Document:

EXHIBIT
4.13

     

    GUARANTEE
AGREEMENT

     

    BETWEEN

     

    REDWOOD
TRUST, INC.

     

    (AS
GUARANTOR)

     

    [___________________]

     

    (as
Trustee)

     

    dates as
of ____________

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    CROSS-REFERENCE
TABLE*

     

    
      
        
          
            	
                    
                      SECTION OF TRUST INDENTURE

                      ACT OF 1939, AS AMENDED

                    

                  	 	
                    
                      SECTION OF

                      GUARANTEE AGREEMENT

                    

                  
	
                    310(a)

                  	 	
                    4.1
      (a)

                  
	
                    310(b)

                  	 	
                    4.1(c),
      2.7

                  
	
                    310(c)

                  	 	
                    Inapplicable

                  
	
                    311(a)

                  	 	
                    2.2(b)

                  
	
                    311(b)

                  	 	
                    2.2(b)

                  
	
                    311(c)

                  	 	
                    Inapplicable

                  
	
                    312(a)

                  	 	
                    2.2(a)

                  
	
                    312(b)

                  	 	
                    2.2(b)

                  
	
                    313

                  	 	
                    2.3

                  
	
                    314(a)

                  	 	
                    2.4

                  
	
                    314(b)

                  	 	
                    Inapplicable

                  
	
                    314(c)

                  	 	
                    2.5

                  
	
                    314(d)

                  	 	
                    Inapplicable

                  
	
                    314(e)

                  	 	
                    1.1,
      2.5, 3.2

                  
	
                    314(f)

                  	 	
                    2.1,
      3.2

                  
	
                    315(a)

                  	 	
                    3.1(d)

                  
	
                    315(b)

                  	 	
                    2.6(a)

                  
	
                    315(c)

                  	 	
                    3.1

                  
	
                    315(d)

                  	 	
                    3.1(d)

                  
	
                    316(a)

                  	 	
                    1.1,
      2.6, 5.4

                  
	
                    316(b)

                  	 	
                    5.3

                  
	
                    316(c)

                  	 	
                    8.2

                  
	
                    317(a)

                  	 	
                    Inapplicable

                  
	
                    317(b)

                  	 	
                    Inapplicable

                  
	
                    318(a)

                  	 	
                    2.1(b)

                  
	
                    318(b)

                  	 	
                    2.1

                  
	
                    318(c)

                  	 	
                    2.l(a)

                  

          

        

      

    

     

    
      	
              *

            	
              This
      Cross-Reference Table does not constitute part of the Guarantee Agreement
      and shall not affect the interpretation of any of its terms or
      provisions.

            

    

     

    
      
         

      

      
        i

        
          

        

      

      
         

      

    

    TABLE
OF CONTENTS

     

    
      
        
          
            	 
      	 
      	
                    Page

                  
	 
      	 
      	 
      
	
                    Article
      I.        DEFINITIONS

                  	
                    1

                  
	 
      	 
      	 
      
	
                    Section
      1.1

                  	
                    Definitions

                  	
                    1

                  
	 
      	 
      	 
      
	
                    Article
      II.       TRUST INDENTURE
      ACT

                  	
                    3

                  
	 
      	 
      	 
      
	
                    Section
      2.1

                  	
                    Trust
      Indenture Act; Application

                  	
                    3

                  
	
                    Section
      2.2

                  	
                    List
      of Holders; Preferential Claims

                  	
                    4

                  
	
                    Section
      2.3

                  	
                    Reports
      by the Guarantee Trustee

                  	
                    4

                  
	
                    Section
      2.4

                  	
                    Periodic
      Reports to the Guarantee Trustee

                  	
                    4

                  
	
                    Section
      2.5

                  	
                    Evidence
      of Compliance with Conditions Precedent

                  	
                    4

                  
	
                    Section
      2.6

                  	
                    Events
      of Default; Waiver

                  	
                    4

                  
	
                    Section
      2.7

                  	
                    Conflicting
      Interests

                  	
                    5

                  
	 
      	 
      	 
      
	
                    Article
      III.     POWERS, DUTIES AND RIGHTS OF THE
      GUARANTEE TRUSTEE

                  	
                    5

                  
	 
      	 
      	 
      
	
                    Section
      3.1

                  	
                    Powers
      and Duties of the Guarantee Trustee

                  	
                    5

                  
	
                    Section
      3.2

                  	
                    Certain
      Rights of Guarantee Trustee

                  	
                    6

                  
	
                    Section
      3.3

                  	
                    Compensation;
      Indemnity; Fees

                  	
                    8

                  
	
                    Section
      3.4

                  	
                    Conflicting
      Interests

                  	
                    9

                  
	 
      	 
      	 
      
	
                    Article
      IV.     GUARANTEE TRUSTEE

                  	
                    9

                  
	 
      	 
      	 
      
	
                    Section
      4.1

                  	
                    Guarantee
      Trustee; Eligibility

                  	
                    9

                  
	
                    Section
      4.2

                  	
                    Appointment,
      Removal and Resignation of the Guarantee Trustee

                  	
                    10

                  
	 
      	 
      	 
      
	
                    Article
      V.      GUARANTEE

                  	
                    10

                  
	 
      	 
      	 
      
	
                    Section
      5.1

                  	
                    Guarantee

                  	
                    10

                  
	
                    Section
      5.2

                  	
                    Waiver
      of Notice and Demand

                  	
                    10

                  
	
                    Section
      5.3

                  	
                    Obligations
      Not Affected

                  	
                    10

                  
	
                    Section
      5.4

                  	
                    Rights
      of Holders

                  	
                    11

                  
	
                    Section
      5.5

                  	
                    Guarantee
      of Payment

                  	
                    11

                  
	
                    Section
      5.6

                  	
                    Subordination

                  	
                    12

                  
	
                    Section
      5.7

                  	
                    Independent
      Obligations

                  	
                    12

                  
	 
      	 
      	 
      
	
                    Article
      VI.     COVENANTS AND
      SUBORDINATION

                  	
                    12

                  
	 
      	 
      	 
      
	
                    Article
      VII.    TERMINATION

                  	
                    12

                  
	 
      	 
      	 
      
	
                    Section
      7.1

                  	
                    Termination

                  	
                    12

                  
	 
      	 
      	 
      
	
                    Article
      VIII.   MISCELLANEOUS

                  	
                    13

                  
	 
      	 
      	 
      
	
                    Section
      8.1

                  	
                    Successors
      and Assigns

                  	
                    13

                  

          

        

      

    

     

    
      
         

      

      
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                    Section
      8.2

                  	
                    Amendments

                  	
                    13

                  
	
                    Section
      8.3

                  	
                    Notices

                  	
                    13

                  
	
                    Section
      8.4

                  	
                    Benefit

                  	
                    14

                  
	
                    Section
      8.5

                  	
                    Interpretation

                  	
                    14

                  
	
                    Section
      8.6

                  	
                    Governing
      Law

                  	
                    15

                  

          

        

      

    

     

    
      
         

      

      
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    GUARANTEE
AGREEMENT

     

    GUARANTEE
AGREEMENT, dated as of _____ (this “Guarantee Agreement”), entered into between
Redwood Trust, Inc., a Maryland corporation having its principal office at One
Belvedere Place, Suite 300, Mill Valley, California, 94941 (the “Guarantor”),
and [______], as
trustee (the “Guarantee Trustee”), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
REDWOOD CAPITAL TRUST II, a Delaware statutory trust (the
“Issuer”).

     

    WHEREAS,
pursuant to an Amended and Restated Trust Agreement, dated as of _____ (the
“Trust Agreement”), among Redwood Trust, Inc., a Maryland corporation (the
“Company”), as Sponsor, the Property Trustee named therein, the Delaware Trustee
named therein, the Regular Trustees named therein and the several Holders as
defined therein, the Issuer is issuing $_____ aggregate Liquidation Amount (as
defined in the Trust Agreement) of its _____% _____ Preferred Securities, Series
_____ (Liquidation Amount $_____ per Preferred Security) (the “Preferred
Securities”), representing undivided beneficial interests in the assets of the
Issuer and having the terms set forth in the Trust Agreement;

     

    WHEREAS,
the Preferred Securities will be issued by the Issuer and the proceeds thereof,
together with the proceeds from the issuance of the Common Securities (as
defined in the Trust Agreement), will be used to purchase the Subordinated Debt
Securities (as defined in the Trust Agreement) of the Company which will be
deposited with [______], as Property
Trustee under the Trust Agreement, as trust assets; and

     

    WHEREAS,
as incentive for the Holders to purchase Preferred Securities the Guarantor
desires irrevocably and unconditionally to agree, to the extent set forth
herein, to pay to the Holders of the Preferred Securities the Guarantee Payments
(as defined herein) and to make certain other payments on the terms and
conditions set forth herein;

     

    NOW,
THEREFORE, in consideration of the purchase by each Holder of Preferred
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the Preferred
Securities.

     

    ARTICLE I.

    DEFINITIONS

     

    Section
1.1     Definitions.  As
used in this Guarantee Agreement, the terms set forth below shall, unless the
context otherwise requires, have the following meanings.  Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement as in effect on the date
hereof.

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Event of Default”
means (i) a default by the Guarantor on any of its payment obligations under
this Guarantee Agreement and (ii) a default by the Guarantor on any other
obligation hereunder that remains uncured after 30 days from the occurrence
thereof.

     

    “Guarantee Payments”
means the following payments or distributions, without duplication, with respect
to the Preferred Securities, to the extent not paid or made by or on behalf of
the Issuer: (i) any accumulated and unpaid Distributions (as defined in the
Trust Agreement) required to be paid on the Preferred Securities, to the extent
the Issuer shall have funds on hand available therefor at such time, (ii) the
redemption price, including all accumulated and unpaid Distributions to the date
of redemption (the “Redemption Price”),
with respect to any Preferred Securities called for redemption by the Issuer, to
the extent the Issuer shall have funds on hand available therefor at such time,
and (iii) upon a voluntary or involuntary termination, winding-up or liquidation
of the Issuer, unless Subordinated Debt Securities are distributed to the
Holders, the lesser of (a) the aggregate of the Liquidation Amount of $______
per _____ Preferred Security plus accumulated and unpaid Distributions on the
Preferred Securities to the date of payment, to the extent the Issuer shall have
funds on hand available therefor at such time and (b) the amount of assets of
the Issuer remaining available for distribution to Holders in liquidation of the
Issuer (in either case, the “Liquidation Distribution”).

     

    “Guarantee Trustee”
has the meaning set forth in the preamble to this Guarantee
Agreement.

     

    “Holder” means any
holder, as registered on the books and records of the Issuer, of any Preferred
Securities; provided, however, that in determining whether the holders of the
requisite percentage of Preferred Securities have given any request, notice,
consent or waiver hereunder, “Holder” shall not include the Guarantor, the
Guarantee Trustee, or any Affiliate of the Guarantor or the Guarantee
Trustee.

     

    “Indenture” means the
Subordinated Indenture dated as of [  ] among the Company and
[  ], as trustee thereunder.

     

    “List of Holders” has
the meaning specified in Section 2.2(a).

     

    “Majority in Liquidation
Amount of the Preferred Securities” means, except as provided in the
Trust Agreement and by the Trust Indenture Act, Holder(s) of Preferred
Securities voting separately as a class, who vote Preferred Securities and the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentage is determined) of the Preferred
Securities voted by such Holders represents more than 50% of the above stated
aggregate liquidation amount of all Preferred Securities.

     

    “Officer’s
Certificate” means a certificate signed by any one of the Chairman of the
Board, Chief Executive Officer, President, a Vice President, the Treasurer, an
Associate Treasurer, an Assistant Treasurer, the Controller, the Secretary or an
Assistant Secretary, of the Company, and delivered to the Guarantee
Trustee.  Any Officer’s Certificate delivered with respect to
compliance with a condition or covenant provided for in this Guarantee Agreement
shall include:

     

    
      
         

      

      
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    (a)           a
statement that the officer signing the Officer’s Certificate has read the
covenant or condition and the definitions relating thereto;

     

    (b)           a
brief statement of the nature and scope of the examination or investigation
undertaken by such officer in rendering the Officer’s Certificate;

     

    (c)           a
statement that such officer has made such examination or investigation as, in
such officer’s opinion, is necessary to enable such officer to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and

     

    (d)           a
statement as to whether, in the opinion of such officer, such condition or
covenant has been complied with.

     

    “Person” means a legal
person, including any individual, corporation, estate, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated association, or government or any agency or political subdivision
thereof, or any other entity of whatever nature.

     

    “Record Date” means,
with respect to Preferred Securities that are held in book-entry form, the date
that is one Business Day before the relevant Distribution Date, and with respect
to Preferred Securities that are held in definitive form, the 15th day, whether
or not a Business Day, before the relevant Distribution Date.

     

    “Responsible Officer”
means, with respect to the Guarantee Trustee, any vice-president, any assistant
vice-president, any assistant secretary, any assistant treasurer, any trust
officer or assistant trust officer or any other officer of the Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of that
officer’s knowledge of and familiarity with the particular subject.

     

    “Successor Guarantee
Trustee” means a successor Guarantee Trustee possessing the
qualifications to act as Guarantee Trustee under Section 4.1.

     

    “Trust Indenture Act”
means the Trust Indenture Act of 1939, as amended.

     

    ARTICLE II.

    TRUST INDENTURE ACT

     

    Section
2.1     Trust
Indenture Act; Application.

     

    (a)           This Guarantee Agreement is subject to
the provisions of the Trust Indenture Act that are required to be
part of this Guarantee Agreement and shall, to the extent applicable, be
governed by such provisions.

     

    (b)           If and to the extent that any provision
of this Guarantee Agreement limits, qualifies or conflicts with the duties
imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such
imposed duties shall control.

     

    
      
         

      

      
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    Section
2.2     List of
Holders; Preferential Claims.

     

    (a)           The Guarantor shall furnish or cause to
be furnished to the Guarantee Trustee (a) not later than 15 days after
each Record Date of each year, a list, in such form as the Guarantee Trustee may
reasonably require, containing all the information in the possession or control
of the Guarantor, as to of the names and addresses of the Holders (“List of
Holders”) as of the
preceding respective Record Date, and (b) at such other times as the Guarantee
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a list of similar form and content as of a date
not more than 15 days prior to the time such list is furnished. The Guarantee
Trustee shall preserve, in as current a form as is reasonably practicable, all
information contained in Lists of Holders given to it, provided that the
Guarantee Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.

     

    (b)           The Guarantee Trustee shall comply with
its obligations under Section 311(a), Section 311(b) and Section 312(b) of the Trust
Indenture Act.

     

    Section
2.3     Reports by
the Guarantee Trustee.

     

    Not later
than 60 days following __________ of each year, commencing ___________, the
Guarantee Trustee shall provide to the Holders such reports as are required by
Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act.  The Guarantee
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.

     

    Section
2.4     Periodic
Reports to the Guarantee Trustee.  The
Guarantor shall provide to the Guarantee Trustee such documents, reports and
information, if any, as required by Section 314 of the Trust Indenture Act and
the compliance certificate required by Section 314 of the Trust Indenture Act,
in the form, in the manner and at the times required by Section 314(a)(4) of the
Trust Indenture Act.

     

    Section
2.5     Evidence of
Compliance with Conditions Precedent.  The
Guarantor shall provide to the Guarantee Trustee such evidence of compliance
with such conditions precedent, if any, provided for in this Guarantee Agreement
that relate to any of the matters set forth in Section 314(c) of the Trust
Indenture Act.  Any certificate or opinion required to be given by an
officer pursuant to such Section 314(c)(1) may be given in the form of an
Officer’s Certificate.

     

    Section
2.6     Events of
Default; Waiver.  The
Holders of a Majority in Liquidation Amount of the Preferred Securities may, by
vote, on behalf of the Holders, waive any past Event of Default and its
consequences.  Upon such waiver, any such Event of Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured, for every purpose of this Guarantee Agreement, but no such waiver
shall extend to any subsequent or other default or Event of Default or impair
any right consequent therefrom.

     

    
      
         

      

      
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    (a)          Event of
Default; Notice.  The Guarantee Trustee
shall, within 90 days after the occurrence of an Event of Default actually known
to a Responsible Officer of the Guarantee Trustee, transmit by mail, first class
postage prepaid, to the Holders, notices of all such defaults unless such
defaults have been cured before the giving of such notice (the term “defaults”
for the purposes of this Section 2.6(a) being hereby defined to be an Event of
Default as, not including any periods of grace provided for therein and
irrespective of the giving of any notice provided therein); provided, that,
except in the case of a default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the board of directors, the executive committee, or a trust committee of
directors and/or Responsible Officers, of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.

     

    Section
2.7     Conflicting
Interests.  The
Trust Agreement and the Indenture shall be deemed to be specifically described
in this Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.

     

    ARTICLE III.

    POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE

     

    Section
3.1     Powers and
Duties of the Guarantee Trustee.

     

    (a)          This Guarantee Agreement shall be held
by the Guarantee Trustee for the benefit of the Holders, and the
Guarantee Trustee shall not transfer this Guarantee Agreement to any Person
except a Holder exercising his or her rights pursuant to Section 5.4(iv) or to a
Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of
its appointment to act as Successor Guarantee Trustee.  The right,
title and interest of the Guarantee Trustee shall automatically vest in any
Successor Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee
of its appointment hereunder, and such vesting and cessation of title shall be
effective whether or not conveying documents have been executed and delivered
pursuant to the appointment of such Successor Guarantee
Trustee.

     

    (b)          The Guarantee Trustee, before the
occurrence of any Event of Default and after the curing or waiving of all Events
of Default that may have occurred, shall undertake to perform only such duties
as are specifically set forth in this Guarantee Agreement, and no implied
covenants, duties or obligations shall be read into this Guarantee Agreement
against the Guarantee Trustee.  In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6), the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the
Holders and shall exercise such of the rights and powers vested in it by this
Guarantee Agreement, and use the same degree of care and skill in its exercise
thereof, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.

     

    (c)          No provision of this Guarantee Agreement
shall be construed to relieve the Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:

     

    (i)       
    this
Subsection shall not be construed to limit Subsection (b) of this
Section;

     

    (ii)           the Guarantee Trustee shall not be
liable for any error of judgment made in good faith by a Responsible Officer of
the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was
made;

     

    
      
         

      

      
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    (iii)           the Guarantee Trustee shall not be
liable with respect to any action taken or omitted to be taken by
it in good faith in accordance with the direction of the Holders of not less
than a Majority in Liquidation Amount of the Preferred Securities
relating to the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee, or exercising any trust or
power conferred upon the Guarantee Trustee under this Guarantee Agreement;
and

     

    (iv)          no provision of this Guarantee Agreement
shall require the Guarantee Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such funds or liability
is not reasonably assured to it under the terms of this Guarantee Agreement or
indemnity reasonably satisfactory to it against such risk or liability is not
reasonably assured to it.

     

    (d)          Whether or not therein expressly so
provided, every provision of this Guarantee Agreement relating to the
conduct or affecting the liability of or affording protection to the Guarantee
Trustee shall be subject to the provisions of this
subsection.

     

    Section
3.2     Certain
Rights of Guarantee Trustee.  Subject
to the provisions of Section 3.1:

     

    (a)          the Guarantee Trustee may conclusively
rely and shall be fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document reasonably believed by it to be genuine
and to have been signed, sent or presented by the proper party or parties; but
in the case of any such certificates or opinions that by any provision hereof or
of the Trust Indenture Act are specifically required to be furnished to the
Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements of this
Guarantee Agreement;

     

    (b)          any direction or act of the Guarantor
contemplated by this Guarantee Agreement shall be sufficiently evidenced by an
Officer’s Certificate unless otherwise prescribed herein;

     

    (c)          whenever, in the administration of this
Guarantee Agreement, the Guarantee Trustee shall deem it
desirable that a matter be proved or established taking, suffering or omitting to take
any action hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officer’s Certificate which,
upon receipt of such request from the Guarantee Trustee, shall be promptly
delivered by the Guarantor;

     

    (d)          the Guarantee Trustee shall have no duty
to see to any recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or securities laws)
or any rerecording, refiling or reregistration thereof;

     

    
      
         

      

      
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    (e)          the Guarantee Trustee may consult with
legal counsel of its selection, and the written advice of such legal counsel or
any Opinion of Counsel with respect to legal matters shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
to be taken by it hereunder in good faith and in reliance thereon and in
accordance with such advice or Opinion of Counsel.  Such legal counsel
may be legal counsel to the Guarantor or any of its Affiliates and may be one of
its employees;

     

    (f)          the Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Guarantee Agreement at the request or direction of any Holders, unless such
Holders shall have provided to the Guarantee Trustee such adequate security and
indemnity reasonably satisfactory to it, against the costs, expenses (including
reasonable attorneys’ fees and expenses) and liabilities that might be incurred
by it in complying with such request or direction;

     

    (g)          the Guarantee Trustee shall not he bound
to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Guarantee Trustee may make such further inquiry or
investigation into such facts or matters as it considers reasonably necessary in
order to carry out its obligations in the administration of this Guarantee
Agreement, and if the Guarantee Trustee shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books, records and
premises of the Guarantor, personally or by agent or
attorney;

     

    (h)          the Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any duties hereunder either directly
or by or through its agents or attorneys, and the Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent or
attorney appointed with due care by it hereunder;

     

    (i)           whenever in the administration of this
Guarantee Agreement the Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking any other
action hereunder, the Guarantee Trustee:

     

    (i)     
      may request written instructions from
the Holders which written instructions may only be given by the Holders of the
same proportion in aggregate Liquidation Amount of the Preferred Securities as
would be entitled to direct the Guarantee Trustee under the terms of the
Preferred Securities;

     

    (ii)           may refrain from enforcing such remedy
or right or taking such other action until such written
instructions are received; and

     

    (iii)          shall be protected in acting in
accordance with such written instructions;

     

    (j)           except as otherwise expressly provided
by this Guarantee Agreement, the Guarantee Trustee shall not be under any
obligation to take any action that is discretionary under the provisions of this
Guarantee Agreement;

     

    
      
         

      

      
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    (k)           the Guarantee Trustee shall not be
deemed to have notice of any default or Event of Default unless a Responsible
Officer of the Guarantee Trustee has actual knowledge thereof or unless written
notice of any event which is in fact such a default is received by the Guarantee
Trustee at the Corporate Trust Office of the Guarantee Trustee, and such notice
references the Preferred Securities and this Guarantee Agreement;
and

     

    (l)  
         the rights, privileges, protections,
immunities and benefits given to the Guarantee Trustee, including, without
limitation, its right to be indemnified, are extended to each agent, custodian
or other Person employed by the Guarantee Trustee to act hereunder, and shall be
enforceable by the Guarantee Trustee in each of its capacities
hereunder.

     

    No
provision of this Guarantee Agreement shall be deemed to impose any duty or
obligation on the Guarantee Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it in any jurisdiction
in which it shall be illegal, or in which the Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or
obligation.  No permissive power or authority available lo the
Guarantee Trustee shall be construed to be a duty to act in accordance with such
power and authority.

     

    Section
3.3     Compensation;
Indemnity; Fees.  The
Guarantor agrees:

     

    (a)           to pay to the Guarantee Trustee from
time to time such reasonable compensation as shall be agreed to in writing
between the Guarantor and the Guarantee Trustee for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express
trust);

     

    (b)           except as otherwise expressly provided
herein, to reimburse the Guarantee Trustee upon request for all
reasonable expenses, disbursements and advances incurred or made by the
Guarantee Trustee in accordance with any provision of this Guarantee Agreement
(including the reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance as may
be attributable to its negligence or willful misconduct;
and

     

    (c)           to the fullest extent permitted by
applicable law, to indemnify and hold harmless (i) the Guarantee Trustee,
(ii) any Affiliate of the Guarantee Trustee, (iii) any officer, director,
shareholder, employee, representative or agent of the Guarantee Trustee and (iv)
any employee or agent of the Guarantee Trustee or its Affiliates (referred to
herein as an “Indemnified Person”) from and against any loss, damage, liability,
tax, penalty, expense or claim of any kind or nature whatsoever incurred by
such Indemnified Person by or in connection with the administration of
this Guarantee Agreement and in a manner such Indemnified Person reasonably
believed to be within the scope of authority conferred on such Indemnified Person
by this Guarantee Agreement, except that no
Indemnified Person shall be entitled to be indemnified in respect of any loss,
damage or claim incurred by such Indemnified Person by reason of negligence or
willful misconduct with respect to such acts or omissions.

     

    The
provisions of this Section 3.3 shall survive the termination of this Guarantee
Agreement or the resignation or removal of the Guarantee Trustee.

     

    The
Guarantee Trustee may not claim any lien or charge on any Trust Property as a
result of any amount due pursuant to this Section 3.3.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    The
Guarantor and the Guarantee Trustee (subject to Section 3.4) may engage in or
possess an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Guarantor, and neither the Guarantor nor the Holders shall have any rights by
virtue of this Guarantee Agreement in and to such independent ventures or the
income or profits derived therefrom, and the pursuit of any such venture, even
if competitive with the business of the Guarantor, shall not be deemed wrongful
or improper. The Guarantee Trustee shall not be obligated to present any
particular investment or other opportunity to the Guarantor even if such
opportunity is of a character that, if presented to the Guarantor, could be
taken by the Guarantor, and the Guarantee Trustee shall have the right to take
for its own account (individually or as a partner or fiduciary) or to recommend
to others any such particular investment or other opportunity.  The
Guarantee Trustee may engage or be interested in any financial or other
transaction with the Guarantor or any Affiliate of the Guarantor, or may act as
depository for, trustee or agent for, or act on any committee or body of holders
of, securities or other obligations of the Guarantor or its
Affiliates.

     

    Section
3.4     Conflicting
Interests.  If
the Guarantee Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Guarantee Trustee shall either eliminate
such interest or resign, to the extent and in the manner provided by, and
subject to the provisions of, the Trust Indenture Act and this Guarantee
Agreement.  The Guarantee Agreement is hereby excluded for purposes of
Section 310(b)(1) of the Trust Indenture Act.

     

    ARTICLE IV.

    GUARANTEE TRUSTEE

     

    Section
4.1     Guarantee
Trustee; Eligibility.

     

    (a)           There shall at all times be a Guarantee
Trustee which shall:

     

    (i)  
         not be an Affiliate of the Guarantor;
and

     

    (ii)           be a Person that is eligible pursuant to
the Trust Indenture Act to act as such and has a combined capital and surplus of
at least $50,000,000, and shall be a corporation meeting the requirements of
Section 310(a) of the Trust Indenture Act.  If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority, then, for the purposes
of this Section and to the extent permitted by the Trust Indenture Act, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published.

     

    (b)           If at any time the Guarantee Trustee
shall cease to be eligible to so act under Section 4.1(a), the Guarantee Trustee
shall immediately resign in the manner and with the effect set out in Section
4.2(c).

     

    (c)           If the Guarantee Trustee has or shall
acquire any “conflicting interest” within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    Section
4.2     Appointment,
Removal and Resignation of the Guarantee Trustee.

     

    (a)           Subject to Section 4.2(b), the Guarantee
Trustee may be appointed or removed without cause at any time by the
Guarantor.

     

    (b)           The Guarantee Trustee shall not be
removed until a Successor Guarantee Trustee has been appointed and has accepted
such appointment by written instrument executed by such Successor Guarantee
Trustee and delivered to the Guarantor.

     

    (c)           The Guarantee Trustee appointed
hereunder shall hold office until a Successor Guarantee Trustee shall have been
appointed or until its removal or resignation.  The Guarantee Trustee
may resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by instrument in
writing executed by such Successor Guarantee Trustee and delivered to the
Guarantor and the resigning Guarantee Trustee.

     

    (d)           If no Successor Guarantee Trustee shall
have been appointed and accepted appointment as provided in this Section 4.2
within 30 days after delivery to the Guarantor of an instrument of resignation
or notice of removal pursuant to this Section 4.2, the Guarantee Trustee
resigning or being removed, as the case may be, may petition, at the expense of
the Guarantor, any court of competent jurisdiction for appointment of a
Successor Guarantee Trustee.  Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Guarantee Trustee.

     

    ARTICLE V.

    GUARANTEE

     

    Section
5.1     Guarantee.  The
Guarantor irrevocably and unconditionally agrees to pay in full to the Holders
the Guarantee Payments (without duplication of amounts theretofore paid by or on
behalf of the Issuer), as and when due, regardless of any defense, right of
set-off or counterclaim which the Issuer may have or assert.  The
Guarantor’s obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.

     

    Section
5.2     Waiver of
Notice and Demand.  The
Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of
any liability to which it applies or may apply, presentment, demand for payment,
any right to require a proceeding first against the Guarantee Trustee, Issuer or
any other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices and
demands.

     

    Section
5.3     Obligations
Not Affected.  The
obligations, covenants, agreements and duties of the Guarantor under this
Guarantee Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:

     

    (a)           the release or waiver, by operation of
law or otherwise, of the performance or observance by the Issuer of any express
or implied agreement, covenant, term or condition relating to the Preferred
Securities to be performed or observed by the Issuer;

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    (b)           the extension of time for the payment by
the Issuer of all or any portion of the Distributions (other than an extension
of time for payment of Distributions that results from the extension of any
interest payment period on the Subordinated Debt Securities as provided in the
Indenture), Redemption Price, Liquidation Distribution or any other sums payable
under the terms of the Preferred Securities or the extension of time for the
performance of any other obligation under, arising out of, or in connection
with, the Preferred Securities;

     

    (c)           any failure, omission, delay or lack of
diligence on the part of the Holders or the Guarantee Trustee to enforce, assert
or exercise any right, privilege, power or remedy conferred on the Holders
pursuant to the terms of the Preferred Securities, or any action on the part of
the Issuer granting indulgence or extension of any kind;

     

    (d)           the voluntary or involuntary
liquidation, dissolution, sale of any collateral, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other similar
proceedings affecting, the Issuer or any of the assets of the
Issuer;

     

    (e)           any invalidity of, or defect or
deficiency in, the Preferred Securities;

     

    (f)  
         the settlement or compromise of any
obligation guaranteed hereby or hereby incurred; or

     

    (g)           any other circumstance whatsoever that
might otherwise constitute a legal or equitable discharge or defense of a
guarantor, it being the intent of this Section 5.3 that the obligations of the
Guarantor hereunder shall be absolute and unconditional under any and all
circumstances.

     

    There
shall be no obligation of the Holders to give notice to, or obtain the consent
of, the Guarantor with respect to the happening of any of the
foregoing.

     

    Section
5.4     Rights of
Holders.  The
Guarantor expressly acknowledges that:  (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a Majority in
Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of this Guarantee Agreement or exercising any
trust or power conferred upon the Guarantee Trustee under this Guarantee
Agreement; and (iv) any Holder may institute a legal proceeding directly against
the Guarantor to enforce its rights under this Guarantee Agreement, without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
or any other Person.

     

    Section
5.5     Guarantee of
Payment.  This
Guarantee Agreement creates a guarantee of payment and not of performance or
collection.  This Guarantee Agreement will not be discharged except by
payment of the Guarantee Payments in full (without duplication of amounts
theretofore paid by the Issuer) or upon distribution of Subordinated Debt
Securities to Holders as provided in the Trust Agreement.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    Section
5.6     Subordination.  The
Guarantor shall be subrogated to all (if any) rights of the Holders against the
Issuer, in respect of any amounts paid to the Holders by the Guarantor under
this Guarantee Agreement, and shall have the right to waive payment by the
Issuer pursuant to Section 5.1; provided, however, that the Guarantor shall not
(except to the extent required by mandatory provisions of law) be entitled to
enforce or exercise any rights which it may acquire against the Issuer by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Guarantee Agreement, if, at the time of any such
payment, any amounts are due and unpaid under this Guarantee Agreement. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.

     

    Section
5.7     Independent
Obligations.  The
Guarantor acknowledges that its obligations hereunder are independent of the
obligations of the Issuer with respect to the Preferred Securities and that the
Guarantor shall be liable as principal and as debtor hereunder to make Guarantee
Payments pursuant to the terms of this Guarantee Agreement notwithstanding the
occurrence of any event referred to in subsections (a) through (g), inclusive,
of Section 5.3 hereof.

     

    ARTICLE VI.

    COVENANTS AND
SUBORDINATION

     

    The
obligations of the Guarantor under this Guarantee Agreement will constitute
unsecured obligations of the Guarantor and will rank:

     

    (a)           pari passu with any other preferred
securities guarantee similar to the guarantee under this Guarantee Agreement
issued by the Guarantor on behalf of the holders of preferred securities issued
by any trust established by the Guarantor or its Affiliates other than the
Trust:

     

    (b)           subordinate and junior in right of
payment to all of the Guarantor’s other liabilities, except those that rank pari
passu or are subordinate by their terms;

     

    (c)           pari passu with any guarantee now or
hereafter issued by the Guarantor in respect of the most senior preferred or
preference stock now or hereafter issued by the Guarantor, and with any
guarantee now or hereafter issued by it in respect of any preferred or
preference stock of any of its Affiliates; and

     

    (d)           senior to the Guarantor’s common
stock.

     

    ARTICLE VII.

    TERMINATION

     

    Section
7.1     Termination.  This
Guarantee Agreement shall terminate and be of no further force and effect upon
(i) full payment of the Redemption Price of all Preferred Securities, (ii) the
distribution of Subordinated Debt Securities to the Holders in exchange for all
of the Preferred Securities or (iii) full payment of the amounts payable in
accordance with the Trust Agreement upon liquidation of the
Issuer.  Notwithstanding the foregoing, this Guarantee Agreement will
continue to be effective or will be reinstated, as the case may be, if at any
time any Holder must restore payment of any sums paid with respect to Preferred
Securities or this Guarantee Agreement.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    ARTICLE VIII.

    MISCELLANEOUS

     

    Section
8.1     Successors
and Assigns.  All
guarantees and agreements contained in this Guarantee Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Guarantor
and shall inure to the benefit of the Holders of the Preferred Securities from
time to time outstanding.  Except in connection with a consolidation,
merger or sale involving the Guarantor that is permitted under the Indenture and
pursuant to which the successor or assignee agrees in writing to perform the
Guarantor’s obligations hereunder, the Guarantor shall not assign its
obligations hereunder.

     

    Section
8.2     Amendments.  Except
with respect to any changes which do not adversely affect the rights of the
Holders in any material respect (in which case no consent of the Holders will be
required), this Guarantee Agreement may only be amended with the prior written
approval of the Holders of a Majority in Liquidation Amount of the Preferred
Securities.  The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such
approval.

     

    Section
8.3     Notices.  Any
notice, request or other communication required or permitted to be given
hereunder shall be in writing, duly signed by the party giving such notice, and
delivered, telecopied or mailed by first class mail as follows:

     

    (a)          if given to the Guarantor, to the
address set forth below or such other address, facsimile number or to the
attention of such other Person as the Guarantor may give notice to the
Holders:

     

    Redwood
Trust, Inc.

    One
Belvedere Place, Suite 300

    Mill
Valley, California 94941

    Attention:
Treasurer

     

    (b)          if given to the Issuer, in care of the
Guarantee Trustee, at the Issuer’s (and the Guarantee Trustee’s) respective
addresses set forth below or such other address as the Guarantee Trustee on
behalf of the Issuer may give notice to the Holders:

     

    Redwood
Capital Trust II

    [Address]

    Attention:
Regular Trustees of Redwood Capital Trust II

     

    with a
copy to:

     

    [__________]

    [address]

    Attention:
Corporate Trust Administration

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (c)          if given to the Guarantee Trustee, at
the Guarantee Trustee’s address set forth below or such other address as the
Guarantee Trustee may give notice to the Holders:

     

    [__________]

    [Address]

    Attention:
Corporate Trust Administration

     

    (d)          if given to any Holder, at the address
set forth on the books and records of the Issuer.

     

    All
notices hereunder shall be deemed to have been given when received in person,
telecopied with receipt confirmed, or mailed by first class mail, postage
prepaid, except that if a notice or other document is refused delivery or cannot
be delivered because of a changed address of which no notice was given, such
notice or other document shall be deemed to have been delivered on the date of
such refusal or inability to deliver.

     

    Section
8.4     Benefit.  This
Guarantee Agreement is solely for the benefit of the Holders and is not
separately transferable from the Preferred Securities.

     

    Section
8.5     Interpretation.  In
this Guarantee Agreement, unless the context otherwise requires:

     

    (a)           capitalized terms used in this Guarantee
Agreement but not defined in the preamble hereto have the respective meanings
assigned to them in Section 1.1;

     

    (b)           a term defined anywhere in this
Guarantee Agreement has the same meaning throughout;

     

    (c)           all references to “the Guarantee
Agreement” or “this Guarantee Agreement” are to this Guarantee Agreement as
modified, supplemented or amended from time to time;

     

    (d)           all references in this Guarantee
Agreement to Articles and Sections are to Articles and Sections of this
Guarantee Agreement unless otherwise specified;

     

    (e)           a term defined in the Trust Indenture
Act has the same meaning when used in this Guarantee Agreement unless otherwise
defined in this Guarantee Agreement or unless the context otherwise
requires;

     

    (f)           a reference to the singular includes the
plural and vice versa; and

     

    (g)           the masculine, feminine or neuter
genders used herein shall include the masculine, feminine and neuter
genders.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    Section
8.6     Governing
Law.  THIS
GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.

     

    This
instrument 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.

     

    (Signatures
follow)

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    THIS
GUARANTEE AGREEMENT is executed as of the day and year first written
above.

     

    
      
        	 
      	
                REDWOOD
      TRUST, INC.

              
	 
      	 
      
	 
      	
                By:

              	 
      
	 
      	 
      	 
      
	 
      	
                NAME:

              	 
      
	 
      	 
      	 
      
	 
      	
                TITLE:

              	 
      
	 
      	 
      
	 
      	
                [__________],

                as
      Guarantee Trustee By:

              
	 
      	 
      
	 
      	
                By:

              	 
      
	 
      	 
      	 
      
	 
      	
                NAME:

              	 
      
	 
      	 
      	 
      
	 
      	
                TITLE:

              	 
      

      

    

     

    
      
         

      

      
        S-1EXHIBIT
10.16

       

      [_____]

       

      Contract
for Packing Loans

       

      China
Construction Bank

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      Contract
No.: [______]

       

      Party A
(Full Name): Shandong
Caopu Arts &
Crafts Co., Ltd.

       

      Domicile:
2888 Qinghe
Rd., Cao County

       

      Zip Code:
274400

       

      Legal
Representative (Principal): Li
Jinliang

       

      Facsimile:                                     Telephone:
[____]

       

      Party B
(the Lender) (Full Name): China
Construction Bank Cao
County Subbranch

       

      
        
          
            
              	
                      Domicile:
      18-8
      Zhongxing Rd., Cao County

                    	
                      Zip
      Code: 274400

                    
	 	 
	
                      Principal:

                    	 
      
	 	 
	
                      Facsimile:

                    	
                      Telephone:
      [___]

                    

            

          

        

      

       

      Party A
has submitted to Party B, on a voluntary basis, the original and amended
original (if any) (L/C No.:   This
Space Intentionally Left Blank  
, L/C Amount (in words):    This
Space Intentionally Left Blank   )
of documentary L/C in favor of Party A, and related materials, and has applied
to Party B for a loan. Both sides hereto, through amicable consultation, agree
to enter into this Contract which shall be strictly observed.

       

      Article
I Amount of Loan

       

      Party A
borrows from Party B a loan with an amount of RMB
[_____] (Say RMB [____] Only).

       

      Article
II Term of Loan

       

      The term
of loan hereto is stipulated as [______]
days from actual date of drawdown by Party A.

       

      Article
III Purpose of Loan

       

      Party A
shall use the funds herein to acquire, arrange for production of, transport and
arrange for export of cargoes under the said L/C and shall not divert to any
other purpose.

       

      Article
IV Prerequisites for Extension of Loan

       

      Party B
shall be obliged to extend a loan on the condition that all prerequisites
hereunder are satisfied, unless otherwise waived, in whole or in part, by Party
B.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      
        	
                1.

              	
                Party
      A has complete approval, registration, delivery, insurance and other legal
      formalities pertaining to the loan hereto in compliance with relevant
      laws, regulations and codes; and

              

      

       

      
        	
                2.

              	
                Party
      A has submitted related documents requested by Party B, including, but not
      limited to, certificates for purposes of loan, relevant L/C and its
      amended original; and

              

      

       

      
        	
                3.

              	
                Security,
      requested by Party B, has come into force and shall remain in effect;
      and

              

      

       

      
        	
                4.

              	
                Party
      A violates none of stipulations hereto;
and

              

      

       

      
        	
                5.

              	
                Other
      prerequisites:

              

      

       

      
        
          
            
              
                	
                        This Space Intentionally Left
      Blank

                      

              

            

             

          

        

      

      Article
V Loan Interest Rate, Calculation and Settlement

       

      
        	
                1.

              	
                Interest
      rate and calculation of the said loan shall be agreed by the [___]
      method hereinbelow:

              

      

       

      
        	
              	
                1)

              	
                The
      annual rate of the said loan hereto is    
      This
      Space Intentionally Left Blank   ,
      on a day-to-day basis, and the interest shall be settled along with the
      principal.

              

      

       

      
        
          	
                	
                  2)

                	
                  The
      annual rate of the said loan hereto is [___]%,
      on a day-to-day basis, and is calculated on a monthly
      basis, with the 20th
      day of each month as
      interest settlement date (daily interest rate = monthly interest
      rate/30).

                

        

      

       

      
        
          	  	
                  3)

                	
                  This
      Space Intentionally Left
  Blank

                

        

      

       

      
        	
                2.

              	
                The
      interest shall accrue from the actual date on which the funds are
      transferred to the account of Party A. Where the loan is made in RMB, the
      interest rate agreed herein shall remain unchanged during the duration of
      this Contract. Where the loan is made in any foreign currency, any
      adjustment to the interest rate aforementioned shall be otherwise agreed
      by both parties hereto.

              

      

       

      
        	
                3.

              	
                In
      the event that Party A makes repayment ahead of maturity, the interest
      shall accrue at the actual days of use and the rate specified hereinabove.
      Thereafter, the unliquidated amount shall remain fulfilled as stipulated
      herein.

              

      

       

      Article
VI Repayment

       

      
        	
                1.

              	
                Export
      proceeds from Party A or proceeds from export negotiation, bill purchased
      or other trade financing businesses (including, but not limited to, bill
      discounted under usance L/C, or purchase of receivables, forfaiting)
      conducted at Party B shall be used as immediate resource for repayment of
      loan principal, interest and other expenses. Each batch of export proceeds
      under the said L/C (partial shipment allowed) shall also be used as
      immediate resource for repayment of loan principal, interest and other
      expenses.

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      In the
event that Party A could not make repayment in the aforesaid method owing to
failure of delivery by Party A, presentation not constituting complying
presentation by Party A or any other reasons, Party A shall make repayment by
other funds.

       

      In the
event that the loan comes due, Party A shall liquidate principal, interest and
other charges.

       

      
        	
                2.

              	
                During
      the term of the said loan, Party A is obliged to make prepayment in line
      with requests by Party B, in the event that any of occurrences mentioned
      hereinafter takes place: Party A, for any one reason, fails to make
      shipment in accordance with stipulations specified in the aforementioned
      L/C, or fails to present full set of documents under the aforesaid L/C, or
      Party A makes presentation to another bank; or Party A’s presentation is
      reviewed by Party B as not constituting complying presentation; or the
      issuing bank or confirming bank dishonors by non-acceptance for any
      reason, or funds under the aforesaid L/C fail to be collected in whole on
      schedule in accordance with stipulations under L/C terms for any reason;
      or any change to L/C terms is adverse to Party B, including, but not
      limited to, decrease of L/C amount, delay of payment, revocation of L/C,
      shortening of validity of L/C, adverse change during period of shipment,
      etc.

              

      

       

      
        	
                3.

              	
                In
      the event that Party A makes prepayment with its own funds other than
      export proceeds, Party A shall notify, in written form, [___]
      banking days prior to the prepayment date and acquire consent from Party
      B.

              

      

       

      Article
VII Rights & Obligations

       

      
        	
                1.

              	
                Party
      B shall grant the said loan as agreed
herein.

              

      

       

      
        	
                2.

              	
                Party
      A shall present all documents under the said L/C to Party B within the
      validity of the said L/C and the period for presentation stipulated by the
      said L/C for export collection under the said L/C, and shall not make
      presentation to another bank.

              

      

       

      
        	
                3.

              	
                Party
      A is entitled to request Party B to keep the financial materials and
      business secrets, presented by Party A, confidential, unless otherwise
      ruled by laws, regulations and codes, requested by authorized agencies or
      stipulated by and between both sides
hereto.

              

      

       

      
        	
                4.

              	
                Settlements,
      in whole, in RMB and foreign currencies hereto, for Party A, shall go
      through accounts opened at Party B.

              

      

       

      
        	
                5.

              	
                Party
      A shall repay loan principal, interest and relevant expenses, in whole, as
      agreed herein.

              

      

       

      
        	
                6.

              	
                Party
      A shall use the loan for purposes as agreed
  herein.

              

      

       

      
        	
                7.

              	
                Party
      A shall not request or accept amendment to the L/C terms or revoke the
      said L/C unless otherwise acquiring written consent from Party B or the
      Guarantor.

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      
        	
                8.

              	
                Party
      A shall not consign the said L/C and rights and obligations under the said
      L/C unless otherwise acquiring written consent from Party
    B.

              

      

       

      
        	
                9.

              	
                Party
      A shall introduce uses of the packing loan and cargo export preparations
      under the said L/C, make shipment as requested in the said L/C, accept
      supervision by Party B, and present Party B full set of original clean
      documents under the said L/C.

              

      

       

      
        	
                10.

              	
                Party
      A shall guarantee authenticity and legality of underling transactions
      under the said L/C.

              

      

       

      
        	
                11.

              	
                Party
      A shall submit Party B true financial statements and relevant
      materials.

              

      

       

      
        	
                12.

              	
                Party
      A shall notify Party B in written form in [___]
      working days in the event of any alteration to registration items,
      covering legal representative (principal), domicile or site for business
      operation, registered capital or corporate (organizational) articles of
      association, etc.

              

      

       

      
        	
                13.

              	
                Party
      A shall not make use of any of transactions with affiliates to evade
      obligations to Party B; and shall not make false contracts with and among
      affiliated companies, use bills receivable, accounts receivable and other
      creditor’s rights without actual transactions to make discount or
      hypothecation at bankers, in a move to obtain bank capital or credit
      line.

              

      

       

      
        	
                14.

              	
                Where
      Party A is a group of companies, Party A shall advise, in time, Party B of
      transactions with affiliates involving more than 10% of net assets of
      Party A, including: (1) relationships among parties to transactions; (2)
      specific transactions and nature of transactions; (3) amount of each
      transaction or corresponding proportion; (4) pricing policy, including
      transactions involving no value or symbolic
  value.

              

      

       

      Article
VIII Default Liability

       

      
        	
                1.

              	
                Any
      one of occurrences hereunder happens to Party A shall endanger the claims
      of Party B:

              

      

       

      
        	
                 
      

              	
                1)

              	
                Party
      A violates any one of stipulations herein or Party A expresses explicitly
      or shows by actions that Party A would not fulfill any one of stipulations
      herein.

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        	
                 
      

              	
                2)

              	
                Party
      B shall deem any one of occurrences hereunder as endangering the safety of
      claims herein: Party A’s involvement in contracting, trusteeship
      (takeover), leasing, shareholding system reform, investment, joint
      operation, merger, acquisition, restructuring, separation, joint venture,
      application for business suspension for rectification, application for
      dissolution, being revoked, (being applied for) application for
      bankruptcy, change to controlling shareholder/actual controller or
      transfer of substantial portion of assets, cease of production,
      interruption of business, being imposed stiff fines by authorities, being
      cancelled registration, being revoked license, involvement in major
      lawsuit, suffering major
      productive and operational difficulties, deterioration of financial
      condition, failure to exercise duties by legal representative or
      principal; failure to meet other matured debts by Party A (including debts
      due of Party A to Party B or other affiliates of China Construction Bank),
      or cheap transfer or free transfer of property, debt relief for a third
      party or providing guarantee for a third party, negligent in exercising
      obligatory rights or other rights, Party A’s shareholder(s) abusing of
      corporate independent legal entity and shareholder(s) limited liability,
      evasion of liabilities, or failure of providing, by Party A, property
      certificate independent of its shareholder(s)’ property; guarantee hereto
      not established, not yet effective, null and void, being revoked or
      dissolved, the Guarantor’s default and breach, or explicit expression or
      show by action of nonperformance of its guarantee responsibility, or loss
      of guarantee capability in whole or in part, reduction in value of
      security, etc., or other occurrences that might endanger creditor’s rights
      of Party B.

              

      

       

      
        	
                2.

              	
                Party
      B is entitled to adopt one or more than one methods hereinbelow in the
      event of any one of occurrences specified in Paragraph 1, Article VIII of
      this Contract.

              

      

       

      
        	
              	
                1)

              	
                Suspend
      to grant the said loan to Party A, announce the loan becomes immediately
      due, request Party A repay immediately principal, interest and expenses of
      all mature and unmatured debts
hereto.

              

      

       

      
        	
              	
                2)

              	
                In
      the event that Party A fails to use the said loan for the purposes as
      agreed hereinabove, the amount embezzled by Party A shall accrue interest
      and compound interest at default interest rate and the method of
      settlement agreed herein starting from the date of use specified herein
      until settlement of principal and interest in whole. In the event that
      noninstallment of principal and interest on due date is stipulated herein,
      the amount embezzled by Party A shall accrue interest and compound
      interest at default interest rate on a quarterly basis starting from the
      date of use specified herein until settlement of principal and interest in
      whole. Where the loan is made in RMB, the default rate is [___]%;
      where the loan is made in one foreign currency, the default rate is    
      This
      Space Intentionally Left
      Blank     .

              

      

       

      
        	
              	
                3)

              	
                Prior
      to the loan falls due, the interest not paid off on time by Party A shall
      accrue compound interest at the interest rate set forth herein and the
      method of settlement agreed herein.

              

      

       

      Where the
loan falls overdue, starting from the date overdue until settlement of principal
and interest in whole, the loan principal and interest not paid off on time by
Party A, including loan principal and interest declared by Party B falls due
ahead of maturity in whole or in part, shall accrue interest and compound
interest at past-due loan rate and the method of settlement stipulated herein;
In the event that noninstallment of principal and interest on due date is
stipulated herein, the loan principal and interest not paid off on time by Party
A, including loan principal and interest declared by Party B falls due ahead of
maturity in whole or in part, shall accrue interest and compound interest on a
quarterly basis at past-due loan rate. Where the loan is made in RMB, the
past-due loan rate is [____]%;
where the loan is made in one foreign currency, the past-due loan rate is   
This
Space Intentionally Left
Blank     .

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      Loan past
due refers to the behavior that Party A fails to pay off loans due.

       

      
        	
              	
                4)

              	
                Request
      Party A provide guarantee in line with requirements of Party
      B.

              

      

       

      
        	
              	
                5)

              	
                Exercise
      security rights;

              

      

       

      
        	
              	
                6)

              	
                Other
      remedy measures authorized by law.

              

      

       

      Article
IX Other Provisions

       

      
        	
                1.

              	
                Expense
      Bearing

              

      

       

      Party A
shall bear related expenses for lawyer’s service, insurance, assessment,
registration, custody, appraisal, notarization hereto, unless otherwise
stipulated.

       

      Party A
shall assume all actual costs incurred by Party B for protection of creditor’s
rights, including, but not limited to, litigation fees, arbitration fees,
property preservation fees, travelling expenses, execution fees, assessment
fees, lot money, notarial fees, fees of service, lawyer’s fees, and so
on.

       

      
        	
                2.

              	
                Transfer
      & Collection of Receivables

              

      

       

      Party B
is entitled to transfer all receivables under this Contract and collect
corresponding funds (in RMB or other currencies) at the accounts of Party A
opened with subordinates of China Construction Bank. Where formalities for
foreign exchange sale and purchase or foreign exchange dealings are needed,
Party A shall be obliged to assist party B to go through the formalities and
bear exchange rate risks.

       

      
        	
                3.

              	
                Usage
      of Information of Party A

              

      

       

      Party A
shall agree to investigation, by Party B, on its business credit with the credit
database approved and founded by The People's Bank of China and credit checking
authorities, or at related agencies or organizations, and shall approve of Party
B’s providing the information of Party A to the credit database approved and
founded by The People's Bank of China and credit checking authorities. Party A
shall also agree to Party B’s fair use and disclosure of the information of
Party A for business needs.

       

      
        	
                4.

              	
                Announcement
      to Press

              

      

       

      Party B
is entitled to notify related agencies or organizations of any one of defaults
occurred to Party A, and is entitled to make announcement to press for such
defaults.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      
        	
                5.

              	
                Evidentiary
      Effect of Recordation of Party B

              

      

       

      Unless
otherwise credible and certain evidence to the contrary are tended, any of
internal financial records of Party B containing principal, interest, expense
and repayment, bills of documents and vouchers produced or preserved by Party B
during the course of services, for Party A, involving drawdown, repayment,
interest payment, etc., and dunning records and certificates constitutes
established evidence effectively in proof of the relationship between Party A
and Party B as debtor and creditor. Party A shall not raise an objection only to
production or preservation, by Party B unilaterally, of recordation,
transcription, bills of documents and certificates hereinabove.

       

      
        	
                6.

              	
                Reservation
      of Rights

              

      

       

      Rights of
Party B herein shall not influence or exclude its enjoying any other right in
accordance with laws and regulations or other contracts. Any grace, extension,
preference or moratorium on exercising any right herein against any default or
delay shall not be deemed as waiver of such right and interest herein or
permission or recognition of any breach of contract, nor restrict, deter or
impede continual exercising of such right or exercising of any other rights, nor
cause Party B to assume obligation and responsibility against Party
A.

       

      
        	
                7.

              	
                Besides
      liabilities herein, Party A still owes other matured debts to Party B,
      Party B is entitled to transfer and collect funds (in RMB or other
      currencies) at the accounts of Party A opened with subordinates of China
      Construction Bank for the use of, for the first place, paying off any
      matured debt, and Party A shall agree not to raise an
      objection.

              

      

       

      
        	
                8.

              	
                Party
      A shall immediately notify Party B of any change, in writing, to its
      correspondence address or contact information. Any losses caused by
      untimely notification shall be at the expense of Party
  A.

              

      

       

      
        	
                9.

              	
                Interpretation
      of this Contract shall define genuine intention of terms of this Contract
      in compliance with principles hereinafter: the purpose of this Contract,
      wording, clauses and terms, trading practices and honesty and
      credibility.

              

      

       

      
        	
                10.

              	
                The
      Application for Packing Loan and other vouchers, documents, etc. shall be
      kept as appendices to this Contract and constitute an integral part
      hereof.

              

      

       

      
        	
                11.

              	
                Dispute
      Resolution

              

      

       

      In the
event that any dispute during the course of execution of this Contract is
aroused, both parties hereto shall seek negotiated settlement. In the event that
negotiation fails and both sides hereto have to turn to the way of [__]hereunder
for a settlement.

       

      
        	
              	
                (1)

              	
                Bring
      a lawsuit at the local court where Party B
  resides.

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        	
              	
                (2)

              	
                Submit
      their dispute to    
      This Space Intentionally Left Blank     arbitration
      commission (venue of arbitration:    This
      Space Intentionally Left Blank   ) in accordance with
      arbitration rules, of this commission, in effect at the time of applying
      for arbitration. The arbitral award is final and binding upon both parties
      hereto. In the event that the dispute or arbitration is now being solved,
      other clauses that involve no dispute shall continue to be
      exercised.

              

      

       

      
        	
                12.

              	
                Execution
      of Contract

              

      

       

      This
Contract shall come into effect unless preconditions hereunder are
satisfied:

       

      This
Contract shall come into effect after being signed and sealed by the legal
representative (principal) or authorized agent of Party A and being signed and
sealed by the principal or authorized agent of Party B.

       

      
        	
                13.

              	
                This
      Contract is drawn up in [____].

              

      

       

      
        	
                14.

              	
                Other
      Stipulations

              

      

       

      
        
          	
                   

                	
                  1)

                	
                  This
      Space Intentionally Left
Blank

                

        

      

       

      
        
          	 	
                  2)

                	
                  This
      Space Intentionally Left
Blank

                

        

      

       

      Article
X Declarations

       

      
        	
                1.

              	
                Party
      A is well aware of the scope of business and authorizations of Party
      B.

              

      

       

      
        	
                2.

              	
                Party
      A has read through each clause hereof. Party B has given full explanations
      on terms herein in regard to request by Party A. Party A has full
      knowledge and understanding of connotations of each clause and
      corresponding legal consequences.

              

      

       

      
        	
                3.

              	
                Party
      A’s entering into and fulfillment of obligations of this Contract comply
      with laws, administrative regulations and rules, codes, and articles of
      association and internal documentation, and has acquired approval from
      internal powerful authority and/or state’s
  authority.

              

      

       

      Party A:
____________________________

       

      Legal
Representative (Principal) or Authorized Agent: __________

       

      Dated:
____________

       

      Party B:
______________

       

      Principal
or Authorized Agent:  _________ 

       

      Dated:
____________

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