquidation or
dissolution of the Company.

The Committee shall have
full and final authority, which shall be exercised in its discretion, to determine
conclusively whether a Change of Control of the Company has occurred pursuant
to the above definition, and the date of the occurrence of such Change of
Control and any incidental matters relating thereto.

2.5           “Code” means the Internal Revenue Code of 1986, as
amended.

2.6           “Committee” means the Board or the Compensation Committee
of the Board as further described in Article 12.

2.7           “Consultant” means any consultant or adviser if:
(a) the consultant or adviser renders bona fide services to the Company; (b)
the services rendered by the consultant or adviser are not in connection with
the offer or sale of securities in a capital-raising transaction and do not
directly or indirectly promote or maintain a market for the Company’s
securities; and (c) the consultant or adviser is a natural person who has
contracted directly with the Company to render such services.

2.8           “Covered Employee” means an Employee who is, or
could be, a “covered employee” within the meaning of Section 162(m) of the
Code.

2.9           “Deferred Stock” means a right to receive a
specified number of Shares during specified time periods pursuant to Section 8.5.

2.10         “Director” means a member of the Board.

2.11         “Disability” means,
for purposes of this Plan, that the Participant qualifies to receive long-term
disability payments under the Company’s long-term disability insurance program,
as it may be amended from time to time.

2.12         “Dividend Equivalents” means a right granted to a Participant
pursuant to Section 8.3 to receive the equivalent value (in cash or Shares)
of dividends paid on Shares.

2.13         “Effective Date” shall have the meaning set forth in
Section 13.1.

2.14         “Eligible Individual” means any person who is an
Employee, a Consultant or an Independent Director, as determined by the
Committee.

2.15         “Employee” means any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company or any
Subsidiary.

 3
 

 

 

2.16         “Exchange Act” means the Securities Exchange Act of
1934, as amended.

2.17         “Fair Market Value” shall mean, as of any date, the
value of Shares determined as follows:

(a)           If the Shares are listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, the Fair
Market Value shall be the closing sales price for a Share (or the closing bid,
if no sales were reported) as quoted on such exchange or system for the last
market trading day prior to the date of determination, as reported in The Wall Street Journal or such other source as the
Committee deems reliable;

(b)           If the Shares are regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
shall be the mean of the closing bid and asked prices for a Share on the date
prior to the date of determination as reported in The Wall
Street Journal or such other source as the Committee deems reliable;
or

(c)           In the absence of an established market for the Shares,
the Fair Market Value of a Share shall be determined in good faith by the
Committee.

2.18         “Incentive Stock Option” means an Option that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.

2.19         “Independent Director” means a Director who is not an
Employee of the Company and who qualifies as “independent” within the meaning
of NASD Rule 4200(a)(14), if the Company’s securities are traded on the Nasdaq National
Market, or the requirements of any other established stock exchange on which
the Company’s securities are traded, as such rules or requirements may be
amended from time to time.

2.20         “Non-Employee Director” means a Director who
qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) under the
Exchange Act, or any successor rule.

2.21         “Non-Qualified Stock Option” means an Option that is
not intended to be an Incentive Stock Option.

2.22         “Option” means a
right granted to a Participant pursuant to Article 5 of the Plan to purchase a
specified number of Shares at a specified price during specified time
periods.  An Option may be either an
Incentive Stock Option or a Non-Qualified Stock Option.

2.23         “Participant”
means any Eligible Individual who, as an Independent Director, Consultant or
Employee, has been granted an Award pursuant to the Plan.

2.24         “Performance-Based
Award” means an Award granted to selected Covered Employees pursuant to Section
8.7, but which is subject to the terms and conditions set forth in Article 9.

2.25         “Performance Bonus Award” has the meaning set forth
in Section 8.7.

 4
 

 

 

2.26         “Performance Criteria”
means the criteria that the Committee selects for purposes of establishing the
Performance Goal or Performance Goals for a Participant for a Performance
Period.  The Performance Criteria that
will be used to establish Performance Goals are limited to the following: net
earnings (either before or after interest, taxes, depreciation and amortization),
economic value-added, sales or revenue, net income (either before or after
taxes), operating earnings, cash flow (including, but not limited to, operating
cash flow and free cash flow), cash flow return on capital, return on net
assets, return on shareholders’ equity, return on assets, return on capital, shareholder
returns, return on sales, gross or net profit margin, productivity, expense,
margins, operating efficiency, customer satisfaction, working capital, earnings
per share, price per Share, and market share, any of which may be measured
either in absolute terms or as compared to any incremental increase or as
compared to results of a peer group.  The
Committee shall define in an objective fashion the manner of calculating the
Performance Criteria it selects to use for such Performance Period for such
Participant.

2.27         “Performance Goals” means, for a Performance Period,
the goals established in writing by the Committee for the Performance Period
based upon the Performance Criteria. 
Depending on the Performance Criteria used to establish such Performance
Goals, the Performance Goals may be expressed in terms of overall Company
performance or the performance of a division, business unit, or an
individual.  The Committee, in its
discretion, may, within the time prescribed by Section 162(m) of the Code,
adjust or modify the calculation of Performance Goals for such Performance Period
in order to prevent the dilution or enlargement of the rights of Participants
(a) in the event of, or in anticipation of, any unusual or extraordinary
corporate item, transaction, event, or development, or (b) in recognition of,
or in anticipation of, any other unusual or nonrecurring events affecting the
Company, or the financial statements of the Company, or in response to, or in
anticipation of, changes in applicable laws, regulations, accounting
principles, or business conditions.

2.28         “Performance Period” means the one or more periods of
time, which may be of varying and overlapping durations, as the Committee may
select, over which the attainment of one or more Performance Goals will be
measured for the purpose of determining a Participant’s right to, and the
payment of, a Performance-Based Award.

2.29         “Performance Share” means a right granted to a
Participant pursuant to Section 8.1, to receive Shares, the payment of which is
contingent upon achieving certain Performance Goals or other performance-based
targets established by the Committee.

2.30         “Performance Stock Unit” means a right granted to a
Participant pursuant to Section 8.2, to receive Shares, the payment of which is
contingent upon achieving certain Performance Goals or other performance-based
targets established by the Committee.

2.31         “Prior Plans” means, collectively, the following
plans of the Company: the Unapproved Plan, the Approved Plan, the Unapproved
Schedule, the Sharesave Plan, the 2004 Stock Option Plan, the 2004 Employee
Stock Purchase Plan, the Approved Company Share Option Plan, the Unapproved
Company Share Option Plan, the Deputy Chairman’s Stock Option Plan and the 2005
Employment Incentive Plan, in each case as such plan may be amended from time
to time.

 5
 

 

 

2.32         “Plan” means this Xyratex Ltd 2006 Incentive Award
Plan, as it may be amended from time to time.

2.33         “Qualified Performance-Based Compensation” means any
compensation that is intended to qualify as “qualified performance-based
compensation” as described in Section 162(m)(4)(C) of the Code.

2.34         “Restricted Stock” means Shares awarded to a
Participant pursuant to Article 6 that are subject to certain restrictions and
may be subject to risk of forfeiture.

2.35         “Restricted Stock Unit” means an Award granted
pursuant to Section 8.6.

2.36         “Securities Act” shall mean the Securities Act of
1933, as amended.

2.37         “Shares” means the common shares of the Company or such
other securities of the Company that may be substituted for Shares pursuant to
Article 11.

2.38         “Stock Appreciation Right” or “SAR” means a
right granted pursuant to Article 7 to receive a payment equal to the excess of
the Fair Market Value of a specified number of Shares on the date the SAR is
exercised over the Fair Market Value on the date the SAR was granted as set
forth in the applicable Award Agreement.

2.39         “Stock Payment” means (a) a payment in the form of Shares,
or (b) an option or other right to purchase Shares, as part of any bonus,
deferred compensation or other arrangement, made in lieu of all or any portion
of the compensation, granted pursuant to Section 8.4.

2.40         “Subsidiary” means any “subsidiary corporation” as
defined in Section 424(f) of the Code and any applicable regulations
promulgated thereunder or any other entity of which a majority of the
outstanding voting shares or voting power is beneficially owned directly or
indirectly by the Company.

ARTICLE
3.

SHARES
SUBJECT TO THE PLAN

3.1           Number of Shares.

(a)           Subject to Article 11 and Section 3.1(b), the aggregate
number of Shares which may be issued or transferred pursuant to Awards under
the Plan or the Prior Plans following the Company’s initial public offering of
June 29, 2004 shall be 5,632,648 Shares. 
For the avoidance of doubt, no more than 5,632,648 Shares may be
delivered upon the exercise of Incentive Stock Options under the Plan.

(b)           To the extent that an Award, or an option or other award
under the Prior Plans, terminates, expires, or lapses for any reason, any Shares
subject to the Award or such option or other award shall again be available for
the grant of an Award pursuant to the Plan. 
Additionally, any Shares tendered or withheld to satisfy the grant or
exercise price or tax 

 6
 

 

withholding obligation pursuant to any Award,
or any option or other award under the Prior Plans, shall again be available
for the grant of an Award pursuant to the Plan. 
To the extent permitted by applicable law or any exchange rule, Shares
issued in assumption of, or in substitution for, any outstanding awards of any
entity acquired in any form of combination by the Company or any Subsidiary
shall not be counted against Shares available for grant pursuant to this
Plan.  The payment of Dividend
Equivalents in cash in conjunction with any outstanding Awards shall not be
counted against the Shares available for issuance under the Plan.  Notwithstanding the provisions of this
Section 3.1(b), no Shares may again be optioned, granted or awarded if such
action would cause an Incentive Stock Option to fail to qualify as an incentive
stock option under Section 422 of the Code.

3.2           Shares Distributed. 
Any Shares distributed pursuant to an Award may consist, in whole or in
part, of authorized and unissued Shares or Shares purchased on the open market.

3.3           Limitation on Number of Shares Subject to Awards.  Notwithstanding any provision in the Plan to
the contrary, and subject to Article 11, the maximum number of Shares with
respect to one or more Awards that may be granted to any one Participant during
any calendar year shall be 500,000 and the maximum amount that may be paid in
cash during any calendar year with respect to any Performance-Based Award
(including, without limitation, any Performance Bonus Award) shall be $2,000,000.

ARTICLE
4.

ELIGIBILITY
AND PARTICIPATION

4.1           Eligibility.  Each Eligible Individual shall be eligible to
be granted one or more Awards pursuant to the Plan.

4.2           Participation. 
Subject to the provisions of the Plan, the Committee may, from time to
time, select from among all Eligible Individuals, those to whom Awards shall be
granted and shall determine the nature and amount of each Award.  No Eligible Individual shall have any right
to be granted an Award pursuant to this Plan.

4.3           Foreign Participants.  In order to assure the viability of Awards
granted to Participants employed in foreign countries, the Committee may
provide for such special terms as it may consider necessary or appropriate to
accommodate differences in local law, tax policy, or custom.  Moreover, the Committee may approve such
supplements to, or amendments, restatements, or alternative versions of, the
Plan as it may consider necessary or appropriate for such purposes without
thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such supplements, amendments,
restatements, or alternative versions shall increase the Share limitations
contained in Section 3.1 of the Plan.

ARTICLE
5.

STOCK
OPTIONS

5.1           General.  The Committee is authorized to grant Options
to Participants on the following terms and conditions:

 7
 

 

 

(a)           Exercise Price. 
The exercise price per Share subject to an Option shall be determined by
the Committee and set forth in the Award Agreement.

(b)           Time and Conditions of Exercise.  The Committee shall determine the time or
times at which an Option may be exercised in whole or in part.  The Committee shall also determine the
performance or other conditions, if any, that must be satisfied before all or
part of an Option may be exercised.

(c)           Payment.  The
Committee shall determine the methods by which the exercise price of an Option
may be paid, the form of payment, including, without limitation: (i) cash, (ii)
promissory note bearing interest at no less than such rate as shall then
preclude the imputation of interest under the Code, (iii) Shares held for longer
than six months having a Fair Market Value on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof, or (iv)
other property acceptable to the Committee (including through the delivery of a
notice that the Participant has placed a market sell order with a broker with
respect to Shares then issuable upon exercise of the Option, and that the
broker has been directed to pay a sufficient portion of the net proceeds of the
sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is
then made to the Company upon settlement of such sale), and the methods by
which Shares shall be delivered or deemed to be delivered to Participants.  Notwithstanding any other provision of the
Plan to the contrary, no Participant who is a member of the Board or an “executive
officer” of the Company within the meaning of Section 13(k) of the Exchange Act
shall be permitted to pay the exercise price of an Option in any method which
would violate Section 13(k) of the Exchange Act.

(d)           Evidence of Grant. 
All Options shall be evidenced by an Award Agreement between the Company
and the Participant.  The Award Agreement
shall include such additional provisions as may be specified by the Committee.

5.2           Incentive Stock Options. 
Incentive Stock Options shall be granted only to Employees and the terms
of any Incentive Stock Options granted pursuant to the Plan, in addition to the
requirements of Section 5.1, must comply with the provisions of this Section 5.2.

(a)           Exercise Price. 
Subject to Section 5.2(d), the per share exercise price of an Incentive
Stock Option shall not be less than the Fair Market Value of a Share on the
date of grant.

(b)           Expiration. 
Subject to Section 5.2(d), an Incentive Stock Option shall expire and may
not be exercised to any extent by anyone after the first to occur of the
following events:

(i)            Ten years from the date it is granted, unless an earlier
time is set in the Award Agreement;

(ii)           Three months after the Participant’s termination of employment
as an Employee; and

(iii)          One year after the date of the Participant’s termination of
employment or service on account of Disability or death.  Upon the Participant’s Disability or 

 8
 

 

death, any Incentive Stock Options
exercisable at the Participant’s Disability or death may be exercised by the
Participant’s legal representative or representatives, by the person or persons
entitled to do so pursuant to the Participant’s last will and testament, or, if
the Participant fails to make testamentary disposition of such Incentive Stock
Option or dies intestate, by the person or persons entitled to receive the
Incentive Stock Option pursuant to the applicable laws of descent and
distribution.

(c)           Dollar Limitation. 
The aggregate Fair Market Value (determined as of the time the Option is
granted) of all Shares with respect to which Incentive Stock Options are first
exercisable by a Participant in any calendar year may not exceed $100,000 or
such other limitation as imposed by Section 422(d) of the Code, or any
successor provision.  To the extent that
Incentive Stock Options are first exercisable by a Participant in excess of
such limitation, the excess shall be considered Non-Qualified Stock Options.

(d)           Ten Percent Owners. 
An Incentive Stock Option shall be granted to any individual who, at the
date of grant, owns shares possessing more than ten percent of the total
combined voting power of all classes of shares of the Company only if such
Option is granted with a per share exercise price that is not less than 110% of
the Fair Market Value of a Share on the date of grant and the Option is
exercisable for no more than five years from the date of grant.

(e)           Notice of Disposition.  The Participant shall give the Company prompt
notice of any disposition of Shares acquired by exercise of an Incentive Stock
Option within (i) two years from the date of grant of such Incentive Stock
Option or (ii) one year after the transfer of such Shares to the Participant.

(f)            Right to Exercise. 
During a Participant’s lifetime, an Incentive Stock Option may be
exercised only by the Participant.

(g)           Failure to Meet Requirements.  Any Option (or portion thereof) purported to
be an Incentive Stock Option, which, for any reason, fails to meet the
requirements of Section 422 of the Code shall be considered a Non-Qualified
Stock Option.

5.3           Substitution of Stock Appreciation Rights.  The Committee may provide in the Award
Agreement evidencing the grant of an Option that the Committee, in its sole
discretion, shall have to right to substitute a Stock Appreciation Right for
such Option at any time prior to or upon exercise of such Option; provided, that such Stock Appreciation
Right shall be exercisable with respect to the same number of Shares for which
such substituted Option would have been exercisable.

ARTICLE
6.

RESTRICTED
STOCK AWARDS

6.1           Grant of Restricted Stock. 
The Committee is authorized to make Awards of Restricted Stock to any
Participant selected by the Committee in such amounts and subject to such terms
and conditions as determined by the Committee. 
All Awards of Restricted Stock shall be evidenced by an Award Agreement.

 9
 

 

 

6.2           Issuance and Restrictions. 
Restricted Stock shall be subject to such restrictions on
transferability and other restrictions as the Committee may impose (including,
without limitation, limitations on the right to vote Restricted Stock or the
right to receive dividends on the Restricted Stock).  These restrictions may lapse separately or in
combination at such times, pursuant to such circumstances, in such installments,
or otherwise, as the Committee determines at the time of the grant of the Award
or thereafter.

6.3           Forfeiture.  Except as otherwise determined by the
Committee at the time of the grant of the Award or thereafter, upon termination
of employment or service during the applicable restriction period, Restricted
Stock that is at that time subject to restrictions shall be forfeited and,
subject to the requirements of the Companies Act 1981 of Bermuda, repurchased
by the Company for an aggregate price of US$1.00; provided,
however, that, the Committee may (a) provide in any Restricted Stock
Award Agreement that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of
terminations resulting from specified causes, and (b) in other cases waive in
whole or in part restrictions or forfeiture conditions relating to Restricted
Stock.

6.4           Certificates for Restricted Stock.  Restricted Stock granted pursuant to the Plan
may be evidenced in such manner as the Committee shall determine.  If certificates representing shares of
Restricted Stock are registered in the name of the Participant, certificates
must bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, and the Company may, at its
discretion, retain physical possession of the certificate until such time as
all applicable restrictions lapse.

ARTICLE
7.

STOCK
APPRECIATION RIGHTS

7.1           Grant of Stock Appreciation Rights.

(a)           A Stock Appreciation Right may be granted to any
Participant selected by the Committee.  A
Stock Appreciation Right shall be subject to such terms and conditions not
inconsistent with the Plan as the Committee shall impose and shall be evidenced
by an Award Agreement.

(b)           A Stock Appreciation Right shall entitle the Participant
(or other person entitled to exercise the Stock Appreciation Right pursuant to
the Plan) to exercise all or a specified portion of the Stock Appreciation
Right (to the extent then exercisable pursuant to its terms) and to receive
from the Company an amount equal to the product of (i) the excess of (A) the
Fair Market Value of a Share on the date the Stock Appreciation Right is
exercised over (B) the Fair Market Value of a Share on the date the Stock Appreciation
Right was granted and (ii) the number of Shares with respect to which the Stock
Appreciation Right is exercised, subject to any limitations the Committee may
impose.

7.2           Payment and Limitations on Exercise.

(a)           Subject to Sections 7.2(b) and 7.2(c), payment of the
amounts determined under Sections 7.1(b) above shall be in cash, in Shares
(based on its Fair Market Value as of the 

 10
 

 

date the Stock Appreciation Right is
exercised) or a combination of both, as determined by the Committee in the
Award Agreement.

(b)           To the extent payment for a Stock Appreciation Right is to
be made in cash, the Award Agreement shall, to the extent necessary to comply
with the requirements to Section 409A of the Code, specify the date of payment
which may be different than the date of exercise of the Stock Appreciation
Right.  If the date of payment for a
Stock Appreciation Right is later than the date of exercise, the Award
Agreement may specify that the Participant be entitled to earnings on such
amount until paid.

(c)           To the extent any payment under Section 7.1(b) is effected
in Shares, it shall be made subject to satisfaction of all provisions of
Article 5 above pertaining to Options.

ARTICLE
8.

OTHER
TYPES OF AWARDS

8.1           Performance Share Awards.  Any Participant selected by the Committee may
be granted one or more Performance Share awards which shall be denominated in a
number of Shares and which may be linked to any one or more of the Performance
Criteria or other specific performance criteria determined appropriate by the
Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee.  In
making such determinations, the Committee shall consider (among such other
factors as it deems relevant in light of the specific type of award) the
contributions, responsibilities and other compensation of the particular
Participant.

8.2           Performance Stock Units.  Any Participant
selected by the Committee may be granted one or more Performance Stock Unit
awards which shall be denominated in unit equivalent of Shares and/or units of
value including dollar value of Shares and which may be linked to any one or
more of the Performance Criteria or other specific performance criteria
determined appropriate by the Committee, in each case on a specified date or
dates or over any period or periods determined by the Committee.  In making such determinations, the Committee
shall consider (among such other factors as it deems relevant in light of the
specific type of award) the contributions, responsibilities and other
compensation of the particular Participant.

8.3           Dividend Equivalents.

(a)           Any Participant selected by the Committee may be granted
Dividend Equivalents based on the dividends declared on the Shares that are
subject to any Award, to be credited as of dividend payment dates, during the
period between the date the Award is granted and the date the Award is
exercised, vests or expires, as determined by the Committee.  Such Dividend Equivalents shall be converted
to cash or additional Shares by such formula and at such time and subject to
such limitations as may be determined by the Committee.

(b)           Dividend Equivalents granted with respect to Options or
SARs that are intended to be Qualified Performance-Based Compensation shall be
payable, with respect to pre-exercise periods, regardless of whether such
Option or SAR is subsequently exercised.

 11
 

 

 

8.4           Stock Payments. 
Any Participant selected by the Committee may receive Stock Payments in
the manner determined from time to time by the Committee.  The number of shares shall be determined by
the Committee and may be based upon the Performance Criteria or other specific
performance criteria determined appropriate by the Committee, determined on the
date such Stock Payment is made or on any date thereafter.

8.5           Deferred Stock. 
Any Participant selected by the Committee may be granted an award of
Deferred Stock in the manner determined from time to time by the
Committee.  The number of shares of Deferred
Stock shall be determined by the Committee and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by
the Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee.  Shares
underlying a Deferred Stock award will not be issued until the Deferred Stock
award has vested, pursuant to a vesting schedule or performance criteria set by
the Committee.  Unless otherwise provided
by the Committee, a Participant awarded Deferred Stock shall have no rights as a
Company shareholder with respect to such Deferred Stock until such time as the
Deferred Stock Award has vested and the Shares underlying the Deferred Stock
Award have been issued.

8.6           Restricted Stock Units.  The Committee is authorized to make Awards of
Restricted Stock Units to any Participant selected by the Committee in such
amounts and subject to such terms and conditions as determined by the
Committee.  At the time of grant, the
Committee shall specify the date or dates on which the Restricted Stock Units
shall become fully vested and nonforfeitable, and may specify such conditions
to vesting as it deems appropriate.  At
the time of grant, the Committee shall specify the maturity date applicable to
each grant of Restricted Stock Units which shall be no earlier than the vesting
date or dates of the Award and may be determined at the election of the
grantee.  On the maturity date, the
Company shall, subject to Section 10.5(b), issue to the Participant one
unrestricted, fully transferable Share for each Restricted Stock Unit scheduled
to be paid out on such date and not previously forfeited.

8.7           Performance Bonus Awards.  Any Participant selected by the Committee may
be granted one or more Performance-Based Awards in the form of a cash bonus (a “Performance
Bonus Award”) payable upon the attainment of Performance Goals that are
established by the Committee and relate to one or more of the Performance
Criteria, in each case on a specified date or dates or over any period or
periods determined by the Committee.  Any
such Performance Bonus Award paid to a Covered Employee shall be based upon
objectively determinable bonus formulas established in accordance with Article 9.

8.8           Term.  Except
as otherwise provided herein, the term of any Award of  Performance Shares, Performance Stock Units,
Dividend Equivalents, Stock Payments, Deferred Stock or Restricted Stock Units
shall be set by the Committee in its discretion.

8.9           Exercise or Purchase Price.  The Committee shall establish the exercise or
purchase price, if any, of any Award of Performance Shares, Performance Stock
Units, Deferred Stock, Stock Payments or Restricted Stock Units; provided, however, that such price shall not be less than
the par value of a Share on the date of grant, unless otherwise permitted by
applicable law.  The Committee shall
specify such exercise or purchase price in any Award Agreement.

 12
 

 

 

8.10         Exercise upon Termination of Employment or Service.  An Award of Performance Shares, Performance
Stock Units, Dividend Equivalents, Deferred Stock, Stock Payments and
Restricted Stock Units shall only be exercisable or payable while the
Participant is an Employee, Consultant or a member of the Board, as applicable;
provided, however, that the Committee in
its sole and absolute discretion may provide that an Award of Performance
Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred
Stock or Restricted Stock Units may be exercised or paid subsequent to a
termination of employment or service, as applicable, or following a Change of
Control of the Company, or because of the Participant’s retirement, death or
disability, or otherwise; provided, however,
that any such provision with respect to Performance Shares or Performance Stock
Units shall be subject to the requirements of Section 162(m) of the Code that
apply to Qualified Performance-Based Compensation.

8.11         Form of Payment. 
Payments with respect to any Awards granted under this Article 8 shall
be made in cash, in Shares or a combination of both, as determined by the
Committee.

8.12         Award Agreement. 
All Awards under this Article 8 shall be subject to such additional
terms and conditions as determined by the Committee and shall be evidenced by an
Award Agreement.

ARTICLE
9.

PERFORMANCE-BASED
AWARDS

9.1           Purpose.  The purpose
of this Article 9 is to provide the Committee the ability to qualify Awards
other than Options and SARs and that are granted pursuant to Articles 6  and 8 as Qualified Performance-Based
Compensation.  If the Committee, in its
discretion, decides to grant a Performance-Based Award to a Covered Employee,
the provisions of this Article 9 shall control over any contrary provision
contained in Articles 6 or 8; provided, however,
that the Committee may in its discretion grant Awards to Covered Employees that
are based on Performance Criteria or Performance Goals but that do not satisfy
the requirements of this Article 9.

9.2           Applicability.  This
Article 9 shall apply only to those Covered Employees selected by the Committee
to receive Performance-Based Awards.  The
designation of a Covered Employee as a Participant for a Performance Period
shall not in any manner entitle the Participant to receive an Award for the
period.  Moreover, designation of a
Covered Employee as a Participant for a particular Performance Period shall not
require designation of such Covered Employee as a Participant in any subsequent
Performance Period and designation of one Covered Employee as a Participant
shall not require designation of any other Covered Employees as a Participant
in such period or in any other period.

9.3           Procedures with Respect to Performance-Based Awards.  To the extent necessary to comply with the
Qualified Performance-Based Compensation requirements of Section 162(m)(4)(C)
of the Code, with respect to any Award granted under Articles 6 or 8 which may
be granted to one or more Covered Employees, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of 

 13
 

 

service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall, in
writing, (a) designate one or more Covered Employees, (b) select the
Performance Criteria applicable to the Performance Period, (c) establish the
Performance Goals, and amounts of such Awards, as applicable, which may be
earned for such Performance Period, and (d) specify the relationship between
Performance Criteria and the Performance Goals and the amounts of such Awards,
as applicable, to be earned by each Covered Employee for such Performance
Period.  Following the completion of each
Performance Period, the Committee shall certify in writing whether the
applicable Performance Goals have been achieved for such Performance Period.  In determining the amount earned by a Covered
Employee, the Committee shall have the right to reduce or eliminate (but not to
increase) the amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the Performance Period.

9.4           Payment of Performance-Based Awards.  Unless otherwise provided in the applicable
Award Agreement, a Participant must be employed by the Company or a Subsidiary
on the day a Performance-Based Award for such Performance Period is paid to the
Participant.  Furthermore, a Participant
shall be eligible to receive payment pursuant to a Performance-Based Award for
a Performance Period only if the Performance Goals for such period are
achieved.  In determining the amount
earned under a Performance-Based Award, the Committee may reduce or eliminate
the amount of the Performance-Based Award earned for the Performance Period, if
in its sole and absolute discretion, such reduction or elimination is
appropriate.

9.5           Additional Limitations.  Notwithstanding any other provision of the
Plan, any Award which is granted to a Covered Employee and is intended to
constitute Qualified Performance-Based Compensation shall be subject to any
additional limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings issued
thereunder that are requirements for qualification as qualified
performance-based compensation as described in Section 162(m)(4)(C) of the Code,
and the Plan shall be deemed amended to the extent necessary to conform to such
requirements.

ARTICLE
10.

PROVISIONS
APPLICABLE TO AWARDS

10.1         Stand-Alone and Tandem Awards.  Awards granted pursuant to the Plan may, in
the discretion of the Committee, be granted either alone, in addition to, or in
tandem with, any other Award granted pursuant to the Plan. Awards granted in
addition to or in tandem with other Awards may be granted either at the same
time as or at a different time from the grant of such other Awards.

10.2         Award Agreement. 
Awards under the Plan shall be evidenced by Award Agreements that set
forth the terms, conditions and limitations for each Award which may include
the term of an Award, the provisions applicable in the event the Participant’s
employment or service terminates, and the Company’s authority to unilaterally
or bilaterally amend, modify, suspend, cancel or rescind an Award.

 14
 

 

 

10.3         Limits on Transfer. 
No right or interest of a Participant in any Award may be pledged,
encumbered, or hypothecated to or in favor of any party other than the Company
or a Subsidiary, or shall be subject to any lien, obligation, or liability of
such Participant to any other party other than the Company or a
Subsidiary.  No Award shall be assigned,
transferred, or otherwise disposed of by a Participant other than by will or
the laws of descent and distribution.

10.4         Beneficiaries. 
Notwithstanding Section 10.3, a Participant may, in the manner
determined by the Committee, designate a beneficiary to exercise the rights of
the Participant and to receive any distribution with respect to any Award upon
the Participant’s death.  A beneficiary,
legal guardian, legal representative, or other person claiming any rights
pursuant to the Plan is subject to all terms and conditions of the Plan and any
Award Agreement applicable to the Participant, except to the extent the Plan
and Award Agreement otherwise provide, and to any additional restrictions
deemed necessary or appropriate by the Committee.  If the Participant is married and resides in
a community property state, a designation of a person other than the
Participant’s spouse as his or her beneficiary with respect to more than 50% of
the Participant’s interest in the Award shall not be effective without the
prior written consent of the Participant’s spouse.  If no beneficiary has been designated or
survives the Participant, payment shall be made to the person entitled thereto
pursuant to the Participant’s will or the laws of descent and
distribution.  Subject to the foregoing,
a beneficiary designation may be changed or revoked by a Participant at any
time provided the change or revocation is filed with the Committee.

10.5         Share Certificates;
Book Entry Procedures.

(a)           Notwithstanding
anything herein to the contrary, the Company shall not be required to issue or
deliver any certificates evidencing Shares pursuant to the exercise of any
Award, unless and until the Board has determined, with advice of counsel, that
the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authorities and, if applicable,
the requirements of any exchange on which the Shares are listed or traded.  All Share certificates delivered pursuant to
the Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal, state, or
foreign jurisdiction, securities or other laws, rules and regulations and the
rules of any national securities exchange or automated quotation system on
which the Shares are listed, quoted, or traded. 
The Committee may place legends on any Share certificate to reference
restrictions applicable to the Shares. 
In addition to the terms and conditions provided herein, the Board may
require that a Participant make such reasonable covenants, agreements, and
representations as the Board, in its discretion, deems advisable in order to
comply with any such laws, regulations, or requirements. The Committee shall
have the right to require any Participant
to comply with any timing or other restrictions with respect to the settlement
or exercise of any Award, including a window-period limitation, as may be
imposed in the discretion of the Committee.

(b)           Notwithstanding any other provision of the Plan, unless otherwise
determined by the Committee or required by any applicable law, rule or
regulation, the Company shall not deliver to any Participant certificates
evidencing Shares issued in connection with any Award and instead such Shares
shall be recorded in the books of the Company (or, as applicable, its transfer
agent or share plan administrator).

 15
 

 

 

10.6         Paperless Exercise. 
In the event that the Company establishes, for itself or using the
services of a third party, an automated system for the exercise of Awards, such
as a system using an internet website or interactive voice response, then the
paperless exercise of Awards by a Participant may be permitted through the use
of such an automated system.

ARTICLE
11.

CHANGES
IN CAPITAL STRUCTURE

11.1         Adjustments.  In the event of any stock
dividend, stock split, combination or exchange of shares, merger,
consolidation, spin-off, recapitalization or other distribution (other than
normal cash dividends) of Company assets to shareholders, or any other change
affecting the Shares or the Share price, the Committee shall make such
proportionate adjustments, if any, as the Committee in its discretion may deem
appropriate to reflect such change with respect to (a) the aggregate number and
type of shares that may be issued under the Plan (including, but not limited
to, adjustments of the limitations in Sections 3.1 and 3.3); (b) the terms and
conditions of any outstanding Awards (including, without limitation, any
applicable performance targets or criteria with respect thereto); and (c) the
grant or exercise price per share for any outstanding Awards under the
Plan.  Any adjustment affecting an Award
intended as Qualified Performance-Based Compensation shall be made consistent
with the requirements of Section 162(m) of the Code.

11.2         Acceleration Upon a Change of Control.  If a Change of Control occurs and a
Participant’s Awards are not converted, assumed, or replaced by a successor,
such Awards shall become fully exercisable and all forfeiture restrictions on
such Awards shall lapse.  Upon, or in
anticipation of, a Change of Control, the Committee may cause any and all
Awards outstanding hereunder to terminate at a specific time in the future and
shall give each Participant the right to exercise such Awards during a period
of time as the Committee, in its sole and absolute discretion, shall
determine.  In the event that the terms
of any agreement between the Company or any Subsidiary or affiliate and a
Participant contains provisions that conflict with and are more restrictive than
the provisions of this Section 11.2, this Section 11.2 shall prevail and
control and the more restrictive terms of such agreement (and only such terms)
shall be of no force or effect.

11.3         Outstanding Awards — Certain Amalgamations.  Subject to any required action by the
shareholders of the Company, in the event that the Company shall be the
surviving corporation in any amalgamation or other such re-organisation (except
an amalgamation or other such re-organisation as a result of which the holders
of Shares receive securities of another corporation), each Award outstanding on
the date of such amalgamation or other such re-organisation shall pertain to
and apply to the securities that a holder of the number of Shares subject to
such Award would have received in such amalgamation or other such
re-organisation.

11.4         Outstanding Awards — Other Changes.  In the event of any other change in the
capitalization of the Company or corporate change other than those specifically
referred to in this Article 11, the Committee may, in its absolute discretion,
make such adjustments in the number and class of shares subject to Awards
outstanding on the date on which such change occurs and 

 16
 

 

in the per share grant or exercise price of
each Award as the Committee may consider appropriate to prevent dilution or
enlargement of rights.

11.5         No Other Rights. 
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of any class,
the payment of any dividend, any increase or decrease in the number of shares
of any class or any dissolution, liquidation, merger, or consolidation of the
Company or any other corporation.  Except
as expressly provided in the Plan or pursuant to action of the Committee under
the Plan, no issuance by the Company of Shares of any class, or securities
convertible into shares of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number of Shares subject to an Award
or the grant or exercise price of any Award.

ARTICLE
12.

ADMINISTRATION

12.1         Committee.  Unless and
until the Board delegates administration of the Plan to a Committee as set
forth below, the Plan shall be administered by the Board, which shall, in any
event, constitute the “Committee” for the purposes of this Plan.  The Board, at its discretion or as otherwise
necessary to comply with the requirements of Section 162(m) of the Code, Rule
16b-3 promulgated under the Exchange Act or to the extent required by any other
applicable rule or regulation, shall delegate administration of the Plan to a
Committee.  The Committee shall consist
solely of two or more members of the Board each of whom is an “outside
director,” within the meaning of Section 162(m) of the Code, a Non-Employee
Director and an Independent Director. 
Notwithstanding the foregoing: (a) the Board, acting by a majority of
its members in office, shall conduct the general administration of the Plan
with respect to all Awards granted to Independent Directors and for purposes of
such Awards the term “Committee” as used in this Plan shall be deemed to refer
to the Board and (b) the Committee may delegate its authority hereunder to the
extent permitted by Section 12.5. 
Appointment of Committee members shall be effective upon acceptance of
appointment.  In its sole discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan except with respect to matters which
under Rule 16b-3 under the Exchange Act or Section 162(m) of the Code, or
any regulations or rules issued thereunder, are required to be determined in
the sole discretion of the Committee.  Committee
members may resign at any time by delivering written notice to the Board.  Vacancies in the Committee may only be filled
by the Board.  If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board.

12.2         Action by the Committee. 
A majority of the Committee shall constitute a quorum.  The acts of a majority of the members present
at any meeting at which a quorum is present, and acts approved in writing by a
majority of the Committee in lieu of a meeting, shall 

 17
 

 

be deemed the acts of the Committee.  Each member of the Committee is entitled to,
in good faith, rely or act upon any report or other information furnished to
that member by any officer or other employee of the Company or any Subsidiary,
the Company’s independent certified public accountants, or any executive
compensation consultant or other professional retained by the Company to assist
in the administration of the Plan.

12.3         Authority of Committee. 
Subject to any specific designation in the Plan, the Committee has the
exclusive power, authority and discretion to:

(a)           Designate Participants to receive Awards;

(b)           Determine the type or types of Awards to be granted to
each Participant;

(c)           Determine the number of Awards to be granted and the
number of Shares to which an Award will relate;

(d)           Determine the terms and conditions of any Award granted
pursuant to the Plan, including, but not limited to, the exercise price, grant
price, or purchase price, any reload provision, any restrictions or limitations
on the Award, any schedule for lapse of forfeiture restrictions or restrictions
on the exercisability of an Award, and accelerations or waivers thereof, any
provisions related to non-competition and recapture of gain on an Award, based
in each case on such considerations as the Committee in its sole discretion
determines; provided, however,
that the Committee shall not have the authority to accelerate the vesting or
waive the forfeiture of any Performance-Based Awards;

(e)           Determine whether, to what extent, and pursuant to what
circumstances an Award may be settled in, or the exercise price of an Award may
be paid in, cash, Shares, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;

(f)            Prescribe the form of each Award Agreement, which need
not be identical for each Participant;

(g)           Decide all other matters that must be determined in
connection with an Award;

(h)           Establish, adopt, or revise any rules and regulations as
it may deem necessary or advisable to administer the Plan;

(i)            Interpret the terms of, and any matter arising pursuant
to, the Plan or any Award Agreement; and

(j)            Make all other decisions and determinations that may be
required pursuant to the Plan or as the Committee deems necessary or advisable
to administer the Plan.

12.4         Decisions Binding. 
The Committee’s interpretation of the Plan, any Awards granted pursuant
to the Plan, any Award Agreement and all decisions and determinations by the
Committee with respect to the Plan are final, binding, and conclusive on all
parties.

 18
 

 

 

12.5         Delegation of Authority.  To the extent permitted by applicable law,
the Committee may from time to time delegate to a committee of one or more
members of the Board or one or more officers of the Company the authority to
grant or amend Awards to Participants other than (a) senior executives of the
Company who are subject to Section 16 of the Exchange Act, (b) Covered
Employees, or (c) officers of the Company (or members of the Board) to whom
authority to grant or amend Awards has been delegated hereunder.  Any delegation hereunder shall be subject to
the restrictions and limits that the Committee specifies at the time of such
delegation, and the Committee may at any time rescind the authority so
delegated or appoint a new delegatee.  At
all times, the delegatee appointed under this Section 12.5 shall serve in such
capacity at the pleasure of the Committee.

ARTICLE
13.

EFFECTIVE
AND EXPIRATION DATE

13.1         Effective Date.  The
Plan is effective as of the date the Plan is approved by the Company’s shareholders
(the “Effective Date”).  The Plan
will be deemed to be approved by the shareholders if it receives the
affirmative vote of the holders of a simple majority of all issued voting shares
of the Company in accordance with the applicable provisions of the Company’s Bye-laws.

13.2         Expiration Date.  The
Plan will expire on, and no Award may be granted pursuant to the Plan after the
tenth anniversary of the Effective Date, except that no Incentive Stock Options
may be granted under the Plan after the earlier of the tenth anniversary of (i)
the date the Plan is approved by the Board or (ii) the Effective Date.  Any Awards that are outstanding on the tenth
anniversary of the Effective Date shall remain in force according to the terms
of the Plan and the applicable Award Agreement.

ARTICLE
14.

AMENDMENT,
MODIFICATION, AND TERMINATION

14.1         Amendment, Modification, and Termination.  Subject to Section 15.14, with the approval
of the Board, at any time and from time to time, the Committee may terminate,
amend or modify the Plan; provided, however,
that (a) to the extent necessary and desirable to comply with any applicable
law, regulation, or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required, and (b) shareholder approval is required for any amendment to the
Plan that (i) increases the number of Shares available under the Plan (other
than any adjustment as provided by Article 11), (ii) permits the Committee to
grant Options with an exercise price that is below Fair Market Value on the
date of grant, or (iii) permits the Committee to extend the exercise period for
an Option beyond ten years from the date of grant.  Notwithstanding any provision in this Plan to
the contrary, absent approval of the shareholders of the Company, no Option may
be amended to reduce the per share exercise price of the shares subject to such
Option below the per share exercise price as of the date the Option is granted
and, except as permitted by Article 11, no Option may be granted in exchange
for, or in connection with, the cancellation or surrender of an Option having a
higher per share exercise price.

 19
 

 

 

14.2         Awards Previously Granted. 
Except with respect to amendments made 
pursuant to Section 15.14, no termination, amendment, or modification of
the Plan shall adversely affect in any material way any Award previously
granted pursuant to the Plan without the prior written consent of the Participant.

ARTICLE
15.

GENERAL
PROVISIONS

15.1         No Rights to Awards. 
No Eligible Individual or other person shall have any claim to be
granted any Award pursuant to the Plan, and neither the Company nor the
Committee is obligated to treat Eligible Individuals, Participants or any other
persons uniformly.

15.2         No Shareholders Rights. 
Except as otherwise provided herein, a Participant shall have none of
the rights of a shareholder with respect to Shares covered by any Award until
the Participant becomes the record owner of such Shares.

15.3         Withholding.  The
Company or any Subsidiary shall have the authority and the right to deduct or
withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, local and foreign taxes (including the
Participant’s employment tax obligations) required by law to be withheld with
respect to any taxable event concerning a Participant arising as a result of
this Plan.  The Committee may in its
discretion and in satisfaction of the foregoing requirement allow a Participant
to elect to have the Company withhold Shares otherwise issuable under an Award
(or allow the return of Shares) having a Fair Market Value equal to the sums
required to be withheld.  Notwithstanding
any other provision of the Plan, the number of Shares which may be withheld
with respect to the issuance, vesting, exercise or payment of any Award (or
which may be repurchased from the Participant of such Award within six months
(or such other period as may be determined by the Committee) after such Shares
were acquired by the Participant from the Company) in order to satisfy the
Participant’s federal, state, local and foreign income and payroll tax
liabilities with respect to the issuance, vesting, exercise or payment of the
Award shall be limited to the number of shares which have a Fair Market Value
on the date of withholding or repurchase equal to the aggregate amount of such
liabilities based on the minimum statutory withholding rates for federal,
state, local and foreign income tax and payroll tax purposes that are
applicable to such supplemental taxable income.

15.4         No Right to Employment or Services.  Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any Subsidiary
to terminate any Participant’s employment or services at any time, nor confer
upon any Participant any right to continue in the employ or service of the
Company or any Subsidiary.

15.5         Unfunded Status of Awards. 
The Plan is intended to be an “unfunded” plan for incentive
compensation.  With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Company or any Subsidiary.

 20
 

 

 

15.6         Indemnification.  To
the extent allowable pursuant to applicable law, each member of the Committee
or of the Board shall be indemnified and held harmless by the Company from any
loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by such member in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action or failure to act pursuant to the Plan and
against and from any and all amounts paid by him or her in satisfaction of
judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. 
The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled pursuant
to the Company’s Memorandum and Articles of Association or Bye-laws, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.

15.7         Relationship to other Benefits.  No payment pursuant to the Plan shall be
taken into account in determining any benefits pursuant to any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary except to the extent otherwise expressly
provided in writing in such other plan or an agreement thereunder.

15.8         Expenses.  The
expenses of administering the Plan shall be borne by the Company and its
Subsidiaries.

15.9         Titles and Headings. 
The titles and headings of the Sections in the Plan are for convenience
of reference only and, in the event of any conflict, the text of the Plan,
rather than such titles or headings, shall control.

15.10       Fractional Shares.  No
fractional Shares shall be issued and the Committee shall determine, in its
discretion, whether cash shall be given in lieu of fractional shares or whether
such fractional shares shall be eliminated by rounding up or down as
appropriate.

15.11       Limitations Applicable to Section 16 Persons.  Notwithstanding any other provision of the
Plan, the Plan, and any Award granted or awarded to any Participant who is then
subject to Section 16 of the Exchange Act, shall be subject to any additional
limitations set forth in any applicable exemptive rule under Section 16 of the
Exchange Act (including any amendment to Rule 16b-3 under the Exchange Act)
that are requirements for the application of such exemptive rule.  To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule.

15.12       Government and Other Regulations.  The obligation of the Company to make payment
of awards in Shares or otherwise shall be subject to all applicable laws,
rules, and regulations, and to such approvals by government agencies as may be
required.  The Company shall be under no
obligation to register pursuant to the Securities Act, as amended, any of the Shares
paid pursuant to the Plan.  If the shares
paid pursuant to the Plan may in certain circumstances be exempt from
registration pursuant to the Securities Act, as amended, the 

 21
 

 

Company may restrict the transfer of such
shares in such manner as it deems advisable to ensure the availability of any
such exemption.

15.13       Governing Law.  The
Plan and all Award Agreements shall be construed in accordance with and
governed by the laws of the State of California.

15.14       Section 409A.  To the extent that the Committee determines
that any Award granted under the Plan is subject to Section 409A of the Code,
the Award Agreement evidencing such Award shall incorporate the terms and
conditions required by Section 409A of the Code.  To the extent applicable, the Plan and Award Agreements shall be
interpreted in accordance with Section 409A of the Code and Department of
Treasury regulations and other interpretive guidance issued thereunder,
including without limitation any such regulations or other guidance that may be
issued after the Effective Date. 
Notwithstanding any provision of the Plan to the contrary, in the event
that following the Effective Date the Committee determines that any Award may
be subject to Section 409A of the Code and related Department of Treasury
guidance (including such Department of Treasury guidance as may be issued after
the Effective Date), the Committee may adopt such amendments to the Plan and
the applicable Award Agreement or adopt other policies and procedures
(including amendments, policies and procedures with retroactive effect), or
take any other actions, that the Committee determines are necessary or
appropriate to (a) exempt the Award from Section 409A of the Code and/or
preserve the intended tax treatment of the benefits provided with respect to
the Award, or (b) comply with the requirements of Section 409A of the Code and
related Department of Treasury guidance.

 

 22

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