Document:

exv10w2

 

EXHIBIT 10.2

EXECUTION COPY

MASTER PROGRAM AGREEMENT

          This Master Program Agreement dated as of August 1, 2003 (this
“Agreement”) by and among CapitalSource Finance LLC, a Delaware limited
liability company (“CapitalSource”), Credit Suisse First Boston Mortgage
Capital, LLC, a Delaware limited liability company (“Repo Counterparty”),
Credit Suisse First Boston LLC, a Delaware limited liability company (“CSFB”),
and Column Financial, Inc., a Delaware corporation (“Column” and, collectively
with Repo Counterparty and CSFB, the “CSFB Parties”).

W I T N E S S E T H:

          WHEREAS, CapitalSource and Column intend to originate and/or purchase
mortgage loans secured by skilled nursing facilities (the “Loans”) and
subsequently securitize such Loans from time to time;

          WHEREAS, CapitalSource Funding II LLC (“CapitalSource Funding”) and Repo
Counterparty intend to enter into that certain Master Repurchase Agreement
dated August 1, 2003 (the “Repo Agreement”) pursuant to which CapitalSource
Funding will be able to finance the origination of certain of such Loans;

          WHEREAS, CapitalSource and the CSFB Parties wish to agree on the criteria
that will make Loans originated by CapitalSource eligible to be financed under
the Repo Agreement and subsequently securitized;

          WHEREAS, CapitalSource and the CSFB Parties wish to agree on the criteria
that will make Loans originated by Column eligible for CapitalSource to
purchase a subordinate participation interest and to be subsequently
securitized;

          WHEREAS, CapitalSource wishes to purchase certain securities issued in
connection with the securitization of such Loans; and

          WHEREAS, CapitalSource and the CSFB Parties wish to agree on certain other
terms of the intended future securitizations of certain of such Loans.

          NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

          Section 1.01 Definitions. As used in this Agreement, the following terms
shall have the following meanings:

          “Accrued Interest Amount” shall mean, with respect to a Sub-pool
Securitization, the aggregate amount of interest assumed to accrue on each
class of securities assumed to be

 

 

issued in such Sub-pool Securitization from the date on which interest is
assumed to begin accruing on such securities to the settlement date of the
Securitization for which the Sub-pool Securitization has been modeled.

          “Aggregate Securitization Proceeds” shall have the meaning given such term
in Section 4.04(b).

          “Applicant” shall have the meaning given such term in Section 2.02(b).

          “Appraisal” shall mean an appraisal of the subject property, which is
acceptable to the Reviewer of the subject Loan in its reasonable discretion,
and which is prepared (a) by an Approved Appraiser and (b) in accordance with
all applicable regulations issued pursuant to Title XI of the Financial
Institution Reform, Recovery, and Enforcement Act of 1989 and the requirements
of the Standards of Professional Appraisal Practice of the Appraisal Institute
and the Uniform Standards of Professional Appraisal Practice as adopted by the
Appraisal Foundation.

          “Appraised Value” means the value set forth in an Appraisal made in
connection with the origination or purchase of a Loan as the value of the
related Mortgaged Property.

          “Approved Appraiser” shall mean an appraiser listed on Schedule II or
otherwise approved by the Reviewer.

          “Approved Environmental Consultant” shall mean an environmental consultant
listed on Schedule III or otherwise approved by Column.

          “Approved Engineering Consultant” shall mean an engineering consultant
listed on Schedule IV or otherwise approved by Column.

          “Approved Loan” shall have the meaning given such term in Section 2.02(a).

          “Assumed IO Rate” shall have the meaning given such term in Section
4.04(d).

          “Business Day” shall mean any day other than a Saturday, Sunday or a day
on which banking institutions in the City of New York, New York are authorized
or obligated by law, executive order or governmental decree to be closed.

          “CapitalSource” shall have the meaning given in the first paragraph of
this Agreement.

          “CapitalSource Accrued Interest Amount” shall have the meaning given such
term in Section 4.04(d).

          “CapitalSource Excess Spread” shall have the meaning given such term in
Section 4.04(a).

          “CapitalSource Funding” shall have the meaning given such term in the
Recitals of this Agreement.

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          “CapitalSource IO Percentage” shall have the meaning given such term in
Section 4.04(d).

          “CapitalSource Junior Class” shall have the meaning given such term in
Section 4.04 (d).

          “CapitalSource Junior Percentage” shall have the meaning given such term
in Section 4.04 (d).

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

          “Column” shall have the meaning given such term in the first paragraph of
this Agreement.

          “CSFB Accrued Interest Amount” shall have the meaning given such term in
Section 4.04(d).

          “CSFB Fee” shall have the meaning given such term in Section 4.04(e).

          “CSFB IO” shall have the meaning given such term in Section 4.04(d).

          “CSFB IO Class” shall have the meaning given such term in Section 4.04(a).

          “CSFB IO Percentage” shall have the meaning given such term in Section
4.04(d).

          “CSFB Junior Class” shall have the meaning given such term in Section
4.04(d).

          “CSFB Junior Percentage” shall have the meaning given such term in Section
4.04 (d).

          “CSFB Parties” shall have the meaning given such term in the first
paragraph of this Agreement.

          “Depositor” shall have the meaning given such term in Section 4.02.

          “Eligibility Criteria” shall mean the criteria listed in Schedule I.

          “Engineering Report” shall mean an engineering/architectural review of the
subject property conducted by an Approved Engineering Consultant, which is
acceptable to the Reviewer of the subject Loan in its reasonable discretion,
and which will (a) consider, among other things, structural adequacy, special
hazards (e.g., sinkholes, earthquakes), soil conditions, foundation stability,
quality of physical maintenance, adequacy of site drainage, design defects that
may lead to unusual capital expenditures, adequacy of utilities, roof
structures, HVAC systems, fire and safety systems and overall evaluation of
construction quality and design and (b) summarize (i) the current condition of
the property, including any deferred maintenance, (ii) any immediate repairs
needed and the estimated cost and (iii) anticipated capital repairs and
improvements and the estimated cost.

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          “Environmental Report” shall mean an ASTM standard Phase I Environmental
Assessment prepared by an Approved Environmental Consultant, which is
acceptable to the Reviewer of the subject Loan in its reasonable discretion,
and which identifies historical and current “Recognized Environmental
Conditions” using the methodology recommended by ASTM specifically referred to
as Standard Practices of Environmental Assessments: Phase I Environmental Site
Assessment Process Designation: E 1527-00 (without exception therefrom) and
addresses the common risks associated with commercial real estate, including
(a) asbestos, (b) PCB, (c) radon, (d) pollution/chemical waste, (e)
noise/odors, (f) other latent chemical exposure, including lead, (g) HVAC
systems and (h) mold and, if recommended by such Phase I Environmental
Assessment, a Phase II Environmental Assessment with appropriate physical
sample analysis to establish the presence or absence of a hazardous element.

          “Event of Default” shall have the meaning given such term in the Repo
Agreement.

          “Excess Spread” shall have the meaning given such term in Section 4.04(a).

          “Interim Servicing Agreement” shall have the meaning given such term in
Section 4.09(a).

          “Investment Grade Subordinate Securities” shall have the meaning given
such term in Section 4.03.

          “Junior Participation Interest” shall have the meaning given such term in
Section 3.01.

          “LIBOR” shall have the meaning given such term in the form documents
attached as Exhibit C.

          “Loan” shall have the meaning given such term in the Recitals.

          “Loan Summary” shall mean a summary substantially in the form attached
hereto as Exhibit A.

          “Loan-to-Value Ratio” shall mean, with respect to any Loan, the ratio of
the outstanding principal amount of the Loan as of the date on which such Loan
is submitted for approval under Section 2.02 to the Appraised Value of the
related Mortgaged Property, expressed as a percentage.

          “Moody’s” shall mean Moody’s Investors Service, Inc.

          “Mortgage” shall mean each mortgage, assignment of rents, security
agreement and fixture filing, or deed of trust, assignment of rents, security
agreement and fixture filing, deed to secure debt, assignment of rents,
security agreement and fixture filing, or similar instrument creating and
evidencing a lien on real property and other property and rights incidental
thereto.

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          “Mortgage Note” shall mean the promissory note or other evidence of the
indebtedness of a Mortgagor secured by a Mortgage.

          “Mortgaged Property” shall mean the real property securing repayment of
the debt evidenced by a Mortgage Note.

          “Mortgagor” shall mean the obligor or obligors on a Mortgage Note,
including any person who has assumed or guaranteed the obligations of the
obligor thereunder.

          “Net WAC” shall have the meaning given such term in Section 4.04(a).

          “Participation Interests” shall have the meaning given such term in
Section 3.01.

          “Pipeline Registry” shall have the meaning given such term in Section
2.03.

          “Portfolio” means all Portfolio Mortgage Loans which are
cross-collateralized and/or cross-defaulted with each other.

          “Portfolio Mortgage Loan” means a Loan which is part of a portfolio of
cross-collateralized and/or cross-defaulted mortgage loans.

          “Prime Rate” shall have the meaning given such term in the form documents
attached as Exhibit C.

          “Related Proceeding” shall have the meaning given such term in Section
6.10.

          “REMIC” shall mean “real estate mortgage investment conduit” within the
meaning of Section 860D of the Code.

          “Reviewer” shall have the meaning given such term in Section 2.02(b).

          “S&P” shall mean Standard & Poor’s Ratings Services, a division of The
McGraw-Hill Companies, Inc.

          “SEC” shall mean the Securities and Exchange Commission, or any successor
thereto.

          “Securitization” shall have the meaning given such term in Section 4.01.

          “Senior Participation Interest” shall have the meaning given such term in
Section 3.01.

          “Senior Participation Securitization” shall have the meaning given such
term in Section 4.01(b).

          “Structured Yield” shall have the meaning given such term in Section
4.04(d).

          “Subordinated Securities” shall have the meaning given such term in
Section 4.03.

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          “Sub-pool Securitization” shall have the meaning given such term in
Section 4.04(d).

          “Underwriting Guidelines” shall mean the underwriting guidelines agreed to
by CapitalSource and the CSFB parties, as amended from time to time upon the
mutual agreement of CapitalSource and the CSFB parties, a copy of which is
attached hereto as Exhibit B.

          Section 1.02 Interpretations.

          (a) All terms defined in this Agreement shall have the defined meanings
set forth in Section 1.01 when used in any certificate or other document made
or delivered pursuant hereto unless otherwise defined in such certificate or
document.

          (b) The words “including” and “include” shall be deemed to be followed by
the words “without limitation.” All references in this Agreement to designated
Articles, Sections, Schedules, Exhibits and other subdivisions are, unless
otherwise specified, to designated Articles, Sections, Schedules, Exhibits and
subdivisions of this Agreement. The words “hereof,” “herein” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provisions of this Agreement.
All words importing the singular number include the plural number and vice
versa; and all words importing the masculine gender include the feminine
gender.

          (c) Article, Section, Schedule and Exhibit headings used herein are for
convenience of reference only, are not part of this Agreement and shall not
affect the construction of, or be considered in interpreting, this Agreement.

          (d) Schedules and Exhibits to this Agreement shall be considered part of
this Agreement.

ARTICLE II

LOAN ELIGIBILITY AND APPROVAL

          Section 2.01 Eligibility Criteria. Unless otherwise agreed to in writing
in the sole discretion of Column (acting for itself and Repo Counterparty), in
order to be eligible to be financed in accordance with the Repo Agreement, a
Loan originated by CapitalSource must satisfy the Eligibility Criteria listed
on Schedule I. Subject to the immediately succeeding sentence and unless
otherwise agreed to in writing in the sole discretion of CapitalSource (in the
case of Loans originated or purchased by Column) or Column (acting for itself
and CSFB in the case of Loans originated or purchased by CapitalSource), in
order to be eligible to be included in a securitization undertaken in
accordance with Section 4.01, a Loan originated or purchased by CapitalSource
or Column must satisfy the Eligibility Criteria at the time of origination and,
unless otherwise mutually agreed by the parties hereto, at the time of intended
securitization.

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          Section 2.02 Procedure for Approval of Mortgage Loans.

          (a) CapitalSource acknowledges and agrees that it must obtain Column’s
approval of a Loan (which, if granted, shall be granted by Column on behalf of
Column and Repo Counterparty) in accordance with the procedures described in
Section 2.02(b)-(d) before such Loan may be financed under the Repo Agreement
or included in a securitization undertaken in accordance with Section 4.01.
Column acknowledges and agrees that it must obtain CapitalSource’s approval of
a Loan in accordance with the procedures described in Section 2.02(b)-(d)
before CapitalSource will be required to purchase a subordinate participation
interest therein pursuant to Section 3.01, and before such Loan can be included
in a securitization undertaken in accordance with Section 4.01. Each Loan that
has been approved in accordance with the procedures set forth in Section
2.02(b)-(d) shall be an “Approved Loan.” Repo Counterparty agrees to finance
under the Repo Agreement each Approved Loan originated by CapitalSource;
provided, that, CapitalSource submit such Approved Loan for financing under the
Repo Agreement in accordance with the terms of the Repo Agreement within sixty
(60) days of the date on which such Approved Loan is approved as an Approved
Loan hereunder. Each Approved Loan originated or purchased by either
CapitalSource or Column may be included in a securitization undertaken in
accordance with Section 4.01 if, at the time of intended securitization, it
satisfies the requirements of the relevant rating agencies.

          (b) The party seeking approval of a Loan (“Applicant”) shall submit to the
party from whom approval is being sought (“Reviewer”) an application package
that shall include the following as each relates to such Loan:

		
	 	     (i) financial statements with respect to the nursing facility for
the immediately preceding three years to the extent available and a full
underwriting of the related property accompanied by an agreed upon
procedures letter verifying such financial statements and underwriting;
	 
	 	     (ii) name of borrower and property manager and a description of
experience;
	 
	 	     (iii) a
completed Loan Summary (i.e., a credit write-up);
	 
	 	     (iv) term sheet, indicating primary loan terms (including a quote of
an interest rate spread to LIBOR or the Prime Rate);
	 
	 	     (v) an Appraisal dated no earlier than six months prior to
submission of the application package;
	 
	 	     (vi) an Environmental Report;
	 
	 	     (vii) an Engineering Report;
	 
	 	     (viii) cost reports for the immediately preceding three years to the
extent available (including a medicare contract and, if applicable, a
certificate of need);
	 
	 	     (ix) photographs showing principal interior and exterior aspects of
the Mortgaged Property including the main entrance and representative
resident rooms;

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	 	     (x) maps showing the location of the city in which the Mortgaged
Property is located and of the Mortgaged Property within such city;

		
	 	     (xi) the draft Note (marked to show changes from the form document
attached as part of Exhibit C);
	 
	 	     (xii) the draft mortgage (marked to show changes from the form
document attached as part of Exhibit C);
	 
	 	     (xiii) the draft cash management agreement (marked to show changes
from the form document attached as part of Exhibit C);
	 
	 	     (xiv) draft guaranties and indemnities (marked to show changes from
the form documents attached as part of Exhibit C);
	 
	 	     (xv) any post-closing obligation letters, to the extent available at
such time; and
	 
	 	     (xvi) any draft receivables agreements, which shall include the
amount of the related receivable line.

          (c) Reviewer shall, in writing, approve or reject the proposed Loan within
seven (7) Business Days after receipt of all items listed in Section 2.02(b)
above. Should any such items be materially modified or amended after being
submitted to Reviewer, Applicant shall resubmit such modified or amended items
to Reviewer for approval in accordance with this Section 2.02. Notwithstanding
anything contained herein to the contrary and regardless of whether the
proposed Loan meets the Eligibility Criteria, a Reviewer may reject any
proposed Loan in its absolute discretion.

          (d) In connection with the process provided for in this Section 2.02,
Applicant agrees, with respect to each Loan submitted by it for approval, to
investigate completely and thoroughly every underwriting and legal matter in
accordance with the Underwriting Guidelines, and, with respect to matters not
addressed by the Underwriting Guidelines, to use such origination and
underwriting practices as a reasonably prudent lender would use in underwriting
and originating Loans comparable to the subject mortgage loans and exercising a
standard of care customary in the commercial mortgage lending industry. In
addition, Applicant agrees to use the form documents attached as Exhibit C in
originating the Loans submitted for approval hereunder and to only make those
changes to such forms as are reasonably necessary.

          (e) Loans may be submitted by CapitalSource for approval hereunder only so
long as (i) CapitalSource is entitled to submit Loans for financing under the
Repo Agreement and (ii) no Event of Default has occurred and is continuing.

          Section 2.03 Registration of Loans. CSFB and CapitalSource agree to
utilize CSFB’s loan registry (located at www2.columnfinancial.com/pipeline/)
(the “Pipeline Registry”).

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ARTICLE III

PURCHASE OF PARTICIPATION INTERESTS

          Section 3.01 Participation Interests. CapitalSource agrees to purchase
from Column a 20% subordinate, first-loss participation interest (a “Junior
Participation Interest”) in any Approved Loan originated by Column. Column
will initially retain an 80% senior participation interest in such loans (a
“Senior Participation Interest” and, together with the Junior Participation
Interest, the “Participation Interests”). CapitalSource shall purchase each
Junior Participation Interest at a price equal to par, and such Junior
Participation Interest will accrue interest in an amount equal to the lesser of
(i) a portion of the mortgage interest accruals on the Approved Loan such that
CapitalSource receives a 20% annualized yield on such Junior Participation
Interest, or (ii) 100% of the mortgage interest accruals on such Approved Loan.

          Section 3.02 Participation Agreement. The Participation Interests in each
Approved Loan will be governed by the terms of a participation agreement
between Column and CapitalSource (each, a “Participation Agreement”)
substantially in the form attached hereto as Exhibit D.

ARTICLE IV

SECURITIZATION OF APPROVED LOANS

          Section 4.01 Timing of Securitizations.

          (a) At such time as the parties mutually agree, CapitalSource and CSFB
shall arrange for the securitization of any or all existing Approved Loans
(each such securitization, a “Securitization”). The decision of the parties to
commence a Securitization shall be binding on such parties, unless (i) either
party notifies the other party of its decision to withdraw from the
Securitization within two Business Days after receipt of preliminary
subordination levels from the relevant rating agencies or (ii) the actual final
subordination levels required by the relevant rating agencies to support
investment-grade securities (i.e., the principal balance of all securities
rated below “BBB-”) exceeds the preliminary subordination levels indicated by
the rating agencies with respect to such securities by more than 2% of the
aggregate principal balance of the Approved Loans to be included in such
proposed securitization.

          (b) In the event that CapitalSource and CSFB cannot mutually agree to
arrange for the securitization of the Approved Loans, CSFB may elect to
securitize its Senior Participation Interests at any time in its sole
discretion (each such securitization of the Senior Participation Interests, a
“Senior Participation Securitization”). CSFB shall ensure that any servicing
agreement prepared in connection with any Senior Participation Securitization
is not inconsistent with any related Participation Agreement.

          Section 4.02 General Structure of Securitization. CSFB shall cause its
affiliate, Credit Suisse First Boston Mortgage Securities Corp. (the
“Depositor”), to act as depositor of each Securitization. With respect to each
Securitization, CapitalSource will sell the Approved Loans that it originated,
and each of CapitalSource and Column will sell its respective

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Participation Interest in the Approved Loan originated by Column, to the
Depositor pursuant to a mortgage loan purchase and sale agreement in form and
substance customary for similar transactions and acceptable to the relevant
rating agencies. Following the purchase by the Depositor of both Participation
Interests with respect to any Loan, the Participation Agreement with respect to
such Loan shall be terminated. The Depositor shall have control over the
structure of the Securitization and shall manage the Securitization process
(including the selection of rating agencies and hiring of service providers
(including, without limitation, the lead counsel, accountants, financial
printer and trustee) in connection therewith), subject to the requirements of
this Article IV. Notwithstanding the foregoing, CapitalSource shall have the
right to disapprove any major decision of the Depositor with respect to a
Securitization to the extent that CapitalSource reasonably disagrees with such
decision; provided that all decisions with respect to a Securitization
undertaken pursuant to Section 4.01(b) shall be made by the Depositor in its
sole and absolute discretion. With respect to each Securitization, each of
CapitalSource and Column agree to provide any additional documents related to
the origination of the subject mortgage loans as required by the relevant
rating agencies.

          Section 4.03 Purchase of Securities. With respect to each Securitization,
CapitalSource agrees to purchase at closing (or, in the sole discretion of
CSFB, within two weeks thereof) the Subordinated Securities. Notwithstanding
the foregoing, CapitalSource shall have no obligation to purchase any
Subordinated Securities in connection with a Senior Participation
Securitization. “Subordinated Securities” shall mean, with respect to a
Securitization, the greater of (i) all of the securities issued in such
Securitization with a rating by at least one rating agency below “BBB-” or the
equivalent, or (ii) the most subordinated securities issued in such
Securitization having an aggregate principal amount equal to 20% of the
aggregate principal balance of all of the securities issued in such
Securitization (the portion of such Subordinated Securities having a rating of
at least “BBB-” or the equivalent being referred to herein as the “Investment
Grade Subordinate Securities”). CapitalSource shall pay a purchase price to
the Depositor for the Subordinated Securities equal to 100% of the principal
balance thereof plus accrued interest (which purchase price shall be a portion
of the aggregate Securitization proceeds to be divided pursuant to Section
4.04). In connection with each such purchase of securities, CapitalSource
shall make representations and warranties that are customary for the purchaser
of securities to make in similar transactions.

          Section 4.04 Division of Securitization Proceeds; Excess Spread.

          (a) Each Securitization shall be in a multi-class, senior/subordinated
trust structure. The interest rates on the various classes of investment grade
securities shall be set so as to achieve the maximum aggregate sales prices for
such classes. The classes of Subordinated Securities shall accrue interest at
a rate equal to the sum of (i) the weighted average of the interest rates on
the Approved Loans included in the Securitization (calculated on the basis of a
360-day year of twelve 30-day months), net of trustee and servicing fees (the
“Net WAC”) and (ii) the portion of the Excess Spread allocable to CapitalSource
pursuant to the succeeding sentence and Sections 4.04(c) and (d) below.
Interest accruing at a rate equal to the excess of the Net WAC over the
weighted average of the interest rates on the classes of securities other than
the Subordinated Securities on a notional balance equal to the aggregate
principal balance of such classes (calculated on the basis of a 360-day year of
twelve 30-day months) (“Excess Spread”) shall be divided between CapitalSource
(as increased interest on the Subordinated

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Securities) (the “CapitalSource Excess Spread”) and a class of
interest-only securities to be purchased by CSFB ( the “CSFB IO Class”).

          (b) With respect to each Securitization, the actual proceeds of the sale
of all classes of securities other than the CSFB IO Class and the Subordinated
Securities (with the proceeds of the sale of the Subordinated Securities being
assumed for purposes of this Section 4.04(b) to be par) and the assumed
proceeds of the sale of the Subordinated Securities (collectively for each
Securitization, the “Aggregate Securitization Proceeds”), exclusive of accrued
interest collected shall be allocated pro rata in accordance with the principal
balance of Loans and Participation Interests contributed to the Securitization
by Column on the one hand and CapitalSource on the other. Accrued interest
collected from the sale of all certificates in connection with a
Securitization, including the CSFB IO and Excess Spread allocated to
CapitalSource in Section 4.04(c), shall be allocated pro rata based on the CSFB
Accrued Interest Amount and the CapitalSource Accrued Interest Amount.
Aggregate Securitization Proceeds allocated to CapitalSource will be applied
first in reduction of the assumed purchase price of the Subordinated Securities
before any actual proceeds are distributed to CapitalSource.

          (c) With respect to each Securitization, CapitalSource shall be entitled
to the CapitalSource IO Percentage (as defined below) of the Excess Spread (by
notional balance). CapitalSource will further be entitled to the portion, if
any, of the CSFB IO Percentage (as defined below) of the Excess Spread (by
notional balance) which, when added to the interest accruing on the CSFB Junior
Certificates (as defined below) at the pass-through rate thereof, will give
CapitalSource the lesser of (i) (A) a coupon on the aggregate principal amount
of the portion of the CSFB Junior Certificates constituting Investment Grade
Subordinate Securities (but such portion not to exceed 5% of the aggregate
principal balance of all the securities issued in such Securitization), of 10%,
(calculated on the basis of a 360-day year of twelve 30-day months), plus (B) a
coupon on the aggregate principal amount of the remaining portion of the CSFB
Junior Certificates, of 17%, (calculated on the basis of a 360-day year of
twelve 30-day months); or (ii) 100% of the CSFB IO Percentage of the Excess
Spread. Any remaining portion of the CSFB IO Percentage of the Excess Spread
that CapitalSource is not entitled to pursuant to the preceding sentence will
be divided 60% to CSFB and 40% to CapitalSource.

          (d) In order to calculate the CSFB IO Percentage, the CapitalSource IO
Percentage, the CSFB Junior Percentage, the CapitalSource Junior Percentage,
the CSFB Accrued Interest Amount and the CapitalSource Accrued Interest Amount
with respect to any Securitization, CSFB shall model each Securitization as two
separate securitizations (“Sub-pool Securitizations”), with one such Sub-pool
Securitization including all Loans contributed by CapitalSource and the other
such Sub-pool Securitization including all Loans contributed by Column
(including both Senior Participation Interests and Junior Participation
Interests with respect to such Loans), but otherwise having identical class
structures and pass-through rates (other than (i) the pass-through rates of the
interest only classes, which will be derived from the Net WAC of the related
Loans and the pass-through rates of the other classes (such interest only
coupons, the “Assumed IO Rates”), (ii) class sizes, which will be based upon
the sub-pool subordination levels supplied by the rating agencies rating such
Securitization, and (iii) the pass-through rates of the junior classes, which
will be equal to the Net WAC of the related Loans and (iv) Accrued Interest
Amounts). With respect to a Securitization, (i) the assumed interest only
class from the related Sub-pool Securitization assumed to include the
CapitalSource Loans is

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referred to as the “CapitalSource IO” and the assumed interest only class
from the related Sub-pool Securitization assumed to include the Column Loans is
referred to as the “CSFB IO,” and (ii) the Accrued Interest Amount from the
related Sub-pool Securitization assumed to include the Capital Source Loans is
referred to as the “CapitalSource Accrued Interest Amount” and the Accrued
Interest Amount from the related Sub-pool Securitization assumed to include the
Column Loans is referred to as the “CSFB Accrued Interest Amount.” The
“CapitalSource IO Percentage” for each Securitization will be equal to a
fraction, expressed as a percentage, (X) the numerator of which is product of
the initial pass-through rate of the related CapitalSource IO and the initial
notional amount thereof, and (Y) the denominator of which is the sum of the
amount calculated in clause (X) and the product of the initial pass-through
rate of the related CSFB IO and the initial notional amount thereof. The “CSFB
IO Percentage” for each Securitization will be equal to 100% minus the related
CapitalSource IO Percentage. With respect to a Securitization, the assumed
Subordinated Securities from the related Sub-pool Securitization
(i.e., the
most subordinate 20% or, if greater, the non-investment grade classes) assumed
to include the CapitalSource Loans is referred to as the “CapitalSource Junior
Class” and the assumed Subordinated Securities from the related Sub-pool
Securitization (i.e., the most subordinate 20% or, if greater, the
non-investment grade classes) assumed to include the Column Loans is referred
to as the “CSFB Junior Class.” The “CapitalSource Junior Percentage” for each
Securitization will be equal to a fraction, expressed as a percentage, (X) the
numerator of which is the principal balance of the CapitalSource Junior Class,
and (Y) the denominator of which is the aggregate principal balance of the
CapitalSource Junior Class and the CSFB Junior Class. The “CSFB Junior
Percentage” for each Securitization will be equal to 100% minus the related
CapitalSource Junior Percentage. The “CSFB Junior Certificates” for any
Securitization will be a portion of the Subordinated Securities issued in such
Securitization equal to the product of the CSFB Junior Percentage and the
aggregate principal balance of the Subordinated Securities.

          (e) In the event that, with respect to any Securitization, either (i) par
execution is not achieved with respect to any class of certificates (other than
the Subordinated Securities or the CSFB IO Class) or (ii) the projected
performance of the related CapitalSource IO and the related CSFB IO (calculated
using consistent CPR assumptions and other standard assumptions for CMBS
modeling) differ materially from each other (due to variations in lock-out
period or principal payment characteristics of the related Loans), then the
parties shall agree on appropriate variations to the above-described
methodologies for division of Securitization proceeds and Excess Spread.

          (f) In addition, if the Approved Loans sold by Column or CapitalSource
with respect to any Securitization include loans that accrue interest at a
variable rate that is tied to LIBOR but that, pursuant to the related loan
documents, never falls below a certain minimum rate (such minimum rate, the
“LIBOR Floor”), then the securities issued by such Securitization shall include
a class (or, if such Loans are sold by both Column and CapitalSource into a
particular Securitization, two classes) of interest-only certificates (such
class or classes, the “LIBOR Floor Certificates”) which shall represent the
right to receive, with respect to such Approved Loans, the excess, if any, of
the LIBOR Floor over LIBOR. CapitalSource shall be entitled to the LIBOR Floor
Certificates relating to its Approved Loans. The LIBOR Floor Certificates
relating to the Approved Loans contributed by CSFB will be divided 60% to CSFB
and 40% to CapitalSource.

 - 12 - 

 

          Section 4.05 Source of Loans for Securitizations. Unless agreed to by
CapitalSource, Column and CSFB (each in its sole discretion), no Loans other
than Approved Loans may be included in any Securitization.

          Section 4.06 Manager of Securitizations. CSFB shall be the sole lead
manager and sole book runner on any securitization of Approved Loans that are
financed under the Repo Agreement.

          Section 4.07 Manager’s Fee. CapitalSource will pay CSFB a fee, as
structurer and placement agent/underwriter for each Securitization, of 1.00% of
the total principal balance of all the securities created pursuant to such
Securitization (the “CSFB Fee”). The CSFB Fee with respect to a Securitization
shall be payable on the closing date of such Securitization.

          Section 4.08 Origination and Exit Fees. CapitalSource shall be entitled
to receive all origination fees and exit fees with respect to Approved Loans
originated by CapitalSource and included in a Securitization. CSFB shall be
entitled to receive all origination fees with respect to Approved Loans
originated by Column and included in a Securitization. CapitalSource shall be
entitled to receive all exit fees with respect to Approved Loans originated by
Column and included in a Securitization; provided, however, that CapitalSource
shall not receive any such exit fees in connection with a Senior Participation
Securitization or in the event that it does not purchase the Subordinated
Securities as required by Section 4.03.

          Section 4.09 Servicing.

          (a) After the origination but prior to the securitization of the Loans
originated by Column, ORIX Capital Markets LLC or such other servicer that is
reasonably acceptable to the parties to this Agreement will act as servicer and
CapitalSource will act as special servicer. After the origination but prior to
the securitization of the Loans originated by CapitalSource, ORIX Capital
Markets LLC or such other servicer that is reasonably acceptable to the parties
to this Agreement will act as servicer and CapitalSource will act as primary
servicer and special servicer. In each case, the servicing arrangement shall
be documented in a separate interim servicing agreement (each, an “Interim
Servicing Agreement”) which shall be in form and substance reasonably
acceptable to the parties hereto. Upon the consummation of a Securitization or
a Senior Participation Securitization, the Interim Servicing Agreement will
terminate with respect to any Approved Loans or Senior Participation Interests
securitized therein and no compensation shall be due to CapitalSource in
connection with such termination.

          (b) The Depositor shall choose the servicer for each Securitization or
Senior Participation Securitization; provided, that, the servicer of the
Approved Loans that are securitized must be on S&P’s approved list of servicers
rated at least CMS3 by Fitch and acceptable to Moody’s. CapitalSource shall
choose the special servicer for each Securitization; provided, that, the
special servicer of the Approved Loans that are securitized must be on S&P’s
approved list of special servicers and must be acting as special servicer in
one or more commercial mortgage loan securitizations that was rated by Moody’s
and Fitch in the prior six (6) months and Moody’s or Fitch, as applicable, has
not downgraded or withdrawn the then-current rating on any class of commercial
mortgage securities or placed any class of commercial mortgage securities on
watch citing the continuation of such special servicer as special servicer

 - 13 - 

 

of such commercial mortgage securities; provided, further, that
CapitalSource shall not be entitled to choose the Special Servicer in
connection with a Senior Participation Securitization or in the event that it
does not purchase the Subordinated Securities as required by Section 4.03.

          (c) CSFB agrees to reasonably cooperate with CapitalSource in
CapitalSource’s efforts to obtain the necessary approvals and ratings to enable
CapitalSource or an affiliate to act as servicer and special servicer of the
Securitizations.

		
	 	     (i) If, prior to a Securitization, CapitalSource receives all such
approvals and ratings, CSFB and CapitalSource agree that CapitalSource
shall be retained as the servicer and/or special servicer for such
Securitization and shall be compensated therefor at an annual rate
consistent with then-market standards; provided, however, that
CapitalSource shall not be retained as the servicer and/or special
servicer in connection with a Senior Participation Securitization or in
the event that it does not purchase the Subordinated Securities as
required by Section 4.03. CapitalSource agrees to pay all expenses
related to the process of obtaining the necessary approvals and ratings
to enable it to act as servicer and special servicer of the
Securitizations.

		
	 	     (ii) If, prior to a Securitization, CapitalSource fails to receive
all such approvals and ratings, CSFB and CapitalSource agree that any
servicer or special servicer retained for such Securitization shall agree
to retain CapitalSource as sub-servicer or sub-special servicer, as
applicable.

          Section 4.10 Expenses. Each of CSFB and CapitalSource agrees to pay (or
cause to be paid) its pro rata share of the following expenses with respect to
each Securitization based on the proportion that the principal amount of the
Approved Loans that Column (in the case of CSFB) and CapitalSource contributes
to such Securitization bears to the total aggregate principal amount of the
Approved Loans included in such Securitization: (a) the reasonable fees,
disbursements and expenses of counsel to the CSFB Parties and counsel to
CapitalSource in connection with the issuance of the securities in such
Securitization and all other reasonable expenses in connection with the
preparation of the related offering document and closing documents (including
any compilations thereof) and any other documents in connection with the
offering, purchase, sale and delivery of such securities; (b) the reasonable
fees of accountants in connection with the issuance of such securities; (c) all
expenses in connection with the qualification of such securities, if any, for
offering and sale under state securities laws, including the fees and
disbursements of counsel in connection with such qualification and in
connection with Blue Sky and legal investment surveys; (d) the fees charged by
the rating agency or agencies for rating the securities or the Approved Loans
proposed to be included in such Securitization which ratings have been
solicited by any CSFB Party; (e) if CapitalSource is not the servicer or
special servicer for such Securitization, the reasonable up front fees and
expenses of the servicer and/or special servicer and the reasonable fees and
disbursements of counsel for the servicer and/or special servicer in connection
with the preparation and review of the transaction documents; (f) the
reasonable up front fees and expenses of any trustee and the reasonable fees
and disbursements of its counsel in connection with the preparation and review
of the transaction documents; (g) the fees of the financial printer with
respect to such Securitization; (h) any cost incurred in connection with the
designation of such securities for trading on PORTAL; and (i) any additional
fees or costs incurred by any CSFB Party in

 - 14 - 

 

connection with the purchase, sale and transfer of the Approved Loans to
be included in such Securitization. It is understood, however, that except as
provided in this Section 4.10 and in accordance with Section 4.11, each CSFB
Party and CapitalSource will pay all of its own costs and expenses with respect
to each Securitization; provided, however, that CapitalSource will pay all of
the reasonable loan due diligence expenses incurred by CSFB, including the
reasonable fees of counsel to any CSFB Party, in connection with the on-going
review of Approved Loans proposed to be included in such Securitization that
have not been originated by CSFB or an affiliate. CapitalSource agrees to pay
50% of all of the reasonable costs and expenses of CSFB, Repo Counterparty and
Column (including legal fees and expenses) in connection with the transactions
contemplated by this Agreement and the Repo Agreement (other than the
Securitizations).

          Section 4.11 Indemnification. With respect to each Securitization,
CapitalSource will indemnify the Depositor, CSFB and any co-underwriters
against losses, claims, damages or liabilities to which any such party may
become subject in connection with (i) misstatements or omissions from related
disclosure documents concerning the Approved Loans contributed by CapitalSource
to such Securitization, (ii) CapitalSource or (iii) any other information
provided by CapitalSource for inclusion in such disclosure documents, such
indemnity to be in a form that is customary in similar transactions.

          Section 4.12 Representations and Warranties with Respect to the Approved
Loans. As of the closing date of each Securitization, CapitalSource shall make
the representations and warranties concerning the mortgage loans being sold by
it to the Depositor substantially in the form set forth on Schedule 1 to the
Repo Agreement (subject to any necessary exceptions, which must be approved in
writing by CSFB), with any changes or additions to such representations and
warranties as the relevant rating agencies or investors may require. As of the
closing date of each Securitization, Column shall make the representations and
warranties concerning the loans being sold by it to the Depositor substantially
in the form set forth on Schedule 1 to the Repo Agreement (subject to any
necessary exceptions, which must be approved in writing by CSFB), with any
changes or additions to such representations and warranties as the relevant
rating agencies or investors may require.

          Section 4.13 Refinancing of Approved Loans. CSFB acknowledges that by the
terms of the transaction documents underlying Approved Loans originated by
CapitalSource, CapitalSource may have the right of first refusal to refinance
such Approved Loans. CapitalSource acknowledges that by the terms of the
transaction documents underlying Approved Loans originated by Column, Column
may have the right of first refusal to refinance such Approved Loans.

 - 15 - 

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES

          Section 5.01 Representations and Warranties of CapitalSource.
CapitalSource represents and warrants to each of the CSFB Parties that:

          (a) this Agreement has been duly authorized, executed and delivered by
CapitalSource and constitutes the legal, valid and binding obligation of
CapitalSource, enforceable against CapitalSource in accordance with its terms
under New York law, except as such enforcement may be affected by bankruptcy,
by other insolvency laws or by general principles of equity;

          (b) no consent, approval, authorization or order of any New York or
federal governmental agency or body or any New York or federal court is
required for the consummation by CapitalSource of the transactions contemplated
by the terms of this Agreement, except such consents, approvals,
authorizations, filings and notices that have already been made or obtained;

          (c) the consummation by CapitalSource of any of the transactions
contemplated by the terms of this Agreement do not conflict with or result in a
breach or violation of any material term or provision of, or constitute a
default under, the certificate of incorporation or bylaws of CapitalSource, or
any indenture or other agreement or instrument to which CapitalSource is a
party or by which it is bound, or any New York or federal statute or regulation
applicable to CapitalSource or any order of any New York or federal court,
regulatory body, administrative agency or governmental body having jurisdiction
over CapitalSource;

          (d) CapitalSource is a limited liability company created, organized,
existing and in good standing under the laws of Delaware and has the corporate
power to engage in the transactions contemplated by this Agreement; and

          (e) there is no investigation, action, litigation or administrative
proceeding of or before any court, tribunal or governmental body currently
pending or, to the knowledge of CapitalSource, threatened against CapitalSource
(i) that would be likely to affect materially and adversely the validity or
enforceability of this Agreement, or (ii) that could reasonably be expected to
result in any material adverse change in the business, operations, financial
conditions, properties or assets of CapitalSource or the ability of
CapitalSource to carry on its business substantially as it is now conducted.

          Section 5.02 Representations and Warranties of the CSFB Parties. Each of
the CSFB Parties represents and warrants to each other party hereto with
respect to itself that:

          (a) this Agreement has been duly authorized, executed and delivered by it
and constitutes its legal, valid and binding obligation, enforceable against it
in accordance with its terms under New York law;

          (b) no consent, approval, authorization or order of any New York or
federal governmental agency or body or any New York or federal court is
required for the

 - 16 - 

 

consummation by it of the transactions contemplated by the terms of this
Agreement, except such consents, approvals, authorizations, filings and notices
that have already been made or obtained;

          (c) the consummation by it of any of the transactions contemplated by the
terms of this Agreement do not conflict with or result in a breach or violation
of any material term or provision of, or constitute a default under, its
certificate of incorporation or bylaws, or any indenture or other agreement or
instrument to which it is a party or by which it is bound, or any New York or
federal statute or regulation applicable to it or any order of any New York or
federal court, regulatory body, administrative agency or governmental body
having jurisdiction over it;

          (d) it is a limited liability company created, organized, existing and in
good standing under the laws of the State of Delaware and has the corporate
power to engage in the transactions contemplated by this Agreement; and

          (e) there is no investigation, action, litigation or administrative
proceeding of or before any court, tribunal or governmental body currently
pending or, to its knowledge, threatened against it (i) that would be likely to
affect materially and adversely the validity or enforceability of this
Agreement, or (ii) that could reasonably be expected to result in any material
adverse change in its business, operations, financial conditions, properties or
assets or its ability to carry on its business substantially as it is now
conducted.

ARTICLE VI

MISCELLANEOUS

          Section 6.01 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement.

          Section 6.02 Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to CapitalSource, will be mailed,
delivered or telecopied and confirmed to it at 4445 Willard Avenue, 12th Floor,
Chevy Chase, Maryland 20815, Attention: Steven A. Museles, Fax: 301/841-2340,
with a copy to Lee E. Berner, Esq., Hogan & Hartston, L.L.P., 8300 Greensboro
Drive, Suite 1100, McLean, Virginia 22012, Facsimile: 703-610-6200; or, if
sent to CSFB, Repo Counterparty or Column will be mailed, delivered or
telecopied and confirmed to it at 11 Madison Avenue, New York, New York 10010,
Attention: Edmund Taylor, Facsimile: 212-325-8162, with a copy to Pamela
McCormack, Facsimile: 917-326-7805.

          Section 6.03 Binding Effect. This Agreement shall become effective when
it shall have been executed and delivered by or on behalf of each of the
parties hereto and thereafter shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns (and no other
person will have any right or obligation hereunder), except that no party shall
have the right to assign any of its rights, interests or obligations hereunder
or

 - 17 - 

 

any right, interest or obligation herein without the prior written consent
of the other parties hereto. Any assignment in violation of this Section 6.03
shall be void ab initio.

          Section 6.04 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall together constitute but one and the same
instrument.

          Section 6.05 Amendments. Any provision of this Agreement may be amended
or waived if, but only if, such amendment or waiver is in writing and is signed
by the parties hereto.

          Section 6.06 No Waiver. No failure on the part of any party to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or the exercise of any other right. Each
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.

          Section 6.07 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

          Section 6.08 Jurisdiction; Consent to Service of Process. To the fullest
extent permitted by applicable law, each of the parties hereto (a) hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement (a “Related Proceeding”), or for recognition or enforcement of any
judgment and (b) agrees that a final judgment in any such Related Proceeding
shall be conclusive and may be enforced in any other jurisdiction by suit on
the judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that a party may otherwise have to bring any Related
Proceeding against any other party or its respective properties in the courts
of any jurisdiction.

          Section 6.09 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT, THE SUBJECT MORTGAGE LOANS OR THE ACTIONS OF THE PARTIES HERETO
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.

          Section 6.10 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE

 - 18 - 

 

STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PROVISIONS THEREOF
CONCERNING CONFLICT OF LAWS.

 - 19 - 

 

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

	 	 	 	 	 
	 	 	CAPITALSOURCE FINANCE LLC
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:
	 	 	 	 	 
	 	 	CREDIT SUISSE FIRST BOSTON LLC
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:
	 	 	 	 	 
	 	 	CREDIT SUISSE FIRST BOSTON

      MORTGAGE CAPITAL LLC
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:
	 	 	 	 	 
	 	 	COLUMN FINANCIAL, INC.
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:

 

 

SCHEDULE I

ELIGIBILITY CRITERIA

In order to satisfy the Eligibility Criteria, a Loan must:

	1.	 	be secured by a first lien on a skilled nursing facility;
	 
	2.	 	be evidenced by an original Mortgage Note;
	 
	3.	 	have been underwritten in accordance with Underwriting Guidelines and
Section 2.02(d) of this Agreement;
	 
	4.	 	be eligible for inclusion in a REMIC and an SEC registered
securitization;
	 
	5.	 	if such mortgage loan is a Portfolio Mortgage Loan, be approved as an
Approved Loan simultaneously with the approval as Approved Loans of all of
the mortgage loans which comprise the Portfolio of which such mortgage
loan is a part;
	 
	6.	 	have an original principal balance of not greater than $30 million;
provided, however, that a mortgage loan with an original principal balance
of greater than $30 million may become an Approved Loan if such larger
balance is pre-approved in writing by Reviewer prior to submission of such
mortgage loan for approval pursuant to Section 2.02 of this Agreement;
provided, further, however, that if such mortgage loan is a Portfolio
Mortgage Loan, the aggregate principal balance of all of the mortgage
loans in the Portfolio of which such mortgage loan is a part does not
exceed $50 million and no individual Mortgaged Property in such Portfolio
shall have a principal balance allocable to it of greater than $30
million;
	 
	7.	 	unless otherwise agreed to by the parties hereto, bear a floating rate of
interest (i) indexed to one-month LIBOR plus a spread of not less than
5.50% or (ii) indexed to the Prime Rate plus a spread of not less than 3%;
	 
	8.	 	have an original term to maturity of not more than five (5) years;
	 
	9.	 	be locked out from prepayment for no less than three (3) years from the
date of origination;
	 
	10.	 	have an underwritten debt service coverage ratio of not less than 1.4
based on an 11.83% constant;
	 
	11.	 	have a Loan-to-Value Ratio of not greater than 80% based on a 13.5% cap
rate;
	 
	12.	 	not be delinquent or otherwise in default; and
	 
	13.	 	not require future advances.

SCH. I-1

 

SCHEDULE II

APPROVED APPRAISERS

	 	 	 	 	 
	 	 	Firm Name	 	Location
	 	 	
	 	

	1.	 	
Adler Realty Advisors
	 	Woodlands Hills, CA
	 	 	 	 	 
	2.	 	
Advanced Valuations Systems
	 	Dallas, TX
	 	 	 	 	 
	3.	 	
Allen & Company
	 	Birmingham, MI
	 	 	 	 	 
	4.	 	
Appraisal Associates Company
	 	Cedar Rapids, IA
	 	 	 	 	 
	5.	 	
Appraisal Group, Inc.
	 	Salt Lake City, UT
	 	 	 	 	 
	6.	 	
Appraisal Research Counselors, Ltd.
	 	Chicago, IL
	 	 	 	 	 
	7.	 	
Appraisal Technology
	 	Tempe, AZ
	 	 	 	 	 
	8.	 	
Argianis & Associates
	 	Lombard, IL
	 	 	 	 	 
	9.	 	
Atlantic Appraisal Company Inc.
	 	Lexington, KY
	 	 	 	 	 
	10.	 	
Atlantic Hospitality
	 	Atlanta, GA
	 	 	 	 	 
	11.	 	
Bakken & Leidel
	 	Minneapolis, MN
	 	 	 	 	 
	12.	 	
Benton Advisory
	 	Marietta, GA
	 	 	 	 	 
	13.	 	
Beshears & Associates
	 	Tampa, FL
	 	 	 	 	 
	14.	 	
Blair Stouffer & Associates
	 	San Antonio, TX
	 	 	 	 	 
	15.	 	
Bradley Appraisal Services
	 	Dallas, TX
	 	 	 	 	 
	16.	 	
Burke Hansen
	 	Phoenix, AZ
	 	 	 	 	 
	17.	 	
Buss-Shelgar Associates
	 	Los Angeles, CA
	 	 	 	 	 
	18.	 	
Butler & Burgher
	 	Dallas, TX
	 	 	 	 	 
	19.	 	
Carey Bronstein
	 	Tarzana, CA
	 	 	 	 	 
	20.	 	
Carroll-McIllhenny
	 	Cherry Hill, NJ
	 	 	 	 	 
	21.	 	
CB Richard Ellis
	 	Phoenix, AZ
	 	 	 	 	 
	22.	 	
Charles M. Ritley
	 	Beachwood, OH

SCH. II-1

 

	 	 	 	 	 
	23.	 	
Charles R. Wilson & Assoc.
	 	Pasadena, CA
	 	 	 	 	 
	24.	 	
Chief Appraisal Services
	 	Maitland, FL
	 	 	 	 	 
	25.	 	
Commercial Real Estate Services
	 	Dallas, TX
	 	 	 	 	 
	26.	 	
Crossin Dannis
	 	Dallas, TX
	 	 	 	 	 
	27.	 	
Curtis-Rosenthal, LLC
	 	Los Angeles, CA
	 	 	 	 	 
	28.	 	
Cushman & Wakefield
	 	New York, NY
	 	 	 	 	 
	29.	 	
Dean Appraisal (Part of Integra)
	 	Birmingham, MI
	 	 	 	 	 
	30.	 	
Deverick & Associates
	 	Carrollton, TX
	 	 	 	 	 
	31.	 	
Dinan Real Estate Advisors Inc.
	 	St. Louis, MO
	 	 	 	 	 
	32.	 	
Diversified Realty Appraisal
	 	Newport Beach, CA
	 	 	 	 	 
	33.	 	
Dugger Canady Grafe & Woelfel
	 	San Antonio, TX
	 	 	 	 	 
	34.	 	
DYCO Real Estate
	 	Englewood, CO
	 	 	 	 	 
	35.	 	
Fletcher Associates
	 	Cincinnati, OH
	 	 	 	 	 
	36.	 	
Fred H. Beck
	 	Charlotte, NC
	 	 	 	 	 
	37.	 	
Greenbriar Appraisal Company
	 	Houston, TX
	 	 	 	 	 
	38.	 	
Grubb and Ellis/Landauer
	 	Los Angeles, CA
	 	 	 	 	 
	39.	 	
Heyden Rench & Associates
	 	St.Louis, MO
	 	 	 	 	 
	40.	 	
Hippauf & Associates
	 	Santa Fe, NM
	 	 	 	 	 
	41.	 	
HVS (Hospitality Valuation Services)
	 	Mineola, NY
	 	 	 	 	 
	42.	 	
Integra Realty Consultants
	 	Westwood, KS
	 	 	 	 	 
	43.	 	
James Palmer Appraisals
	 	Fresno, CA
	 	 	 	 	 
	44.	 	
Jerome Haims Realty Inc. New York
	 	New York, NY
	 	 	 	 	 
	45.	 	
John P. Neet
	 	Temecula, CA
	 	 	 	 	 
	46.	 	
Joseph D. Pasquarella & Co.

(Part of Integra)
	 	Philadelphia, PA
	 	 	 	 	 
	47.	 	
Joseph J. Blake and Associates
	 	Miami, FL

SCH. II-2

 

	 	 	 	 	 
	48.	 	
Keystone Consulting
	 	Raleigh, NC
	 	 	 	 	 
	49.	 	
Kovacs Real Estate Valuation
	 	Denver, CO
	 	 	 	 	 
	50.	 	
Kramer Geisler & Strand

(Nicollet Partners)
	 	Hopkins, MN
	 	 	 	 	 
	51.	 	
KTR Associates
	 	New York, NY
	 	 	 	 	 
	52.	 	
Lawson Valuation Group
	 	Palm Beach Gardens, FL
	 	 	 	 	 
	53.	 	
Lipman, Frizzell & Mitchell
	 	Columbia, MD
	 	 	 	 	 
	54.	 	
Mardell Partners
	 	Minneapolis, MN
	 	 	 	 	 
	55.	 	
Mastroeini & Associates
	 	Plymouth Meeting, PA
	 	 	 	 	 
	56.	 	
McColgan & Company Senior Living
	 	Decatur, GA
	 	 	 	 	 
	57.	 	
McReynolds Appraisal Co.
	 	St. Louis, MO
	 	 	 	 	 
	58.	 	
Michael Theobaldi
	 	Westlake Village, CA
	 	 	 	 	 
	59.	 	
Mitchell & Associates
	 	Indianapolis, IN
	 	 	 	 	 
	60.	 	
Morgan, Beebe & Harper
	 	Las Vegas, NV
	 	 	 	 	 
	61.	 	
National Valuation Consultants
	 	Denver, CO
	 	 	 	 	 
	62.	 	
O’Connor & Associates
	 	Houston, TX
	 	 	 	 	 
	63.	 	
Ohio Real Estate Consultants, Inc.
	 	Dublin, OH
	 	 	 	 	 
	64.	 	
Originators Resource Group
	 	New York, NY
	 	 	 	 	 
	65.	 	
Palmer Groth & Pietka
	 	Seattle, WA
	 	 	 	 	 
	66.	 	
Peter Cooper
	 	Fresno, CA
	 	 	 	 	 
	67.	 	
Phillip J. Butler & Associates
	 	Naperville, IL
	 	 	 	 	 
	68.	 	
PKF Consulting
	 	Los Angeles, CA
	 	 	 	 	 
	69.	 	
Price Waterhouse Coopers
	 	Houston, TX
	 	 	 	 	 
	70.	 	
Primis/Land America
	 	Addison, TX
	 	 	 	 	 
	71.	 	
Property Advisors
	 	Columbus , OH
	 	 	 	 	 
	72.	 	
Property Advisory Consultants
	 	San Diego, CA

SCH. II-3

 

	 	 	 	 	 
	73.	 	
Property Valuation Advisors
	 	Chicago, IL
	 	 	 	 	 
	74.	 	
Ralph J. Brekan & Co.
	 	Scottsdale, AZ
	 	 	 	 	 
	75.	 	
Ratkovitch & Associates
	 	Pasadena, CA
	 	 	 	 	 
	76.	 	
RE Marketing Consultants
	 	Tampa, FL
	 	 	 	 	 
	77.	 	
Real Estate Analysts
	 	St. Louis, MO
	 	 	 	 	 
	78.	 	
RERC/Real Estate Research Corp.
	 	Chicago, IL
	 	 	 	 	 
	79.	 	
REVAC, Inc.
	 	Houston,TX
	 	 	 	 	 
	80.	 	
Richard E. Hanton & Associates
	 	Troy, MI
	 	 	 	 	 
	81.	 	
Robert Sapio
	 	Voorhees, NJ
	 	 	 	 	 
	82.	 	
Rothweiler Group
	 	Boulder, CO
	 	 	 	 	 
	83.	 	

Shaw, Boykin & Morris
	 	Raleigh, NC
	 	 	 	 	 
	84.	 	
Shiplett-Wilkins & Associates, Inc.
	 	Charlotte, NC
	 	 	 	 	 
	85.	 	
Southeastern Consulting Group
	 	Cumming, GA
	 	 	 	 	 
	86.	 	
Stout Risius Ross
	 	Southfield, MI
	 	 	 	 	 
	87.	 	
Summit Realty Advisors
	 	Encinitas, CA
	 	 	 	 	 
	88.	 	
Tellatin, Andreas & Short
	 	Chesterfield, MO
	 	 	 	 	 
	89.	 	
The Grayson Company
	 	Dallas, TX
	 	 	 	 	 
	90.	 	
Tobin Real Estate Advisors
	 	Chicago, IL
	 	 	 	 	 
	91.	 	
USRC US Realty Consultants Inc.
	 	Columbus, OH
	 	 	 	 	 
	92.	 	
Vince Quinn
	 	Narbeth, PA
	 	 	 	 	 
	93.	 	
Weime Rende & Associates
	 	Troy, MI
	 	 	 	 	 
	94.	 	
Wellspeak Dugas & Kane
	 	Cheshire, CT
	 	 	 	 	 
	95.	 	
Whitcomb Real Estate
	 	Tampa, FL
	 	 	 	 	 
	96.	 	
Willingham & Associates
	 	Cincinnati, OH
	 	 	 	 	 
	97.	 	
Wilrock Appraisal & Consulting, Inc.
	 	New York, NY

SCH. II-4

 

SCHEDULE III

APPROVED ENVIRONMENTAL CONSULTANTS

	 	 	 
	AARON & WRIGHT 

25 Mori Place 

Red Bank, NJ 07701 

Ph: 732-450-8960 

Fx: 732-450-8961 

Contact: Mark Halloran 

E-mail: halloran@aaronwright.com	 	
ABCO ENGINEERING CORP.

6901 South Yosemite Street

Suite 205

Englewood, Colorado 80112-1413

Telephone No.: 303-220-8220

Fax No.: 303-796-0810

E-mail: abco@abco-corp.com

Contact: Dawn E. Stahl, Controller
	 	 	 
	ALL WEST ENVIRONMENTAL, INC. 

One Sutter Street, Suite 600

San Francisco, CA 94104

Telephone No.: 415-391-2510 

Fax No.: 415-391-2008

E-mail: Marc@allwest1.com 

Contact: Marc D. Cunningham, President	 	
AQUATERRA

Environmental Services Corp.

3316 Oak Avenue – Suite 200 

Dallas, TX 75204

Phone No.: 214-871-9200 Ext. 13

Toll Free Phone: 888-578-2755 Ext. 13

Fax No.: 214-871-9217

E-mail: secrawf@aol.com

Contact: James W. Crawford
	 	 	 
	ASSET ADVISORY SERVICE

700 Central Parkway, Suite 250

Atlanta, GA 30328

Ph: 404-367-0220

Fx: 404-367-0222

Contact: George Latham	 	
ATC ASSOCIATES

50 East Foothill Blvd.

Arcadia, CA 91006

Ph: 626-447-5216

Fx: 626-447-7593

Contact: Keith Farrell

                 John Bates

E-mail: www.ATC-enviro.com
	 	 	 
	BAY DESIGN 

11747 Jefferson Avenue – Suite 2-G

Newport News, VA 23606 

Phone No.: 

Fax No.: 

Contact: Jonathan E. Frank	 	
BRENNAN ENVIRONMENTAL

8 Great Mountain Lane Unit D

East Hanover, NJ 07396

Ph.: 973-781-1801

Fx: 973-781-1804

Contact: John Brennan

E-mail: jbrennan@bei-env.com
	 	 	 
	BUILDING ANALYTICS

528 State Street 

Glendale, California 91203

Telephone No.: 818-500-1898 

Toll Free Tel. No.: 888-440-7225 

Fax No.: 818-246-8195 

Contact: Ms. Erica Freed	 	
BUILDING DIAGNOSTICS

14440 Cherry Lane Court

Laurel, MD 20707

Ph: 301-317-8400

Fax: 301-317-0002

Contact: Donald H. Hibbard, Pres.

Gregory C. Aebischer, Director of

Environmental Engineering

E-Mail: www.bdlmain.com

SCH. III-1

 

	 	 	 
	CERTIFIED ENVIRONMENTAL (CEI)

11933 Tech Road 

Silver Springs, MD 20904 

Ph: 301-622-7100 ext. 102

Fax: 301-622-5636

Contact: Greg Paulay

E-Mail: mnguyen@mail.ceiworld.com 

Price list not received as of 12/05/01	 	
COMMERCIAL INSPECTORS, INC.

7000 N. 16th Street – Suite 120

Phoenix, AZ 85020

Phone No.: 602-274-5400

Toll Free Phone: 888-974-5400

Fax No.: 602-274-5417

Contact: Lewis H. Chaney

E-Mail:

LewisChaney@commercialinspectors.com
	 	 	 
	CONNOR ENVIRONMENTAL SERVICES

1421 Clarkview Road 

Bare Hills Business Center 

Suite 100 

Baltimore, MD 21209-2188 

Phone No.: 410-296-7971

Fax No.: 410-296-3419 

Contact: Patrick T. Connor, President 

E-Mail: Jbolton@connorsolutions.com	 	
DELTA ENVIRONMENTAL CONSULTANTS, INC.

8008 Corporate Center Drive

Suite 100

Charlotte, NC 28226

Phone No.: 704-543-3930

Fax No.: 704-543-4035

Contact: Donald Ceccarelli

E-Mail: dceccarelli@deltaenv.com
	 	 	 
	DOMINION ENVIRONMENTAL

2311 Westwood Ave.

Richmond, VA 23230 

Ph: 804-358-2020 

Fax: 804-358-3003 

Contact: Rich Hazelton 

David H. Blake, II,

Director of Sales Marketing 

E-Mail: www.dominionenv.com	 	
EBI CONSULTANTS

701 Concord Avenue

Cambridge, MA 02138

Phone No.: 617-715-1829

Fax No.: 617-588-0797

Contact: Nolan Previte

                Managing Director

E-Mail: nprevite@ebiconsultants.com
	 	 	 
	ECKLAND CONSULTANTS 

Three Parkway North, Suite 100

Deerfield, IL 60015 

Ph: 847-948-0100 

Fax: 847-948-0140 

Contact: Robert Eckland 

E-Mail: FKozar@eckland.com	 	
EMG

11011 McCormick Road

Baltimore, MD 21031

Ph: 800-733-0660 Ext. 6408

Fax: 410-352-0872

Contact: Fritzi Byrnes

E-Mail: fsbyrnes@emgcorp.com
	 	 	 
	ENSR INTERNATIONAL

2 Technology Park Drive 

Westford, MA 01886

Phone No.: 

Fax No.: 

Contact: Mr. John Mahoney 
	 	
Environmental Testing and Consulting,

Inc.

1820 Southeast 7th Street

Pompano Beach, Florida 33060

Ph.: 954-946-7763

Fax: 954-946-6569

Contact: James Hanskat, P.E., President

E-Mail: etcnet@bellsouth.net

SCH. III-2

 

	 	 	 
	Epic Engineering, Inc.

1341 Canton Road – Suite E

Marietta, Georgia 30066 

Ph.: 770-528-0200 

Fax: 770-528-0201 

Contact: Mr. David Lindberg 

E-Mail: dlinberg@epic-eng.com 
	 	
E-SQUARED ENGINEERS

1010 W. Euless Boulevard, Suite 220

Euless, Texas 76040

Ph.: 817-571-6727

Fax: 817-571-6729

Contact: Mr. Esam Jarwan, PE

Owner and Senior Engineer
	 	 	 
	HBC ENGINEERING a division of TERRACON

8901 Carpenter Freeway, Suite 100 

Dallas, Texas 75247 

Ph.: 214-630-1010 

Fax: 214-830-7070 

Contact: Mr. Ralph Wiggins, Jr. 

Manager of ESA Services	 	
HILLMAN ENVIRONMENTAL GROUP, LLC

1600 Route 22 East

Box 1597

Union, New Jersey 10123

Ph.: 908-688-7800

Fax: 908-686-2636

E-Mail: www.hillmann-env.com

Contact: Matt Dernbin
	 	 	 
	IVI ENVIRONMENTAL

105 Corporate Park Drive – Suite 115

White Plains, NY 10604

Ph.: 914-694-9600 -266 

Fax: 914-694-1335 

Contact: Douglas A. Olson, P.E.

                Phase I Department Manager 

E-Mail: Douglas.olson@ivi-intl.com	 	
KTR

575 Lexington Ave.

New York, New York 10022

Ph.: 212-935-9191

Fax: 212-935-5935

Contact: James Ryan or Tom Tener

E-Mail: Tjten@KTRRE.com
	 	 	 
	MERRITT & HARRIS, INC.

110 East 42nd Street 

New York, New York 10017 

Ph: 212-697-3188

Fax: 212-697-2859 

Contact: Robert G. Weiland, .R.A 

                Vice President

E-Mail: rweiland@mharrisinc.com 

Or trichard@mharrisinc.com	 	
NATIONAL ASSESSMENT CORPORATION

965 Piedmont Road, N.E., Suite 100A

Marietta, Georgia 30066

Ph: 678-581-2518

Fax: 678-581-2526

Contact: Evans Howell, MS, REA

                National Client Manager

E-Mail: evans.howell@na-corp.com
	 	 	 
	NEWBANKS, INC.

1617 Hillcrest Street

Orlando, FL 32083

Ph: 407-898-9306

Fax: 407-896-2710

Contact: Robert A. Sullivan

E-Mail: rsullivan@newbanks.com	 	
PARAGON ENVIRONMENTAL SERVICE

1400 Providence Highway

Norwood, MA 02062

Ph: 888-660-9975

Fax: 781-278-0910

Contact: Joe McLoughlin

E-Mail: JMcLoughlin@paragonenv.com

SCH. III-3

 

	 	 	 
	THE PAYNE FIRM, INC.

Environmental Consultants

11231 Cornell Park Drive

Cincinnati, Ohio 45242

Ph.: 513-489-2255

Fax: 513-489-2533

Contact: Mr. Donald A. Fay, C.P.G.

E-Mail:	 	
POND ROBINSON & ASSOCIATES, LLP

240 Dallas Parkway – Suite 200

Plano, Texas 75093

Ph.: 972-732-6400

Fax: 972-732-9013

Contact: Mr. Alan Pond

E-Mail: apond@pondrobinson.com
	 	 	 
	PROJECT RESOURCES, INC.

108 Village Square

Suite 301

Somers, New York 10589

Ph: 914-276-8446

Fax: 914-276-8665

Cell: 914-906-4040

Contact: Sally A. Bernhard

                Vice President	 	
PROPERTY SOLUTIONS, INC.

501 Delran Parkway, Unit A

Delran, NJ 08075

Ph: 856-764-6000 Ext. 202

Fax: 856-764-5491

www.propertysolutionsinc.com

Contact: Kevin J. Billings, P.E.

                Senior Vice President

E-Mail:

KBillings@PropertySolutionsInc.com
	 	 	 
	PSI – PROFESSIONAL SERVICES INDUSTRY

9 East 37th Street, 11th Fl.

New York, NY 10016

Ph: 877-713-0306

Fax: 212-889-5943

Contact: Peter Wenz

E-Mail: Peter.wenz@psiusa.com	 	
SAIFUL BOUQUET

150 East Colorado Boulevard

Suite 350

Pasadena, California 91105

Telephone No.: 626-304-2616

Fax No.: 626-304-2676

Contact: Mr. Robert Randall

E-Mail: saifbouq@sbise.com
	 	 	 
	URS CORPORATION

2325 Maryland Road

Willow Grove, PA 19090

Phone No.: 215-830-2034

Fax No.: 657-5454

Contact: Frank Vernese

Vice President

E-Mail: Eric-L.Nelson@urscorp.com	 	 

SCH. III-4

 

SCHEDULE IV

APPROVED ENGINEERING CONSULTANTS

	 	 	 
	AARON & WRIGHT

25 Mori Place

Red Bank, NJ 07701

Ph: 732-450-8960

Fx: 732-450-8961

Contact: Mark Halloran

E-mail: halloran@aaronwright.com	 	
ABCO ENGINEERING CORP.

6901 South Yosemite Street

Suite 205

Englewood, Colorado 80112-1413

Telephone No.: 303-220-8220

Fax No.: 303-796-0810

E-mail: abco@abco-corp.com

Contact: Dawn E. Stahl, Controller
	 	 	 
	ALL WEST ENVIRONMENTAL, INC.

One Sutter Street, Suite 600

San Francisco, CA 94104

Telephone No.: 415-391-2510

Fax No.: 415-391-2008

E-mail: Marc@allwest1.com

Contact: Marc D. Cunningham, President	 	
AQUATERRA

Environmental Services Corp.

3316 Oak Avenue – Suite 200

Dallas, TX 75204

Phone No.: 214-871-9200 Ext. 13

Toll Free Phone: 888-578-2755 Ext. 13

Fax No.: 214-871-9217

E-mail: secrawf@aol.com

Contact: James W. Crawford
	 	 	 
	ASSET ADVISORY SERVICE

700 Central Parkway, Suite 250

Atlanta, GA 30328

Ph: 404-367-0220

Fx: 404-367-0222

Contact: George Latham	 	
ATC ASSOCIATES

50 East Foothill Blvd.

Arcadia, CA 91006

Ph: 626-447-5216

Fx: 626-447-7593

Contact: Keith Farrell

                John Bates

E-mail: www.ATC-enviro.com
	 	 	 
	BAY DESIGN

11747 Jefferson Avenue – Suite 2-G

Newport News, VA 23606

Phone No.:

Fax No.:

Contact: Jonathan E. Frank	 	
BRENNAN ENVIRONMENTAL

8 Great Mountain Lane Unit D

East Hanover, NJ 07396

Ph.: 973-781-1801

Fx: 973-781-1804

Contact: John Brennan

E-mail: jbrennan@bei-env.com
	 	 	 
	BUILDING ANALYTICS

528 State Street

Glendale, California 91203

Telephone No.: 818-500-1898

Toll Free Tel. No.: 888-440-7225

Fax No.: 818-246-8195

Contact: Ms. Erica Freed	 	
BUILDING DIAGNOSTICS

14440 Cherry Lane Court

Laurel, MD 20707

Ph: 301-317-8400

Fax: 301-317-0002

Contact: Donald H. Hibbard, Pres.

Gregory C. Aebischer, Director of

Environmental Engineering

E-Mail: www.bdlmain.com

SCH. IV-1

 

	 	 	 
	CERTIFIED ENVIRONMENTAL (CEI)

11933 Tech Road

Silver Springs, MD 20904

Ph: 301-622-7100 ext. 102

Fax: 301-622-5636

Contact: Greg Paulay

E-Mail: mnguyen@mail.ceiworld.com

Price list not received as of 12/05/01	 	
COMMERCIAL INSPECTORS, INC.

7000 N. 16th Street – Suite 120

Phoenix, AZ 85020

Phone No.: 602-274-5400

Toll Free Phone: 888-974-5400

Fax No.: 602-274-5417

Contact: Lewis H. Chaney

E-Mail:

LewisChaney@commercialinspectors.com
	 	 	 
	CONNOR ENVIRONMENTAL SERVICES

1421 Clarkview Road

Bare Hills Business Center

Suite 100

Baltimore, MD 21209-2188

Phone No.: 410-296-7971

Fax No.: 410-296-3419

Contact: Patrick T. Connor, President

E-Mail: Jbolton@connorsolutions.com	 	
DELTA ENVIRONMENTAL CONSULTANTS, INC.

8008 Corporate Center Drive

Suite 100

Charlotte, NC 28226

Phone No.: 704-543-3930

Fax No.: 704-543-4035

Contact: Donald Ceccarelli

E-Mail: dceccarelli@deltaenv.com
	 	 	 
	DOMINION ENVIRONMENTAL

2311 Westwood Ave.

Richmond, VA 23230

Ph: 804-358-2020

Fax: 804-358-3003

Contact: Rich Hazelton

David H. Blake, II,

Director of Sales Marketing

E-Mail: www.dominionenv.com	 	
EBI CONSULTANTS

701 Concord Avenue

Cambridge, MA 02138

Phone No.: 617-715-1829

Fax No.: 617-588-0797

Contact: Nolan Previte

                Managing Director

E-Mail: nprevite@ebiconsultants.com
	 	 	 
	ECKLAND CONSULTANTS

Three Parkway North, Suite 100

Deerfield, IL 60015

Ph: 847-948-0100

Fax: 847-948-0140

Contact: Robert Eckland

E-Mail: FKozar@eckland.com	 	
EMG

11011 McCormick Road

Baltimore, MD 21031

Ph: 800-733-0660 Ext. 6408

Fax: 410-352-0872

Contact: Fritzi Byrnes

E-Mail: fsbyrnes@emgcorp.com
	 	 	 
	ENSR INTERNATIONAL

2 Technology Park Drive

Westford, MA 01886 

Phone No.:

Fax No.:

Contact: Mr. John Mahoney	 	
Environmental Testing and Consulting,

Inc.

1820 Southeast 7th Street

Pompano Beach, Florida 33060

Ph.: 954-946-7763

Fax: 954-946-6569

Contact: James Hanskat, P.E., President

E-Mail: etcnet@bellsouth.net

SCH. IV-2

 

	 	 	 
	Epic Engineering, Inc. 

1341 Canton Road – Suite E 

Marietta, Georgia 30066

Ph.: 770-528-0200

Fax: 770-528-0201 

Contact: Mr. David Lindberg

E-Mail: dlinberg@epic-eng.com	 	
E-SQUARED ENGINEERS

1010 W. Euless Boulevard, Suite 220

Euless, Texas 76040

Ph.: 817-571-6727

Fax: 817-571-6729

Contact: Mr. Esam Jarwan, PE

Owner and Senior Engineer
	 	 	 
	HBC ENGINEERING a division of TERRACON

8901 Carpenter Freeway, Suite 100 

Dallas, Texas 75247

Ph.: 214-630-1010 

Fax: 214-830-7070 

Contact: Mr. Ralph Wiggins, Jr.

Manager of ESA Services	 	
HILLMAN ENVIRONMENTAL GROUP, LLC

1600 Route 22 East

Box 1597

Union, New Jersey 10123

Ph.: 908-688-7800

Fax: 908-686-2636

E-Mail: www.hillmann-env.com

Contact: Matt Dernbin
	 	 	 
	IVI ENVIRONMENTAL

105 Corporate Park Drive – Suite 115 

White Plains, NY 10604 

Ph.: 914-694-9600 -266 

Fax: 914-694-1335 

Contact: Douglas A. Olson, P.E. 

                Phase I Department Manager

E-Mail: Douglas.olson@ivi-intl.com	 	
KTR

575 Lexington Ave.

New York, New York 10022

Ph.: 212-935-9191

Fax: 212-935-5935

Contact: James Ryan or Tom Tener

E-Mail: Tjten@KTRRE.com
	 	 	 
	MERRITT & HARRIS, INC.

110 East 42nd Street 

New York, New York 10017

Ph: 212-697-3188

Fax: 212-697-2859 

Contact: Robert G. Weiland, .R.A 

                Vice President 

E-Mail: rweiland@mharrisinc.com 

Or trichard@mharrisinc.com	 	
NATIONAL ASSESSMENT CORPORATION

965 Piedmont Road, N.E., Suite 100A

Marietta, Georgia 30066

Ph: 678-581-2518

Fax: 678-581-2526

Contact: Evans Howell, MS, REA

                National Client Manager

E-Mail: evans.howell@na-corp.com
	 	 	 
	NEWBANKS, INC.

1617 Hillcrest Street

Orlando, FL 32083 

Ph: 407-898-9306 

Fax: 407-896-2710 

Contact: Robert A. Sullivan 

E-Mail: rsullivan@newbanks.com	 	
PARAGON ENVIRONMENTAL SERVICE

1400 Providence Highway

Norwood, MA 02062

Ph: 888-660-9975

Fax: 781-278-0910

Contact: Joe McLoughlin

E-Mail: JMcLoughlin@paragonenv.com

SCH. IV-3

 

	 	 	 
	THE PAYNE FIRM, INC.

Environmental Consultants 

11231 Cornell Park Drive 

Cincinnati, Ohio 45242 

Ph.: 513-489-2255 

Fax: 513-489-2533 

Contact: Mr. Donald A. Fay, C.P.G.

E-Mail:	 	
POND ROBINSON & ASSOCIATES, LLP

240 Dallas Parkway – Suite 200

Plano, Texas 75093

Ph.: 972-732-6400

Fax: 972-732-9013

Contact: Mr. Alan Pond

E-Mail: apond@pondrobinson.com
	 	 	 
	PROJECT RESOURCES, INC.

108 Village Square 

Suite 301 

Somers, New York 10589 

Ph: 914-276-8446 

Fax: 914-276-8665 

Cell: 914-906-4040 

Contact: Sally A. Bernhard

                Vice President	 	
PROPERTY SOLUTIONS, INC.

501 Delran Parkway, nit A

Delran, NJ 08075

Ph: 856-764-6000 Ext. 202

Fax: 856-764-5491

www.propertysolutionsinc.com

Contact: Kevin J. Billings, P.E.

                Senior Vice President

E-Mail:

KBillings@PropertySolutionsInc.com
	 	 	 
	PSI – PROFESSIONAL SERVICES INDUSTRY 

9 East 37th Street, 11th Fl. 

New York, NY 10016

Ph: 877-713-0306 

Fax: 212-889-5943 

Contact: Peter Wenz 

E-Mail: Peter.wenz@psiusa.com	 	
SAIFUL BOUQUET

150 East Colorado Boulevard

Suite 350

Pasadena, California 91105

Telephone No.: 626-304-2616

Fax No.: 626-304-2676

Contact: Mr. Robert Randall

E-Mail: saifbouq@sbise.com
	 	 	 
	URS CORPORATION

2325 Maryland Road

Willow Grove, PA 19090

Phone No.: 215-830-2034

Fax No.: 657-5454

Contact: Frank Vernese

Vice President

E-Mail: Eric-L.Nelson@urscorp.com	 	 

SCH. IV-4

 

EXHIBIT A

LOAN SUMMARY

[Form to be provided by CapitalSource]

EXH. A-1

 

EXHIBIT B

UNDERWRITING GUIDELINES

[To come from CapitalSource]

EXH. B-1

 

EXHIBIT C

FORM DOCUMENTS

EXH. C-1

 

EXHIBIT D

FORM PARTICIPATION AGREEMENT

EXH. E-1exv10w3

 

EXHIBIT 10.3

SALE AND SERVICING AGREEMENT

among

CAPITALSOURCE FUNDING II TRUST

as Issuer

and

CS FUNDING II DEPOSITOR LLC

as Depositor

and

CAPITALSOURCE FINANCE LLC

as Loan Originator and Servicer

and

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

as Indenture Trustee, Collateral Custodian and Backup Servicer

Dated as of September 17, 2003

COMMERCIAL LOAN BACKED NOTES

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 	 	 	 	 	 	

	 	 	 	 	ARTICLE I
	 	 	 	 
	DEFINITIONS
	 	 	 	 
	 	Section 1.01 Definitions
	 	 	1	 
	 	Section 1.02 Other Definitional Provisions
	 	 	28	 
	 	 	 	 	ARTICLE II
	 	 	 	 
	CONVEYANCE OF THE COLLATERAL;
	 	 	 	 
	ADDITIONAL NOTE PRINCIPAL BALANCES
	 	 	 	 
	 	Section 2.01 Conveyance of the Collateral; Additional Note Principal Balances
	 	 	28	 
	 	Section 2.02 Ownership and Possession of Loan Files
	 	 	30	 
	 	Section 2.03 Books and Records; Intention of the Parties
	 	 	31	 
	 	Section 2.04 Delivery of Loan Documents
	 	 	31	 
	 	Section 2.05 Acceptance by the Indenture Trustee of the Loans; Certain Substitutions and
Repurchases; Certification by the Collateral Custodian
	 	 	31	 
	 	Section 2.06 Conditions Precedent to Transfer Dates
	 	 	34	 
	 	Section 2.07 Additional Advances by Initial Noteholder
	 	 	35	 
	 	Section 2.08 Termination of Revolving Period or Amortization Period
	 	 	35	 
	 	Section 2.09 Correction of Errors
	 	 	36	 
	 	Section 2.10 Commencement of Amortization Period
	 	 	36	 
	 	 	 	 	ARTICLE III
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES
	 	 	 	 
	 	Section 3.01 Representations and Warranties of the Depositor
	 	 	37	 
	 	Section 3.02 Representations and Warranties of the Loan Originator
	 	 	39	 
	 	Section 3.03 [RESERVED]
	 	 	42	 
	 	Section 3.04 Representations and Warranties Regarding Eligible Loans
	 	 	42	 
	 	Section 3.05 Purchase and Substitution
	 	 	47	 
	 	Section 3.06 Dispositions
	 	 	49	 
	 	Section 3.07 Removal or Repurchase of Call Loans
	 	 	51	 
	 	Section 3.08 Underwriting Guidelines; Modifications
	 	 	52	 
	 	 	 	 	ARTICLE IV
	 	 	 	 
	ADMINISTRATION AND SERVICING OF THE LOANS
	 	 	 	 
	 	Section 4.01 Servicer’s Servicing Obligations
	 	 	52	 
	 	Section 4.02 The Backup Servicer; Duties of the Backup Servicer
	 	 	52	 

i

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 	 	 	 	 	 	

	 	 	 	 	ARTICLE V
	 	 	 	 
	ESTABLISHMENT OF TRUST ACCOUNTS
	 	 	 	 
	 	Section 5.01 Collection Account, Principal Collections Account and Distribution Account
	 	 	54	 
	 	Section 5.02 Payments to Securityholders
	 	 	58	 
	 	Section 5.03 Trust Accounts; Trust Account Property
	 	 	59	 
	 	 	 	 	ARTICLE VI
	 	 	 	 
	STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
	 	 	 	 
	 	Section 6.01 Statements
	 	 	61	 
	 	Section 6.02 Specification of Certain Tax Matters
	 	 	61	 
	 	 	 	 	ARTICLE VII
	 	 	 	 
	FINANCIAL COVENANTS
	 	 	 	 
	 	Section 7.01 Financial Covenants of CapitalSource
	 	 	61	 
	 	 	 	 	ARTICLE VIII
	 	 	 	 
	THE SERVICER AND THE BACKUP SERVICER
	 	 	 	 
	 	Section 8.01 Indemnification; Third Party Claims
	 	 	62	 
	 	Section 8.02 Merger or Consolidation of the Servicer and Backup Servicer
	 	 	64	 
	 	Section 8.03 Limitation on Liability of the Servicer and the Backup Servicer
	 	 	64	 
	 	Section 8.04 No Resignation; Assignment
	 	 	65	 
	 	Section 8.05 Relationship of Servicer to Issuer and the Indenture Trustee
	 	 	66	 
	 	Section 8.06 Servicer May own Securities
	 	 	66	 
	 	Section 8.07 Indemnification of the Indenture Trustee and Initial Noteholder
	 	 	67	 
	 	 	 	 	ARTICLE IX
	 	 	 	 
	SERVICER EVENTS OF DEFAULT
	 	 	 	 
	 	Section 9.01 Servicer Events of Default
	 	 	67	 
	 	Section 9.02 Appointment of Successor
	 	 	69	 
	 	Section 9.03 Waiver of Defaults
	 	 	72	 
	 	Section 9.04 Accounting Upon Termination of Servicer
	 	 	72	 
	 	Section 9.05 Removal of Backup Servicer
	 	 	72	 
	 	 	 	 	ARTICLE X
	 	 	 	 
	THE COLLATERAL CUSTODIAN
	 	 	 	 
	 	Section 10.01 Appointment
	 	 	73	 
	 	Section 10.02 No Representations
	 	 	73	 
	 	Section 10.03 Custody of Custodial Loan Files
	 	 	73	 

ii

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 	 	 	 	 	 	

	 	Section 10.04 Standard of Care
	 	 	73	 
	 	Section 10.04 Acknowledgment
	 	 	73	 
	 	 	 	ARTICLE XI RESERVED
	 	 	 	 
	 	 	 	ARTICLE XII
	 	 	 	 
	TERMINATION
	 	 	 	 
	 	Section 12.01 Termination
	 	 	74	 
	 	Section 12.02 Optional Termination
	 	 	74	 
	 	Section 12.03 Notice of Termination
	 	 	75	 
	 	 	ARTICLE XIII
	 	 	 	 
	MISCELLANEOUS PROVISIONS
	 	 	 	 
	 	Section 13.01 Acts of Securityholders
	 	 	75	 
	 	Section 13.02 Amendment
	 	 	75	 
	 	Section 13.03 Recordation of Agreement
	 	 	76	 
	 	Section 13.04 Duration of Agreement
	 	 	76	 
	 	Section 13.05 Governing Law
	 	 	76	 
	 	Section 13.06 Notices
	 	 	76	 
	 	Section 13.07 Severability of Provisions
	 	 	77	 
	 	Section 13.08 No Partnership
	 	 	77	 
	 	Section 13.09 Counterparts
	 	 	77	 
	 	Section 13.10 Successors and Assigns
	 	 	78	 
	 	Section 13.11 Headings
	 	 	78	 
	 	Section 13.12 Actions of Securityholders
	 	 	78	 
	 	Section 13.13 Non-Petition Agreement
	 	 	78	 
	 	Section 13.14 Holders of the Securities
	 	 	79	 
	 	Section 13.15 Due Diligence
	 	 	79	 
	 	Section 13.16 No Reliance
	 	 	80	 
	 	Section 13.17 Conflicts
	 	 	80	 
	 	Section 13.18 Limitation on Liability
	 	 	80	 
	 	Section 13.19 No Agency
	 	 	80	 
	 	Section 13.20 Third Party Beneficiaries
	 	 	81	 
	 	Section 13.21 Performance by Wells Fargo Bank Minnesota, National Association
	 	 	81	 

iii

 

	 	 	 
	EXHIBIT A	 	
Form of Notice of Additional Note Principal Balance
	EXHIBIT B	 	
Form of Monthly Servicer Report
	EXHIBIT C	 	
Form of S&SA Assignment
	EXHIBIT D	 	
Form of Loan Schedule
	EXHIBIT E-1	 	
Form of Initial Certification
	EXHIBIT E-2	 	
Form of Final Certification
	EXHIBIT F	 	
Form of Borrowing Base Certificate
	EXHIBIT G	 	
List of Investors

iv

 

SALE AND SERVICING AGREEMENT

          This Sale and Servicing Agreement is entered into effective as of
September 17, 2003, among CapitalSource Funding II Trust, a Delaware statutory
trust (the “Issuer”), CS Funding II Depositor LLC, a Delaware limited liability
company, as Depositor (in such capacity, the “Depositor”), CapitalSource
Finance LLC, a Delaware limited liability company (“CapitalSource”), as Loan
Originator (in such capacity, the “Loan Originator”) and as Servicer (in such
capacity, the “Servicer”) and Wells Fargo Bank Minnesota, National Association,
a national banking association, as Indenture Trustee on behalf of the
Noteholders (in such capacity, the “Indenture Trustee”), as Collateral
Custodian (the “Collateral Custodian”) and as Backup Servicer (the “Backup
Servicer”).

W I T N E S S E T H:

          In consideration of the mutual agreements herein contained, the parties
hereto hereby agree as follows for the benefit of each of them and for the
benefit of the holders of the Securities:

ARTICLE I

DEFINITIONS

          Section 1.01 Definitions.

          Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.

          Accepted Servicing Practices: The servicing practices and collection
procedures of the Servicer that are in accordance with the Underwriting
Guidelines, the Required Loan Documents and applicable law and which are, in
any event, customary servicing practices of prudent institutions which service
loans for their own account.

          Accrual Period: With respect to the Notes, the period commencing on and
including the preceding Payment Date (or, in the case of the first Payment
Date, the period commencing on and including the first Transfer Date (which
first Transfer Date is the first date on which the Note Principal Balance is
greater than zero)) and ending on the day preceding the related Payment Date.

          Act or Securities Act: The Securities Act of 1933.

          Acquired Loan: A Loan that is originated by a Person other than the Loan
Originator and is acquired by the Loan Originator in a “true sale” transaction
pursuant to a standard acquisition agreement substantially similar to those
entered into by the Loan Originator prior to the Closing Date or otherwise
acceptable to the Initial Noteholder.

          Additional Note Principal Balance: With respect to each Transfer Date,
the aggregate Sales Price of all Loans conveyed to the Issuer on such date.

 

 

          Administration Agreement: The Administration Agreement, dated as of
September 17, 2003, between the Issuer and the Administrator, as the same may
be amended and supplemented from time to time.

          Administrator: CapitalSource Finance LLC, in its capacity as Administrator
under the Administration Agreement.

          Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under 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.

          Agreement: This Sale and Servicing Agreement, as the same may be amended
and supplemented from time to time.

          Amortization Period: The period commencing on the date of termination of
the Revolving Period (other than pursuant to Section 2.08) and terminating on
the earlier of (i) the date which is six months following the end of the
Revolving Period, and (ii) the date on which the Amortization Period is
terminated pursuant to Section 2.08. In the event that the Revolving Period is
terminated pursuant to Section 2.08 prior to the commencement of the
Amortization Period, the Amortization Period shall not be applicable.

          Assigned Loan: A Loan originated by a Person other than the Loan
Originator in which a constant percentage or a fixed principal amount has been
assigned to the Loan Originator or in which a participation interest has been
granted to the Loan Originator by such Person in accordance with the Loan
Originator’s Underwriting Guidelines and (a) such transaction has been fully
consummated prior to such Loan becoming subject to this Agreement; (b) except
with respect to participation interests, the Loan Originator is a party to the
underlying loan documents; (c) upon the sale of the Underlying Notes or related
Participation Certificates to the Depositor under the Loan Sale Agreement and
sale to the Issuer by the Depositor under this Agreement, such Underlying Notes
or Participation Certificates, as the case may be, will be endorsed in blank
and held by the Collateral Custodian on behalf of the Indenture Trustee for the
benefit of the Noteholders; (d) the Issuer, as assignee of the Underlying Notes
or Participation Certificates, as applicable, will have all of the rights (but
none of the obligations) of the Loan Originator with respect to such Underlying
Notes or Participation Certificates, as applicable and the Loan Originator’s
right, title and interest in and to the Loan Collateral; (e) the Underlying
Notes are secured by, and the Participation Certificates represent, an
undivided interest in the Loan Collateral that also secures and is shared by,
on a pro rata basis, all other holders of such Obligor’s notes of equal
priority; and (f) the agent bank receives payment directly from the Obligor
thereof on behalf of each lender that has been assigned a percentage interest
in such Loan.

          Assignment: A LPA Assignment or S&SA Assignment.

2

 

          Backup Servicer: Wells Fargo Bank Minnesota, National Association or any
successor thereto appointed as provided herein.

          Backup Servicer Fee Letter: Shall mean that certain fee letter, dated as
of September 12, 2003, among the Loan Originator, the Servicer, Citigroup
Global Markets Inc. and the Backup Servicer.

          Backup Servicing Fee: Shall have the meaning given such term in the
Backup Servicer Fee Letter.

          Backup Servicer Termination Notice: Has the meaning set forth in Section
9.05(a) hereof.

          Bankruptcy Code: Title 11 of the United States Code.

          Bankruptcy Event: With respect to a Person, shall be deemed to have
occurred if either:

          (a) a case or other proceeding shall be commenced, without the application
or consent of such Person, in any court seeking the liquidation,
reorganization, debt arrangement, dissolution, winding up, or composition or
readjustment of debts of such Person, the appointment of a trustee, receiver,
custodian, liquidator, assignee, sequestrator or the like for such Person or
for all or substantially all of its assets, or any similar action with respect
to such Person under any law relating to bankruptcy, insolvency,
reorganization, winding up or composition or adjustment of debts, and such case
or proceeding shall continue undismissed or unstayed, and in effect, for a
period of 60 consecutive days; or an order for relief in respect of such Person
shall be entered in an involuntary case under the Bankruptcy Code or other
similar laws now or hereafter in effect, or

          (b) such Person shall commence a voluntary case or other proceeding under
any applicable bankruptcy, insolvency, reorganization, debt arrangement,
dissolution or other similar law now or hereafter in effect, or shall consent
to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) for such Person or
for any substantial part of its assets, or shall make any general assignment
for the benefit of creditors, or shall fail to, or admit in writing its
inability to, pay its debts generally as they become due, or, if a corporation
or similar entity, its board of directors shall vote to implement any of the
foregoing.

          Basic Documents: This Agreement, the Indenture, the Loan Sale Agreement,
the Note Purchase Agreement, the Trust Agreement, the Lockbox Agreement, the
Intercreditor Agreement, the Administration Agreement and, as and when required
to be executed and delivered, the Assignments.

          Borrowing Base: On any date of determination, the sum of (i) the product
of (A) the outstanding unpaid principal balance of all Eligible Loans included
in the Loan Pool prior to such date of determination minus the amount
(calculated without duplication) by which such Eligible Loans exceed any
applicable Concentration Limitations and minus, with respect to Charged-Off
Loans, (x) 50% of the outstanding unpaid principal balance of all Charged-Off

3

 

Loans for which any Scheduled Payment is at least ninety (90) days but less
than one hundred eighty (180) days delinquent as of such date of determination
and (y) the outstanding unpaid principal balance of all Charged-Off Loans that
are Charged-Off Loans for any reason other than the Scheduled Payment
delinquency referenced in clause (x) above and (B) the applicable Purchase
Price Percentages (determined on such date) and (ii) the amount on deposit in
the Principal Collections Account on such date of determination.

          Borrowing Base Certificate: The certificate in the form attached hereto as
Exhibit F.

          Borrowing Base Deficiency: With respect to any date of determination, an
amount equal to excess of the Note Principal Balance over the Borrowing Base as
of such date of determination.

          Borrowing Base Excess: With respect to any date of determination, an
amount equal to the excess of the Borrowing Base over the Note Principal
Balance, in each case as of such date of determination.

          Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day
on which banking institutions in New York City or in the city in which the
Corporate Trust Office of the Indenture Trustee or the Paying Agent is located
or the city in which the Servicer’s servicing operations are located are
authorized or obligated by law or executive order to be closed.

          Call Loan: As of any date of Disposition, any Loan which does not meet
criteria established by independent rating agencies or surety agency conditions
for securitizations at the time of such Disposition.

          Certificateholder: A holder of a Trust Certificate.

          Change of Control: Shall occur if either (a) Any “Person” or “group"(as
such terms are used in Sections 13(d) and 14(d) of the Securities and Exchange
Act of 1934, as amended), other than the Investors, shall become the
“beneficial owner” (as defined in Section 13(d)-3 and 13(d)-5 under such Act),
directly or indirectly, of shares representing more than the greater of (i) 20%
of the shares outstanding of CapitalSource Inc. and (ii) the percentage of the
aggregate then outstanding voting stock of CapitalSource Inc. owned
beneficially, directly or indirectly, by the Investors; or (b) the board of
directors of CapitalSource Inc. shall not consist of at least a majority of
Continuing Directors.

          Charged-Off Loan: A Loan in the Loan Pool as to which there has occurred
and is continuing one or more of the following: (i) the occurrence of both (A)
all or any portion of a payment of interest on or principal of such Loan is not
paid when due (without giving effect to any grace period) or would be so
delinquent, but for any amendment or modification made to such Loan resulting
from the Obligor’s inability to pay such Loan in accordance with its terms and
(B) within ninety (90) calendar days of when such delinquent payment was first
due, all delinquencies have not been cured, (ii) a Bankruptcy Event has
occurred with respect to the related Obligor, (iii) the related

4

 

Obligor has
suffered any material adverse change that materially affects its viability as a
going concern, (iv) the Servicer has determined, in its sole discretion, in
accordance with the Underwriting Guidelines, that all or a portion of such Loan
is not collectible, or (v) any portion of the proceeds used to make payments of
principal of or interest on such Loan have come from a new Loan or a new loan
by the Loan Originator or an entity controlled by the Loan Originator to the
Obligor or any of its Affiliates.

          Clean-up Call Date: The first Payment Date occurring after the end of the
Revolving Period on which the Note Principal Balance declines to 10% or less of
the aggregate Note Principal Balance as of the end of the Revolving Period.

          Closing Date: September 17, 2003.

          Code: The Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated by the United States Treasury thereunder.

          Collateral: Has the meaning set forth in the Indenture.

          Collateral Custodian: Wells Fargo Bank Minnesota, National Association.

          Collection Account: The account designated as such, established and
maintained by the Servicer in accordance with Section 5.01(a)(1) hereof.

          Collection Date: The date following the Termination Date on which the Note
Principal Balance has been reduced to zero and paid in full.

          Commission: The Securities and Exchange Commission.

          Concentration Limitations: On any day, each of the Concentration
Limitations set forth below:

	 	(i)	 	the aggregate Principal Balance of all Loans made
to a single Obligor shall not exceed $30,000,000;
	 
	 	(ii)	 	no more than 25% of the aggregate Principal
Balance of all Loans shall have a Principal Balance in excess
of $20,000,000;
	 
	 	(iii)	 	(A) the aggregate Principal Balance of all Loans
the Obligors of which are domiciled within a single state
(other than Florida) shall not exceed the greater of (x)
$20,000,000 and (y) 20% of the aggregate Principal Balance of
all Loans and (B) the aggregate Principal Balance of all Loans
in the state of Florida shall not exceed the greater of (x)
$20,000,000 and (y) 30% of the aggregate Principal Balance of
all Loans;

5

 

	 	(iv)	 	the aggregate Principal Balance of Loans for
which the Obligor is domiciled outside of the United States
shall not exceed the greater of (x) $20,000,000 and (y) 10% of
the aggregate Principal Balance of all Loans;
	 
	 	(v)	 	the aggregate Principal Balance of Loans within a
single industry (which shall be determined by the Loan
Originator based on the four digit NAIC
code and included on the Loan Schedule) shall not exceed the
greater of (x) $20,000,000 and (y) 30% of the aggregate
Principal Balance of all Loans;
	 
	 	(vi)	 	the aggregate Principal Balance of Subordinated
Loans shall not exceed the greater of (x) $20,000,000 and (y)
20% of the aggregate Principal Balance of all Loans;
	 
	 	(vii)	 	the aggregate Principal Balance of Revolving
Loans shall not exceed the greater of (x) $60,000,000 and (y)
60% of the aggregate Principal Balance of all Loans;
	 
	 	(viii)	 	the aggregate Principal Balance of Loans
assigned Loan Rating 4 or Loan Rating 5 shall not exceed 15%
of the aggregate Principal Balance of all Loans;
	 
	 	(ix)	 	the aggregate Principal Balance of DIP Loans
shall not exceed the greater of (x) $20,000,000 or (y) 20% of
the aggregate Principal Balance of all Loans;
	 
	 	(x)	 	the aggregate Principal Balance of Loans subject
to Scheduled Payments of interest on a basis other than
monthly shall not exceed the greater of (x) $20,000,000 and
(y) 20% of the aggregate Principal Balance of all Loans;
	 
	 	(xi)	 	the aggregate Principal Balance of all Senior
B-Note Loans shall not exceed the greater of (x) $20,000,000
and (y) 20% of the aggregate Principal Balance of all Loans;
provided, however that any Senior B-Note Loan or portion
thereof in excess of this limitation shall be considered a
Subordinated Loan for purposes of determining eligibility;
	 
	 	(xii)	 	the aggregate Principal Balance of Loans to
Obligors principally engaged in the origination of mortgage
loans to borrowers who have less than perfect (i.e., less than
“A”) credit histories, higher debt to income ratios or whose
loans otherwise were underwritten with exceptions to customary
“A” quality underwriting guidelines or who present other risks
shall not exceed $40,000,000;
	 
	 	(xiii)	 	the aggregate Principal Balance of Assigned Loans
shall not exceed the greater of (x) $20,000,000 and (y) 20% of
the aggregate Principal Balance of all Loans;

6

 

	 	(xiv)	 	the aggregate Principal Balance of Acquired
Loans shall not exceed 50% of the aggregate Principal Balance
of all Loans;
	 
	 	(xv)	 	the aggregate Principal Balance of any single
bulk purchase of Acquired Loans shall not exceed the greater
of (x) $20,000,000 and (y) 20% of the aggregate Principal
Balance of all Loans without the approval of the Initial
Noteholder;
	 
	 	(xvi)	 	the weighted average life of the Loan Pool shall
not exceed 4.0 years;
	 
	 	(xvii)	 	the Loan Margin shall not be less than 4.00%; and
	 
	 	(xviii)	 	the sum of (a) the aggregate Principal Balance
of Senior Loans and Senior B-Note Loans with an original term
to maturity of 7 years or greater and (b) the aggregate
Principal Balance of Subordinated Loans with an original term
to maturity of 10 years or greater shall not exceed
$100,000,000.

          Continued Errors: Has the meaning set forth in Section 9.02(d) hereof.

          Continuing Directors: The directors of CapitalSource Inc. on the Closing
Date, and each other director if, in each case, such other director’s
nomination for election to the board of directors is recommended by majority of
the then Continuing Directors or such other director receives the vote of the
Investors in his or her election by the stockholders of CapitalSource Inc.

          Custodial Loan File: With respect to each Eligible Loan, the documents
delivered to the Collateral Custodian, as agent for the Indenture Trustee, for
the benefit of the Noteholders pursuant to Section 2.04 hereof.

          Daily Interest Accrual Amount: With respect to each day and the related
Accrual Period, interest accrued at the Note Interest Rate with respect to such
Accrual Period on the Note Principal Balance as of the preceding Business Day
after giving effect to all changes to the Note Principal Balance on or prior to
such preceding Business Day.

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

          Deleted Loan: An Eligible Loan replaced or to be replaced by one or more
Qualified Substitute Loans.

          Delinquent: A Loan (other than a Charged-Off Loan) in the Loan Pool as to
which there has occurred one or more of the following: (i) the occurrence of
both (A) all or any portion of a payment of interest on or principal of such
Loan is not paid when due (without giving effect to any grace period) or would
be so delinquent, but for any amendment, modification, waiver or variance made
to such Loan resulting from the Obligor’s inability to pay such Loan in
accordance with its terms and (B) within sixty (60) calendar days of when such

7

 

delinquent payment was first due, all delinquencies have not been cured or (ii)
consistent with the Loan Originator’s Underwriting Guidelines such Loan would
be classified as delinquent by the Servicer or the Loan Originator.

          Delivery: When used with respect to Trust Account Property means:

          (a) with respect to bankers’ acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute “instruments”
within the meaning of Section 9-105(l)(i) of the UCC and are susceptible of
physical delivery (except with respect to
Trust Account Property consisting of certificated securities (as defined in
Section 8-102(a)(4) of the UCC)), physical delivery to the Indenture Trustee or
its custodian (or the related Securities Intermediary) endorsed to the
Indenture Trustee or its custodian (or the related Securities Intermediary) or
endorsed in blank (and if delivered and endorsed to the Securities
Intermediary, by continuous credit thereof by book entry to the related Trust
Account);

          (b) with respect to a certificated security (i) delivery of such
certificated security endorsed to, or registered in the name of, the Indenture
Trustee or endorsed in blank to its custodian or the related Securities
Intermediary and the making by such Securities Intermediary of appropriate
entries in its records identifying such certificated securities as credited to
the related Trust Account, or (ii) by delivery thereof to a “clearing
corporation” (as defined in Section 8-102(5) of the UCC) and the making by such
clearing corporation of appropriate entries in its records crediting the
securities account of the related Securities Intermediary by the amount of such
certificated security and the making by such Securities Intermediary of
appropriate entries in its records identifying such certificated securities as
credited to the related Trust Account (all of the Trust Account Property
described in Subsections (a) and (b), “Physical Property”);

          and, in any event, any such Physical Property in registered form shall be
in the name of the Indenture Trustee or its nominee or custodian (or the
related Securities Intermediary); and such additional or alternative procedures
as may hereafter become appropriate to effect the complete transfer of
ownership of any such Trust Account Property to the Indenture Trustee or its
nominee or custodian, consistent with changes in applicable law or regulations
or the interpretation thereof;

          (c) with respect to any security issued by the U.S. Treasury, Fannie Mae
or Freddie Mac that is a book-entry security held through the Federal Reserve
System pursuant to federal book-entry regulations, the following procedures,
all in accordance with applicable law, including applicable federal regulations
and Articles 8 and 9 of the UCC: the making by a Federal Reserve Bank of an
appropriate entry crediting such Trust Account Property to an account of the
related Securities Intermediary or the securities intermediary that is (x) also
a “participant” pursuant to applicable federal regulations and (y) is acting as
securities intermediary on behalf of the Securities Intermediary with respect
to such Trust Account Property; the making by such Securities Intermediary or
securities intermediary of appropriate entries in its records crediting such
book-entry security held through the Federal Reserve System pursuant to federal
book-entry regulations and Articles 8 and 9 of the UCC to the related Trust

8

 

Account; and such additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust Account
Property to the Indenture Trustee or its nominee or custodian, consistent with
changes in applicable law or regulations or the interpretation thereof; and

          (d) with respect to any item of Trust Account Property that is an
uncertificated security (as defined in Section 8-102(a)(18) of the UCC) and
that is not governed by clause (c) above, registration in the records of the
issuer thereof in the name of the related Securities Intermediary, and the
making by such Securities Intermediary of appropriate entries in its records
crediting such uncertificated security to the related Trust Account.

          Depositor: CS Funding II Depositor LLC, a Delaware limited liability
company.

          Designated Depository Institution: With respect to an Eligible Account,
an institution whose deposits are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the FDIC, the long-term deposits of which
shall be rated “A” or better by S&P or “A2” or better by Moody’s and the
short-term deposits of which shall be rated “P-1” or better by Moody’s and
“A-1” or better by S&P, unless otherwise approved in writing by the Initial
Noteholder and which is any of the following: (A) a federal savings and loan
association duly organized, validly existing and in good standing under the
federal banking laws, (B) an institution duly organized, validly existing and
in good standing under the applicable banking laws of any state, (C) a national
banking association duly organized, validly existing and in good standing under
the federal banking laws, (D) a principal subsidiary of a bank holding company
or (E) approved in writing by the Initial Noteholder and, in each case acting
or designated by the Servicer as the depository institution for the Eligible
Account; provided, however, that any such institution or association shall have
combined capital, surplus and undivided profits of at least $50,000,000.

          DIP Loan: A Loan to an Obligor that is a “debtor-in-possession” as defined
under the Bankruptcy Code.

          Disposition: A Securitization, Whole Loan Sale transaction, or other
disposition of Loans, including, without limitation, pursuant to Section 3.06.

          Disposition Participant: As applicable, with respect to a Disposition,
any “depositor” with respect to such Disposition, the Majority Noteholders, the
Issuer, the Servicer, the related trustee and the related custodian, any
nationally recognized credit rating agency, the related underwriters, the
related placement agent, the related credit enhancer, the related whole-loan
purchaser, the related purchaser of securities and/or any other party necessary
or, in the good faith belief of any of the foregoing, desirable to effect a
Disposition.

          Disposition Proceeds: With respect to a Disposition, (x) the proceeds of
the Disposition remitted to the Issuer in respect of the Loans transferred on
the date of and with respect to such Disposition, including without limitation,
any cash less all costs, fees and expenses incurred in connection with such
Disposition, including, without limitation, all amounts

9

 

deposited into any
reserve accounts upon the closing thereof plus or minus (y) all other amounts
agreed upon in writing by the Initial Noteholder, the Issuer and the Servicer.

          Distribution Account: The account established and maintained pursuant to
Section 5.01(a)(3) hereof.

          Due Date: The day of the month on which the Scheduled Payment is due from
the Obligor with respect to an Eligible Loan.

          Eligible Account: At any time, an account which is: (i) maintained with a
Designated Depository Institution; or (ii) fully insured by either the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC; or (iii)
a trust account (which shall be a “segregated trust account”) maintained with
the corporate trust department of a federal or state chartered depository
institution or trust company with trust powers and acting in its fiduciary
capacity for the benefit of the Indenture Trustee and the Issuer, which
depository institution or
trust company shall have capital and surplus of not less than $50,000,000; or
(iv) with the prior written consent of the Majority Noteholders, any other
account.

          Eligible Loan: With respect to any date of determination, any Loan which
complies with the representations and warranties set forth in Section 3.04 with
respect to such Loan.

          Eligible Obligor: For any date of determination, any Obligor that (i) is
either (x) a legal operating entity or holding company or (y) an Obligor which
is a special purpose entity, and not a natural person, (ii) has not entered
into the Loan primarily for personal, family or household purposes, (iii) is
not a Governmental Authority, (iv) is not in the gaming, nuclear waste,
biotechnology or natural resources industry, (v) except with respect to a DIP
Loan, is not the subject of a Bankruptcy Event, and (vi) is not an Obligor of a
Charged-Off Loan or Delinquent Loan; provided however that the foregoing clause
(iv) shall not be deemed to prohibit an Obligor in the biotechnology industry
from being an Eligible Obligor, except for where such Obligor’s business
consists of conducting proprietary research on new drug development, if it
otherwise satisfies each of the foregoing criteria for eligibility.

          Eligible Servicer: (x) CapitalSource or (y) any other Person to which the
Majority Noteholders may consent in writing.

          Errors: Has the meaning set forth in Section 9.02(d) hereof.

          Event of Default: Either a Servicer Event of Default or an Event of
Default under the Indenture.

          Excess Spread: For any date of determination, a percentage equal to the
positive difference between (x) the weighted average Loan Interest Rate of the
Loan Pool (determined based on the unpaid principal balance of the Loans in the
Loan Pool) and (y) the sum of (i) the Note Interest Rate and (ii) the rate at
which the Trust Fees and Expenses accrue.

10

 

          Exchange Act: The Securities Exchange Act of 1934, as amended.

          Excluded Amounts: (a) Any amount received in the Lock-Box by, on or with
respect to any Loan in the Loan Pool, which is required to be remitted in
payment of any tax, fee or other charge imposed by any Governmental Authority
on such Loan, (b) any amount representing a reimbursement of insurance premiums
which are required to be paid to the related Obligor and (c) any amount with
respect to any Loan retransferred or substituted for that is otherwise replaced
by a Qualified Substitute Loan, to the extent such amount is attributable to a
time after the effective date of such replacement.

          Fannie Mae: The Federal National Mortgage Association and any successor
thereto.

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

          Final Certification: Has the meaning set forth in Section 2.05(b)(ii)
hereof.

          Fitch: Fitch Ratings or any successor in interest.

          Foreclosed Loan: As of any date of determination, any Eligible Loan that
as of the end of the preceding Remittance Period has been discharged as a
result of (i) the completion of foreclosure or comparable proceedings on the
Loan Collateral by the Servicer on behalf of the Issuer; (ii) in respect of any
Loan secured by real property, the acceptance of the deed or other evidence of
title to the related Mortgaged Property in lieu of foreclosure or other
comparable proceeding; or (iii) the acquisition of title to the related Loan
Collateral by operation of law.

          Foreclosure Property: Any real property securing a Foreclosed Loan that
has been acquired by the Servicer on behalf of the Issuer through foreclosure,
deed in lieu of foreclosure or similar proceedings in respect of the related
Foreclosed Loan.

          Freddie Mac: The Federal Home Loan Mortgage Corporation and any successor
thereto.

          GAAP: Generally Accepted Accounting Principles as in effect in the United
States.

          Governmental Authority: With respect to any Person, any national,
government, state or other political division thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to any court or arbitrator having jurisdiction over such Person.

          Indemnified Parties: Has the meaning set forth in Section 8.01(c) hereof.

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          Indenture: The Indenture dated as of September 17, 2003, between the
Issuer and the Indenture Trustee, as the same may be amended or supplemented
from time to time.

          Indenture Trustee: Wells Fargo Bank Minnesota, National Association, a
national banking association, as Indenture Trustee under the Indenture, or any
successor indenture trustee under the Indenture.

          Indenture Trustee Fee: Shall have the meaning given such term in the
Backup Servicer Fee Letter.

          Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of the Loan Originator, the Servicer, the Depositor
or any of their respective Affiliates, (ii) does not have any direct financial
interest in, or any material indirect financial interest in, the Loan
Originator, the Servicer, the Depositor or any of their respective Affiliates
and (iii) is not connected with the Loan Originator, the Depositor, the
Servicer or any of their respective Affiliates, as an officer, employee,
promoter, underwriter, trustee, partner, director or Person performing similar
functions; provided, however, that a Person shall not fail to be Independent of
the Loan Originator, the Depositor, the Servicer or any of their respective
Affiliates merely because such Person is the beneficial owner of 1% or less of
any class of securities issued by the Loan Originator, the Depositor, the
Servicer or any of their respective Affiliates, as the case may be.

          Initial Certification: Has the meaning set forth in Section 2.05(a)
hereof.

          Initial Noteholder: Citigroup Global Markets Realty Corp., a New York
corporation.

          Initial Term: Has the meaning set forth in Section 9.01(c) hereof.

          Insurance Policies: With respect to any Eligible Loan, any insurance
policy covering liability and physical damage to or loss of the related Loan
Collateral, including, but not limited to, any hazard, flood, title,
environmental, flood, accident or life insurance policy.

          Insurance Proceeds: All amounts collected in respect of any Loan, Loan
Collateral or related property under any Insurance Policy and not required
either pursuant to applicable law or the related Loan Documents to be applied
to the restoration of the related Loan Collateral or paid to the related
Obligor.

          Intercreditor Agreement: The Second Amended and Restated Intercreditor and
Lockbox Administration Agreement, dated as of September 17, 2003, by and among
Wells Fargo Minnesota, National Association, as the indenture trustee under the
Trust Documents (as defined therein) and under the Citi Conduit Documents (as
defined therein), Bank of America, N.A., as the lockbox bank, SWI, as the
administrative agent, each Securitization Agent (as defined therein), the Loan
Originator, as the original servicer and as the lockbox servicer, and Capital
Source Funding, LLC, as the owner of the account and as the owner of the
lockbox.

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          Interest Carry-Forward Amount: With respect to any Payment Date is equal
to the amount, if any, by which the Interest Payment Amount for the immediately
preceding Payment Date exceeded the amount in respect of interest that was
actually paid from the Distribution Account on the immediately preceding
Payment Date, together with any Interest Carry-Forward Amount remaining unpaid
from the previous Payment Date.

          Interest Payment Amount: With respect to any Payment Date, the sum of the
Daily Interest Accrual Amounts for all days in the related Accrual Period.

          Investors: Shall mean the investors listed on Exhibit G attached hereto.

          LIBOR Business Day: Any day on which banks in the City of London are open
and conducting transactions in United States dollars.

          LIBOR Determination Date: With respect to each Accrual Period, the second
LIBOR Business Day preceding the commencement of such Accrual Period.

          LIBOR Margin: With respect to each day, 1.00%; provided that an
additional 3.00% shall be added to the LIBOR Margin upon the occurrence of an
Event of Default or a Trigger Event.

          Lien: With respect to any asset, (a) any mortgage, lien, pledge, charge,
security interest, hypothecation, option or encumbrance of any kind in respect
of such asset or (b) the
interest of a vendor or lessor under any conditional sale agreement, financing
lease or other title retention agreement relating to such asset.

          Liquidated Loan: Any Delinquent Loan with respect to which the Servicer
has recovered, whether through a trustee’s sale, foreclosure sale or otherwise,
all amounts it expects to recover from or on account of such Delinquent Loan.

          Loan: Any loan sold to the Issuer hereunder and pledged to the Indenture
Trustee, which loan includes, without limitation, (i) the Required Loan
Documents and the Loan File and (ii) all right, title and interest of the Loan
Originator in and to the Loan and the related Loan Collateral.

          Loan Collateral: The collateral securing an Underlying Note which,
depending on the type of Loan, typically consists of accounts receivable,
inventory, real estate and/or other tangible and intangible assets of the
Obligors.

          Loan Documents: With respect to an Eligible Loan, the documents
comprising the Custodial Loan File for such Eligible Loan.

          Loan File: With respect to each Eligible Loan, the Custodial Loan File
and the Servicer’s Loan File.

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          Loan Interest Rate: With respect to each Eligible Loan, the annual rate
of interest borne by the related Underlying Note, as shown on the Loan
Schedule, and, in the case of an adjustable rate Loan, as the same may be
periodically adjusted in accordance with the terms of such Eligible Loan.

          Loan Margin: With respect to all Eligible Loans and for any date of
determination, the positive difference between (x) the weighted average Loan
Interest Rate of the Loan Pool based on the unpaid principal balance of the
Loans in the Loan Pool and (y) the then-current value of One-Month LIBOR.

          Loan Maturity Date: With respect to any Eligible Loan as of any date of
determination, the date on which the last payment of principal is due and
payable under the related Underlying Note, after taking into account all
principal prepayments received before such date of determination and any
extension permitted under the related Loan Documents (as in effect on the
Closing Date) and this Agreement, but without giving effect to: (a) any
acceleration of the principal of such Eligible Loan by reason of default
thereunder, (b) any grace period permitted by the related Underlying Note, (c)
any modification, waiver or amendment of such Eligible Loan (other than any
such permitted extension), or (d) any anticipated repayment date for such
Eligible Loan.

          Loan Originator: CapitalSource and its permitted successors and assigns.

          Loan Pool: As of any date of determination, the pool of all Loans
conveyed to the Issuer pursuant to this Agreement on all Transfer Dates up to
and including such date of determination, which Loans have not been released
from the Lien of the Indenture pursuant to the terms of the Basic Documents,
together with the rights and obligations of a holder thereof,
and the payments thereon and proceeds therefrom received on and after the
applicable Transfer Date, as identified from time to time on the Loan Schedule.

          Loan Rating: Shall mean either Loan Rating 1, Loan Rating 2, Loan Rating
3, Loan Rating 4, Loan Rating 5 or Loan Rating 6, as applicable.

          Loan Rating 1: Shall mean a rating of 1 pursuant to the Underwriting
Guidelines of the Loan Originator.

          Loan Rating 2: Shall mean a rating of 2 pursuant to the Underwriting
Guidelines of the Loan Originator.

          Loan Rating 3: Shall mean a rating of 3 pursuant to the Underwriting
Guidelines of the Loan Originator.

          Loan Rating 4: Shall mean a rating of 4 pursuant to the Underwriting
Guidelines of the Loan Originator.

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          Loan Rating 5: Shall mean a rating of 5 pursuant to the Underwriting
Guidelines of the Loan Originator.

          Loan Rating 6: Shall mean a rating of 6 pursuant to the Underwriting
Guidelines of the Loan Originator.

          Loan Sale Agreement: The Loan Sale Agreement, between CapitalSource, as
seller, and the Depositor, as purchaser, dated as of September 17, 2003, and
all supplements and amendments thereto.

          Loan Schedule: The schedule of Loans conveyed to the Issuer on the
Closing Date and on each Transfer Date and delivered to the Initial Noteholder
and the Collateral Custodian in the form of a computer-readable transmission
specifying the information set forth on Exhibit D.

          Loan-to-Value Ratio or LTV: With respect to any Loan, as of any date of
determination, the percentage equivalent of a fraction (i) the numerator of
which is equal to the total commitment amount of such Loan as of the date of
its origination (or with respect to any Revolving Loans, the amount funded
under such Loan at such date of determination) and (ii) the denominator of
which is equal to the total discounted collateral value of the collateral
securing such Loan.

          Lock-Box: The post office box to which collections on the Loans are
remitted for retrieval by a Lock-Box Bank and deposited by such Lock-Box Bank
into a Lock-Box Account.

          Lock-Box Account: means any of account numbers 003930559738, 003938703751
or 0039393996662, as applicable, held by CapitalSource or one of its Affiliates
at Bank of America, N.A.

          Lock-Box Agreement: The Third Amended and Restated Three Party Agreement
Relating to Lockbox Services and Control (with Activation Upon Notice), dated
as of September
17, 2003, among Wells Fargo Minnesota, National Association, as the indenture
trustee under the Trust Documents (as defined therein) and the Citi Conduit
Documents (as defined therein), Bank of America, N.A. as the lockbox, WSI, as
the administrative agent, each Securitization Agent (as defined therein), the
Loan Originator, as the original servicer and as the lockbox servicer, and
CapitalSource Funding LLC, as the owner of the account and as the owner of the
lockbox.

          Lock-Box Bank: Bank of America, N.A., or any of the banks or other
financial institutions holding one or more Lock-Box Accounts.

          LPA Assignment: The Assignment of Loans from the Loan Originator to the
Depositor under the Loan Sale Agreement.

          Majority Certificateholders: Has the meaning set forth in the Trust
Agreement.

15

 

          Majority Noteholders: The holder or holders of in excess of 50% of the
Note Principal Balance. In the event of the release of the Lien of the
Indenture in accordance with the terms thereof, the Majority Noteholders shall
mean the Majority Certificateholders.

          Maximum Note Principal Balance: Has the meaning set forth in Section 1.01
of the Note Purchase Agreement.

          Monthly Servicer Report: Has the meaning set forth in Section 4.02(b)(2)
hereof.

          Moody’s: Moody’s Investors Service, Inc., or any successor thereto.

          Mortgage: With respect to any Eligible Loan secured by real property, the
mortgage, deed of trust or other instrument securing the related Underlying
Note, which creates a lien on a fee interest in commercial real property and/or
a lien on a leasehold estate in commercial real property and the assignment of
rents and leases related thereto.

          Mortgaged Property: With respect to an Eligible Loan secured by real
property, the related Obligor’s fee and/or leasehold interest in the commercial
real property (and/or all improvements, buildings, fixtures, building equipment
and personal property thereon (to the extent applicable) and all additions,
alterations and replacements made at any time with respect to the foregoing)
and all other collateral securing repayment of the debt evidenced by the
related Underlying Note.

          Net Proceeds: With respect to any Payment Date, Proceeds received during
the prior Remittance Period, net of any reimbursements to the Servicer made
from such amounts for any unreimbursed Servicing Compensation and Servicing
Advances (including Nonrecoverable Servicing Advances) made and any other fees
and expenses paid in connection with the foreclosure, inspection, conservation,
liquidation, exchange or other disposition of the related Loans or Loan
Collateral.

          Net Loan Losses: With respect to any Delinquent Loan that is subject to a
modification, an amount equal to the portion of the Principal Balance, if any,
released in connection with such modification.

          Net Worth: With respect to any Person, the excess of total assets of such
Person, over total liabilities of such Person, determined in accordance with
GAAP.

          Nonrecoverable Servicing Advance: With respect to any Eligible Loan or
any Foreclosure Property, (a) any Servicing Advance previously made and not
reimbursed from late collections, condemnation proceeds, Proceeds or Insurance
Proceeds on the related Eligible Loan or Foreclosure Property or (b) a
Servicing Advance proposed to be made in respect of an Eligible Loan or
Foreclosure Property either of which, in the good faith business judgment of
the Servicer, as evidenced by an Officer’s Certificate of a Servicing Officer
delivered to the Initial Noteholder and the Indenture Trustee, would not be
ultimately recoverable.

16

 

          Nonutilization Fee: A fee payable by the Issuer to the Initial Noteholder
on each Payment Date in an amount equal to (a) 0.15% times (b) $400,000,000
less the average daily amount for the immediately preceding month of the Note
Principal Balance divided by (c) 360 and multiplied by (d) the actual number of
calendar days that have elapsed since the immediately preceding Payment Date
(or, with respect to the first Payment Date, the Closing Date).

          Note: Has the meaning set forth in the Indenture.

          Noteholder: Has the meaning set forth in the Indenture.

          Note Interest Rate: With respect to each Accrual Period, a per annum
interest rate equal to One-Month LIBOR for the related LIBOR Determination Date
plus the LIBOR Margin for such Accrual Period.

          Note Principal Balance: With respect to the Notes, as of any date of
determination (a) the sum of the Additional Note Principal Balances purchased
on or prior to such date of determination pursuant to the Note Purchase
Agreement less (b) all amounts previously distributed in respect of principal
of the Notes on or prior to such date of determination.

          Note Purchase Agreement: The Note Purchase Agreement among the Initial
Noteholder, the Issuer and the Depositor, dated as of September 17, 2003, as
the same may be amended or supplemented from time to time.

          Note Redemption Amount: As of any Record Date, an amount without
duplication equal to the sum of (i) the then outstanding Note Principal Balance
of the Notes, plus the Interest Payment Amount for the related Payment Date,
(ii) any Trust Fees and Expenses due and unpaid on the related Payment Date and
(iii) any Servicing Advance Reimbursement Amount as of such Record Date.

          Obligor: With respect to any Eligible Loan, means the obligor(s) on an
Underlying Note, including any Person that has acquired the related Loan
Collateral and assumed the obligations of the original obligor under the
Underlying Note.

          Officer’s Certificate: A certificate signed by a Responsible Officer of
the Depositor, the Loan Originator, the Servicer or the Issuer, in each case,
as required by this Agreement.

          One-Month LIBOR: With respect to each Accrual Period, the rate determined
by the Indenture Trustee on the related LIBOR Determination Date on the basis
of the offered rate for one-month U.S. dollar deposits, as such rate appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on such LIBOR Determination
Date; provided that if such rate does not appear on Telerate Page 3750, the
rate for such date will be determined on the basis of the offered rates of the
Reference Banks for one-month U.S. dollar deposits, as of 11:00 a.m. (London
time) on such LIBOR Determination Date. In such event, the Indenture Trustee
will request the principal

17

 

London office of each of the Reference Banks to
provide a quotation of its rate. If on such LIBOR 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 all such offered
quotations (rounded to the nearest whole multiple of 1/16%). If on such LIBOR
Determination Date, fewer than two Reference Banks provide such offered
quotations, One-Month LIBOR for the Accrual Period shall be the higher of (i)
LIBOR as determined on the previous LIBOR Determination Date and (ii) the
Reserve Interest Rate. Notwithstanding the foregoing, if, under the priorities
described above, One-Month LIBOR for a LIBOR Determination Date would be based
on One-Month LIBOR for the previous LIBOR Determination Date for the third
consecutive LIBOR Determination Date, the Indenture Trustee shall select an
alternative comparable index (over which the Indenture Trustee has no control),
used for determining one-month Eurodollar lending rates that is calculated and
published (or otherwise made available) by an independent party.

          Opinion of Counsel: A written opinion of counsel who may be employed by
the Servicer, the Depositor, the Loan Originator or any of their respective
Affiliates.

          Optional Disposition Date: Any Business Day, provided one Business Day’s
prior written notice is given.

          Originator Indemnified Party: Has the meaning set forth in Section 8.01(c)
hereof.

          Owner Trustee: Wilmington Trust Company, a Delaware banking corporation,
not in its individual capacity but solely as Owner Trustee under this
Agreement, and any successor owner trustee under the Trust Agreement.

          Owner Trustee Fee: Shall mean the fee payable in the Fee Letter dated as
of the date hereof, among the Loan Originator, the Depositor and the Owner
Trustee.

          Participation Certificate: A valid and enforceable certificate issued
pursuant to a standard participation agreement between the Loan Originator and
the originator of the related Loan, evidencing that the registered owner is the
beneficial owner of an undivided participating ownership interest in the
related Loan.

          Participation Loan: A Loan, originated by the Loan Originator and serviced
by the Servicer in the ordinary course of its business and in accordance with
Accepted Servicing Practices, in which a participation interest has been
granted to another Person in accordance with
the Underwriting Guidelines and such transaction has been fully consummated,
pursuant to a standard participation agreement.

          Paying Agent: A Person that meets the eligibility standards for the
Indenture Trustee specified in Section 3.03 of the Indenture and is authorized
by the Issuer to make payments to and distributions from the Distribution
Account, including payment of principal of or interest on the Notes on behalf
of the Issuer. The initial Paying Agent shall be the Indenture Trustee.

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          Payment Date: The 15th day of each calendar month commencing on the first
such 15th day to occur after the first Transfer Date, or if any such day is not
a Business Day, the first Business Day immediately following such day.

          Percentage Interest: Has the meaning set forth in the Trust Agreement and
the Indenture, as applicable.

          Permitted Investments: Each of the following:

	 	 	(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States
fully and unconditionally guaranteed, the timely payment or the
guarantee of which constitutes a full faith and credit obligation
of the United States.
	 
	 	 	(b) Federal Housing Administration debentures rated “Aa2” or higher
by Moody’s and “AA” or better by S&P.
	 
	 	 	(c) Freddie Mac senior debt obligations rated “Aa2” or higher by
Moody’s and “AA” or better by S&P.
	 
	 	 	(d) Federal Home Loan Banks’ consolidated senior debt obligations
rated “Aa2” or higher by Moody’s and “AA” or better by S&P.
	 
	 	 	(e) Fannie Mae senior debt obligations rated “Aa2” or higher by
Moody’s.
	 
	 	 	(f) Federal funds, certificates of deposit, time and demand
deposits, and bankers’ acceptances (having original maturities of
not more than 365 days) of any domestic bank, the short-term debt
obligations of which have been rated “A-1” or better by S&P and
“P-1” or better by Moody’s.
	 
	 	 	(g) Investment agreements approved by the Initial Noteholder
provided:

	 	 	 	1. the agreement is with a bank or insurance company which
has an unsecured, uninsured and unguaranteed obligation (or
claims-paying ability) rated “Aa2” or better by Moody’s and
“AA” or better by S&P; and
	 
	 	 	 	2. monies invested thereunder may be withdrawn without any
penalty, premium or charge upon not more than one day’s
notice
(provided such notice may be amended or canceled at any time
prior to the withdrawal date); and
	 
	 	 	 	3. the agreement is not subordinated to any other obligations
of such insurance company or bank; and

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	 	 	 	4. the same guaranteed interest rate will be paid on any
future deposits made pursuant to such agreement; and
	 
	 	 	 	5. the Indenture Trustee and the Initial Noteholder receive
an opinion of counsel that such agreement is an enforceable
obligation of such insurance company or bank.

	 	 	(h) Commercial paper (having original maturities of not more than
365 days) rated “A-1” or better by S&P and “P-1” or better by
Moody’s.
	 
	 	 	(i) Investments in money market funds rated “AAAM” or “AAAM-G” by
S&P and “Aaa” or “P-1” by Moody’s.
	 
	 	 	(j) Investments approved in writing by the Initial Noteholder;

provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to
any instrument described above, such instrument qualifies as a “permitted
investment” within the meaning of Section 860G(a)(5) of the Code and the
regulations thereunder.

          Each of the Permitted Investments may be purchased by the Indenture
Trustee or through an Affiliate of the Indenture Trustee.

          Permitted Liens: Means (i) Liens for state, municipal or other local taxes
if such taxes shall not at the time be due and payable and (ii) liens imposed
by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s
liens and other similar liens arising in the ordinary course of business
securing obligations that are not overdue for a period of more than thirty (30)
days.

          Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.

          Physical Property: Has the meaning set forth in clause (b) of the
definition of “Delivery” above.

          Pool Charged-Off Ratio: With respect to any date of determination, the
aggregate Principal Balance of all Charged-Off Loans as of such date of
determination divided by the Pool Principal Balance as of such date of
determination.

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          Pool Principal Balance: With respect to any date of determination, the
aggregate Principal Balances of the Loans as of such date of determination.

          Pool Purchase Price: With respect to any date of determination, an amount
equal to the sum of the Principal Balance of each Eligible Loan subject to this
Agreement as of such date of determination multiplied by the Purchase Price
Percentage relating to each such Eligible Loan.

          Predecessor Servicer Work Product: Has the meaning set forth in Section
9.02(d) hereof.

          Principal Balance: With respect to any Loan, (i) at the Transfer Date,
the Transfer Date Principal Balance and (ii) with respect to any other date of
determination, the outstanding unpaid principal balance of the Loan as of such
date of determination (after giving effect to all payments received thereon and
the allocation of any Net Loan Losses with respect thereto for a Delinquent
Loan prior to such date of determination); provided, however, that any
Liquidated Loan shall be deemed to have a Principal Balance of zero.

          Principal Collections Account: The account designated as such,
established and maintained by the Servicer in accordance with Section
5.01(a)(2) hereof.

          Proceeding: Any suit in equity, action at law or other judicial or
administrative proceeding.

          Proceeds: With respect to a Liquidated Loan, any cash amounts received in
connection with the liquidation of such Loan, whether through sale, foreclosure
sale, liquidation, exchange or other disposition, whether such disposition is
voluntary or involuntary, and any other amounts required to be deposited in the
Collection Account pursuant to Section 5.01(b) hereof, in each case other than
Insurance Proceeds.

          Purchase Price Percentage: With respect to each Loan on any Business Day,
a percentage determined as follows:

          (a) with respect to all Senior Secured Loans assigned Loan Rating 1, Loan
Rating 2, Loan Rating 3 or Loan Rating 4, 80%;

          (b) with respect to all Subordinated Loans assigned Loan Rating 1, Loan
Rating 2, Loan Rating 3 or Loan Rating 4, 50%;

          (c) with respect to all Senior Secured Loans assigned Loan Rating 5, 50%;

          (d) with respect to all Subordinated Loans assigned Loan Rating 5, 25%;
and

          (e) with respect to all Loans assigned Loan Rating 6, 0%.

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          Qualified Substitute Loan: A Loan or Loans substituted for a Deleted Loan
or Eligible Loan pursuant to Section 3.05 hereof, which (i) complies or comply
as of the date of substitution with each representation and warranty set forth
in Section 3.04 and (ii) is or are not Delinquent as of the date of
substitution for such Deleted Loan or Loans or Eligible Loan or Loans, as the
case may be.

          Rating Agencies: S&P, Moody’s and Fitch or such other nationally
recognized credit rating agencies as may from time to time be designated in
writing by the Majority Noteholders in their sole discretion.

          Record Date: With respect to each Payment Date, the close of business two
(2) Business Days before such Payment Date.

          Reference Banks: Bankers Trust Company, Barclay’s Bank PLC, The Tokyo
Mitsubishi Bank and National Westminster Bank PLC and their successors in
interest; provided, however, that if the Initial Noteholder determines that any
of the foregoing banks are not suitable to serve as a Reference Bank, then any
leading banks selected by the Initial Noteholder with the approval of the
Issuer, which approval shall not be unreasonably withheld, which are engaged in
transactions in Eurodollar deposits in the international Eurocurrency market
(i) with an established place of business in London and (ii) which have been
designated as such by the Initial Noteholder.

          Remittance Date: The Business Day immediately preceding each Payment
Date.

          Remittance Period: With respect to any Payment Date, the period
commencing immediately following the Record Date for the preceding Payment Date
(or, in the case of the initial Payment Date, commencing immediately following
the initial Transfer Date) and ending on and including the related Record Date.

          Repurchase Price: With respect to a Loan the product of the applicable
Purchase Price Percentage multiplied by the Principal Balance thereof as of
such date of repurchase.

          Required Equity Contribution: On any date of determination, an amount
equal to the excess of (a) the sum of (i) the Borrowing Base on such date plus
(ii) all collections on deposit in the Principal Collections Account on such
date, minus (b) the Note Principal Balance on such date, which amount shall at
all times be equal to at least $10,000,000.

          Required Interest Coverage Amount: (a) For any date of determination
occurring during the Revolving Period, an amount equal to the sum of (x) the
product of (i) the Maximum Note Principal Balance, (ii) the sum of (A) the Note
Interest Rate and (B) the per annum rate at which the Trust Fees and Expenses
accrue, divided by 12 and (iii) 1.20 and (y) the Interest Carry-Forward Amount
for the preceding Payment Date and (b) for any other date of determination, an
amount equal to amounts collected with respect to the Loans, including without
limitation, all Proceeds, Insurance Proceeds and proceeds in connection with
the repurchase or substitution of any Loan pursuant to the terms hereof.

22

 

          Required Loan Documents: With respect to: (a) any Eligible Loan (other
than an Assigned Loan or Participation Loan), the duly executed original of
each of the following: the Underlying Note and an assignment (which may be by
endorsement or allonge) of such Underlying Note, signed by an officer of the
Loan Originator; any related loan agreement, the Loan Schedule, participation
agreement (if set forth on the Loan Schedule), acquisition agreement (if set
forth on the Loan Schedule), subordination agreement (if set forth on the Loan
Schedule), intercreditor agreement (if set forth on the Loan Schedule),
security agreements or instruments, UCC financing statements, guarantee (if set
forth on the Loan Schedule), for each Eligible Loan secured by a Mortgaged
Property, an Assignment of Mortgage and an Assignment of Leases and Rents and
(b) any Eligible Loan which is an Assigned Loan (if such Eligible Loan is
identified as an Assigned Loan on the Loan Schedule), (i) the duly executed
original of each of the following: the Underlying Note including an assignment
(which may be by endorsement or allonge), signed by an officer of the Loan
Originator and the assignment agreement and (ii) duly executed originals (if
set forth on the Loan Schedule) or copies of each of the following: any related
loan agreement, subordination agreement (if set forth on the Loan Schedule),
intercreditor agreement (if set forth on the Loan Schedule), security
agreements or instruments, UCC financing statements, guarantee (if set forth on
the Loan Schedule), for each Assigned Loan secured by a Mortgaged Property, an
Assignment of Mortgage and an Assignment of Leases and Rents and (c) any
Assigned Loan which is a participation interest, (i) the duly executed original
of each of the following: the participation agreement, signed by an officer of
the Loan Originator, and the related Participation Certificate and (ii) duly
executed originals (if set forth on the Loan Schedule) or copies of each of the
following: any related loan agreement, subordination agreement (if set forth on
the Loan Schedule), intercreditor agreement (if set forth on the Loan
Schedule), security agreements or instruments, UCC financing statements and
guarantee (if set forth on the Loan Schedule).

          Required Overcollateralization Amount: With respect to any Business Day,
an amount equal to the greatest of (a) the positive difference between (i) the
Pool Principal Balance on such Business Day and (ii) the Pool Purchase Price
(reduced by the amount, without duplication, of any Loan in excess of the
Concentration Limitations); (b) an amount equal to 25% of the aggregate
Principal Balance of the Eligible Loans; and (c) the Required Equity
Contribution.

          Reserve Interest Rate: With respect to any LIBOR Determination Date, the
rate per annum that the Initial Noteholder determines to be either (i) the
arithmetic mean (rounded to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Initial Noteholder are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market or
(ii) in the event that the Initial Noteholder can determine no such arithmetic
mean, the lowest one-month U.S. dollar lending rate which New York City banks
selected by the Initial Noteholder are quoting on such LIBOR Determination Date
to leading European banks.

          Responsible Officer: When used with respect to the Indenture Trustee or
Collateral Custodian, any officer within the Corporate Trust Office of such
Person, including any Vice President, Assistant Vice President, Secretary,
Assistant Secretary or any other officer of

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such Person customarily performing
functions similar to those performed by any of the above designated officers
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. When used 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 any officer of the Administrator who is identified on the list of
Authorized Officers delivered by the Administrator on the date hereof (as such
list may be modified or supplemented from time to time thereafter) to the
Indenture Trustee and the Owner Trustee. When used with respect to the
Depositor, the Servicer, the Loan Originator or any Affiliate of any of them,
the Controller, the President, any Vice President or the Treasurer of such
Person.

          Review Criteria: Has the meaning set forth in Section 2.05(b)(ii) hereof.

          Revolving Loan: A Loan that is a line of credit arising from an extension
of credit by the Loan Originator to an Obligor.

          Revolving Period: With respect to the Notes, the period commencing on
September 17, 2003 and ending on the earlier of (i) 364 days after such date
unless extended by the mutual agreement of CapitalSource and the Initial
Noteholder within six months prior to the expiration date, and (ii) the date on
which the Revolving Period is terminated pursuant to Section 2.08.

          Sales Price: For any Transfer Date and any Eligible Loan, the product of
(i) the applicable Purchase Price Percentage multiplied by (b) the Principal
Balance of such Eligible Loan as of such Transfer Date.

          S&SA Assignment: An Assignment, in the form of Exhibit C hereto, of Loans
and other property from the Depositor to the Issuer pursuant to this Agreement.

          Scheduled Payment: With respect to any Loan, the payment of principal
and/or interest scheduled to be made by the related Obligor under the terms of
such Loan after the related Transfer Date, as adjusted pursuant to the terms of
the related Underlying Note and Required Loan Documents, and any such payment
received after the related Transfer Date.

          Securities: The Notes and the Trust Certificates.

          Securities Intermediary: A “securities intermediary” as defined in
Section 8-102(a)(14) of the UCC that is holding a Trust Account for the
Indenture Trustee as the sole “entitlement holder” as defined in Section
8-102(a)(7) of the UCC.

          Securitization: A sale or transfer of Loans by the Issuer to any other
Person in order to effect one or a series of structured-finance securitization
transactions, including but not limited to transactions involving the issuance
of securities which may be treated for federal income tax purposes as
indebtedness of CapitalSource or one or more of its wholly owned subsidiaries.

24

 

          Securityholder: Any Noteholder or Certificateholder.

          Senior Loan: A Loan that (i) is secured by a first priority lien on all of
the Obligor’s assets constituting Loan Collateral for such Loan (subject to
Permitted Liens), (ii) has a Loan-to-Value Ratio less than or equal to 90% and
(iii) provides that the payment obligation of
the related Obligor on such Loan is either senior to, or pari passu with, all
other loans or financings to such Obligor.

          Senior B-Note Loan: Any multilender Loan that (i) is secured by a first
priority lien on all the Obligor’s assets constituting Loan Collateral for such
Loan (subject to Permitted Liens), (ii) has a Loan-to-Value Ratio less than or
equal to 90%, and (iii) that contains provisions which, upon the occurrence of
an event of default under the underlying loan documents or in the case of any
liquidation or foreclosure on the related Loan Collateral, the Issuer’s portion
of such Loan would be paid only after the other lender party to such Loan
(whose right to payment is contractually senior to the Issuer) is paid in full.

          Senior Secured Loan: Either a Senior Loan or a Senior B-Note Loan.

          Servicer: CapitalSource, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.

          Servicer Event of Default: Has the meaning set forth in Section 9.01
hereof.

          Servicer Indemnified Party: Has the meaning set forth in Section 8.01(a)
hereof.

          Servicer Extension Notice: Has the meaning set forth in Section 9.01(c)
hereof.

          Servicer’s Loan File: With respect to each Eligible Loan, all documents
(or electronic images thereof) relating to such Eligible Loan, including,
without limitation, copies of all of the Loan Documents included in the related
Custodial Loan File.

          Servicing Advance Reimbursement Amount: With respect to any Record Date,
the amount of any Servicing Advances that have not been reimbursed as of such
date, including Nonrecoverable Servicing Advances.

          Servicing Advances: Advances required to be made by the Servicer as
specified in the Underwriting Guidelines.

          Servicing Compensation: The Servicing Fee, assumption fees, late payment
charges and other ancillary income with respect to any Loan.

          Servicing Fee: With respect to each Eligible Loan (including any Eligible
Loan that has been foreclosed and for which the related Mortgaged Property has
become a Foreclosure Property, but excluding any Liquidated Loan), for each
Remittance Period, a per annum fee equal to the sum of (i) 1.00% of the
Principal Balance of each Loan (other than Revolving Loans) and

25

 

(ii)  1.25% of
the Principal Balance of each Revolving Loan, in each case at the beginning of
such Remittance Period payable to the Servicer for the servicing of such
Eligible Loan out of Scheduled Payments made by the Obligor thereunder in an
amount determined in the manner in effect on the related Transfer Date.

          Servicing Officer: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Eligible Loans whose
name and specimen signature appears on a list of servicing officers annexed to
an Officer’s Certificate furnished by the Servicer on the
date hereof to the Issuer and the Indenture Trustee, on behalf of the
Noteholders, as such list may from time to time be amended.

          S&P: Standard & Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc.

          State: Any one of the states of the United States of America or the
District of Columbia.

          Subordinated Loan: Any Loan other than a Senior Loan or a Senior B-Note
Loan.

          Subsidiary: With respect to any Person, any corporation, partnership or
other entity of which at least a majority of the securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.

          Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Section 2.05 or Section 3.05 hereof, the amount, if any, by which
(a) the aggregate principal balance of any Qualified Substitute Loans (after
application of principal payments received on or before the related Transfer
Date) is less than (b) the aggregate of the Principal Balances of the related
Deleted Loans as of any date of determination.

          Tangible Net Worth: With respect to any Person, as of any date of
determination, the consolidated Net Worth of such Person and its Subsidiaries,
less the consolidated net book value of all assets of such Person and its
Subsidiaries (to the extent reflected as an asset in the balance sheet of such
Person or any Subsidiary at such date) which will be treated as intangibles
under GAAP, including, without limitation, such items as deferred financing
expenses, net leasehold improvements, good will, trademarks, trade names,
service marks, copyrights, patents, licenses and unamortized debt discount and
expense; provided, that residual securities issued by such Person or its
Subsidiaries shall not be treated as intangibles for purposes of this
definition.

          Term Event: Has the meaning set forth in Section 9.01(c) hereof.

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          Termination Date: The earliest of (a) the date of termination of the
Revolving Period, pursuant to Section 2.08, (b) the date upon which this
Agreement terminates pursuant to Section 12.01 or is optionally terminated by
the Servicer pursuant to Section 12.02, (c) the date of declaration of the
Termination Date pursuant to Section 9.01(d) or the date of the automatic
occurrence of the Termination Date pursuant to Section 9.01(e), (d) the
Maturity Date and (e) the termination of the Amortization Period.

          Termination Price: Has the meaning set forth in Section 12.02 hereof.

          Third Party Claim: Has the meaning set forth in Section 8.01(d) hereof.

          Transfer Date: With respect to each Eligible Loan, the day such Loan is
sold and conveyed to the Depositor by the Loan Originator pursuant to the Loan
Sale Agreement and to the Issuer by the Depositor pursuant to Section 2.01
hereof, which results in an increase in the Note Principal Balance by the
related Additional Note Principal Balance. With respect to any Qualified
Substitute Loan, the Transfer Date shall be the day such Loan is conveyed to
the Issuer pursuant to Section 2.05 or 3.05. No Transfer Date shall occur
following the termination of the Revolving Period or during the Amortization
Period.

          Transfer Date Principal Balance: As to each Loan, its Principal Balance as
of the close of business on the Transfer Date (after giving effect to any
payments received on the Loan on or before the Transfer Date).

          Transition Costs: Has the meaning set forth in Section 9.02(a) hereof.

          Trigger Event: Shall exist, as of any Record Date, if any of the
following events shall have occurred and be continuing for fifteen (15) days
(i) the available Excess Spread is less than 2.00% (determined at all times
using a LIBOR Margin of 1.00%); (ii) the weighted average Loan Rating of the
Loan Pool exceeds 2.7; (iii) the aggregate Principal Balance of all Delinquent
Loans and Foreclosed Loans as of such Record Date divided by the Pool Principal
Balance as of such Record Date is greater than 10%; (iv) the Pool Charged-Off
Ratio as of such Record Date is greater than 5%; (v) a Borrowing Base
Deficiency shall have occurred and shall not have been cured within five (5)
Business Days of the occurrence thereof; (vi) a Servicer Event of Default shall
have occurred; (vii) a Change of Control of CapitalSource shall have occurred;
(viii) CapitalSource shall have breached any financial covenant set forth in
Section 7.01 hereof; (ix) the cumulative sum of all Delinquent and Charged-Off
Loans in the loan pools pledged as part of all Securitizations effected by the
Loan Originator prior to such date of determination exceed 7.5% of the
aggregate original pool principal balance of such loan pools; or (x)
CapitalSource shall have defaulted with respect to any indebtedness for an
amount in excess of $10,000,000.

          Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.

          Trust Accounts: The Distribution Account, the Collection Account and the
Principal Collections Account.

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          Trust Agreement: The Trust Agreement dated as of September 17, 2003
between the Depositor and the Owner Trustee, as the same may be amended and
supplemented from time to time.

          Trust Certificate: Has the meaning set forth in the Trust Agreement.

          Trust Fees and Expenses: As of each Payment Date, an amount equal to the
Servicing Compensation, the Owner Trustee Fee, if applicable, and the Indenture
Trustee Fee, if any, the Backup Servicing Fee, and any expenses of the
foregoing.

          UCC: The Uniform Commercial Code as in effect in the State of New York.

          UCC Assignment: A form “UCC-2” or “UCC-3” statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction to
reflect an assignment of a secured party’s interest in collateral.

          UCC-1 Financing Statement: A financing statement meeting the requirements
of the Uniform Commercial Code of the relevant jurisdiction.

          Underlying Note: With respect to an Eligible Loan, the executed
promissory note or other evidence of the indebtedness of the related Obligor or
Obligors.

          Underwriting Guidelines: The written credit and collection policies and
procedures manual of the Loan Originator, as the same may be amended from time
to time.

          Unqualified Loan: Has the meaning set forth in Section 3.05(a) hereof.

          Whole Loan Sale: A Disposition of Loans pursuant to a whole-loan sale.

          Section 1.02 Other Definitional Provisions.

          (a) 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.

          (b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto unless otherwise defined therein.

          (c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective

28

 

meanings given to them under GAAP. To the extent that the definitions of
accounting terms in this Agreement or in any such certificate or other document
are inconsistent with the meanings of such terms under GAAP, the definitions
contained in this Agreement or in any such certificate or other document shall
control.

          (d) The words “hereof”, “herein”, “hereunder” and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Article, Section, Schedule and
Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term “including” shall mean “including without limitation”.

          (e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.

ARTICLE II

CONVEYANCE OF THE COLLATERAL;

ADDITIONAL NOTE PRINCIPAL BALANCES

          Section 2.01 Conveyance of the Collateral; Additional Note Principal
Balances.

          (a) (i) On each Transfer Date during the Revolving Period, the Depositor
agrees to offer for sale and to sell to the Issuer each of the Loans sold and
contributed to the Depositor pursuant to the Loan Sale Agreement on such
Transfer Date and the Issuer agrees to purchase such Loans offered for sale by
the Depositor. No Transfer Date shall occur following the termination of the
Revolving Period or during the Amortization Period. In addition, on each
Transfer Date, the Depositor agrees to offer for sale to the Issuer and the
Issuer agrees to purchase from the Depositor additional Loans in an amount
sufficient to maintain the Required Overcollateralization Amount.

		
	 	     (ii) In consideration of the payment of the Additional Note
Principal Balance pursuant to Section 2.06 hereof, (A) the Depositor as
of the related Transfer Date and concurrently with the execution and
delivery hereof, hereby sells and assigns to the Issuer, without
recourse, but subject to the other terms and provisions of this
Agreement, all of the right, title and interest of the Depositor in and
to the Loans and the Loan Collateral and (B) the Issuer grants and
pledges the Loans and the Loan Collateral to the Indenture Trustee on
behalf of the Noteholders as security for the Issuer’s obligations under
the Indenture and the other Basic Documents.

		
	 	     (iii) During the Revolving Period, on each Transfer Date, subject to
the conditions precedent set forth in Section 2.06 and in accordance with
the procedures set forth in Section 2.01(c), the Depositor, pursuant to a
S&SA Assignment, will assign to
the Issuer without recourse all of its respective right, title and
interest, in and to the Loans and all proceeds thereof listed on the Loan
Schedule attached to such S&SA Assignment,

29

 

		
	 	including all interest and
principal on or with respect to the Loans on or after the related
Transfer Date, together with all right, title and interest in and to the
proceeds of any related Insurance Policies and all of the Depositor’s
rights, title and interest in and to (but none of its obligations under)
the Loan Sale Agreement and all proceeds of the foregoing.

          (b) As of the Closing Date and as of each Transfer Date, the Issuer
acknowledges (or will acknowledge pursuant to the S&SA Assignment) the
conveyance to it of the Loans and Loan Collateral, including all rights, title
and interest of the Depositor in and to the Loans and the Loan Collateral,
receipt of which is hereby acknowledged by the Issuer. Concurrently with such
delivery, as of the Closing Date and as of each Transfer Date, pursuant to the
Indenture the Issuer pledges the Loans and the Loan Collateral to the Indenture
Trustee. In addition, concurrently with such delivery and in exchange therefor,
the Owner Trustee, pursuant to the instructions of the Depositor, has executed
(not in its individual capacity, but solely as Owner Trustee on behalf of the
Issuer) and caused the Trust Certificates to be authenticated and delivered to
or at the direction of the Depositor.

          (c) (i) Pursuant to and subject to the Note Purchase Agreement, the
Issuer may, at its sole option, from time to time request that the Initial
Noteholder advance on any Transfer Date Additional Note Principal Balances and,
upon satisfaction of the conditions precedent to such advance in accordance
with the Note Purchase Agreement, the Initial Noteholder shall remit on such
Transfer Date, to or at the direction of the Depositor an amount equal to such
Additional Note Principal Balances.

               (ii) Notwithstanding anything to the contrary herein, in no event shall
the Issuer be required to purchase Loans and the Initial Noteholder shall not
be required to advance Additional Note Principal Balances on a Transfer Date if
the conditions precedent to a transfer of the Loans under Section 2.06 and the
conditions precedent to the purchase of Additional Note Principal Balances set
forth in Section 3.01 of the Note Purchase Agreement have not been fulfilled.

               (iii) The Servicer shall appropriately note such Additional Note
Principal Balance (and the increased Note Principal Balance) in the next
succeeding Monthly Servicer Report; provided, however, that failure to make any
such notation in such Monthly Servicer Report or any error in such notation
shall not adversely affect any Noteholder’s rights with respect to its Note
Principal Balance and its right to receive interest and principal payments in
respect of the Note Principal Balance held by such Noteholder. The Initial
Noteholder shall record on the schedule attached to such Noteholder’s Note, the
date and amount of any Additional Note Principal Balance advanced by it;
provided, that failure to make such recordation on such schedule or any error
in such schedule shall not adversely affect any Noteholder’s rights with
respect to its Note Principal Balance and its right to receive interest
payments in respect of the Note Principal Balance held by such Noteholder.

               (iv) Absent manifest error, the Note Principal Balance of each Note as
set forth in the Initial Noteholder’s records shall be binding upon the
Indenture Trustee, the

30

 

Noteholders and the Issuer, notwithstanding any notation made by the
Servicer in its Monthly Servicer Report pursuant to the preceding paragraph.

          (d) The Depositor shall, at its own expense, within one Business Day
following the Transfer Date, indicate in its computer files that the Loans
identified in each S&SA Assignment have been sold to the Issuer pursuant to
this Agreement.

          (e) Subject to Section 3.01(o), the parties hereto intend that each of the
conveyances contemplated hereby be sales from the Depositor to the Issuer of
all of the Depositor’s right, title and interest in and to the Loans and the
Loan Collateral. In the event the transactions set forth herein are deemed not
to be a sale, the Depositor hereby grants to the Issuer a security interest in
all of the Depositor’s right, title and interest in, to and under the Loans and
the Loan Collateral related thereto, whether now existing or hereafter created,
to secure all of the Depositor’s obligations hereunder, and this Agreement
shall constitute a security agreement under applicable law.

          Section 2.02 Ownership and Possession of Loan Files.

          With respect to each Loan, as of the related Transfer Date the ownership
of the related Underlying Note, the related Required Loan Documents and the
contents of the related Servicer’s Loan File and Custodial Loan File shall be
vested in the Issuer as part of the Collateral for the benefit of the
Securityholders, and with respect to each Eligible Loan, as of the related
Transfer Date, the related Underlying Note, the related Required Loan Documents
and the contents of the related Servicer’s Loan File and Custodial Loan File
shall be Granted (as defined in the Indenture) and pledged to the Indenture
Trustee on behalf of the Securityholders, and the Collateral Custodian shall
take possession of the Custodial Loan Files as contemplated in Section 2.05
hereof.

          Section 2.03 Books and Records; Intention of the Parties.

          On the Closing Date, the Depositor shall, at such party’s sole expense,
cause to be filed UCC-1 Financing Statements naming the Issuer as “secured
party” and describing the Collateral being sold by the Depositor to the Issuer
with the office of the Secretary of State of the state in which the Depositor
is located and in any other jurisdictions as shall be necessary to perfect a
security interest in the Collateral. In addition, on the Closing Date, the Loan
Originator shall, at its expense, cause to be filed UCC-1 Financing Statements
naming the Depositor as “secured party” and describing the Loans being sold by
the Loan Originator to the Depositor with the office of the Secretary of the
State in which the Loan Originator is located and in such other jurisdictions
as shall be necessary to perfect a security interest in the Collateral.

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          Section 2.04 Delivery of Loan Documents.

          (a) The Loan Originator shall, (i) no later than 12:00 noon New York time
on the Business Day prior to the related Transfer Date, deliver or cause to be
delivered to the Collateral Custodian, as the designated agent of the Indenture
Trustee, by facsimile transmission or in an electronic format mutually agreed
to by the parties, a Loan Schedule, a copy of the executed Underlying Note and
Assignment of Mortgage, if any, in each case, endorsed in blank and (ii) within
two Business Days after the related Transfer Date shall deliver or caused to be
delivered to the Collateral Custodian the original and duly executed Underlying
Note and Assignment of Mortgage, if any, and all other Required Loan Documents
for each Loan (other than those documents required to be retained by the
Servicer in connection with the servicing and administration of the Loans)
(with respect to each such Loan, a “Custodial Loan File”).

          (b) The Loan Originator shall, within two (2) Business Days after the
related Transfer Date deliver or cause to be delivered to the Servicer the
related Servicer’s Loan File for the benefit of, and as agent for, the
Indenture Trustee, on behalf of the Noteholders.

          (c) The Indenture Trustee shall cause the Collateral Custodian to take and
maintain continuous physical possession of the Custodial Loan Files in the
State of Minnesota and, in connection therewith, shall act solely as agent for
the Noteholders in accordance with the terms hereof and not as agent for the
Loan Originator, the Servicer or any other party.

	 	 	 
	Section 2.05	 	
Acceptance by the Indenture Trustee of the Loans;
Certain Substitutions and Repurchases; Certification by the
Collateral Custodian.

          (a) Based on the initial certification received by it from the Collateral
Custodian in the form of Exhibit E-1 attached hereto (the “Initial
Certification”), the Indenture Trustee acknowledges receipt of, subject to the
further review and exceptions reported by the Collateral Custodian pursuant to
the procedures described below, the documents (or certified copies thereof)
delivered to the Indenture Trustee or the Collateral Custodian on its behalf
pursuant to Section 2.04 and declares that it holds and will continue to hold
directly those documents and any amendments, replacements or supplements
thereto and all other assets constituting the Collateral delivered to it in
trust for the use and benefit of all present and future Noteholders.

          (b) (i) On or before 11:00 a.m. New York City time on the related Transfer
Date, the Collateral Custodian will deliver to the Initial Noteholder, with a
copy to the Indenture Trustee, an Initial Certification, confirming whether or
not it has received, by facsimile transmission or in electronic format mutually
agreed upon by the parties, a copy of the original executed Underlying Note and
the Assignment of Mortgage, if any, in each case, endorsed in blank, for each
Loan which the Issuer will request the Initial Noteholder to advance Additional
Note Principal Balances on such Transfer Date pursuant to, and subject to the
conditions of, the Note Purchase Agreement.

32

 

           (ii) Within five (5) Business Days of its receipt of the remaining
Required Loan Documents for each such Loan, the Collateral Custodian shall
review the related Loan and Required Loan Documents to confirm that (A) the
Underlying Note has been properly executed and has no missing or mutilated
pages, (B) Uniform Commercial Code Financing Statements and other filings
(required by the Required Loan Documents) have been made, (C) other than with
respect to a Loan the Loan Collateral for which consists of receivables only as
indicated on the Loan Schedule, an Insurance Policy is contained in such
Required Loan Documents with respect to any real or personal property
constituting the Loan Collateral, and (D) the related Principal Balance, Loan
number and Obligor name with respect to such Loan is referenced on the related
Loan List and is not a duplicate Loan (collectively, the “Review Criteria”). In
order to facilitate the foregoing review by the Collateral Custodian, in
connection with each delivery of Required Loan Documents hereunder to the
Collateral Custodian, the Servicer shall provide to the Collateral Custodian an
electronic file (in Excel or a comparable format) that contains the related
Loan Schedule or that otherwise contains the Loan number and the name of the
Obligor with respect to each related Loan. Upon completion of such review the
Collateral Custodian will deliver a final certification in the form attached
hereto as Exhibit E-2 (the “Final Certification”) to the Initial Noteholder,
with a copy to the Indenture Trustee and the Loan Originator, confirming its
receipt of the Required Loan Documents. The Final Certification will also
contain an exception report attached as an exhibit thereto which will identify
any Loans for which (i) the Collateral Custodian has not received a Required
Loan Document or (ii) any Review Criteria is not satisfied.

               (iii) The Loan Originator shall have ten (10) Business Days to deliver any
missing Required Loan Documents or correct any non-compliance with a Review
Criteria. If after the conclusion of such time period the Loan Originator has
not delivered such missing Required Loan Document or cured any non-compliance
by a Loan with a Review Criteria and such failure has a material adverse effect
on the value or enforceability of any Eligible Loan or the interests of the
Securityholders in any Eligible Loan, the Loan Originator shall repurchase such
Eligible Loan within one (1) Business Day of notice thereof from the Indenture
Trustee or the Initial Noteholder at the Repurchase Price thereof with respect
to such Eligible Loan by depositing such Repurchase Price in the Collection
Account; provided, however that the Loan Originator shall only be required to
pay the Repurchase Price with respect to any such Loan to the extent that, at
the time such repurchase is required pursuant to terms hereof, a Borrowing Base
Deficiency would exist. In lieu of such a repurchase, the Depositor and Loan
Originator may comply with the substitution provisions of Section 3.05 hereof;
provided, however that the Loan Originator shall only be required to comply
with the substitution provisions to the extent that a Borrowing Base Deficiency
would exist at the time of such proposed substitution. The Loan Originator
shall provide the Servicer, the Indenture Trustee, the Issuer and the Initial
Noteholder with a certification of a Responsible Officer on or prior to such
repurchase or substitution indicating that the Loan Originator intends to
repurchase or substitute such Eligible Loan.

               (iv) It is understood and agreed that the obligation of the Loan
Originator to repurchase or substitute any such Loan pursuant to this Section
2.05(b) shall constitute the sole remedy with respect to such failure to comply
with the foregoing delivery requirements.

33

 

          (c) In performing its reviews of the Custodial Loan Files, the Collateral
Custodian shall have no responsibility to determine the genuineness of any
document contained therein and any signature thereon. The Collateral Custodian
shall not have any responsibility for determining whether any document is valid
and binding, whether the text of any assignment or endorsement is in proper or
recordable form, whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or whether a blanket assignment is
permitted in any applicable jurisdiction.

          (d) The Servicer’s Loan File shall be held in the custody of the Servicer
for the benefit of the Indenture Trustee, on behalf of the Noteholders. It is
intended that, by the Servicer’s agreement pursuant to this Section 2.05(d),
the Indenture Trustee shall be deemed to have possession of the Servicer’s Loan
Files for purposes of Section 9-313 of the UCC of the state in which such
documents or instruments are located. The Servicer shall promptly report to
the Indenture Trustee any failure by it to hold the Servicer’s Loan File as
herein provided and shall promptly take appropriate action to remedy any such
failure. In acting as custodian of such documents and instruments, the
Servicer agrees not to assert any legal or beneficial ownership interest in the
Eligible Loans or such documents or instruments. Subject to Section 8.01(d),
the Servicer agrees to indemnify the Securityholders and the Indenture Trustee,
their officers, directors, employees, agents and “control persons” as such term
is used under the Act and under the Securities Exchange Act of 1934, as amended
for any and all liabilities, obligations, losses, damages, payments, costs or
expenses of any kind whatsoever which may be imposed on, incurred by or
asserted against the Securityholders or the Indenture Trustee as the result of
the gross negligence or willful misfeasance by the Servicer relating to the
maintenance and custody of such documents or instruments which have been
delivered to the Servicer; provided, however, that the Servicer will not be
liable for any portion of any such amount resulting from the gross negligence
or willful misconduct of any Securityholders or the Indenture Trustee; and
provided, further, that the Servicer will not be liable for any portion of any
such amount resulting from the Servicer’s compliance with any instructions or
directions consistent with this Agreement issued to the Servicer by the
Indenture Trustee or the Majority Noteholders. The Indenture Trustee shall have
no duty to monitor or otherwise oversee the Servicer’s performance as custodian
of the Servicer Loan File hereunder.

          Section 2.06 Conditions Precedent to Transfer Dates.

          At least one (1) Business Day prior to each proposed Transfer Date, the
Issuer shall give notice to the Initial Noteholder, the Indenture Trustee and
the Paying Agent of such proposed upcoming Transfer Date and provide an
estimate of the number of Loans and aggregate Principal Balance of such Loans
proposed to be transferred on such Transfer Date. On the Business Day prior to
each Transfer Date, the Issuer shall provide the Initial Noteholder with a
final Loan Schedule with respect to the Loans proposed to be transferred on
such Transfer Date. On each Transfer Date, the Depositor shall convey to the
Issuer the Loans and the other property and rights related thereto described in
the related S&SA Assignment and the Issuer shall, pursuant to the Indenture,
grant and pledge to the Indenture Trustee the Loans and Loan Collateral, and
the Issuer, only upon the satisfaction of each of the conditions set forth
below on or prior to such Transfer Date, shall pay or cause to be paid cash in
the amount of the Additional

34

 

Note Principal Balance received from the Initial Noteholder in respect of
the Loans to or at the direction of the Depositor.

		
	 	     As of the Closing Date and each Transfer Date:

		
	 	     (i) The Servicer shall have delivered to the Issuer and the Initial
Noteholder (with a copy to the Collateral Custodian and the Backup
Servicer), no later than 12:00 p.m. New York City time, one (1) Business
Day prior to the related Transfer Date in a form and substance reasonably
satisfactory to the Initial Noteholder, (A) a Notice of Additional Note
Principal Balance, a Borrowing Base Certificate and Loan Schedule, (B) a
S&SA Assignment and (C) a copy of the fully executed LPA Assignment
evidencing the sale of the Loans proposed to be sold on such Transfer
Date from the Loan Originator to the Depositor;
	 
	 	     (ii) the Initial Noteholder shall have received the Initial
Certification prepared by the Collateral Custodian with respect to the
Loans;
	 
	 	     (iii) subject to clause (iv) below, the amount of the Additional
Note Principal Balance requested on such Transfer Date shall be at least
equal to $1,000,000;
	 
	 	     (iv) On and as of such day, after giving effect to such transfer,
the Note Principal Balance shall not exceed the lesser of (x) the Maximum
Note Principal Balance and (y) the Borrowing Base;
	 
	 	     (v) the Depositor shall have deposited, or caused to be deposited,
in the Collection Account all collections received with respect to each
of the Eligible Loans on and after the applicable Transfer Date;
	 
	 	     (vi) a Bankruptcy Event shall not have occurred with respect to the
Loan Originator or the Depositor;
	 
	 	     (vii) the Termination Date shall not have occurred;
	 
	 	     (viii) the Required Overcollateralization Amount shall have been
maintained (after giving effect to the sale of Loans on such Transfer
Date);
	 
	 	     (ix) each of the representations and warranties made by the Loan
Originator contained in Section 3.04 with respect to the Eligible Loans
purchased and pledged on a Transfer Date shall be true and correct as of
such Transfer Date with the same effect as if then made and each of the
Depositor and the Loan Originator shall have performed all obligations to
be performed by it under the Basic Documents on or prior to such Transfer
Date; provided that, if any representation or warranty made by the Loan
Originator pursuant to Section 3.04 herein shall be incorrect as of any
Transfer Date with respect to any Loan to be purchased on such date, the
Issuer shall only be relieved of its obligation to purchase such Loan
and, assuming satisfaction or waiver of the other conditions set

35

 

		
	 	forth in this clause (ix), the Issuer shall nonetheless be obligated
to purchase all Loans to be purchased on such date that are unaffected by
such breach;
	 
	 	     (x) the Depositor shall have taken any action reasonably requested
by the Indenture Trustee, the Issuer or the Noteholders required to
maintain the ownership interest of the Issuer in the Collateral and the
security interest of the Indenture Trustee in the Collateral;
	 
	 	     (xi) all conditions precedent to the Depositor’s purchase and
contribution of Loans pursuant to the Loan Sale Agreement shall have
been fulfilled as of such Transfer Date; and
	 
	 	     (xii) all conditions precedent to the Noteholders’ purchase of the
Additional Note Principal Balance pursuant to the Note Purchase Agreement
shall have been fulfilled as of such Transfer Date.

          Section 2.07 Additional Advances by Initial Noteholder.

     If on any date of determination, there exists a Borrowing Base Excess, the
Issuer may, upon one (1) Business Days’ notice to the Initial Noteholder, at
its option, request an additional advance from the Initial Noteholder up to an
amount equal to such Borrowing Base Excess. Any advance pursuant to this
Section 2.07 shall be subject to the following conditions:

		
	 	     (i) as of such date, neither the Loan Originator nor the Depositor
shall (A) be subject to a Bankruptcy Event or (B) have reason to believe
that its insolvency is imminent;
	 
	 	     (ii) the Revolving Period shall not have terminated; and
	 
	 	     (iii) as of such date (after giving effect to such advance), the
Required Overcollateralization Amount shall have been maintained.

          Section 2.08 Termination of Revolving Period or Amortization
Period.

          Upon the occurrence of (i) an Event of Default or Default or (ii) a
Trigger Event, the Initial Noteholder may, in any such case, in its sole
discretion and upon written notice to the Servicer, terminate the Revolving
Period or the Amortization Period as the case may be.

          Section 2.09 Correction of Errors.

          The parties hereto who have relevant information shall cooperate to
reconcile any errors in calculating the Sales Price of the Eligible Loans from
and after the related Transfer Date. In the event that an error in the Sales
Price of the Eligible Loans is discovered by either
party, any miscalculations of Principal Balance, accrued interest,
miscalculation of the Required Overcollateralization Amount or aggregate
unreimbursed Servicing Advances attributable to the

36

 

applicable Eligible Loan,
or any prepayments not properly credited, such party shall give prompt notice
to the other parties hereto, and the party that shall have benefitted from such
error shall promptly remit to the other, by wire transfer of immediately
available funds, the amount of such error with no interest thereon.

          Section 2.10 Commencement of Amortization Period.

          In the event that the Revolving Period is not extended by the mutual
agreement of CapitalSource and the Initial Noteholder, the Amortization Period
shall automatically commence on the day following the end of the Revolving
Period and shall continue for a period of six months unless terminated by the
Initial Noteholder pursuant to Section 2.08 hereof.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

          Section 3.01 Representations and Warranties of the Depositor.

          The Depositor hereby represents, warrants and covenants to the other
parties hereto and the Securityholders that as of the Closing Date and as of
each Transfer Date:

          (a) The Depositor is a limited liability company duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has, and had at all relevant times, full power to own its
property, to carry on its business as currently conducted and to enter into and
perform its obligations under each Basic Document to which it is a party;

          (b) The execution and delivery by the Depositor of each Basic Document to
which the Depositor is a party and its performance of and compliance with all
of the terms thereof will not violate the Depositor’s organizational documents
or constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
the Depositor is a party or which are applicable to the Depositor or any of its
assets;

          (c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by each Basic Document to which the
Depositor is a party, has duly authorized the execution, delivery and
performance of each Basic Document to which it is a party and has duly executed
and delivered each Basic Document to which it is a party; each Basic Document
to which it is a party, assuming due authorization, execution and delivery by
the other party or parties thereto, constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the
terms thereof, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);

          (d) The Depositor is not in violation of, and the execution and delivery
by the Depositor of each Basic Document to which the Depositor is a party and
its performance and compliance with the terms of each Basic Document to which
the Depositor is a party will not constitute a violation with respect to any
order or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the financial condition or operations of the
Depositor or any of its properties or materially and adversely affect the
performance of any of its duties hereunder;

          (e) There are no actions or proceedings against, or investigations of, the
Depositor currently pending with regard to which the Depositor has received
service of process

38

 

and no action or proceeding against, or investigation of,
the Depositor is, to the knowledge of the Depositor, threatened or otherwise
pending before any court, administrative agency or other tribunal that (A)
would prohibit its entering into any of the Basic Documents to which it is a
party or render the Securities invalid, (B) seeks to prevent the issuance of
the Securities or the consummation of any of the transactions contemplated by
any of the Basic Documents to which it is a party or (C) would prohibit or
materially and adversely affect the performance by the Depositor of its
obligations under, or the validity or enforceability of, any of the Basic
Documents to which it is a party or the Securities;

          (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, any of
the Basic Documents to which the Depositor is a party or the Securities, or for
the consummation of the transactions contemplated by any of the Basic Documents
to which the Depositor is a party, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to such date;

          (g) The Depositor is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
any of the Basic Documents to which it is a party or the assumption of any of
its obligations thereunder; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the Depositor;

          (h) The Depositor did not transfer the Loans sold to the Issuer with any
intent to hinder, delay or defraud any of its creditors; nor will the Depositor
be rendered insolvent as a result of such sale or pledge;

          (i) The Depositor had good and valid title to, and was the sole owner of
each Loan sold by the Depositor to the Issuer, free and clear of any lien other
than any such lien released simultaneously with the sale contemplated herein,
and, immediately upon each transfer and assignment herein contemplated, the
Depositor will have delivered to the Issuer good and valid title to, and the
Issuer will be the sole owner of, each Loan transferred by the Depositor and,
subject to the Indenture, the Indenture Trustee will have a first priority
perfected security interest in each Loan, in each case free and clear of any
lien;

          (j) The Depositor acquired title to each of the Loans in good faith,
without notice of any adverse claim;

          (k) None of the Basic Documents to which the Depositor is a party, nor any
Officer’s Certificate, statement, report or other document prepared by the
Depositor and furnished or to be furnished by it pursuant to any of the Basic
Documents to which it is a party or in connection with the transactions
contemplated thereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading;

39

 

           (l) The Depositor is not required to be registered as an “investment
company,” under the Investment Company Act of 1940, as amended;

          (m) The Depositor’s principal place of business and chief executive
offices are located at 4445 Willard Avenue, Chevy Chase, Maryland 20815, or at
such other address as shall be designated by such party in a written notice to
the other parties hereto;

          (n) The Depositor covenants that during the continuance of this Agreement
it will comply in all respects with the provisions of its organizational
documents in effect from time to time; and

          (o) The transfer of the Loans by the Depositor to the Issuer pursuant to
the Basic Documents upon completion pursuant to the Basic Documents of the sale
of the Notes by the Issuer to the Initial Noteholder, was intended to
constitute a financing of such Loans for tax and consolidated accounting
purposes (with a notation that it is treating the transfers as a sale for legal
and all other purposes on its books, records and financial statements, in each
case, consistent with GAAP).

          Section 3.02 Representations and Warranties of the Loan Originator.

          The Loan Originator hereby represents and warrants to the other parties
hereto and the Securityholders that as of the Closing Date and as of each
Transfer Date:

          (a) The Loan Originator is a limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and (i) is duly qualified, in good standing and licensed to carry
on its business in each state where any Loan Collateral related to a Loan sold
by it is located to the extent necessary to ensure the enforceability of each
Loan and the servicing of the Loan in accordance with Accepted Servicing
Practices and (ii) is in compliance with the laws of any such jurisdiction, in
both cases, to the extent necessary to ensure the enforceability of such Loan
in accordance with the terms thereof and had at all relevant times, full power
to originate such Loan, to own its property, to carry on its business as
currently conducted and to enter into and perform its obligations under each
Basic Document to which it is a party;

          (b) The execution and delivery by The Loan Originator of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate The Loan Originator’s organizational documents
or constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
The Loan Originator is a party or which may be applicable to The Loan
Originator or any of its assets in each case that is likely to affect
materially and adversely its ability to carry out the transactions contemplated
hereby;

          (c) The Loan Originator has the full power and authority to enter into and
consummate all transactions contemplated by the Basic Documents to be
consummated by it, has

40

 

duly authorized the execution, delivery and performance
of each Basic Document to which it is a party and has duly executed and
delivered each Basic Document to which it is a party; each Basic Document to
which it is a party, assuming due authorization, execution and delivery by each
of the other parties thereto, constitutes a valid, legal and binding obligation
of The Loan Originator, enforceable against it in accordance with the terms
hereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);

          (d) The Loan Originator is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Loan Originator
and its performance and compliance with the terms of each Basic Document to
which it is a party will not constitute a violation with respect to, any order
or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the financial condition, business or operations
of the Loan Originator or its properties or materially and adversely affect the
performance of its duties under any Basic Document to which it is a party;

          (e) There are no actions or proceedings against, or investigations of, the
Loan Originator currently pending with regard to which the Loan Originator has
received service of process and no action or proceeding against, or
investigation of, the Loan Originator is, to the Loan Originator’s knowledge,
threatened or otherwise pending before any court, administrative agency or
other tribunal that (A) would prohibit its entering into any Basic Document to
which it is a party or render the Securities invalid, (B) seeks to prevent the
issuance of the Securities or the consummation of any of the transactions
contemplated by any Basic Document to which it is a party or (C) would prohibit
or materially and adversely affect the sale of the Loans to the Depositor, the
performance by the Loan Originator of its obligations under, or the validity or
enforceability of, any Basic Document to which it is a party or the Securities;

          (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Loan Originator of, or compliance by the Loan Originator
with, any Basic Document to which it is a party, (2) the sale and contribution
of the Eligible Loans, or (3) the consummation of the transactions required of
it by any Basic Document to which it is a party, except such as shall have been
obtained before such date, other than: (A) the filing or recording of financing
statements, instruments of assignment and other similar documents necessary in
connection with the sale of the Loans to the Issuer, (B) such consents,
approvals, authorizations, qualifications, registrations, filings or notices as
have been obtained or made and (C) where the lack of such consent, approval,
authorization, qualification, registration, filing or notice is unlikely to
have a material adverse effect on its performance hereunder;

          (g) Immediately prior to the sale of any Loans to the Depositor, the Loan
Originator had good and valid title to the Loans sold by it on such date free
and clear of all Liens other than Permitted Liens;

41

 

           (h) The Loan Originator is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations under each Basic Document to which it is a party; it will not be
rendered insolvent by the execution and delivery of this Agreement or by the
performance of its obligations under each Basic Document to which it is a
party; no petition of bankruptcy (or similar insolvency proceeding) has been
filed by or against the Loan Originator prior to the date hereof;

          (i) The Loan Originator has transferred the Loans transferred by it on or
prior to such Transfer Date without any intent to hinder, delay or defraud any
of its creditors;

          (j) The Loan Originator has received fair consideration and reasonably
equivalent value in exchange for the Loans sold and contributed by it on such
Transfer Date to the Depositor;

          (k) The Loan Originator has not dealt with any broker or agent or other
Person who might be entitled to a fee, commission or compensation in connection
with the transaction contemplated by this Agreement;

          (l) The Loan Originator’s principal place of business and chief executive
offices are located at 4445 Willard Avenue, Chevy Chase, Maryland, Maryland
20815 or at such other address as shall be designated by such party in a
written notice to the other parties hereto;

          (m) The Loan Originator acknowledges and agrees that the Servicing
Compensation represents reasonable compensation for the performance of its
services hereunder and that the entire Servicing Compensation shall be treated
by the Loan Originator, for accounting purposes, as compensation for the
servicing and administration of the Loans pursuant to this Agreement; and

          (n) The Loan Originator is in compliance with the financial covenants set
forth in Section 7.01.

          It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the respective Custodial
Loan Files to the Collateral Custodian (as the agent of the Indenture Trustee)
and shall inure to the benefit of the Securityholders, the Depositor, the
Servicer, the Indenture Trustee, the Owner Trustee and the Issuer. Upon
discovery by the Loan Originator, the Servicer, the Indenture Trustee or the
Issuer of a breach of any of the foregoing representations and warranties that
materially and adversely affects the value of any Loan or the interests of the
Securityholders in any Eligible Loan or in the Securities, the party
discovering such breach shall give prompt written notice to the other parties.
The obligations of the Loan Originator set forth in Sections 2.05 and 3.05
hereof to cure any breach or to substitute for or repurchase an affected Loan
shall constitute the sole remedies available hereunder to the Securityholders,
the Depositor, the Servicer, the Indenture Trustee or the Issuer respecting a
breach of the representations and warranties contained in this Section 3.02.
The fact that the Initial Noteholder has conducted or has failed to conduct any
partial or

42

 

complete due diligence investigation of the Loan Files shall not affect
the Securityholders’ rights to demand repurchase or substitution as provided
under this Agreement.

          Section 3.03 [RESERVED].

          Section 3.04 Representations and Warranties Regarding Eligible Loans.

          With respect to each Loan sold to the Issuer on a Transfer Date, the Loan
Originator hereby represents and warrants to the Indenture Trustee, for the
benefit of the Noteholders, as of such Transfer Date and with respect to such
Loan, that:

          (a) the Loan, together with the Loan Collateral, has been originated or
acquired by the Loan Originator and immediately before the transfer, sale and
conveyance thereof to the Depositor pursuant to (and in accordance with) the
Loan Sale Agreement, the Loan Originator had good and valid title to, and was
the sole owner and holder of, such Loan, free and clear of all Liens. Such
transfer, sale and conveyance validly assigns ownership of such Loan to the
Depositor, free and clear of any Liens;

          (b) at the time such Loan is included in the Loan Pool, the Loan is not a
Charged-Off Loan and the Loan is not more than ten (10) days past due (after
giving effect to the five (5) day grace period set forth in the Loan
Originator’s Underwriting Guidelines in determining the number of days past
due), with respect to payments of principal or interest provided, however that
any Loan previously included in the Loan Pool which was a Charged-Off Loan, but
was subsequently assigned Loan Rating 1, Loan Rating 2 or Loan Rating 3 shall
not violate the representation contained in this clause (b);

          (c) the Loan is an “eligible asset” as defined in Rule 3a-7 under the
Investment Company Act of 1940;

          (d) the Loan has been subject to a grant in favor of the Indenture Trustee
for the benefit of the Noteholders of a first priority perfected security
interest and other than with respect to Subordinated Loans, at the time of the
sale of the Loan to the Depositor pursuant to the Loan Sale Agreement, the Loan
Originator had a first priority perfected security interest in the Loan
Collateral relating to such Loan, subject to Permitted Liens;

          (e) the Loan is an “account”, “chattel paper”, “instrument” or a “general
intangible” within the meaning of Article 9 of the UCC of all applicable
jurisdictions; provided, however, if the Loan constitutes “chattel paper”,
there is not more than one (1) “secured party’s original” counterpart of the
Loan and the sole manually executed counterpart of the Loan is in the
possession of and has been properly endorsed to the Collateral Custodian;

          (f) the Loan is to an Eligible Obligor and is denominated and payable only
in United States dollars in the United States;

43

 

           (g) the Loan is evidenced by a promissory note, security agreement or
instrument and related loan documents that have been duly authorized and
executed, are in full force and effect and constitute the legal, valid, binding
and absolute and unconditional payment obligation of the related Obligor,
enforceable against such Obligor in accordance with their terms (subject to
applicable bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally and to general principles of equity, whether
considered in a suit at law or in equity), and there are no conditions
precedent to the enforceability or validity of the Loan that have not been
satisfied or validly waived;

          (h) the Loan does not contravene in any material respect any applicable
laws (including, without limitation, laws, rules and regulations relating to
truth in lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices, licensing and privacy);

          (i) the Loan, (i) satisfies all applicable requirements of and was
originated or acquired, underwritten and closed in accordance with the Loan
Originator’s Underwriting Guidelines (including without limitation the
execution by the Obligor of all documentation required by the Underwriting
Guidelines); (ii) does not contain a confidentiality provision that restricts
or purports to restrict the ability of the Indenture Trustee, on behalf of the
Securityholders, to exercise its rights under this Agreement, including,
without limitation, its rights to review the Loan, the Required Loan Documents
and Loan File; (iii) was generated in the ordinary course of the Loan
Originator’s business; (iv) arises pursuant to loan documentation with respect
to which the Loan Originator has performed all obligations required to be
performed by it thereunder; (v) is not subject to a guaranty by the Loan
Originator or any Affiliate thereof; and (vi) other than with respect to
Assigned Loans, is executed on forms substantially similar to those in use by
the Loan Originator on the date hereof or in such other form as shall be
adopted by the Loan Originator and approved in writing by the Initial
Noteholder at least ten (10) days prior to such Loan becoming part of the Loan
Pool hereunder;

          (j) neither the transfer, sale and assignment of the Loan under the Loan
Sale Agreement by the Loan Originator to the Depositor, the sale of the Loan by
the Depositor to the Issuer hereunder or the pledge of the Loan and the
granting of a security interest therein to the Indenture Trustee, for the
benefit of the Noteholders, pursuant to the Indenture by the Issuer violates,
conflicts with or contravenes any applicable laws or any contractual or other
restriction, limitation or encumbrance applicable to Loan Originator, Depositor
and Issuer;

          (k) on or before the applicable Transfer Date, the Obligor of such Loan
shall have been directed to make all payments to the Lock-Box or directly to
the Lock-Box Account;

          (l) except with respect to a Loan the Loan Collateral for which consists
of receivables only, the Loan requires the Obligor thereof to maintain adequate
property damage and liability insurance with respect to the real or personal
property constituting
the Loan Collateral and the same has been at all times covered by adequate
physical damage and liability insurance policies issued by generally accepted
carriers;

44

 

          (m) the Loan Collateral (i) has not been foreclosed on, or repossessed
from the current Obligor, by the Servicer, and (ii) since origination or
acquisition has not suffered any material loss or damage that has not been
repaired or restored;

          (n) the Obligor’s payment obligations are absolute and unconditional with
no right of setoff or counterclaim for any reason against the Loan Originator
or any assignee and the Loan contains a clause that has the effect of
unconditionally and irrevocably obligating the Obligor to make periodic
payments (including taxes) which is applicable notwithstanding any rights the
Obligor may have against the assignee and notwithstanding any damage to,
defects in or destruction of the Loan Collateral or any other event, including
obsolescence of any property or improvements;

          (o) the Loan is not subject to any litigation, valid right of rescission,
set-off, counterclaim or defense, including without limitation the defense of
usury, nor will the operation of any of the terms of the Loan Documents, or the
exercise of any right thereunder, render either the Underlying Note
unenforceable, in whole or in part, or subject to any such right of rescission,
set-off, counterclaim or defense, including without limitation the defense of
usury, and no such right of rescission, set-off, counterclaim or defense has
been asserted with respect thereto;

          (p) the Loan requires the Obligor to maintain the Loan Collateral in good
condition and to bear all the costs of operating and maintaining same,
including taxes and insurance relating thereto;

          (q) the Loan provides (i) for periodic contract payments, which are due
and payable on a monthly or quarterly basis unless otherwise consented to in
writing by the Initial Noteholder, and (ii) that the Servicer may accelerate
all payments on the Loan if the Obligor is in default under the Loan;

          (r) the Loan shall not have been originated in, nor shall it be subject to
the laws of, any jurisdiction under which the sale, transfer and assignment of
such Loan under the Basic Documents would be unlawful, void or voidable;

          (s) the Loan, together with the Required Loan Documents is assignable and
does not require the consent of or notice to the Obligor to consummate the
transactions contemplated by the Basic Documents or contain any other
restriction on the transfer or the assignment of the Loan for the purpose of
consummating the transactions contemplated by the Basic Documents, other than a
consent or waiver of such restriction that has been obtained prior to the date
on which the Loan was sold to the Depositor;

          (t) the Obligor of such Loan is legally responsible for all taxes relating
to the Loan Collateral or other security relating to such Loan, and all
payments in respect of the Loan will be made free and clear of, and without
deduction or withholding for or on account of, any taxes, unless such
withholding or deduction is required by applicable law;

45

 

           (u) the Loan complies in all material respects with the representations
and warranties made by the Loan Originator hereunder and all information with
respect to the Loan is true and correct in all material respects;

          (v) other than with respect to Participation Loans, the Loan and the Loan
Collateral have not been sold, transferred, assigned or pledged by the Loan
Originator to any Person other than as contemplated under the Basic Documents;

          (w) other than Participation Loans and Assigned Loans, with respect to the
Loan Originator’s obligation to fund and the actual funding of the Loan by the
Loan Originator, the Loan Originator has not assigned its obligations, or
granted participations, in whole or in part, to any Person;

          (x) the Loan has not been compromised, adjusted, extended, satisfied,
rescinded, set-off or modified by the Depositor, the Loan Originator or the
Obligor with respect thereto, and no Loan is subject to compromise, adjustment,
extension, satisfaction, rescission, set-off, counterclaim, defense, abatement,
suspension, deferment, deductible, reduction, termination or modification,
whether arising out of transactions concerning the Loan, or otherwise, by the
Depositor, the Loan Originator or the Obligor with respect thereto except for
amendments to such Loan otherwise permitted under this Agreement and in
accordance with the Underwriting Guidelines;

          (y) the particular Loan is not one as to which the Loan Originator has
knowledge which should lead it to expect such Loan will not be paid in full;

          (z) with respect to any DIP Loan, the Loan Originator or its assignee has
been granted a first priority lien status in respect of all or certain of the
Obligor’s assets by final order of the applicable federal bankruptcy or
district court;

          (aa) except with respect to DIP Loans, the Obligor of such Loan is not the
subject of a Bankruptcy Event;

          (bb) the Loan does not represent capitalized interest or payment
obligations relating to “put” rights;

          (cc) the Loan is not a Loan or extension of credit by the Loan Originator
to the Obligor for the purpose of making any past due principal, interest or
other payments due on such Loan;

          (dd) the Loan is secured by a valid, perfected, first priority (other than
with respect to Subordinated Loans) security interest (subject to Permitted
Liens) in all assets that constitute the collateral for the Loan;

          (ee) all material consents, licenses, approvals or authorizations of, or
registrations or declarations with, any Governmental Authority required to be
obtained, effected

46

 

or given in connection with the making or performance of the Loan
have been duly obtained, effected or given and are in full force and effect;

          (ff) the Loan Originator (i) has completed to its satisfaction, in
accordance with the Underwriting Guidelines, a due diligence audit and
collateral assessment with respect to such Loan and (ii) has done nothing to
impair the rights of the Indenture Trustee or the Securityholders with respect
to the Loan, the Loan Collateral, the Scheduled Payments or any income or
Proceeds therefrom;

          (gg) the Loan is a Senior Secured Loan or Subordinated Loan;

          (hh) no provision of the Loan has been waived, modified or altered in any
respect, except in accordance with the Underwriting Guidelines and by
instruments duly authorized and executed and contained in the Required Loan
Documents;

          (ii) except with respect to Subordinated Loans and Senior-B Note Loans,
the Loan is not subordinated to any other loan or financing to the related
Obligor;

          (jj) the face amount of the Loan is the dollar amount thereof shown on the
books and records of the Loan Originator and the Depositor;

          (kk) with respect to Subordinated Loans, the Loan Originator has entered
into an intercreditor agreement or subordination agreement with, or provisions
for the benefit of, the senior lender, which agreement or provisions are
assignable to and have been assigned to the Depositor, and which provide that
any standstill of remedies by the Loan Originator or its assignee is limited
(A) such that there shall be no standstill of remedies (x) until after the Loan
Originator’s or assignee’s receipt from the senior lender or Obligor of a
notice of default by the Obligor under the senior debt and (y) unless a
covenant or payment default is also in effect, and (B) provided the
Subordinated Loan has not been accelerated or if a payment default is in
effect, to no longer than 180 days in duration in the aggregate in any given
year;

          (ll) with respect to any Acquired Loan or Assigned Loan, such Loan has
been re-underwritten by the Loan Originator and satisfies all of the Loan
Originator’s underwriting criteria as set forth in the Underwriting Guidelines;

          (mm) with respect to any Acquired Loan that is originated by an Affiliate
or subsidiary of the Loan Originator, the Depositor has received a satisfactory
legal opinion concerning the acquisition of such Loan by the Loan Originator in
a true sale transaction;

          (nn) with respect to any Acquired Loan that was acquired in a pool by the
Loan Originator along with one (1) or more other Acquired Loans, the Initial
Noteholder has approved in writing such Loan for inclusion in the Loan Pool and
has completed its own due diligence with respect to such Loan;

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           (oo) at origination or acquisition by the Loan Originator, such Loan was
assigned Loan Rating 1, Loan Rating 2 or Loan Rating 3 and, as of any date
thereafter, such Loan is assigned Loan Rating 1, Loan Rating 2, Loan Rating 3,
Loan Rating 4 or Loan Rating 5;

          (pp) with respect to any Subordinated Loan, the interest coverage ratio is
not less than 1.25:1; and

          (qq) the Loan was not made in connection with (a) the construction or
development of unimproved land or (b) facilitating the trade-in or exchange of
the related mortgaged property.

          It is understood and agreed that the representations and warranties set
forth herein shall survive delivery of the respective Custodial Loan Files to
the Issuer and/or the Collateral Custodian and shall inure to the benefit of
the Issuer or Depositor, as applicable, and their successors and assigns,
notwithstanding any restrictive or qualified endorsement or assignment.

          Section 3.05 Purchase and Substitution.

          (a) (i) It is understood and agreed that the representations and
warranties set forth in Section 3.04 hereto shall survive the conveyance of the
Eligible Loans to the Indenture Trustee on behalf of the Issuer or the
Depositor, as applicable, and the delivery of the Securities to the
Securityholders. Upon discovery by the Depositor, the Servicer, the Loan
Originator, the Collateral Custodian, the Issuer, the Indenture Trustee or any
Securityholder of a breach of any of such representations and warranties or the
representations and warranties of the Loan Originator set forth in Section 3.02
or 3.04 which materially and adversely affects the value or enforceability of
any Eligible Loan or the interests of the Securityholders, in any Eligible Loan
any party discovering such breach shall give prompt written notice to the
others; provided, however, that for purposes of the repurchase and substitution
provisions contained in this Section 3.05, a breach of a representation or
warranty set forth in Section 3.04 shall mean that such representation or
warranty was incorrect as of the date such representation or warranty was made
by the Loan Originator. The Loan Originator shall within 90 days of the
earlier of the Loan Originator’s discovery or the Loan Originator’s receiving
notice of any breach of a representation or warranty, promptly cure such breach
in all material respects. If within 90 days after the earlier of the Loan
Originator’s discovery of such breach or the Loan Originator’s receiving notice
thereof such breach has not been remedied by the Loan Originator and such
breach materially and adversely affects the interests of the Securityholders in
the related Eligible Loan (an “Unqualified Loan”), the Loan Originator shall
promptly upon receipt of written instructions from the Initial Noteholder or
the Indenture Trustee either (i) remove such Unqualified Loan from the
Collateral (in which case it shall become a Deleted Loan) and substitute one or
more Qualified Substitute Loans in the manner and subject to the conditions set
forth in this Section 3.05 (except to the extent that no Borrowing Base
Deficiency occurs following the removal of such Unqualified Loan) or (ii)
purchase such Unqualified Loan at a purchase price equal to the Repurchase
Price with respect to such Unqualified Loan by depositing or causing to be
deposited such Repurchase Price in the Collection Account; provided, however,
that unless a Borrowing Base Deficiency exists, the Loan Originator shall only
be required to remove such Unqualified

48

 

Loan from the Collateral and shall not be required to pay a Repurchase Price or
substitute a Qualified Substitute Loan therefor.

          (ii) On any day prior to the occurrence of the Termination Date, the
Issuer may recommend in writing to the Initial Noteholder (with a copy to the
Collateral Custodian) that any Loan be replaced with one or more Qualified
Substitute Loans.

          Any substitution of Eligible Loans pursuant to this Section 3.05(a) shall
be accompanied by payment by the Loan Originator of the Substitution
Adjustment, if any, remitted to the Noteholders in accordance with Section
5.01(b)(4).

          (b) As to any Deleted Loan or Eligible Loan for which the Loan Originator
substitutes a Qualified Substitute Loan or Loans, the Loan Originator shall
effect such substitution by delivering to the Indenture Trustee and Initial
Noteholder an Officer’s Certificate of the Loan Originator to the effect that
the Substitution Adjustment has been remitted to the Servicer for deposit in
the Collection Account. As to any Deleted Loan or Eligible Loan for which the
Loan Originator substitutes a Qualified Substitute Loan or Loans, the Loan
Originator shall effect such substitution by delivering to the Collateral
Custodian the documents constituting the Custodial Loan File for such Qualified
Substitute Loan or Loans.

          The Servicer shall deposit in the Collection Account all payments received
in connection with each Qualified Substitute Loan after the date of such
substitution. Scheduled Payments received with respect to Qualified Substitute
Loans on or before the date of substitution will be retained by the Loan
Originator. The Depositor or the Issuer, as applicable, will be entitled to
all payments received on the Deleted Loan or substituted Eligible Loan on or
before the date of substitution and the Loan Originator shall thereafter be
entitled to retain all amounts subsequently received in respect of such Deleted
Loan or substituted Eligible Loan. The Loan Originator shall give written
notice to the Depositor, the Issuer, the Servicer, the Indenture Trustee and
Initial Noteholder that such substitution has taken place and the Servicer
shall amend the Loan Schedule to reflect (i) the removal of such Deleted Loan
or substituted Eligible Loan from the terms of this Agreement and (ii) the
substitution of the Qualified Substitute Loan. The Servicer shall promptly
deliver to the Depositor, Issuer, the Loan Originator, the Indenture Trustee
and Initial Noteholder, a copy of the amended Loan Schedule. Upon such
substitution, such Qualified Substitute Loan or Loans shall be subject to the
terms of this Agreement in all respects, and the Loan Originator shall be
deemed to have made with respect to such Qualified Substitute Loan or Loans, as
of the date of substitution, the covenants, representations and warranties set
forth in Section 3.04 hereto. On the date of such substitution, the Indenture
Trustee shall release the Deleted Loan from the lien of the Indenture and the
Servicer will cause such Qualified Substitute Loan to be pledged to the
Indenture Trustee under the Indenture as part of the Collateral.

          (c) With respect to all Unqualified Loans or other Eligible Loans
repurchased by the Loan Originator pursuant to this Agreement, upon the deposit
of the Repurchase Price therefor into the Collection Account, (i) the Issuer or
the Depositor, as applicable, shall assign to the Loan Originator, without
representation or warranty, all of the Issuer’s or the Depositor’s

49

 

right, title
and interest in and to such Unqualified Loan or other Eligible Loan repurchased
by the
Loan Originator and (ii) the Indenture Trustee shall assign to the Loan
Originator, without recourse, representation or warranty, all the Indenture
Trustee’s right, title and interest in and to such Unqualified Loans or
Eligible Loans, which right, title and interest were conveyed to the Indenture
Trustee pursuant to Section 2.01 hereof and the Indenture. The Issuer or the
Depositor, as applicable, and the Indenture Trustee shall, at the expense of
the Loan Originator, take any actions as shall be reasonably requested by the
Loan Originator to effect the repurchase of any such Loans, to have the
Collateral Custodian return the Custodial Loan File of such Loans to the
Servicer and to execute any termination statements and other releases or
instruments prepared by the Loan Originator and acceptable to the Indenture
Trustee to effect the release of the lien of the Indenture Trustee and transfer
of such Loans.

          (d)  It is understood and agreed that the obligations of the Loan
Originator set forth in this Section 3.05 to cure, purchase or substitute for
an Unqualified Loan constitute the sole remedies hereunder of the Depositor,
the Issuer, the Indenture Trustee, the Owner Trustee and the Securityholders
respecting a breach of the representations and warranties contained in Sections
3.02 and 3.04 hereof. Any cause of action against the Loan Originator relating
to or arising out of a defect in a Custodial Loan File or against the Loan
Originator relating to or arising out of a breach of any representations and
warranties made in Sections 3.02 and 3.04 hereto shall accrue as to any
Eligible Loan upon (i) discovery of such defect or breach by any party and
notice thereof to the Loan Originator or notice thereof by the Loan Originator
to the Indenture Trustee, (ii) failure by the Loan Originator to cure such
defect or breach or purchase or substitute such Eligible Loan as specified
above, and (iii) demand upon the Loan Originator, as applicable, by the Issuer,
the Indenture Trustee or the Majority Noteholders for all amounts payable in
respect of such Eligible Loan.

          (e)  Neither the Issuer nor the Indenture Trustee shall have any duty to
conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any condition requiring the repurchase
or substitution of any Eligible Loan pursuant to this Section or the
eligibility of any Eligible Loan for purposes of this Agreement.

          (f)  Notwithstanding anything to the contrary contained herein, the Loan
Originator may, at its option, remove or repurchase any Loan subject to this
Agreement at any time during the term hereof; provided, however, that the Loan
Originator shall not be required to remit a Repurchase Price with respect
thereto unless at the time of such removal or repurchase thereof, a Borrowing
Base Deficiency exists or after giving effect to such removal or repurchase a
Borrowing Base Deficiency would exist.

          Section 3.06 Dispositions.

          (a) On any Optional Disposition Date, the Issuer shall have the right to
prepay all or a portion of the Note Principal Balance in connection with a
Disposition in accordance with the Basic Documents and this Section 3.06. In
addition, in connection with the Issuer’s obligation to maintain the Required
Overcollateralization Amount hereunder, the Issuer shall, if

50

 

directed by
Initial Noteholder, effect Dispositions in accordance with the Basic Documents
and this Section 3.06.

          (b) (i) In consideration of the consideration received from the Depositor
under the Loan Sale Agreement, the Loan Originator hereby agrees and covenants
that in connection with each Disposition:

		
	 	     (A) After giving effect to the Disposition on any Optional
Disposition Date, the remaining Note Principal Balance shall not exceed
the lesser of the Maximum Note Principal Balance and the Borrowing Base;
	 
	 	     (B) it shall make such representations and warranties concerning the
Eligible Loans as of the “cut-off date” of the related Disposition to the
Disposition Participants as may be necessary to effect the Disposition
and such additional representations and warranties as may be necessary,
in the reasonable opinion of any of the Disposition Participants, to
effect such Disposition; provided, that, to the extent that the Loan
Originator has at the time of the Disposition actual knowledge of any
facts or circumstances that would render any of such representations and
warranties materially false, the Loan Originator may notify the
Disposition Participants of such facts or circumstances and, in such
event, shall have no obligation to make such materially false
representation and warranty;
	 
	 	     (C) it shall supply such information, opinions of counsel, letters
from law and/or accounting firms and other documentation and certificates
regarding the origination of the Eligible Loans as any Disposition
Participant shall reasonably request to effect a Disposition and enter
into such indemnification agreements customary for such transaction
relating to or in connection with the Disposition as the Disposition
Participants may reasonably require;
	 
	 	     (D) it shall make itself available for and engage in good faith
consultation with the Disposition Participants concerning information to
be contained in any document, agreement, private placement memorandum, or
filing with the Securities and Exchange Commission relating to the Loan
Originator or the Eligible Loans in connection with a Disposition and
shall use reasonable efforts to compile any information and prepare any
reports and certificates, into a form, whether written or electronic,
suitable for inclusion in such documentation;
	 
	 	     (E) to implement the foregoing and to otherwise effect a
Disposition, it shall enter into, or arrange for its Affiliates to enter
into insurance and indemnity agreements, underwriting or placement
agreements, servicing agreements, purchase agreements and any other
documentation which may reasonably be required of or reasonably deemed
appropriate by the Disposition Participants in order to effect a
Disposition;
	 
	 	     (F) it shall use its commercially reasonable efforts to maximize the
cash proceeds received in connection with any such Disposition; and

51

 

		
	 	     (G) it shall take such further actions as may be reasonably
necessary to effect the foregoing;

provided, that notwithstanding anything to the contrary, (a) the Loan
Originator shall have no liability for the Eligible Loans arising from or
relating to the ongoing ability of the related Obligors to pay under the
Eligible Loans; (b) none of the indemnities hereunder shall constitute an
unconditional guarantee by the Loan Originator of collectibility of the
Eligible Loans; and (c) the Loan Originator shall have no obligation with
respect to the financial inability of any Obligor to pay principal, interest or
other amount owing by such Obligor under an Eligible Loan.

               (ii) [RESERVED]

               (iii) As long as no Servicer Event of Default or Default shall have
occurred and be continuing under this Agreement or the Indenture, the Servicer
may continue to service the Eligible Loans included in any Disposition subject
to any applicable “term-to-term” servicing provisions in Section 9.01(c) and
subject to any required amendments to the related servicing provisions as may
be necessary to effect the related Disposition including but not limited to the
obligation to make recoverable principal and interest advances on the Eligible
Loans.

          The Initial Noteholder shall have the right, in its sole discretion, upon
and following the termination of the Revolving Period (or if later, the
termination of the Amortization Period), to direct the Loan Originator, the
Issuer and the Depositor to effect a Disposition. Any such Disposition shall
be effected by the Loan Originator, the Issuer and the Depositor in a
commercially reasonable manner.

          (c) In connection with any Disposition under this Section 3.06, the Issuer
agrees to assist the Loan Originator in such Dispositions and accordingly it
shall:

		
	 	     (i) transfer, deliver and sell all or a portion of the Loans, as of
the “cut-off dates” of the related Dispositions, to such Disposition
Participants as may be necessary to effect the Dispositions;
	 
	 	     (ii) deposit the cash Disposition Proceeds into the Distribution
Account pursuant to Section 5.01(c)(2)(D); and
	 
	 	     (iii) take such further actions, including executing and delivering
documents, certificates and agreements, as may be reasonably necessary to
effect such Dispositions.
	 
	 	     (d) The Servicer hereby covenants that it will take such actions as
may be reasonably necessary to effect Dispositions as the Disposition
Participants may request and direct, including without limitation
providing the Loan Originator such information as may be required to make
representations and warranties required hereunder, and covenants that it
will make such representations and warranties regarding its servicing of

52

 

		
	 	the Loans hereunder as of the “cut-off date” of the related Disposition
as reasonably required by the Disposition Participants.
	 
	 	     (e) Except as otherwise expressly set forth under this Section 3.06,
the parties’ rights and obligations under this Section 3.06 shall
continue notwithstanding the occurrence of an Event of Default.
	 
	 	     (f) The Disposition Participants shall be independent contractors to
the Issuer and shall have no fiduciary obligations to the Issuer or any
of its Affiliates. The Disposition Participants shall not be liable for
any error of judgment made in good faith and shall not be liable with
respect to any action they take or omit to take in good faith in the
performance of their duties.

          Section 3.07 Removal or Repurchase of Call Loans. The Depositor shall be
required to remove or repurchase any Loan which has become a Call Loan within
thirty (30) days of the date such Loan became a Call Loan. If a Borrowing Base
Deficiency exists at the time such Loan has become a Call Loan, the Depositor
shall effect such repurchase by deposit of the Repurchase Price therefor into
the Collection Account.

          Section 3.08 Underwriting Guidelines; Modifications.

          The Loan Originator shall provide the Initial Noteholder with the
Underwriting Guidelines from time to time on reasonable request by the Initial
Noteholder. The Loan Originator shall give the Initial Noteholder prompt
written notification of any modification or change to the Underwriting
Guidelines. If the Initial Noteholder objects in writing to such modification
or change to the Underwriting Guidelines within 15 days after receipt of such
notice, no Loans may be conveyed to the Issuer pursuant to this Agreement
unless such Loans have been originated pursuant to the Underwriting Guidelines
without giving effect to such modification or change. Notwithstanding anything
contained in this Agreement to the contrary, any Loan conveyed to the Issuer
pursuant to this Agreement pursuant to a modification or change to the
Underwriting Guidelines that has been rejected by the Initial Noteholder or
which the Initial Noteholder did not receive notice of, such Loan shall be
deemed an Unqualified Loan and be repurchased or substituted for in accordance
with Section 3.05.

ARTICLE IV

ADMINISTRATION AND SERVICING OF THE LOANS

          Section 4.01 Servicer’s Servicing Obligations.

          The Servicer, as independent contract servicer, shall service and
administer the Eligible Loans in accordance with Accepted Servicing Practices.

          Section 4.02
The Backup Servicer; Duties of the Backup Servicer.

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          (a) The parties hereto hereby appoint Wells Fargo Bank Minnesota, National
Association to act as Backup Servicer, for the benefit of the Noteholders. The
Backup Servicer hereby accepts such appointment and agrees to perform the
duties and obligations with respect thereto set forth herein.

          (b) (1) On or before the Closing Date, the Backup Servicer shall accept
from the Servicer delivery of the information required to be set forth in the
Monthly Servicer Report (as described below) in hard copy and on computer tape;
provided, however, the computer tape is in an MS DOS, PC readable ASCII format
or other format to be agreed upon by the Backup Servicer and the Servicer on or
prior to closing.

		
	 	     (2) Not later than 12:00 noon New York City time on each Record
Date, the Servicer shall deliver to the Backup Servicer a data loan tape
and report (together, the “Monthly Servicer Report”) in the form of
Exhibit B attached hereto, which shall include but not be limited to the
information necessary to enable the Backup Servicer to perform the
following duties:

	 	 	(A) compare the information contained in the Monthly Servicer
Report to the definition of Concentration Limitations;
	 
	 	 	(B) determine whether or not a Trigger Event described in clauses
(i), (ii), (iii), (iv) or (ix) of such definition has occurred; and
	 
	 	 	(C) prepare a trend analysis for the Initial Noteholder comparing
the Concentration Limitations and Trigger Events as set forth in
the Monthly Servicer Report to those set forth in the Monthly
Servicer Reports delivered to the Backup Servicer by the Servicer
during the prior twelve months.

          The Backup Servicer shall provide a report which summarizes the results of
the performance of the above duties to the Initial Noteholder before 12:00 noon
New York City time on the Payment Date immediately following the Record Date on
which such Monthly Servicer Report was delivered to the Backup Servicer by the
Servicer.

		
	 	     (3) On a weekly basis to the extent a Borrowing Base Certificate and
Loan Schedule has not been received pursuant to a Transfer Date during
the immediately preceding 7 days, not later than 12:00 noon New York City
time, the Servicer shall deliver to the Backup Servicer, with a copy to
the Initial Noteholder, a Borrowing Base Certificate and Loan Schedule.
Upon the receipt of a Borrowing Base Certificate and Loan Schedule
pursuant to this Section 4.02(b)(3) or any other provision this
Agreement, the Backup Servicer shall:

	 	 	(A) track the Principal Balances of the Eligible Loans and verify
the Eligible Loans with the Loan Schedule;

54

 

	 	 	(B) compare the advance rates set forth in the Borrowing Base
Certificate to the percentages set forth under the definition of
“Purchase Price Percentage” herein;
	 
	 	 	(C) compare the delinquent and charged-off Loans set forth in the
Borrowing Base Certificate to the definition of “Delinquent” and
“Charged-Off Loans” set forth herein;
	 
	 	 	(D) compare the “Subordinated Loans” and “Senior B-Note Loans” set
forth in the Borrowing Base Certificate to the definitions of such
terms set forth herein; and
	 
	 	 	(E) calculate the Borrowing Base, Borrowing Base Excess (if
applicable), Borrowing Base Deficiency (if applicable), Required
Overcollateralization Amount and Required Interest Coverage Amount.

          The Backup Servicer shall provide a report which summarizes the results of
the performance of the above duties to the Initial Noteholder within one (1)
Business Day immediately following the day on which any such Borrowing Base
Certificate and Loan Schedule is delivered to the Backup Servicer.

          (c) With respect to the duties described in Section 4.02(b)(2) and (3),
the Backup Servicer is entitled to rely conclusively, and shall be fully
protected in so relying, on the contents of each Monthly Servicer Report,
Borrowing Base Certificate, Loan Schedule and all other reports, including, but
not limited to, the completeness and accuracy thereof, provided by the Servicer
to the Backup Servicer as described in this Agreement.

ARTICLE V

ESTABLISHMENT OF TRUST ACCOUNTS

	 	 	 
	Section 5.01	 	
Collection Account, Principal Collections Account and
Distribution Account.

          (a) (1) Establishment of Collection Account. The Servicer, for the
benefit of the Indenture Trustee and the Noteholders, shall cause to be
established and maintained one or more Collection Accounts (collectively, the
“Collection Account”), which shall be separate Eligible Accounts entitled
“CapitalSource Funding II Trust Collection Account, CapitalSource Finance LLC,
as Servicer, for the benefit of the Indenture Trustee and the holders of
Commercial Loan Backed Notes.” The Collection Account shall be maintained with
a depository institution and shall satisfy the requirements set forth in the
definition of Eligible Account. Funds in the Collection Account shall be
invested in accordance with Section 5.03 hereof. Net investment earnings shall
not be considered part of funds available in the Collection Account.

               (2) Establishment of Principal Collections Account. The Servicer, for the
benefit of the Indenture Trustee and the Noteholders, shall cause to be
established and maintained one or more Principal Collections Accounts
(collectively, the “Principal Collections Account”), which shall be separate
Eligible Accounts entitled “CapitalSource Funding II Trust

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Principal Collections Account, CapitalSource Finance LLC, as Servicer, for the benefit of
the Indenture Trustee and the holders of Commercial Loan Backed Notes.” The
Principal Collections Account shall be maintained with a depository institution
and shall satisfy the requirements set forth in the definition of Eligible
Account. Funds in the Principal Collections Account shall be invested in
accordance with Section 5.03 hereof. Net investment earnings shall not be
considered part of funds available in the Principal Collections Account.

               (3) Establishment of Distribution Account. The Indenture Trustee, for the
benefit of the Noteholders, shall cause to be established and maintained, one
or more Distribution Accounts (collectively, the “Distribution Account”), which
shall be separate Eligible Accounts, entitled “CapitalSource Funding II Trust
Distribution Account.” The Distribution Account shall be maintained with a
depository institution and shall satisfy the requirements set forth in the
definition of Eligible Account. Funds in the Distribution Account shall remain
uninvested.

               (4) The Servicer will inform the Indenture Trustee of the location of the
Collection Account and the Principal Collections Account, including any
location to which an account is transferred.

            (b) Deposits to Collection Account. The Servicer shall deposit or cause
to be deposited (without duplication):

		
	 	     (1) all payments on or in respect of each Eligible Loan collected on
or after the related Transfer Date (net, in each case, of any Servicing
Compensation retained therefrom by the Servicer (if other than
CapitalSource)) within two (2) Business Days after receipt thereof;
	 
	 	     (2) all Net Proceeds within two (2) Business Days after receipt
thereof;
	 
	 	     (3) all Insurance Proceeds within two (2) Business Days after
receipt thereof;
	 
	 	     (4) any amounts payable in connection with the repurchase of any
Loan and the amount of any Substitution Adjustment, if any, pursuant to
Sections 2.05, 3.05 and 3.07 hereof concurrently with payment thereof;
	 
	 	     (5) the deposit of the Termination Price under Section 12.02 hereof
concurrently with payment thereof;
	 
	 	     (6) the proceeds from any Disposition of the Loans pursuant to Section
3.06 hereof within one (1) Business Day after receipt thereof; and
	 
	 	     (7) any amount required to be remitted by CapitalSource pursuant to
Section 10.01 of the Note Purchase Agreement within one (1) Business Day after
receipt of notice thereof.

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          Except as otherwise expressly provided in Section 5.01(c)(5)(i), the
Servicer agrees that it will cause the Loan Originator, Depositor, Obligor or
other appropriate Person paying such amounts, as the case may be, to remit
directly to the Lock-Box Accounts for deposit into the Collection Account all
amounts referenced in clauses (1) through (6) to the extent such amounts are in
excess of a Scheduled Payment on the related Loan. To the extent the Servicer
receives any such amounts, it will deposit them into the Collection Account on
the Business Day following receipt thereof.

          (c) Withdrawals From Collection Account; Deposits to the Principal
Collections Account and the Distribution Account.

          (1) Withdrawals From Collection Account — Reimbursement Items. The
Servicer shall periodically but in any event on each Remittance Date, make the
following withdrawals from the Collection Account prior to any other
withdrawals, in no particular order of priority:

		
	 	     (i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error,
	 
	 	     (ii) to withdraw the Required Interest Coverage Amount and remit to
the Indenture Trustee for deposit in the Distribution Account for
payments required pursuant to Section 5.01(c)(5) and Section 5.01(c)(6);
	 
	 	     (iii) to deposit into the Principal Collections Account as described
in Section 5.01(c)(2) below; and
	 
	 	     (iv) to clear and terminate the Collection Account in connection
with the termination of this Agreement.

           (2) Deposits to Principal Collections Account. On any date of
determination occurring during the Revolving Period, the Servicer, at its
option, may deposit into the Principal Collections Account an amount equal to
the excess of (i) the amount on deposit in the Collection Account over the
Required Interest Coverage Amount.

           (3) Withdrawals From the Principal Collections Account. On any date of
determination occurring during the Revolving Period, the Servicer may withdraw
the amount on deposit in the Principal Collections Account and use such amounts
to originate or acquire new Eligible Loans or to pay such amounts as principal
on the Notes.

           (4) Reserved.

           (5) Withdrawals From Distribution Account During the Revolving Period—
Payment Dates. On each Payment Date occurring during the Revolving Period, to
the extent funds are available in the Distribution Account, the Paying Agent
(based on the information

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provided by the Servicer contained in the Monthly Servicer Report for such
Payment Date) shall make withdrawals therefrom for application in the following
order of priority:

		
	 	     (i) to distribute on such Payment Date the following amounts in the
following order: (a) to the Indenture Trustee, an amount equal to
one-twelfth of the annual Indenture Trustee Fee and all unpaid Indenture
Trustee Fees from prior Payment Dates and all amounts owing to the
Indenture Trustee pursuant to Section 6.07 of the Indenture, (b) to the
Servicer, an amount equal to the Servicing Compensation (only if
CapitalSource is not the Servicer and such amounts were not previously
retained by the Servicer) and any Servicing Advance Reimbursement
Amounts, (c) to the reimbursement or payment of any expenses incurred by
the Indenture Trustee in connection with the appointment of a successor
Servicer pursuant to Section 9.02 hereof, (d) to the Back-up Servicer, an
amount equal to one-twelfth of the annual Backup Servicer Fee and (e) on
each anniversary of the Closing Date, to the Owner Trustee, an amount
equal to the Owner Trustee Fee;
	 
	 	     (ii) to the holders of the Notes pro rata, the sum of the Interest
Payment Amount for such Payment Date and the Interest Carry-Forward
Amount for the preceding Payment Date;
	 
	 	     (iii) to the Initial Noteholder, the Nonutilization Fee for such
Payment Date, together with any Nonutilization Fees unpaid from any prior
Payment Dates;
	 
	 	     (iv) to the holders of the Notes pro rata, the amount required to
maintain the Required Overcollateralization Amount for such Payment Date;
provided, however, that if (a) a Trigger Event shall have occurred and be
continuing, (b) an Event of Default under the Indenture or Default shall
have occurred and be continuing or (c) the Revolving Period shall have
terminated, the holders of the Notes shall receive, in respect of
principal of the Notes, all remaining amounts on deposit in the
Distribution Account;
	 
	 	     (v) if CapitalSource is the Servicer, to the Servicer, an amount
equal to the Servicing Compensation, all unpaid Servicing Compensation
from prior Payment Dates and any Servicing Advance Reimbursement Amounts;
	 
	 	     (vi) to the appropriate Person, amounts in respect of
Issuer/Depositor Indemnities (as defined in the Trust Agreement) until
such amounts are paid in full;
	 
	 	     (vii) to the Owner Trustee all amounts owing to the Owner Trustee
pursuant to the Trust Agreement and not otherwise paid; and
	 
	 	     (viii) to the Paying Agent, for distribution to the holders of the
Trust Certificates, in accordance with Section 5.2(b) of the Trust
Agreement, all amounts remaining therein.

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          (6) Withdrawals From Distribution Account During the Amortization Period.
Notwithstanding anything herein to the contrary, on each Payment Date during
the Amortization
Period, to the extent funds are available in the Distribution Account, the
Paying Agent (based on the information provided by the Servicer contained in
the Monthly Servicer Report for such Payment Date) shall make withdrawals
therefrom for application in the following order of priority:

		
	 	     (i) to distribute on such Payment Date the following amounts in the
following order: (a) the Indenture Trustee, an amount equal to
one-twelfth of the annual Indenture Trustee Fee and all unpaid Indenture
Trustee Fees from prior Payment Dates and all amounts owing to the
Indenture Trustee pursuant to Section 6.07 of the Indenture, (b) to the
Servicer, an amount equal to the Servicing Compensation (only if
CapitalSource is not the Servicer and such amounts were not previously
retained by the Servicer) and any Servicing Advance Reimbursement
Amounts, (c) to the reimbursement or payment of any expenses incurred by
the Indenture Trustee in connection with the appointment of a successor
Servicer pursuant to Section 9.02 hereof, (d) to the Back-up Servicer, an
amount equal to one-twelfth of the annual Backup Servicer Fee and (e) on
each anniversary of the Closing Date, to the Owner Trustee, an amount
equal to the Owner Trustee Fee;
	 
	 	     (ii) to the holders of the Notes pro rata, the sum of the Interest
Payment Amount for such Payment Date and the Interest Carry-Forward
Amount for the preceding Payment Date;
	 
	 	     (iii) to the holders of the Notes pro rata, in accordance with the
amount of the Note Principal Balance for the account of the applicable
holder, the amount necessary to reduce the Note Principal Balance to
zero;

	 

	 	     
(iv) if CapitalSource is the Servicer, to the Servicer, an amount
equal to the Servicing Compensation, all unpaid Servicing Compensation
from prior Payment Dates and any Servicing Advance Reimbursement Amounts;
	 
	 	     (v) to the appropriate Person, amounts in respect of
Issuer/Depositor Indemnities (as defined in the Trust Agreement) until
such amounts are paid in full;
	 
	 	     (vi) to the Owner Trustee, all amounts owing to the Owner Trustee
pursuant to the Trust Agreement and not otherwise paid; and
	 
	 	     (vii) to the Paying Agent, for distribution to the holders of the
Trust Certificates, in accordance with Section 5.2(b) of the Trust
Agreement, all amounts remaining therein.

            (7) With the prior written consent of the Initial Noteholder, which
consent shall not be unreasonably withheld (a copy of which will be provided by
the Servicer to the Backup Servicer), the Servicer may withdraw from the
Collection Account any deposits thereto

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constituting Excluded Amounts if the
Servicer has prior to such withdrawal and consent, delivered to the Initial
Noteholder a report setting forth the calculation of such Excluded Amounts in a
format satisfactory to the Initial Noteholder in its sole discretion.

          
Notwithstanding that the Notes have been paid in full, the Paying Agent
and the Servicer shall continue to maintain the Distribution Account, the
Collection Account and the Principal Collections Account hereunder until this
Agreement has been terminated.

          Section 5.02 Payments to Securityholders.

          (a) All distributions made on the Notes on each Payment Date or pursuant
to Section 5.04(b) of the Indenture will be made on a pro rata basis among the
Noteholders of record of the Notes on the next preceding Record Date based on
the Percentage Interest represented by their respective Notes, without
preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account such Noteholder shall have so notified the
Paying Agent five (5) Business Days prior to the related Record Date, and
otherwise by check mailed to the address of such Noteholder appearing in the
Notes Register. The final distribution on each Note will be made in like
manner, but only upon presentment and surrender of such Note at the location
specified in the notice to Noteholders of such final distribution.

          (b) All distributions made on the Trust Certificates on each Payment Date
or pursuant to Section 5.04(b) of the Indenture will be made in accordance with
the Percentage Interest among the holders of the Trust Certificates of record
on the next preceding Record Date based on their Percentage Interests on the
date of distribution, without preference or priority of any kind, and, except
as otherwise provided in the next succeeding sentence, shall be made by wire
transfer of immediately available funds to the account of each such holder, if
such holder shall own of record a Trust Certificate in an original denomination
aggregating at least 25% of the Percentage Interests and shall have so notified
the Paying Agent and the Indenture Trustee five (5) Business Days prior to the
related Record Date, and otherwise by check mailed to the address of such
Certificateholder appearing in the Certificate Register. The final
distribution on each Trust Certificate will be made in like manner, but only
upon presentment and surrender of such Trust Certificate at the location
specified in the notice to holders of the Trust Certificates of such final
distribution. Any amount distributed to the holders of the Trust Certificates
on any Payment Date shall not be subject to any claim or interest of the
Noteholders.

          Section 5.03 Trust Accounts; Trust Account Property.

          (a) Control of Trust Accounts. Each of the Trust Accounts established
hereunder has been pledged by the Issuer to the Indenture Trustee under the
Indenture and shall be subject to the lien of the Indenture. Amounts
distributed from each Trust Account in accordance with the terms of this
Agreement shall be released for the benefit of the Securityholders from the
Collateral upon such distribution thereunder or hereunder. The Indenture
Trustee shall possess all right, title and interest in and to all funds on
deposit from time to time in the Trust Accounts and in all proceeds thereof
(including all income thereon) and all

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such funds, investments, proceeds and
income shall be part of the Trust Account Property and the Collateral. If, at
any time, any Trust Account ceases to be an Eligible Account, the Servicer
shall, within ten Business Days (i) establish a new Trust Account as an
Eligible Account, (ii) terminate
the ineligible Trust Account, and (iii) transfer any cash and investments
from such ineligible Trust Account to such new Trust Account.

               With respect to the Trust Accounts, the Issuer and the Indenture Trustee
agree, that the Collection Account and the Principal Collections Account shall
be subject to the sole and exclusive dominion, custody and control of the
Servicer and the Distribution Account shall be subject to the sole and
exclusive dominion, custody and control of the Paying Agent on behalf of the
Indenture Trustee, in each case, for the benefit of the Noteholders, and the
Servicer and the Paying Agent on behalf of the Indenture Trustee and the
Indenture Trustee, as applicable, shall have sole signature and withdrawal
authority with respect thereto.

               (b) (1) Investment of Funds. Funds held in the Collection Account and the
Principal Collections Account may be invested (to the extent practicable and
consistent with any requirements of the Code) in Permitted Investments by or at
the direction of the Servicer. In any case, funds in the Collection Account
and the Principal Collections Account must be available for withdrawal without
penalty, and any Permitted Investments must mature or otherwise be available
for withdrawal, one Business Day prior to the next Remittance Date and shall
not be sold or disposed of prior to its maturity subject to Subsection (b)(2)
of this Section. All interest and any other investment earnings on amounts or
investments held in the Collection Account shall be retained by the Servicer.

               (2) Insufficiency and Losses in Trust Accounts. If any amounts are needed
for disbursement from the Collection Account or the Principal Collections
Account and sufficient uninvested funds are not available to make such
disbursement, the Servicer shall cause to be sold or otherwise converted to
cash a sufficient amount of the investments in the Collection Account. The
Servicer shall be liable for any investment loss or other charge resulting
therefrom.

               If any losses are realized in connection with any investment in the
Collection Account or Principal Collections Account pursuant to this Agreement,
then the Servicer shall deposit the amount of such losses (to the extent not
offset by income from other investments in the Collection Account or Principal
Collections Account) into the Collection Account or Principal Collections
Account promptly upon the realization of such loss.

               (c) Subject to Section 6.01 of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein.

               (d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:

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          (1) any Trust Account Property that is held in deposit accounts shall be
held solely in the Eligible Accounts, subject to the last sentence of
Subsection (a) of this Section 5.03; and each such Eligible Account shall be
subject to the sole and exclusive dominion, custody and control of the Paying
Agent on behalf of the Indenture Trustee; and, without limitation on the
foregoing, the Paying Agent on behalf of the Indenture Trustee shall have sole
signature authority with respect thereto;

          (2) any Trust Account Property that constitutes Physical Property shall be
delivered to the Indenture Trustee or the Paying Agent on behalf of the
Indenture Trustee in accordance with paragraphs (a) and (b) of the definition
of “Delivery” in Section 1.01 hereof and shall be held, pending maturity or
disposition, solely by the Paying Agent on behalf of the Indenture Trustee or
the Indenture Trustee or a securities intermediary (as such term is defined in
Section 8-102(a)(14) of the UCC) acting solely for the Indenture Trustee;

          (3) any Trust Account Property that is a book-entry security held through
the Federal Reserve System pursuant to federal book-entry regulations shall be
delivered in accordance with paragraph (c) of the definition of “Delivery” in
Section 1.01 hereof and shall be maintained by the Paying Agent on behalf of
the Indenture Trustee or the Indenture Trustee, pending maturity or
disposition, through continued book-entry registration of such Trust Account
Property as described in such paragraph; and

          (4) any Trust Account Property that is an “uncertificated security” under
Article 8 of the UCC and that is not governed by clause (3) above shall be
delivered to the Paying Agent on behalf of the Indenture Trustee or the
Indenture Trustee in accordance with paragraph (d) of the definition of
“Delivery” in Section 1.01 hereof and shall be maintained by the Paying Agent
on behalf of the Indenture Trustee or the Indenture Trustee, pending maturity
or disposition, through continued registration of the Paying Agent on behalf of
the Indenture Trustee or the Indenture Trustee’s (or its nominee’s) ownership
of such security.

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ARTICLE VI

STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS

          Section 6.01 Statements.

          No later than 12:00 noon (New York City time) on each Record Date, the
Servicer shall deliver to the Indenture Trustee and the Initial Noteholder by
electronic transmission, the Monthly Servicer Report, setting forth the date of
such Report (day, month and year), the name of the Issuer (i.e., “CapitalSource
Funding II Trust”), and the date of this Agreement, all in substantially the
form set out in Exhibit B hereto. In addition, the Servicer shall provide to
the Noteholders and the Indenture Trustee such additional reports and
information regarding the Loans as the Majority Noteholders or the Indenture
Trustee may reasonably request from time to time.

          Section 6.02 Specification of Certain Tax Matters.

          The Paying Agent shall comply with all requirements of the Code and
applicable state and local law with respect to the withholding from any
distributions made to any Securityholder of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith, giving due effect to any applicable exemptions from such
withholding and effective certifications or forms provided by the recipient.
Any amounts withheld pursuant to this Section 6.02 shall be deemed to have been
distributed to the Securityholders, as the case may be, for all purposes of
this Agreement. Neither the Paying Agent nor the Indenture Trustee shall have
any responsibility for preparing or filing any tax returns.

ARTICLE VII

FINANCIAL COVENANTS

          Section 7.01 Financial Covenants of CapitalSource.

          (a) At all times during the term of this Agreement, CapitalSource shall
maintain a minimum Tangible Net Worth of $400,000,000.

          (b) CapitalSource may not exceed a maximum leverage ratio (the ratio of
total consolidated liabilities (exclusive of non-recourse debt), determined in
accordance with GAAP, to its consolidated Tangible Net Worth) of 4:1 as of any
date of determination.

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ARTICLE VIII

THE SERVICER AND THE BACKUP SERVICER

          Section 8.01 Indemnification; Third Party Claims.

          (a) The Servicer shall indemnify the Loan Originator, the Owner Trustee,
the Issuer, the Paying Agent, the Depositor, the Indenture Trustee and the
Noteholders, their respective officers, directors, employees, agents and
“control persons,” as such term is used under the Act and under the Securities
Exchange Act of 1934 as amended (each a “Servicer Indemnified Party”) and hold
harmless each of them against any and all claims, losses, damages, penalties,
fines, forfeitures, reasonable legal fees and related costs, judgments, and
other costs and expenses resulting from any claim, demand, defense or assertion
based on or grounded upon, or resulting from, a breach of any of the Servicer’s
representations and warranties and covenants contained in this Agreement or in
any way relating to the failure of the Servicer to perform its duties and
service the Eligible Loans in compliance with the terms of this Agreement
except to the extent such loss arises out of such Servicer Indemnified Party’s
fraud, gross negligence or willful misconduct; provided, however, that if the
Servicer is not liable pursuant to the provisions of Section 8.01(b) hereof for
its failure to perform its duties and service the Eligible Loans in compliance
with the terms of this Agreement, then the provisions of this Section 8.01
shall have no force and effect with respect to such failure; provided, further
that no successor Servicer shall be liable for the actions or omissions of a
predecessor Servicer.

          (b) None of the Depositor or the Servicer or any of their respective
Affiliates, directors, officers, employees or agents shall be under any
liability to the Owner Trustee, the Issuer, the Indenture Trustee or the
Securityholders for any action taken, or for refraining from the taking of any
action, in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Depositor, the
Servicer or any of their respective Affiliates, directors, officers, employees,
agents against the remedies provided herein for the breach of any warranties,
representations or covenants made herein, or against any expense or liability
specifically required to be borne by such party without right of reimbursement
pursuant to the terms hereof, or against any expense or liability which would
otherwise be imposed by reason of misfeasance, bad faith or negligence in the
performance of the respective duties of the Servicer, the Depositor or the Loan
Originator, as the case may be. The Loan Originator, the Depositor, the
Servicer and any of their respective Affiliates, directors, officers,
employees, agents may rely in good faith on any document of any kind which,
prima facie, is properly executed and submitted by any Person respecting any
matters arising hereunder.

          (c) The Loan Originator agrees to indemnify and hold harmless the
Depositor, the Indenture Trustee and the Noteholders, as the ultimate assignees
from the Depositor (each an “Originator Indemnified Party,” together with the
Servicer Indemnified Parties, the “Indemnified Parties”), from and against any
loss, liability, expense, damage, claim or injury arising out of or based on
(i) any breach of any representation, warranty or covenant of the Loan
Originator, the
Servicer or their Affiliates, in any Basic Document, including, without
limitation, the origination or prior servicing of the Loans by reason of any
acts, omissions, or alleged acts or omissions

64

 

arising out of activities of the
Loan Originator, the Servicer or their Affiliates, and (ii) any untrue
statement by the Loan Originator, the Servicer or its Affiliates of any
material fact, including, without limitation, any Officer’s Certificate,
statement, report or other document or information prepared by any such Person
and furnished or to be furnished by it pursuant to or in connection with the
transactions contemplated thereby and not corrected prior to completion of the
relevant transaction including, without limitation, such written information as
may have been and may be furnished in connection with any due diligence
investigation with respect to the Eligible Loans or any such Person’s business,
operations or financial condition, including reasonable attorneys’ fees and
other costs or expenses incurred in connection with the defense of any actual
or threatened action, proceeding or claim; provided that the Loan Originator
shall not indemnify an Originator Indemnified Party to the extent such loss,
liability, expense, damage or injury is due to either an Originator Indemnified
Party’s willful misfeasance, bad faith or negligence or by reason of an
Originator Indemnified Party’s reckless disregard of its obligations hereunder;
provided, further, that the Loan Originator shall not be so required to
indemnify an Originator Indemnified Party or to otherwise be liable to an
Originator Indemnified Party for any losses in respect of the performance of
the Eligible Loans, the creditworthiness of the Mortgagors under the Eligible
Loans, changes in the market value of the Eligible Loans or other similar
investment risks associated with the Eligible Loans arising from a breach of
any representation or warranty set forth in Section 3.04 hereto, a remedy for
the breach of which is provided in Section 3.05 hereof. The provisions of this
indemnity shall run directly to and be enforceable by an Originator Indemnified
Party subject to the limitations hereof.

          (d)  With respect to a claim subject to indemnity hereunder made by any
Person against an Indemnified Party (a “Third Party Claim”), such Indemnified
Party shall notify the related indemnifying parties (each an “Indemnifying
Party”) in writing of the Third Party Claim within a reasonable time after
receipt by such Indemnified Party of written notice of the Third Party Claim
unless the Indemnifying Parties shall have previously obtained actual knowledge
thereof. Thereafter, the Indemnified Party shall deliver to the Indemnifying
Parties, within a reasonable time after the Indemnified Party’s receipt
thereof, copies of all notices and documents (including court papers) received
by the Indemnified Party relating to the Third Party Claim. No failure to give
such notice or deliver such documents shall effect the rights to indemnity
hereunder. Each Indemnifying Party shall promptly notify the Indenture Trustee
and the Indemnified Party (if other than the Indenture Trustee) of any claim of
which it has been notified and shall promptly notify the Indenture Trustee and
the Indemnified Party (if applicable) of its intended course of action with
respect to any claim.

          (e)  If a Third Party Claim is made against an Indemnified Party, while
maintaining control over its own defense, the Indemnified Party shall cooperate
and consult fully with the Indemnifying Party in preparing such defense, and
the Indemnified Party may defend the same in such manner as it may deem
appropriate, including settling such claim or litigation after giving notice to
the Indemnifying Party of such terms and the Indemnifying Party will promptly
reimburse the Indemnified Party upon written request; provided, however, that
the Indemnified Party may not settle any claim or litigation without the
consent of the Indemnifying Party; provided, further, that the Indemnifying
Party shall have the right to reject the selection of
counsel by the Indemnified Party if the Indemnifying Party reasonably
determines that such

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counsel is inappropriate in light of the nature of the
claim or litigation and shall have the right to assume the defense of such
claim or litigation if the Indemnifying Party determines that the manner of
defense of such claim or litigation is unreasonable.

          Section 8.02 Merger or Consolidation of the Servicer and Backup
Servicer.

          The Servicer shall keep in full effect its existence, rights and
franchises as a limited liability company, and will obtain and preserve its
qualification to do business as a foreign entity and maintain such other
licenses and permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the
Eligible Loans and to perform its duties under each Basic Document to which it
is a party; provided, however, that the Servicer may merge or consolidate with
any other corporation upon the satisfaction of the conditions set forth in the
following paragraph.

          Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such
merger, conversion, consolidation or succession to the Indenture Trustee and
the Issuer.

          Any Person (i) into which the Backup Servicer may be merged or
consolidated, (ii) that may result from any merger or consolidation to which
the Backup Servicer shall be a party, or (iii) that may succeed to the
properties and assets of the Backup Servicer substantially as a whole, which
Person in any of the foregoing cases executes an agreement of assumption to
perform every obligation of the Backup Servicer hereunder, shall be the
successor to the Backup Servicer under this Agreement without further act on
the part of any of the parties to this Agreement provided such Person is
organized under the laws of the United States of America or any one of the
States thereof or the District of Columbia (or any domestic branch of a foreign
bank), (i) (a) that has either (1) a long-term unsecured debt rating of “A” or
better by S&P and “A2” or better by Moody’s or (2) a short-term unsecured debt
rating or certificate of deposit rating of “A-1” or better by S&P or “P-1” or
better by Moody’s, (b) the parent corporation which has either (1) a long-term
unsecured debt rating of “A” or better by S&P and “A2” or better by Moody’s or
(2) a short-term unsecured debt rating or certificate of deposit rating of
“A-1” or better by S&P and “P-1” or better by Moody’s or (c) is otherwise
acceptable to the Initial Noteholder.

          Section 8.03 Limitation on Liability of the Servicer and the Backup
Servicer.

          (a) The Servicer and any director, officer, employee or agent of the
Servicer may rely on any document of any kind which it in good faith reasonably
believes to be genuine and to have been adopted or signed by the proper
authorities respecting any matters arising hereunder. Subject to the terms of
Section 8.01 hereof, the Servicer shall have no obligation to

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appear with
respect to, prosecute or defend any legal action which is not incidental to the
Servicer’s duty to service the Eligible Loans in accordance with this
Agreement.

          (b) The Backup Servicer undertakes to perform only such duties and
obligations as are specifically set forth in this Agreement, it being expressly
understood by all parties hereto that there are no implied duties or
obligations of the Backup Servicer hereunder. Without limiting the generality
of the foregoing, the Backup Servicer, except as expressly set forth herein,
shall have no obligation to supervise, verify, monitor or administer the
performance of the Servicer. The Backup Servicer may act through its agents,
nominees, attorneys and custodians in performing any of its duties and
obligations under this Agreement, it being understood by the parties hereto
that the Backup Servicer will be responsible for any misconduct or negligence
on the part of such agents, attorneys or custodians acting on the routine and
ordinary day-to-day operations for and on behalf of the Backup Servicer.
Neither the Backup Servicer nor any of its officers, directors, employees or
agents shall be liable, directly or indirectly, for any damages or expenses
arising out of the services performed under this Agreement other than damages
or expenses that result from the negligence or willful misconduct of it or them
or the failure to perform materially in accordance with this Agreement.

          (c) The Backup Servicer shall not be liable for any obligation of the
Servicer contained in this Agreement or for any errors of the Servicer
contained in any computer tape, certificate or other data or document delivered
to the Backup Servicer hereunder or on which the Backup Servicer must rely in
order to perform its obligations hereunder, and the Indenture Trustee, the
Noteholders and the Collateral Custodian each agree to look only to the
Servicer to perform such obligations. The Backup Servicer shall have no
responsibility and shall not be in default hereunder or incur any liability for
any failure, error, malfunction or any delay in carrying out any of its duties
under this Agreement if such failure or delay results from the Backup Servicer
acting in accordance with information prepared or supplied by a Person other
than the Backup Servicer or the failure of any such other Person to prepare or
provide such information. The Backup Servicer shall have no responsibility,
shall not be in default and shall incur no liability for (i) any act or failure
to act of any third party, including the Servicer, (ii) any inaccuracy or
omission in a notice or communication received by the Backup Servicer from any
third party, (iii) the invalidity or unenforceability of any Loan under
applicable law, (iv) the breach or inaccuracy of any representation or warranty
made with respect to any Loan, or (v) the acts or omissions of any successor
Backup Servicer.

          Section 8.04 No Resignation; Assignment.

          (a) The Servicer shall not resign from the obligations and duties hereby
imposed on it except (i) with the consent of the Majority Noteholders or (ii)
upon determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (ii) of the preceding
sentence permitting the resignation of the Servicer shall
be evidenced by an Independent opinion of counsel to such effect delivered
(at the expense of the Servicer) to the Indenture Trustee and the Majority
Noteholders. No resignation of the Servicer shall become effective until a
successor Servicer, appointed pursuant to the provisions of Section 9.02 hereof
shall have assumed the Servicer’s responsibilities, duties, liabilities (other
than those

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liabilities arising prior to the appointment of such successor) and
obligations under this Agreement.

          Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed
by the Servicer hereunder and any agreement, instrument or act purporting to
effect any such assignment, transfer, delegation or appointment shall be void.

          The Servicer agrees to cooperate with any successor Servicer in effecting
the transfer of the Servicer’s servicing responsibilities and rights hereunder
pursuant to the first paragraph of this Section 8.04, including, without
limitation, the transfer to such successor of all relevant records and
documents (including any Loan Files in the possession of the Servicer) and all
amounts received with respect to the Loans and not otherwise permitted to be
retained by the Servicer pursuant to this Agreement. In addition, the
Servicer, at its sole cost and expense, shall prepare, execute and deliver any
and all documents and instruments to the successor Servicer including all Loan
Files in its possession and do or accomplish all other acts reasonably
necessary or appropriate to effect such termination and transfer of servicing
responsibilities.

          (b) The Backup Servicer shall not resign (except with prior consent of the
Initial Noteholder which consent shall not be unreasonably withheld) from the
obligations and duties hereby imposed on it except upon the Backup Servicer’s
determination that (i) the performance of its duties hereunder is or has become
impermissible under applicable law and (ii) there is no reasonable action that
the Backup Servicer could take to make the performance of its duties hereunder
permissible under applicable law. Any such determination permitting the
resignation of the Backup Servicer shall be evidenced as to clause (i) above by
an Opinion of Counsel to such effect delivered to the Indenture Trustee and the
Initial Noteholder. No such resignation shall become effective until a
successor Backup Servicer shall have assumed the responsibilities and
obligations of the Backup Servicer hereunder.

          Section 8.05 Relationship of Servicer to Issuer and the Indenture Trustee.

          The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Issuer, the Owner Trustee and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the Issuer, the Owner Trustee or the Indenture Trustee.

          Section 8.06 Servicer May own Securities.

          Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein; provided, however,
that at any time that CapitalSource or any of its Affiliates is the Servicer,
neither the Servicer nor any of its Affiliates (other than an Affiliate which
is a corporation whose purpose is limited to holding securities and related
activities and which cannot incur recourse

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debt) may be a Noteholder.
Securities so owned by or pledged to the Servicer or such Affiliate shall have
an equal and proportionate benefit under the provisions of this Agreement,
without preference, priority, or distinction as among all of the Securities;
provided, however, that any Securities owned by the Servicer or any Affiliate
thereof, during the time such Securities are owned by them, shall be without
voting rights for any purpose set forth in this Agreement unless the Servicer
or such Affiliate owns all outstanding Securities of the related class. The
Servicer shall notify the Indenture Trustee promptly after it or any of its
Affiliates becomes the owner or pledgee of a Security.

          Section 8.07 Indemnification of the Indenture Trustee and Initial
Noteholder.

          CapitalSource agrees to indemnify the Indenture Trustee and its employees,
officers, directors and agents, and reimburse its reasonable out-of-pocket
expenses in accordance with Section 6.07 of the Indenture as if it was a
signatory thereto. CapitalSource agrees to indemnify the Initial Noteholder in
accordance with Section 9.01 of the Note Purchase Agreement as if it were a
signatory thereto. CapitalSource agrees to indemnify the Owner Trustee in
accordance with Section 8.2 of the Trust Agreement as if it were a signatory
thereto.

ARTICLE IX

SERVICER EVENTS OF DEFAULT

          Section 9.01 Servicer Events of Default.

          (a) In case one or more of the following Servicer Events of Default shall
occur and be continuing, that is to say:

	 	(1)	 	any failure by Servicer to deposit
into the Collection Account or the Distribution Account
or any failure by Servicer to make any of the required
payments therefrom which continues unremedied for two
(2) Business Day; or
	 
	 	(2)	 	any failure on the part of the
Servicer duly to observe or perform in any material
respect any other of the material covenants or
agreements on the part of the Servicer, contained in any
Basic
Document to which it is a party, which continues
unremedied for a period of 30 days (or, in the case of
payment of insurance premiums with respect to Loans for
which the Servicer is required pursuant to the Loan
Documents to escrow such premiums, for a period of 15
days) after the date on which written notice of such
failure, requiring the same to be remedied, shall have
been given to the Servicer by any other party hereto or
to the Servicer (with copy to each other party hereto),
by Holders of 25% of the Percentage Interests of the
Notes or the Trust Certificates; or

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	 	(3)	 	any breach on the part of the
Servicer of any representation or warranty contained in
any Basic Document to which it is a party that has a
material adverse affect on the interests of any of the
parties hereto or any Securityholder and which continues
unremedied for a period of 30 days after the date on
which notice of such breach, requiring the same to be
remedied, shall have been given to the Servicer by any
other party hereto or to the Servicer (with copy to each
other party hereto) by the Initial Noteholder or Holders
of 25% of the Percentage Interests of the Notes; or
	 
	 	(4)	 	a Bankruptcy Event shall occur with
respect to the Servicer;
	 
	 	(5)	 	so long as the Servicer or the Loan
Originator is an Affiliate of either of the Depositor or
the Issuer, any “event of default” by any such party
occurs under any of the Basic Documents; or
	 
	 	(6)	 	CapitalSource fails to comply with
the financial covenants set forth in Section 7.01.

          (b) Then, and in each and every such case, so long as a Servicer Event of
Default shall not have been remedied, the Indenture Trustee or the Majority
Noteholders, by notice in writing to the Servicer may, in addition to whatever
rights such Person may have at law or in equity to damages, including
injunctive relief and specific performance, on thirty days’ notice, terminate
all the rights and obligations of the Servicer under this Agreement and in and
to the Loans and the proceeds thereof, as servicer under this Agreement. Within
a commercially reasonable time following receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Loans or otherwise, shall, subject to Section 9.02
hereof, pass to and be vested in a successor servicer, and the successor
servicer is hereby authorized and empowered to execute and deliver, on behalf
of the Servicer, as attorney-in-fact or otherwise, any and all documents and
other instruments and do or cause to be done all other acts or things necessary
or appropriate to effect the purposes of such notice of termination, including,
but not limited to, the transfer and endorsement or assignment of the Loans and
related documents. The Servicer agrees to cooperate with the successor servicer
in effecting the termination of the Servicer’s responsibilities and rights
hereunder, including, without limitation, the transfer to the successor
servicer for administration by it of all amounts
which shall at the time be credited by the Servicer to each Collection
Account or thereafter received with respect to the Loans.

          (c) Upon the occurrence of (i) an Event of Default or Default under any of
the Basic Documents, (ii) a Servicer Event of Default under this Agreement,
(iii) a Trigger Event or (iv) a material adverse change in the business or
financial conditions of the Servicer (each, a “Term Event”), the Servicer’s
right to service the Loans pursuant to the terms of this Agreement shall be in
effect for an initial period commencing on the date on which such Term Event
occurred and shall automatically terminate at 5:00 p.m. (New York City time),
on the last business day of the calendar month in which such Term Event
occurred (the “Initial Term”).

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Thereafter, the Initial Term shall be extendible
in the sole discretion of the Initial Noteholder by written notice (each, a
“Servicer Extension Notice”) of the Initial Noteholder for successive one-month
terms (each such term ending at 5:00 p.m. (New York City time), on the last
business day of the related month). Following a Term Event, the Servicer
hereby agrees that the Servicer shall be bound for the duration of the Initial
Term and the term covered by any such Servicer Extension Notice to act as the
Servicer pursuant to this Agreement. Following a Term Event, the Servicer
agrees that if, as of 3:00 p.m. (New York City time) on the last business day
of any month, the Servicer shall not have received a Servicer Extension Notice
from the Initial Noteholder, the Servicer shall give written notice of such
non-receipt to the Initial Noteholder by 4:00 p.m. (New York City time).
Following a Term Event, the failure of the Initial Noteholder to deliver a
Servicer Extension Notice by 5:00 p.m. (New York City time) shall result in the
termination of the Servicer upon the completion of the transfer of the
servicing (the “Servicer Termination Date”). The Servicer and the Initial
Noteholder shall comply with all applicable laws in connection with such
transfer and the Servicer shall continue to service the Loans until completion
of such transfer.

          (d) Upon the occurrence of a Term Event (other than the occurrence of a
Bankruptcy Event with respect to the Servicer, the Depositor or the Issuer),
the Indenture Trustee shall, at the request of, or may, with the consent of the
Initial Noteholder, by notice to the Issuer and the Servicer, declare the
Termination Date to have occurred and all amounts due the Noteholders, the
Indenture Trustee and the Owner Trustee shall be immediately due and payable.

          (e) Upon the occurrence of a Bankruptcy Event with respect to the
Servicer, the Depositor or the Issuer, the Termination Date shall occur
immediately and all amounts due and payable to the Noteholders, the Indenture
Trustee and the Owner Trustee shall be immediately due and payable.

          Section 9.02 Appointment of Successor.

          On and after the date the Servicer receives a notice of termination
pursuant to Section 9.01 hereof or is terminated pursuant to Section 9.01(c)
hereof, or the Owner Trustee receives the resignation of the Servicer evidenced
by an Opinion of Counsel or accompanied by the consents required by Section
8.04 hereof, or the Servicer is removed as servicer pursuant to this Article
IX, then, Backup Servicer shall automatically succeed and assume all
obligations of the Servicer hereunder, and all authority and power of the
Servicer under this Agreement shall
pass to and be vested in the Backup Servicer. As compensation therefor,
the Backup Servicer shall be entitled to the Servicing Fee, together with other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided herein; including, without limitation, expenses incurred
by the Backup Servicer in connection with the transition of the servicing
obligations (“Transition Costs”). In the event that there is no Backup
Servicer or the Backup Servicer is unable to assume such obligations on such
date, the Indenture Trustee shall submit to CapitalSource the name of a
proposed successor servicer (the “Successor Servicer”). CapitalSource shall
have the right to reject one proposed Successor Servicer within two (2)
Business Days of the Indenture Trustee’s submission and, upon such rejection
CapitalSource shall have no further consent rights with respect to the
appointment of any Successor Servicer. If

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CapitalSource shall not have rejected
such proposed Successor Servicer within such two (2) Business Day period, the
Indenture Trustee shall, as promptly as possible, appoint such Successor
Servicer as servicer hereunder so long as such proposed Successor Servicer is
acceptable to the Initial Noteholder. The Successor Servicer shall accept its
appointment by a written assumption in a form acceptable to the Indenture
Trustee and the Noteholders. In the event that a Successor Servicer has not
accepted its appointment at the time when the Servicer ceases to act as
Servicer, the Indenture Trustee shall petition a court of competent
jurisdiction to appoint any established financial institution, having a net
worth of not less than United States $50,000,000 and whose regular business
includes the servicing of loans similar to the Loans, as the Successor Servicer
hereunder.

          (b) Upon its appointment, the Backup Servicer or the Successor Servicer,
as applicable, shall be the successor in all respects to the Servicer with
respect to servicing functions under this Agreement and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof, and all references in this
Agreement to the Servicer shall be deemed to refer to the Backup Servicer or
the Successor Servicer, as applicable; provided, however, that the Backup
Servicer or Successor Servicer, as applicable, shall have (i) no liability with
respect to any action performed by the terminated Servicer prior to the date
that the Backup Servicer or Successor Servicer, as applicable, becomes the
successor to the Servicer or any claim of a third party based on any alleged
action or inaction of the terminated Servicer, (ii) no obligation to perform
any advancing obligations, if any, of the Servicer unless it elects to in its
sole discretion, (iii) no obligation to pay any taxes required to be paid by
the Servicer (provided that the Backup Servicer or Successor Servicer, as
applicable, shall pay any income taxes for which it is liable), (iv) no
obligation to pay any of the fees and expenses of any other party to the
transactions contemplated hereby, and (v) no liability or obligation with
respect to any indemnification obligations of any prior Servicer, including the
original Servicer. The indemnification obligations of the Backup Servicer or
the Successor Servicer, as applicable, upon becoming a Successor Servicer, are
expressly limited to those instances of negligence or willful misconduct of the
Backup Servicer or Successor Servicer, as applicable.

          (c) All authority and power granted to the Servicer under this Agreement
shall automatically cease and terminate upon termination of this Agreement and
shall pass to and be vested in the Issuer and, without limitation, the Issuer
is hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, all documents and other
instruments, and to do and accomplish all other acts or things necessary or
appropriate to
effect the purposes of such transfer of servicing rights. The Servicer
agrees to cooperate with the Seller in effecting the termination of the
responsibilities and rights of the Servicer to conduct servicing of the Loans.

          (d) Upon the Backup Servicer receiving notice that it is required to serve
as the Servicer hereunder pursuant to the foregoing provisions of this Section
9.02, the Backup Servicer will promptly begin the transition to its role as
Servicer. Notwithstanding the foregoing, the Backup Servicer may, in its
discretion, appoint, or petition a court of competent jurisdiction to appoint,
any established servicing institution as the successor to the Servicer
hereunder in the

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assumption of all or any part of the responsibilities, duties
or liabilities of the Servicer hereunder. As compensation, any Successor
Servicer so appointed shall be entitled to receive the Servicing Fee, together
with any other servicing compensation in the form of assumption fees, late
payment charges or otherwise as provided herein that accrued prior thereto,
including, without limitation, Transition Costs. In the event the Backup
Servicer is required to solicit bids as provided herein, the Backup Servicer
shall solicit, by public announcement, bids from banks and mortgage servicing
institutions meeting the qualifications set forth in this Section 9.02. Such
public announcement shall specify that the Successor Servicer shall be entitled
to the full amount of the Servicing fee as servicing compensation, together
with the other servicing compensation in the form of assumption fees, late
payment charges or otherwise that accrued prior thereto. Within thirty (30)
days after any such public announcement, the Backup Servicer shall negotiate
and effect the sale, transfer and assignment of the servicing rights and
responsibilities hereunder to the qualified party submitting the highest
qualifying bid. The Backup Servicer shall deduct from any sum received by the
Backup Servicer from the successor to the Servicer in respect of such sale,
transfer and assignment all costs and expenses of any public announcement and
of any sale, transfer and assignment of the servicing rights and
responsibilities hereunder and the amount of any unreimbursed Servicing
Advances. After such deductions, the remainder of such sum shall be paid by
the Backup Servicer to the Servicer at the time of such sale, transfer and
assignment to the Servicer’s successor. The Backup Servicer and such successor
shall take such action, consistent with this Agreement, as shall be necessary
to effectuate any such succession. No appointment of a successor to the
Servicer hereunder shall be effective until written notice of such proposed
appointment shall have been provided by the Backup Servicer to the Indenture
Trustee and the Noteholders and the Backup Servicer shall have consented
thereto. The Backup Servicer shall not resign as servicer until a Successor
Servicer has been appointed and accepted such appointment. Notwithstanding
anything to the contrary contained herein, in no event shall Wells Fargo Bank
Minnesota, National Association, in any capacity, be liable for any Servicing
Fee or for any differential in the amount of the Servicing Fee paid hereunder
and the amount necessary to induce any Successor Servicer under this Agreement
and the transactions set forth or provided for by this Agreement.

          If Wells Fargo Bank Minnesota, National Association becomes the Successor
Servicer, Wells Fargo Bank Minnesota, National Association shall not be
required to service the Loans in accordance with the terms of the Underwriting
Guidelines but rather it shall be required to service the Loans in accordance
with applicable law, the Required Loan Documents and current industry
standards.

          Notwithstanding anything contained in this Agreement to the contrary,
Wells Fargo Bank Minnesota, National Association as successor Servicer is
authorized to accept and rely on all of the accounting, records (including
computer records) and work of the prior Servicer relating to the Loans
(collectively, the “Predecessor Servicer Work Product”) without any audit or
other examination thereof, and Wells Fargo Bank Minnesota, National Association
shall have no duty, responsibility, obligation or liability for the acts and
omissions of the prior Servicer. If any error, inaccuracy, omission or
incorrect or non-standard practice or procedure (collectively, “Errors”) exist
in any Predecessor Servicer Work Product and such Errors make it materially
more difficult to service or should cause or materially contribute to Wells
Fargo Bank

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Minnesota, National Association making or continuing any Errors
(collectively, “Continued Errors”), Wells Fargo Bank Minnesota, National
Association shall have no duty, responsibility, obligation or liability to
perform servicing or for such Continued Errors; provided, however, that Wells
Fargo Bank Minnesota, National Association agrees to use its best efforts to
prevent further Continued Errors. In the event that Wells Fargo Bank
Minnesota, National Association becomes aware of Errors or Continued Errors,
Wells Fargo Bank Minnesota, National Association shall, with the prior consent
of the Initial Noteholder, use its best efforts to reconstruct and reconcile
such data as is commercially reasonable to correct such Errors and Continued
Errors and to prevent future Continued Errors. Wells Fargo Bank Minnesota,
National Association shall be entitled to recover its costs thereby expended in
accordance with Section 5.01(c)(5)(i) of this Agreement or Section 5.04(b) of
the Indenture, as applicable.

          Section 9.03 Waiver of Defaults.

          The Initial Noteholder may waive any events permitting removal of the
Servicer as servicer pursuant to this Article IX. Upon any waiver of a past
default, such default shall cease to exist and any Servicer Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereto except to the extent expressly so
waived.

          Section 9.04 Accounting Upon Termination of Servicer.

          Upon termination of the Servicer under this Article IX, the Servicer
shall, at its own expense:

          (a) deliver to its successor or, if none shall yet have been appointed, to
the Paying Agent the funds in the Collection Account;

          (b) deliver to its successor or, if none shall yet have been appointed, to
the Collateral Custodian all Loan Files and related documents and statements
held by it hereunder and a Loan portfolio computer tape;

          (c) deliver to its successor, the Indenture Trustee, the Issuer and the
Securityholders a full accounting of all funds, including a statement showing
the Scheduled Payments collected by it and a statement of monies held in trust
by it for payments or charges with respect to the Loans; and

          (d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Loans to its successor and to more fully and definitively vest in such
successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.

          Section 9.05 Removal of Backup Servicer.

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          (a) The Backup Servicer may be removed, with or without cause, by the
Indenture Trustee, at the direction of the Initial Noteholder, by notice given
in writing to the Backup Servicer (the “Backup Servicer Termination Notice”).
In the event of any such removal, a replacement Backup Servicer may be
appointed by the Initial Noteholder or the Indenture Trustee with the consent
of the Initial Noteholder.

          (b) Upon the Backup Servicer’s receipt of a Backup Servicer Termination
Notice from the Indenture Trustee of the designation of a replacement Backup
Servicer, the Backup Servicer agrees that it will terminate its activities as
Backup Servicer hereunder.

ARTICLE X

THE COLLATERAL CUSTODIAN

          Section 10.01 Appointment.

          The Indenture Trustee, at the direction of the Initial Noteholder, hereby
appoints Wells Fargo Bank Minnesota, National Association to act as Collateral
Custodian, for the benefit of the Indenture Trustee, as agent for the
Noteholders. The Collateral Custodian hereby accepts such appointment and
agrees to perform the duties and obligation with respect thereto set forth
herein.

          Section 10.02 No Representations.

          In taking and retaining custody of the Required Loan Documents, the
Collateral Custodian shall be deemed to be acting as the agent of the
Noteholders; provided, however, that the Collateral Custodian makes no
representations as to the existence, perfection or priority of any Lien on the
Required Loan Documents or the instruments therein; and provided, further,
that, the Collateral Custodian’s duties as agent shall be limited to those
expressly contemplated herein.

          Section 10.03 Custody of Custodial Loan Files.

          All Custodial Loan Files shall be kept in fire resistant vaults, rooms or
cabinets at the office of the Collateral Custodian set forth in Section 13.06
hereof, or at such other office as shall be specified to the Indenture Trustee
by the Collateral Custodian in a written notice delivered at least forty- five
(45) days prior to such change. All Custodial Loan Files shall be placed
together with an appropriate identifying label and maintained in such a manner
so as to
permit retrieval and access. All Custodial Loan Files shall be clearly
segregated from any other documents or instruments maintained by the Collateral
Custodian.

          Section 10.04 Standard of Care.

          In performing its duties, the Collateral Custodian shall use the same
degree of care and attention as it employs with respect to loans similar to the
Loans that it holds as Collateral Custodian.

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          Section 10.04 Acknowledgment.

          The parties hereto hereby acknowledge and agree that the Collateral
Custodian’s execution of this Agreement shall constitute the Collateral
Custodian’s written acknowledgment and agreement that the Collateral Custodian
is holding any Collateral it receives that may be perfected by possession under
the UCC on behalf of and for the benefit of the Indenture Trustee and the
Noteholders.

ARTICLE XI

RESERVED

ARTICLE XII

TERMINATION

          Section 12.01 Termination.

          (a) This Agreement shall terminate upon either: (A) the later of (i) the
satisfaction and discharge of the Indenture and the provisions thereof, and
payment to the Noteholders of all amounts due and owing in accordance with the
provisions hereof or (ii) the disposition of all funds with respect to the last
Loan and the remittance of all funds due hereunder and the payment of all
amounts due and payable, including, in both cases, without limitation,
indemnification payments payable pursuant to any Basic Document to the
Indenture Trustee, the Owner Trustee, the Issuer, the Servicer and the
Collateral Custodian, written notice of the occurrence of either of which shall
be provided to the Indenture Trustee by the Servicer; or (B) the mutual consent
of the Servicer, the Depositor and all Securityholders in writing and delivered
to the Indenture Trustee by the Servicer.

          (b) The Securities shall be subject to an early redemption or termination
at the option of the Servicer and the Initial Noteholder in the manner and
subject to the provisions of Section 12.02 of this Agreement.

          (c) Except as provided in this Article XII, none of the Depositor, the
Servicer nor any Certificateholder or Noteholder shall be entitled to revoke or
terminate the Issuer.

          Section 12.02 Optional Termination.

          The Servicer may, at its option, effect an early termination of this
Agreement and the Collateral on any Business Day on or after the Clean-up Call
Date. The Servicer shall effect such early termination by providing notice
thereof to the Indenture Trustee and Owner Trustee and paying all amounts due
the Indenture Trustee, the Owner Trustee and the Noteholders hereunder (the
“Termination Price”).

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          Any such early termination by the Servicer shall be accomplished by
depositing into the Collection Account on the third Business Day prior to the
Payment Date on which the purchase is to occur the amount of the Termination
Price to be paid. The Termination Price and any amounts then on deposit in the
Collection Account (other than any amounts withdrawable pursuant to Section
5.01(c)(1) hereof) shall be deposited in the Distribution Account and
distributed by the Paying Agent pursuant to Section 5.01(c)(5) of this
Agreement and Section 9.1 of the Trust Agreement on the next succeeding Payment
Date; and any amounts received with respect to the Loans and Foreclosure
Properties subsequent to the final Payment Date shall belong to the purchaser
thereof.

          Section 12.03 Notice of Termination.

          Notice of termination of this Agreement or of early redemption and
termination of the Issuer pursuant to Section 12.01 shall be sent by the
Indenture Trustee to the Noteholders (in accordance with Section 12.02 of the
Indenture).

ARTICLE XIII

MISCELLANEOUS PROVISIONS

          Section 13.01 Acts of Securityholders.

          Except as otherwise specifically provided herein and except with respect
to Section 13.02(b), whenever action, consent or approval of the
Securityholders is required under this Agreement, such action, consent or
approval shall be deemed to have been taken or given on behalf of, and shall be
binding upon, all Securityholders if the Majority Noteholders agree to take
such action or give such consent or approval.

          Section 13.02 Amendment.

          (a) This Agreement may be amended from time to time by the Depositor, the
Servicer, the Paying Agent, the Loan Originator, the Collateral Custodian, the
Backup Servicer, the Indenture Trustee and the Issuer by written agreement with
notice thereof to the
Securityholders, without the consent of any of the Securityholders, to
cure any error or ambiguity, to correct or supplement any provisions hereof
which may be defective or inconsistent with any other provisions hereof or to
add any other provisions with respect to matters or questions arising under
this Agreement; provided, however, that such action will not adversely affect
in any material respect the interests of the Securityholders, as evidenced by
an Opinion of Counsel to such effect provided at the expense of the party
requesting such Amendment.

          (b) This Agreement may also be amended from time to time by the Depositor,
the Servicer, the Paying Agent, the Loan Originator, the Collateral Custodian,
the Backup Servicer, the Indenture Trustee and the Issuer by written agreement,
with the prior written

77

 

consent of the Majority Noteholders, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the rights of the
Securityholders; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, collections of payments on
Loans or distributions which are required to be made on any Security, without
the consent of the holders of 100% of the Securities, (ii) adversely affect in
any material respect the interests of any of the holders of the Securities in
any manner other than as described in clause (i), without the consent of the
holders of 100% of the Securities, or (iii) reduce the percentage of the
Securities, the consent of which is required for any such amendment, without
the consent of the holders of 100% of the Securities.

          (c) It shall not be necessary for the consent of Securityholders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.

          Prior to the execution of any amendment to this Agreement, the Issuer and
the Indenture Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement. The Issuer and the Indenture Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Issuer’s own
rights, duties or immunities of the Issuer or the Indenture Trustee, as the
case may be, under this Agreement.

          Any amendment to this Agreement which affects the rights or duties of the
Owner Trustee shall require the prior written consent of the Owner Trustee.

          Section 13.03 Recordation of Agreement.

          To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Property is
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Securityholders’ expense
on direction of the Majority Noteholders but only when accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Securityholders or is necessary for
the administration or servicing of the Loans.

          Section 13.04 Duration of Agreement.

          This Agreement shall continue in existence and effect until terminated as
herein provided.

78

 

          Section 13.05 Governing Law.

          THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.

          Section 13.06 Notices.

          All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if (i) delivered personally, mailed by
overnight mail, certified mail or registered mail, postage prepaid, or (ii)
transmitted by telecopy, upon telephone confirmation of receipt thereof, as
follows: (A) in the case of the Depositor, to CS Funding II Depositor LLC, 4445
Willard Avenue, Chevy Chase, Maryland 20815, Attention: Controller, telecopy
number (301) 841-2380, or such other addresses or telecopy or telephone numbers
as may hereafter be furnished to the Securityholders and the other parties
hereto in writing by the Depositor; (B) in the case of the Issuer, to
CapitalSource Funding II Trust, c/o Wilmington Trust Company, as Owner
Trustee, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, telecopy (302) 636-4140, telephone (302) 651-1000, or such other address
or telecopy or telephone numbers as may hereafter be furnished to the
Noteholders and the other parties hereto in writing by the Issuer; (C) in the
case of the Loan Originator, to CapitalSource Finance LLC, 4445 Willard Avenue,
Chevy Chase, Maryland 20815, Attention: Controller, telecopy number (301)
841-2380, or such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in
writing by the Loan Originator, (D) in the case of the Servicer, to
CapitalSource, 4445 Willard Avenue, Chevy Chase, Maryland 20815, Attention:
Controller, telecopy number (301) 841-2380, or such other addresses or telecopy
or telephone numbers as may hereafter be furnished to the Securityholders and
the other parties hereto in writing by the Servicer; (E) in the case of the
Collateral Custodian, to Wells Fargo Bank Minnesota, National Association, 751
Kasota Avenue, MAC N9328-011, Minneapolis, Minnesota, Attention: Corporate
Trust Services/Asset-Backed Securities Vault, telecopy number (612) 667-1080,
or such other addresses or telecopy or telephone numbers as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Collateral Custodian; (F) in the case of the Backup Servicer, to Wells Fargo
Bank Minnesota, National Association, MAC N9311-161, Sixth Street and
Marquette, Minneapolis, Minnesota 55479, Attention: Corporate Trust
Services/Asset-Backed Administration, telecopy number (612) 667-3539, or such
other addresses or telecopy or telephone numbers as may hereafter be furnished
to the Securityholders and the other parties hereto in writing by the Backup
Servicer; and (G) in the case of the Indenture Trustee, at the Corporate Trust
Office, as defined in the
Indenture, any such notices shall be deemed to be effective with respect
to any party hereto upon the receipt of such notice or telephone confirmation
thereof by such party.

          Section 13.07 Severability of Provisions.

79

 

          If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.

          Section 13.08 No Partnership.

          Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.

          Section 13.09 Counterparts.

          This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.

          Section 13.10 Successors and Assigns.

          This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Loan Originator, the Depositor, the Indenture Trustee, the Issuer
and the Securityholders and their respective successors and permitted assigns.

          Section 13.11 Headings.

          The headings of the various Sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.

          Section 13.12 Actions of Securityholders.

          (a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by an
agent 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 Depositor, the Servicer or the Issuer. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of
this Agreement and conclusive in favor of the Depositor, the Servicer and
the Issuer if made in the manner provided in this Section 13.12.

          (b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer may deem sufficient.

80

 

          (c) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Securityholder shall bind every holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, or omitted to be done, by the
Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.

          (d) The Depositor, the Servicer or the Issuer may require additional proof
of any matter referred to in this Section 13.12 as it shall deem necessary.

          Section 13.13 Non-Petition Agreement.

          Notwithstanding any prior termination of any Basic Document, the Loan
Originator, the Paying Agent, the Servicer, the Depositor and the Indenture
Trustee each severally and not jointly covenants that it shall not, prior to
the date which is one year and one day after the payment in full of the all of
the Notes, acquiesce, petition or otherwise, directly or indirectly, invoke or
cause the Issuer or the Depositor to invoke the process of any governmental
authority for the purpose of commencing or sustaining a case against the Issuer
or Depositor under any Federal or state bankruptcy, insolvency or similar law
or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer or Depositor or any
substantial part of their respective property or ordering the winding up or
liquidation of the affairs of the Issuer or the Depositor.

          Section 13.14 Holders of the Securities.

          (a) Any sums to be distributed or otherwise paid hereunder or under this
Agreement to the holders of the Securities shall be paid to such holders pro
rata based on their Percentage Interests;

          (b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Securities, such consent or approval
shall be capable of being given by the holder or holders evidencing in the
aggregate not less than 51% of the Percentage Interests.

          Section 13.15 Due Diligence.

          The Loan Originator acknowledges that the Initial Noteholder may purchase
Notes and Additional Note Principal Balances and may enter into transactions
based solely upon
the information provided by the Loan Originator to the Initial Noteholder
in the Loan Schedule and the representations, warranties and covenants
contained herein, and that the Initial Noteholder, at its option, has the right
prior to such purchase of the Notes or Additional Note Principal Balance
therein or such Transactions to conduct a partial or complete due diligence
review on some or all of the Eligible Loans securing such purchase, including
without limitation ordering new credit reports on the related Mortgaged
Properties and otherwise re-generating the information used to originate such
Loan. The Initial Noteholder may underwrite such Loans itself or engage a
mutually agreed upon third party underwriter to perform such underwriting.

81

 

The
Loan Originator agrees to cooperate with the Initial Noteholder and any third
party underwriter in connection with such underwriting, including, but not
limited to, providing the Initial Noteholder and any third party underwriter
with access to any and all documents, records, agreements, instruments or
information relating to such Loans in the possession, or under the control, of
the Servicer. The Loan Originator also shall make available to the Initial
Noteholder a knowledgeable financial or accounting officer for the purpose of
answering questions respecting the Loan Files and the Loans. Each Noteholder
agrees (on behalf of itself and its Affiliates, directors, officers, employees
and representatives) to use reasonable precaution to keep confidential, in
accordance with its customary procedures for handling confidential information
and in accordance with safe and sound practices, and not to disclose to any
third party, any non-public information supplied to it or otherwise obtained by
it hereunder with respect to the Loan Originator or any of its Affiliates
(including, but not limited to, the Loan File); provided, however, that nothing
herein shall prohibit the disclosure of any such information to the extent
required by statute, rule, regulation or judicial process; provided, further
that, unless specifically prohibited by applicable law or court order, the
Noteholder shall, prior to disclosure thereof, notify the Loan Originator of
any request for disclosure of any such non-public information. The Noteholder
further agrees not to use any such non-public information for any purpose
unrelated to this Agreement and that each such Noteholder shall not disclose
such non-public information to any third party underwriter in connection with a
potential Disposition without obtaining a written agreement from such third
party underwriter to comply with the confidentiality provisions of this Section
13.15.

          Section 13.16 No Reliance.

          Each of the Loan Originator, the Depositor and the Issuer hereby
acknowledges that it has not relied on the Initial Noteholder or any of its
officers, directors, employees, agents and “control persons” as such term is
used under the Act and under the Securities Exchange Act of 1934, as amended,
for any tax, accounting, legal or other professional advice in connection with
the transactions contemplated by the Basic Documents, that each of the Loan
Originator, the Depositor and the Issuer has retained and been advised by such
tax, accounting, legal and other professionals as it has deemed necessary in
connection with the transactions contemplated by the Basic Documents and that
the Initial Noteholder makes no representation or warranty, and shall have no
liability with respect to, the tax, accounting or legal treatment or
implications relating to the transactions contemplated by the Basic Documents.

          Section 13.17 Conflicts.

          Notwithstanding anything contained in the Basic Documents to the contrary,
in the event of the conflict between the terms of this Agreement and any other
Basic Document, the terms of this Agreement shall control.

82

 

          Section 13.18 Limitation on Liability.

          It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of CapitalSource
Funding II Trust, in the exercise of the powers and authority conferred and
vested in it, (b) each of the representations, undertakings and agreements
herein made on the part of the Issuer is made and intended not as personal
representations, undertakings and agreements by Wilmington Trust Company but is
made and intended for the purpose for binding only the Issuer, (c) nothing
herein contained shall be construed as creating any liability on Wilmington
Trust Company, individually or personally, to perform any covenant either
expressed or implied contained herein, all such liability, if any, being
expressly waived by the parties hereto and by any Person claiming by, through
or under the parties hereto and (d) under no circumstances shall Wilmington
Trust Company be personally liable for the payment of any indebtedness or
expenses of the Issuer or be liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by the
Issuer under this Agreement or any other related documents.

          Section 13.19 No Agency.

          Nothing contained herein or in the Basic Documents shall be construed to
create an agency or fiduciary relationship between the Initial Noteholder, the
Noteholders or any of their Affiliates and the Issuer, the Depositor, the Loan
Originator or the Servicer. None of the Initial Noteholder, any Noteholders or
any of their Affiliates shall be liable for any acts or actions affected in
connection with a Disposition including without limitation, any Securitization
pursuant to Section 3.06 nor any Whole Loan Sale pursuant to Section 3.06
hereof.

          Section 13.20 Third Party Beneficiaries.

     The Owner Trustee is an intended third party beneficiary of this
Agreement.

          Section 13.21 Performance by Wells Fargo Bank Minnesota, National Association.

     The parties expressly acknowledge and consent to Wells Fargo Bank
Minnesota, National Association acting in the capacities of successor Servicer
and in the capacity as Indenture Trustee, Backup Servicer and Collateral
Custodian. Wells Fargo Bank Minnesota, National Association may, in such dual
capacity, discharge its separate functions fully, without hindrance or regard
to conflict of interest principles, duty of loyalty principles or other breach
of fiduciary duties to the extent that any such conflict or breach arises from
the performance by Wells Fargo
Bank Minnesota, National Association of express duties set forth in this
Agreement in any of such capacities, all of which defenses, claims or
assertions are hereby expressly waived by the other parties hereto except in
the case of negligence (other than errors in judgment) and willful misconduct
by Wells Fargo Bank Minnesota, National Association.

(SIGNATURE PAGE FOLLOWS)

83

 

          IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed by their respective officers thereunto duly authorized, as of the day
and year first above written, to this Sale and Servicing Agreement.

	 	 	 	 	 
	 	 	CAPITALSOURCE FUNDING II TRUST,
	 	 	
By:
	 	Wilmington Trust Company, not in its individual

capacity but solely as Owner Trustee
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:
	 	 	 	 	 
	 	 	CS FUNDING II DEPOSITOR LLC, as Depositor
	 	 	 	 	 
	 	 	
BY:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:
	 	 	 	 	 
	 	 	CAPITALSOURCE FINANCE LLC, as
	 	 	Loan Originator and Servicer
	 	 	 	 	 
	 	 	
BY:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:
	 	 	 	 	 
	 	 	WELLS FARGO BANK MINNESOTA, NATIONAL
	 	 	ASSOCIATION, as Indenture Trustee, Collateral
	 	 	Custodian and Backup Servicer
	 	 	 	 	 
	 	 	
BY:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:

Sale and Servicing Agreement

 

 

EXHIBIT A

FORM OF NOTICE OF ADDITIONAL NOTE PRINCIPAL BALANCE

[Letterhead of
                           ]

	 	 	 
	 	 	
[Date]
	 	 	 
	CAPITALSOURCE FUNDING II TRUST	 	
CITIGROUP GLOBAL MARKETS REALTY CORP.

WELLS FARGO BANK MINNESOTA,

    NATIONAL ASSOCIATION

          Re: CapitalSource Funding II Trust Commercial Loan-Backed Notes

          Reference is made to the Sale and Servicing Agreement, dated as of
September 17, 2003 (the “Sale and Servicing Agreement”), among CapitalSource
Funding II Trust, as Issuer, CS Funding II Depositor LLC, as Depositor,
CapitalSource Finance LLC, as Loan Originator and Servicer, and Wells Fargo
Minnesota, National Association, as Indenture Trustee, Collateral Custodian and
Backup Servicer. Capitalized terms not defined herein shall have the meanings
assigned to such terms in the Sale and Servicing Agreement.

          The
undersigned                      , a duly appointed               of           
     , acting in such capacity, hereby requests an advance of
Additional Note Principal Balance in an amount of $               , such amount to be
advanced on     , 200     , a Business Day at least [one Business Day] from the
date hereof.

	 	 	 	 	 
	 	 	Very truly yours,
	 	 	 	 	 
	 	 	CS FUNDING II DEPOSITOR LLC
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	
	 
	 	 	
Name:	 	 
	 	 	
Title:	 	 

 

 

EXHIBIT B

FORM OF MONTHLY SERVICER REPORT

B-1

 

EXHIBIT C

FORM OF S&SA ASSIGNMENT

          ASSIGNMENT
NO.   OF LOANS (“S&SA Assignment”),
dated            
         , (the
“Transfer Date”), by CS Funding II Depositor LLC, (the “Depositor”) to
CapitalSource Funding II Trust (the “Issuer”) pursuant to the Sale and
Servicing Agreement referred to below.

WITNESSETH:

          WHEREAS, the Depositor and the Issuer are parties to the Sale and
Servicing Agreement dated as of September 17, 2003 (the “Sale and Servicing
Agreement”) among the Depositor, the Issuer, the Servicer, the Loan Originator
and the Indenture Trustee on behalf of the Noteholders, hereinafter as such
agreement may have been, or may from time to time be, amended, supplemented or
otherwise modified;

          WHEREAS, pursuant to the Sale and Servicing Agreement, the Depositor
wishes to sell, convey, transfer and assign Loans to the Issuer in exchange for
cash consideration, the Trust Certificates and other good and valid
consideration the receipt and sufficiency of which is hereby acknowledged; and

          WHEREAS, the Issuer is willing to acquire such Loans subject to the terms
and conditions hereof and of the Sale and Servicing Agreement;

          NOW THEREFORE, the Depositor and the Issuer hereby agree as follows:

          1. Defined Terms. All capitalized terms defined in the Sale and Servicing
Agreement and used herein shall have such defined meanings when used herein,
unless otherwise defined herein.

          2. Designation of Loans. The Depositor does hereby deliver herewith a
Loan Schedule containing a true and complete list of each Loan to be conveyed
on the Transfer Date. Such list is marked as Schedule A to this S&SA
Assignment and is hereby incorporated into and made a part of this S&SA
Assignment.

          3. Conveyance of Loans. The Depositor hereby sells, transfers, assigns
and conveys to the Issuer, without recourse, all of the right, title and
interest of the Depositor in and to the Loans and all proceeds thereof listed
on the Loan Schedule attached hereto, including all interest and principal
received by the Depositor or the Servicer on or with respect to the Loans on or
after the related Transfer Date together with all right, title and interest in
and to the proceeds of any related Insurance Policies and the related Loan
Collateral.

C-1

 

          4. Issuer Acknowledges Assignment. As of the Transfer Date, pursuant to
this S&SA Assignment and Section 2.01(a) of the Sale and Servicing Agreement,
the Issuer
acknowledges its receipt of the Loans listed on the attached Loan Schedule
and all other related property in the Collateral.

          5. Acceptance of Rights But Not Obligations. The foregoing sale,
transfer, assignment, set over and conveyance does not, and is not intended to,
result in a creation or an assumption by the Issuer of any obligation of the
Depositor, the Loan Originator or any other Person in connection with this S&SA
Assignment or under any agreement or instrument relating thereto except as
specifically set forth herein.

          6. Depositor Acknowledges Receipt of Sales Price. The Depositor hereby
acknowledges receipt of the Sales Price or that is otherwise distributed at its
direction.

          7. Conditions Precedent. The conditions precedent in Section 2.06(a) of
the Sale and Servicing Agreement have been satisfied.

          8. Amendment of the Sale and Servicing Agreement. The Sale and Servicing
Agreement is hereby amended by providing that all references to the “Sale and
Servicing Agreement”, “this Agreement” and “herein” shall be deemed from and
after the Transfer Date to be a dual reference to the Sale and Servicing
Agreement as supplemented by this S&SA Assignment. Except as expressly amended
hereby, all of the representations, warranties, terms, covenants and conditions
of the Sale and Servicing Agreement shall remain unamended and the Sale and
Servicing Agreement shall continue to be, and shall remain, in full force and
effect in accordance with its terms and except as expressly provided herein,
this S&SA Assignment shall not constitute or be deemed to constitute a waiver
of compliance with or consent to noncompliance with any term or provision of
the Sale and Servicing Agreement.

          9. Counterparts. This S&SA Assignment may be executed in any number of
counterparts all of which taken together shall constitute one and the same
instrument.

C-2

 

          IN WITNESS WHEREOF, the undersigned have caused this S&SA Assignment to be
duly executed and delivered by their respective duly authorized officers on the
day and year first above written.

	 	 	 	 	 
	 	 	CS FUNDING II DEPOSITOR LLC,
	 	 	as Depositor
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	
Name:	 	 
	 	 	
Title:	 	 
	 	 	 	 	 
	 	 	CAPITALSOURCE
FUNDING II TRUST,
 as Issuer
	 	 	 	 	 
	 	 	
By:	 	CapitalSource
Finance LLC, as Servicer
	 	 	 	 	and Administrator
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	
Name:	 	 
	 	 	
Title:	 	 

C-3

 

EXHIBIT D

FORM OF LOAN SCHEDULE

          The Loan Schedule shall set forth the following information with respect
to each Eligible Loan:

[TO BE PROVIDED]

D-1

 

EXHIBIT E-1

FORM OF INITIAL CERTIFICATION

BY FACSIMILE:

Citigroup Global Markets Realty Corp.

390 Greenwich St.

New York, NY 10013

	Re:	 	 Sale and Servicing Agreement dated as of September 17,2003 (the
“Agreement”), by and among CapitalSource Funding II Trust as Issuer, CS
Funding II Depositor LLC, as Depositor, CapitalSource Finance LLC as the
Loan Originator and Servicer, and Wells Fargo Bank Minnesota, National
Association, as Indenture Trustee, Backup Servicer and as Collateral
Custodian.

Ladies and Gentlemen:

In accordance with the provisions of Section 2.05(b)(i) of the above-referenced
Agreement, the undersigned, as the Collateral Custodian, hereby certifies as to
each Loan in the Loan List that it has received by facsimile transmission or in
an electronic format acceptable to the Collateral Custodian the original
executed Underlying Note and the Assignment of Mortgage (if any), in each case,
endorsed in blank, with respect to each Loan identified on the Loan List
attached hereto, along with the exception of the missing items listed therein.
The Collateral Custodian makes no representations as to (i) the validity,
legality, enforceability, sufficiency, due authorization or genuineness of any
of the documents contained in each Loan File or of any of the Loans or (ii) the
collectability, insurability, effectiveness or suitability of any such Loan.

The Collateral Custodian hereby confirms that it is holding each such Loan
Document as agent and bailee of, and custodian for the exclusive use and
benefit, and subject to the sole direction, of the Deal Agent pursuant to the
terms and conditions of the Agreement.

The Collateral Custodian will accept and act on instructions with respect to
the Loans subject hereto upon surrender of this Trust Receipt and Initial
Certification at its office at Sixth Street and Marquette Avenue, N9311-161,
Minneapolis, Minnesota 55479.

Capitalized terms used herein shall have the meaning ascribed to them in the
Agreement.

	 	 	 	 	 
	 	 	WELLS FARGO BANK MINNESOTA,
	 	 	 NATIONAL ASSOCIATION,
	 	 	 	 	 
	 	 	as Collateral Custodian
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	
	 
	 	 	
  Name:	 	 
	 	 	
  Title:  	 	 

E-1-1

 

EXHIBIT E-2

FORM OF FINAL CERTIFICATION

BY FACSIMILE:

Citigroup Global Markets Realty Corp.

390 Greenwich St.

New York, NY 10013

	 	Re:	 	 Sale and Servicing Agreement dated as of September 17,2003
(the “Agreement”), by and among CapitalSource Funding II Trust as
Issuer, CS Funding II Depositor LLC, as Depositor, CapitalSource
Finance LLC as the Loan Originator and Servicer, and Wells Fargo
Bank Minnesota, National Association, as Indenture Trustee, Backup
Servicer and as Collateral Custodian.

Ladies and Gentlemen:

In accordance with the provisions of Section 2.05(b)(ii) of the
above-referenced Agreement, the undersigned, as the Collateral Custodian,
hereby certifies as to each Loan in the Loan List that it has received the
Required Loan Documents with respect to each Loan identified on the Loan List
attached hereto, along with the exception of the missing items listed therein.
The Collateral Custodian makes no representations as to (i) the validity,
legality, enforceability, sufficiency, due authorization or genuineness of any
of the documents contained in each Loan File or of any of the Loans or (ii) the
collectability, insurability, effectiveness or suitability of any such Loan.

The Collateral Custodian hereby confirms that it is holding each such Loan
Document as agent and bailee of, and custodian for the exclusive use and
benefit, and subject to the sole direction, of the Noteholders pursuant to the
terms and conditions of the Agreement.

The Collateral Custodian will accept and act on instructions with respect to
the Loans subject hereto upon surrender of this Trust Receipt and Initial
Certification at its office at Sixth Street and Marquette Avenue, N9311-161,
Minneapolis, Minnesota 55479.

Capitalized terms used herein shall have the meaning ascribed to them in the
Agreement.

	 	 	 	 	 
	 	 	WELLS FARGO BANK MINNESOTA,
	 	 	NATIONAL ASSOCIATION,
	 	 	 	 	 
	 	 	as Collateral Custodian
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	
   Name:	 
	 	 	
   Title:	 

E-2-1

 

EXHIBIT F

FORM OF BORROWING BASE CERTIFICATE

[DATE]

Citigroup Global Markets Realty Corp.

390 Greenwich Street

New York, New York 10013

Attention:

Ladies and Gentlemen:

     This Borrowing Base Certificate is delivered to you pursuant to (i)
Section 2.02 of the Note Purchase Agreement (the “Note Purchase Agreement”),
dated as of September 17, 2003, among CapitalSource Funding II Trust, as
Issuer, CS Funding II Depositor LLC, as Depositor, CapitalSource Finance LLC,
as Loan Originator and Servicer (“CapitalSource”) and Citigroup Global Markets
Realty Corp., as Purchaser and (ii) Section 2.06 of the Sale and Servicing
Agreement (the “Sale and Servicing Agreement”; and together with the Purchase
Agreement, the “Agreements”), dated as of September 17, 2003, among the Issuer,
the Depositor, CapitalSource, as Loan Originator and Servicer and Wells Fargo
Bank Minnesota, National Association, as Indenture Trustee, Backup Servicer and
Collateral Custodian. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in the Agreements.

     As of the date hereof, CapitalSource hereby makes the following
representations and warranties:

	 	(1)	 	Attached hereto as Schedule 1 is a true, correct and complete
copy of the borrowing base report (the “Borrowing Base Report”),
which sets forth the calculation of the Borrowing Base and all
components thereof;
	 
	 	(2)	 	All conditions precedent to the related Transfer Date set
forth in Section 2.06 of the Sale and Servicing Agreement have been
satisfied as of the date hereof and will remain satisfied on the
related Transfer Date;
	 
	 	(3)	 	All of the representations and warranties set forth in
Article III of the Sale and Servicing Agreement are true and correct
as of the date hereof and as of the related Transfer Date;
	 
	 	(4)	 	All of the conditions precedent set forth in Section 3.01 of
the Note Purchase Agreement have been satisfied as of the date
hereof and will remain satisfied on the related Transfer Date;

F-1

 

	 	(5)	 	All of the representations and warranties set forth in
Article V of the Note Purchase Agreement are true and correct as of
the date hereof and as of the related Transfer Date;
	 
	 	(6)	 	No Trigger Event shall have occurred and be continuing; and
	 
	 	(7)	 	Each of the Loan Originator, the Servicer, the Issuer and the
Depositor is in compliance with the covenants set forth in the Basic
Documents.

     IN WITNESS WHEREOF, the undersigned have executed this Borrowing Base
Certificate this     day of     , 200   .

	 	 	 
	 	
CAPITALSOURCE FINANCE LLC, as Loan
	 	
Originator and Servicer
	 	 	 
	 	 	
By:
	 	 	
Name:
	 	 	
Title:

F-2

 

Schedule 1

BORROWING BASE REPORT

F-3

 

EXHIBIT G

LIST OF INVESTORS

F-4

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