Document:

HOMEBANC MORTGAGE TRUST 2004-1

                                     Issuer

                     WELLS FARGO BANK, NATIONAL ASSOCIATION,

                            Securities Administrator

                                       and

                         U.S. BANK NATIONAL ASSOCIATION

                                Indenture Trustee

                -------------------------------------------------

                                    INDENTURE

                            Dated as of July 30, 2004

                -------------------------------------------------

                              MORTGAGE-BACKED NOTES

                             ----------------------

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                                                 TABLE OF CONTENTS
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SECTION                                                                                                        PAGE
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ARTICLE I

Definitions
         Section 1.01      DEFINITIONS............................................................................2
         Section 1.02      INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT......................................2
         Section 1.03      RULES OF CONSTRUCTION..................................................................2

ARTICLE II

Original Issuance of Notes
         Section 2.01      FORM...................................................................................4
         Section 2.02      EXECUTION, AUTHENTICATION AND DELIVERY.................................................4

ARTICLE III

Covenants
         Section 3.01      MAINTENANCE OF PAYMENT ACCOUNT.........................................................5
         Section 3.02      MAINTENANCE OF OFFICE OR AGENCY........................................................5
         Section 3.03      MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT...................................5
         Section 3.04      EXISTENCE..............................................................................7
         Section 3.05      PAYMENT OF PRINCIPAL AND INTEREST......................................................7
         Section 3.06      PROTECTION OF TRUST ESTATE............................................................10
         Section 3.07      OPINIONS AS TO TRUST ESTATE...........................................................11
         Section 3.08      PERFORMANCE OF OBLIGATIONS............................................................12
         Section 3.09      NEGATIVE COVENANTS....................................................................12
         Section 3.10      ANNUAL STATEMENT AS TO COMPLIANCE.....................................................13
         Section 3.11      [RESERVED]............................................................................13
         Section 3.12      REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE LOANS..........................13
         Section 3.13      AMENDMENTS TO SALE AND SERVICING AGREEMENT............................................13
         Section 3.14      MASTER SERVICER AS AGENT AND BAILEE OF THE INDENTURE TRUSTEE..........................13
         Section 3.15      INVESTMENT COMPANY ACT................................................................14
         Section 3.16      ISSUER MAY CONSOLIDATE, ETC...........................................................14
         Section 3.17      SUCCESSOR OR TRANSFEREE...............................................................16
         Section 3.18      NO OTHER BUSINESS.....................................................................16
         Section 3.19      NO BORROWING..........................................................................16
         Section 3.20      GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES.....................................16
         Section 3.21      CAPITAL EXPENDITURES..................................................................16
         Section 3.22      DETERMINATION OF NOTE INTEREST RATE...................................................17
         Section 3.23      RESTRICTED PAYMENTS...................................................................17
         Section 3.24      NOTICE OF EVENTS OF DEFAULT...........................................................17
         Section 3.25      FURTHER INSTRUMENTS AND ACTS..........................................................17
         Section 3.26      CERTAIN REPRESENTATIONS REGARDING THE TRUST ESTATE....................................17
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         Section 3.27      ALLOCATION OF REALIZED LOSSES.........................................................18

ARTICLE IV

The Notes; Satisfaction and Discharge of Indenture
         Section 4.01      THE NOTES.............................................................................20
         Section 4.02      REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF NOTES;
         APPOINTMENT OF NOTE REGISTRAR AND CERTIFICATE REGISTRAR.................................................20
         Section 4.03      MUTILATED, DESTROYED, LOST OR STOLEN NOTES............................................21
         Section 4.04      PERSONS DEEMED OWNERS.................................................................22
         Section 4.05      CANCELLATION..........................................................................22
         Section 4.06      BOOK-ENTRY NOTES......................................................................22
         Section 4.07      NOTICES TO DEPOSITORY.................................................................23
         Section 4.08      DEFINITIVE NOTES......................................................................23
         Section 4.09      TAX TREATMENT.........................................................................24
         Section 4.10      SATISFACTION AND DISCHARGE OF INDENTURE...............................................24
         Section 4.11      APPLICATION OF TRUST MONEY............................................................25
         Section 4.12      [RESERVED]............................................................................26
         Section 4.13      REPAYMENT OF MONIES HELD BY PAYING AGENT..............................................26
         Section 4.14      TEMPORARY NOTES.......................................................................26
         Section 4.15      REPRESENTATION REGARDING ERISA........................................................26

ARTICLE V

Default and Remedies
         Section 5.01      EVENTS OF DEFAULT.....................................................................27
         Section 5.02      ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT....................................27
         Section 5.03      COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY INDENTURE TRUSTEE
          .......................................................................................................28
         Section 5.04      REMEDIES; PRIORITIES..................................................................30
         Section 5.05      OPTIONAL PRESERVATION OF THE TRUST ESTATE.............................................31
         Section 5.06      LIMITATION OF SUITS...................................................................32
         Section 5.07      UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND INTEREST
          .......................................................................................................32
         Section 5.08      RESTORATION OF RIGHTS AND REMEDIES....................................................33
         Section 5.09      RIGHTS AND REMEDIES CUMULATIVE........................................................33
         Section 5.10      DELAY OR OMISSION NOT A WAIVER........................................................33
         Section 5.11      CONTROL BY NOTEHOLDERS................................................................33
         Section 5.12      WAIVER OF PAST DEFAULTS...............................................................34
         Section 5.13      UNDERTAKING FOR COSTS.................................................................34
         Section 5.14      WAIVER OF STAY OR EXTENSION LAWS......................................................34
         Section 5.15      SALE OF TRUST ESTATE..................................................................34
         Section 5.16      ACTION ON NOTES.......................................................................36
         Section 5.17      PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS....................................36
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ARTICLE VI

The Indenture Trustee and Securities Administrator
         Section 6.01      DUTIES OF INDENTURE TRUSTEE AND SECURITIES ADMINISTRATOR..............................38
         Section 6.02      RIGHTS OF INDENTURE TRUSTEE AND SECURITIES ADMINISTRATOR..............................39
         Section 6.03      INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE................................................42
         Section 6.04      INDENTURE TRUSTEE'S AND SECURITIES ADMINISTRATOR'S DISCLAIMERS........................42
         Section 6.05      NOTICE OF EVENT OF DEFAULT............................................................42
         Section 6.06      REPORTS BY INDENTURE TRUSTEE TO HOLDERS AND TAX ADMINISTRATION........................42
         Section 6.07      COMPENSATION..........................................................................43
         Section 6.08      REPLACEMENT OF INDENTURE TRUSTEE AND THE SECURITIES ADMINISTRATOR.....................43
         Section 6.09      SUCCESSOR INDENTURE TRUSTEE AND SECURITIES ADMINISTRATOR BY MERGER....................44
         Section 6.10      APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE TRUSTEE.....................45
         Section 6.11      ELIGIBILITY; DISQUALIFICATION.........................................................46
         Section 6.12      PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER......................................46
         Section 6.13      REPRESENTATIONS AND WARRANTIES........................................................46
         Section 6.14      DIRECTIONS TO INDENTURE TRUSTEE.......................................................47
         Section 6.15      THE AGENTS............................................................................47

ARTICLE VII

Noteholders' Lists and Reports
         Section 7.01      ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES OF NOTEHOLDERS
          .......................................................................................................48
         Section 7.02      PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS............................48
         Section 7.03      STATEMENTS TO NOTEHOLDERS.............................................................48

ARTICLE VIII

Accounts, Disbursements and Releases
         Section 8.01      COLLECTION OF MONEY...................................................................52
         Section 8.02      RESERVED..............................................................................52
         Section 8.03      OFFICER'S CERTIFICATE.................................................................52
         Section 8.04      TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS..........................................52
         Section 8.05      RELEASE OF TRUST ESTATE...............................................................52
         Section 8.06      SURRENDER OF NOTES UPON FINAL PAYMENT.................................................53
         Section 8.07      OPTIONAL REDEMPTION OF THE NOTES......................................................53

ARTICLE IX

Supplemental Indentures
         Section 9.01      SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS................................55
         Section 9.02      SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS...................................56
         Section 9.03      EXECUTION OF SUPPLEMENTAL INDENTURES..................................................58
         Section 9.04      EFFECT OF SUPPLEMENTAL INDENTURE......................................................58
         Section 9.05      CONFORMITY WITH TRUST INDENTURE ACT...................................................58
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         Section 9.06      REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.........................................58

ARTICLE X

Miscellaneous
Compliance Certificates and Opinions, etc........................................................................59
         Section 10.02     FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE......................................60
         Section 10.03     ACTS OF NOTEHOLDERS...................................................................61
         Section 10.04     NOTICES ETC., TO INDENTURE TRUSTEE, SECURITIES ADMINISTRATOR, ISSUER AND RATING
         AGENCIES................................................................................................61
         Section 10.05     NOTICES TO NOTEHOLDERS; WAIVER........................................................62
         Section 10.06     CONFLICT WITH TRUST INDENTURE ACT.....................................................63
         Section 10.07     EFFECT OF HEADINGS....................................................................63
         Section 10.09     SEPARABILITY..........................................................................63
         Section 10.10     [RESERVED]............................................................................63
         Section 10.11     LEGAL HOLIDAYS........................................................................63
         Section 10.12     GOVERNING LAW.........................................................................63
         Section 10.13     COUNTERPARTS..........................................................................64
         Section 10.14     RECORDING OF INDENTURE................................................................64
         Section 10.15     ISSUER OBLIGATION.....................................................................64
         Section 10.16     NO PETITION...........................................................................64
         Section 10.17     INSPECTION............................................................................64
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                  EXHIBITS

         Exhibit A-1      --        Form of Class [I][II]-A Notes
         Exhibit A-2      --        Form of Class [I][II]-B Notes
         Exhibit A-3      --        Form of Class [I][II]-M-[1][2] Notes

         Appendix A        --        Definitions

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                  This Indenture, dated as of July 30, 2004, is entered into
between HomeBanc Mortgage Trust 2004-1, a Delaware statutory trust, as Issuer
(the "Issuer"), Wells Fargo Bank, National Association, as Securities
Administrator (the "Securities Administrator"), and U.S. Bank National
Association, a national banking association, as Indenture Trustee (the
"Indenture Trustee").

                                WITNESSETH THAT:

                  Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the Issuer's
HomeBanc Mortgage Trust 2004-1, Mortgage- Backed Notes, Series 2004-1 (the
"Notes").

                                 GRANTING CLAUSE

                  The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to whether now existing or hereafter
created by (a) the Mortgage Loans, Substitute Mortgage Loans and the proceeds
thereof and all rights under the Related Documents; (b) all funds on deposit
from time to time in the Protected Account excluding any investment income from
such funds; (c) all funds on deposit from time to time in the Master Servicer
Collection Account allocable to the Mortgage Loans excluding any investment
income from such funds; (d) all funds on deposit from time to time in the
Payment Account; (e) any REO Property, (f) the Required Insurance Policies and
any amounts paid or payable by the insurer under any Insurance Policy (to the
extent the mortgagee has a claim thereto), (g) all rights under (i) the Mortgage
Loan Purchase Agreement as assigned to the Issuer to the extent provided in
Subsection 2.03(a) of the Sale and Servicing Agreement and (ii) the rights with
respect to the HomeBanc Servicing Agreement as assigned to the Issuer by the
Assignment Agreement; and (h) all present and future claims, demands, causes and
choses in action in respect of any or all of the foregoing and all payments on
or under, and all proceeds of every kind and nature whatsoever in respect of,
any or all of the foregoing and all payments on or under, and all proceeds of
every kind and nature whatsoever in the conversion thereof, voluntary or
involuntary, into cash or other liquid property, all cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, checks, deposit accounts,
rights to payment of any and every kind, and other forms of obligations and
receivables, instruments and other property which at any time constitute all or
part of or are included in the proceeds of any of the foregoing (collectively,
the "Trust Estate" or the "Collateral").

                  The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.

                  The Indenture Trustee, as trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and each of the Indenture Trustee and the
Securities Administrator agree to perform their respective duties as Indenture
Trustee and Securities Administrator as required herein.

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                                    ARTICLE I

                                   Definitions

         Section 1.01 DEFINITIONS. For all purposes of this Indenture, except as
otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Appendix A which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.

         Section 1.02 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:

                  "Commission" means the Securities and Exchange Commission.

                  "indenture securities" means the Notes.

                  "indenture security holder" means a Noteholder.

                  "indenture to be qualified" means this Indenture.

                  "indenture trustee" or "institutional trustee" means the
         Indenture Trustee.

                  "obligor" on the indenture securities means the Issuer and any
         other obligor on the indenture securities.

         All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rules have
the meanings assigned to them by such definitions.

         Section 1.03 RULES OF CONSTRUCTION. Unless the context otherwise
requires:

                           (i) a term has the meaning assigned to it;

                           (ii) an accounting term not otherwise defined has the
         meaning assigned to it in accordance with generally accepted accounting
         principles as in effect from time to time;

                           (iii) "or" is not exclusive;

                           (iv) "including" means including without limitation;

                           (v) words in the singular include the plural and
         words in the plural include the singular; and

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

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                                   ARTICLE II

                           Original Issuance of Notes

         Section 2.01 FORM. The Class A Notes, Class M Notes and Class B Notes,
together with the Indenture Trustee's certificate of authentication, shall be in
substantially the form set forth in Exhibits A-1, A-2 and A-3 to this Indenture,
respectively, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture.

         The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders).

         The terms of the Notes set forth in Exhibits A-1, A-2 and A-3 to this
Indenture are part of the terms of this Indenture.

         Section 2.02 EXECUTION, AUTHENTICATION AND DELIVERY. The Notes shall be
executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.

         Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.

         The Indenture Trustee shall upon Issuer Request authenticate and
deliver the Class I-A, Class II-A, Class I-M-1, Class II-M-1, Class I-M-2, Class
II-M-2, Class I-B and Class II-B Notes for original issue in an aggregate
initial principal amount of $989,196,000. The Class I-A Notes shall be issued in
an aggregate initial principal amount of $200,000,000, the Class II-A Notes
shall be issued in an aggregate initial principal amount of $680,790,000, the
Class I-M-1 Notes shall be issued in an aggregate initial principal amount of
$9,551,000, the Class II-M-1 Notes shall be issued in an aggregate initial
principal amount of $32,637,000, the Class I-M-2 Notes shall be issued in an
aggregate initial principal amount of $9,439,000, the Class II-M-2 Notes shall
be issued in an aggregate initial principal amount of $32,637,000, the Class I-B
Notes shall be issued in an aggregate initial principal amount of $4,944,000 and
the Class II-B Notes shall be issued in an aggregate initial principal amount of
$19,198,000.

         Each of the Notes shall be dated the date of its authentication. The
Notes shall be issuable as registered Notes and the Notes shall be issuable in
the minimum initial Note Principal Balances of $25,000 and in integral multiples
of $1,000 in excess thereof.

         No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.

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                                   ARTICLE III

                                    Covenants

         Section 3.01 MAINTENANCE OF PAYMENT ACCOUNT. The Indenture Trustee
shall maintain the Payment Account established pursuant to Section 4.04 of the
Sale and Servicing Agreement in accordance with the requirements of such
Section. The Indenture Trustee shall make all payments of principal of and
interest on the Notes, subject to Section 3.03 as provided in Section 3.05
herein from monies on deposit in the Payment Account.

         Section 3.02 MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain
an office or agency where, subject to satisfaction of conditions set forth
herein, Notes may be surrendered for registration of transfer or exchange, and
where notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. If at any time the
Issuer shall fail to maintain any such office or agency or shall fail to furnish
the Indenture Trustee with the address thereof, such surrenders may be made at
the Corporate Trust Office and notices and demands may be made or delivered to
the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee
as its agent to receive all such surrenders, notices and demands.

         Section 3.03 MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Payment
Account pursuant to Section 3.05 shall be made on behalf of the Issuer by the
Indenture Trustee or by the Paying Agent, based on information provided by the
Securities Administrator to the Indenture Trustee or Paying Agent, as
applicable, and no amounts so withdrawn from the Payment Account for payments of
Notes shall be paid over to the Issuer except as provided in this Section 3.03.
The Securities Administrator shall calculate the amount to be distributed to
each Class and, based on such amounts, the Securities Administrator shall
determine the amount to be distributed to each Noteholder. All of the Securities
Administrator's calculations of payments shall be based solely on information
provided to the Securities Administrator by the Master Servicer pursuant to
Section 3.01 of the Sale and Servicing Agreement. Neither the Securities
Administrator nor the Indenture Trustee shall be required to confirm, verify or
recompute any such information but shall be entitled to rely conclusively on
such information. The Issuer hereby appoints the Indenture Trustee as its Paying
Agent.

         The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:

                           (i) hold all sums held by it for the payment of
         amounts due with respect to the Notes in trust for the benefit of the
         Persons entitled thereto until such sums shall be paid to such Persons
         or otherwise disposed of as herein provided and pay such sums to such
         Persons as herein provided;

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                           (ii) give the Indenture Trustee notice of any default
         by the Issuer of which it has actual knowledge in the making of any
         payment required to be made with respect to the Notes;

                           (iii) at any time during the continuance of any such
         default, upon the written request of the Indenture Trustee, forthwith
         pay to the Indenture Trustee all sums so held in trust by such Paying
         Agent;

                           (iv) immediately resign as Paying Agent and forthwith
         pay to the Indenture Trustee all sums held by it in trust for the
         payment of Notes if at any time it ceases to meet the standards
         required to be met by a Paying Agent at the time of its appointment;

                           (v) comply with all requirements of the Code with
         respect to the withholding from any payments made by it on any Notes of
         any applicable withholding taxes imposed thereon and with respect to
         any applicable reporting requirements in connection therewith; and

                           (vi) not commence a bankruptcy proceeding against the
         Issuer in connection with this Indenture.

         The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.

         Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for one year
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Issuer for payment thereof (but
only to the extent of the amounts so paid to the Issuer), and all liability of
the Indenture Trustee or such Paying Agent with respect to such trust money
shall thereupon cease; PROVIDED, HOWEVER, that the Indenture Trustee or such
Paying Agent, before being required to make any such repayment, shall at the
expense and direction of the Issuer cause to be published once, in an Authorized
Newspaper published in the English language, notice that such money remains
unclaimed and that, after a date specified therein which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Issuer. The Indenture Trustee may also
adopt and employ, at the expense and direction of the Issuer, any other
reasonable means of notification of such repayment (including, but not limited
to, mailing notice of such repayment to Holders whose Notes have been called but
have not been surrendered for redemption or whose right to or interest in monies
due and payable but not claimed is determinable from the records of the
Indenture Trustee or of any Paying Agent, at the last address of record for each
such Holder).

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         Section 3.04 EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a statutory trust under the laws of the
State of Delaware (unless it becomes, or any successor Issuer hereunder is or
becomes, organized under the laws of any other state or of the United States of
America, in which case the Issuer will keep in full effect its existence, rights
and franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Mortgage Loans and each other
instrument or agreement included in the Trust Estate.

         Section 3.05 PAYMENT OF PRINCIPAL AND INTEREST. (a) On each Payment
Date from amounts on deposit in the Payment Account, in accordance with payment
instructions provided to it by the Securities Administrator no later than two
Business Days prior to such Payment Date the Indenture Trustee shall pay to the
Persons specified below the Available Funds for such Payment Date.

         (b) On each Payment Date, the Group I Available Funds shall be
distributed in the following order of priority, in each case to the extent of
the Group I Available Funds remaining for such Payment Date:

                           (i) to the Holders of the Class I-A Notes, the
         related Accrued Note Interest for such Class for such Payment Date;

                           (ii) to the Holders of the Class I-M-1 Notes, the
         related Accrued Note Interest for such Class for such Payment Date;

                           (iii) to the Holders of the Class I-M-2 Notes, the
         related Accrued Note Interest for such Class for such Payment Date; and

                           (iv) to the Holders of the Class I-B Notes, the
         related Accrued Note Interest for such Class for such Payment Date.

         (c) On each Payment Date, the Holders of the Class I-A, Class I-M-1,
Class I-M-2 and Class I-B Notes shall be entitled to receive payments in respect
of principal equal the related Principal Distribution Amount for that Payment
Date, allocated on a pro rata basis, based on the Note Principal Balances
thereof, in reduction of the Note Principal Balances thereof, until the Note
Principal Balances thereof have been reduced to zero.

         (d) On each Payment Date, any Net Monthly Excess Cashflow in respect of
the Group I Loans shall be paid as follows, in each case to the extent of such
remaining Net Monthly Excess Cashflow:

                           (i) to the Holders of the Group I Notes, pro rata, in
         an amount equal to any related Undercollateralization Amount, payable
         to such Holders as part of the related Principal Distribution Amount as
         described under Section 3.05(c) above;

                           (ii) to the Holders of the Group II Notes, pro rata,
         in an amount equal to any Crossable Undercollateralization Amount for
         Loan Group II, payable to such Holders

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         as part of the related Principal Distribution Amount as described under
         Section 3.05(f) below;

                           (iii) to the Holders of the Group I Notes, pro rata,
         in an amount equal to any related Overcollateralization Increase
         Amount, payable to such Holders as part of the related Principal
         Distribution Amount as described under Section 3.05(c) above;

                           (iv) to the Holders of the Group II Notes, pro rata,
         in an amount equal to any Crossable Losses for Loan group II, payable
         to such Holders as part of the related Principal Distribution Amount as
         described under Section 3.05(f) below;

                           (v) sequentially, in the following order, to the
         Holders of the Class I-M-1, Class I-M-2 and Class I-B Notes in an
         amount equal to the Allocated Realized Loss Amount for such Notes, to
         the extent not previously reimbursed;

                           (vi) sequentially, in the following order, to the
         Holders of the Class II-M-1, Class II-M-2 and Class II-B Notes in an
         amount equal to any Allocated Realized Loss Amount for such Notes
         remaining after giving effect to payments pursuant to Section
         3.05(g)(v) below;

                           (vii) sequentially, in the following order, to the
         Holders of the Class I-A, Class I-M-1, Class I-M-2 and Class I-B Notes
         any related Basis Risk Shortfall Carry-Forward Amount for such Notes on
         such Payment Date; and

                           (viii) any remaining amounts will be distributed to
         the Certificate Paying Agent, as designee of the Issuer, for the
         benefit of the Holders of the Trust Certificates.

         (e) On each Payment Date, the Group II Available Funds shall be
distributed in the following order of priority, in each case to the extent of
the Group II Available Funds remaining for such Payment Date:

                           (i) to the Holders of the Class II-A Notes, the
         related Accrued Note Interest for such Class for such Payment Date;

                           (ii) to the Holders of the Class II-M-1 Notes, the
         related Accrued Note Interest for such Class for such Payment Date;

                           (iii) to the Holders of the Class II-M-2 Notes, the
         related Accrued Note Interest for such Class for such Payment Date; and

                           (iv) to the Holders of the Class II-B Notes, the
         related Accrued Note Interest for such Class for such Payment Date.

         (f) On each Payment Date, the Holders of the Class II-A, Class II-M-1,
Class II-M-2 and Class II-B Notes shall be entitled to receive payments in
respect of principal equal the related Principal Distribution Amount for that
Payment Date, allocated on a pro rata basis, based on the

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Note Principal Balances thereof, in reduction of the Note Principal Balances
thereof, until the Note Principal Balances thereof have been reduced to zero.

         (g) On each Payment Date, any Net Monthly Excess Cashflow in respect of
the Group II Loans shall be paid as follows, in each case to the extent of such
remaining Net Monthly Excess Cashflow:

                           (i) to the Holders of the Group II Notes, pro rata,
         in an amount equal to any related Undercollateralization Amount,
         payable to such Holders as part of the related Principal Distribution
         Amount as described under Section 3.05(f) above;

                           (ii) to the Holders of the Group I Notes, pro rata,
         in an amount equal to any Crossable Undercollateralization Amount for
         Loan Group I, payable to such Holders as part of the related Principal
         Distribution Amount as described under Section 3.05(c) above;

                           (iii) to the Holders of the Group II Notes, pro rata,
         in an amount equal to any related Overcollateralization Increase
         Amount, payable to such Holders as part of the related Principal
         Distribution Amount as described under Section 3.05(f) above;

                           (iv) to the Holders of the Group I Notes, pro rata,
         in an amount equal to any Crossable Losses for Loan group I, payable to
         such Holders as part of the related Principal Distribution Amount as
         described under Section 3.05(c) above;

                           (v) sequentially, in the following order, to the
         Holders of the Class II-M-1, Class II-M-2 and Class II-B Notes in an
         amount equal to the Allocated Realized Loss Amount for such Notes, to
         the extent not previously reimbursed;

                           (vi) sequentially, in the following order, to the
         Holders of the Class I-M-1, Class I-M-2 and Class I-B Notes in an
         amount equal to any Allocated Realized Loss Amount for such Notes
         remaining after giving effect to payments pursuant to section
         3.05(d)(v) above;

                           (vii) sequentially, in the following order, to the
         Holders of the Class II-A, Class II-M-1, Class II-M-2 and Class II-B
         Notes any related Basis Risk Shortfall Carry-Forward Amount for such
         Notes on such Payment Date; and

                           (viii) any remaining amounts will be distributed to
         the Certificate Paying Agent, as designee of the Issuer, for the
         benefit of the Holders of the Trust Certificates.

         (h) Each distribution with respect to a Book-Entry Note shall be paid
to the Depository, as Holder thereof, and the Depository shall be responsible
for crediting the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the Note
Owners that it represents and to each indirect participating brokerage firm (a
"brokerage firm" or "indirect participating firm") for which it acts as agent.
Each brokerage firm shall be responsible for disbursing funds to the Note Owners
that it represents. None of the Indenture Trustee, the Note

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<PAGE>

Registrar, the Paying Agent, the Depositor, the Securities Administrator or the
Master Servicer shall have any responsibility therefor except as otherwise
provided by this Indenture.

         (i) On each Payment Date, the Certificate Paying Agent shall deposit in
the Certificate Distribution Account all amounts it received pursuant to
Sections 3.05(d)(viii) and 3.05(g)(viii) for the purpose of distributing such
funds to the Certificateholders. The Certificate Paying Agent shall make
distributions to the Certificateholders under the Trust Agreement as directed by
the Securities Administrator hereunder.

         (j) Any installment of interest or principal, if any, payable on any
Note that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder shall have so requested at least
five Business Days prior to the related Record Date, be paid to each Holder of
record on the preceding Record Date, by wire transfer to an account specified in
writing by such Holder as of the preceding Record Date or in all other cases or
if no such instructions have been delivered to the Indenture Trustee, by check
to such Noteholder mailed to such Holder's address as it appears in the Note
Register in the amount required to be distributed to such Holder on such Payment
Date pursuant to such Holder's Notes; PROVIDED, HOWEVER, that the Indenture
Trustee shall not pay to such Holders any amount required to be withheld from a
payment to such Holder by the Code.

         (k) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the forms of Note set
forth in Exhibits A-1, A-2 and A-3 to this Indenture. All principal payments on
the Notes shall be made to the Noteholders entitled thereto in accordance with
the Percentage Interests represented by such Notes. Upon notice to the Indenture
Trustee by the Issuer, the Indenture Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Final Scheduled Payment Date or other final Payment Date (including any
final Payment Date resulting from any redemption pursuant to Section 8.07
hereof). Such notice shall to the extent practicable be mailed no later than
five Business Days prior to such Final Scheduled Payment Date or other final
Payment Date and shall specify that payment of the principal amount and any
interest due with respect to such Note at the Final Scheduled Payment Date or
other final Payment Date will be payable only upon presentation and surrender of
such Note and shall specify the place where such Note may be presented and
surrendered for such final payment. No interest shall accrue on the Notes on or
after the Final Scheduled Payment Date or any such other final Payment Date.

         Section 3.06 PROTECTION OF TRUST ESTATE. (a) The Issuer will from time
to time prepare, execute and deliver all such supplements and amendments hereto
and all such financing statements, continuation statements, instruments of
further assurance and other instruments, and will take such other action
necessary or advisable to:

                           (i) maintain or preserve the lien and security
         interest (and the priority thereof) of this Indenture or carry out more
         effectively the purposes hereof;

                           (ii) perfect, publish notice of or protect the
         validity of any Grant made or to be made by this Indenture;

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<PAGE>

                           (iii) cause the Issuer or the Indenture Trustee to
         enforce any of the rights to the Mortgage Loans; or

                           (iv) preserve and defend title to the Trust Estate
         and the rights of the Indenture Trustee and the Noteholders in the
         Trust Estate against the claims of all persons and parties.

         (b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove or permit the Custodian to remove any portion of the
Trust Estate that consists of money or is evidenced by an instrument,
certificate or other writing from the jurisdiction in which it was held at the
date of the most recent Opinion of Counsel delivered pursuant to Section 3.07
hereof (or from the jurisdiction in which it was held as described in the
Opinion of Counsel delivered on the Closing Date pursuant to Section 3.07(a)
hereof, or if no Opinion of Counsel has yet been delivered pursuant to Section
3.07(b) hereof, unless the Indenture Trustee shall have first received an
Opinion of Counsel to the effect that the lien and security interest created by
this Indenture with respect to such property will continue to be maintained
after giving effect to such action or actions).

         The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to sign any financing statement, continuation statement or
other instrument required to be signed pursuant to this Section 3.06 upon the
Issuer's preparation thereof and delivery to the Indenture Trustee with
appropriate instructions.

         Section 3.07 OPINIONS AS TO TRUST ESTATE. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee and the Owner Trustee an Opinion
of Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and first
priority security interest in the Collateral and reciting the details of such
action, or stating that, in the opinion of such counsel, no such action is
necessary to make such lien and first priority security interest effective.

         (b) On or before April 15 in each calendar year, beginning in 2005, the
Issuer shall furnish to the Indenture Trustee an Opinion of Counsel at the
expense of the Issuer either stating that, in the opinion of such counsel, such
action has been taken with respect to the recording, filing, re- recording and
refiling of this Indenture, any indentures supplemental hereto and any other
requisite documents and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain the
lien and first priority security interest in the Collateral and reciting the
details of such action or stating that in the opinion of such counsel no such
action is necessary to maintain such lien and security interest. Such Opinion of
Counsel shall also describe the recording, filing, re-recording and refiling of
this Indenture, any indentures supplemental hereto and any other requisite
documents and the execution and filing of any financing statements and
continuation statements that will, in the opinion of such counsel, be required
to maintain the lien and security interest in the Collateral until December 31
in the following calendar year.

                                       11

<PAGE>

         Section 3.08 PERFORMANCE OF OBLIGATIONS. (a) The Issuer will punctually
perform and observe all of its obligations and agreements contained in this
Indenture, the Basic Documents and in the instruments and agreements included in
the Trust Estate.

         (b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer.

         (c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Mortgage Loans or any such instrument, except such actions as the Master
Servicer is expressly permitted to take in the Sale and Servicing Agreement. The
Indenture Trustee, as pledgee of the Mortgage Loans, may exercise the rights of
the Issuer to direct the actions of the Master Servicer pursuant to the Sale and
Servicing Agreement.

         (d) The Issuer may retain an administrator and may enter into contracts
with other Persons for the performance of the Issuer's obligations hereunder,
and performance of such obligations by such Persons shall be deemed to be
performance of such obligations by the Issuer.

         Section 3.09 NEGATIVE COVENANTS. So long as any Notes are Outstanding,
the Issuer shall not:

                           (i) except as expressly permitted by this Indenture,
         sell, transfer, exchange or otherwise dispose of the Trust Estate,
         unless directed to do so by the Indenture Trustee;

                           (ii) claim any credit on, or make any deduction from
         the principal or interest payable in respect of, the Notes (other than
         amounts properly withheld from such payments under the Code) or assert
         any claim against any present or former Noteholder by reason of the
         payment of the taxes levied or assessed upon any part of the Trust
         Estate;

                           (iii) (A) permit the validity or effectiveness of
         this Indenture to be impaired, or permit the lien of this Indenture to
         be amended, hypothecated, subordinated, terminated or discharged, or
         permit any Person to be released from any covenants or obligations with
         respect to the Notes under this Indenture except as may be expressly
         permitted hereby, (B) permit any lien, charge, excise, claim, security
         interest, mortgage or other encumbrance (other than the lien of this
         Indenture) to be created on or extend to or otherwise arise upon or
         burden the Trust Estate or any part thereof or any interest therein or
         the proceeds thereof or (C) permit the lien of this Indenture not to
         constitute a valid first priority security interest in the Trust
         Estate; or

                           (iv) waive or impair, or fail to assert rights under,
         the Mortgage Loans, or impair or cause to be impaired the Issuer's
         interest in the Mortgage Loans, the Mortgage

                                       12

<PAGE>

         Loan Purchase Agreement or in any Basic Document, if any such action
         would materially and adversely affect the interests of the Noteholders.

         Section 3.10 ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will deliver
to the Indenture Trustee, by March 1 of each year commencing with the calendar
year 2005, an Officer's Certificate stating, as to the Authorized Officer
signing such Officer's Certificate, that:

                           (i) a review of the activities of the Issuer during
         the previous calendar year and of its performance under this Indenture
         has been made under such Authorized Officer's supervision; and

                           (ii) to the best of such Authorized Officer's
         knowledge, based on such review, the Issuer has complied with all
         conditions and covenants under this Indenture throughout such year, or,
         if there has been a default in its compliance with any such condition
         or covenant, specifying each such default known to such Authorized
         Officer and the nature and status thereof.

         Section 3.11 [RESERVED].

         Section 3.12 REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE
LOANS. The Indenture Trustee, as pledgee of the Mortgage Loans, has the benefit
of the representations and warranties made by the Seller in the Mortgage Loan
Purchase Agreement concerning the Seller and the Mortgage Loans to the same
extent as though such representations and warranties were made directly to the
Indenture Trustee. If a Responsible Officer of the Indenture Trustee has actual
knowledge of any breach of any representation or warranty made by the Seller in
the Mortgage Loan Purchase Agreement, the Indenture Trustee shall promptly
notify the Seller of such finding and the Seller's obligation to cure such
defect or repurchase or substitute for the related Mortgage Loan.

         Section 3.13 AMENDMENTS TO SALE AND SERVICING AGREEMENT. The Issuer
covenants with the Indenture Trustee that it will not enter into any amendment
or supplement to the Sale and Servicing Agreement without the prior written
consent of the Indenture Trustee.

         Section 3.14 MASTER SERVICER AS AGENT AND BAILEE OF THE INDENTURE
TRUSTEE. (a) Solely for purposes of perfection under Section 9-305 of the
Uniform Commercial Code or other similar applicable law, rule or regulation of
the state in which such property is held by the Master Servicer, the Issuer and
the Indenture Trustee hereby acknowledge that the Master Servicer is acting as
bailee of the Indenture Trustee in holding amounts on deposit in the Master
Servicer Collection Account, as well as its bailee in holding any Related
Documents released to the Master Servicer, and any other items constituting a
part of the Trust Estate which from time to time come into the possession of the
Master Servicer. It is intended that, by the Master Servicer's acceptance of
such bailee arrangement, the Indenture Trustee, as a secured party of the
Mortgage Loans, will be deemed to have possession of such Related Documents,
such monies and such other items for purposes of Section 9-305 of the Uniform
Commercial Code of the state in which such property is held by the Master
Servicer. The Indenture Trustee shall not be liable with respect to such
documents, monies or items while in possession of the Master Servicer and the
Master Servicer shall not otherwise be deemed to be the agent of the Indenture
Trustee.

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<PAGE>

         (b) Solely for purposes of perfection under Section 9-305 of the
Uniform Commercial Code or other similar applicable law, rule or regulation of
the state in which such property is held by the Servicer, the Issuer and the
Indenture Trustee hereby acknowledge that the Servicer is acting as bailee of
the Indenture Trustee in holding amounts on deposit in the Protected Account, as
well as its bailee in holding any Related Documents released to the Servicer,
and any other items constituting a part of the Trust Estate which from time to
time come into the possession of the Servicer. It is intended that, by the
Servicer's acceptance of such bailee arrangement, the Indenture Trustee, as a
secured party of the Mortgage Loans, will be deemed to have possession of such
Related Documents, such monies and such other items for purposes of Section
9-305 of the Uniform Commercial Code of the state in which such property is held
by the Servicer. The Indenture Trustee shall not be liable with respect to such
documents, monies or items while in possession of the Servicer and the Servicer
shall not otherwise be deemed to be the agent of the Indenture Trustee.

         Section 3.15 INVESTMENT COMPANY ACT. The Issuer shall not become an
"investment company" or be under the "control" of an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
PROVIDED, HOWEVER, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.

         Section 3.16 ISSUER MAY CONSOLIDATE, ETC. (a) The Issuer shall not
consolidate or merge with or into any other Person, unless:

                           (i) the Person (if other than the Issuer) formed by
         or surviving such consolidation or merger shall be a Person organized
         and existing under the laws of the United States of America or any
         state or the District of Columbia and shall expressly assume, by an
         indenture supplemental hereto, executed and delivered to the Indenture
         Trustee, in form reasonably satisfactory to the Indenture Trustee, the
         due and punctual payment of the principal of and interest on all Notes,
         and all other amounts payable to the Indenture Trustee and the
         Securities Administrator, the payment to the Certificate Paying Agent
         of all amounts due to the Certificateholders, and the performance or
         observance of every agreement and covenant of this Indenture on the
         part of the Issuer to be performed or observed, all as provided herein;

                           (ii) immediately after giving effect to such
         transaction, no Event of Default shall have occurred and be continuing;

                           (iii) each of the Rating Agencies shall have notified
         the Issuer that such transaction shall not cause the rating of the
         Notes to be reduced, suspended or withdrawn or to be considered by such
         Rating Agency to be below investment grade;

                           (iv) the Issuer shall have received an Opinion of
         Counsel (and shall have delivered a copy thereof to the Indenture
         Trustee) to the effect that such transaction will not (A) result in a
         "significant modification" of the Notes under Treasury Regulation
         section

                                       14

<PAGE>

         1.1001-3, or adversely affect the status of the Notes as indebtedness
         for federal income tax purposes and (B) cause the Trust to be subject
         to an entity level tax for federal income tax purposes;

                           (v) any action that is necessary to maintain the lien
         and security interest created by this Indenture shall have been taken;
         and

                           (vi) the Issuer shall have delivered to the Indenture
         Trustee an Officer's Certificate and an Opinion of Counsel each stating
         that such consolidation or merger and such supplemental indenture
         comply with this Article III and that all conditions precedent herein
         provided for or relating to such transaction have been complied with
         (including any filing required by the Exchange Act), and that such
         supplemental indenture is enforceable against the Issuer.

         (b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:

                           (i) the Person that acquires by conveyance or
         transfer the properties and assets of the Issuer, the conveyance or
         transfer of which is hereby restricted, shall (A) be a United States
         citizen or a Person organized and existing under the laws of the United
         States of America or any state thereof, (B) expressly assume, by an
         indenture supplemental hereto, executed and delivered to the Indenture
         Trustee, in form satisfactory to the Indenture Trustee, the due and
         punctual payment of the principal of and interest on all Notes and the
         performance or observance of every agreement and covenant of this
         Indenture on the part of the Issuer to be performed or observed, all as
         provided herein, (C) expressly agree by means of such supplemental
         indenture that all right, title and interest so conveyed or transferred
         shall be subject and subordinate to the rights of the Holders of the
         Notes, (D) unless otherwise provided in such supplemental indenture,
         expressly agree to indemnify, defend and hold harmless the Issuer and
         the Indenture Trustee against and from any loss, liability or expense
         arising under or related to this Indenture and the Notes and (E)
         expressly agree by means of such supplemental indenture that such
         Person (or if a group of Persons, then one specified Person) shall make
         all filings with the Commission (and any other appropriate Person)
         required by the Exchange Act in connection with the Notes;

                           (ii) immediately after giving effect to such
         transaction, no Default or Event of Default shall have occurred and be
         continuing;

                           (iii) each of the Rating Agencies shall have notified
         the Issuer that such transaction shall not cause the ratings of the
         Notes to be reduced, suspended or withdrawn;

                           (iv) the Issuer shall have received an Opinion of
         Counsel (and shall have delivered a copy thereof to the Indenture
         Trustee) to the effect that such transaction will not (A) result in a
         "significant modification" of the Notes under Treasury Regulation
         section 1.1001-3, or adversely affect the status of the Notes as
         indebtedness for federal income tax purposes, and (B) cause the Trust
         to be subject to an entity level tax for federal income tax purposes;

                                       15

<PAGE>

                           (v) any action that is necessary to maintain the lien
         and security interest created by this Indenture shall have been taken;
         and

                           (vi) the Issuer shall have delivered to the Indenture
         Trustee an Officer's Certificate and an Opinion of Counsel each stating
         that such conveyance or transfer and such supplemental indenture comply
         with this Article III and that all conditions precedent herein provided
         for relating to such transaction have been complied with (including any
         filing required by the Exchange Act).

         Section 3.17 SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.

         (b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee of such conveyance or transfer.

         Section 3.18 NO OTHER BUSINESS. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.

         Section 3.19 NO BORROWING. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes under this Indenture.

         Section 3.20 GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except
as contemplated by this Indenture or the Basic Documents, the Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.

         Section 3.21 CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).

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<PAGE>

         Section 3.22 DETERMINATION OF NOTE INTEREST RATE. On each Interest
Determination Date the Securities Administrator shall determine One-Month LIBOR
and the related Note Interest Rate for each Class of Notes for the following
Accrual Period. The establishment of One-Month LIBOR on each Interest
Determination Date by the Securities Administrator and the Securities
Administrator's calculation of the rate of interest applicable to each Class of
Notes for the related Accrual Period shall (in the absence of manifest error) be
final and binding.

         Section 3.23 RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; PROVIDED, HOWEVER, that
the Issuer may make, or cause to be made, (x) distributions and payments to the
Owner Trustee, the Indenture Trustee, Noteholders and the Certificateholders as
contemplated by, and to the extent funds are available for such purpose under
this Indenture, the Sale and Servicing Agreement and the Trust Agreement and (y)
payments to the Master Servicer, the Servicer and the Special Servicer pursuant
to the terms of the Sale and Servicing Agreement. The Issuer will not, directly
or indirectly, make payments to or distributions from the Master Servicer
Collection Account or the Payment Account except in accordance with this
Indenture and the Basic Documents.

         Section 3.24 NOTICE OF EVENTS OF DEFAULT. The Issuer shall give the
Indenture Trustee, the Securities Administrator and the Rating Agencies prompt
written notice of each Event of Default hereunder and under the Trust Agreement.

         Section 3.25 FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.

         Section 3.26 CERTAIN REPRESENTATIONS REGARDING THE TRUST ESTATE.

         (a) With respect to that portion of the Collateral described in clauses
(a) through (h) of the definition of Trust Estate, the Issuer represents to the
Indenture Trustee that:

                           (i) This Indenture creates a valid and continuing
         security interest (as defined in the applicable UCC) in the Collateral
         in favor of the Indenture Trustee, which security interest is prior to
         all other liens, and is enforceable as such as against creditors of and
         purchasers from the Issuer.

                           (ii) In each case, within the meaning of the
         applicable UCC: (A) the Collateral described in clauses (a) through (d)
         constitutes "deposit accounts" or "instruments," as applicable; (B) the
         Collateral described in clause (e) constitutes "real property;"(C) the
         Collateral described in clause (f) constitutes "accounts;" and (D) the
         Collateral described in clause (h) constitutes "general intangibles."

                                       17

<PAGE>

                           (iii) The Issuer owns and has good and marketable
         title to the Collateral, free and clear of any lien, claim or
         encumbrance of any Person.

                           (iv) The Issuer has taken all steps necessary to
         cause the Indenture Trustee to become the account holder of the
         Collateral.

                           (v) Other than the security interest granted to the
         Indenture Trustee pursuant to this Indenture, the Issuer has not
         pledged, assigned, sold, granted a security interest in, or otherwise
         conveyed any of the Collateral.

                           (vi) The Collateral is not in the name of any Person
         other than the Issuer or the Indenture Trustee. The Issuer has not
         consented to the bank maintaining the Collateral to comply with
         instructions of any Person other than the Indenture Trustee.

         (b) With respect to any Collateral in which a security interest may be
perfected by filing, the Issuer has not authorized the filing of, and is not
aware of any financing statements against, the Issuer, that include a
description of collateral covering such Collateral, other than any financing
statement relating to the security interest granted to the Indenture Trustee
hereunder or that has been terminated. The Issuer is not aware of any judgment
or tax lien filings against the Issuer.

         (c) The Issuer has caused or will have caused, within ten days, the
filing of all appropriate financing statements in the proper filing office in
the appropriate jurisdictions under applicable law in order to perfect the
security interest in all Collateral granted to the Indenture Trustee hereunder
in which a security interest may be perfected by filing. Any financing statement
that is filed in connection with this Section 3.26 shall contain a statement
that a purchase or security interest in any collateral described therein will
violate the rights of the secured party named in such financing statement.

         (d) The foregoing representations may not be waived and shall survive
the issuance of the Notes.

         Section 3.27 ALLOCATION OF REALIZED LOSSES. (a) Prior to each Payment
Date, the Master Servicer shall determine, based solely on information provided
to it by the Servicer, the total amount of Realized Losses that occurred during
the related Prepayment Period.

         (b) Any realized Losses on the Mortgage Loans will be allocated or
covered on any payment date as follows FIRST, to the related Net Monthly Excess
Cashflow, by an increase in the related Overcollateralization Increase Amount
for that Payment Date as provided in Section 3.05 hereof; SECOND, to the
non-related Net Monthly Excess Cashflow, to the extent described in Section 3.05
hereof; THIRD, in reduction of the Overcollateralized Amount for the related and
non-related Loan Group, until reduced to zero (meaning, no losses will be
allocated to the Class M Notes or Class B Notes until the aggregate Note
Principal Balance of the Notes equals the aggregate Scheduled Principal Balance
of the Mortgage Loans); and FOURTH, if such Realized Loss is on a (x) Group I
Loan, to the Class I-B, Class I-M-2 and Class I-M-1 Notes, in that order, in
reduction of the Note Principal Balances thereof, until the Note Principal
Balance thereof have been reduced to zero and (y) Group II Loan, to the Class
II-B, Class II-M-2 and Class II-M-1 Notes, in that order, in

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<PAGE>

reduction of the Note Principal Balances thereof, until the Note Principal
Balance thereof have been reduced to zero. For purposes of clause THIRD all
Realized Losses will be allocated among both Loan Groups to their respective
Overcollateralization Amounts on a pro rata basis, based on the amount of
Realized Losses incurred during the related Prepayment Period which were not
covered on that Payment Date through a payment of Net Monthly Excess Cashflow,
until the aggregate Note Principal Balance of the Notes equals the aggregate
Scheduled Principal Balance of the Mortgage Loans (even if this results in an
Undercollateralization Amount) before being allocated to the related Notes as
provided in clause FOURTH. Realized Losses shall not be allocated to the Class A
Notes. All Realized Losses allocated to a Class of Notes will be allocated in
proportion to the Percentage Interests evidenced thereby.

         (c) In addition, in the event that the Master Servicer receives any
Subsequent Recoveries from the Servicer, the Master Servicer shall deposit such
funds into the Master Servicer Collection Account in accordance with Section
4.02 of the Sale and Servicing Agreement. If, after taking into account such
Subsequent Recoveries, the amount of a Realized Loss is reduced, the amount of
such Subsequent Recoveries will be applied to increase the Note Principal
Balance of the related Class of Class M Notes or Class B Notes with the highest
payment priority to which Realized Losses have been allocated and not previously
reimbursed through the payment of an Allocated Realized Loss Amount pursuant to
Sections 3.05(d)(v) or (vi) or Sections 3.05(g)(v) or (vi), as applicable, but
not by more than the amount of Realized Losses previously allocated to that
Class of Class M Notes or Class B Notes pursuant to this Section 3.27. The
amount of any remaining Subsequent Recoveries will be applied to sequentially
increase the Note Principal Balance of the related Class of Class M Notes or the
Class B Notes, beginning with the Class of Notes with the next highest payment
priority, up to the amount of such Realized Losses previously allocated (but
only to the extent not previously reimbursed through the payment of an Allocated
Realized Loss Amount pursuant to Sections 3.05(d)(v) or (vi) or Sections
3.05(g)(v) or (vi)) to such Class of Class M Notes or the Class B Notes pursuant
to this Section 3.27. Holders of such Notes will not be entitled to any payment
in respect of current interest on the amount of such increases for any Accrual
Period preceding the Payment Date on which such increase occurs. Any such
increases shall be applied to the Note Principal Balance of each Class of Class
M Notes of such Class and the Class B Notes in accordance with its respective
Percentage Interest.

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<PAGE>

                                   ARTICLE IV

               The Notes; Satisfaction and Discharge of Indenture

         Section 4.01 THE NOTES. Each Class of Notes shall be registered in the
name of a nominee designated by the Depository. Beneficial Owners will hold
interests in the Notes through the book- entry facilities of the Depository in
minimum initial Note Principal Balances of $25,000 and integral multiples of
$1,000 in excess thereof.

         The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of the Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08
hereof, Beneficial Owners shall not be entitled to definitive certificates for
the Notes as to which they are the Beneficial Owners. Requests and directions
from, and votes of, the Depository as Holder of the Notes shall not be deemed
inconsistent if they are made with respect to different Beneficial Owners. The
Indenture Trustee may establish a reasonable record date in connection with
solicitations of consents from or voting by Noteholders and give notice to the
Depository of such record date. Without the consent of the Issuer and the
Indenture Trustee, no Note may be transferred by the Depository except to a
successor Depository that agrees to hold such Note for the account of the
Beneficial Owners.

         In the event the Depository Trust Company resigns or is removed as
Depository, the Depositor may appoint a successor Depository. If no successor
Depository has been appointed within 30 days of the effective date of the
Depository's resignation or removal, each Beneficial Owner shall be entitled to
certificates representing the Notes it beneficially owns in the manner
prescribed in Section 4.08.

         The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Indenture Trustee and delivered by the Indenture
Trustee to or upon the order of the Issuer.

         Section 4.02 REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF NOTES; APPOINTMENT OF NOTE REGISTRAR AND CERTIFICATE REGISTRAR. The Issuer
shall cause to be kept at the office of the Note Registrar (which shall be the
office specified in Section 3.02) a Note Register in which, subject to such
reasonable regulations as it may prescribe, the Note Registrar shall provide for
the registration of Notes and of transfers and exchanges of Notes as herein
provided.

         Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the office specified in
Section 3.02, the Issuer shall execute and the Note Registrar shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Notes in authorized initial Note Principal Balances evidencing the same
Class and aggregate Percentage Interests.

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<PAGE>

         Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor and in authorized initial Note
Principal Balances evidencing the same Class and aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the office specified in Section
3.02. Whenever any Notes are so surrendered for exchange, the Issuer shall
execute and the Indenture Trustee shall authenticate and deliver the Notes which
the Noteholder making the exchange is entitled to receive. Each Note presented
or surrendered for registration of transfer or exchange shall (if so required by
the Note Registrar) be duly endorsed by, or be accompanied by a written
instrument of transfer in form reasonably satisfactory to the Note Registrar
duly executed by the Holder thereof or his attorney duly authorized in writing
with such signature guaranteed by a commercial bank or trust company located or
having a correspondent located in the city of New York. Notes delivered upon any
such transfer or exchange will evidence the same obligations, and will be
entitled to the same rights and privileges, as the Notes surrendered.

         No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.

         The Issuer hereby appoints the Indenture Trustee as (i) Certificate
Registrar to keep at the office of its designated agent as specified in Section
3.02, a Certificate Register pursuant to Section 3.09 of the Trust Agreement in
which, subject to such reasonable regulations as it may prescribe, the
Certificate Registrar shall provide for the registration of Certificates and of
transfers and exchanges thereof pursuant to Section 3.05 of the Trust Agreement
and (ii) Note Registrar under this Indenture. The Indenture Trustee hereby
accepts such appointments.

         Section 4.03 MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note; PROVIDED, HOWEVER, that if
any such destroyed, lost or stolen Note, but not a mutilated Note, shall have
become or within seven days shall be due and payable, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so
due or payable without surrender thereof. If, after the delivery of such
replacement Note or payment of a destroyed, lost or stolen Note pursuant to the
proviso to the preceding sentence, a bona fide purchaser of the original Note in
lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Indenture Trustee shall be entitled to recover
such replacement Note (or such payment) from the Person to whom it was delivered
or any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Indenture Trustee in connection therewith.

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<PAGE>

         Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.

         Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.

         The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.

         Section 4.04 PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee, the
Paying Agent and any agent of the Issuer or the Indenture Trustee may treat the
Person in whose name any Note is registered (as of the day of determination) as
the owner of such Note for the purpose of receiving payments of principal of and
interest, if any, on such Note and for all other purposes whatsoever, whether or
not such Note be overdue, and neither the Issuer, the Indenture Trustee, the
Paying Agent nor any agent of the Issuer or the Indenture Trustee shall be
affected by notice to the contrary.

         Section 4.05 CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All cancelled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; PROVIDED, HOWEVER, that such
Issuer Request is timely and the Notes have not been previously disposed of by
the Indenture Trustee.

         Section 4.06 BOOK-ENTRY NOTES. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. The Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Depository, and
no Beneficial Owner will receive a Definitive Note representing such Beneficial
Owner's interest in such Note, except as provided in Section 4.08. With respect
to such Notes, unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to Beneficial Owners pursuant to Section
4.08:

                           (i) the provisions of this Section 4.06 shall be in
full force and effect;

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<PAGE>

                           (ii) the Note Registrar, the Paying Agent and the
         Indenture Trustee shall be entitled to deal with the Depository for all
         purposes of this Indenture (including the payment of principal of and
         interest on the Notes and the giving of instructions or directions
         hereunder) as the sole holder of the Notes, and shall have no
         obligation to the Beneficial Owners of the Notes;

                           (iii) to the extent that the provisions of this
         Section 4.06 conflict with any other provisions of this Indenture, the
         provisions of this Section 4.06 shall control;

                           (iv) the rights of Beneficial Owners shall be
         exercised only through the Depository and shall be limited to those
         established by law and agreements between such Owners of Notes and the
         Depository and/or the Depository Participants. Unless and until
         Definitive Notes are issued pursuant to Section 4.08, the initial
         Depository will make book- entry transfers among the Depository
         Participants and receive and transmit payments of principal of and
         interest on the Notes to such Depository Participants; and

                           (v) whenever this Indenture requires or permits
         actions to be taken based upon instructions or directions of Holders of
         Notes evidencing a specified percentage of the Note Principal Balances
         of the Notes, the Depository shall be deemed to represent such
         percentage with respect to the Notes only to the extent that it has
         received instructions to such effect from Beneficial Owners and/or
         Depository Participants owning or representing, respectively, such
         required percentage of the beneficial interest in the Notes and has
         delivered such instructions to the Indenture Trustee.

         Section 4.07 NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.

         Section 4.08 DEFINITIVE NOTES. If (i) the Depositor advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its responsibilities with respect to the Book-Entry Notes and
the Depositor is unable to locate a qualified successor within 30 days or (ii)
the Depositor, at its option (with the consent of the Indenture Trustee, such
consent not to be unreasonably withheld) elects to terminate the book-entry
system through the Depository, then the Indenture Trustee shall request that the
Depository notify all Beneficial Owners of the occurrence of any such event and
of the availability of Definitive Notes to Beneficial Owners requesting the
same. Upon surrender to the Indenture Trustee of the typewritten Notes
representing the Book-Entry Notes by the Depository, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Depository. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.

                                       23

<PAGE>

         In addition, if an Event of Default has occurred and is continuing,
each Note Owner materially adversely affected thereby may at its option request
a Definitive Note evidencing such Noteholder's interest in the related Class of
Notes. In order to make such request, such Noteholder shall, subject to the
rules and procedures of the Depository, provide the Depository or the related
Depository Participant with directions for the Indenture Trustee to exchange or
cause the exchange of the Noteholder's interest in such Class of Notes for an
equivalent interest in fully registered definitive form. Upon receipt by the
Indenture Trustee of instructions from the Depository directing the Indenture
Trustee to effect such exchange (such instructions to contain information
regarding the Class of Notes and the Note Principal Balance being exchanged, the
Depository Participant account to be debited with the decrease, the registered
holder of and delivery instructions for the Definitive Note, and any other
information reasonably required by the Indenture Trustee), (i) the Indenture
Trustee shall instruct the Depository to reduce the related Depository
Participant's account by the aggregate Note Principal Balance of the Definitive
Note, (ii) the Indenture Trustee shall execute, authenticate and deliver, in
accordance with the registration and delivery instructions provided by the
Depository, a Definitive Note evidencing such Noteholder's interest in such
Class of Notes and (iii) the Indenture Trustee shall execute and authenticate a
new Book-Entry Note reflecting the reduction in the Note Principal Balance of
such Class of Notes by the amount of the Definitive Notes.

         Section 4.09 TAX TREATMENT. The Issuer has entered into this Indenture,
and the Notes will be issued with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness. The Issuer and the Securities Administrator (in accordance with
Section 6.06 hereof), by entering into this Indenture, and each Noteholder, by
its acceptance of its Note (and each Beneficial Owner by its acceptance of an
interest in the applicable Book-Entry Note), agree to treat the Notes for
federal, state and local income, single business and franchise tax purposes as
indebtedness.

         Section 4.10 SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09,
3.17, 3.19 and 3.20, (v) the rights, obligations (to the extent applicable to
the provisions of the Indenture remaining in effect) and immunities of the
Indenture Trustee and Securities Administrator hereunder (including the rights
of the Indenture Trustee and Securities Administrator under Section 6.07 and the
obligations of the Indenture Trustee under Section 4.11), and (vi) the rights of
Noteholders as beneficiaries hereof with respect to the property so deposited
with the Indenture Trustee payable to all or any of them, and the Indenture
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Notes and shall release and deliver, or cause the Custodian to
deliver, the Collateral to or upon the order of the Issuer, when

                  (A) either

                  (1) all Notes theretofore authenticated and delivered (other
         than (i) Notes that have been destroyed, lost or stolen and that have
         been replaced or paid as provided in Section 4.03 hereof and (ii) Notes
         for whose payment money has theretofore been deposited in trust

                                       24

<PAGE>

         or segregated and held in trust by the Issuer and thereafter repaid to
         the Issuer or discharged from such trust, as provided in Section 3.03)
         have been delivered to the Indenture Trustee for cancellation; or

                  (2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation

                           a.       have become due and payable,

                           b.       will become due and payable at the Final
                                    Scheduled Payment Date within one year, or

                           c.       have been called for early redemption and
                                    the Trust has been terminated pursuant to
                                    Section 8.07 hereof,

         and the Issuer, in the case of a. or b. above, has irrevocably
         deposited or caused to be irrevocably deposited with the Indenture
         Trustee cash or direct obligations of or obligations guaranteed by the
         United States of America (which will mature prior to the date such
         amounts are payable), in trust for such purpose, in an amount
         sufficient to pay and discharge the entire indebtedness on such Notes
         then outstanding not theretofore delivered to the Indenture Trustee for
         cancellation when due on the Final Scheduled Payment Date or other
         final Payment Date and has delivered to the Indenture Trustee a
         verification report from a nationally recognized accounting firm
         certifying that the amounts deposited with the Indenture Trustee are
         sufficient to pay and discharge the entire indebtedness of such Notes,
         or, in the case of c. above, the Issuer shall have complied with all
         requirements of Section 8.07 hereof,

                  (B) the Issuer has paid or caused to be paid all other sums
         payable hereunder; and

                  (C) the Issuer has delivered to the Indenture Trustee an
         Officer's Certificate and an Opinion of Counsel, each meeting the
         applicable requirements of Section 10.01 hereof, each stating that all
         conditions precedent herein provided for relating to the satisfaction
         and discharge of this Indenture have been complied with and, if the
         Opinion of Counsel relates to a deposit made in connection with Section
         4.10(A)(2)b. above, such opinion shall further be to the effect that
         such deposit will constitute an "in-substance defeasance" within the
         meaning of Revenue Ruling 85-42, 1985-1 C.B. 36, and in accordance
         therewith, the Issuer will be the owner of the assets deposited in
         trust for federal income tax purposes.

         Section 4.11 APPLICATION OF TRUST MONEY. All monies deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or the
Issuer, Certificate Paying Agent as designee of the Issuer, as the Indenture
Trustee may determine, to the Holders of Securities, of all sums due and to
become due thereon for principal and interest or otherwise; but such monies need
not be segregated from other funds except to the extent required herein or
required by law.

                                       25

<PAGE>

         Section 4.12 [RESERVED].

         Section 4.13 REPAYMENT OF MONIES HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all monies then held by any Person other than the Indenture Trustee under the
provisions of this Indenture with respect to such Notes shall, upon demand of
the Issuer, be paid to the Indenture Trustee to be held and applied according to
Section 3.05 and thereupon such Person shall be released from all further
liability with respect to such monies.

         Section 4.14 TEMPORARY NOTES. Pending the preparation of any Definitive
Notes, the Issuer may execute and upon its written direction, the Indenture
Trustee may authenticate and make available for delivery, temporary Notes that
are printed, lithographed, typewritten, photocopied or otherwise produced, in
any denomination, substantially of the tenor of the Definitive Notes in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Notes may
determine, as evidenced by their execution of such Notes.

         If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of the
Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes
upon surrender of the temporary Notes at the Corporate Trust Office, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes, the Issuer shall execute and the Indenture Trustee shall
authenticate and make available for delivery, in exchange therefor, Definitive
Notes of authorized denominations and of like tenor, class and aggregate
principal amount. Until so exchanged, such temporary Notes shall in all respects
be entitled to the same benefits under this Indenture as Definitive Notes.

         Section 4.15 REPRESENTATION REGARDING ERISA. By acquiring a Note or
interest therein, each Holder of such Note or Beneficial Owner of any such
interest will be deemed to represent that either (1) it is not acquiring the
Note with Plan Assets or (2) (A) the acquisition, holding and transfer of such
Note will not give rise to a nonexempt prohibited transaction under Section 406
of ERISA or Section 4975 of the Code and (B) the Notes are rated investment
grade or better and such person believes that the Notes are properly treated as
indebtedness without substantial equity features for purposes of the Department
of Labor regulation 29 C.F.R. ss. 2510.3-101, and agrees to so treat the Notes.
Alternatively, regardless of the rating of the Notes, such person may provide
the Indenture Trustee and the Owner Trustee with an Opinion of Counsel, which
Opinion of Counsel will not be at the expense of the Issuer, the Depositor, the
Seller, any Underwriter, the Owner Trustee, the Indenture Trustee, the
Securities Administrator, the Master Servicer, the Servicer or the Special
Servicer which opines that the acquisition, holding and transfer of such Note or
interest therein is permissible under applicable law, will not constitute or
result in a non-exempt prohibited transaction under ERISA or Section 4975 of the
Code and will not subject the Issuer, the Seller, the Depositor, any
Underwriter, the Owner Trustee, the Indenture Trustee, the Securities
Administrator, the Master Servicer, the Servicer or the Special Servicer to any
obligation in addition to those undertaken in the Indenture and the other Basic
Documents.

                                       26

<PAGE>

                                    ARTICLE V

                              Default and Remedies

         Section 5.01 EVENTS OF DEFAULT. The Issuer shall deliver to the
Indenture Trustee, within five days after learning of the occurrence of an Event
of Default, written notice in the form of an Officer's Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iii), (iv) or (v) of the definition of "Event of Default",
its status and what action the Issuer is taking or proposes to take with respect
thereto. The Indenture Trustee shall not be deemed to have knowledge of any
Event of Default unless a Responsible Officer has actual knowledge thereof or
unless written notice of such Event of Default is received by a Responsible
Officer and such notice references the Notes, the Trust Estate or this
Indenture.

         Section 5.02 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default should occur and be continuing, then and in every such case the
Indenture Trustee at the written direction of the Holders of Notes representing
not less than a majority of the aggregate Note Principal Balance of the Notes
may declare the Notes to be immediately due and payable, by a notice in writing
to the Issuer (and to the Indenture Trustee if such notice is given by
Noteholders), and upon any such declaration the unpaid Note Principal Balance of
the Notes, together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable.

         At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, Holders of the Notes representing not
less than a majority of the aggregate Note Principal Balance of the Notes, by
written notice to the Issuer and the Indenture Trustee, may, subject to Section
5.12, waive the related Event of Default and rescind and annul such declaration
and its consequences if

                           (i) the Issuer has paid or deposited with the
         Indenture Trustee a sum sufficient to pay:

                           (A) all payments of principal of and interest on the
                  Notes and all other amounts that would then be due hereunder
                  or upon the Notes if the Event of Default giving rise to such
                  acceleration had not occurred;

                           (B) all sums paid or advanced by the Indenture
                  Trustee hereunder and the reasonable compensation, expenses,
                  disbursements and advances of the Indenture Trustee and its
                  agents and counsel; and

                           (ii) all Events of Default, other than the nonpayment
         of the principal of the Notes that has become due solely by such
         acceleration, have been cured or waived as provided in Section 5.12.

No such rescission shall affect any subsequent default or impair any right
consequent thereto.

                                       27

<PAGE>

         Section 5.03 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE.

         (a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, the Issuer shall, upon demand of the Indenture Trustee,
acting at the direction of the Holders of a majority of the aggregate Note
Principal Balances of the Notes, pay to the Indenture Trustee, for the benefit
of the Holders of Notes, the whole amount then due and payable on the Notes for
principal and interest, with interest at the applicable Note Interest Rate upon
the overdue principal, and in addition thereto such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee and its agents and counsel.

         (b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 10.16 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the monies adjudged or decreed to be payable.

         (c) If an Event of Default occurs and is continuing, the Indenture
Trustee, subject to the provisions of Section 10.16 hereof may, as more
particularly provided in Section 5.04 hereof, in its discretion, proceed to
protect and enforce its rights and the rights of the Noteholders, by such
appropriate Proceedings, as directed in writing by Holders of a majority of the
aggregate Note Principal Balances of the Notes, to protect and enforce any such
rights, whether for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy or legal or equitable right vested in the
Indenture Trustee by this Indenture or by law.

         (d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, as directed in writing by Holders
of a majority of the aggregate Note Principal Balances of the Notes,
irrespective of whether the principal of any Notes shall then be due and payable
as therein expressed or by declaration or otherwise and irrespective of whether
the Indenture Trustee shall have made any demand pursuant to the provisions of
this Section, shall be entitled and empowered, by intervention in such
Proceedings or otherwise:

                           (i) to file and prove a claim or claims for the whole
         amount of principal and interest owing and unpaid in respect of the
         Notes and to file such other papers or documents as may be necessary or
         advisable in order to have the claims of the Indenture

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         Trustee (including any claim for reasonable compensation to the
         Indenture Trustee and each predecessor Indenture Trustee, and their
         respective agents, attorneys and counsel, and for reimbursement of all
         expenses and liabilities incurred, and all advances made, by the
         Indenture Trustee and each predecessor Indenture Trustee, except as a
         result of negligence or bad faith) and of the Noteholders allowed in
         such Proceedings;

                           (ii) unless prohibited by applicable law and
         regulations, to vote on behalf of the Holders of Notes in any election
         of a trustee, a standby trustee or Person performing similar functions
         in any such Proceedings;

                           (iii) to collect and receive any monies or other
         property payable or deliverable on any such claims and to distribute
         all amounts received with respect to the claims of the Noteholders and
         of the Indenture Trustee on their behalf, and

                           (iv) to file such proofs of claim and other papers or
         documents as may be necessary or advisable in order to have the claims
         of the Indenture Trustee or the Holders of Notes allowed in any
         judicial proceedings relative to the Issuer, its creditors and its
         property;

and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee.

         (e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.

         (f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes, subject to Section 5.05 hereof.

         (g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.

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         Section 5.04 REMEDIES; PRIORITIES. (a) If an Event of Default shall
have occurred and be continuing and if an acceleration has been declared and not
rescinded pursuant to Section 5.02 hereof, the Indenture Trustee subject to the
provisions of Section 10.16 hereof may, and shall, at the written direction of
the Holders of a majority of the aggregate Note Principal Balances of the Notes
(subject to Section 6.02(k)) do one or more of the following (subject to Section
5.05 hereof):

                           (i) institute Proceedings in its own name and as
         trustee of an express trust for the collection of all amounts then
         payable on the Notes or under this Indenture with respect thereto,
         whether by declaration or otherwise, enforce any judgment obtained and
         collect from the Issuer and any other obligor upon such Notes monies
         adjudged due;

                           (ii) institute Proceedings from time to time for the
         complete or partial foreclosure of this Indenture with respect to the
         Trust Estate;

                           (iii) exercise any remedies of a secured party under
         the UCC and take any other appropriate action to protect and enforce
         the rights and remedies of the Indenture Trustee and the Holders of the
         Notes; and

                           (iv) sell the Trust Estate or any portion thereof or
         rights or interest therein, at one or more public or private sales
         called and conducted in any manner permitted by law;

PROVIDED, HOWEVER, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Holders of 100% of the aggregate
Note Principal Balance of the Notes, (B) the proceeds of such sale or
liquidation distributable to the Holders of the Notes are sufficient to
discharge in full all amounts then due and unpaid upon such Notes for principal
and interest or (C) the Indenture Trustee determines that the Mortgage Loans
will not continue to provide sufficient funds for the payment of principal of
and interest on the applicable Notes as they would have become due if the Notes
had not been declared due and payable, and the Indenture Trustee obtains the
consent of Holders of 662/3% of the aggregate Note Principal Balance of the
Notes. In determining such sufficiency or insufficiency with respect to clause
(B) and (C), the Indenture Trustee may, but need not, obtain and rely upon an
opinion (obtained at the expense of the Trust) of an Independent investment
banking or accounting firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Trust Estate for such purpose.
Notwithstanding the foregoing, so long as an "Event of Default" under the
HomeBanc Servicing Agreement has not occurred, any Sale of the Trust Estate
shall be made subject to the continued servicing of the Mortgage Loans by the
Servicer as provided in the HomeBanc Servicing Agreement.

         (b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:

                  FIRST: to the Indenture Trustee and the Securities
         Administrator for amounts due under Section 6.07 hereof or the Sale and
         Servicing Agreement, to the Master Servicer for amounts due under the
         Sale and Servicing Agreement and to the Custodian for amounts due under
         Section 3.4 of the Custodial Agreement;

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<PAGE>

                  SECOND: to the Noteholders for amounts due and unpaid on the
         Notes with respect to interest (not including any Basis Risk Shortfall
         Carry-Forward Amounts), first, to the Class I-A Noteholders and Class
         II-A Noteholders, second, to the Class I-M-1 Noteholders and Class
         II-M-1 Noteholders, third, to the Class II-M-1 Noteholders and Class
         II-M-2 Noteholders and fourth, to the Class I-B Noteholders and Class
         II-B Noteholders according to the amounts due and payable on the Notes
         for interest;

                  THIRD: to the Noteholders for amounts due and unpaid on the
         Notes with respect to principal, and to each Noteholder ratably,
         without preference or priority of any kind, according to the amounts
         due and payable on such Notes for principal, until the Note Principal
         Balance of each such Class is reduced to zero;

                  FOURTH: to the Noteholders, first to the Class I-M-1
         Noteholders and Class II-M-1 Noteholders, second to the Class I-M-2
         Noteholders and Class II-M-2 Noteholders and third, to the Class I-B
         Noteholders and Class II-B Noteholders, the amount of any related
         Allocated Realized Loss Amount not previously paid;

                  FIFTH: to the Noteholders for amounts due and unpaid on the
         Notes with respect to any related Basis Risk Shortfall Carry-Forward
         Amounts, (x) from amount remaining with respect to the Group I Loans,
         first, to the Class I-A Noteholders, second, to the Class I-M-1
         Noteholders, third, to the Class I-M-2 Noteholders and fourth, to the
         Class I-B Noteholders and (y) from amount remaining with respect to the
         Group II Loans, first, to the Class II-A Noteholders, second, to the
         Class II-M-1 Noteholders, third, to the Class II-M-2 Noteholders and
         fourth, to the Class II-B Noteholders; and

                  SIXTH: to the payment of the remainder, if any to the
         Certificate Paying Agent on behalf of the Issuer or to any other person
         legally entitled thereto.

         The Indenture Trustee may fix a record date and Payment Date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Indenture Trustee shall mail to each Noteholder a notice
that states the record date, the Payment Date and the amount to be paid.

         Section 5.05 OPTIONAL PRESERVATION OF THE TRUST ESTATE. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may elect to take and maintain possession of the
Trust Estate. It is the desire of the parties hereto and the Noteholders that
there be at all times sufficient funds for the payment of principal of and
interest on the Notes and other obligations of the Issuer and, the Indenture
Trustee shall take such desire into account when determining whether or not to
take and maintain possession of the Trust Estate. In determining whether to take
and maintain possession of the Trust Estate, the Indenture Trustee may, but need
not, obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Trust Estate for such purpose.

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<PAGE>

         Section 5.06 LIMITATION OF SUITS. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless and subject to the provisions of Section 10.16 hereof

                           (i) such Holder has previously given written notice
         to the Indenture Trustee of a continuing Event of Default;

                           (ii) the Holders of not less than 25% of the
         aggregate Note Principal Balances of the Notes have made a written
         request to the Indenture Trustee to institute such Proceeding in
         respect of such Event of Default in its own name as Indenture Trustee
         hereunder;

                           (iii) such Holder or Holders have offered to the
         Indenture Trustee reasonable indemnity against the costs, expenses and
         liabilities to be incurred in complying with such request;

                           (iv) the Indenture Trustee for 60 days after its
         receipt of such notice of request and offer of indemnity has failed to
         institute such Proceedings; and

                           (v) no direction inconsistent with such written
         request has been given to the Indenture Trustee during such 60-day
         period by the Holders of a majority of the Note Principal Balances of
         the Notes.

It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.

         Subject to the last paragraph of Section 5.11 herein, in the event the
Indenture Trustee shall receive conflicting or inconsistent requests and
indemnity from two or more groups of Holders of Notes, each representing less
than a majority of the Note Principal Balances of the Notes, the Indenture
Trustee shall take such action as requested by the Holders representing the
highest amount (in the aggregate) of Note Principal Balances notwithstanding any
other provisions of this Indenture.

         Section 5.07 UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.

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<PAGE>

         Section 5.08 RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.

         Section 5.09 RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

         Section 5.10 DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.

         Section 5.11 CONTROL BY NOTEHOLDERS. The Holders of a majority of the
aggregate Note Principal Balances of Notes shall have the right to direct the
time, method and place of conducting any Proceeding for any remedy available to
the Indenture Trustee with respect to the Notes or exercising any trust or power
conferred on the Indenture Trustee (subject to the Indenture Trustee's right to
receive indemnity, as provided herein); provided that:

                           (i) such direction shall not be in conflict with any
         rule of law or with this Indenture;

                           (ii) any direction to the Indenture Trustee to sell
         or liquidate the Trust Estate shall be by Holders of Notes representing
         not less than 100% of the Note Principal Balances of the Notes; and

                           (iii) the Indenture Trustee may take any other action
         deemed proper by the Indenture Trustee that is not inconsistent with
         such direction of the Holders of Notes representing a majority of the
         Note Principal Balances of the Notes.

Notwithstanding the rights of Noteholders set forth in this Section 5.11 the
Indenture Trustee need not take any action that it deems unduly prejudicial to
any Noteholder or that it determines might subject it to liability.

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         Section 5.12 WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02 hereof,
the Holders of Notes representing not less than a majority of the aggregate Note
Principal Balance of the Notes may waive any past Event of Default and its
consequences except an Event of Default (a) with respect to payment of principal
of or interest on any of the Notes or (b) in respect of a covenant or provision
hereof which cannot be modified or amended without the consent of the Holder of
each Note. In the case of any such waiver, the Issuer, the Indenture Trustee and
the Holders of the Notes shall be restored to their former positions and rights
hereunder, respectively, but no such waiver shall extend to any subsequent or
other Event of Default or impair any right consequent thereto.

         Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.

         Section 5.13 UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note and each Beneficial Owner of any interest
therein by such Holder's or Beneficial Owner's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Note
Principal Balances of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture.

         Section 5.14 WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it shall not
hinder, delay or impede the execution of any power herein granted to the
Indenture Trustee, but will suffer and permit the execution of every such power
as though no such law had been enacted.

         Section 5.15 SALE OF TRUST ESTATE. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 hereof is expressly subject to the provisions of Section 5.05
hereof and this Section 5.15. The power to effect any such Sale shall not be
exhausted by any one or more Sales as to any portion of the Trust Estate
remaining unsold, but shall continue unimpaired until the entire Trust Estate
shall have been sold or all amounts payable on the Notes and under this
Indenture shall have been paid. The Indenture Trustee may from time to time
postpone any public Sale by public announcement made at the time and place of
such Sale.

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The Indenture Trustee hereby expressly waives its right to any amount fixed by
law as compensation for any Sale.

         (b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless

                  (1) the Holders of all Notes consent to or direct the
         Indenture Trustee to make, such Sale, or

                  (2) the proceeds of such Sale would be not less than the
         entire amount which would be payable to the Noteholders under the
         Notes, in full payment thereof in accordance with Section 5.02 hereof,
         on the Payment Date next succeeding the date of such Sale, or

                  (3) the Indenture Trustee determines that the conditions for
         retention of the Trust Estate set forth in Section 5.05 hereof cannot
         be satisfied (in making any such determination, the Indenture Trustee
         may rely upon an opinion of an Independent investment banking firm
         obtained and delivered as provided in Section 5.05 hereof) and the
         Holders of Notes representing at least 66-2/3% of the Note Principal
         Balances of the Notes consent to such Sale.

The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).

         (c) Unless the Holders representing at least 66-2/3% of the Note
Principal Balances of the Notes have otherwise consented or directed the
Indenture Trustee, at any public Sale of all or any portion of the Trust Estate
at which a minimum bid equal to or greater than the amount described in
paragraph (2) of subsection (b) of this Section 5.15 has not been established by
the Indenture Trustee and no Person bids an amount equal to or greater than such
amount, the Indenture Trustee, acting in its capacity as Indenture Trustee on
behalf of the Noteholders, shall bid an amount (which shall include the
Indenture Trustee's right, in its capacity as Indenture Trustee, to credit bid)
at least $1.00 more than the highest other bid in order to preserve the Trust
Estate on behalf of the Noteholders.

         (d) In connection with a Sale of all or any portion of the Trust
Estate,

                  (1) any Holder or Holders of Notes may bid for and purchase
         the property offered for sale, and upon compliance with the terms of
         sale may hold, retain and possess and dispose of such property, without
         further accountability, and may, in paying the purchase money therefor,
         deliver any Notes or claims for interest thereon in lieu of cash up to
         the amount which shall, upon distribution of the net proceeds of such
         sale, be payable thereon, and such Notes, in case the amounts so
         payable thereon shall be less than the amount due thereon, shall be
         returned to the Holders thereof after being appropriately stamped to
         show such partial payment;

                  (2) the Indenture Trustee, may bid for and acquire the
         property offered for Sale in connection with any Sale thereof, and,
         subject to any requirements of, and to the extent

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<PAGE>

         permitted by, applicable law in connection therewith, may purchase all
         or any portion of the Trust Estate in a private sale, and, in lieu of
         paying cash therefor, may make settlement for the purchase price by
         crediting the gross Sale price against the sum of (A) the amount which
         would be distributable to the Holders of the Notes and Holders of
         Certificates as a result of such sale on the Payment Date next
         succeeding the date of such Sale and (B) the expenses of the Sale and
         of any Proceedings in connection therewith which are reimbursable to
         it, without being required to produce the Notes in order to complete
         any such Sale or in order for the net Sale price to be credited against
         such Notes, and any property so acquired by the Indenture Trustee shall
         be held and dealt with by it in accordance with the provisions of this
         Indenture;

                  (3) the Indenture Trustee shall execute and deliver an
         appropriate instrument of conveyance, prepared by the Issuer and
         satisfactory to the Indenture Trustee, transferring its interest in any
         portion of the Trust Estate in connection with a Sale thereof;

                  (4) the Indenture Trustee is hereby irrevocably appointed the
         agent and attorney- in-fact of the Issuer to transfer and convey its
         interest in any portion of the Trust Estate in connection with a Sale
         thereof, and to take all action necessary to effect such Sale; and

                  (5) no purchaser or transferee at such a Sale shall be bound
         to ascertain the Indenture Trustee's authority, inquire into the
         satisfaction of any conditions precedent or see to the application of
         any monies.

         Section 5.16 ACTION ON NOTES. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Noteholders shall be impaired by the recovery of
any judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Trust Estate or upon any
of the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.04(b) hereof.

         Section 5.17 PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS. (a)
Promptly following a request from the Indenture Trustee to do so, the Issuer in
its capacity as holder of the Mortgage Loans, shall take all such lawful action
as the Indenture Trustee may request to cause the Issuer to compel or secure the
performance and observance by the Seller and the Master Servicer, as applicable,
of each of their obligations to the Issuer under or in connection with the
Mortgage Loan Purchase Agreement and the Sale and Servicing Agreement, and to
exercise any and all rights, remedies, powers and privileges lawfully available
to the Issuer under or in connection with the Mortgage Loan Purchase Agreement
and the Sale and Servicing Agreement to the extent and in the manner directed by
the Indenture Trustee, as pledgee of the Mortgage Loans, including the
transmission of notices of default on the part of the Seller or the Master
Servicer thereunder and the institution of legal or administrative actions or
proceedings to compel or secure performance by the Seller or the Master Servicer
of each of their obligations under the Mortgage Loan Purchase Agreement and the
Sale and Servicing Agreement.

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<PAGE>

         (b) The Indenture Trustee, as pledgee of the Mortgage Loans, may, and
at the direction (which direction shall be in writing or by telephone (confirmed
in writing promptly thereafter)) of the Holders of 66-2/3% of the Note Principal
Balances of the Notes (subject to Section 6.02(k)) shall, exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Seller or the
Master Servicer under or in connection with the Mortgage Loan Purchase Agreement
and the Sale and Servicing Agreement, including the right or power to take any
action to compel or secure performance or observance by the Seller or the Master
Servicer, as the case may be, of each of their obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Mortgage Loan Purchase Agreement and the Sale and
Servicing Agreement, as the case may be, and any right of the Issuer to take
such action shall not be suspended.

                                       37

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                                   ARTICLE VI

               The Indenture Trustee and Securities Administrator

         Section 6.01 DUTIES OF INDENTURE TRUSTEE AND SECURITIES ADMINISTRATOR.
(a) If an Event of Default of which the Indenture Trustee has actual knowledge
or has received written notice has occurred and is continuing, the Indenture
Trustee shall exercise the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.

         (b) Except during the continuance of an Event of Default of which the
Indenture Trustee has actual knowledge or has received written notice, in the
case of the Indenture Trustee and, at any time, in the case of the Securities
Administrator:

                           (i) the Indenture Trustee and the Securities
         Administrator undertake to perform such duties and only such duties as
         are specifically set forth in this Indenture and the other Basic
         Documents to which it is a party and no implied covenants or
         obligations shall be read into this Indenture and the other Basic
         Documents against the Indenture Trustee or the Securities
         Administrator; and

                           (ii) in the absence of bad faith on its part, the
         Indenture Trustee and the Securities Administrator may each
         conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, upon certificates or
         opinions furnished to each of the Indenture Trustee and the Securities
         Administrator and conforming to the requirements of this Indenture;
         however, the Indenture Trustee and the Securities Administrator shall
         each examine the certificates and opinions to determine whether or not
         they conform on their face to the requirements of this Indenture.

         (c) The Indenture Trustee and the Securities Administrator may not be
relieved from liability for each of its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:

                           (i) this paragraph does not limit the effect of
         paragraph (b) of this Section 6.01;

                           (ii) neither the Indenture Trustee nor the Securities
         Administrator shall be liable for any error of judgment made in good
         faith by a Responsible Officer unless it is proved that the Indenture
         Trustee or the Securities Administrator was negligent in ascertaining
         the pertinent facts; and

                           (iii) neither the Indenture Trustee nor the
         Securities Administrator shall be liable with respect to any action it
         takes or omits to take in good faith in accordance with a direction
         received by it from Noteholders or from the Issuer, which they are
         entitled to give under the Basic Documents.

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<PAGE>

         (d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.

         (e) Money held in trust by the Indenture Trustee need not be segregated
from other trust funds except to the extent required by law or the terms of this
Indenture, the Sale and Servicing Agreement or the Trust Agreement.

         (f) No provision of this Indenture shall require the Indenture Trustee
or the Securities Administrator to expend or risk its own funds or otherwise
incur financial liability in the performance of any of its duties hereunder or
in the exercise of any of its rights or powers, if it shall have reasonable
grounds to believe that repayment of such funds or indemnity satisfactory to it
against such risk or liability is not reasonably assured to it.

         (g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.

         (h) The Indenture Trustee shall act in accordance with Sections 6.03
and 6.04 of the Sale and Servicing Agreement and shall act as successor to the
Master Servicer or appoint a successor Master Servicer in accordance with
Section 6.02 of the Sale and Servicing Agreement.

         Section 6.02 RIGHTS OF INDENTURE TRUSTEE AND SECURITIES ADMINISTRATOR.
Except as provided in Section 6.01: (a) The Indenture Trustee and the Securities
Administrator may rely on any document believed by it to be genuine and to have
been signed or presented by the proper person. The Indenture Trustee and the
Securities Administrator need not investigate any fact or matter stated in the
document.

         (b) Before the Indenture Trustee or the Securities Administrator acts
or refrains from acting, it may require an Officer's Certificate or an Opinion
of Counsel. Neither the Indenture Trustee nor the Securities Administrator shall
be liable for any action it takes or omits to take in good faith in reliance on
an Officer's Certificate or Opinion of Counsel.

         (c) Neither the Indenture Trustee nor the Securities Administrator
shall be liable for any action it takes or omits to take in good faith which it
believes to be authorized or within its rights or powers; PROVIDED, HOWEVER,
that the Indenture Trustee's or Securities Administrator's conduct does not
constitute willful misconduct, negligence or bad faith.

         (d) The Indenture Trustee or the Securities Administrator may each
consult with counsel, and the advice or Opinion of Counsel (which shall not be
at the expense of the Indenture Trustee or the Securities Administrator) with
respect to legal matters relating to this Indenture and the Notes shall be full
and complete authorization and protection from liability in respect to any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.

         (e) For the limited purpose of effecting any action to be undertaken by
each of the Indenture Trustee and the Securities Administrator, but not
specifically as a duty of the Indenture

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<PAGE>

Trustee or the Securities Administrator in the Indenture, each of the Indenture
Trustee and the Securities Administrator may execute any of the trusts or powers
hereunder or perform any duties hereunder, either directly or by or through
agents, attorneys, custodians or nominees appointed with due care, and shall not
be responsible for any willful misconduct or negligence on the part of any
agent, attorney, custodian or nominee so appointed.

         (f) The Indenture Trustee or its Affiliates are permitted to receive
additional compensation that could be deemed to be in the Indenture Trustee's
economic self-interest for (i) serving as investment adviser, administrator,
shareholder servicing agent, custodian or sub-custodian with respect to certain
of the Permitted Investments, (ii) using Affiliates to effect transactions in
certain Permitted Investments and (iii) effecting transactions in certain
Permitted Investments. Such compensation shall not be considered an amount that
is reimbursable or payable to the Indenture Trustee (i) pursuant to Sections
3.05(d), 5.04(b) or 6.07 hereunder or (ii) out of Available Funds.

         (g) Anything in this Indenture to the contrary notwithstanding, in no
event shall the Indenture Trustee or the Securities Administrator be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Indenture Trustee or
the Securities Administrator, respectively, has been advised of the likelihood
of such loss or damage and regardless of the form of action.

         (h) None of the Securities Administrator, the Issuer or the Indenture
Trustee shall be responsible for the acts or omissions of the other, it being
understood that this Indenture shall not be construed to render them partners,
joint venturers or agents of one another.

         (i) Neither the Indenture Trustee nor the Securities Administrator
shall be required to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it, and none of the provisions contained in this
Indenture shall in any event require the Indenture Trustee or the Securities
Administrator to perform, or be responsible for the manner of performance of,
any of the obligations of the Master Servicer under the Sale and Servicing
Agreement, except during such time, if any, as the Indenture Trustee shall be
the successor to, and be vested with the rights, duties, powers and privileges
of, the Master Servicer in accordance with the terms of the Sale and Servicing
Agreement.

         (j) Except for those actions that the Indenture Trustee or the
Securities Administrator are required to take hereunder, neither the Indenture
Trustee nor the Securities Administrator shall have any obligation or liability
to take any action or to refrain from taking any action hereunder in the absence
of written direction as provided hereunder.

         (k) Neither the Indenture Trustee nor the Securities Administrator
shall be under any obligation to exercise any of the trusts or powers vested in
it by this Indenture, other than its obligation to give notices pursuant to this
Indenture, or to institute, conduct or defend any litigation hereunder or in
relation hereto at the request, order or direction of any of the Noteholders
pursuant to the provisions of this Indenture, unless such Noteholders shall have
offered to the Indenture Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be

                                       40

<PAGE>

incurred therein or thereby. Nothing contained herein shall, however, relieve
the Indenture Trustee of the obligation, upon the occurrence of an Event of
Default of which a Responsible Officer of the Indenture Trustee has actual
knowledge (which has not been cured or waived), to exercise such of the rights
and powers vested in it by this Indenture and to use the same degree of care and
skill in their exercise as a prudent person would exercise under the
circumstances in the conduct of his own affairs.

         (l) Neither the Indenture Trustee nor the Securities Administrator
shall be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper or document, unless
requested in writing to do so by Holders of Notes representing not less than 25%
of the Note Principal Balance of the Notes and provided that the payment within
a reasonable time to the Indenture Trustee or the Securities Administrator, as
applicable, of the costs, expenses or liabilities likely to be incurred by it in
the making of such investigation is, in the opinion of the Indenture Trustee or
the Securities Administrator, as applicable, reasonably assured to the Indenture
Trustee or the Securities Administrator, as applicable, by the security afforded
to it by the terms of this Indenture. The Indenture Trustee or the Securities
Administrator may require reasonable indemnity against such expense or liability
as a condition to taking any such action. The reasonable expense of every such
examination shall be paid by the Noteholders requesting the investigation.

         (m) Should the Indenture Trustee or the Securities Administrator deem
the nature of any action required on its part to be unclear, the Indenture
Trustee or the Securities Administrator, respectively, may require prior to such
action that it be provided by the Depositor with reasonable further
instructions.

         (n) The right of the Indenture Trustee or the Securities Administrator
to perform any discretionary act enumerated in this Indenture shall not be
construed as a duty, and neither the Indenture Trustee nor the Securities
Administrator shall be accountable for other than its negligence or willful
misconduct in the performance of any such act.

         (o) Neither the Indenture Trustee nor the Securities Administrator
shall be required to give any bond or surety with respect to the execution of
the trust created hereby or the powers granted hereunder.

         (p) Neither the Indenture Trustee nor the Securities Administrator
shall have any duty to conduct any affirmative investigation as to the
occurrence of any condition requiring the repurchase of any Mortgage Loan by the
Seller pursuant to this Indenture or the Mortgage Loan Purchase Agreement, as
applicable, or the eligibility of any Mortgage Loan for purposes of this
Indenture.

         (q) The Indenture Trustee shall not be deemed to have notice or actual
knowledge of any Event of Default unless actually known to a Responsible Officer
of the Indenture Trustee or written notice thereof (making reference to this
Indenture or the Notes) is received by the Indenture Trustee at the Corporate
Trust Office.

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<PAGE>

         Section 6.03 INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee, subject to the
requirements of the Trust Indenture Act. Any Note Registrar, co-registrar or
co-paying agent may do the same with like rights. However, the Indenture Trustee
must comply with Sections 6.11 and 6.12 hereof.

         (b) The Securities Administrator in its individual or any other
capacity may become the owner or pledgee of Notes and may otherwise deal with
the Issuer or its Affiliates with the same rights it would have if it were not
Securities Administrator, subject to the requirements of the Trust Indenture
Act.

         Section 6.04 INDENTURE TRUSTEE'S AND SECURITIES ADMINISTRATOR'S
DISCLAIMERS. Neither the Indenture Trustee nor the Securities Administrator
shall be responsible for and makes no representation as to the validity or
adequacy of this Indenture, the Notes or the other Basic Documents, neither
shall be accountable for the Issuer's use of the proceeds from the Notes, and
neither shall be responsible for any statement of the Issuer in the Indenture or
in any document issued in connection with the sale of the Notes or in the Notes
other than, with respect to the Indenture Trustee only, the Indenture Trustee's
certificate of authentication.

         Section 6.05 NOTICE OF EVENT OF DEFAULT. Subject to Section 5.01, the
Indenture Trustee shall promptly mail to each Noteholder notice of the Event of
Default after a Responsible Officer of the Indenture Trustee obtains actual
knowledge or written notice of such event, unless such Event of Default shall
have been waived or cured. Except in the case of an Event of Default in payment
of principal of or interest on any Note, the Indenture Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Noteholders.

         Section 6.06 REPORTS BY INDENTURE TRUSTEE TO HOLDERS AND TAX
ADMINISTRATION. The Securities Administrator shall deliver to each Noteholder
such information as may be required and such other customary information as the
Securities Administrator may determine and/or to be required by the Internal
Revenue Service or by a federal or state law or rules or regulations to enable
such holder to prepare its federal and state income tax returns.

         The Securities Administrator shall prepare and file (or cause to be
prepared and filed), on behalf of the Owner Trustee, all tax returns (if any)
and information reports, tax elections and such annual or other reports of the
Issuer as are necessary for preparation of tax returns and information reports
as provided in Section 5.03 of the Trust Agreement, including without limitation
Form 1099. All tax returns and information reports shall be signed by the Owner
Trustee as provided in Section 5.03 of the Trust Agreement.

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<PAGE>

         Section 6.07 COMPENSATION. The fees of the Indenture Trustee shall be
paid by the Securities Administrator pursuant to a separate agreement between
the Indenture Trustee and Securities Administrator. In addition, the Indenture
Trustee and the Securities Administrator will each be entitled to recover from
the Payment Account pursuant to Section 4.05(a) of the Sale and Servicing
Agreement all reasonable out-of-pocket expenses, disbursements and advances and
the expenses of the Indenture Trustee and the Securities Administrator,
respectively, in connection with any breach of this Agreement or any claim or
legal action (including any pending or threatened claim or legal action) or
otherwise incurred or made by the Indenture Trustee or the Securities
Administrator, respectively, in the administration of the trusts hereunder
(including the reasonable compensation, expenses and disbursements of its
counsel) except any such expense, disbursement or advance as may arise from its
negligence or intentional misconduct or which is the responsibility of the
Noteholders as provided herein. Such compensation and reimbursement obligation
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust. Additionally, each of the Indenture Trustee and the
Securities Administrator and any director, officer, employee or agent of the
Indenture Trustee or the Securities Administrator shall be indemnified by the
Trust and held harmless against any loss, liability or expense (including
reasonable attorney's fees and expenses) incurred in the administration of this
Agreement (other than its ordinary out of pocket expenses incurred hereunder) or
in connection with any claim or legal action relating to (a) the Basic
Agreements or (b) the Notes, other than any loss, liability or expense incurred
by reason of its negligence or intentional misconduct, or which is the
responsibility of the Noteholders as provided herein. Such indemnity and
agreement to hold harmless shall survive the termination of this Agreement or
the resignation or removal of the Indenture Trustee and the Securities
Administrator, as applicable, hereunder.

         The Issuer's payment obligations to the Indenture Trustee and
Securities Administrator pursuant to this Section 6.07 shall survive the
discharge of this Indenture and the termination or resignation of the Indenture
Trustee or Securities Administrator. When the Indenture Trustee or the
Securities Administrator incurs expenses after the occurrence of an Event of
Default with respect to the Issuer, the expenses are intended to constitute
expenses of administration under Title 11 of the United States Code or any other
applicable federal or state bankruptcy, insolvency or similar law.

         Section 6.08 REPLACEMENT OF INDENTURE TRUSTEE AND THE SECURITIES
ADMINISTRATOR. No resignation or removal of the Indenture Trustee or the
Securities Administrator and no appointment of a successor Indenture Trustee or
successor Securities Administrator shall become effective until the acceptance
of appointment by the successor Indenture Trustee or successor Securities
Administrator pursuant to this Section 6.08. The Indenture Trustee or the
Securities Administrator may resign at any time by so notifying the Issuer.
Holders of a majority of Note Principal Balances of the Notes may remove either
of the Indenture Trustee or the Securities Administrator by so notifying the
Indenture Trustee or the Securities Administrator and may appoint a successor
Indenture Trustee or successor Securities Administrator. The Issuer shall remove
the Indenture Trustee or the Securities Administrator, as applicable, if:

                           (i) the Indenture Trustee or the Securities
         Administrator fails to comply with Section 6.11 hereof;

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<PAGE>

                           (ii) the Indenture Trustee or the Securities
         Administrator is adjudged a bankrupt or insolvent;

                           (iii) a receiver or other public officer takes charge
         of the Indenture Trustee or the Securities Administrator or its
         property; or

                           (iv) the Indenture Trustee or the Securities
         Administrator otherwise becomes incapable of acting.

         If the Indenture Trustee or the Securities Administrator resigns or is
removed or if a vacancy exists in the office of the Indenture Trustee or the
Securities Administrator for any reason (the Indenture Trustee or the Securities
Administrator in such event being referred to herein as the retiring Indenture
Trustee or the retiring Securities Administrator), the Issuer shall promptly
appoint a successor Indenture Trustee or successor Securities Administrator.

         Each of a successor Indenture Trustee or successor Securities
Administrator shall deliver a written acceptance of its appointment to the
retiring Indenture Trustee or the retiring Securities Administrator, as
applicable, and to the Issuer. Thereupon, the resignation or removal of the
retiring Indenture Trustee or the retiring Securities Administrator shall become
effective, and the successor Indenture Trustee or successor Securities
Administrator shall have all the rights, powers and duties of the Indenture
Trustee or the Securities Administrator, as applicable, under this Indenture.
The successor Indenture Trustee or successor Securities Administrator shall each
mail a notice of its succession to Noteholders. The retiring Indenture Trustee
or the retiring Securities Administrator shall promptly transfer all property
held by it as Indenture Trustee or Securities Administrator, as applicable, to
the successor Indenture Trustee or successor Securities Administrator.

         If a successor Indenture Trustee or successor Securities Administrator
does not take office within 60 days after the retiring Indenture Trustee or the
retiring Securities Administrator, as applicable, resigns or is removed, the
retiring Indenture Trustee or the retiring Securities Administrator, the Issuer
or the Holders of a majority of Note Principal Balances of the Notes may
petition any court of competent jurisdiction for the appointment of a successor
Indenture Trustee or successor Securities Administrator.

         Notwithstanding the replacement of the Indenture Trustee or the
Securities Administrator pursuant to this Section, the Issuer's obligations
under Section 6.07 shall continue for the benefit of the retiring Indenture
Trustee or the retiring Securities Administrator.

         Section 6.09 SUCCESSOR INDENTURE TRUSTEE AND SECURITIES ADMINISTRATOR
BY MERGER. If the Indenture Trustee or the Securities Administrator consolidates
with, merges or converts into, or transfers all or substantially all of its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation, without any
further act, shall be the successor Indenture Trustee or successor Securities
Administrator, as applicable; provided, that such corporation or banking
association shall be otherwise qualified and eligible under Section 6.11 hereof.
The Indenture Trustee and the Securities Administrator shall each provide the
Rating Agencies with prior written notice of any such transaction.

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<PAGE>

         If at the time such successor or successors by merger, conversion or
consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture and any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee and deliver such Notes so
authenticated; and if at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is in the Notes or in this Indenture provided
that the certificate of the Indenture Trustee shall have.

         Section 6.10 APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust Estate, and to
vest in such Person or Persons, in such capacity and for the benefit of the
Noteholders, such title to the Trust Estate, or any part hereof, and, subject to
the other provisions of this Section, such powers, duties, obligations, rights
and trusts as the Indenture Trustee may consider necessary or desirable. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 6.11 hereof.

         (b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:

                           (i) all rights, powers, duties and obligations
         conferred or imposed upon the Indenture Trustee shall be conferred or
         imposed upon and exercised or performed by the Indenture Trustee and
         such separate trustee or co-trustee jointly (it being understood that
         such separate trustee or co-trustee is not authorized to act separately
         without the Indenture Trustee joining in such act), except to the
         extent that under any law of any jurisdiction in which any particular
         act or acts are to be performed the Indenture Trustee shall be
         incompetent or unqualified to perform such act or acts, in which event
         such rights, powers, duties and obligations (including the holding of
         title to the Trust Estate or any portion thereof in any such
         jurisdiction) shall be exercised and performed singly by such separate
         trustee or co-trustee, but solely at the direction of the Indenture
         Trustee;

                           (ii) no trustee hereunder shall be personally liable
         by reason of any act or omission of any other trustee hereunder; and

                           (iii) the Indenture Trustee may at any time accept
         the resignation of or remove any separate trustee or co-trustee.

         (c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its

                                       45

<PAGE>

instrument of appointment, either jointly with the Indenture Trustee or
separately, as may be provided therein, subject to all the provisions of this
Indenture, specifically including every provision of this Indenture relating to
the conduct of, affecting the liability of, or affording protection to, the
Indenture Trustee. Every such instrument shall be filed with the Indenture
Trustee.

         (d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Indenture on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.

         Section 6.11 ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee shall
at all times satisfy the requirements of TIA ss. 310(a). The Indenture Trustee
and the Securities Administrator shall each have a combined capital and surplus
of at least $50,000,000 as set forth in its most recent published annual report
of condition and it or its parent shall have a long-term debt rating of Baa3 or
better by Moody's and BBB or better by Standard & Poor's. The Indenture Trustee
shall comply with TIA ss. 310(b), including the optional provision permitted by
the second sentence of TIA ss. 310(b)(9); PROVIDED, HOWEVER, that there shall be
excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures
under which other securities of the Issuer are outstanding if the requirements
for such exclusion set forth in TIA ss. 310(b)(1) are met.

         Section 6.12 PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.

         Section 6.13 REPRESENTATIONS AND WARRANTIES. The Indenture Trustee
hereby represents that:

                           (i) The Indenture Trustee is duly organized and
         validly existing as a national banking association in good standing
         under the laws of the United States with power and authority to own its
         properties and to conduct its business as such properties are currently
         owned and such business is presently conducted;

                           (ii) The Indenture Trustee has the power and
         authority to execute and deliver this Indenture and to carry out its
         terms; and the execution, delivery and performance of this Indenture
         have been duly authorized by the Indenture Trustee by all necessary
         corporate action;

                           (iii) The consummation of the transactions
         contemplated by this Indenture and the fulfillment of the terms hereof
         do not conflict with, result in any breach of any of the terms and
         provisions of, or constitute (with or without notice or lapse of time)
         a default under, the articles of incorporation or bylaws of the
         Indenture Trustee or any agreement or other instrument to which the
         Indenture Trustee is a party or by which it is bound; and

                           (iv) There are no proceedings or investigations
         pending or to, the Indenture Trustee's knowledge, threatened before any
         court, regulatory body, administrative agency

                                       46

<PAGE>

         or other governmental instrumentality having jurisdiction over the
         Indenture Trustee or its properties: (A) asserting the invalidity of
         this Indenture (B) seeking to prevent the consummation of any of the
         transactions contemplated by this Indenture or (C) seeking any
         determination or ruling that might materially and adversely affect the
         performance by the Indenture Trustee of its obligations under, or the
         validity or enforceability of, this Indenture.

         Section 6.14 DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee is
hereby directed:

         (a) to accept the pledge of the Mortgage Loans and hold the assets of
the Trust Estate in trust for the Noteholders;

         (b) to authenticate and deliver the Notes substantially in the form
prescribed by Exhibits A-1 and A-2 to this Indenture in accordance with the
terms of this Indenture; and

         (c) to take all other actions as shall be required to be taken by the
terms of this Indenture and the Sale and Servicing Agreement.

         Section 6.15 THE AGENTS. The provisions of this Indenture relating to
the limitations of the Indenture Trustee's liability and to its rights and
protections shall inure also to the Paying Agent, Note Registrar and Certificate
Registrar.

         Section 6.16 OTHER BASIC DOCUMENTS. The Indenture Trustee is hereby
authorized and directed to execute and deliver the Sale and Servicing Agreement
and any other Basic Documents (other than this Indenture) naming it as a party.
The Indenture Trustee shall not be responsible for the sufficiency of the terms
of any of the Basic Documents. In entering into and acting under the other Basic
Documents, the Indenture Trustee shall be entitled to all of the rights,
immunities, indemnities and other protections set forth in this Article VI.

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<PAGE>

                                   ARTICLE VII

                         Noteholders' Lists and Reports

         Section 7.01 ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES OF
NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after each Record Date, a list, in such form
as the Indenture Trustee may reasonably require, of the names and addresses of
the Holders of Notes as of such Record Date, (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than 10 days prior to the time such list is furnished; PROVIDED, HOWEVER,
that so long as the Indenture Trustee is the Note Registrar, no such list shall
be required to be furnished to the Indenture Trustee.

         Section 7.02 PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 hereof and the names and addresses of Holders of Notes received
by the Indenture Trustee in its capacity as Note Registrar. The Indenture
Trustee may destroy any list furnished to it as provided in such Section 7.01
upon receipt of a new list so furnished.

         (b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.

         (c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss. 312(c).

         Section 7.03 STATEMENTS TO NOTEHOLDERS. (a) With respect to each
Payment Date, the Securities Administrator shall make available to each
Noteholder and each Certificateholder, the Depositor, the Owner Trustee, the
Indenture Trustee, the Certificate Paying Agent and each Rating Agency, a
statement setting forth the following information as to the Notes, to the extent
applicable:

                           (i) the Note Principal Balance of each Class of Notes
         immediately prior to such Payment Date;

                           (ii) the Group I Available Funds, Group II Available
         Funds and Net Monthly Excess Cash Flow, with respect to Loan Group I
         and Loan Group II, payable to each Class of Noteholders for such
         Payment Date, and the Basis Risk Shortfall Carry-Forward Amount on each
         Class of Notes for such Payment Date;

                           (iii) the amount of such distribution to each Class
         of Notes applied to reduce the Note Principal Balance thereof;

                           (iv) the amount of such distribution to Holders of
         each Class of Notes allocable to interest and the aggregate amount of
         Accrued Note Interest with respect to each Class during the related
         Accrual Period;

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<PAGE>

                           (v) the Note Rates for each Class of Notes with
         respect to such Payment Date;

                           (vi) the Note Principal Balance of each Class of
         Notes immediately after such Payment Date;

                           (vii) the amount of such distribution to the
         Certificates;

                           (viii) the number and the aggregate Scheduled
         Principal Balance of the Mortgage Loans in each Loan Group and in the
         aggregate as of the end of the related Due Period;

                           (ix) the amount of Scheduled Principal and Principal
         Prepayments, (including but separately identifying the principal amount
         of Principal Prepayments, Insurance Proceeds, the purchase price in
         connection with the purchase of Mortgage Loans, cash deposits in
         connection with substitutions of Mortgage Loans and Excess Liquidation
         Proceeds) and the number and principal balance of Mortgage Loans
         purchased or substituted for during the relevant period and
         cumulatively since the Cut-off Date for each Loan Group and in the
         aggregate;

                           (x) the aggregate Note Principal Balance of each
         Class of Notes, after giving effect to the amounts distributed on such
         Payment Date, separately identifying any reduction thereof due to
         Realized Losses other than pursuant to an actual distribution of
         principal and the aggregate Note Principal Balance of the Group I
         Notes, the Group II Notes and the Notes in the aggregate after giving
         effect to the distribution of principal on such Payment Date;

                           (xi) information regarding any Mortgage Loan
         delinquencies as of the end of the related Prepayment Period, including
         the aggregate number and aggregate Outstanding Principal Balance of
         Mortgage Loans (a) delinquent 30 to 59 days on a contractual basis, (b)
         delinquent 60 to 89 days on a contractual basis, and (c) delinquent 90
         or more days on a contractual basis, in each case as of the close of
         business on the last Business Day of the immediately preceding month,
         for each Loan Group and in the aggregate;

                           (xii) the Overcollateralization Increase Amount with
         respect to each Loan Group, Overcollateralization Target Amount with
         respect to each Loan Group and Overcollateralized Amount with respect
         to each Loan Group, if any, in each case as the end of the related
         Payment Date;

                           (xiii) the amount of any Monthly Advances,
         Compensating Interest Payments and outstanding unreimbursed advances by
         the Master Servicer or Servicer;

                           (xiv) the aggregate Realized Losses with respect to
         the related Payment Date and cumulative Realized Losses since the
         Closing Date, for each Loan Group and in the aggregate;

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                           (xv) with respect to each Mortgage Loan which
         incurred a Realized Loss during the related Prepayment Period, (i) the
         loan number, (ii) the Scheduled Principal Balance of such Mortgage Loan
         as of the Cut-off Date, (ii) the Scheduled Principal Balance of such
         Mortgage Loan as of the beginning of the related Due Period, (iii) the
         Excess Liquidation Proceeds with respect to such Mortgage Loan and (iv)
         the amount of the Realized Loss with respect to such Mortgage Loan;

                           (xvi) the number and aggregate Scheduled Principal
         Balance of Mortgage Loans repurchased by the Seller pursuant to the
         Mortgage Loan Purchase Agreement for the related Payment Date and
         cumulatively since the Closing Date determined in the aggregate for
         each Loan Group and in the aggregate;

                           (xvii) the number and aggregate Outstanding Principal
         Balance of all Mortgage Loans as to which the Mortgaged Property was
         REO Property as of the end of the related Due Period for each Loan
         Group and in the aggregate;

                           (xviii) the book value (the sum of (A) the
         Outstanding Principal Balance of the Mortgage Loan, (B) accrued
         interest through the date of foreclosure and (C) foreclosure expenses)
         of any REO Property; provided that, in the event that such information
         is not available to the Securities Administrator on the Payment Date,
         such information shall be furnished promptly after it becomes
         available;

                           (xix) the Average Loss Severity Percentage;

                           (xx) the number of Mortgage Loans in the foreclosure
         process as of the end of the related Due Period and the aggregate
         Outstanding Principal Balance of such Mortgage Loans for each Loan
         Group and in the aggregate;

                           (xxi) the amount of any Interest Shortfalls less any
         Compensating Interest paid by the Servicer or Master Servicer to cover
         Interest Shortfalls for such Payment Date;

                           (xxii) the aggregate Scheduled Principal Balance of
         Mortgage Loans purchased by the Servicer pursuant to Section 3.21 of
         the Sale and Servicing Agreement for the related Payment Date and
         cumulatively since the Closing Date for each Loan Group and in the
         aggregate;

                           (xxiii) the aggregate Scheduled Principal Balance of
         defaulted Mortgage Loans sold by the Servicer pursuant to Section 3.13
         of the Sale and Servicing Agreement or Section 4.03 of the HomeBanc
         Servicing Agreement for the related Payment Date and cumulatively since
         the Closing Date for each Loan Group and in the aggregate; and

                           (xxiv) whether a Servicing Termination Trigger has
         occurred.

         In addition, by January 31 of each calendar year following any year
during which the Notes are outstanding, the Securities Administrator shall
furnish a report to each Noteholder of record if

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so requested in writing at any time during each calendar year as to the
aggregate of amounts reported pursuant to (iii) and (iv) with respect to the
Notes for such calendar year.

         The Securities Administrator may conclusively rely upon the information
provided by the Master Servicer pursuant to Section 3.01 of the Sale and
Servicing Agreement in its preparation of monthly statements to Noteholders. In
addition, the Securities Administrator shall furnish statements to
Certificateholders on each Payment Date in accordance with Section 5.04 of the
Trust Agreement.

         The Securities Administrator may make available each month, to any
interested party, the monthly statement to Noteholders via the Securities
Administrator's website initially located at "www.ctslink.com." Assistance in
using the website can be obtained by calling the Securities Administrator's
customer service desk at (301) 815-6600. Parties that are unable to use the
above distribution option are entitled to have a paper copy mailed to them via
first class mail by calling the Securities Administrator's customer service desk
and indicating such. The Securities Administrator shall have the right to change
the way such reports are distributed in order to make such distribution more
convenient and/or more accessible to the parties, and the Securities
Administrator shall provide timely and adequate notification to all parties
regarding any such change.

         To the extent timely received from the Securities Administrator, the
Indenture Trustee will also make monthly statements available each month to
Noteholders and Certificateholders via the Indenture Trustee's internet website.
The Indenture Trustee's internet website will initially be located at
"https://trustinvestorreporting.usbank.com". Assistance in using the Indenture
Trustee's website service can be obtained by calling the Indenture Trustee's
customer service desk at (800) 934-6802.

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                                  ARTICLE VIII

                      Accounts, Disbursements and Releases

         Section 8.01 COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.

         Section 8.02 RESERVED.

         Section 8.03 OFFICER'S CERTIFICATE. The Indenture Trustee shall receive
at least seven Business Days' notice when requested by the Issuer to take any
action pursuant to Section 8.05(a) hereof, accompanied by copies of any
instruments to be executed, and the Indenture Trustee shall, except in the case
of a repurchase of a Mortgage Loan pursuant to Sections 2.02 or 3.21 of the Sale
and Servicing Agreement, also require, as a condition to such action, an
Officer's Certificate, in form and substance satisfactory to the Indenture
Trustee, stating the legal effect of any such action, outlining the steps
required to complete the same, and concluding that all conditions precedent to
the taking of such action have been complied with.

         Section 8.04 TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS. This
Indenture and the respective obligations and responsibilities of the Issuer, the
Securities Administrator and the Indenture Trustee created hereby shall
terminate upon the distribution to Noteholders, the Certificate Paying Agent on
behalf of the Certificateholders, the Securities Administrator and the Indenture
Trustee of all amounts required to be distributed pursuant to Article III;
PROVIDED, HOWEVER, that in no event shall the trust created hereby continue
beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.

         Section 8.05 RELEASE OF TRUST ESTATE. (a) Subject to the payment of its
fees, expenses and indemnities, the Indenture Trustee may, and when required by
the provisions of this Indenture shall, execute instruments to release property
from the lien of this Indenture, or convey the Indenture Trustee's interest in
the same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture, including for the purposes of any repurchase by
the Seller of a Mortgage Loan pursuant to Section 2.02 of the Sale and Servicing
Agreement or any repurchase by the Servicer of a Mortgage Loan pursuant to
Section 3.21 of the Sale and Servicing Agreement; provided, however, any such
conveyance shall be without recourse to the Indenture Trustee and without any
obligation on its part to make any representations or warranties with respect to
such property released from the lien of this Indenture. No party relying upon an
instrument executed by

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the Indenture Trustee as provided in Article VIII hereunder shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent, or see to the application of any monies.

         (b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding and (ii) all sums due to the Indenture Trustee pursuant to this
Indenture have been paid, release any remaining portion of the Trust Estate that
secured the Notes from the lien of this Indenture.

         (c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.05 only upon receipt of a request from the
Issuer which, except in the case of a repurchase of a Mortgage Loan pursuant to
Sections 2.02 or 3.21 of the Sale and Servicing Agreement, shall also be
accompanied by an Officers' Certificate and an Opinion of Counsel stating that
all applicable requirements have been satisfied.

         Section 8.06 SURRENDER OF NOTES UPON FINAL PAYMENT. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.

         Section 8.07 OPTIONAL REDEMPTION OF THE NOTES. (a) The Holder of the
Certificates, or, if there is no single Holder, the Majority Certificateholder,
shall have the option to redeem the Notes in whole, but not in part, on any
Payment Date on or after the Payment Date on which the aggregate Scheduled
Principal Balance of the Mortgage Loans as of the end of the prior Due Period is
less than or equal to 20% of the aggregate Scheduled Principal Balance of the
Mortgage Loans as of the Cut- off Date. The aggregate redemption price for the
Notes will be equal to the unpaid Note Principal Balance of the Notes as of the
Payment Date on which the proposed redemption will take place in accordance with
the foregoing, together with accrued and unpaid interest thereon at the
applicable Note Interest Rate through such Payment Date (including any Basis
Risk Shortfall Carry-Forward Amounts), plus an amount sufficient to pay in full
all amounts owing to the Indenture Trustee, the Master Servicer and the
Securities Administrator pursuant to any Basic Document (which amounts shall be
specified by such Person in writing upon request of the Issuer, the Master
Servicer and the Securities Administrator, as applicable).

         (b) In order to exercise the foregoing option, the Holder of the
Certificates, or the Majority Certificateholder, as applicable, shall provide
written notice of its exercise of such option to the Indenture Trustee, the
Securities Administrator, the Owner Trustee and the Master Servicer at least 15
days prior to its exercise. Following receipt of the notice, the Indenture
Trustee shall provide notice to the Noteholders of the final payment on the
Notes. In addition, the Holder of the Certificates, or the Majority
Certificateholder, as applicable shall, not less than one Business Day prior to
the proposed Payment Date on which such redemption is to be made, deposit the
aggregate redemption price specified in (a) above with the Indenture Trustee,
who shall deposit the aggregate redemption price into the Payment Account and
shall, on the Payment Date after receipt of the funds, apply such funds to make
final payments of principal and interest on the Notes in accordance with the
instructions of the Securities Administrator and Section 3.05 hereof and payment
in full to the Indenture Trustee, and this Indenture shall be discharged subject
to the provisions of Section 4.10 hereof. If for any reason the amount deposited
by the Holder of the Certificates, or the Majority Certificateholder, as
applicable is not sufficient to make such redemption or such redemption cannot

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<PAGE>

be completed for any reason, the amount so deposited by the Holder of the
Certificates, or the Majority Certificateholder, as applicable with the
Indenture Trustee shall be immediately returned to the Holder of the
Certificates, or the Majority Certificateholder, as applicable in full and shall
not be used for any other purpose or be deemed to be part of the Trust Estate.

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                                   ARTICLE IX

                             Supplemental Indentures

         Section 9.01 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with prior notice to the
Rating Agency, the Issuer, the Securities Administrator and the Indenture
Trustee, when authorized by an Issuer Request in the case of the Securities
Administrator and the Indenture Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto (which shall conform to
the provisions of the TIA as in force at the date of the execution thereof), in
form satisfactory to the Indenture Trustee and the Securities Administrator, for
any of the following purposes:

                           (i) to correct or amplify the description of any
         property at any time subject to the lien of this Indenture, or better
         to assure, convey and confirm unto the Indenture Trustee any property
         subject or required to be subjected to the lien of this Indenture, or
         to subject to the lien of this Indenture additional property;

                           (ii) to evidence the succession, in compliance with
         the applicable provisions hereof, of another person to the Issuer, and
         the assumption by any such successor of the covenants of the Issuer
         herein and in the Notes contained;

                           (iii) to add to the covenants of the Issuer, for the
         benefit of the Holders of the Notes, or to surrender any right or power
         herein conferred upon the Issuer;

                           (iv) to convey, transfer, assign, mortgage or pledge
         any property to or with the Indenture Trustee;

                           (v) to cure any ambiguity, to correct or supplement
         any provision herein or in any supplemental indenture that may be
         inconsistent with any other provision herein or in any supplemental
         indenture;

                           (vi) to make any other provisions with respect to
         matters or questions arising under this Indenture or in any
         supplemental indenture; provided, that such action shall not materially
         and adversely affect the interests of the Holders of the Notes;

                           (vii) to evidence and provide for the acceptance of
         the appointment hereunder by a successor trustee with respect to the
         Notes and to add to or change any of the provisions of this Indenture
         as shall be necessary to facilitate the administration of the trusts
         hereunder by more than one trustee, pursuant to the requirements of
         Article VI hereof; or

                           (viii) to modify, eliminate or add to the provisions
         of this Indenture to such extent as shall be necessary to effect the
         qualification of this Indenture under the TIA or under any similar
         federal statute hereafter enacted and to add to this Indenture such
         other provisions as may be expressly required by the TIA;

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<PAGE>

PROVIDED, HOWEVER, that no such indenture supplements shall be entered into
unless the Indenture Trustee and the Securities Administrator shall have
received an Opinion of Counsel not at the expense of the Indenture Trustee or
the Securities Administrator as to the enforceability of any such indenture
supplement against the Issuer and to the effect that (i) such indenture
supplement is authorized or permitted hereunder and (ii) entering into such
indenture supplement will not result in a "significant modification" of the
Notes under Treasury Regulation Section 1.1001-3 or adversely affect the status
of the Notes as indebtedness for federal income tax purposes.

         The Indenture Trustee and the Securities Administrator are hereby
authorized to join in the execution of any such supplemental indenture and to
make any further appropriate agreements and stipulations that may be therein
contained.

         (b) The Issuer, the Securities Administrator and the Indenture Trustee,
when authorized by an Issuer Request in the case of the Securities Administrator
and the Indenture Trustee and the Indenture Trustee, may, also without the
consent of any of the Holders of the Notes and prior notice to the Rating
Agency, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Holders of the Notes under this Indenture; PROVIDED, HOWEVER, that
such action as evidenced by an Opinion of Counsel, (i) is authorized or
permitted by this Indenture, and shall not (ii) adversely affect in any material
respect the interests of any Noteholder and (iii) will not cause the Issuer to
be subject to an entity level tax for federal income tax purposes.

         Section 9.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. The
Issuer, the Securities Administrator and the Indenture Trustee, when authorized
by an Issuer Request in the case of the Securities Administrator and the
Indenture Trustee, also may, with prior notice to the Rating Agency and, with
the consent of the Holders of not less than a majority of the Note Principal
Balance of each Class of Notes affected thereby, by Act (as defined in Section
10.03 hereof) of such Holders delivered to the Issuer, the Securities
Administrator and the Indenture Trustee, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall, without
the consent of the Holder of each Note affected thereby:

                           (i) change the date of payment of any installment of
         principal of or interest on any Note, or reduce the principal amount
         thereof or the interest rate thereon, change the provisions of this
         Indenture relating to the application of collections on, or the
         proceeds of the sale of, the Trust Estate to payment of principal of or
         interest on the Notes, or change any place of payment where, or the
         coin or currency in which, any Note or the interest thereon is payable,
         or impair the right to institute suit for the enforcement of the
         provisions of this Indenture requiring the application of funds
         available therefor, as provided in Article V, to the payment of any
         such amount due on the Notes on or after the respective due dates
         thereof;

                           (ii) reduce the percentage of the Note Principal
         Balances of the Notes, the consent of the Holders of which is required
         for any such supplemental indenture, or the

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<PAGE>

         consent of the Holders of which is required for any waiver of
         compliance with certain provisions of this Indenture or certain
         defaults hereunder and their consequences provided for in this
         Indenture;

                           (iii) modify or alter the provisions of the proviso
         to the definition of the term "Outstanding" or modify or alter the
         exception in the definition of the term "Holder";

                           (iv) reduce the percentage of the Note Principal
         Balances of the Notes required to direct the Indenture Trustee to
         direct the Issuer to sell or liquidate the Trust Estate pursuant to
         Section 5.04 hereof;

                           (v) modify any provision of this Section 9.02 except
         to increase any percentage specified herein or to provide that certain
         additional provisions of this Indenture or the Basic Documents cannot
         be modified or waived without the consent of the Holder of each Note
         affected thereby;

                           (vi) modify any of the provisions of this Indenture
         in such manner as to affect the calculation of the amount of any
         payment of interest or principal due on any Note on any Payment Date
         (including the calculation of any of the individual components of such
         calculation); or

                           (vii) permit the creation of any lien ranking prior
         to or on a parity with the lien of this Indenture with respect to any
         part of the Trust Estate or, except as otherwise permitted or
         contemplated herein, terminate the lien of this Indenture on any
         property at any time subject hereto or deprive the Holder of any Note
         of the security provided by the lien of this Indenture;

and PROVIDED, FURTHER, that such action shall not, as evidenced by an Opinion of
Counsel, cause the Issuer to be subject to an entity level tax.

         Any such action shall not adversely affect in any material respect the
interest of any Holder (other than a Holder who shall consent to such
supplemental indenture) as evidenced by an Opinion of Counsel (provided by, and
at the expense of, the Person requesting such supplemental indenture) delivered
to the Indenture Trustee and the Securities Administrator.

         It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.

         Promptly after the execution by the Issuer, the Securities
Administrator and the Indenture Trustee of any supplemental indenture pursuant
to this Section 9.02, the Indenture Trustee shall mail to the Holders of the
Notes to which such amendment or supplemental indenture relates a notice setting
forth in general terms the substance of such supplemental indenture. Any failure
of the Indenture Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.

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         Section 9.03 EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee and the Securities Administrator shall
be entitled to receive, and subject to Sections 6.01 and 6.02 hereof, shall be
fully protected in relying upon, an Opinion of Counsel not at the expense of the
Indenture Trustee or the Securities Administrator stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Indenture Trustee and the Securities Administrator each may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's or the Securities Administrator's own rights, duties,
liabilities or immunities under this Indenture or otherwise.

         Section 9.04 EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Securities Administrator, the
Issuer and the Holders of the Notes shall thereafter be determined, exercised
and enforced hereunder subject in all respects to such modifications and
amendments, and all the terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and conditions of this Indenture
for any and all purposes.

         Section 9.05 CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.

         Section 9.06 REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.

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                                    ARTICLE X

                                  Miscellaneous

         Section 10.01 COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a) Upon any
application or request by the Issuer to the Indenture Trustee or the Securities
Administrator to take any action under any provision of this Indenture, the
Issuer shall furnish to the Indenture Trustee and the Securities Administrator
(i) an Officer's Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and (ii) an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture,
no additional certificate or opinion need be furnished.

         Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

                  (1) a statement that each signatory of such certificate or
         opinion has read or has caused to be read such covenant or condition
         and the definitions herein relating thereto;

                  (2) a brief statement as to the nature and scope of the
         examination or investigation upon which the statements or opinions
         contained in such certificate or opinion are based;

                  (3) a statement that, in the opinion of each such signatory,
         such signatory has made such examination or investigation as is
         necessary to enable such signatory to express an informed opinion as to
         whether or not such covenant or condition has been complied with;

                  (4) a statement as to whether, in the opinion of each such
         signatory, such condition or covenant has been complied with; and

                  (5) if the signatory of such certificate or opinion is
         required to be Independent, the statement required by the definition of
         the term "Independent Certificate".

                  (b) (i) Prior to the deposit of any Collateral or other
         property or securities with the Indenture Trustee that is to be made
         the basis for the release of any property or securities subject to the
         lien of this Indenture, the Issuer shall, in addition to any obligation
         imposed in Section 10.01 (a) or elsewhere in this Indenture, furnish to
         the Indenture Trustee an Officer's Certificate certifying or stating
         the opinion of each person signing such certificate as to the fair
         value (within 90 days prior to such deposit) to the Issuer of the
         Collateral or other property or securities to be so deposited and a
         report from a nationally recognized accounting firm verifying such
         value.

                           (ii) Whenever the Issuer is required to furnish to
         the Indenture Trustee an Officer's Certificate certifying or stating
         the opinion of any signer thereof as to the matters described in clause
         (b)(i) above, the Issuer shall also deliver to the Indenture Trustee an

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         Independent Certificate from a nationally recognized accounting firm as
         to the same matters, if the fair value of the securities to be so
         deposited and of all other such securities made the basis of any such
         withdrawal or release since the commencement of the then current fiscal
         year of the Issuer, as set forth in the certificates delivered pursuant
         to clause (i) above and this clause (ii), is 10% or more of the Note
         Principal Balances of the Notes, but such a certificate need not be
         furnished with respect to any securities so deposited, if the fair
         value thereof as set forth in the related Officer's Certificate is less
         than $25,000 or less than one percent of the Note Principal Balances of
         the Notes.

                           (iii) Whenever any property or securities are to be
         released from the lien of this Indenture, the Issuer shall also furnish
         to the Indenture Trustee an Officer's Certificate certifying or stating
         the opinion of each person signing such certificate as to the fair
         value (within 90 days prior to such release) of the property or
         securities proposed to be released and stating that in the opinion of
         such person the proposed release will not impair the security under
         this Indenture in contravention of the provisions hereof.

                           (iv) Whenever the Issuer is required to furnish to
         the Indenture Trustee an Officer's Certificate certifying or stating
         the opinion of any signer thereof as to the matters described in clause
         (iii) above, the Issuer shall also furnish to the Indenture Trustee an
         Independent Certificate as to the same matters if the fair value of the
         property or securities and of all other property or securities released
         from the lien of this Indenture since the commencement of the
         then-current calendar year, as set forth in the certificates required
         by clause (iii) above and this clause (iv), equals 10% or more of the
         Note Principal Balances of the Notes, but such certificate need not be
         furnished in the case of any release of property or securities if the
         fair value thereof as set forth in the related Officer's Certificate is
         less than $25,000 or less than one percent of the then Note Principal
         Balances of the Notes.

         Section 10.02 FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.

         Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Seller or the Issuer, stating that the information with respect to such
factual matters is in the possession of the Seller or the Issuer, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.

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         Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

         Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.

         Section 10.03 ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 10.03
hereof.

         (b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.

         (c) The ownership of Notes shall be proved by the Note Registrar.

         (d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.

         Section 10.04 NOTICES ETC., TO INDENTURE TRUSTEE, SECURITIES
ADMINISTRATOR, ISSUER AND RATING AGENCIES. Any request, demand, authorization,
direction, notice, consent, waiver or act of Noteholders or other documents
provided or permitted by this Indenture shall be in writing and if such request,
demand, authorization, direction, notice, consent, waiver or act of Noteholders
is to be made upon, given or furnished to or filed with:

                           (i) the Indenture Trustee by any Noteholder or by the
         Issuer shall be sufficient for every purpose hereunder if in writing
         and made, given, furnished or filed to or

                                       61

<PAGE>

         with the Indenture Trustee at the Corporate Trust Office. The Indenture
         Trustee shall promptly transmit any notice received by it from the
         Noteholders to the Issuer;

                           (ii) the Securities Administrator by any Noteholder
         or by the Issuer shall be sufficient for every purpose hereunder if
         made, given, furnished or filed in writing to or with the Securities
         Administrator at Wells Fargo Bank, National Association, P.O. Box 98,
         Columbia Maryland 21046 (or, in the case of overnight deliveries, 9062
         Old Annapolis Road, Columbia, Maryland 21045) (Attention: Corporate
         Trust Services - HomeBanc 2004- 1), facsimile no.: (410) 715-2380, or
         such other address as may hereafter be furnished to the other parties
         hereto in writing. The Securities Administrator shall promptly transmit
         any notice received by it from the Noteholders to the Issuer

                           (iii) the Issuer by the Indenture Trustee or by any
         Noteholder shall be sufficient for every purpose hereunder if in
         writing and mailed first-class, postage prepaid to the Issuer addressed
         to: HomeBanc Mortgage Trust 2004-1, in care of Wilmington Trust
         Company, Rodney Square North, 1100 North Market Street, Wilmington,
         Delaware 19990- 0001, Attention: Corporate Trust Administration, or at
         any other address previously furnished in writing to the Indenture
         Trustee by the Issuer. The Issuer shall promptly transmit any notice
         received by it from the Noteholders to the Indenture Trustee.

         Notices required to be given to the Rating Agency by the Issuer, the
Indenture Trustee, the Securities Administrator or the Owner Trustee shall be in
writing, mailed first-class postage pre-paid, to, in the case of Standard &
Poor's, at the following address: Standard & Poor's, 55 Water Street, 41st
Floor, New York, New York 10041, Attention of Asset Backed Surveillance
Department, in the case of Moody's, at the following address: Moody's Investors
Service, Inc., 99 Church Street, New York, New York 10007; or at such other
address as shall be designated by written notice to the other parties.

         Section 10.05 NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at such Person's address as it appears on the Note Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given regardless of
whether such notice is in fact actually received.

         Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.

         In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when

                                       62

<PAGE>

such notice is required to be given pursuant to any provision of this Indenture,
then any manner of giving such notice as shall be satisfactory to the Indenture
Trustee shall be deemed to be a sufficient giving of such notice.

         Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.

         Section 10.06 CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.

         The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.

         Section 10.07 EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.

         Section 10.08 SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.

         Section 10.09 SEPARABILITY. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

         Section 10.10 [RESERVED].

         Section 10.11 LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.

         Section 10.12 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

                                       63

<PAGE>

         Section 10.13 COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

         Section 10.14 RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
at its expense (which may be counsel to the Issuer, the Indenture Trustee or any
other counsel reasonably acceptable to the Indenture Trustee) to the effect that
such recording is necessary either for the protection of the Noteholders or any
other Person secured hereunder or for the enforcement of any right or remedy
granted to the Indenture Trustee under this Indenture.

         Section 10.15 ISSUER OBLIGATION. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Securities
Administrator, the Owner Trustee or the Indenture Trustee on the Notes or under
this Indenture or any certificate or other writing delivered in connection
herewith or therewith, against (i) the Indenture Trustee or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director, employee or
agent of the Indenture Trustee or the Owner Trustee in its individual capacity,
any holder of a beneficial interest in the Issuer, the Securities Administrator,
the Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as any
such Person may have expressly agreed (it being understood that the Indenture
Trustee and the Owner Trustee have no such obligations in their individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of
any duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of Article
VI, VII and VIII of the Trust Agreement.

         Section 10.16 NO PETITION. The Indenture Trustee and the Securities
Administrator, by entering into this Indenture, each Noteholder, by accepting a
Note, and each Certificateholder, by accepting a Certificate, hereby covenant
and agree that they will not at any time prior to one year from the date of
termination hereof, institute against the Depositor or the Issuer, or join in
any institution against the Depositor or the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Notes, this Indenture or any
of the Basic Documents; provided however, that nothing herein shall prohibit the
Indenture Trustee from filing proofs of claim in any proceeding.

         Section 10.17 INSPECTION. The Issuer agrees that, at its expense, on
reasonable prior notice, it shall permit any representative of the Indenture
Trustee or the Securities Administrator, during the Issuer's normal business
hours, to examine all the books of account, records, reports and other papers of
the Issuer, to make copies and extracts therefrom, to cause such books to be
audited by Independent certified public accountants, and to discuss the Issuer's
affairs, finances and accounts with the Issuer's officers, employees, and
Independent certified public accountants, all at such reasonable times and as
often as may be reasonably requested. The Indenture Trustee shall cause its

                                       64

<PAGE>

representatives to hold in confidence all such information except to the extent
disclosure may be required by law, regulation, judicial process or made to the
Indenture Trustee's auditors, regulators, attorneys or other governmental
authorities and except to the extent that the Indenture Trustee or the
Securities Administrator may reasonably determine that such disclosure is
consistent with its obligations hereunder.

                                       65

<PAGE>

         IN WITNESS WHEREOF, the Issuer, the Indenture Trustee and the
Securities Administrator have caused their names to be signed hereto by their
respective officers thereunto duly authorized, all as of the day and year first
above written.

                                      HOMEBANC MORTGAGE TRUST
                                      2004-1, as Issuer
                                      BY: Wilmington Trust Company, not in its
                                      individual capacity but solely as Owner
                                      Trustee

                                      By:     /s/ Heather L. Maier
                                         --------------------------------
                                      Name:   Heather L. Maier
                                      Title:  Financial Services Officer

                                      U.S. BANK NATIONAL
                                      ASSOCIATION, as
                                      Indenture Trustee

                                      By:     /s/ Vaneta I. Bernard
                                         --------------------------------
                                      Name:   Vaneta I. Bernard
                                      Title:  Vice President

                                      WELLS FARGO BANK, NATIONAL
                                      ASSOCIATION, as Securities Administrator

                                      By:     /s/ Stacey Taylor
                                         --------------------------------
                                      Name:   Stacey Taylor
                                      Title:  Assistance Vice President

<PAGE>

STATE OF MASSACHUSETTES           )
                                  ) ss.:
COUNTY OF SUFFOLK                 )

         On this 30th day of July 2004, before me personally appeared Vaneta
Bernard to me known, who being by me duly sworn, did depose and say, that s/he
is a Vice President of the Indenture Trustee, one of the corporations described
in and which executed the above instrument; and that he signed his name thereto
by like order.

                                                 Notary Public

                                                 ______________________________
                                                 NOTARY PUBLIC

[NOTARIAL SEAL]

<PAGE>

STATE OF DELAWARE             )
                              ) ss.:
COUNTY OF NEW CASTLE          )

         On this 30th day of July 2004, before me personally appeared Heather L.
Maier to me known, who being by me duly sworn, did depose and say, that s/he is
a Financial Services Officer of the Owner Trustee, one of the entities described
in and which executed the above instrument; and that she signed her name thereto
by like order.

                                                 Notary Public

                                                 ______________________________
                                                 NOTARY PUBLIC

[NOTARIAL SEAL]

<PAGE>

STATE OF MARYLAND           )
                            ) ss.:
COUNTY OF HOWARD            )

         On this 30th day of July 2004 before me, a notary public in and for
said State, personally appeared Stacey Taylor, known to me to be an Assistant
Vice President of Wells Fargo Bank, National Association, the entity that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said entity, and acknowledged to me that such entity
executed the within instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.

                                                 ______________________________
                                                 Notary Public

[Notarial Seal]

<PAGE>

                                   EXHIBIT A-1

                          FORM OF CLASS [I][II]-A NOTES

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

THE HOLDER OF THIS NOTE OR BENEFICIAL OWNER OF ANY INTEREST HEREIN WILL BE
DEEMED TO REPRESENT TO ONE OF THE REPRESENTATIONS CONTAINED IN SECTION 4.15 OF
THE INDENTURE.

THIS NOTE IS A NON-RECOURSE OBLIGATION OF THE ISSUER, AND IS LIMITED IN RIGHT OF
PAYMENT TO AMOUNTS AVAILABLE FROM THE TRUST AS PROVIDED IN THE INDENTURE
REFERRED TO BELOW. THE ISSUER IS NOT OTHERWISE PERSONALLY LIABLE FOR PAYMENTS ON
THIS NOTE.

PRINCIPAL OF THIS NOTE IS PAYABLE OVER TIME AS SET FORTH HEREIN. ACCORDINGLY,
THE OUTSTANDING PRINCIPAL OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.

                                      A-1-1

<PAGE>

                         HOMEBANC MORTGAGE TRUST 2004-1
                              MORTGAGE-BACKED NOTES
                                 CLASS [I][II]-A

AGGREGATE NOTE PRINCIPAL                           NOTE INTEREST
BALANCE:  $[             ]                         RATE: Adjustable Rate

INITIAL NOTE PRINCIPAL                             NOTE NO. [_]
BALANCE OF THIS NOTE: $[             ]

PERCENTAGE INTEREST: 100%                          CUSIP NO. [             ]

         HomeBanc Mortgage Trust 2004-1 (the "Issuer"), a Delaware statutory
trust, for value received, hereby promises to pay to Cede & Co. or registered
assigns, the principal sum of ($_________________) in monthly installments on
the twenty-fifth day of each month or, if such day is not a Business Day, the
next succeeding Business Day (each a "Payment Date"), commencing in August 2004
and ending on or before the Payment Date occurring in August 2029 (the "Final
Scheduled Payment Date") and to pay interest on the Note Principal Balance of
this Note (this "Note") outstanding from time to time as provided below.

         This Note is one of a duly authorized issue of the Issuer's
Mortgage-Backed Notes, Series 2004-1 (the "Notes"), issued under an Indenture
dated as of July 30, 2004 (the "Indenture"), among the Issuer, Wells Fargo Bank,
National Association (the "Securities Administrator") and U.S. Bank National
Association, as indenture trustee (the "Indenture Trustee", which term includes
any successor Indenture Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Indenture Trustee, and the
Holders of the Notes and the terms upon which the Notes are to be authenticated
and delivered. All terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

         Payments of principal and interest on this Note will be made on each
Payment Date to the Noteholder of record as of the related Record Date. The
"Note Principal Balance" of a Note as of any date of determination is equal to
the initial Note Principal Balance thereof, reduced by the aggregate of all
amounts previously paid with respect to such Note on account of principal and
the aggregate amount of cumulative Realized Losses allocated to such Note on all
prior Payment Dates.

         The principal of, and interest on, this Note are due and payable as
described in the Indenture, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. All payments made by the Issuer with respect to this Note shall
be equal to this Note's pro rata share of the aggregate payments on all Class
[I][II]-A Notes as described above, and shall be applied as between interest and
principal as provided in the Indenture.

                                      A-1-2

<PAGE>

         All principal and interest accrued on the Notes, if not previously
paid, will become finally due and payable at the Final Scheduled Payment Date.

         The Notes are subject to redemption in whole, but not in part, by the
Holder of the Certificates, or, if there is no single Holder, the Majority
Certificateholder, on any Payment Date on or after the Payment Date on which the
aggregate Scheduled Principal Balance of the Mortgage Loans as of the end of the
prior Due Period is less than or equal to 20% of the aggregate Scheduled
Principal Balance of the Mortgage Loans as of the Cut-off Date.

         The Issuer shall not be liable upon the indebtedness evidenced by the
Notes except to the extent of amounts available from the Trust Estate which
constitutes security for the payment of the Notes. The assets included in the
Trust Estate will be the sole source of payments on the Class [I][II]- A Notes,
and each Holder hereof, by its acceptance of this Note, agrees that (i) such
Note will be limited in right of payment to amounts available from the Trust
Estate as provided in the Indenture and (ii) such Holder shall have no recourse
to the Issuer, the Securities Administrator, the Owner Trustee, the Indenture
Trustee, the Depositor, EMC Mortgage Corporation, the Master Servicer, the
Servicer, the Special Servicer or any of their respective affiliates, or to the
assets of any of the foregoing entities, except the assets of the Issuer pledged
to secure the [I][II]-A Notes pursuant to the Indenture and the rights conveyed
by the Issuer under the Indenture.

         Any payment of principal or interest payable on this Note which is
punctually paid on the applicable Payment Date shall be paid to the Person in
whose name such Note is registered at the close of business on the Record Date
for such Payment Date by check mailed to such person's address as it appears in
the Note Register on such Record Date, except for the final installment of
principal and interest payable with respect to such Note, which shall be payable
as provided below. Notwithstanding the foregoing, upon written request with
appropriate instructions by the Holder of this Note delivered to the Indenture
Trustee at least five Business Days prior to the Record Date, any payment of
principal or interest, other than the final installment of principal or
interest, shall be made by wire transfer to an account in the United States
designated by such Holder. All scheduled reductions in the principal amount of a
Note (or one or more predecessor Notes) effected by payments of principal made
on any Payment Date shall be binding upon all Holders of this Note and of any
note issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, whether or not such payment is noted on such Note. The final
payment of this Note shall be payable upon presentation and surrender thereof on
or after the Payment Date thereof at the office designated by the Indenture
Trustee or the office or agency of the Issuer maintained by it for such purpose
pursuant to Section 3.02 of the Indenture.

         Subject to the foregoing provisions, each Note delivered under the
Indenture, upon registration of transfer of or in exchange for or in lieu of any
other Note shall carry the right to unpaid principal and interest that were
carried by such other Note.

         If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Notes, the Notes may become or be declared due
and payable in the manner and with the effect provided in the Indenture. If any
such acceleration of maturity occurs prior to the payment of the entire unpaid
Note Principal Balance of the Notes, the amount payable to the Holder of this
Note will be equal to the sum of the unpaid Note Principal Balance of the Notes,
together with accrued and

                                      A-1-3

<PAGE>

unpaid interest thereon as described in the Indenture. The Indenture provides
that, notwithstanding the acceleration of the maturity of the Notes, under
certain circumstances specified therein, all amounts collected as proceeds of
the Trust Estate securing the Notes or otherwise shall continue to be applied to
payments of principal of and interest on the Notes as if they had not been
declared due and payable.

         The Holder of this Note or Beneficial Owner of any interest herein is
deemed to represent that either (1) it is not acquiring the Note with Plan
Assets or (2) (A) the acquisition, holding and transfer of a Note will not give
rise to a nonexempt prohibited transaction under Section 406 of ERISA or Section
4975 of the Code and (B) the Notes are rated investment grade or better and such
person believes that the Notes are properly treated as indebtedness without
substantial equity features for purposes of the DOL Regulations, and agrees to
so treat the Notes. Alternatively, regardless of the rating of the Notes, such
person may provide the Indenture Trustee and the Owner Trustee with an Opinion
of Counsel, which Opinion of Counsel will not be at the expense of the Issuer,
the Seller, any Underwriter, the Owner Trustee, the Indenture Trustee, the
Securities Administrator, the Master Servicer, the Special Servicer or any
successor servicer which opines that the acquisition, holding and transfer of
such Note or interest therein is permissible under applicable law, will not
constitute or result in a non-exempt prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the Issuer, the Seller, the
Depositor, any Underwriter, the Owner Trustee, the Indenture Trustee, the Master
Servicer, the Securities Administrator, the Servicer or the Special Servicer to
any obligation in addition to those undertaken in the Indenture.

         As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Issuer. Upon surrender for registration of transfer of, or presentation of a
written instrument of transfer for, this Note at the office or agency designated
by the Issuer pursuant to the Indenture, accompanied by proper instruments of
assignment in form satisfactory to the Indenture Trustee, one or more new Notes
of any authorized denominations and of a like aggregate initial Note Principal
Balance, will be issued to the designated transferee or transferees.

         Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note is registered as the owner
of such Note (i) on the applicable Record Date for the purpose of making
payments and interest of such Note, and (ii) on any other date for all other
purposes whatsoever, as the owner hereof, whether or not this Note be overdue,
and neither the Issuer, the Indenture Trustee nor any such agent of the Issuer
or the Indenture Trustee shall be affected by notice to the contrary.

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer and the Holders of a majority of all Notes at the time
outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the aggregate Note Principal Balance
of the Notes on behalf of the Holders of all the Notes, to waive any past
Default under the Indenture and its consequences. Any such waiver by the Holder,
at the time of the giving thereof, of this Note (or any one or more predecessor
Notes) shall bind the Holder of every Note issued upon the registration of
transfer hereof

                                      A-1-4

<PAGE>

or in exchange hereof or in lieu hereof, whether or not notation of such consent
or waiver is made upon such Note. The Indenture also permits the Issuer and the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of the Holders of the Notes issued thereunder.

         Initially, the Notes will be registered in the name of Cede & Co. as
nominee of DTC, acting in its capacity as the Depository for the Notes. The
Notes will be delivered by the clearing agency in denominations as provided in
the Indenture and subject to certain limitations therein set forth. The Notes
are exchangeable for a like aggregate initial Note Principal Balance of Notes of
different authorized denominations, as requested by the Holder surrendering
same.

         Unless the Certificate of Authentication hereon has been executed by
the Indenture Trustee by manual signature, this Note shall not be entitled to
any benefit under the Indenture, or be valid or obligatory for any purpose.

         AS PROVIDED IN THE INDENTURE, THIS NOTE AND THE INDENTURE CREATING THIS
NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.

                                      A-1-5

<PAGE>

         IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed by Wilmington Trust Company, not in its individual capacity but solely
as Owner Trustee.

Dated: July ___, 2004

                                         HOMEBANC MORTGAGE TRUST 2004-1

                                         BY: WILMINGTON TRUST COMPANY,
                                         not in its individual capacity but
                                         solely in its capacity as Owner Trustee

                                         By:___________________________________
                                         Authorized Signatory

                INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Class [I][II]-A Notes referred to in the within-mentioned
Indenture.

U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee

By:______________________________________
    Authorized Signatory

                                      A-1-6

<PAGE>

                                  ABBREVIATIONS

         The following abbreviations, when used in the inscription on the face
of the Note, shall be construed as though they were written out in full
according to applicable laws or regulations:

         TEN COM         --      as tenants in common
         TEN ENT         --      as tenants by the entireties
         JT TEN          --      as joint tenants with right of survivorship and
                                 not as tenants in common
UNIF GIFT MIN ACT        --      __________ Custodian
                                 ______________________________
                                 (Cust)                 (Minor)

                                 under Uniform Gifts to Minor Act
                                 _____________________
                                                                    (State)

                      Additional abbreviations may also be used though not in
the above list.

                                      A-1-7

<PAGE>

                                   ASSIGNMENT
                                   ----------

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto

          PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
                                    ASSIGNEE:

   --------------------------------------------------------------------------

   --------------------------------------------------------------------------

   --------------------------------------------------------------------------
  (Please print or typewrite name and address, including zip code, of assignee)

_______________________________________________________________________________
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints ____________________ attorney to transfer said Note on the books
kept for registration thereof, with full power of substitution in the premises.

Dated:________________          ______________________________

Signature Guaranteed by __________________________________

         NOTICE: The signature(s) to this assignment must correspond with the
name as it appears upon the face of the within Note in every particular, without
alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by a commercial bank or by a member firm of the New York Stock
Exchange or another national securities exchange. Notarized or witnessed
signatures are not acceptable.

                                      A-1-8

<PAGE>

                                   EXHIBIT A-2

                        FORM OF CLASS [I][II]-M-[_] NOTES

THIS NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS [I][II]-A NOTES [AND
CLASS [I][II]-M-1 NOTES] AS DESCRIBED IN THE INDENTURE.

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

THE HOLDER OF THIS NOTE OR BENEFICIAL OWNER OF ANY INTEREST HEREIN WILL BE
DEEMED TO REPRESENT TO ONE OF THE REPRESENTATIONS CONTAINED IN SECTION 4.15 OF
THE INDENTURE.

THIS NOTE IS A NON-RECOURSE OBLIGATION OF THE ISSUER, AND IS LIMITED IN RIGHT OF
PAYMENT TO AMOUNTS AVAILABLE FROM THE TRUST ESTATE AS PROVIDED IN THE INDENTURE
REFERRED TO BELOW. THE ISSUER IS NOT OTHERWISE PERSONALLY LIABLE FOR PAYMENTS ON
THIS NOTE.

PRINCIPAL OF THIS NOTE IS PAYABLE OVER TIME AS SET FORTH HEREIN. ACCORDINGLY,
THE OUTSTANDING PRINCIPAL OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.

                                      A-2-1

<PAGE>

                         HOMEBANC MORTGAGE TRUST 2004-1
                              MORTGAGE-BACKED NOTES
                               CLASS [I][II]-M-[_]

AGGREGATE NOTE PRINCIPAL                               NOTE INTEREST
BALANCE:  $[             ]                             RATE: Adjustable Rate

INITIAL NOTE PRINCIPAL                                 NOTE NO. 1
BALANCE OF THIS NOTE: $[             ]

PERCENTAGE INTEREST: 100%                              CUSIP NO. [            ]

         HomeBanc Mortgage Trust 2004-1 (the "Issuer"), a Delaware statutory
trust, for value received, hereby promises to pay to Cede & Co. or registered
assigns, the principal sum of ______________________________ ($___________) in
monthly installments on the twenty-fifth day of each month or, if such day is
not a Business Day, the next succeeding Business Day (each a "Payment Date"),
commencing in August 2004 and ending on or before the Payment Date occurring in
August 2029 (the "Final Scheduled Payment Date") and to pay interest on the Note
Principal Balance of this Note (this "Note") outstanding from time to time as
provided below.

         This Note is one of a duly authorized issue of the Issuer's
Mortgage-Backed Notes, Series 2004-1 (the "Notes"), issued under an Indenture
dated as of July 30, 2004 (the "Indenture"), among the Issuer, Wells Fargo Bank,
National Association (the "Securities Administrator") and U.S. Bank National
Association, as indenture trustee (the "Indenture Trustee", which term includes
any successor Indenture Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Indenture Trustee, and the
Holders of the Notes and the terms upon which the Notes are to be authenticated
and delivered. All terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

         Payments of principal and interest on this Note will be made on each
Payment Date to the Noteholder of record as of the related Record Date. The
"Note Principal Balance" of a Note as of any date of determination is equal to
the initial Note Principal Balance thereof, reduced by the aggregate of all
amounts previously paid with respect to such Note on account of principal and
the aggregate amount of cumulative Realized Losses allocated to such Note on all
prior Payment Dates.

         The principal of, and interest on, this Note are due and payable as
described in the Indenture, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. All payments made by the Issuer with respect to this Note shall
be equal to this Note's pro rata share of the aggregate payments on all Class
[I][II]-M-[_] Notes as described above, and shall be applied as between interest
and principal as provided in the Indenture.

         All principal and interest accrued on the Notes, if not previously
paid, will become finally due and payable at the Final Scheduled Payment Date.

                                      A-2-2

<PAGE>

         The Notes are subject to redemption in whole, but not in part, by the
Holder of the Certificates, or, if there is no single Holder, the Majority
Certificateholder, on any Payment Date on or after the Payment Date on which the
aggregate Scheduled Principal Balance of the Mortgage Loans is less than or
equal to 20% of aggregate Scheduled Principal Balance of the Mortgage Loans as
of the Cut-off Date.

         The Issuer shall not be liable upon the indebtedness evidenced by the
Notes except to the extent of amounts available from the Trust Estate which
constitutes security for the payment of the Notes. The assets included in the
Trust Estate will be the sole source of payments on the Class [I][II]- M-[_]
Notes, and each Holder hereof, by its acceptance of this Note, agrees that (i)
such Note will be limited in right of payment to amounts available from the
Trust Estate as provided in the Indenture and (ii) such Holder shall have no
recourse to the Issuer, the Securities Administrator, the Owner Trustee, the
Indenture Trustee, the Depositor, EMC Mortgage Corporation, the Master Servicer,
the Servicer, the Special Servicer or any of their respective affiliates, or to
the assets of any of the foregoing entities, except the assets of the Issuer
pledged to secure the Class [I][II]-M-[_] Notes pursuant to the Indenture and
the rights conveyed by the Issuer under the Indenture.

         Any payment of principal or interest payable on this Note which is
punctually paid on the applicable Payment Date shall be paid to the Person in
whose name such Note is registered at the close of business on the Record Date
for such Payment Date by check mailed to such person's address as it appears in
the Note Register on such Record Date, except for the final installment of
principal and interest payable with respect to such Note, which shall be payable
as provided below. Notwithstanding the foregoing, upon written request with
appropriate instructions by the Holder of this Note delivered to the Indenture
Trustee at least five Business Days prior to the Record Date, any payment of
principal or interest, other than the final installment of principal or
interest, shall be made by wire transfer to an account in the United States
designated by such Holder. All scheduled reductions in the principal amount of a
Note (or one or more predecessor Notes) effected by payments of principal made
on any Payment Date shall be binding upon all Holders of this Note and of any
note issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, whether or not such payment is noted on such Note. The final
payment of this Note shall be payable upon presentation and surrender thereof on
or after the Payment Date thereof at the office designated by the Indenture
Trustee or the office or agency of the Issuer maintained by it for such purpose
pursuant to Section 3.02 of the Indenture.

         Subject to the foregoing provisions, each Note delivered under the
Indenture, upon registration of transfer of or in exchange for or in lieu of any
other Note shall carry the right to unpaid principal and interest that were
carried by such other Note.

         If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Notes, the Notes may become or be declared due
and payable in the manner and with the effect provided in the Indenture. If any
such acceleration of maturity occurs prior to the payment of the entire unpaid
Note Principal Balance of the Notes, the amount payable to the Holder of this
Note will be equal to the sum of the unpaid Note Principal Balance of the Notes,
together with accrued and unpaid interest thereon as described in the Indenture.
The Indenture provides that, notwithstanding the acceleration of the maturity of
the Notes, under certain circumstances specified therein, all amounts collected
as proceeds of the Trust Estate securing the Notes or otherwise shall continue
to

                                      A-2-3

<PAGE>

be applied to payments of principal of and interest on the Notes as if they had
not been declared due and payable.

         The Holder of this Note or Beneficial Owner of any interest herein is
deemed to represent that either (1) it is not acquiring the Note with Plan
Assets or (2) (A) the acquisition, holding and transfer of a Note will not give
rise to a nonexempt prohibited transaction under Section 406 of ERISA or Section
4975 of the Code and (B) the Notes are rated investment grade or better and such
person believes that the Notes are properly treated as indebtedness without
substantial equity features for purposes of the DOL Regulations, and agrees to
so treat the Notes. Alternatively, regardless of the rating of the Notes, such
person may provide the Indenture Trustee and the Owner Trustee with an Opinion
of Counsel, which Opinion of Counsel will not be at the expense of the Issuer,
the Seller, any Underwriter, the Owner Trustee, the Indenture Trustee, the
Securities Administrator, the Master Servicer, the Special Servicer or any
successor servicer which opines that the acquisition, holding and transfer of
such Note or interest therein is permissible under applicable law, will not
constitute or result in a non-exempt prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the Issuer, the Seller, the
Depositor, any Underwriter, the Owner Trustee, the Indenture Trustee, the Master
Servicer, the Servicer, the Special Servicer or any successor servicer to any
obligation in addition to those undertaken in the Indenture.

         As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Issuer. Upon surrender for registration of transfer of, or presentation of a
written instrument of transfer for, this Note at the office or agency designated
by the Issuer pursuant to the Indenture, accompanied by proper instruments of
assignment in form satisfactory to the Indenture Trustee, one or more new Notes
of any authorized denominations and of a like aggregate initial Note Principal
Balance, will be issued to the designated transferee or transferees.

         Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note is registered as the owner
of such Note (i) on the applicable Record Date for the purpose of making
payments and interest of such Note, and (ii) on any other date for all other
purposes whatsoever, as the owner hereof, whether or not this Note be overdue,
and neither the Issuer, the Indenture Trustee nor any such agent of the Issuer
or the Indenture Trustee shall be affected by notice to the contrary.

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer and the Holders of a majority of all Notes at the time
outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the aggregate Note Principal Balance
of the Notes on behalf of the Holders of all the Notes, to waive any past
Default under the Indenture and its consequences. Any such waiver by the Holder,
at the time of the giving thereof, of this Note (or any one or more predecessor
Notes) shall bind the Holder of every Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not notation
of such consent or waiver is made upon such Note. The Indenture also permits the
Issuer and the Indenture Trustee to amend or waive

                                      A-2-4

<PAGE>

certain terms and conditions set forth in the Indenture without the consent of
the Holders of the Notes issued thereunder.

         Initially, the Notes will be registered in the name of Cede & Co. as
nominee of DTC, acting in its capacity as the Depository for the Notes. The
Notes will be delivered by the clearing agency in denominations as provided in
the Indenture and subject to certain limitations therein set forth. The Notes
are exchangeable for a like aggregate initial Note Principal Balance of Notes of
different authorized denominations, as requested by the Holder surrendering
same.

         Unless the Certificate of Authentication hereon has been executed by
the Indenture Trustee by manual signature, this Note shall not be entitled to
any benefit under the Indenture, or be valid or obligatory for any purpose.

         AS PROVIDED IN THE INDENTURE, THIS NOTE AND THE INDENTURE CREATING THIS
NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.

                                      A-2-5

<PAGE>

         IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed by Wilmington Trust Company, not in its individual capacity but solely
as Owner Trustee.

Dated: July ___, 2004

                                     HOMEBANC MORTGAGE TRUST 2004-1

                                     BY:      WILMINGTON TRUST COMPANY, not in
                                              its individual capacity but solely
                                              in its capacity as Owner Trustee

                                     By:      _________________________________
                                              Authorized Signatory

                INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Class [I][II]-M-[_] Notes referred to in the within-mentioned
Indenture.

U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee

By:      _________________________________
         Authorized Signatory

                                      A-2-6

<PAGE>

                                  ABBREVIATIONS
                                  -------------

         The following abbreviations, when used in the inscription on the face
of the Note, shall be construed as though they were written out in full
according to applicable laws or regulations:

         TEN COM         --      as tenants in common
         TEN ENT         --      as tenants by the entireties
         JT TEN          --      as joint tenants with right of survivorship and
                                 not as tenants in common
UNIF GIFT MIN ACT        --      __________ Custodian
                                 ______________________________
                                 (Cust)                 (Minor)

                                 under Uniform Gifts to Minor Act
                                 _____________________
                                                                   (State)

                      Additional abbreviations may also be used though not in
the above list.

                                      A-2-7

<PAGE>

                                   ASSIGNMENT
                                   ----------

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto

          PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
                                    ASSIGNEE:

                  _____________________________________________

                  _____________________________________________

                  _____________________________________________
  (Please print or typewrite name and address, including zip code, of assignee)

_______________________________________________________________________________
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints ________________________ attorney to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.

Dated:_________________          _____________________________________

Signature Guaranteed by ______________________________________________

         NOTICE: The signature(s) to this assignment must correspond with the
name as it appears upon the face of the within Note in every particular, without
alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by a commercial bank or by a member firm of the New York Stock
Exchange or another national securities exchange. Notarized or witnessed
signatures are not acceptable.

                                      A-2-8

<PAGE>

                                   EXHIBIT A-3

                          FORM OF CLASS [I][II]-B NOTES

THIS NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS [I][II]-A, CLASS
[I][II]-M-1 AND CLASS [I][II]-M-2 NOTES AS DESCRIBED IN THE INDENTURE.

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

THE HOLDER OF THIS NOTE OR BENEFICIAL OWNER OF ANY INTEREST HEREIN WILL BE
DEEMED TO REPRESENT TO ONE OF THE REPRESENTATIONS CONTAINED IN SECTION 4.15 OF
THE INDENTURE.

THIS NOTE IS A NON-RECOURSE OBLIGATION OF THE ISSUER, AND IS LIMITED IN RIGHT OF
PAYMENT TO AMOUNTS AVAILABLE FROM THE TRUST ESTATE AS PROVIDED IN THE INDENTURE
REFERRED TO BELOW. THE ISSUER IS NOT OTHERWISE PERSONALLY LIABLE FOR PAYMENTS ON
THIS NOTE.

PRINCIPAL OF THIS NOTE IS PAYABLE OVER TIME AS SET FORTH HEREIN. ACCORDINGLY,
THE OUTSTANDING PRINCIPAL OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.

                                      A-3-1

<PAGE>

                         HOMEBANC MORTGAGE TRUST 2004-1
                              MORTGAGE-BACKED NOTES
                                 CLASS [I][II]-B

AGGREGATE NOTE PRINCIPAL                             NOTE INTEREST
BALANCE:  $[             ]                           RATE: Adjustable Rate

INITIAL NOTE PRINCIPAL                               NOTE NO. 1
BALANCE OF THIS NOTE: $[             ]

PERCENTAGE INTEREST: 100%                            CUSIP NO. [             ]

         HomeBanc Mortgage Trust 2004-1 (the "Issuer"), a Delaware statutory
trust, for value received, hereby promises to pay to Cede & Co. or registered
assigns, the principal sum of ______________________________ ($___________) in
monthly installments on the twenty-fifth day of each month or, if such day is
not a Business Day, the next succeeding Business Day (each a "Payment Date"),
commencing in August 2004 and ending on or before the Payment Date occurring in
August 2029 (the "Final Scheduled Payment Date") and to pay interest on the Note
Principal Balance of this Note (this "Note") outstanding from time to time as
provided below.

         This Note is one of a duly authorized issue of the Issuer's
Mortgage-Backed Notes, Series 2004-1 (the "Notes"), issued under an Indenture
dated as of July 30, 2004 (the "Indenture"), among the Issuer, Wells Fargo Bank,
National Association (the "Securities Administrator") and U.S. Bank National
Association, as indenture trustee (the "Indenture Trustee", which term includes
any successor Indenture Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Indenture Trustee, and the
Holders of the Notes and the terms upon which the Notes are to be authenticated
and delivered. All terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

         Payments of principal and interest on this Note will be made on each
Payment Date to the Noteholder of record as of the related Record Date. The
"Note Principal Balance" of a Note as of any date of determination is equal to
the initial Note Principal Balance thereof, reduced by the aggregate of all
amounts previously paid with respect to such Note on account of principal and
the aggregate amount of cumulative Realized Losses allocated to such Note on all
prior Payment Dates.

         The principal of, and interest on, this Note are due and payable as
described in the Indenture, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. All payments made by the Issuer with respect to this Note shall
be equal to this Note's pro rata share of the aggregate payments on all Class
[I][II]-B Notes as described above, and shall be applied as between interest and
principal as provided in the Indenture.

         All principal and interest accrued on the Notes, if not previously
paid, will become finally due and payable at the Final Scheduled Payment Date.

                                      A-3-2

<PAGE>

         The Notes are subject to redemption in whole, but not in part, by the
Holder of the Certificates, or, if there is no single Holder, the Majority
Certificateholder, on any Payment Date on or after the Payment Date on which the
aggregate Scheduled Principal Balance of the Mortgage Loans is less than or
equal to 20% of aggregate Scheduled Principal Balance of the Mortgage Loans as
of the Cut-off Date.

         The Issuer shall not be liable upon the indebtedness evidenced by the
Notes except to the extent of amounts available from the Trust Estate which
constitutes security for the payment of the Notes. The assets included in the
Trust Estate will be the sole source of payments on the Class [I][II]- B Notes,
and each Holder hereof, by its acceptance of this Note, agrees that (i) such
Note will be limited in right of payment to amounts available from the Trust
Estate as provided in the Indenture and (ii) such Holder shall have no recourse
to the Issuer, the Securities Administrator, the Owner Trustee, the Indenture
Trustee, the Depositor, EMC Mortgage Corporation, the Master Servicer, the
Servicer, the Special Servicer or any of their respective affiliates, or to the
assets of any of the foregoing entities, except the assets of the Issuer pledged
to secure the Class [I][II]-B Notes pursuant to the Indenture and the rights
conveyed by the Issuer under the Indenture.

         Any payment of principal or interest payable on this Note which is
punctually paid on the applicable Payment Date shall be paid to the Person in
whose name such Note is registered at the close of business on the Record Date
for such Payment Date by check mailed to such person's address as it appears in
the Note Register on such Record Date, except for the final installment of
principal and interest payable with respect to such Note, which shall be payable
as provided below. Notwithstanding the foregoing, upon written request with
appropriate instructions by the Holder of this Note delivered to the Indenture
Trustee at least five Business Days prior to the Record Date, any payment of
principal or interest, other than the final installment of principal or
interest, shall be made by wire transfer to an account in the United States
designated by such Holder. All scheduled reductions in the principal amount of a
Note (or one or more predecessor Notes) effected by payments of principal made
on any Payment Date shall be binding upon all Holders of this Note and of any
note issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, whether or not such payment is noted on such Note. The final
payment of this Note shall be payable upon presentation and surrender thereof on
or after the Payment Date thereof at the office designated by the Indenture
Trustee or the office or agency of the Issuer maintained by it for such purpose
pursuant to Section 3.02 of the Indenture.

         Subject to the foregoing provisions, each Note delivered under the
Indenture, upon registration of transfer of or in exchange for or in lieu of any
other Note shall carry the right to unpaid principal and interest that were
carried by such other Note.

         If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Notes, the Notes may become or be declared due
and payable in the manner and with the effect provided in the Indenture. If any
such acceleration of maturity occurs prior to the payment of the entire unpaid
Note Principal Balance of the Notes, the amount payable to the Holder of this
Note will be equal to the sum of the unpaid Note Principal Balance of the Notes,
together with accrued and unpaid interest thereon as described in the Indenture.
The Indenture provides that, notwithstanding the acceleration of the maturity of
the Notes, under certain circumstances specified therein, all

                                      A-3-3

<PAGE>

amounts collected as proceeds of the Trust Estate securing the Notes or
otherwise shall continue to be applied to payments of principal of and interest
on the Notes as if they had not been declared due and payable.

         The Holder of this Note or Beneficial Owner of any interest herein is
deemed to represent that either (1) it is not acquiring the Note with Plan
Assets or (2) (A) the acquisition, holding and transfer of a Note will not give
rise to a nonexempt prohibited transaction under Section 406 of ERISA or Section
4975 of the Code and (B) the Notes are rated investment grade or better and such
person believes that the Notes are properly treated as indebtedness without
substantial equity features for purposes of the DOL Regulations, and agrees to
so treat the Notes. Alternatively, regardless of the rating of the Notes, such
person may provide the Indenture Trustee and the Owner Trustee with an Opinion
of Counsel, which Opinion of Counsel will not be at the expense of the Issuer,
the Seller, any Underwriter, the Owner Trustee, the Indenture Trustee, the
Securities Administrator, the Master Servicer, the Servicer, the Special
Servicer or any successor servicer which opines that the acquisition, holding
and transfer of such Note or interest therein is permissible under applicable
law, will not constitute or result in a non-exempt prohibited transaction under
ERISA or Section 4975 of the Code and will not subject the Issuer, the Seller,
the Depositor, any Underwriter, the Owner Trustee, the Indenture Trustee, the
Master Servicer, the Servicer, the Special Servicer or any successor servicer to
any obligation in addition to those undertaken in the Indenture.

         As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Issuer. Upon surrender for registration of transfer of, or presentation of a
written instrument of transfer for, this Note at the office or agency designated
by the Issuer pursuant to the Indenture, accompanied by proper instruments of
assignment in form satisfactory to the Indenture Trustee, one or more new Notes
of any authorized denominations and of a like aggregate initial Note Principal
Balance, will be issued to the designated transferee or transferees.

         Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note is registered as the owner
of such Note (i) on the applicable Record Date for the purpose of making
payments and interest of such Note, and (ii) on any other date for all other
purposes whatsoever, as the owner hereof, whether or not this Note be overdue,
and neither the Issuer, the Indenture Trustee nor any such agent of the Issuer
or the Indenture Trustee shall be affected by notice to the contrary.

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer and the Holders of a majority of all Notes at the time
outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the aggregate Note Principal Balance
of the Notes on behalf of the Holders of all the Notes, to waive any past
Default under the Indenture and its consequences. Any such waiver by the Holder,
at the time of the giving thereof, of this Note (or any one or more predecessor
Notes) shall bind the Holder of every Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not notation
of such consent or waiver is made upon such Note. The Indenture also permits the
Issuer and the Indenture Trustee to amend or waive

                                      A-3-4

<PAGE>

certain terms and conditions set forth in the Indenture without the consent of
the Holders of the Notes issued thereunder.

         Initially, the Notes will be registered in the name of Cede & Co. as
nominee of DTC, acting in its capacity as the Depository for the Notes. The
Notes will be delivered by the clearing agency in denominations as provided in
the Indenture and subject to certain limitations therein set forth. The Notes
are exchangeable for a like aggregate initial Note Principal Balance of Notes of
different authorized denominations, as requested by the Holder surrendering
same.

         Unless the Certificate of Authentication hereon has been executed by
the Indenture Trustee by manual signature, this Note shall not be entitled to
any benefit under the Indenture, or be valid or obligatory for any purpose.

         AS PROVIDED IN THE INDENTURE, THIS NOTE AND THE INDENTURE CREATING THIS
NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.

                                      A-3-5

<PAGE>

         IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed by Wilmington Trust Company, not in its individual capacity but solely
as Owner Trustee.

Dated: July ___, 2004

                                     HOMEBANC MORTGAGE TRUST 2004-1

                                     BY:      WILMINGTON TRUST COMPANY, not in
                                              its individual capacity but solely
                                              in its capacity as Owner Trustee

                                     By:      _________________________________
                                              Authorized Signatory

                INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Class [I][II]-B Notes referred to in the within-mentioned
Indenture.

U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee

By:      __________________________________
         Authorized Signatory

                                      A-3-6

<PAGE>

                                  ABBREVIATIONS
                                  -------------

         The following abbreviations, when used in the inscription on the face
of the Note, shall be construed as though they were written out in full
according to applicable laws or regulations:

         TEN COM          --      as tenants in common
         TEN ENT          --      as tenants by the entireties
         JT TEN           --      as joint tenants with right of survivorship
                                  and not as tenants in common
UNIF GIFT MIN ACT         --      __________ Custodian
                                  ______________________________
                                  (Cust)                 (Minor)

                                  under Uniform Gifts to Minor Act
                                  _____________________
                                                                      (State)

                      Additional abbreviations may also be used though not in
the above list.

                                      A-3-7

<PAGE>

                                   ASSIGNMENT
                                   ----------

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto

          PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
                                    ASSIGNEE:

                ________________________________________________

                ________________________________________________

                ________________________________________________
  (Please print or typewrite name and address, including zip code, of assignee)

_______________________________________________________________________________
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints ________________________ attorney to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.

Dated:____________________         ___________________________________

Signature Guaranteed by ______________________________________________

         NOTICE: The signature(s) to this assignment must correspond with the
name as it appears upon the face of the within Note in every particular, without
alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by a commercial bank or by a member firm of the New York Stock
Exchange or another national securities exchange. Notarized or witnessed
signatures are not acceptable.

                                      A-3-8

<PAGE>

                                   APPENDIX A
                                   DEFINITIONS

                  ACCEPTED MASTER SERVICING PRACTICES: With respect to any
Mortgage Loan, as applicable, either (x) those customary mortgage servicing
practices of prudent mortgage servicing institutions that master service
mortgage loans of the same type and quality as such Mortgage Loan in the
jurisdiction where the related Mortgaged Property is located, to the extent
applicable to the Master Servicer (except in its capacity as successor to the
Servicer), or (y) as provided in the HomeBanc Servicing Agreement, to the extent
applicable to the Servicer, but in no event below the standard set forth in
clause (x).

                  ACCOUNT: The Master Servicer Collection Account, the Payment
Account and the Protected Account as the context may require.

                  ACCRUAL PERIOD: With respect to each Class of Notes and any
Payment Date, the period from the preceding Payment Date (or, in the case of the
first Payment Date, from the Closing Date) through the day preceding such
Payment Date.

                  ACCRUED NOTE INTEREST: With respect to any Payment Date and
each Class of Notes, interest accrued during the related Accrual Period at the
then-applicable Note Interest Rate on the related Note Principal Balance thereof
immediately prior to such Payment Date, plus any Accrued Note Interest remaining
unpaid from any prior Payment Date with interest thereon at the related Note
Interest Rate. Accrued Note Interest for each Class of Notes shall be calculated
on the basis of a 360-day year consisting of twelve 30-day months.

                  AFFILIATE: With respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" means the power to direct the management
and policies of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise and "controlling" and "controlled"
shall have meanings correlative to the foregoing.

                  ALLOCATED REALIZED LOSS AMOUNT: With respect to any Class of
Class M Notes and Class B Notes and any Payment Date, an amount equal to the sum
of any Realized Loss allocated to that Class of Notes on that Payment Date and
any Allocated Realized Loss Amount for that Class remaining unpaid from the
previous Payment Date, in each case, with interest thereon at the applicable
Note Interest Rate for such Payment Date for such Class for the related Accrual
Period.

                  APPLICABLE CREDIT RATING: For any long-term deposit or
security, a credit rating of AAA in the case of S&P or Aaa in the case of
Moody's. For any short-term deposit or security, a rating of A-l+ in the case of
S&P or P-1 in the case of Moody's.

                  APPRAISED VALUE: For any Mortgaged Property related to a
Mortgage Loan, the value thereof as determined by an appraisal made for the
originator of the Mortgage Loan at the time of origination of the Mortgage Loan
by an appraiser who met the requirements of the Servicer and Fannie Mae.

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                  ASSIGNMENT AGREEMENT: The agreement attached as Exhibit D to
the Sale and Servicing Agreement, whereby the HomeBanc Servicing Agreement was
assigned to the Indenture Trustee for the benefit of the Noteholders.

                  ASSIGNMENT OF MORTGAGE: An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect of record the sale of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.

                  AUTHORIZED NEWSPAPER: A newspaper of general circulation in
the Borough of Manhattan, The City of New York, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.

                  AUTHORIZED OFFICER: With respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee and Securities
Administrator on the Closing Date (as such list may be modified or supplemented
from time to time thereafter).

                  AVAILABLE FUNDS: The Group I Available Funds and Group II
Available Funds, as applicable.

                  AVAILABLE FUNDS RATE: The Group I Available Funds Rate and
Group II Available Funds Rate, as applicable.

                  AVERAGE LOSS SEVERITY PERCENTAGE: With respect to any Payment
Date, the percentage equivalent of a fraction, the numerator of which is the sum
of the Loss Severity Percentages for each Mortgage Loan which had a Realized
Loss and the denominator of which is the number of Mortgage Loans which had
Realized Losses.

                  BANKRUPTCY CODE: The United States Bankruptcy Code, as amended
as codified in 11 U.S.C. ss.ss. 101-1330.

                  BANKRUPTCY LOSS: With respect to any Mortgage Loan, any
Deficient Valuation or Debt Service Reduction related to such Mortgage Loan as
reported by the Servicer to the Master Servicer.

                  BASIC DOCUMENTS: The Trust Agreement, the Certificate of
Trust, the Indenture, the Sale and Servicing Agreement, the Administration
Agreement, the HomeBanc Servicing Agreement, the Mortgage Loan Purchase
Agreement, the Assignment Agreement, the Special Servicing Agreement and the
other documents and certificates delivered in connection with any of the above.

                  BASIC PRINCIPAL DISTRIBUTION AMOUNT: With respect to any
Payment Date and each Loan Group, the lesser of (a) the excess of (i) the
related Available Funds for such Payment Date

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over (ii) the aggregate amount of Accrued Note Interest for the related Notes
for such Payment Date and (b) the related Principal Remittance Amount for such
Payment Date.

                  BASIS RISK SHORTFALL: With respect to any Class of Notes, on
each Payment Date where clause (iii) of the definition of "Note Interest Rate"
is less than clauses (i) or (ii) of the definition of "Note Interest Rate", the
excess, if any, of (x) the aggregate Accrued Note Interest thereon for such
Payment Date calculated pursuant to the lesser of clause (i) or (ii) of the
definition of Note Interest Rate over (y) interest accrued on the related
Mortgage Loans at the related Available Funds Rate.

                  BASIS RISK SHORTFALL CARRY-FORWARD AMOUNT: With respect to
each Class of Notes and any Payment Date, as determined separately for each
Class of Notes, an amount equal to the aggregate amount of Basis Risk Shortfall
for such Notes on such Payment Date, plus any unpaid Basis Risk Shortfall for
such Class of Notes from prior Payment Dates, plus interest thereon at the Note
Interest Rate for such Payment Date for such Class for the related Accrual
Period, to the extent previously unreimbursed from the related Net Monthly
Excess Cash Flow.

                  BENEFICIAL OWNER: With respect to any Note, the Person who is
the beneficial owner of such Note as reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
as a Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).

                  BOOK-ENTRY NOTES: Beneficial interests in the Notes, ownership
and transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.

                  BUSINESS DAY: Any day other than (i) a Saturday or a Sunday,
or (ii) a day on which the New York Stock Exchange or Federal Reserve is closed
or on which banking institutions in the jurisdiction in which the Indenture
Trustee, the Master Servicer, the Servicer or the Securities Administrator is
located are authorized or obligated by law or executive order to be closed.

                  CALENDAR QUARTER: January 1 to March 31, April 1 to June 30,
July 1 to September 30, or October 1 to December 31, as applicable.

                  CERTIFICATE DISTRIBUTION ACCOUNT: The account or accounts
created and maintained pursuant to Section 3.10(c) of the Trust Agreement. The
Certificate Distribution Account shall be an Eligible Account.

                  CERTIFICATE PAYING AGENT: The meaning specified in Section
3.10 of the Trust Agreement.

                  CERTIFICATE PERCENTAGE INTEREST: With respect to each
Certificate, the Certificate Percentage Interest stated on the face thereof.

                  CERTIFICATE REGISTER: The register maintained by the
Certificate Registrar in which the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates.

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                  CERTIFICATE REGISTRAR: Initially, the Indenture Trustee, in
its capacity as Certificate Registrar, or any successor to the Indenture Trustee
in such capacity.

                  CERTIFICATE OF TRUST: The Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Statutory Trust Statute.

                  CERTIFICATES OR TRUST CERTIFICATES: The HomeBanc Mortgage Loan
Trust 2004-1 Trust Certificates, Series 2004-1, evidencing the beneficial
ownership interest in the Issuer and executed by the Owner Trustee in
substantially the form set forth in Exhibit A to the Trust Agreement.

                  CERTIFICATEHOLDER OR HOLDER: The Person in whose name a
Certificate is registered in the Certificate Register. Owners of Certificates
that have been pledged in good faith may be regarded as Holders if the pledgee
establishes to the satisfaction of the Indenture Trustee or the Owner Trustee,
as the case may be, the pledgee's right so to act with respect to such
Certificates and that the pledgee is not the Issuer, any other obligor upon the
Certificates or any Affiliate of any of the foregoing Persons.

                  CLASS: Any of the Class I-A, Class II-A, Class I-M-1, Class
II-M-1, Class I-M-2, Class II-M-2, Class I-B or Class II-B Notes.

                  CLASS A NOTES: The Class I-A Notes and Class II-A Notes in the
form attached as Exhibit A-1 to the Indenture.

                  CLASS B NOTES: The Class I-B Notes and Class II-B Notes in the
form attached as Exhibit A-3 to the Indenture.

                  CLASS M NOTES: The Class I-M-1, Class II-M-1, Class I-M-2 and
Class II-M-2 Notes in the form attached as Exhibit A-2 to the Indenture.

                  CLOSING DATE: July 30, 2004.

                  CODE: The Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.

                  COLLATERAL: The meaning specified in the Granting Clause of
the Indenture.

                  COMMISSION: The Securities and Exchange Commission.

                  COMPENSATING INTEREST PAYMENT: As defined in Section 3.23 of
the Sale and Servicing Agreement.

                  CORPORATE TRUST OFFICE: With respect to the Indenture Trustee,
Certificate Registrar, Certificate Paying Agent and Paying Agent, the principal
corporate trust office of the Indenture Trustee and Note Registrar at which at
any particular time its engagement under the Indenture shall be administered,
which office at the date of the execution of this instrument is located at US
Bank Corporate Trust Services, One Federal Street, 3rd Floor, Boston,
Massachusettes 02110, Attention:

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Corporate Trust Services - HomeBanc 2004-1. With respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee at which at any
particular time its corporate trust business shall be administered, which office
at the date of the execution of this Trust Agreement is located at Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19801, Attention: HomeBanc Mortgage Trust 2004-1 (HomeBanc 2004-1).

                  CROSSABLE LOSSES: With respect to each Loan Group and any
Payment Date, an amount equal to the sum of (i) any Realized Losses on the
related Mortgage Loans during the related Due Period, to the extent unreimbursed
by related Net Monthly Excess Cashflow on that Payment Date and (ii) any
previously unreimbursed Realized Losses on the related Mortgage Loans, to the
extent that such Realized Losses have not been reimbursed by related and
non-related Net Monthly Excess Cashflow on prior Payment Dates.

                  CROSSABLE UNDERCOLLATERALIZATION AMOUNT: With respect to each
Loan Group and any Payment Date, an amount equal to (x) the excess, if any, of
(i) the aggregate Note Principal Balance of the related Notes immediately prior
to that Payment Date, over (ii) the aggregate Scheduled Principal Balance of the
related Mortgage Loans as of the beginning of the related Due Period, minus (y)
any amounts in respect of the related Undercollateralization Amount paid from
related Net Monthly Excess Cashflow on that Payment Date.

                  CUSTODIAL AGREEMENT: The custodial agreement dated as of July
30, 2004, between the Issuer, the Indenture Trustee, the Depositor, the Master
Servicer and the Custodian, relating to the HomeBanc Mortgage Loan Trust 2004-1,
Mortgage-Backed Notes, Series 2004-1.

                  CUSTODIAN: JPMorgan Chase Bank and its successors and assigns.

                  CUT-OFF DATE: With respect to the Mortgage Loans, July 1,
2004.

                  CUT-OFF DATE BALANCE: $992,673,226.36

                  CUT-OFF DATE PRINCIPAL BALANCE: With respect to any Mortgage
Loan, the unpaid principal balance thereof as of the Cut-off Date after applying
the principal portion of Monthly Payments due on or before such date, whether or
not received, and without regard to any payments due after such date.

                  DEBT SERVICE REDUCTION: Any reduction of the Scheduled
Payments which a Mortgagor is obligated to pay with respect to a Mortgage Loan
as a result of any proceeding under the Bankruptcy Code or any other similar
state law or other proceeding.

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

                  DEFICIENT VALUATION: With respect to any Mortgage Loan, a
valuation of the Mortgaged Property by a court of competent jurisdiction in an
amount less than the then outstanding indebtedness under the Mortgage Loan,
which valuation results from a proceeding initiated under the Bankruptcy Code or
any other similar state law or other proceeding.

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<PAGE>

                  DEFINITIVE NOTES: The meaning specified in Section 4.06 of the
Indenture.

                  DELETED MORTGAGE LOAN: A Mortgage Loan replaced or to be
replaced with a Substitute Mortgage Loan.

                  DEPOSITOR: Structured Asset Mortgage Investments II Inc., a
Delaware corporation, or its successor in interest.

                  DEPOSITORY: The Depository Trust Company, the nominee of which
is Cede & Co., or any successor thereto.

                  DEPOSITORY PARTICIPANT: A Person for whom, from time to time,
the Depository effects book-entry transfers and pledges of securities deposited
with the Depository.

                  DESIGNATED DEPOSITORY INSTITUTION: A depository institution
(commercial bank, federal savings bank, mutual savings bank or savings and loan
association) or trust company (which may include the Indenture Trustee), the
deposits of which are fully insured by the FDIC to the extent provided by law.

                  DETERMINATION DATE: With respect to any Payment Date, the 15th
day of the related month, or if the 15th day of such month is not a Business
Day, the immediately preceding Business Day.

                  DUE DATE: With respect to each Mortgage Loan, the day of the
month on which each scheduled Monthly Payment is due.

                  DUE PERIOD: With respect to any Payment Date and the Mortgage
Loans, the period commencing on the second day of the month immediately
preceding the month of such Payment Date (or, with respect to the first Due
Period, the day following the Cut-off Date) and ending on the first day of the
month of such Payment Date.

                  ELIGIBLE ACCOUNT: Any of (i) a segregated account maintained
with a federal or state chartered depository institution (A) the short-term
obligations of which are rated A-1 or better by S&P and P-1 by Moody's at the
time of any deposit therein or (B) insured by the FDIC (to the limits
established by such corporation), the uninsured deposits in which account are
otherwise secured such that, as evidenced by an Opinion of Counsel (obtained by
the Person requesting that the account be held pursuant to this clause (i))
delivered to the Indenture Trustee prior to the establishment of such account,
the Noteholders will have a claim with respect to the funds in such account and
a perfected first priority security interest against any collateral (which shall
be limited to Permitted Investments, each of which shall mature not later than
the Business Day immediately preceding the Payment Date next following the date
of investment in such collateral or the Payment Date if such Permitted
Investment is an obligation of the institution that maintains the Payment
Account) securing such funds that is superior to claims of any other depositors
or general creditors of the depository institution with which such account is
maintained, (ii) a segregated trust account or accounts maintained with a
federal or state chartered depository institution or trust company with trust
powers acting in its fiduciary capacity or (iii) a segregated account or
accounts of a depository institution

                                        6

<PAGE>

acceptable to the Rating Agencies (as evidenced in writing by the Rating
Agencies that use of any such account as the Payment Account will not have an
adverse effect on the then-current ratings assigned to the Classes of Notes then
rated by such Rating Agency). Eligible Accounts may bear interest.

                  ERISA: The Employee Retirement Income Security Act of 1974, as
amended.

                  EVENT OF DEFAULT: With respect to the Indenture, any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

                           (i) a failure by the Issuer to pay (a) Accrued Note
                  Interest on any Class of Notes or (b) the Principal
                  Distribution Amount with respect to a Payment Date on such
                  Payment Date; or

                           (ii) the failure by the Issuer on the Final Scheduled
                  Payment Date to pay all Accrued Note Interest and to reduce
                  the Note Principal Balance of any of the Notes to zero; or

                           (iii) there occurs a default in the observance or
                  performance of any covenant or agreement of the Issuer made in
                  the Indenture, or any representation or warranty of the Issuer
                  made in the Indenture or in any certificate or other writing
                  delivered pursuant hereto or in connection herewith proving to
                  have been incorrect in any material respect as of the time
                  when the same shall have been made, and such default shall
                  continue or not be cured, or the circumstance or condition in
                  respect of which such representation or warranty was incorrect
                  shall not have been eliminated or otherwise cured, for a
                  period of 30 days after there shall have been given, by
                  registered or certified mail, to the Issuer by the Indenture
                  Trustee or to the Issuer and the Indenture Trustee by the
                  Holders of at least 25% of the aggregate Note Principal
                  Balance of the Outstanding Notes, a written notice specifying
                  such default or incorrect representation or warranty and
                  requiring it to be remedied and stating that such notice is a
                  notice of default hereunder; or

                           (iv) there occurs the filing of a decree or order for
                  relief by a court having jurisdiction in the premises in
                  respect of the Issuer or any substantial part of the Trust
                  Estate in an involuntary case under any applicable federal or
                  state bankruptcy, insolvency or other similar law now or
                  hereafter in effect, or appointing a receiver, liquidator,
                  assignee, custodian, trustee, sequestrator or similar official
                  of the Issuer or for any substantial part of the Trust Estate,
                  or ordering the winding-up or liquidation of the Issuer's
                  affairs, and such decree or order shall remain unstayed and in
                  effect for a period of 60 consecutive days; or

                           (v) there occurs the commencement by the Issuer of a
                  voluntary case under any applicable federal or state
                  bankruptcy, insolvency or other similar law now or hereafter
                  in effect, or the consent by the Issuer to the entry of an
                  order for relief in

                                        7

<PAGE>

                  an involuntary case under any such law, or the consent by the
                  Issuer to the appointment or taking possession by a receiver,
                  liquidator, assignee, custodian, trustee, sequestrator or
                  similar official of the Issuer or for any substantial part of
                  the assets of the Trust Estate, or the making by the Issuer of
                  any general assignment for the benefit of creditors, or the
                  failure by the Issuer generally to pay its debts as such debts
                  become due, or the taking of any action by the Issuer in
                  furtherance of any of the foregoing.

                  EXCESS LIQUIDATION PROCEEDS: To the extent that such amount is
not required by law to be paid to the related Mortgagor, the amount, if any, by
which Liquidation Proceeds with respect to a Liquidated Mortgage Loan exceed the
sum of (i) the Outstanding Principal Balance of such Mortgage Loan and accrued
but unpaid interest at the related Mortgage Interest Rate through the last day
of the month in which the related Liquidation Date occurs, (ii) related
Liquidation Expenses (including Liquidation Expenses which are payable therefrom
to the Servicer, the Master Servicer or the Special Servicer in accordance with
the HomeBanc Servicing Agreement, the Special Servicing Agreement or the Sale
and Servicing Agreement) and (iii) unreimbursed advances by the Servicer or the
Master Servicer and Monthly Advances.

                  EXCHANGE ACT: The Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

                  EXPENSES: The meaning specified in Section 7.02 of the Trust
Agreement.

                  FANNIE MAE: Fannie Mae (formerly, the Federal National
Mortgage Association), or any successor thereto.

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

                  FEE AGREEMENT: The Fee Agreement dated as of July 30, 2004,
between the Owner Trustee, the Depositor and the Master Servicer.

                  FINAL CERTIFICATION: The final certification delivered by the
Custodian pursuant to Section 2.3(c) of the Custodial Agreement in the form
attached thereto as Exhibit Three.

                  FINAL SCHEDULED PAYMENT DATE: With respect to each Class of
Notes, the Payment Date in August 2029.

                  FREDDIE MAC: Freddie Mac (formerly, the Federal Home Loan
Mortgage Corporation), or any successor thereto.

                  GRANT: Pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to the Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of such collateral or other agreement or

                                        8

<PAGE>

instrument and all other moneys payable thereunder, to give and receive notices
and other communications, to make waivers or other agreements, to exercise all
rights and options, to bring proceedings in the name of the granting party or
otherwise, and generally to do and receive anything that the granting party is
or may be entitled to do or receive thereunder or with respect thereto.

                  GROSS MARGIN: As to each Mortgage Loan, the fixed percentage
set forth in the related Mortgage Note and indicated on the Mortgage Loan
Schedule which percentage is added to the related Index on each Interest
Adjustment Date to determine (subject to rounding, the minimum and maximum
Mortgage Interest Rate and the Periodic Rate Cap) the Mortgage Interest Rate
until the next Interest Adjustment Date.

                  GROUP I AVAILABLE FUNDS: With respect to any Payment Date, the
sum of the following, in each case with respect to the Group I Loans: (a) all
previously undistributed payments on account of principal (including the
principal portion of Scheduled Payments, Principal Prepayments and the principal
portion of Excess Liquidation Proceeds) and all previously undistributed
payments on account of interest received after the Cut-off Date and on or prior
to the related Determination Date on the Group I Loans, (b) any Monthly Advances
and Compensating Interest Payments by the Servicer or the Master Servicer with
respect to the Group I Loans and such Payment Date and (c) any reimbursed amount
in connection with losses on investments of deposits in an account, except:

                  (1)      all payments on the Group I Loans that were due on or
                           before the Cut-off Date;

                  (2)      all Principal Prepayments and Liquidation Proceeds on
                           the Group I Loans received after the applicable
                           Prepayment Period;

                  (3)      all payments, other than Principal Prepayments, on
                           the Group I Loans that represent early receipt of
                           Scheduled Payments due on a date or dates subsequent
                           to the related Due Date;

                  (4)      amounts received on particular Group I Loans as late
                           payments of principal or interest and respecting
                           which, and to the extent that, there are any
                           unreimbursed Monthly Advances;

                  (5)      amounts representing Monthly Advances on the Group I
                           Loans determined to be Nonrecoverable Advances;

                  (6)      any investment earnings on amounts on deposit in the
                           Master Servicer Collection Account, the Payment
                           Account and amounts permitted to be withdrawn from
                           the Master Servicer Collection Account pursuant to
                           the Sale and Servicing Agreement and the Indenture
                           relating to the Group I Loans;

                  (7)      amounts needed to pay the Servicing Fee, the Special
                           Servicing Fee or to reimburse the Servicer, the
                           Special Servicer or the Master Servicer for amounts
                           due under the HomeBanc Servicing Agreement, the
                           Special

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<PAGE>

                           Servicing Agreement and the Sale and Servicing
                           Agreement to the extent such amounts have not been
                           retained by, or paid previously to, the Servicer, the
                           Special Servicer or the Master Servicer and to the
                           extent such amounts relate to the Group I Loans; and

                  (8)      any fees, expenses or other amounts reimbursable or
                           payable to the Indenture Trustee, the Securities
                           Administrator, the Owner Trustee and the Custodian
                           pursuant to the Sale and Servicing Agreement, the
                           Indenture, the Trust Agreement or the Custodial
                           Agreement and relating to the Group I Loans or, if
                           such costs, expenses or other amounts are not
                           exclusively related to the Group I Loans, then Loan
                           Group I's pro rata share (based on the percentage of
                           the aggregate Note Principal Balance of the Group I
                           Notes to the aggregate Note Principal Balance of all
                           of the Notes) of such costs, expenses and other
                           amounts.

                  GROUP I AVAILABLE FUNDS RATE: On any Payment Date and with
respect to the Group I Notes, the per annum rate equal to the product of (i) the
weighted average of the Net Rates on the Group I Mortgage Loans included in the
Trust as of the end of the prior Due Period, weighted on the basis of the
Scheduled Principal Balances thereof as of the end of the prior Due Period and
(ii) a fraction equal to (x) the aggregate Scheduled Principal Balance of the
Group I Mortgage Loans as of the end of the prior Due Period divided by (y) the
aggregate Note Principal Balance of the Group I Notes immediately prior to such
Payment Date.

                  GROUP I CUT-OFF DATE BALANCE: $224,720,552.24.

                  GROUP I LOAN: A Mortgage Loan identified as such on the
Mortgage Loan Schedule.

                  GROUP I NOTE: A Class I-A, Class I-M-1, Class I-M-2 or Class
I-B Note.

                  GROUP I OVERCOLLATERALIZATION TARGET AMOUNT: With respect to
any Payment Date and Loan Group I, 0.35% of the Group I Cut-off Date Balance.

                  GROUP II AVAILABLE FUNDS: With respect to any Payment Date,
the sum of the following, in each case with respect to the Group II Loans: (a)
all previously undistributed payments on account of principal (including the
principal portion of Scheduled Payments, Principal Prepayments and the principal
portion of Excess Liquidation Proceeds) and all previously undistributed
payments on account of interest received after the Cut-off Date and on or prior
to the related Determination Date on the Group II Loans, (b) any Monthly
Advances and Compensating Interest Payments by the Servicer or the Master
Servicer with respect to the Group II Loans and such Payment Date and (c) any
reimbursed amount in connection with losses on investments of deposits in an
account, except:

                  (1)      all payments on the Group II Loans that were due on
                           or before the Cut-off Date;

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<PAGE>

                  (2)      all Principal Prepayments and Liquidation Proceeds on
                           the Group II Loans received after the applicable
                           Prepayment Period;

                  (3)      all payments, other than Principal Prepayments, on
                           the Group II Loans that represent early receipt of
                           Scheduled Payments due on a date or dates subsequent
                           to the related Due Date;

                  (4)      amounts received on particular Group II Loans as late
                           payments of principal or interest and respecting
                           which, and to the extent that, there are any
                           unreimbursed Monthly Advances;

                  (5)      amounts representing Monthly Advances on the Group II
                           Loans determined to be Nonrecoverable Advances;

                  (6)      any investment earnings on amounts on deposit in the
                           Master Servicer Collection Account and the Payment
                           Account and amounts permitted to be withdrawn from
                           the Master Servicer Collection Account pursuant to
                           the Sale and Servicing Agreement and the Indenture
                           relating to the Group II Loans;

                  (7)      amounts needed to pay the Servicing Fee, the Special
                           Servicing Fee or to reimburse the Servicer, the
                           Special Servicer or the Master Servicer for amounts
                           due under the HomeBanc Servicing Agreement, the
                           Special Servicing Agreement and the Sale and
                           Servicing Agreement to the extent such amounts have
                           not been retained by, or paid previously to, the
                           Servicer, the Special Servicer or the Master Servicer
                           and to the extent such amounts relate to the Group II
                           Loans; and

                  (8)      any fees, expenses or other amounts reimbursable or
                           payable to the Indenture Trustee, the Securities
                           Administrator, the Owner Trustee and the Custodian
                           pursuant to the Sale and Servicing Agreement, the
                           Indenture, the Trust Agreement or the Custodial
                           Agreement and relating to the Group II Loans or, if
                           such costs, expenses or other amounts are not
                           exclusively related to the Group II Loans, then Loan
                           Group II's pro rata share (based on the percentage of
                           the aggregate Note Principal Balance of the Group II
                           Notes to the aggregate Note Principal Balance of all
                           of the Notes) of such costs, expenses and other
                           amounts.

                  GROUP II AVAILABLE FUNDS RATE: On any Payment Date and with
respect to the Group II Notes, the per annum rate equal to the product of (i)
the weighted average of the Net Rates on the Group II Mortgage Loans included in
the Trust as of the end of the prior Due Period, weighted on the basis of the
Scheduled Principal Balances thereof as of the end of the prior Due Period and
(ii) a fraction equal to (x) the aggregate Scheduled Principal Balance of the
Group II Mortgage Loans as of the end of the prior Due Period divided by (y) the
aggregate Note Principal Balance of the Group II Notes immediately prior to such
Payment Date.

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                  GROUP II CUT-OFF DATE BALANCE: $767,952,704.16.

                  GROUP II LOAN: A Mortgage Loan identified as such on the
Mortgage Loan Schedule.

                  GROUP II NOTE: A Class II-A, Class II-M-1, Class II-M-2 or
Class II-B Note.

                  GROUP II OVERCOLLATERALIZATION TARGET AMOUNT: With respect to
any Payment Date and Loan Group II, 0.35% of the Group II Cut-off Date Balance.

                  HOMEBANC SERVICING AGREEMENT: The Purchase, Warranties and
Servicing Agreement, dated as of July 1, 2004, among EMC Mortgage Corporation,
as purchaser, HMB Acceptance Corp., as seller and HomeBanc Corp., as servicer
and guarantor.

                  INDEMNIFIED PARTY: The meaning specified in Section 7.02 of
the Trust Agreement.

                  INDENTURE: The indenture dated as of July 30, 2004, between
the Issuer, the Indenture Trustee and the Securities Administrator, relating to
the HomeBanc Mortgage Loan Trust 2004-1, Mortgage-Backed Notes, Series 2004-1.

                  INDENTURE TRUSTEE: U.S. Bank National Association, and its
successors and assigns or any successor indenture trustee appointed pursuant to
the terms of the Indenture.

                  INDEPENDENT: When used with respect to any specified Person,
the Person (i) is in fact independent of the Issuer, any other obligor on the
Notes, the Seller, the Master Servicer, the Depositor and any Affiliate of any
of the foregoing Persons, (ii) does not have any direct financial interest or
any material indirect financial interest in the Issuer, any such other obligor,
the Seller, the Master Servicer, the Depositor or any Affiliate of any of the
foregoing Persons and (iii) is not connected with the Issuer, any such other
obligor, the Seller, the Master Servicer, the Depositor or any Affiliate of any
of the foregoing Persons as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions.

                  INDEPENDENT CERTIFICATE: A certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, made by an independent appraiser or other expert appointed by an
Issuer Request and approved by the Indenture Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read the definition of "Independent" in this Indenture and that the signer is
Independent within the meaning thereof.

                  INDEX: The index, if any, specified in a Mortgage Note by
reference to which the related Mortgage Interest Rate will be adjusted from time
to time.

                  INITIAL NOTE PRINCIPAL BALANCE: With respect to the Class I-A
Notes, $200,000,000, with respect to the Class I-M-1 Notes, $9,551,000, with
respect to the Class I-M-2 Notes, $9,439,000, with respect to the Class I-B
Notes, $4,944,000, with respect to the Class II-A Notes, $680,790,000, with
respect to the Class II-M-1 Notes, $32,637,000, with respect to the Class II-M-2
Notes, $32,637,000 and with respect to the Class II-B Notes, $19,198,000.

                                       12

<PAGE>

                  INITIAL CERTIFICATION: The initial certification delivered by
the Custodian pursuant to Section 2.3(a) of the Custodial Agreement in the form
attached thereto as Exhibit One.

                  INSURANCE POLICY: With respect to any Mortgage Loan, any
standard hazard insurance policy, flood insurance policy or title insurance
policy.

                  INSURANCE PROCEEDS: Amounts paid by the insurer under any
Insurance Policy covering any Mortgage Loan or Mortgaged Property other than
amounts required to be paid over to the Mortgagor pursuant to law or the related
Mortgage Note or Security Instrument and other than amounts used to repair or
restore the Mortgaged Property or to reimburse insured expenses.

                  INTEREST ADJUSTMENT DATE: With respect to a Mortgage Loan, the
date, if any, specified in the related Mortgage Note on which the Mortgage
Interest Rate is subject to adjustment.

                  INTEREST DETERMINATION DATE: With respect to the first Accrual
Period, the second LIBOR Business Day preceding the Closing Date, and with
respect to each Accrual Period thereafter, the second LIBOR Business Day
preceding the related Payment Date on which such Accrual Period commences.

                  INTEREST SHORTFALL: With respect to any Payment Date and each
Mortgage Loan that during the related Prepayment Period was the subject of a
Principal Prepayment or constitutes a Relief Act Mortgage Loan, an amount
determined as follows:

                  (a) Partial principal prepayments received during the relevant
Prepayment Period: The difference between (i) one month's interest at the
applicable Net Rate on the amount of such prepayment and (ii) the amount of
interest for the calendar month of such prepayment (adjusted to the applicable
Net Rate) received at the time of such prepayment;

                  (b) Principal prepayments in full received during the relevant
Prepayment Period: The difference between (i) one month's interest at the
applicable Net Rate on the Scheduled Principal Balance of such Mortgage Loan
immediately prior to such prepayment and (ii) the amount of interest for the
calendar month of such prepayment (adjusted to the applicable Net Rate) received
at the time of such prepayment; and

                  (c) Relief Act Mortgage Loans: As to any Relief Act Mortgage
Loan, the excess of (i) 30 days' interest (or, in the case of a principal
prepayment in full, interest to the date of prepayment) on the Scheduled
Principal Balance thereof (or, in the case of a principal prepayment in part, on
the amount so prepaid) at the related Net Rate over (ii) 30 days' interest (or,
in the case of a principal prepayment in full, interest to the date of
prepayment) on such Scheduled Principal Balance (or, in the case of a Principal
Prepayment in part, on the amount so prepaid) at the Net Rate required to be
paid by the Mortgagor as limited by application of the Relief Act.

                  INTERIM CERTIFICATION: The interim certification delivered by
the Custodian pursuant to Section 2.3(b) of the Custodial Agreement in the form
attached thereto as Exhibit Two.

                                       13

<PAGE>

                  INVESTMENT COMPANY ACT: The Investment Company Act of 1940, as
amended, and any amendments thereto.

                  IRS: The Internal Revenue Service.

                  ISSUER: HomeBanc Mortgage Trust 2004-1, a Delaware statutory
trust, or its successor in interest.

                  ISSUER REQUEST: A written order or request signed in the name
of the Issuer by any one of its Authorized Officers and delivered to the
Indenture Trustee.

                  LIBOR BUSINESS DAY: A day on which banks are open for dealing
in foreign currency and exchange in London and New York City.

                  LIEN: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the UCC
(other than any such financing statement filed for informational purposes only)
or comparable law of any jurisdiction to evidence any of the foregoing.

                  LIQUIDATED MORTGAGE LOAN: Any defaulted Mortgage Loan as to
which the Servicer or the Master Servicer has determined that all amounts it
expects to recover from or on account of such Mortgage Loan have been recovered.

                  LIQUIDATION DATE: With respect to any Liquidated Mortgage
Loan, the date on which the Master Servicer or the Servicer has certified that
such Mortgage Loan has become a Liquidated Mortgage Loan.

                  LIQUIDATION EXPENSES: With respect to a Mortgage Loan in
liquidation, unreimbursed expenses paid or incurred by or for the account of the
Master Servicer, the Servicer or the Special Servicer in connection with the
liquidation of such Mortgage Loan and the related Mortgage Property, such
expenses including (a) property protection expenses, (b) property sales
expenses, (c) foreclosure and sale costs, including court costs and reasonable
attorneys' fees, and (d) similar expenses reasonably paid or incurred in
connection with liquidation.

                  LIQUIDATION PROCEEDS: Cash received in connection with the
liquidation of a defaulted Mortgage Loan, whether through trustee's sale,
foreclosure sale, Insurance Proceeds, condemnation proceeds or otherwise and any
Subsequent Recoveries.

                  LOAN GROUP: Loan Group I and Loan Group II, as applicable.

                  LOAN GROUP I: The Group I Loans.

                  LOAN GROUP II: The Group II Loans.

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<PAGE>

                  LOAN-TO-VALUE RATIO: Has the meaning assigned to such term in
the HomeBanc Servicing Agreement.

                  LOSS SEVERITY PERCENTAGE: With respect to any Payment Date,
the percentage equivalent of a fraction, the numerator of which is the amount of
Realized Losses incurred on a Mortgage Loan and the denominator of which is the
Scheduled Principal Balance of such Mortgage Loan immediately prior to the
liquidation of such Mortgage Loan.

                  LOST NOTES: The original Mortgage Notes that have been lost,
as indicated on the Mortgage Loan Schedule.

                  MAJORITY CERTIFICATEHOLDER: A Holder of a 50.01% or greater
Certificate Percentage Interest of the Certificates.

                  MASTER SERVICER: Wells Fargo Bank, National Association, and
its successors and assigns.

                  MASTER SERVICER CERTIFICATION: A written certification
covering servicing of the Mortgage Loans by the Servicer and signed by an
officer of the Master Servicer that complies with (i) the Sarbanes-Oxley Act of
2002, as amended from time to time, and (ii) the February 21, 2003 Statement by
the Staff of the Division of Corporation Finance of the Securities and Exchange
Commission Regarding Compliance by Asset-Backed Issuers with Exchange Act Rules
13a-14 and 15d-14, as in effect from time to time; provided that if, after the
Closing Date (a) the Sarbanes-Oxley Act of 2002 is amended, (b) the Statement
referred to in clause (ii) is modified or superceded by any subsequent
statement, rule or regulation of the Securities and Exchange Commission or any
statement of a division thereof, or (c) any future releases, rules and
regulations are published by the Securities and Exchange Commission from time to
time pursuant to the Sarbanes-Oxley Act of 2002, which in any such case affects
the form or substance of the required certification and results in the required
certification being, in the reasonable judgment of the Master Servicer,
materially more onerous than the form of the required certification as of the
Closing Date, the Master Servicer Certification shall be as agreed to by the
Master Servicer and the Depositor following a negotiation in good faith to
determine how to comply with any such new requirements.

                  MASTER SERVICER COLLECTION ACCOUNT: The trust account or
accounts created and maintained pursuant to Section 4.02 of the Sale and
Servicing Agreement. The Master Servicer Collection Account shall be an Eligible
Account.

                  MASTER SERVICER EVENT OF DEFAULT: Has the meaning assigned to
such term in Section 6.01 of the Sale and Servicing Agreement.

                  MASTER SERVICING COMPENSATION: For any Payment Date, any
investment income on funds on deposit in the Master Servicer Collection Account
and the Payment Account which is payable to the Master Servicer on such Payment
Date pursuant to Sections 3.14, 4.02(c) and 4.04(d) of the Sale and Servicing
Agreement.

                  MAXIMUM NOTE INTEREST RATE: 11.50% per annum.

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<PAGE>

                  MATERIAL DEFECT: The meaning specified in Section 2.02(a) of
the Sale and Servicing Agreement.

                  MAXIMUM LIFETIME MORTGAGE RATE: The maximum level to which a
Mortgage Interest Rate can adjust in accordance with its terms, regardless of
changes in the applicable Index.

                  MERS: Mortgage Electronic Registration Systems, Inc., a
corporation organized and existing under the laws of the State of Delaware, or
any successor thereto.

                  MERS(R) SYSTEM: The system of recording transfers of Mortgages
electronically maintained by MERS.

                  MIN: The Mortgage Identification Number for Mortgage Loans
registered with MERS on the MERS(R) System.

                  MINIMUM LIFETIME MORTGAGE RATE: The minimum level to which a
Mortgage Interest Rate can adjust in accordance with its terms, regardless of
changes in the applicable Index.

                  MOM LOAN: With respect to any Mortgage Loan, MERS acting as
the mortgagee of such Mortgage Loan, solely as nominee for the originator of
such Mortgage Loan and its successors and assigns, at the origination thereof,
or as nominee for any subsequent assignee of the originator pursuant to an
assignment of mortgage to MERS.

                  MONTHLY ADVANCE: An advance of principal or interest required
to be made by the Servicer pursuant to the HomeBanc Servicing Agreement or the
Master Servicer pursuant to Section 3.22 of the Sale and Servicing Agreement.

                  MONTHLY PAYMENT: With respect to any Mortgage Loan (including
any REO Property) and any Due Date, the payment of principal and interest due
thereon, or in the case of an Interest Only Mortgage Loan, the payment of (i)
interest or (ii) principal and interest, if applicable, accordance with the
amortization schedule at the time applicable thereto (after adjustment, if any,
for partial Principal Prepayments and for Deficient Valuations occurring prior
to such Due Date but before any adjustment to such amortization schedule by
reason of any bankruptcy, other than a Deficient Valuation, or similar
proceeding or any moratorium or similar waiver or grace period).

                  MORTGAGE: The mortgage, deed of trust or other instrument
reflected on the Mortgage Loan Schedule as securing a Mortgage Loan.

                  MORTGAGE FILE: The file containing the Related Documents
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to the Sale and Servicing Agreement.

                  MORTGAGE INTEREST RATE: The annual rate at which interest
accrues from time to time on any Mortgage Loan pursuant to the related Mortgage
Note, which rate is initially equal to the "Mortgage Interest Rate" set forth
with respect thereto on the Mortgage Loan Schedule.

                                       16

<PAGE>

                  MORTGAGE LOAN: A mortgage loan transferred and assigned to the
Trust pursuant to Section 2.01 or Section 2.04 of the Sale and Servicing
Agreement, as identified in the Mortgage Loan Schedule, including a mortgage
loan the property securing which has become an REO Property.

                  MORTGAGE LOAN PURCHASE AGREEMENT: The Mortgage Loan Purchase
Agreement dated as of July 30, 2004, between EMC Mortgage Corporation, as
seller, and Structured Asset Mortgage Investments II Inc., as purchaser, and all
amendments thereof and supplements thereto, attached to the Sale and Servicing
Agreement as Exhibit E.

                  MORTGAGE LOAN SCHEDULE: With respect to any date, the schedule
of Mortgage Loans held by the Issuer on such date. The schedule of Mortgage
Loans as of the Cut-off Date is the schedule set forth in Exhibit A to the Sale
and Servicing Agreement, which schedule sets forth as to each Mortgage Loan:

                           (i) the loan number;

                           (ii) the Mortgagor's name;

                           (iii) the street address (including city, state and
                  zip code) of the Mortgaged Property;

                           (iv) the Mortgage Rate;

                           (v) the Servicing Fee Rate;

                           (vi) the Net Rate;

                           (vii) the original term to maturity;

                           (viii) the maturity date;

                           (ix) the stated remaining term to maturity;

                           (x) the original principal balance;

                           (xi) the first Payment Date;

                           (xii) the Monthly Payment in effect as of the Cut-off
                  Date;

                           (xiii) the Cut-off Date Principal Balance;

                           (xiv) the Loan-to-Value Ratio at origination;

                           (xv) the paid-through date of the Mortgage Loan;

                                       17

<PAGE>

                           (xvi) the Issuer of any Primary Mortgage Insurance
                  Policy;

                           (xvii) the Index and the Gross Margin, if applicable;

                           (xviii) the Maximum Lifetime Mortgage Rate, if
                  applicable;

                           (xix) the Minimum Lifetime Mortgage Rate, if
                  applicable;

                           (xx) the Adjustment Date frequency and Payment Date
                  frequency, if applicable;

                           (xxi) the number of days delinquent, if any; and

                           (xxii) the Loan Group.

                  The Mortgage Loan Schedule shall also set forth the total
number of Mortgage Loans, the total of each of the amounts described under (x)
and (xiii) above for all of the Mortgage Loans, the weighted average by
principal balance of each of the rates described under (iv), (v) and (vi) above
for all of the Mortgage Loans and the weighted average remaining term to
maturity by unpaid principal balance as of the Cut-off Date for all of the
Mortgage Loans.

                  MORTGAGE NOTE: The originally executed note or other evidence
of the indebtedness of a Mortgagor under the related Mortgage Loan.

                  MORTGAGED PROPERTY: Land and improvements securing the
indebtedness of a Mortgagor under the related Mortgage Loan or, in the case of
REO Property, such REO Property.

                  MORTGAGOR: The obligor on a Mortgage Note.

                  NET MONTHLY EXCESS CASH FLOW: For any Payment Date and each
Loan Group, the excess of the related Available Funds for such Payment Date over
(y) the sum for such Payment Date of (A) the aggregate amount of Accrued Note
Interest for the related Notes and (B) the related Principal Remittance Amount.

                  NET RATE: With respect to each Mortgage Loan, the Mortgage
Interest Rate in effect from time to time less the sum of (x) the Servicing Fee
Rate and (y) the Special Servicing Fee Rate, if any, in each case expressed as a
per annum rate.

                  NONRECOVERABLE ADVANCE: Any advance or Monthly Advance (i)
which was previously made or is proposed to be made by the Master Servicer, the
Indenture Trustee solely as successor Master Servicer, or the Servicer and (ii)
which, in the good faith judgment of the Master Servicer, the Indenture Trustee
as successor Master Servicer or the Servicer, will not or, in the case of a
proposed advance or Monthly Advance, would not, be ultimately recoverable by the
Master Servicer, the Indenture Trustee as successor Master Servicer, or the
Servicer from Liquidation Proceeds, Insurance Proceeds or future payments on the
Mortgage Loan for which such advance or Monthly Advance was made or is proposed
to be made.

                                       18

<PAGE>

                  NOTE: A Class A Note, Class M Note or Class B Note.

                  NOTE INTEREST RATE: With respect to each Payment Date and each
Class of Notes, a floating rate equal to the least of (i) One-Month LIBOR plus
the related Note Margin, (ii) the Maximum Note Interest Rate and (iii) the
related Available Funds Rate with respect to such Payment Date.

                  NOTE MARGIN: With respect to the Class I-A Notes, on any
Payment Date prior to the Step-Up Date, 0.430% per annum, and on any Payment
Date on and after the Step-Up Date, 0.860% per annum. With respect to the Class
I-M-1 Notes, on any Payment Date prior to the Step-Up Date, 0.600% per annum,
and on any Payment Date on and after the Step-Up Date, 0.900% per annum. With
respect to the Class I-M-2 Notes, on any Payment Date prior to the Step-Up Date,
1.15% per annum, and on any Payment Date on and after the Step-Up Date, 1.725%
per annum. With respect to the Class I-B Notes, on any Payment Date prior to the
Step-Up Date, 1.50% per annum, and on any Payment Date on and after the Step-Up
Date, 2.25% per annum. With respect to the Class II-A Notes, on any Payment Date
prior to the Step-Up Date, 0.430% per annum, and on any Payment Date on and
after the Step-Up Date, 0.860% per annum. With respect to the Class II-M-1
Notes, on any Payment Date prior to the Step-Up Date, 0.600% per annum, and on
any Payment Date on and after the Step-Up Date, 0.900% per annum. With respect
to the Class II-M-2 Notes, on any Payment Date prior to the Step-Up Date, 1.15%
per annum, and on any Payment Date on and after the Step-Up Date, 1.725% per
annum. With respect to the Class II-B Notes, on any Payment Date prior to the
Step-Up Date, 1.50% per annum, and on any Payment Date on and after the Step-Up
Date, 2.25% per annum.

                  NOTE OWNER: The Beneficial Owner of a Note.

                  NOTE PRINCIPAL BALANCE: With respect to any Note as of any
date of determination, the initial Note Principal Balance as stated on the face
thereof, minus all amounts distributed in respect of principal with respect to
such Note and, in the case of any Class M Note or the Class B Note, the
aggregate amount of any reductions in the Note Principal Balance thereof deemed
to have occurred in connection with allocations of Realized Losses on all prior
Payment Dates, plus in the case of any Class M Note or the Class B Note, any
Subsequent Recoveries on the Mortgage Loans in the related Loan Group added to
the Note Principal Balance of such Class M Note or the Class B Note pursuant to
Section 3.27 of the Indenture. With respect to any Class of Notes, the Note
Principal Balance thereof shall be equal to the sum of the Note Principal
Balances of all Outstanding Notes of such Class.

                  NOTE REGISTER: The register maintained by the Note Registrar
in which the Note Registrar shall provide for the registration of Notes and of
transfers and exchanges of Notes.

                  NOTE REGISTRAR: The Indenture Trustee, in its capacity as Note
Registrar, or any successor to the Indenture Trustee in such capacity.

                  NOTEHOLDER OR HOLDER: The Person in whose name a Note is
registered in the Note Register, except that, any Note registered in the name of
the Depositor, the Issuer, the Indenture Trustee, the Seller, the Securities
Administrator or the Master Servicer or any Affiliate of any of

                                       19

<PAGE>

them shall be deemed not to be a holder or holders, nor shall any so owned be
considered outstanding, for purposes of giving any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or the
Trust Agreement; provided that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that a Responsible Officer of
the Indenture Trustee has actual knowledge to be so owned shall be so
disregarded. Owners of Notes that have been pledged in good faith may be
regarded as Holders if the pledgee establishes to the satisfaction of the
Indenture Trustee or the Owner Trustee the pledgee's right so to act with
respect to such Notes and that the pledgee is not the Issuer, any other obligor
upon the Notes or any Affiliate of any of the foregoing Persons.

                  OFFICER'S CERTIFICATE: With respect to the Master Servicer, a
certificate signed by the President, Managing Director, a Director, a Vice
President or an Assistant Vice President, of the Master Servicer and delivered
to the Indenture Trustee. With respect to the Issuer, a certificate signed by
any Authorized Officer of the Issuer, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, and delivered to the Indenture Trustee. Unless otherwise specified,
any reference in the Indenture to an Officer's Certificate shall be to an
Officer's Certificate of any Authorized Officer of the Issuer.

                  ONE-MONTH LIBOR: With respect to any Accrual Period, the rate
determined by the Securities Administrator on the related Interest Determination
Date on the basis of the London interbank offered rate for one-month United
States dollar deposits, as such rates appear on the Telerate Screen Page 3750,
as of 11:00 a.m. (London time) on such Interest Determination Date.

                  In the event that on any Interest Determination Date, Telerate
Screen 3750 fails to indicate the London interbank offered rate for one-month
United States dollar deposits, then One-Month LIBOR for the related Interest
Accrual Period will be established by the Securities Administrator as follows:

                           (i) If on such Interest Determination Date two or
                  more Reference Banks provide such offered quotations,
                  One-Month LIBOR for the related Accrual Period shall be the
                  arithmetic mean of such offered quotations (rounded upwards if
                  necessary to the nearest whole multiple of 1/16%).

                           (ii) If on such Interest Determination Date fewer
                  than two Reference Banks provide such offered quotations,
                  One-Month LIBOR for the related Accrual Period shall be the
                  higher of (i) One-Month LIBOR as determined on the previous
                  Interest Determination Date and (ii) the Reserve Interest
                  Rate.

                  The establishment of One-Month LIBOR on each Interest
Determination Date by the Securities Administrator and the Securities
Administrator's calculation of the rate of interest applicable for the related
Accrual Period shall (in the absence of manifest error) be final and binding.

                  OPINION OF COUNSEL: A written opinion of counsel acceptable to
the Indenture Trustee in its reasonable discretion which counsel may be in-house
counsel for the Depositor or the Seller

                                       20

<PAGE>

if acceptable to the Indenture Trustee and the Rating Agencies or outside
counsel for the Depositor, the Seller, the Issuer or the Master Servicer, as the
case may be.

                  OUTSTANDING: With respect to the Notes, as of the date of
determination, all Notes theretofore executed, authenticated and delivered under
this Indenture except:

                           (i) Notes theretofore canceled by the Note Registrar
                  or delivered to the Indenture Trustee for cancellation; and

                           (ii) Notes in exchange for or in lieu of which other
                  Notes have been executed, authenticated and delivered pursuant
                  to the Indenture unless proof satisfactory to the Indenture
                  Trustee is presented that any such Notes are held by a holder
                  in due course.

                  OUTSTANDING MORTGAGE LOAN: With respect to any Due Date, a
Mortgage Loan which, prior to such Due Date, was not the subject of a Principal
Prepayment in full, did not become a Liquidated Mortgage Loan and was not
purchased or replaced.

                  OUTSTANDING PRINCIPAL BALANCE: As of the time of any
determination, the principal balance of a Mortgage Loan remaining to be paid by
the Mortgagor, or, in the case of an REO Property, the principal balance of the
related Mortgage Loan remaining to be paid by the Mortgagor at the time such
property was acquired by the Trust less any Excess Liquidation Proceeds with
respect thereto to the extent applied to principal.

                  OVERCOLLATERALIZATION INCREASE AMOUNT: With respect to any
Payment Date and each Loan Group, the lesser of (i) the related Net Monthly
Excess Cashflow for such Payment Date and (ii) the excess, if any, of (a) the
related Overcollateralization Target Amount over (b) the related
Overcollateralized Amount on such Payment Date (after taking into account
payments to the related Notes of the Basic Principal Distribution Amount on such
Payment Date).

                  OVERCOLLATERALIZATION TARGET AMOUNT: The Group I
Overcollateralization Target Amount and Group II Overcollateralization Target
Amount, as applicable.

                  OVERCOLLATERALIZED AMOUNT: As of any Payment Date and each
Loan Group, the amount, if any, by which (i) the aggregate principal balance of
the Mortgage Loans in such Loan Group (after giving effect to scheduled payments
of principal due during the related Due Period, to the extent received or
advanced, and unscheduled collections of principal received during the related
Prepayment Period including Realized Losses on the Mortgage Loans in such Loan
Group incurred during the related Prepayment Period) exceeds (ii) the aggregate
Note Principal Balance of the related Notes as of such Payment Date (assuming
that 100% of the related Principal Remittance Amount is applied as a principal
payment on the related Notes on such Payment Date).

                  OWNER TRUST ESTATE: The corpus of the Issuer created by the
Trust Agreement which consists of items referred to in Section 3.01 of the Trust
Agreement.

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<PAGE>

                  OWNER TRUSTEE: Wilmington Trust Company and its successors and
assigns or any successor owner trustee appointed pursuant to the terms of the
Trust Agreement.

                  PAYING AGENT: Any paying agent or co-paying agent appointed
pursuant to Section 3.03 of the Indenture, which initially shall be the
Indenture Trustee.

                  PAYMENT ACCOUNT: The trust account or accounts created and
maintained pursuant to Section 4.04 of the Sale and Servicing Agreement, which
shall be denominated "U.S. Bank National Association, as Indenture Trustee f/b/o
holders of HomeBanc Mortgage Trust 2004-1, Mortgage- Backed Notes, Series 2004-1
- Payment Account." The Payment Account shall be an Eligible Account.

                  PAYMENT ACCOUNT DEPOSIT DATE: The Business Day prior to each
Payment Date.

                  PAYMENT DATE: The 25th day of each month, or if such day is
not a Business Day, then the next Business Day.

                  PERCENTAGE INTEREST: With respect to any Note, the percentage
obtained by dividing the Note Principal Balance of such Note by the aggregate
Note Principal Balances of all Notes of that Class. With respect to any
Certificate, the percentage as stated on the face thereof.

                  PERIODIC RATE CAP: With respect to each Mortgage Loan, the
maximum adjustment that can be made to the Mortgage Interest Rate on each
Interest Adjustment Date in accordance with its terms, regardless of changes in
the applicable Index.

                  PERMITTED INVESTMENTS: Any one or more of the following
obligations or securities held in the name of the Indenture Trustee for the
benefit of the Noteholders:

                  (i) direct obligations of, and obligations the timely payment
of which are fully guaranteed by the United States of America or any agency or
instrumentality of the United States of America the obligations of which are
backed by the full faith and credit of the United States of America;

                  (ii) (a) demand or time deposits, federal funds or bankers'
acceptances issued by any depository institution or trust company incorporated
under the laws of the United States of America or any state thereof (including
the Indenture Trustee or the Master Servicer or its Affiliates acting in its
commercial banking capacity) and subject to supervision and examination by
federal and/or state banking authorities, provided that the commercial paper
and/or the short-term debt rating and/or the long-term unsecured debt
obligations of such depository institution or trust company at the time of such
investment or contractual commitment providing for such investment have the
Applicable Credit Rating or better from the Rating Agencies and (b) any other
demand or time deposit or certificate of deposit that is fully insured by the
Federal Deposit Insurance Corporation;

                  (iii) repurchase obligations with respect to (a) any security
described in clause (i) above or (b) any other security issued or guaranteed by
an agency or instrumentality of the United States of America, the obligations of
which are backed by the full faith and credit of the United

                                       22

<PAGE>

States of America, in either case entered into with a depository institution or
trust company (acting as principal) described in clause (ii)(a) above where the
Indenture Trustee holds the security therefor;

                  (iv) securities bearing interest or sold at a discount issued
by any corporation (including the Indenture Trustee or the Master Servicer or
its Affiliates) incorporated under the laws of the United States of America or
any state thereof that have the Applicable Credit Rating or better from the
Rating Agencies at the time of such investment or contractual commitment
providing for such investment; provided, however, that securities issued by any
particular corporation will not be Permitted Investments to the extent that
investments therein will cause the then outstanding principal amount of
securities issued by such corporation and held as part of the Trust to exceed
10% of the aggregate Outstanding Principal Balances of all the Mortgage Loans
and Permitted Investments held as part of the Trust as determined by the Master
Servicer;

                  (v) commercial paper (including both non-interest-bearing
discount obligations and interest-bearing obligations payable on demand or on a
specified date not more than one year after the date of issuance thereof) having
the Applicable Credit Rating or better from the Rating Agencies at the time of
such investment;

                  (vi) a Reinvestment Agreement issued by any bank, insurance
company or other corporation or entity;

                  (vii) any other demand, money market or time deposit,
obligation, security or investment as may be acceptable to the Rating Agencies
as evidenced in writing by the Rating Agencies to the Indenture Trustee; and

                  (viii) any money market or common trust fund having the
Applicable Credit Rating or better from the Rating Agencies, including any such
fund for which the Indenture Trustee or Master Servicer or any affiliate of the
Indenture Trustee or Master Servicer acts as a manager or an advisor; provided,
however, that no instrument or security shall be a Permitted Investment if such
instrument or security evidences a right to receive only interest payments with
respect to the obligations underlying such instrument or if such security
provides for payment of both principal and interest with a yield to maturity in
excess of 120% of the yield to maturity at par or if such instrument or security
is purchased at a price greater than par as determined by the Master Servicer.

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

                  PLAN: Any employee benefit plan or certain other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans and bank collective investment funds and insurance company general
or separate accounts in which such plans, accounts or arrangements are invested,
that are subject to ERISA or Section 4975 of the Code.

                  PLAN ASSETS: Assets of a Plan within the meaning of Department
of Labor regulation 29 C.F.R. ss. 2510.3-101.

                                       23

<PAGE>

                  POOL BALANCE: With respect to any date of determination, the
aggregate of the Scheduled Principal Balances of all Mortgage Loans as of such
date.

                  PREPAYMENT INTEREST SHORTFALL: With respect to any Payment
Date, the Prepayment Interest Shortfall, if any, for such Payment Date net of
Compensating Interest Payments made with respect to such Payment Date.

                  PREPAYMENT PERIOD: With respect any Mortgage Loan and any
Payment Date, the calendar month immediately preceding the month in which such
payment occurs.

                  PRIMARY MORTGAGE INSURANCE POLICY: Any primary mortgage
guaranty insurance policy issued in connection with a Mortgage Loan which
provides compensation to a Mortgage Note holder in the event of default by the
obligor under such Mortgage Note or the related Security Instrument, if any, or
any replacement policy therefor through the related Accrual Period for such
Class relating to a Payment Date.

                  PRINCIPAL DISTRIBUTION AMOUNT: For any Payment Date and each
Loan Group, the sum of (a) the related Basic Principal Distribution Amount, (b)
any amounts in respect of payments of the related Undercollateralization Amount
from related Net Monthly Excess Cashflow and related Crossable
Undercollateralization Amount from non-related Net Monthly Excess Cashflow on
that Payment Date and (c) the related Overcollateralization Increase Amount.

                  PRINCIPAL PREPAYMENT: Any payment (whether partial or full) or
other recovery of principal on a Mortgage Loan which is received in advance of
its scheduled Due Date to the extent that it is not accompanied by an amount as
to interest representing scheduled interest due on any date or dates in any
month or months subsequent to the month of prepayment, including Insurance
Proceeds and Repurchase Proceeds, but excluding the principal portion of Excess
Liquidation Proceeds.

                  PRINCIPAL REMITTANCE AMOUNT: With respect to any Payment Date
and each Loan Group, the sum of the following:

                           (i) the principal portion of each previously
                  undistributed Monthly Payment due after the Cut-off Date
                  received on or prior to the related Determination Date or
                  advanced prior to such Payment Date (other than Monthly
                  Payments due after the related Due Period, which shall be
                  treated as if received during the Due Period they were due) on
                  each Outstanding Mortgage Loan in such Loan Group;

                           (ii) the principal portion of all proceeds of any
                  Mortgage Loan in such Loan Group repurchased during the
                  related Prepayment Period (or deemed to have been so
                  repurchased in accordance with the Sale and Servicing
                  Agreement) pursuant to the Sale and Servicing Agreement and
                  the amount of any shortfall deposited in the Master Servicer
                  Collection Account in connection with the substitution of a
                  Deleted Mortgage Loan pursuant to the Sale and Servicing
                  Agreement during the related Collection Period; and

                                       24

<PAGE>

                           (iii) the principal portion of all other unscheduled
                  collections received during the related Prepayment Period
                  (including, without limitation, Principal Prepayments,
                  Insurance Proceeds, Liquidation Proceeds and REO Proceeds) to
                  the extent applied by the Master Servicer as recoveries of
                  principal on the Mortgage Loans in such Loan Group pursuant to
                  the Sale and Servicing Agreement.

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

                  PROSPECTUS: The Prospectus Supplement, dated July 29, 2004,
together with the attached Prospectus, dated May 14, 2004.

                  PROTECTED ACCOUNT: An account established and maintained for
the benefit of Noteholders by the Servicer with respect to the Mortgage Loans
and with respect to REO Property pursuant to the HomeBanc Servicing Agreement.

                  PURCHASER: Structured Asset Mortgage Investments II Inc., a
Delaware corporation, and its successors and assigns.

                  QUALIFIED INSURER: Any insurance company duly qualified as
such under the laws of the state or states in which the related Mortgaged
Property or Mortgaged Properties is or are located, duly authorized and licensed
in such state or states to transact the type of insurance business in which it
is engaged and approved as an insurer by the Master Servicer, so long as the
claims paying ability of which is acceptable to the Rating Agencies for
mortgage-backed notes having the same rating as the Notes rated by the Rating
Agencies as of the Closing Date.

                  RATING AGENCY: Any nationally recognized statistical rating
organization, or its successor, that rated the Notes at the request of the
Depositor at the time of the initial issuance of the Notes. Initially, Standard
& Poor's and Moody's. If such organization or a successor is no longer in
existence, "Rating Agency" with respect to the Notes shall be such nationally
recognized statistical rating organization, or other comparable Person,
designated by the Depositor, notice of which designation shall be given to the
Indenture Trustee and Master Servicer. References herein to the highest short
term unsecured rating category of a Rating Agency shall mean A-1 or better in
the case of Standard & Poor's, P-1 in the case of Moody's and in the case of any
other Rating Agency shall mean such equivalent ratings. References herein to the
highest long-term rating category of a Rating Agency shall mean "AAA" in the
case of Standard & Poor's, "Aaa" in the case of Moody's and in the case of any
other Rating Agency, such equivalent rating.

                  REALIZED LOSS: Any (i) Bankruptcy Loss or (ii) as to any
Liquidated Mortgage Loan, (x) the Outstanding Principal Balance of such
Liquidated Mortgage Loan plus accrued and unpaid interest thereon at the
Mortgage Interest Rate through the last day of the month of such liquidation,
less (y) the related Excess Liquidation Proceeds with respect to such Mortgage
Loan and the related Mortgage Property. In addition, to the extent the Master
Servicer receives Subsequent Recoveries with respect to any Mortgage Loan, the
amount of the Realized Loss with respect to that Mortgage Loan will be reduced
to the extent such recoveries are applied to reduce the Current Principal Amount
of any Class of Notes on any Payment Date.

                                       25

<PAGE>

                  RECORD DATE: With respect to any Book-Entry Notes and any
Payment Date, the close of business on the Business Day immediately preceding
such Payment Date. With respect to any Notes that are not Book-Entry Notes, the
close of business on the last Business Day of the calendar month preceding such
Payment Date.

                  REFERENCE BANKS: Any leading banks engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, (ii) whose quotations appear on the
Telerate Screen Page 3750 on the Interest Determination Date in question, (iii)
which have been designated as such by the Securities Administrator and (iv)
which are not Affiliates of the Depositor or the Seller.

                  REGISTERED HOLDER: The Person in whose name a Note is
registered in the Note Register on the applicable Record Date.

                  REINVESTMENT AGREEMENTS: One or more reinvestment agreements,
acceptable to the Rating Agencies, from a bank, insurance company or other
corporation or entity (including the Indenture Trustee).

                  RELATED DOCUMENTS: With respect to each Mortgage Loan, the
documents specified in Section 2.01(b)(i)-(vii) of the Sale and Servicing
Agreement and any documents required to be added to such documents pursuant to
the Sale and Servicing Agreement or the Mortgage Loan Purchase Agreement.

                  RELIEF ACT: The Servicemembers Civil Relief Act, as amended,
or any similar state law.

                  RELIEF ACT MORTGAGE LOAN: Any Mortgage Loan as to which the
Scheduled Payment thereof has been reduced due to the application of the Relief
Act.

                  REO PROPERTY: A Mortgaged Property acquired in the name of the
Indenture Trustee, for the benefit of the Noteholders, by foreclosure or
deed-in-lieu of foreclosure in connection with a defaulted Mortgage Loan.

                  REPURCHASE PRICE: With respect to any Mortgage Loan (or any
property acquired with respect thereto) required to be repurchased by the Seller
pursuant to the Mortgage Loan Purchase Agreement or Article II of the Sale and
Servicing Agreement, an amount equal to the sum of (i)(a) 100% of the
Outstanding Principal Balance of such Mortgage Loan as of the date of repurchase
(or if the related Mortgaged Property was acquired with respect thereto, 100% of
the Outstanding Principal Balance at the date of the acquisition), plus (b)
accrued but unpaid interest on the Outstanding Principal Balance at the related
Mortgage Interest Rate, through and including the last day of the month of
repurchase, plus (c) any unreimbursed Monthly Advances and servicing advances
payable to the Servicer or to the Master Servicer and (ii) any costs and damages
(if any) incurred by the Trust in connection with any violation of such Mortgage
Loan of any predatory lending laws.

                                       26

<PAGE>

                  REPURCHASE PROCEEDS: the Repurchase Price in connection with
any repurchase of a Mortgage Loan by the Seller and any cash deposit in
connection with the substitution of a Mortgage Loan.

                  REQUEST FOR RELEASE: A request for release in the form
attached to the Sale and Servicing Agreement as Exhibit B.

                  REQUIRED INSURANCE POLICY: With respect to any Mortgage Loan,
any insurance policy which is required to be maintained from time to time under
the Sale and Servicing Agreement with respect to such Mortgage Loan.

                  RESERVE INTEREST RATE: With respect to any Interest
Determination Date, the rate per annum that the Securities Administrator
determines to be either (i) the arithmetic mean (rounded upwards if necessary to
the nearest whole multiple of 0.0625%) of the one-month United States dollar
lending rates which New York City banks selected by the Securities Administrator
are quoting on the relevant Interest Determination Date to the principal London
offices of leading banks in the London interbank market or (ii) in the event
that the Securities Administrator can determine no such arithmetic mean, the
lowest one-month United States dollar lending rate which New York City banks
selected by the Securities Administrator are quoting on such Interest
Determination Date to leading European banks.

                  RESPONSIBLE OFFICER: With respect to the Securities
Administrator, any officer of the Securities Administrator with direct
responsibility for the administration of the Indenture and also, with respect to
a particular matter, any other officer to whom such matter is referred because
of such officer's knowledge of and familiarity with the particular subject; and
with respect to the Indenture Trustee, any vice president, assistant vice
president, any assistant secretary or any assistant treasurer or any other
officer of the Indenture Trustee working in its Corporate Trust Department
customarily performing functions similar to those performed by any of the above
designated officers who at such time shall be officers to whom, with respect to
a particular matter, such matter is referred because of such officer's knowledge
of and familiarity with the particular subject or who shall have direct
responsibility for the administration of this Indenture.

                  SALE AND SERVICING AGREEMENT: The Sale and Servicing
Agreement, dated July 30, 2004, among the Depositor, the Issuer, the Indenture
Trustee, Wells Fargo Bank, National Association, as master servicer and
securities administrator, and EMC Mortgage Corporation, as seller and company.

                  SCHEDULED PAYMENT: With respect to any Mortgage Loan and any
month, the scheduled payment or payments of principal and interest due during
such month on such Mortgage Loan which either is payable by a Mortgagor in such
month under the related Mortgage Note or, in the case of REO Property, would
otherwise have been payable under the related Mortgage Note.

                  SCHEDULED PRINCIPAL: The principal portion of any Scheduled
Payment.

                  SCHEDULED PRINCIPAL BALANCE: With respect to any Mortgage Loan
and any Payment Date (1) the unpaid principal balance of such Mortgage Loan as
of the close of business on the

                                       27

<PAGE>

related Due Date (taking account of the principal payment to be made on such Due
Date and irrespective of any delinquency in its payment), as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such amortization schedule by reason of any bankruptcy or similar proceeding
occurring after the Cut-off Date (other than a Deficient Valuation) or any
moratorium or similar waiver or grace period) less (2) any Principal Prepayments
and the principal portion of any Excess Liquidation Proceeds received during or
prior to the immediately preceding Prepayment Period; provided that the
Scheduled Principal Balance of any Liquidated Mortgage Loan is zero.

                  SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

                  SECURITIES ADMINISTRATOR: Wells Fargo Bank, National
Association, or its successor in interest, or any successor securities
administrator appointed as herein provided.

                  SECURITY: Any of the Certificates or Notes.

                  SECURITYHOLDER or HOLDER: Any Noteholder or a
Certificateholder.

                  SECURITY INSTRUMENT: A written instrument creating a valid
first lien on a Mortgaged Property securing a Mortgage Note, which may be any
applicable form of mortgage, deed of trust, deed to secure debt or security
deed, including any riders or addenda thereto.

                  SELLER: EMC Mortgage Corporation, and its successors and
assigns.

                  SERVICER: Home Banc Corp., and its successors and assigns;
provided, however, in the event that any Mortgage Loan becomes a Specially
Serviced Mortgage Loan, "Servicer" shall also refer to the Special Servicer in
its capacity as servicer of any Specially Serviced Mortgage Loans.

                  SERVICER REMITTANCE DATE: With respect to each Mortgage Loan,
the date set forth in the Servicing Agreement.

                  SERVICING AGREEMENT: The HomeBanc Servicing Agreement or, in
the case of any Specially Serviced Mortgage Loan, the Special Servicing
Agreement.

                  SERVICING FEE: With respect to each Mortgage Loan and any
Payment Date, the fee payable monthly to the Servicer (or in the case of any
Mortgage Loan, the servicing of which is transferred to the Special Servicer,
the Special Servicer) in respect of servicing compensation that accrues at an
annual rate equal to the Servicing Fee Rate multiplied by the Scheduled
Principal Balance of such Mortgage Loan as of the first day of the related Due
Period.

                  SERVICING FEE RATE: With respect to any Mortgage Loan, 0.375%
per annum.

                  SERVICING OFFICEr: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear

                                       28

<PAGE>

on a list of servicing officers furnished to the Indenture Trustee by the Master
Servicer, as such list may be amended from time to time.

                  SPECIAL SERVICING AGREEMENT: The Letter Agreement, dated July
30, 2004, among the Servicer, the Special Servicer and the Master Servicer.

                  SPECIAL SERVICING FEE: With respect to each Specially Serviced
Mortgage Loan and any Payment Date, the additional fee payable monthly to the
Special Servicer in respect of special servicing compensation that accrues at an
annual rate equal to the Special Servicing Fee Rate multiplied by the Scheduled
Principal Balance of such Mortgage Loan as of the first day of the related Due
Period.

                  SPECIAL SERVICING FEE RATE: With respect to any Mortgage Loan
being serviced by the Special Servicer, 0.375% per annum.

                  SPECIALLY SERVICED MORTGAGE LOAN: The Mortgage Loans being
serviced by the Special Servicer pursuant to the Special Servicing Agreement.

                  STANDARD & POOR'S: Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., or its successor in interest.

                  STATUTORY TRUST STATUTE: Chapter 38 of Title 12 of the
Delaware Code, 12 DEL. Code ss.ss.3801 ET SEQ., as the same may be amended from
time to time.

                  STEP-UP DATE: The Payment Date occurring after the first
Payment Date for which the aggregate Scheduled Principal Balance of the Mortgage
Loans as of the end of the related Due Period has been reduced to 20% or less of
the Cut-off Date Balance.

                  SUBSEQUENT RECOVERIES: As of any Payment Date, amounts
received by the Master Servicer during the related Due Period or surplus amounts
held by the Master Servicer to cover estimated expenses (including, but not
limited to, recoveries in respect of the representations and warranties made by
the Seller pursuant to the Mortgage Loan Purchase Agreement) specifically
related to a Liquidated Mortgage Loan or disposition of an REO Property prior to
the related Prepayment Period that resulted in a Realized Loss, after the
liquidation or disposition of such Mortgage Loan.

                  SUBSTITUTE MORTGAGE LOAN: A mortgage loan tendered to the
Indenture Trustee or the Custodian pursuant to the Mortgage Loan Purchase
Agreement or Section 2.04 of the Sale and Servicing Agreement, as applicable, in
each case, (i) which has an Outstanding Principal Balance not greater nor
materially less than the Mortgage Loan for which it is to be substituted; (ii)
which has a Mortgage Interest Rate and Net Rate not less than, and not
materially greater than, such Mortgage Loan; (iii) which has a maturity date not
materially earlier or later than such Mortgage Loan and not later than the
latest maturity date of any Mortgage Loan; (iv) which is of the same property
type and occupancy type as such Mortgage Loan; (v) which has a Loan-to-Value
Ratio not greater than the Loan-to-Value Ratio of such Mortgage Loan; (vi) which
is current in payment of principal and interest as of the date of substitution;
(vii) as to which the payment terms do not vary

                                       29

<PAGE>

in any material respect from the payment terms of the Mortgage Loan for which it
is to be substituted and (viii) which has a Gross Margin and Maximum Lifetime
Mortgage Rate no less than those of such Mortgage Loan, has the same Index and
interval between Interest Adjustment Dates as such Mortgage Loan, and a Minimum
Lifetime Mortgage Rate no lower than that of such Mortgage Loan.

                  TELERATE SCREEN PAGE 3750: The display designated as page 3750
on the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks).

                  TREASURY REGULATIONS: Regulations, including proposed or
temporary Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.

                  TRUST: HomeBanc Mortgage Trust 2004-1 to be created pursuant
to the Trust Agreement.

                  TRUST AGREEMENT: The Amended and Restated Trust Agreement
dated as of July 30, 2004, among the Owner Trustee, the Depositor and U.S. Bank
National Association, as Certificate Registrar and Certificate Paying Agent,
relating to the Trust.

                  TRUST ESTATE: The meaning specified in the Granting Clause of
the Indenture.

                  TRUST INDENTURE ACT OR TIA: The Trust Indenture Act of 1939,
as amended from time to time, as in effect on any relevant date.

                  UCC: The Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.

                  UNDERLYING SELLER: HMB Acceptance Corp.

                  UNDERWRITERS: Bear, Stearns & Co. Inc. and J.P. Morgan
Securities, Inc.

                  UNINSURED CAUSE: Any cause of damage to a Mortgaged Property
or related REO Property such that the complete restoration of such Mortgaged
Property or related REO Property is not fully reimbursable by the hazard
insurance policies required to be maintained pursuant to the HomeBanc Servicing
Agreement, without regard to whether or not such policy is maintained.

                                       30Exhibit 10.1 

LOGICVISION, INC. 

AMENDED AND RESTATED 

2000 STOCK
INCENTIVE PLAN 

(as amended and
restated as of May 13, 2004) 

 

	 	
	 

 

 TABLE
  OF CONTENTS 

			Page
	SECTION 1. ESTABLISHMENT AND PURPOSE	1
	 	 	 
	SECTION 2. DEFINITIONS 	
        1

      
	    	(a)	“Affiliate”	1
	 	
        (b)

      	
        “Award”

      	
        1

      
	 	
        (c)

      	
        “Board of Directors”

      	
        1

      
	 	
        (d)

      	
        “Change in Control”

      	
        1

      
	 	
        (e)

      	
        “Code”

      	
        2

      
	 	
        (f)

      	
        “Committee”

      	
        2

      
	 	
        (g)

      	
        “Company”

      	
        2

      
	 	
        (h)

      	
        “Consultant”

      	
        2

      
	 	
        (i)

      	
        “Employee”

      	
        3

      
	 	
        (j)

      	
        “Exchange Act”

      	
        3

      
	 	
        (k)

      	
        “Exercise Price”

      	
        3

      
	 	
        (l)

      	
        “Fair Market Value”

      	
        3

      
	 	
        (m)

      	
        “ISO”

      	
        3

      
	 	
        (n)

      	
        “Nonstatutory Option” or “NSO”

      	
        3

      
	 	
        (o)

      	
        “Offeree”

      	
        3

      
	 	
        (p)

      	
        “Option”

      	
        4

      
	 	
        (q)

      	
        “Optionee”

      	
        4

      
	 	
        (r)

      	
        “Outside Director”

      	
        4

      
	 	
        (s)

      	
        “Parent”

      	
        4

      
	 	
        (t)

      	
        “Participant”

      	
        4

      
	 	
        (u)

      	
        “Plan”

      	
        4

      
	 	
        (v)

      	
        “Predecessor Plan”

      	
        4

      
	 	
        (w)

      	
        “Purchase Price”

      	
        4

      
	 	
        (x)

      	
        “Restricted Share”

      	
        4

      
	 	
        (y)

      	
        “Restricted Share Agreement”

      	
        4

      
	 	
        (z)

      	
        “SAR”

      	
        4

      
	 	
        (aa)

      	
        “SAR Agreement”

      	
        4

      
	 	
        (bb)

      	
        “Service”

      	
        4

      
	 	
        (cc)

      	
        “Share”

      	
        4

      
	 	
        (dd)

      	
        “Stock”

      	
        4

      
	 	
        (ee)

      	
        “Stock Option Agreement”

      	
        4

      
	 	
        (ff)

      	
        “Stock Purchase Agreement”

      	
        5

      
	 	
        (gg)

      	
        “Stock Unit”

      	
        5

      
	 	
        (hh)

      	
        “Stock Unit Agreement”

      	
        5

      
	 	
        (ii)

      	
        “Subsidiary”

      	
        5

      
	 	
        (jj)

      	
        “Total and Permanent Disability”

      	
        5

      
		
         

      	
         

      	
         

      
	SECTION 3. ADMINISTRATION 	
        5

      
	 	
        (a)

      	
        Committee Composition

      	
        5

      
	 	
        (b)

      	
        Committee for Non-Officer Grants

      	
        5

      

 

	 	
-
i -	 

			Page
	 	    	
        (c)

      	
        Committee Procedures

      	
        5

      
	 	 	
        (d)

      	
        Committee Responsibilities

      	
        6

      
		 	
         

      	
         

      	
         

      
	SECTION 4. ELIGIBILITY 	
        7

      
	 	 	
        (a)

      	
        General Rule

      	
        7

      
	 	 	
        (b)

      	
        Outside Directors

      	
        7

      
	 	 	
        (c)

      	
        Ten Percent Stockholders

      	
        9

      
	 	 	
        (d)

      	
        Attribution Rules

      	
        9

      
	 	 	
        (e)

      	
        Outstanding Stock

      	
        9

      
		 	
         

      	
         

      	
         

      
	SECTION 5. STOCK SUBJECT TO PLAN
      	
        9

      
	 	 	
        (a)

      	
        Basic Limitation

      	
        9

      
	 	 	
        (b)

      	
        Annual Increase in Shares

      	
        10

      
	 	 	
        (c)

      	
        Additional Shares.

      	
        10

      
	 	 	
        (d)

      	
        Dividend Equivalents

      	
        11

      
		 	
         

      	
         

      	
         

      
	SECTION 6. RESTRICTED SHARES 	
        11

      
	 	 	
        (a)

      	
        Restricted Stock Agreement

      	
        11

      
	 	 	
        (b)

      	
        Payment for Awards

      	
        11

      
	 	 	
        (c)

      	
        Vesting

      	
        11

      
	 	 	
        (d)

      	
        Voting and Dividend Rights

      	
        11

      
		 	
         

      	
         

      	
         

      
	SECTION 7. OTHER TERMS AND CONDITIONS OF
        AWARDS OR SALES 	
        11

      
	 	 	
        (a)

      	
        Duration of Offers and Nontransferability of Rights

      	
        11

      
	 	 	
        (b)

      	
        Withholding Taxes

      	
        11

      
	 	 	
        (c)

      	
        Restrictions on Transfer of Shares

      	
        12

      
		 	
         

      	
         

      	
         

      
	SECTION 8. TERMS AND CONDITIONS OF OPTIONS
      	
        12

      
	 	 	
        (a)

      	
        Stock Option Agreement

      	
        12

      
	 	 	
        (b)

      	
        Number of Shares

      	
        12

      
	 	 	
        (c)

      	
        Exercise Price

      	
        12

      
	 	 	
        (d)

      	
        Withholding Taxes

      	
        12

      
	 	 	
        (e)

      	
        Exercisability and Term

      	
        12

      
	 	 	
        (f)

      	
        Nontransferability

      	
        13

      
	 	 	
        (g)

      	
        Exercise of Options Upon Termination of Service

      	
        13

      
	 	 	
        (h)

      	
        Effect of Change in Control

      	
        13

      
	 	 	
        (i)

      	
        Leaves of Absence

      	
        13

      
	 	 	
        (j)

      	
        No Rights as a Stockholder

      	
        13

      
	 	 	
        (k)

      	
        Modification, Extension and Renewal of Options

      	
        13

      
	 	 	
        (l)

      	
        Restrictions on Transfer of Shares

      	
        14

      
	 	 	
        (m)

      	
        Buyout Provisions

      	
        14

      
		 	
         

      	
         

      	
         

      
	SECTION 9. PAYMENT FOR SHARES 	
        14

      
	 	 	
        (a)

      	
        General Rule

      	
        14

      
	 	 	
        (b)

      	
        Surrender of Stock

      	
        14

      
	 	 	
        (c)

      	
        Services Rendered

      	
        14

      
	 	 	
        (d)

      	
        Cashless Exercise

      	
        14

      

 

	 	
-
ii -	 

			Page
	 	    	
        (e)

      	
        Exercise/Pledge

      	
        14

      
	 	 	
        (f)

      	
        Promissory Note

      	
        15

      
	 	 	
        (g)

      	
        Other Forms of Payment

      	
        15

      
		 	
         

      	
         

      	
         

      
	SECTION 10. STOCK APPRECIATION RIGHTS
      	
        15

      
	 	 	
        (a)

      	
        SAR Agreement

      	
        15

      
	 	 	
        (b)

      	
        Number of Shares

      	
        15

      
	 	 	
        (c)

      	
        Exercise Price

      	
        15

      
	 	 	
        (d)

      	
        Exercisability and Term

      	
        15

      
	 	 	
        (e)

      	
        Effect of Change in Control

      	
        15

      
	 	 	
        (f)

      	
        Exercise of SARs

      	
        15

      
	 	 	
        (g)

      	
        Special Holding Period

      	
        16

      
	 	 	
        (h)

      	
        Special Exercise Window

      	
        16

      
	 	 	
        (i)

      	
        Modification or Assumption of SARs

      	
        16

      
		 	
         

      	
         

      	
         

      
	SECTION 11. STOCK UNITS 	
        16

      
	 	 	
        (a)

      	
        Stock Unit Agreement

      	
        16

      
	 	 	
        (b)

      	
        Payment for Awards

      	
        16

      
	 	 	
        (c)

      	
        Vesting Conditions

      	
        16

      
	 	 	
        (d)

      	
        Voting and Dividend Rights

      	
        17

      
	 	 	
        (e)

      	
        Form and Time of Settlement of Stock Units

      	
        17

      
	 	 	
        (f)

      	
        Death of Recipient

      	
        17

      
	 	 	
        (g)

      	
        Creditors’ Rights

      	
        17

      
		 	
         

      	
         

      	
         

      
	SECTION 12. ADJUSTMENT OF SHARES
      	
        17

      
	 	 	
        (a)

      	
        Adjustments

      	
        17

      
	 	 	
        (b)

      	
        Dissolution or Liquidation

      	
        18

      
	 	 	
        (c)

      	
        Reorganizations

      	
        18

      
	 	 	
        (d)

      	
        Reservation of Rights

      	
        18

      
		 	
         

      	
         

      	
         

      
	SECTION 13. DEFERRAL OF AWARDS 	
        19

      
		 	
         

      	
         

      	
         

      
	SECTION 14. AWARDS UNDER OTHER PLANS
      	
        19

      
		 	
         

      	
         

      	
         

      
	SECTION 15. PAYMENT OF DIRECTOR’S FEES IN
        SECURITIES 	
        19

      
	 	 	
        (a)

      	
        Effective Date

      	
        19

      
	 	 	
        (b)

      	
        Elections to Receive NSOs, Restricted Shares or Stock
          Units

      	
        19

      
	 	 	
        (c)

      	
        Number and Terms of NSOs, Restricted Shares or Stock
          Units

      	
        20

      
		 	
         

      	
         

      	
         

      
	SECTION 16. LEGAL AND REGULATORY REQUIREMENTS
      	
        20

      
		 	
         

      	
         

      	
         

      
	SECTION 17. WITHHOLDING TAXES 	
        20

      
	 	 	
        (a)

      	
        General

      	
        20

      
	 	 	
        (b)

      	
        Share Withholding

      	
        20

      
		 	
         

      	
         

      	
         

      
	SECTION 18. LIMITATION ON PARACHUTE PAYMENTS
      	
        20

      
	 	 	
        (a)

      	
        Scope of Limitation

      	
        20

      
	 	 	
        (b)

      	
        Basic Rule

      	
        20

      

 

	 	
-
iii -	 

			Page
	 	    	
        (c)

      	
        Reduction of Payments

      	
        21

      
	 	 	
        (d)

      	
        Overpayments and Underpayments

      	
        21

      
	 	 	
        (e)

      	
        Related Corporations

      	
        21

      
		 	
         

      	
         

      	
         

      
	SECTION 19. NO EMPLOYMENT RIGHTS
      	
        22

      
		 	
         

      	
         

      	
         

      
	SECTION 20. DURATION AND AMENDMENTS
      	
        22

      
	 	 	
        (a)

      	
        Term of the Plan

      	
        22

      
	 	 	
        (b)

      	
        Predecessor Plan

      	
        22

      
	 	 	
        (c)

      	
        Right to Amend or Terminate the Plan

      	
        22

      
	 	 	
        (d)

      	
        Effect of Amendment or Termination

      	
        22

      
	 	 	 	 	 
	SECTION 21. EXECUTION	23

 

	 	
-
iv -	 

LOGICVISION, INC. 

AMENDED AND
RESTATED 2000 STOCK INCENTIVE PLAN 

SECTION 1.
 ESTABLISHMENT AND PURPOSE. 

        The
Plan was adopted by the Board of Directors on August 3, 2000 and was amended and restated
by the Board of Directors on September 25, 2000, effective as of the commencement date of
the Company’s initial public offering of its Stock on October 31, 2001, pursuant to
a registration statement filed under the Securities Act of 1933 (the “IPO”).
The Plan was subsequently amended and restated and is hereby further amended and restated
as of May 13, 2004. 

        The
purpose of the Plan is to promote the long-term success of the Company and the creation
of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to
focus on critical long-range objectives, (b) encouraging the attraction and retention of
Employees, Outside Directors and Consultants with exceptional qualifications and (c)
linking Employees, Outside Directors and Consultants directly to stockholder interests
through increased stock ownership. The Plan seeks to achieve this purpose by providing
for Awards in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation rights. 

SECTION 2.
 DEFINITIONS. 

        (a)
  “Affiliate” shall mean any entity other than a Subsidiary,
  if the Company and/or one of more Subsidiaries own not less than 50% of such
  entity. 

        (b)
  “Award” shall mean any award of an Option, a SAR, a Restricted
  Share or a Stock Unit under the Plan. 

        (c)
  “Board of Directors” shall mean the Board of Directors of the
  Company, as constituted from time to time. 

        (d)
  “Change in Control” shall mean the occurrence of any of the
  following events: 

	  	        (i)
A change in the composition of the Board of Directors occurs, as a          result of
which fewer than one-half of the incumbent directors are          directors who either: 

	  	        (A)
     Had been directors of the Company on the “look-back date” (as defined
         below) (the “original directors”); or 

	  	        (B)
     Were elected, or nominated for election, to the Board of Directors with          the
affirmative votes of at least a majority of the aggregate of the          original
directors who were still in office at the time of the election          or nomination and
the directors whose election or nomination was          previously so approved (the “continuing
directors”); or 

 

	 	
-1-	 

	  	        (ii)
    Any “person” (as defined below) who by the acquisition or aggregation of
securities, is or becomes the “beneficial owner”         (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or          more of the combined voting power of the Company’s then
outstanding securities ordinarily (and apart from rights accruing          under special
circumstances) having the right to vote at elections of directors (the “Base Capital
Stock”); except that any          change in the relative beneficial ownership of the
Company’s securities by any person resulting solely from a reduction in          the
aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter
in such person’s ownership of          securities, shall be disregarded until such
person increases in any manner, directly or indirectly, such person’s beneficial
         ownership of any securities of the Company; or 

	  	        (iii)
   The consummation of a merger or consolidation of the Corporation with          or into
another entity or any other corporate reorganization, if          persons who were not
stockholders of the Company immediately prior to          such merger, consolidation or
other reorganization own immediately          after such merger, consolidation or other
reorganization 50% or more of          the voting power of the outstanding securities of
each of (A) the          continuing or surviving entity and (B) any direct or indirect
parent          corporation of such continuing or surviving entity; or 

	  	        (iv)
    The sale, transfer or other disposition of all or substantially all of          the
Company’s assets. 

        For
purposes of Section 2(d)(i), the term “look-back” date shall mean the later of
(1) the date of the IPO or (2) the date 24 months prior to the date of the event that may
constitute a Change in Control. 

        For
purposes of Section 2(d)(ii), the term “person” shall have the same meaning as
when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (1) a trustee
or other fiduciary holding securities under an employee benefit plan maintained by the
Company or a Parent or Subsidiary and (2) a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their ownership
of the Stock. 

        Any
other provision of this Section 2(d) notwithstanding, a transaction shall not constitute
a Change in Control if its sole purpose is to change the state of the Company’s
incorporation or to create a holding company that will be owned in substantially the same
proportions by the persons who held the Company’s securities immediately before such
transaction. 

	  	        (e)
      “Code” shall mean the Internal Revenue Code of 1986, as
      amended.  

	  	        (f)
      “Committee” shall mean the committee designated by the
      Board of Directors, which is authorized to administer the Plan, as described
      in Section 3 hereof.  

	  	        (g)
      “Company” shall mean LogicVision, Inc., a Delaware corporation.
       

	  	        (h)
      “Consultant” shall mean a consultant or advisor who provides
      bona fide services to the Company, a Parent, a Subsidiary or an Affiliate
      as an independent contractor or a member  

 

	 	
-2-	 

	  	
of
the board of directors of a          Parent or a Subsidiary who is not an Employee.
Service as a Consultant          shall be considered Service for all purposes of the Plan. 

	  	        (i)
      “Employee” shall mean any individual who is a common-law
      employee of the Company, a Parent or a Subsidiary.  

	  	        (j)
      “Exchange Act” shall mean the Securities Exchange Act of
      1934, as amended.  

	  	        (k)
      “Exercise Price” shall mean, in the case of an Option,
      the amount for which one Common Share may be purchased upon exercise of
      such Option, as specified in the applicable Stock Option Agreement. “Exercise
      Price,” in the case of a SAR, shall mean an amount, as specified in
      the applicable SAR Agreement, which is subtracted from the Fair Market Value
      of one Common Share in determining the amount payable upon exercise of such
      SAR.  

	  	        (l)
      “Fair Market Value” with respect to a Share, shall mean
      the market price of one Share of Stock, determined by the Committee as follows:
       

	  	        (i)
     If the Stock was traded over-the-counter on the date in question but          was
not traded on The Nasdaq Stock Market, then the Fair Market Value          shall be equal
to the last transaction price quoted for such date by          the OTC Bulletin Board or,
if not so quoted, shall be equal to the mean          between the last reported
representative bid and asked prices quoted          for such date by the principal
automated inter-dealer quotation system          on which the Stock is quoted or, if the
Stock is not quoted on any such          system, by the “Pink Sheets” published
by the National Quotation          Bureau, Inc.; 

	  	        (ii)
    If the Stock was traded on The Nasdaq Stock Market, then the Fair          Market
Value shall be equal to the last reported sale price quoted for          such date by The
Nasdaq Stock Market; 

	  	        (iii)
   If the Stock was traded on a United States stock exchange on the date          in
question, then the Fair Market Value shall be equal to the closing          price
reported for such date by the applicable composite-transactions          report; and 

	  	        (iv)
    If none of the foregoing provisions is applicable, then the Fair Market
         Value shall be determined by the Committee in good faith on such basis
         as it deems appropriate. 

In all cases, the determination of
Fair Market Value by the Committee shall be conclusive and binding on all persons. 

        (m)
  “ISO” shall mean an employee incentive stock option described
  in Section 422 of the Code. 

        (n)
  “Nonstatutory Option” or “NSO” shall mean an employee
  stock option that is not an ISO. 

        (o)
  “Offeree” shall mean an individual to whom the Committee has
  offered the right to acquire Shares under the Plan (other than upon exercise
  of an Option). 

 

	 	
-3-	 

        (p)
  “Option” shall mean an ISO or Nonstatutory Option granted under
  the Plan and entitling the holder to purchase Shares. 

        (q)
  “Optionee” shall mean an individual or estate who holds an
  Option or SAR. 

        (r)
  “Outside Director” shall mean a member of the Board of Directors
  who is not a common-law employee of the Company, a Parent or a Subsidiary. Service
  as an Outside Director shall be considered Service for all purposes of the Plan,
  except for purposes of determining eligibility for the grant of ISOs under Section
  4(a). 

        (s)
  “Parent” shall mean any corporation (other than the Company)
  in an unbroken chain of corporations ending with the Company, if each of the
  corporations other than the Company owns stock possessing 50% or more of the
  total combined voting power of all classes of stock in one of the other corporations
  in such chain. A corporation that attains the status of a Parent on a date after
  the adoption of the Plan shall be a Parent commencing as of such date. 

        (t)
  “Participant” shall mean an individual or estate who holds
  an Award. 

        (u)
  “Plan” shall mean this 2000 Stock Incentive Plan of LogicVision,
  Inc., as amended from time to time. 

        (v)
  “Predecessor Plan” shall mean the Company’s 1994 Flexible
  Stock Incentive Plan, as amended. 

        (w)
  “Purchase Price” shall mean the consideration for which one
  Share may be acquired under the Plan (other than upon exercise of an Option),
  as specified by the Committee. 

        (x)
  “Restricted Share” shall mean a Share awarded under the Plan.
  

        (y)
  “Restricted Share Agreement” shall mean the agreement between
  the Company and the recipient of a Restricted Share which contains the terms,
  conditions and restrictions pertaining to such Restricted Shares. 

        (z)
  “SAR” shall mean a stock appreciation right granted under the
  Plan. 

        (aa)
  “SAR Agreement” shall mean the agreement between the Company
  and an Optionee which contains the terms, conditions and restrictions pertaining
  to his or her SAR. 

        (bb)
  “Service” shall mean service as an Employee, Consultant or
  Outside Director. 

        (cc)
  “Share” shall mean one share of Stock, as adjusted in accordance
  with Section 12 (if applicable). 

        (dd)
  “Stock” shall mean the Common Stock of the Company. 

        (ee)
  “Stock Option Agreement” shall mean the agreement between the
  Company and an Optionee that contains the terms, conditions and restrictions
  pertaining to his Option. 

 

	 	
-4-	 

        (ff)
  “Stock Purchase Agreement” shall mean the agreement between
  the Company and an Offeree who acquires Shares under the Plan that contains
  the terms, conditions and restrictions pertaining to the acquisition of such
  Shares. 

        (gg)
  “Stock Unit” shall mean a bookkeeping entry representing the
  equivalent of one Share, as awarded under the Plan. 

        (hh)
  “Stock Unit Agreement” shall mean the agreement between the
  Company and the recipient of a Stock Unit which contains the terms, conditions
  and restrictions pertaining to such Stock Unit. 

        (ii)
  “Subsidiary” shall mean any corporation, if the Company and/or
  one or more other Subsidiaries own not less than 50% of the total combined voting
  power of all classes of outstanding stock of such corporation. A corporation
  that attains the status of a Subsidiary on a date after the adoption of the
  Plan shall be considered a Subsidiary commencing as of such date. 

        (jj)
  “Total and Permanent Disability” shall mean that the Optionee
  is unable to engage in any substantial gainful activity by reason of any medically
  determinable physical or mental impairment that can be expected to result in
  death or that has lasted, or can be expected to last, for a continuous period
  of not less than 12 months. 

SECTION 3.
 ADMINISTRATION. 

        (a)
  Committee Composition. The Plan shall be administered by the Committee.
  The Committee shall consist of two or more directors of the Company, who shall
  be appointed by the Board. In addition, the composition of the Committee shall
  satisfy 

	  	        (i)
     such requirements as the Securities and Exchange Commission may          establish
for administrators acting under plans intended to qualify for          exemption under
Rule 16b-3 (or its successor) under the Exchange Act;          and 

	  	        (ii)
    such requirements as the Internal Revenue Service may establish for          outside
directors acting under plans intended to qualify for exemption          under Section
162(m)(4)(C) of the Code. 

        (b)
  Committee for Non-Officer Grants. The Board may also appoint one or more
  separate committees of the Board, each composed of one or more directors of
  the Company who need not satisfy the requirements of Section 3(a), who may administer
  the Plan with respect to Employees who are not considered officers or directors
  of the Company under Section 16 of the Exchange Act, may grant Awards under
  the Plan to such Employees and may determine all terms of such grants. Within
  the limitations of the preceding sentence, any reference in the Plan to the
  Committee shall include such committee or committees appointed pursuant to the
  preceding sentence. 

        (c)
  Committee Procedures. The Board of Directors shall designate one of the
  members of the Committee as chairman. The Committee may hold meetings at such
  times and places as it shall determine. The acts of a majority of the Committee
  members present at 

 

	 	
-5-	 

meetings at which a quorum exists,
         or acts reduced to or approved in writing by all Committee members,
         shall be valid acts of the Committee. 

        (d)
  Committee Responsibilities. Subject to the provisions of the Plan, the Committee
  shall have full discretionary authority to take the following actions: 

	  	        (i)
To interpret the Plan and to apply its provisions; 

	  	        (ii)
    To adopt, amend or rescind rules, procedures and forms relating to the          Plan; 

	  	        (iii)
   To authorize any person to execute, on behalf of the Company, any          instrument
required to carry out the purposes of the Plan; 

	  	        (iv)
    To determine when Shares are to be awarded or offered for sale and when
         Options are to be granted under the Plan; 

	  	        (v)
     To select the Offerees and Optionees; 

	  	        (vi)
    To determine the number of Shares to be offered to each Offeree or to          be
made subject to each Option; 

	  	        (vii)
   To prescribe the terms and conditions of each award or sale of Shares,
         including (without limitation) the Purchase Price, the vesting of the
         award (including accelerating the vesting of awards) and to specify the
         provisions of the Stock Purchase Agreement relating to such award or
         sale; 

	  	        (viii)
  To prescribe the terms and conditions of each Option, including          (without
limitation) the Exercise Price, the vesting or duration of the          Option (including
accelerating the vesting of the Option), to determine          whether such Option is to
be classified as an ISO or as a Nonstatutory          Option, and to specify the
provisions of the Stock Option Agreement          relating to such Option; 

	  	        (ix)
    To amend any outstanding Stock Purchase Agreement or Stock Option          Agreement,
subject to applicable legal restrictions and to the consent          of the Offeree or
Optionee who entered into such agreement; 

	  	        (x)
     To prescribe the consideration for the grant of each Option or other          right
under the Plan and to determine the sufficiency of such          consideration; 

	  	        (xi)
    To determine the disposition of each Option or other right under the          Plan in
the event of an Optionee’s or Offeree’s divorce or dissolution          of
marriage; 

	  	        (xii)
   To determine whether Options or other rights under the Plan will be          granted
in replacement of other grants under an incentive or other          compensation plan of
an acquired business; 

 

	 	
-6-	 

	  	        (xiii)
  To correct any defect, supply any omission, or reconcile any          inconsistency in
the Plan, any Stock Option Agreement or any Stock          Purchase Agreement; and 

	  	        (xiv)
   To take any other actions deemed necessary or advisable for the
         administration of the Plan. 

Subject to the requirements of
applicable law, the Committee may designate persons other than members of the Committee
to carry out its responsibilities and may prescribe such conditions and limitations as it
may deem appropriate, except that the Committee may not delegate its authority with
regard to the selection for participation of or the granting of Options or other rights
under the Plan to persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on all
Offerees, all Optionees, and all persons deriving their rights from an Offeree or
Optionee. No member of the Committee shall be liable for any action that he has taken or
has failed to take in good faith with respect to the Plan, any Option, or any right to
acquire Shares under the Plan. 

SECTION 4.
 ELIGIBILITY. 

        (a)
  General Rule. Only Employees shall be eligible for the grant of ISOs.
  Only Employees, Consultants and Outside Directors shall be eligible for the
  grant of Restricted Shares, Stock Units, NSOs or SARs, and grants to Outside
  Directors shall comply with the provisions of Section 4(b). 

        (b)
  Outside Directors. Any other provision of the Plan notwithstanding, the
  participation of Outside Directors in the Plan shall be subject to the following
  restrictions: 

	  	        (i)
              Outside Directors shall only be eligible for the grant of
                  Restricted Shares, Stock Units, Nonstatutory Options and SARs. 

	  	        (ii)
             Each Outside Director who first joins the Board of Directors
                  after May 15, 2003 shall receive a Nonstatutory Option to
                  purchase 20,000 Shares (subject to adjustment under Section
                  12) on the first business day after his or her election to the
                  Board of Directors. Each Outside Director who is re-elected at
                  the Company’s Annual Meeting of Stockholders on May 15, 2003
                  shall receive a Nonstatutory Option to purchase 12,500 Shares
                  (subject to adjustment under Section 12) on the first business
                  day after his or her re-election to the Board of Directors. 

	  	        (iii)
   On the first business day following the conclusion of each regular annual meeting of
the Company’s stockholders after such          Outside Director’s appointment
or election to the Board of Directors, commencing with the annual meeting occurring on
May          15, 2003, each Outside Director who will continue serving as a member of the
Board of Directors thereafter shall receive an          Option to purchase 10,000 Shares,
subject to adjustment under Section 12.  Each Outside Director who is not initially
         elected at a regular annual meeting of the Company’s stockholders shall
receive an Option to purchase a pro rata portion of          10,000 Shares within ten
business days of his or her election based on the number of full months remaining from
date of          election until the next regular annual meeting of the Company’s
stockholders divided by 12.  Any  

 

	 	
-7-	 

	  	
fractional
shares resulting          from such calculation shall be rounded up to the nearest whole
number. 

	  	        (iv)
             The Exercise Price of all Nonstatutory Options granted to an
                  Outside Director under this Section 4(b) shall be equal to
                  100% of the Fair Market Value of a Share on the date of grant,
                  payable in one of the forms described in Section 9(a), Section
                  9(b) or Section 9(d). 

	  	        (v)
     Each Option granted under Section 4(b)(ii) shall become exercisable in two equal
annual installments on each of the first          two anniversaries of the date of grant;
provided, however, that the two equal annual installments of each such Option shall
         become exercisable in full immediately prior to the next two regular annual
meetings of the Company’s stockholders following          such date of grant in the
event such meetings occur prior to such first two anniversary dates.  Except as set forth
in the          next succeeding sentence, each Option granted under Section 4(b)(iii)
above shall become exercisable in full on the first          anniversary of the date of
grant; provided, however, that each such Option shall become exercisable in full
immediately          prior to the next regular annual meeting of the Company’s
stockholders following such date of grant in the event such          meeting occurs prior
to such first anniversary date.  Each Option granted to Outside Directors who were not
initially          elected at a regular annual meeting of the Company’s stockholders
shall become exercisable in full immediately prior to the          next regular annual
meeting of the Company’s stockholders following the date of grant.  Notwithstanding
the foregoing, each          Option that has been outstanding for not less than six
months shall become exercisable in full in the event that a Change in          Control
occurs with respect to the Company. 

	  	        (vi)
      Subject to Section 4(b)(vii) and Section 4(b)(viii), all Nonstatutory Options
      granted to an Outside Director under this Section 4(b) shall terminate on
      the tenth anniversary of the date of grant of such Options.  

	  	        (vii)
            If an Optionee’s Service terminates for any reason other than
                  death, then his or her Options shall expire on the earliest of
                  the following occasions: 

	  	        (A)
              The expiration date determined pursuant to Section 4(b)(vi); 

	  	        (B)
              The date 24 months after the termination of the Optionee’s
                  Service, if the termination occurs because of his or her Total
                  and Permanent Disability; or 

	  	        (C)
              The date six months after the termination of the Optionee’s
                  Service for any reason other than Total and Permanent
                  Disability. 

	  	
The
Optionee may exercise all or part of his or her Options at any time          before the
expiration of such Options under the preceding sentence, but          only to the extent
that such Options had become exercisable before his          or her Service terminated.
The balance of such Options shall lapse when          the Optionee’s Service
terminates. In the event that the Optionee dies          after the termination of his or
her Service but before the expiration          of his or  

 

	 	
-8-	 

	  	
her
Options, all or part of such Options may be exercised at          any time prior to their
expiration by the executors or administrators          of the Optionee’s estate or
by any person who has acquired such Options          directly from him or her by bequest,
inheritance or beneficiary          designation under the Plan, but only to the extent
that such Options          had become exercisable before his or her Service terminated.  

	  	        (viii)
  If an Optionee dies while he or she is in Service, then his or her          Options
shall expire on the earlier of the following dates: 

	  	        (A)
     The expiration date determined pursuant to Section 4(b)(vi) above; or 

	  	        (B)
     The date 24 months after his or her death. 

	  	
All
or part of the Optionee’s Options may be exercised at any time          before the
expiration of such Options under the preceding sentence by          the executors or
administrators of his or her estate or by any person          who has acquired such
Options directly from him or her by bequest,          inheritance or beneficiary
designation under the Plan. 

	  	        (ix)
    No Option shall be transferable by the Optionee other than by will, by
         written beneficiary designation or by the laws of descent and
         distribution. An Option may be exercised during the lifetime of the
         Optionee only by the Optionee or by the Optionee’s guardian or legal
         representative. Except as permitted by the Committee, no Option or
         interest therein may be transferred, assigned, pledged or hypothecated
         by the Optionee during his or her lifetime, whether by operation of law
         or otherwise, or be made subject to execution, attachment or similar
         process. 

        (c)
  Ten-Percent Stockholders. An Employee who owns more than 10% of the total
  combined voting power of all classes of outstanding stock of the Company, a
  Parent or Subsidiary shall not be eligible for the grant of an ISO unless (a)
  the Exercise Price under the ISO is not less than 110% of the Fair Market Value
  of a Share on the date of grant; and (b) the term of the ISO does not exceed
  5 years from the date of grant. 

        (d)
  Attribution Rules. For purposes of Section 4(c) above, in determining
  stock ownership, an Employee shall be deemed to own the stock owned, directly
  or indirectly, by or for such Employee’s brothers, sisters, spouse, ancestors
  and lineal descendants. Stock owned, directly or indirectly, by or for a corporation,
  partnership, estate or trust shall be deemed to be owned proportionately by
  or for its stockholders, partners or beneficiaries. 

        (e)
  Outstanding Stock. For purposes of Section 4(c) above, “outstanding
  stock” shall include all stock actually issued and outstanding immediately
  after the grant. “Outstanding stock” shall not include shares authorized
  for issuance under outstanding options held by the Employee or by any other
  person. 

SECTION 5.  STOCK
SUBJECT TO PLAN. 

        (a)
  Basic Limitation. Shares offered under the Plan shall be authorized but
  unissued Shares or treasury Shares. The maximum aggregate number of Options,
  SARs, Stock Units and 

 

	 	
-9-	 

Restricted Shares awarded under the
Plan          shall not exceed 1,000,000 Shares, plus the additional Shares described
         in Section 5(b) and Section 5(c). The limitation of this Section 5(a)
         shall be subject to adjustment pursuant to Section 12. 

        (b)
  Annual Increase in Shares. As of January 1 of each year, commencing with
  the year 2002, the aggregate number of Options, SARs, Stock Units and Restricted
  Shares that may be awarded under the Plan shall automatically increase by a
  number equal to the lesser of (i) 750,000 shares, (ii) 3.5% of the outstanding
  shares of Stock of the Company on such date or (iii) a lesser amount determined
  by the Board. The aggregate number of Shares that may be issued under the Plan
  shall at all times be subject to adjustment pursuant to Section 12. The number
  of Shares that are subject to Options or other rights outstanding at any time
  under the Plan shall not exceed the number of Shares which then remain available
  for issuance under the Plan. The Company, during the term of the Plan, shall
  at all times reserve and keep available sufficient Shares to satisfy the requirements
  of the Plan. 

        (c)
  Additional Shares. 

	  	        (i)
     On the effective date of the Plan, all shares of Common Stock which are
         then available for the grant of stock options or for issuance under the
         Predecessor Plan (together with such additional number of shares as may
         be required pursuant to the antidilution provisions of the Predecessor
         Plan), shall become available for Awards under the Plan. 

	  	        (ii)
    Upon the expiration or termination unexercised of currently outstanding
         options or the repurchase of restricted shares under the Predecessor
         Plan, the Company shall reserve an equivalent number of shares as were
         initially reserved for issuance pursuant to such expired or terminated
         unexercised options or repurchased shares (together with such
         additional number of shares as may be required pursuant to the
         antidilution provisions of the Predecessor Plan) of its Common Stock,
         subject to adjustment under Section 12, and such shares shall become
         available for Awards under the Plan. 

	  	        (iii)
   If Restricted Shares or Shares issued upon the exercise of Options are forfeited, then
such Shares shall again become          available for Awards under the Plan.  If Stock
Units, Options or SARs are forfeited or terminate for any other reason before
         being exercised, then the corresponding Shares shall again become available for
Awards under the Plan.  If Stock Units are          settled, then only the number of
Shares (if any) actually issued in settlement of such Stock Units shall reduce the number
         available under Section 5(a) and the balance shall again become available for
Awards under the Plan.  If SARs are exercised,          then only the number of Shares
(if any) actually issued in settlement of such SARs shall reduce the number available in
         Section 5(a) and the balance shall again become available for Awards under the
Plan.  The foregoing notwithstanding, the          aggregate number of Shares that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
         Restricted Shares or other Shares are forfeited. 

 

	 	
-10-	 

        (d)
  Dividend Equivalents. Any dividend equivalents paid or credited under
  the Plan shall not be applied against the number of Restricted Shares, Stock
  Units, Options or SARs available for Awards, whether or not such dividend equivalents
  are converted into Stock Units. 

SECTION 6.  RESTRICTED
SHARES 

        (a)
  Restricted Stock Agreement. Each grant of Restricted Shares under the
  Plan shall be evidenced by a Restricted Stock Agreement between the recipient
  and the Company. Such Restricted Shares shall be subject to all applicable terms
  of the Plan and may be subject to any other terms that are not inconsistent
  with the Plan. The provisions of the various Restricted Stock Agreements entered
  into under the Plan need not be identical. 

        (b)
  Payment for Awards. Subject to the following sentence, Restricted Shares
  may be sold or awarded under the Plan for such consideration as the Committee
  may determine, including (without limitation) cash, cash equivalents, full-recourse
  promissory notes, past services and future services. To the extent that an Award
  consists of newly issued Restricted Shares, the Award recipient shall furnish
  consideration with a value not less than the par value of such Restricted Shares
  in the form of cash, cash equivalents, or past services rendered to the Company
  (or a Parent or Subsidiary), as the Committee may determine. 

        (c)
  Vesting. Each Award of Restricted Shares may or may not be subject to
  vesting. Vesting shall occur, in full or in installments, upon satisfaction
  of the conditions specified in the Restricted Stock Agreement. A Restricted
  Stock Agreement may provide for accelerated vesting in the event of the Participant’s
  death, disability or retirement or other events. The Committee may determine,
  at the time of granting Restricted Shares of thereafter, that all or part of
  such Restricted Shares shall become vested in the event that a Change in Control
  occurs with respect to the Company. 

        (d)
  Voting and Dividend Rights. The holders of Restricted Shares awarded
  under the Plan shall have the same voting, dividend and other rights as the
  Company’s other stockholders. A Restricted Stock Agreement, however, may
  require that the holders of Restricted Shares invest any cash dividends received
  in additional Restricted Shares. Such additional Restricted Shares shall be
  subject to the same conditions and restrictions as the Award with respect to
  which the dividends were paid. 

SECTION 7.  OTHER
TERMS AND CONDITIONS OF AWARDS OR SALES. 

        (a)
  Duration of Offers and Nontransferability of Rights. Any right to acquire
  Shares under the Plan (other than an Option) shall automatically expire if not
  exercised by the Offeree 30 days after the grant of such right was communicated
  to him by the Committee. Such right shall not be transferable and shall be exercisable
  only by the Offeree to whom such right was granted. 

        (b)
  Withholding Taxes. As a condition to the purchase of Shares, the Offeree
  shall make such arrangements as the Committee may require for the satisfaction
  of any federal, state or local withholding tax obligations that may arise in
  connection with such purchase. 

 

	 	
-11-	 

        (c)
  Restrictions on Transfer of Shares. Any Shares awarded or sold under
  the Plan shall be subject to such special forfeiture conditions, rights of repurchase,
  rights of first refusal and other transfer restrictions as the Committee may
  determine. Such restrictions shall be set forth in the applicable Stock Purchase
  Agreement and shall apply in addition to any general restrictions that may apply
  to all holders of Shares. 

SECTION 8.  TERMS AND
CONDITIONS OF OPTIONS. 

        (a)
  Stock Option Agreement. Each grant of an Option under the Plan shall
  be evidenced by a Stock Option Agreement between the Optionee and the Company.
  Such Option shall be subject to all applicable terms and conditions of the Plan
  and may be subject to any other terms and conditions which are not inconsistent
  with the Plan and which the Committee deems appropriate for inclusion in a Stock
  Option Agreement. The Stock Option Agreement shall specify whether the Option
  is an ISO or an NSO. The provisions of the various Stock Option Agreements entered
  into under the Plan need not be identical. Options may be granted in consideration
  of a reduction in the Optionee’s other compensation. A Stock Option Agreement
  may provide that a new Option will be granted automatically to the Optionee
  when he or she exercises a prior Option and pays the Exercise Price in a form
  described in Section 9(b). 

        (b)
  Number of Shares. Each Stock Option Agreement shall specify the number
  of Shares that are subject to the Option and shall provide for the adjustment
  of such number in accordance with Section 12. No Employee or Consultant shall
  be granted Options to purchase more than 500,000 Shares in any fiscal year of
  the Company, except that Options granted to a new Employee or Consultant in
  the fiscal year of the Company in which his or her Service first commences shall
  not cover more than 1,000,000 Shares (in each case subject to adjustment in
  accordance with Section 12). 

        (c)
  Exercise Price. Each Stock Option Agreement shall specify the Exercise
  Price. The Exercise Price of an ISO shall not be less than 100% of the Fair
  Market Value of a Share on the date of grant, except as otherwise provided in
  Section 4(c), and the Exercise Price of an NSO shall not be less than 100% of
  the Fair Market Value of a Share on the date of grant. Subject to the foregoing
  in this Section 8(c), the Exercise Price under any Option shall be determined
  by the Committee at its sole discretion. The Exercise Price shall be payable
  in one of the forms described in Section 9. 

        (d)
  Withholding Taxes. As a condition to the exercise of an Option, the Optionee
  shall make such arrangements as the Committee may require for the satisfaction
  of any federal, state or local withholding tax obligations that may arise in
  connection with such exercise. The Optionee shall also make such arrangements
  as the Committee may require for the satisfaction of any federal, state or local
  withholding tax obligations that may arise in connection with the disposition
  of Shares acquired by exercising an Option. 

        (e)
  Exercisability and Term. Each Stock Option Agreement shall specify the
  date when all or any installment of the Option is to become exercisable. The
  Stock Option Agreement shall also specify the term of the Option; provided that
  the term of an ISO shall in no event exceed 10 years from the date of grant
  (five years for Employees described in Section 4(c)). A Stock Option Agreement
  may provide for accelerated exercisability in the event of the 

 

	 	
-12-	 

Optionee’s death, disability,
or retirement or other events and may provide for expiration prior to the end of its term
in the event of the termination of the Optionee’s service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not be
exercisable unless the related SARs are forfeited. Subject to the foregoing in this
Section 8(e), the Committee at its sole discretion shall determine when all or any
installment of an Option is to become exercisable and when an Option is to expire. 

        (f)
  Nontransferability. Except as permitted by the Committee, during an Optionee’s
  lifetime, his or her Option(s) shall be exercisable only by the Optionee and
  shall not be transferable. In the event of an Optionee’s death, his or
  her Option(s) shall not be transferable other than by will or by the laws of
  descent and distribution. 

        (g)
  Exercise of Options Upon Termination of Service. Each Stock Option Agreement
  shall set forth the extent to which the Optionee shall have the right to exercise
  the Option following termination of the Optionee’s Service with the Company
  and its Subsidiaries, and the right to exercise the Option of any executors
  or administrators of the Optionee’s estate or any person who has acquired
  such Option(s) directly from the Optionee by bequest or inheritance. Such provisions
  shall be determined in the sole discretion of the Committee, need not be uniform
  among all Options issued pursuant to the Plan, and may reflect distinctions
  based on the reasons for termination of Service. 

        (h)
  Effect of Change in Control. The Committee may determine, at the time
  of granting an Option or thereafter, that such Option shall become exercisable
  as to all or part of the Shares subject to such Option in the event that a Change
  in Control occurs with respect to the Company. 

        (i)
  Leaves of Absence. An Employee’s Service shall cease when such Employee
  ceases to be actively employed by, or a consultant or adviser to, the Company
  (or any subsidiary) as determined in the sole discretion of the Board of Directors.
  For purposes of Options, Service does not terminate when an Employee goes on
  a bona fide leave of absence, that was approved by the Company in writing, if
  the terms of the leave provide for continued service crediting, or when continued
  service crediting is required by applicable law. However, for purposes of determining
  whether an Option is entitled to ISO status, an Employee’s Service will
  be treated as terminating 90 days after such Employee went on leave, unless
  such Employee’s right to return to active work is guaranteed by law or
  by a contract. Service terminates in any event when the approved leave ends,
  unless such Employee immediately returns to active work. The Company shall have
  the discretionary authority to determine which leaves count toward Service,
  and when Service terminates for all purposes under the Plan. 

        (j)
  No Rights as a Stockholder. An Optionee, or a transferee of an Optionee,
  shall have no rights as a stockholder with respect to any Shares covered by
  his Option until the date of the issuance of a stock certificate for such Shares.
  No adjustments shall be made, except as provided in Section 12. 

        (k)
  Modification, Extension and Renewal of Options. Within the limitations
  of the Plan, the Committee may modify, extend or renew outstanding options or
  may accept the cancellation of outstanding options (to the extent not previously
  exercised), whether or not 

 

	 	
-13-	 

granted hereunder, in return for the
grant of new Options for the same or a different number of Shares and at the same or a
different exercise price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option. 

        (l)
  Restrictions on Transfer of Shares. Any Shares issued upon exercise of
  an Option shall be subject to such special forfeiture conditions, rights of
  repurchase, rights of first refusal and other transfer restrictions as the Committee
  may determine. Such restrictions shall be set forth in the applicable Stock
  Option Agreement and shall apply in addition to any general restrictions that
  may apply to all holders of Shares. 

        (m)
  Buyout Provisions. The Committee may at any time (a) offer to buy out
  for a payment in cash or cash equivalents an Option previously granted or (b)
  authorize an Optionee to elect to cash out an Option previously granted, in
  either case at such time and based upon such terms and conditions as the Committee
  shall establish. 

SECTION 9.  PAYMENT
FOR SHARES. 

        (a)
  General Rule. The entire Exercise Price of Shares issued under the Plan
  shall be payable in lawful money of the United States of America at the time
  when such Shares are purchased, except as provided in Section 9(b) through Section
  9(g) below. 

        (b)
  Surrender of Stock. To the extent that a Stock Option Agreement so provides,
  payment may be made all or in part by surrendering, or attesting to the ownership
  of, Shares which have already been owned by the Optionee or his representative
  for more than 12 months. Such Shares shall be valued at their Fair Market Value
  on the date when the new Shares are purchased under the Plan. The Optionee shall
  not surrender, or attest to the ownership of, Shares in payment of the Exercise
  Price if such action would cause the Company to recognize compensation expense
  (or additional compensation expense) with respect to the Option for financial
  reporting purposes. 

        (c)
  Services Rendered. At the discretion of the Committee, Shares may be
  awarded under the Plan in consideration of services rendered to the Company
  or a Subsidiary prior to the award. If Shares are awarded without the payment
  of a Purchase Price in cash, the Committee shall make a determination (at the
  time of the award) of the value of the services rendered by the Offeree and
  the sufficiency of the consideration to meet the requirements of Section 6(b).
  

        (d)
  Cashless Exercise. To the extent that a Stock Option Agreement so provides,
  payment may be made all or in part by delivery (on a form prescribed by the
  Committee) of an irrevocable direction to a securities broker to sell Shares
  and to deliver all or part of the sale proceeds to the Company in payment of
  the aggregate Exercise Price. 

        (e)
  Exercise/Pledge. To the extent that a Stock Option Agreement so provides,
  payment may be made all or in part by delivery (on a form prescribed by the
  Committee) of an irrevocable direction to a securities broker or lender to pledge
  Shares, as security for a loan, and to deliver all or part of the loan proceeds
  to the Company in payment of the aggregate Exercise Price. 

 

	 	
-14-	 

        (f)
  Promissory Note. To the extent that a Stock Option Agreement so provides,
  payment may be made all or in part by delivering (on a form prescribed by the
  Company) a full-recourse promissory note. However, the par value of the Common
  Shares being purchased under the Plan, if newly issued, shall be paid in cash
  or cash equivalents. 

        (g)
  Other Forms of Payment. To the extent that a Stock Option Agreement so
  provides, payment may be made in any other form that is consistent with applicable
  laws, regulations and rules. 

SECTION 10.  STOCK
APPRECIATION RIGHTS. 

        (a)
  SAR Agreement. Each grant of a SAR under the Plan shall be evidenced by
  a SAR Agreement between the Optionee and the Company. Such SAR shall be subject
  to all applicable terms of the Plan and may be subject to any other terms that
  are not inconsistent with the Plan. The provisions of the various SAR Agreements
  entered into under the Plan need not be identical. SARs may be granted in consideration
  of a reduction in the Optionee’s other compensation. 

        (b)
  Number of Shares. Each SAR Agreement shall specify the number of Shares
  to which the SAR pertains and shall provide for the adjustment of such number
  in accordance with Section 12. SARs granted to any Optionee in a single calendar
  year shall in no event pertain to more than 500,000 Shares, except that SARs
  granted to a new Employee or Consultant in the fiscal year of the Company in
  which his or her Service first commences shall not pertain to more than 1,000,000
  Shares. The limitations set forth in the preceding sentence shall be subject
  to adjustment in accordance with Section 12. 

        (c)
  Exercise Price. Each SAR Agreement shall specify the Exercise Price.
  A SAR Agreement may specify an Exercise Price that varies in accordance with
  a predetermined formula while the SAR is outstanding. 

        (d)
  Exercisability and Term. Each SAR Agreement shall specify the date when
  all or any installment of the SAR is to become exercisable. The SAR Agreement
  shall also specify the term of the SAR. A SAR Agreement may provide for accelerated
  exercisability in the event of the Optionee’s death, disability or retirement
  or other events and may provide for expiration prior to the end of its term
  in the event of the termination of the Optionee’s service. SARs may be
  awarded in combination with Options, and such an Award may provide that the
  SARs will not be exercisable unless the related Options are forfeited. A SAR
  may be included in an ISO only at the time of grant but may be included in an
  NSO at the time of grant or thereafter. A SAR granted under the Plan may provide
  that it will be exercisable only in the event of a Change in Control. 

        (e)
  Effect of Change in Control. The Committee may determine, at the time
  of granting a SAR or thereafter, that such SAR shall become fully exercisable
  as to all Common Shares subject to such SAR in the event that a Change in Control
  occurs with respect to the Company. 

        (f)
  Exercise of SARs. If, on the date when a SAR expires, the Exercise Price
  under such SAR is less than the Fair Market Value on such date but any portion
  of such SAR has not 

 

	 	
-15-	 

been exercised or surrendered, then
such SAR shall automatically be deemed to be exercised as of such date with respect to
such portion. Upon exercise of a SAR, the Optionee (or any person having the right to
exercise the SAR after his or her death) shall receive from the Company (a) Shares, (b)
cash or (c) a combination of Shares and cash, as the Committee shall determine. The
amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs
shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the
date of surrender) of the Shares subject to the SARs exceeds the Exercise Price. 

        (g)
  Special Holding Period. To the extent required by Section 16 of the Exchange
  Act or any rule thereunder, an SAR shall not be exercised for cash unless both
  it and the related Option have been outstanding for more than six months. 

        (h)
  Special Exercise Window. To the extent required by Section 16 of the Exchange
  Act or any rule thereunder, an SAR may only be exercised for cash during a period
  which (a) begins on the third business day following a date when the Company’s
  quarterly summary statement of sales and earnings is released to the public
  and (b) ends on the 45th business day following such date. This Section 10(h)
  shall not apply if the exercise occurs automatically on the date when the related
  Option expires, and the Committee may determine that it shall not apply to limited
  SARs that are exercisable only in the event of a Change in Control. 

        (i)
  Modification or Assumption of SARs. Within the limitations of the Plan,
  the Committee may modify, extend or assume outstanding SARs or may accept the
  cancellation of outstanding SARs (whether granted by the Company or by another
  issuer) in return for the grant of new SARs for the same or a different number
  of shares and at the same or a different exercise price. The foregoing notwithstanding,
  no modification of a SAR shall, without the consent of the Optionee, may alter
  or impair his or her rights or obligations under such SAR. 

SECTION 11.  STOCK
UNITS. 

        (a)
  Stock Unit Agreement. Each grant of Stock Units under the Plan shall
  be evidenced by a Stock Unit Agreement between the recipient and the Company.
  Such Stock Units shall be subject to all applicable terms of the Plan and may
  be subject to any other terms that are not inconsistent with the Plan. The provisions
  of the various Stock Unit Agreements entered into under the Plan need not be
  identical. Stock Units may be granted in consideration of a reduction in the
  recipient’s other compensation. 

        (b)
  Payment for Awards. To the extent that an Award is granted in the form
  of Stock Units, no cash consideration shall be required of the Award recipients.
  

        (c)
  Vesting Conditions. Each Award of Stock Units may or may not be subject
  to vesting. Vesting shall occur, in full or in installments, upon satisfaction
  of the conditions specified in the Stock Unit Agreement. A Stock Unit Agreement
  may provide for accelerated vesting in the event of the Participant’s death,
  disability or retirement or other events. The Committee may determine, at the
  time of granting Stock Units or thereafter, that all or part of such Stock Units
  shall become vested in the event that a Change in Control occurs with respect
  to the Company. 

 

	 	
-16-	 

        (d)
  Voting and Dividend Rights. The holders of Stock Units shall have no
  voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
  the Plan may, at the Committee’s discretion, carry with it a right to dividend
  equivalents. Such right entitles the holder to be credited with an amount equal
  to all cash dividends paid on one Share while the Stock Unit is outstanding.
  Dividend equivalents may be converted into additional Stock Units. Settlement
  of dividend equivalents may be made in the form of cash, in the form of Shares,
  or in a combination of both. Prior to distribution, any dividend equivalents
  which are not paid shall be subject to the same conditions and restrictions
  (including without limitation, any forfeiture conditions) as the Stock Units
  to which they attach. 

        (e)
  Form and Time of Settlement of Stock Units. Settlement of vested Stock Units
  may be made in the form of (a) cash, (b) Shares or (c) any combination of both,
  as determined by the Committee. The actual number of Stock Units eligible for
  settlement may be larger or smaller than the number included in the original
  Award, based on predetermined performance factors. Methods of converting Stock
  Units into cash may include (without limitation) a method based on the average
  Fair Market Value of Shares over a series of trading days. Vested Stock Units
  may be settled in a lump sum or in installments. The distribution may occur
  or commence when all vesting conditions applicable to the Stock Units have been
  satisfied or have lapsed, or it may be deferred to any later date. The amount
  of a deferred distribution may be increased by an interest factor or by dividend
  equivalents. Until an Award of Stock Units is settled, the number of such Stock
  Units shall be subject to adjustment pursuant to Section 12. 

        (f)
  Death of Recipient. Any Stock Units Award that becomes payable after
  the recipient’s death shall be distributed to the recipient’s beneficiary
  or beneficiaries. Each recipient of a Stock Units Award under the Plan shall
  designate one or more beneficiaries for this purpose by filing the prescribed
  form with the Company. A beneficiary designation may be changed by filing the
  prescribed form with the Company at any time before the Award recipient’s
  death. If no beneficiary was designated or if no designated beneficiary survives
  the Award recipient, then any Stock Units Award that becomes payable after the
  recipient’s death shall be distributed to the recipient’s estate.
  

        (g)
  Creditors’ Rights. A holder of Stock Units shall have no rights other
  than those of a general creditor of the Company. Stock Units represent an unfunded
  and unsecured obligation of the Company, subject to the terms and conditions
  of the applicable Stock Unit Agreement. 

SECTION 12.
 ADJUSTMENT OF SHARES. 

        (a)
  Adjustments. In the event of a subdivision of the outstanding Stock,
  a declaration of a dividend payable in Shares, a declaration of a dividend payable
  in a form other than Shares in an amount that has a material effect on the price
  of Shares, a combination or consolidation of the outstanding Stock (by reclassification
  or otherwise) into a lesser number of Shares, a recapitalization, a spin-off
  or a similar occurrence, the Committee shall make such adjustments as it, in
  its sole discretion, deems appropriate in one or more of: 

	  	        (i)
The number of Options, SARs, Restricted Shares and Stock Units available for future
Awards under Section 5; 

 

	 	
-17-	 

	  	        (ii)
The limitations set forth in Section 8(b) and Section 10(b); 

	  	        (iii)
The number of NSOs to be granted to Outside Directors under Section 4(b); 

	  	        (iv)
The number of Shares covered by each outstanding Option and SAR; 

	  	        (v)
The Exercise Price under each outstanding Option and SAR; or 

	  	        (vi)
The number of Stock Units included in any prior Award which has not yet been settled. 

Except as provided in this Section
12, a Participant shall have no rights by reason of any issue by the Company of stock of
any class or securities convertible into stock of any class, any subdivision or
consolidation of shares of stock of any class, the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class. 

        (b)
  Dissolution or Liquidation. To the extent not previously exercised or
  settled, Options, SARs and Stock Units shall terminate immediately prior to
  the dissolution or liquidation of the Company. 

        (c)
  Reorganizations. In the event that the Company is a party to a merger
  or other reorganization, outstanding Awards shall be subject to the agreement
  of merger or reorganization. Such agreement shall provide for: 

	  	        (i)
The continuation of the outstanding Awards by the Company, if the Company is a surviving
corporation; 

	  	        (ii)
The assumption of the outstanding Awards by the surviving corporation or its parent or
subsidiary; 

	  	        (iii)
The substitution by the surviving corporation or its parent or subsidiary of its own
awards for the outstanding Awards; 

	  	        (iv)
Full exercisability or vesting and accelerated expiration of the outstanding Awards; or 

	  	        (v)
      Settlement of the full value of the outstanding Awards in cash or cash equivalents
      followed by cancellation of such Awards. 

 
        (d)
  Reservation of Rights. Except as provided in this Section 12, an Optionee
  or Offeree shall have no rights by reason of any subdivision or consolidation
  of shares of stock of any class, the payment of any dividend or any other increase
  or decrease in the number of shares of stock of any class. Any issue by the
  Company of shares of stock of any class, or securities convertible into shares
  of stock of any class, shall not affect, and no adjustment by reason thereof
  shall be made with respect to, the number or Exercise Price of Shares subject
  to an Option. The grant of an Option pursuant to the Plan shall not affect in
  any way the right or power of the Company to make adjustments, reclassifications,
  reorganizations or changes of its capital or 

 

	 	
-18-	 

business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its business
or assets. 

SECTION 13.  DEFERRAL
OF AWARDS. 

        The
Committee (in its sole discretion) may permit or require a Participant to: 

        (a)
Have cash that otherwise would be paid to such Participant as a result of the exercise of
a SAR or the settlement of Stock Units credited to a deferred compensation account
established for such Participant by the Committee as an entry on the Company’s books; 

        (b)
Have Shares that otherwise would be delivered to such Participant as a result of the
exercise of an Option or SAR converted into an equal number of Stock Units; or 

        (c)
Have Shares that otherwise would be delivered to such Participant as a result of the
exercise of an Option or SAR or the settlement of Stock Units converted into amounts
credited to a deferred compensation account established for such Participant by the
Committee as an entry on the Company’s books. Such amounts shall be determined by
reference to the Fair Market Value of such Shares as of the date when they otherwise
would have been delivered to such Participant. 

        A
deferred compensation account established under this Section 13 may be credited with
interest or other forms of investment return, as determined by the Committee. A
Participant for whom such an account is established shall have no rights other than those
of a general creditor of the Company. Such an account shall represent an unfunded and
unsecured obligation of the Company and shall be subject to the terms and conditions of
the applicable agreement between such Participant and the Company. If the deferral or
conversion of Awards is permitted or required, the Committee (in its sole discretion) may
establish rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under this
Section 13. 

SECTION 14.  AWARDS
UNDER OTHER PLANS. 

        The
Company may grant awards under other plans or programs. Such awards may be settled in the
form of Shares issued under this Plan. Such Shares shall be treated for all purposes
under the Plan like Shares issued in settlement of Stock Units and shall, when issued,
reduce the number of Shares available under Section 5. 

SECTION 15.  PAYMENT
OF DIRECTOR’S FEES IN SECURITIES. 

        (a)
  Effective Date. No provision of this Section 15 shall be effective unless
  and until the Board has determined to implement such provision. 

        (b)
  Elections to Receive NSOs, Restricted Shares or Stock Units. An Outside
  Director may elect to receive his or her annual retainer payments and/or meeting
  fees from the Company in the form of cash, NSOs, Restricted Shares or Stock
  Units, or a combination thereof, as determined by the Board. Such NSOs, Restricted
  Shares and Stock Units shall be issued 

 

	 	 -19-	 

under the Plan. An election under
this Section 15 shall be filed with the Company on the prescribed form. 

        (c)
  Number and Terms of NSOs, Restricted Shares or Stock Units. The number
  of NSOs, Restricted Shares or Stock Units to be granted to Outside Directors
  in lieu of annual retainers and meeting fees that would otherwise be paid in
  cash shall be calculated in a manner determined by the Board. The terms of such
  NSOs, Restricted Shares or Stock Units shall also be determined by the Board.
  

SECTION 16.  LEGAL AND
REGULATORY REQUIREMENTS. 

        Shares
shall not be issued under the Plan unless the issuance and delivery of such Shares
complies with (or is exempt from) all applicable requirements of law, including (without
limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, state securities laws and regulations and the regulations of any stock
exchange on which the Company’s securities may then be listed, and the Company has
obtained the approval or favorable ruling from any governmental agency which the Company
determines is necessary or advisable. 

SECTION 17.
 WITHHOLDING TAXES. 

        (a)
  General. To the extent required by applicable federal, state, local or
  foreign law, a Participant or his or her successor shall make arrangements satisfactory
  to the Company for the satisfaction of any withholding tax obligations that
  arise in connection with the Plan. The Company shall not be required to issue
  any Shares or make any cash payment under the Plan until such obligations are
  satisfied. 

        (b)
  Share Withholding. The Committee may permit a Participant to satisfy all
  or part of his or her withholding or income tax obligations by having the Company
  withhold all or a portion of any Shares that otherwise would be issued to him
  or her or by surrendering all or a portion of any Shares that he or she previously
  acquired. Such Shares shall be valued at their Fair Market Value on the date
  when taxes otherwise would be withheld in cash. In no event may a Participant
  have Shares withheld that would otherwise be issued to him or her in excess
  of the number necessary to satisfy the legally required minimum tax withholding.
  

SECTION 18.
 LIMITATION ON PARACHUTE PAYMENTS. 

        (a)
  Scope of Limitation. This Section 18 shall apply to an Award unless the
  Committee, at the time of making an Award under the Plan or at any time thereafter,
  specifies in writing that such Award shall not be subject to this Section 18.
  If this Section 18 applies to an Award, it shall supersede any contrary provision
  of the Plan or of any Award granted under the Plan. 

        (b)
  Basic Rule. In the event that the independent auditors most recently
  selected by the Board (the “Auditors”) determine that any payment
  or transfer by the Company under the Plan to or for the benefit of a Participant
  (a “Payment”) would be nondeductible by the Company for federal income
  tax purposes because of the provisions concerning “excess parachute payments”
  in Section 280G of the Code, then the aggregate present value of all Payments
  shall 

 

	 	
-20-	 

be reduced (but not below zero) to
the Reduced Amount. For purposes of this Section 18, the “Reduced Amount” shall
be the amount, expressed as a present value, which maximizes the aggregate present value
of the Payments without causing any Payment to be nondeductible by the Company because of
Section 280G of the Code. 

        (c)
  Reduction of Payments. If the Auditors determine that any Payment would
  be nondeductible by the Company because of Section 280G of the Code, then the
  Company shall promptly give the Participant notice to that effect and a copy
  of the detailed calculation thereof and of the Reduced Amount, and the Participant
  may then elect, in his or her sole discretion, which and how much of the Payments
  shall be eliminated or reduced (as long as after such election the aggregate
  present value of the Payments equals the Reduced Amount) and shall advise the
  Company in writing of his or her election within 10 days of receipt of notice.
  If no such election is made by the Participant within such 10-day period, then
  the Company may elect which and how much of the Payments shall be eliminated
  or reduced (as long as after such election the aggregate present value of the
  Payments equals the Reduced Amount) and shall notify the Participant promptly
  of such election. For purposes of this Section 18, present value shall be determined
  in accordance with Section 280G(d)(4) of the Code. All determinations made by
  the Auditors under this Section 18 shall be binding upon the Company and the
  Participant and shall be made within 60 days of the date when a Payment becomes
  payable or transferable. As promptly as practicable following such determination
  and the elections hereunder, the Company shall pay or transfer to or for the
  benefit of the Participant such amounts as are then due to him or her under
  the Plan and shall promptly pay or transfer to or for the benefit of the Participant
  in the future such amounts as become due to him or her under the Plan. 

        (d)
  Overpayments and Underpayments. As a result of uncertainty in the application
  of Section 280G of the Code at the time of an initial determination by the Auditors
  hereunder, it is possible that Payments will have been made by the Company that
  should not have been made (an “Overpayment”) or that additional Payments
  that will not have been made by the Company could have been made (an “Underpayment”),
  consistent in each case with the calculation of the Reduced Amount hereunder.
  In the event that the Auditors, based upon the assertion of a deficiency by
  the Internal Revenue Service against the Company or the Participant that the
  Auditors believe has a high probability of success, determine that an Overpayment
  has been made, such Overpayment shall be treated for all purposes as a loan
  to the Participant which he or she shall repay to the Company, together with
  interest at the applicable federal rate provided in Section 7872(f)(2) of the
  Code; provided, however, that no amount shall be payable by the Participant
  to the Company if and to the extent that such payment would not reduce the amount
  subject to taxation under Section 4999 of the Code. In the event that the Auditors
  determine that an Underpayment has occurred, such Underpayment shall promptly
  be paid or transferred by the Company to or for the benefit of the Participant,
  together with interest at the applicable federal rate provided in Section 7872(f)(2)
  of the Code. 

        (e)
  Related Corporations. For purposes of this Section 18, the term “Company”
  shall include affiliated corporations to the extent determined by the Auditors
  in accordance with Section 280G(d)(5) of the Code. 

 

	 	
-21-	 

SECTION 19.  NO
EMPLOYMENT RIGHTS. 

        No
provision of the Plan, nor any right or Option granted under the Plan, shall be construed
to give any person any right to become, to be treated as, or to remain an Employee. The
Company and its Subsidiaries reserve the right to terminate any person’s Service at
any time and for any reason, with or without notice. 

SECTION 20.  DURATION
AND AMENDMENTS. 

        (a)
  Term of the Plan. The Plan, as set forth herein, shall terminate automatically
  on August 2, 2010 and may be terminated on any earlier date pursuant to Section
  20(c) below. 

        (b)
  Predecessor Plan. The Plan shall serve as the successor to the Predecessor
  Plan, and no further option grants shall be made under the Predecessor Plan
  after the Plan’s effective date. All options outstanding under the Predecessor
  Plans as of the Plan’s effective date shall, immediately upon approval
  of the Plan by the Company’s stockholders, be incorporated into the Plan
  and treated as outstanding options under the Plan. However, each outstanding
  option so incorporated shall continue to be governed solely by the terms of
  the documents evidencing such option, and no provision of the Plan shall be
  deemed to affect or otherwise modify the rights or obligations of the holders
  of such incorporated options with respect to their acquisition of shares of
  Stock. 

        (c)
  Right to Amend or Terminate the Plan. The Board of Directors may amend
  or terminate the Plan at any time and for any reason. Rights and obligations
  under any Option granted before amendment of the Plan shall not be materially
  impaired by such amendment, except with consent of the person to whom the Option
  was granted. An amendment of the Plan shall be subject to the approval of the
  Company’s stockholders only to the extent required by applicable laws,
  regulations or rules. 

        (d)
  Effect of Amendment or Termination. No Shares shall be issued or sold
  under the Plan after the termination thereof, except upon exercise of an Option
  granted prior to such termination. The termination of the Plan, or any amendment
  thereof, shall not affect any Share previously issued or any Option previously
  granted under the Plan. 

 

	 	
-22-	 

SECTION 21.  EXECUTION. 

        To
record the amendment and restatement of the Plan by the Board of Directors, the Company
has caused its authorized officer to execute the same. 

	 	  	 	  	LOGICVISION, INC.  

	 	  	 	  	By: /S/ BRUCE
      M. JAFFE 

      Bruce M. Jaffe 

      Vice President of Finance 

      and Chief Financial Officer

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