Document:

Mortgage Loan Purchase Agreement

 Exhibit 10.1 
  
 NOVASTAR MORTGAGE, INC. 
 as Seller, 
  
 NOVASTAR MORTGAGE FUNDING CORPORATION

 as Company, 
  
 WACHOVIA BANK, NATIONAL ASSOCIATION 
 as
Custodian 
  
 and 
  
 JPMORGAN CHASE BANK 
 as Trustee 
  
 MORTGAGE LOAN PURCHASE AGREEMENT 
  
 Dated as of June 1,
2004 
  
 Fixed and Adjustable Rate Mortgage Loans 
  
 NovaStar Mortgage Funding Trust, Series 2004-2 
 NovaStar Home Equity Loan Asset-Backed Certificate, Series 2004-2 
  

 TABLE OF CONTENTS 
  

			
	 	  	Page(s)

		
	 ARTICLE I DEFINITIONS
	  	1
		
	 Section 1.01 Definitions
	  	1
		
	 ARTICLE II SALE OF MORTGAGE LOANS AND RELATED PROVISIONS
	  	2
		
	 Section 2.01 Sale of Initial Mortgage Loans and MI Policies
	  	2
	 Section 2.02 Conveyance of the Subsequent Mortgage Loans
	  	5
	 Section 2.03 Pre-Funding Account
	  	9
		
	 ARTICLE III REPRESENTATIONS AND WARRANTIES; REMEDIES FOR BREACH
	  	9
		
	 Section 3.01 Seller Representations and Warranties
	  	9
	 Section 3.02 Company Representations and Warranties
	  	27
		
	 ARTICLE IV SELLER’S COVENANTS
	  	28
		
	 Section 4.01 Covenants of the Seller
	  	28
	 Section 4.02 Payment of Expenses
	  	29
		
	 ARTICLE V CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE
	  	29
		
	 Section 5.01 Conditions of Company’s Obligations
	  	29
		
	 ARTICLE VI INDEMNIFICATION BY THE SELLER WITH RESPECT TO THE MORTGAGE LOANS
	  	30
		
	 Section 6.01 Indemnification With Respect to the Mortgage Loans
	  	30
	 Section 6.02 Limitation on Liability of the Seller
	  	30
		
	 ARTICLE VII TERMINATION
	  	30
		
	 Section 7.01 Termination
	  	30
		
	 ARTICLE VIII MISCELLANEOUS PROVISIONS
	  	32
		
	 Section 8.01 Amendment
	  	32
	 Section 8.02 Governing Law
	  	32
	 Section 8.03 Notices
	  	32
	 Section 8.04 Severability of Provisions
	  	33
	 Section 8.05 Relationship of Parties
	  	33
	 Section 8.06 Counterparts
	  	33
	 Section 8.07 Further Agreements
	  	34
	 Section 8.08 Intention of the Parties
	  	34

  

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	 Section 8.09 Successors and Assigns; Assignment of Purchase Agreement
	  	34
	 Section 8.10 Survival
	  	35
	 Section 8.11 Third Party Beneficiary
	  	35
	 Section 8.12 Liability of the Trustee
	  	35

  

			
	 EXHIBIT 1
	  	Initial Mortgage Loan Schedule
	 EXHIBIT 2(A)
	  	Seller’s Subsequent Transfer Instrument
	 EXHIBIT 2(B)
	  	Company’s Subsequent Transfer Instrument

  

 ii 

 THIS MORTGAGE LOAN PURCHASE AGREEMENT (this “Purchase Agreement”), dated as of June 1,
2004, is made among NovaStar Mortgage, Inc. (the “Seller”), NovaStar Mortgage Funding Corporation (the “Company”), Wachovia Bank, National Association (the “Custodian”) and JPMorgan Chase Bank (the
“Trustee”). 
  
 WITNESSETH THAT: 
  
 WHEREAS, pursuant to the terms of this Purchase Agreement, the Seller will sell the Initial Mortgage Loans and the related MI Policies to the Company on
the Closing Date; 
  
 WHEREAS, pursuant to the terms of the
Pooling and Servicing Agreement, the Company will transfer the Initial Mortgage Loans and the related MI Policies, and assign all of its rights under the Purchase Agreement, to the Trustee, without recourse, on the Closing Date; 
  
 WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the
Trustee will issue the Certificates; 
  
 WHEREAS, pursuant to the
terms of the Pooling and Servicing Agreement, the Trustee will transfer the Certificates to the Company; 
  
 WHEREAS, pursuant to the terms of the Underwriting Agreement, the Company will sell the Underwritten Certificates to the Underwriters; 
  
 WHEREAS, pursuant to the terms of the REMIC Interests Sale Agreement, the
Company will sell the Class X Certificates (including the net value represented by the Class I Certificates), Class O Certificates, the Class P Certificates and the Residual Certificates to NovaStar Certificates Financing Corporation
(“NCFC”); 
  
 WHEREAS, pursuant to the terms of
the Pooling and Servicing Agreement, the Servicer will service the Mortgage Loans; and 
  
 WHEREAS, pursuant to the terms of the Converted Loan Purchase Agreement, the Converted Loan Purchaser will be obligated to purchase the Converted Mortgage Loans from the Trustee. 
  
 ARTICLE I 
  
 DEFINITIONS 
  
 Section 1.01 Definitions. 
  
 For all purposes of this Purchase Agreement, except as otherwise expressly provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the Definitions contained in Appendix A to the Pooling and Servicing Agreement, dated as of June 1, 2004, among the Custodian, the Trustee, the Company and NovaStar Mortgage,
Inc. as seller and servicer (the “Servicer”) which is incorporated by reference herein. All other capitalized terms used herein shall have the meanings specified herein. 
  

 1 

 ARTICLE II 
  

SALE OF MORTGAGE LOANS AND RELATED PROVISIONS 
  
 Section 2.01 Sale of Initial Mortgage Loans and MI Policies. 
  
 (a) The Seller hereby sells, and the Company hereby purchases on the Closing Date the Initial Mortgage Loans identified (and
the related MI Policies) on the Mortgage Loan Schedule annexed hereto as Exhibit 1, the proceeds thereof and all rights under the Related Documents (including the related Mortgage Files). The Initial Mortgage Loans consist of a group of
conventional, residential first lien mortgage loans with fixed and adjustable interest rates (the “Group I Mortgage Loans”) and a group of residential first and second lien mortgage loans with fixed and adjustable interest rates
(the “Group II Mortgage Loans”). The Initial Mortgage Loans will have a Principal Balance as of the close of business on the Cut-off Date, after giving effect to any payments due on or before such date whether or not received, of
approximately $840,277,965. The sale of the Initial Mortgage Loans will take place on the Closing Date, subject to and simultaneously with the deposit of the Initial Mortgage Loans and the Original Pre-Funded Amount into the Trust Fund, the issuance
of the Certificates by the Trustee and the sale of the Underwritten Certificates pursuant to the Underwriting Agreement. The purchase price (the “Purchase Price”) for the Initial Mortgage Loans to be paid by the Company to the
Seller on the Closing Date shall consist of the following: 
  
 (i) a payment in an amount equal to $1,374,058,437.50 representing the net proceeds of the sale of the Underwritten Certificates, which payment shall be paid to the Seller by wire transfer in immediately available
funds on the Closing Date by or on behalf of the Company, or as otherwise agreed by the Company; and 
  
 (ii) a payment in an amount equal to $25,199,900 representing the proceeds of the sale of the Class O Certificates, the Class P and Class
X Certificates (including the net value represented by the Class I Certificates) by the Company to NCFC pursuant to the REMIC Interests Sale Agreement, which payment shall be paid to the Seller by wire transfer in immediately available funds on the
Closing Date by or on behalf of the Company, or as otherwise agreed by the Company. 
  
 (b) [Reserved] 
  
 (c) In
connection with such conveyances by the Seller, the Seller shall on behalf of and at the direction of the Company deliver to, and deposit with the Custodian on behalf of the Trustee, on or before the Closing Date in the case of an Initial Mortgage
Loan and two Business Days prior to the related Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, the following documents or instruments with respect to each Mortgage Loan (the “Mortgage File”): 
  
 (i) the original Mortgage Note endorsed to “JPMorgan
Chase Bank, as Trustee of the NovaStar Mortgage Funding Trust, Series 2004-2, relating to the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2004-2”; 
  

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 (ii) the original Mortgage with evidence of recording thereon, or, if the original
Mortgage has not yet been returned from the public recording office, a copy of the original Mortgage certified by the Seller or the public recording office in which such original Mortgage has been recorded and if the Mortgage Loan is registered on
the MERS System, such Mortgage shall include thereon a statement that it is a MOM Loan and shall include the MIN for such Mortgage Loan; 
  
 (iii) unless the Mortgage Loan is registered on the MERS System, an original assignment (which may be included in one or more blanket
assignments if permitted by applicable law) of the Mortgage endorsed to “JPMorgan Chase Bank, as Trustee of the NovaStar Mortgage Funding Trust, Series 2004-2, relating to the NovaStar Home Equity Loan Asset-Backed Certificates, Series
2004-2”, and otherwise in recordable form; 
  
 (iv) originals of any intervening assignments of the Mortgage showing an unbroken chain of title from the originator thereof to the Person assigning it to the Trustee (or to MERS, if the Mortgage Loan is registered on the MERS System, and
noting the presence of a MIN, if the Mortgage Loan is registered on the MERS System), with evidence of recording thereon, or, if the original of any such intervening assignment has not yet been returned from the public recording office, a copy of
such original intervening assignment certified by the Seller or the public recording office in which such original intervening assignment has been recorded; 
  
 (v) the original policy of title insurance (or a commitment for title insurance, if the policy is being held by the title insurance
company pending recordation of the Mortgage); 
  
 (vi) true and correct copy of each assumption, modification, consolidation or substitution agreement, if any, relating to the Mortgage Loan; and 
  
 (vii) an executed copy of the notice of assignment and acknowledgement of assignment with respect to the Mortgage Loans covered by the MI
Policies. 
  
 If a material defect in any Mortgage File is
discovered which may materially and adversely affect the value of the related Mortgage Loan, or the interests of the Trustee (as pledgee of the Mortgage Loans), or the Certificateholders in such Mortgage Loan, including if any document required to
be delivered to the Custodian has not been delivered (provided that a Mortgage File will not be deemed to contain a defect for an unrecorded assignment under clause (iii) above for 180 days following submission of the assignment if the Seller has
submitted such assignment for recording pursuant to the terms of the following paragraph), the Seller shall cure such defect, repurchase the related Mortgage Loan at the Repurchase Price or substitute an Eligible Substitute Mortgage Loan for the
related Mortgage Loan upon the same terms and conditions set forth in Section 3.01 hereof as to the Initial Mortgage Loans and the Subsequent Mortgage Loans and Section 2.02(c) hereof as to the Subsequent Mortgage Loans for breaches of
representations and warranties. 
  
 Promptly after the Closing
Date in the case of an Initial Mortgage Loan or, in the case of a Subsequent Mortgage Loan, promptly after the Subsequent Transfer Date (or after the date of transfer of any Eligible Substitute Mortgage Loan), the Seller at its own expense shall

  

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complete and submit for recording in the appropriate public office for real property records each of the assignments referred to in clause (iii) above, with
such assignment completed in favor of the Trustee, excluding any Mortgage Loan that is registered on the MERS System if MERS is identified on the Mortgage or on a properly recorded assignment of Mortgage as the mortgagee of record. While such
assignment to be recorded is being recorded, the Custodian shall retain a photocopy of such assignment. If any assignment is lost or returned unrecorded to the Custodian because of any defect therein, the Seller is required to prepare a substitute
assignment or cure such defect, as the case may be, and the Seller shall cause such substitute assignment to be recorded in accordance with this paragraph. 
  
 In instances where an original Mortgage or any original intervening assignment of Mortgage is not, in accordance with clause (ii) or (iv) above, delivered
by the Seller to the Custodian, on behalf of the Trustee, prior to or on the Closing Date in the case of an Initial Mortgage Loan or, in the case of a Subsequent Mortgage Loan, prior to or on the Subsequent Transfer Date, the Seller will deliver or
cause to be delivered the originals of such documents to the Custodian, on behalf of the Trustee, promptly upon receipt thereof. 
  
 In connection with the assignment of any Initial Mortgage Loan registered on the MERS System, promptly after the Closing Date, the Seller further agrees
that it will cause, at the Seller’s own expense, the MERS System to indicate that such Initial Mortgage Loan has been assigned by the Seller to the Trustee in accordance with this Agreement for the benefit of the Certificateholders by including
in such computer files (a) the applicable Trustee code in the field “Trustee” which identifies the Trustee and (b) the code “NovaStar 2004-2” (or its equivalent) in the field “Pool” which identifies the series of the
Certificates issued in connection with such Mortgage Loans. The Custodian will certify in its final certification that the MERS System shows the Trustee on behalf of the Certficateholders as the beneficial owner of the Mortgage Loans registered on
the MERS System. 
  
 Effective on the Closing Date, the Company
hereby acknowledges its acceptance of all right, title and interest to the Initial Mortgage Loans and other property, existing on the Closing Date and thereafter created and conveyed to it pursuant to this Section 2.01. 
  
 The Trustee, as assignee or transferee of the Company, shall be entitled to
all scheduled principal payments due after the Cut-off Date, all other payments of principal due and collected after the Cut-off Date, and all payments of interest on the Initial Mortgage Loans. No scheduled payments of principal due on or before
the Cut-off Date and collected after the Cut-off Date shall belong to the Company pursuant to the terms of this Purchase Agreement. The Pooling and Servicing Agreement shall provide that any late payment charges collected in connection with a
Mortgage Loan shall be paid to the Servicer as provided therein. 
  
 (d) The parties hereto intend that the transactions set forth herein constitute a sale by the Seller to the Company on the Closing Date of all the Seller’s right, title and interest in and to the Initial Mortgage Loans and other
property as and to the extent described above. In the event the transactions set forth herein shall be deemed not to be a sale, the Seller hereby grants to the Company as of the Closing Date a security interest in all of the Seller’s right,
title and interest in, to and under the Initial Mortgage Loans and such other property, to secure all of the Seller’s obligations hereunder and this Purchase Agreement shall constitute a security agreement under 

  

 4 

 
applicable law and in such event, the parties hereto acknowledge that the Custodian, in addition to holding the Initial Mortgage Loans on behalf of the
Trustee for the benefit of the Certificateholders, holds the Initial Mortgage Loans as designee of the Company. The Seller agrees to take or cause to be taken such actions and to execute such documents, including without limitation the filing of all
necessary UCC-1 financing statements filed in the Commonwealth of Virginia (which shall have been submitted for filing as of the Closing Date and each Subsequent Transfer Date, as applicable), any continuation statements with respect thereto and any
amendments thereto required to reflect a change in the name or corporate structure of the Seller, as are necessary to perfect and protect the interests of the Company and their respective assignees in each Initial Mortgage Loan and the proceeds
thereof and the interests of the Trustee and its assignees in each Subsequent Mortgage Loan and the proceeds thereof. The Company agrees to take or cause to be taken such actions and to execute such documents, including without limitation the filing
of all necessary UCC-1 financing statements, and continuation statements with respect thereto and any amendments thereto as are necessary to perfect and protect the interests of the Trustee and its assignees in each Initial Mortgage Loan.

  
 Section 2.02 Conveyance of the Subsequent Mortgage
Loans. 
  
 (a) Subject to the conditions set forth in
paragraph (b) below in consideration of the Trustee’s delivery on the related Subsequent Transfer Dates of all or a portion of the balance of funds in the Pre-Funding Account, the Seller shall on any Subsequent Transfer Date sell, transfer,
assign, set over and convey, without recourse, to the Company, who shall then sell, transfer, assign, set over and convey, without recourse, to the Trustee, but subject to the other terms and provisions of this Purchase Agreement and the Pooling and
Servicing Agreement, all of the right, title and interest of the Seller in and to (i) the Subsequent Mortgage Loans (and the related MI Policies) identified on the related Mortgage Loan Schedule attached to the related Subsequent Transfer Instrument
delivered by the Seller on such Subsequent Transfer Date, (ii) principal due and interest accruing on the Subsequent Mortgage Loans after the related Subsequent Cut-off Date and (iii) with respect to such Subsequent Mortgage Loans all items to be
delivered pursuant to Section 2.01(c) above and the other items in the related Mortgage Files; provided, however, that the Seller reserves and retains all right, title and interest in and to principal received and interest accruing on the Subsequent
Mortgage Loans prior to the related Subsequent Cut-off Date. The transfer by the Seller to the Company, and by the Company to the Trustee, of the Subsequent Mortgage Loans identified on each Mortgage Loan Schedule attached to the related Subsequent
Transfer Instrument and the related MI Policies shall be absolute and is intended by the Trustee, the Company and the Seller to constitute and to be treated as a sale of the Subsequent Mortgage Loans by the Seller to the Company, and a sale of the
Subsequent Mortgage Loans by the Company to the Trustee. 
  
 The
Subsequent Mortgage Loans presented for purchase will be designated as either Group I or Group II. Of the $559,722,035 in the Pre-Funding Account, a maximum of $446,952,745 will be used to acquire Subsequent Mortgage Loans for inclusion in Group I
and a maximum of $112,769,289 will be used to acquire Subsequent Mortgage Loans for inclusion in Group II, subject to the satisfaction of the conditions set forth herein. 
  
 In the event such transactions shall be deemed not to be a sale, the Seller hereby grants to the Company as of each
Subsequent Transfer Date a security interest in all of the 

  

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Seller’s right, title and interest in, to and under the related Subsequent Mortgage Loans and such other property, to secure all of the Seller’s
obligations hereunder, and this Purchase Agreement shall constitute a security agreement under applicable law, and in such event, the parties hereto acknowledge that the Custodian, in addition to holding the Subsequent Mortgage Loans and the related
MI Policies on behalf of the Trustee for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee of the Company. The Seller agrees to take or cause to be taken such actions and to execute
such documents, including without limitation the filing of all necessary UCC-1 financing statements filed in the Commonwealth of Virginia (which shall be submitted for filing as of the related Subsequent Transfer Date), any continuation statements
with respect thereto and any amendments thereto required to reflect a change in the name or corporate structure of the Seller or the filing of any additional UCC-1 financing statements due to a change in the state of incorporation of the Seller as
are necessary to perfect and protect the interests of the Company and its assignees in the Subsequent Mortgage Loans. 
  
 In the event such transactions shall be deemed not to be a sale, the Company hereby grants to the Trustee as of each Subsequent Transfer Date a security
interest in all of the Company’s right, title and interest in, to and under the related Subsequent Mortgage Loans and such other property, to secure all of the Company’s obligations hereunder, and this Purchase Agreement shall constitute a
security agreement under applicable law, and in such event, the parties hereto acknowledge that the Custodian, in addition to holding the Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee for the benefit of the
Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee of the Trustee. The Company agrees to take or cause to be taken such actions and to execute such documents, including without limitation, the filing of
all necessary UCC-1 financing statements filed in the State of Delaware (which shall be submitted for filing as of the related Subsequent Transfer Date), any continuation statements with respect thereto and any amendments thereto required to reflect
a change in the name or corporate structure of the Company or the filing of any additional UCC-1 financing statements due to a change in the state of incorporation of the Company as are necessary to perfect and protect the interests of the Trustee
and its assignees in Subsequent Mortgage Loans. 
  
 The related
Mortgage File for each Subsequent Mortgage Loan shall be delivered to the Custodian, on behalf of the Trustee, prior to the related Subsequent Transfer Date. 
  
 The Trustee on each Subsequent Transfer Date shall acknowledge by signing receipt thereof its acceptance of all right, title and interest to the related
Subsequent Mortgage Loans and other property, existing on the Subsequent Transfer Date and thereafter created, conveyed to it pursuant to this Section 2.02. 
  
 The Trustee, as trustee of the Trust Fund, shall be entitled to all scheduled principal payments due after each Subsequent Cut-off Date, all other
payments of principal due and collected after each related Subsequent Cut-off Date, and all payments of interest on the Subsequent Mortgage Loans, minus that portion of any such payment which is allocable to the period prior to the related
Subsequent Cut-off Date. No scheduled payments of principal due on or before the related Subsequent Cut-off Date and collected after the related Subsequent Cut-off Date shall belong to the Trust Fund pursuant to the terms of this Purchase Agreement.

  

 6 

 The purchase price paid by the Trustee, at the direction of the Servicer and on behalf of the Trustee,
from amounts released from the Pre-Funding Account shall be one-hundred percent (100%) of the aggregate Principal Balances of the Subsequent Mortgage Loans so transferred (as identified on the Mortgage Loan Schedule attached to the related
Subsequent Transfer Instrument provided by the Seller). 
  
 (b)
The Seller shall transfer to the Company, who shall transfer to the Trustee, the Subsequent Mortgage Loans and the other property and rights related thereto described in Section 2.02(a) above, and the Trustee shall cause to be released funds from
the related Pre-Funding Account, only upon the satisfaction of each of the following conditions on or prior to the related Subsequent Transfer Date: 
  
 (i) the Seller shall have provided the Company, and the Company shall have provided the Trustee, with a timely Addition Notice, which
notice shall be given no fewer than four Business Days prior to the related Subsequent Transfer Date and shall designate the Subsequent Mortgage Loans to be sold to the Company and then to the Trustee and the aggregate Principal Balances of such
Subsequent Mortgage Loans as of the related Subsequent Cut-off Date and any other information reasonably requested by the Trustee with respect to the Subsequent Mortgage Loans; 
  
 (ii) the Seller shall have delivered to the Company, who shall have delivered to the Trustee, who shall have
delivered to the Custodian, a duly executed Subsequent Transfer Instrument substantially in the form of Exhibit 2(A) or 2(B), as applicable, (A) confirming the satisfaction of each condition precedent and representations specified in this Section
2.02(b), Section 2.02(c) and in the related Subsequent Transfer Instrument and (B) including a Mortgage Loan Schedule attached thereto listing the Subsequent Mortgage Loans; 
  
 (iii) as of each Subsequent Transfer Date, as evidenced by delivery of the Seller’s Subsequent Transfer
Instrument in the form of Exhibit 2(A) and the Company’s Subsequent Transfer Instrument is the form of Exhibit 2(B), neither the Seller nor the Company shall be insolvent or have been made insolvent by such transfers, nor shall they be aware of
any pending insolvency; 
  
 (iv) such sale and
transfer (i) does not cause any REMIC created under the Pooling and Servicing Agreement to fail to qualify as a REMIC and (ii) is not a prohibited transaction within the meaning of Section 860F(a)(2) of the Code or a contribution resulting in a tax
under Section 860G(d) of the Code, both as evidenced by an Opinion of Counsel provided for the Trustee at the expense of the Seller; 
  
 (v) the Pre-Funding Period shall not have terminated; 
  
 (vi) the Seller shall have delivered to the Custodian, the Trustee, the Class A-1 Insurer and the Rating
Agencies Opinions of Counsel addressed to the Rating Agencies, the Trustee, the Class A-1 Insurer and the Custodian with respect to the transfers of the Subsequent Mortgage Loans substantially in the form of the Opinion of Counsel delivered to the
Custodian, the Trustee, the Class A-1 Insurer and the Rating Agencies on the Closing Date 

  

 7 

 
(1) regarding certain corporate matters and (2) confirming the existence of a true sale which may be contained in such opinion delivered on the Closing Date;
and 
  
 (vii) the Trustee shall have received the
written consent of the Class A-1 Insurer. 
  
 The obligation of
the Trustee to purchase a Subsequent Mortgage Loan on any Subsequent Transfer Date is subject to the following conditions: (1) each such Subsequent Mortgage Loan shall satisfy the representations and warranties specified in the related Subsequent
Transfer Instrument and this Purchase Agreement; (2) the Seller shall not select such Subsequent Mortgage Loans in a manner that it reasonably believes is adverse to the interests of the Majority Certificateholders; (3) the Seller shall have
delivered certain Opinions of Counsel required pursuant to Section 2.02(b)(iv) and (vi) hereof; (4) as of the related Subsequent Cut-off Date, the Subsequent Mortgage Loans shall satisfy the following criteria: (i) each Subsequent Mortgage Loan
shall not be 60 or more days contractually delinquent as of the related Subsequent Cut-off Date; (ii) the remaining stated term to maturity of each Subsequent Mortgage Loan shall not exceed 360 months; (iii) no less than approximately 98% of the
Subsequent Mortgage Loans are secured by first liens on the related Mortgaged Property; (iv) each Subsequent Mortgage Loan shall have an outstanding Principal Balance of at least $10,000; (v) each Subsequent Mortgage Loan shall be underwritten in
accordance with the Underwriting Guidelines; (vi) each Subsequent Mortgage Loan shall have a Loan-to-Value Ratio of no more than 100%; (vii) each Subsequent Mortgage Loan shall have a stated maturity of no later than September 1, 2034; (viii) no
Subsequent Mortgage Loan shall permit negative amortization; (ix) each Subsequent Mortgage Loan shall either have a fixed Mortgage Rate of at least 4.00% or, if an adjustable loan, a Gross Margin of at least 1.00%; (x) a minimum of 70% of the
Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have an adjustable Mortgage Rate; (xi) the weighted average Loan-to-Value Ratio of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be
no more than 83.75%; (xii) no less than 42.00% of the Subsequent Mortgage Loans shall either (A) have a Loan-to Value Ratio of no more than 60% or (B) have a Loan-to-Value Ratio of greater than 60% and be covered by an MI Policy which will insure
losses to the extent that the uninsured exposure of the related Subsequent Mortgage Loan is reduced to an amount equal to 55%, 51% or 50% of the lesser of the appraised value or purchase price, as the case may be, of the related Mortgaged Property,
in each case, at the time of the effective date of the MI Policy; (xiii) the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have a weighted average coupon of at least 7.30%; (xiv) pursuant to the Underwriting
Guidelines, no fewer than 50% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be ALT-A and M1 credit risks, no fewer than 10% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall
be M2 credit risks, and no more than 15% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be M3 and M4 credit risks; (xv) the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have a
weighted average FICO score issued by a consumer credit rating agency of at least 615; (xvi) at least 87% of such Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans for primary residences; (xvii) no more than 45%
of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have stated loan 

  

 8 

 
documentation, and no more than 15% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance shall have no loan documentation; (xviii)
at least 65% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans for single family residences; (xix) no more than 70% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be
loans that are the subject of cash-out refinances; (xx) the ratings agencies shall have consented either in writing or verbally to the transfer of the Subsequent Mortgage Loans; (xxi) at least 67% of the Subsequent Mortgage Loans shall have
prepayment penalties; and (xxii) none of the Subsequent Mortgage Loans will have a Loan-to-Value Ratio or a combined Loan-to-Value Ratio in excess of 100%. 
  
 The acceptance of the Subsequent Mortgage Loans by the Trustee is subject to the Seller receiving a written or verbal consent from each of the Rating
Agencies that states that the addition of such Subsequent Mortgage Loans will not cause the Rating Agencies to downgrade any of their ratings on the Underwritten Certificates. 
  
 Notwithstanding the foregoing, Subsequent Mortgage Loans with characteristics varying from those set forth above may be
purchased by the Trustee and included in the Trust Fund, if (i) the Trustee is provided with written confirmation that the aggregate credit risk of such Subsequent Mortgage Loans is similar to that of the Initial Mortgage Loans, (ii) the Trustee is
provided with written consent from the Class A-1 Insurer and (iii) the Seller receives and provides to the Trustee a written consent from each of the Rating Agencies that states that the addition of such Subsequent Mortgage Loans will not cause the
Rating Agencies to downgrade any of their ratings of the Underwritten Certificates. 
  
 (c) Within five Business Days after the end of the Pre-Funding Period, the Seller shall deliver to the Rating Agencies, the Trustee, the Class A-1 Insurer and the Custodian a copy of the updated Mortgage Loan Schedule
including the Subsequent Mortgage Loans in electronic format. 
  
 Section 2.03 Pre-Funding Account. 
  
 (a) No later
than the Closing Date, the Trustee will establish and maintain the Pre-Funding Account pursuant to the Pooling and Servicing Agreement. On the Closing Date, the Seller will deposit in the Pre-Funding Account the Original Pre-Funded Amount from the
net proceeds of the sale of the Underwritten Certificates. 
  

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 ARTICLE III 
  
 REPRESENTATIONS AND WARRANTIES; 
 REMEDIES FOR BREACH 
  
 Section 3.01 Seller Representations and Warranties. 
  
 The Seller hereby represents and warrants to the Company, the Class A-1 Insurer and the Trustee as of the date hereof, as of the Closing Date (or if otherwise specified below, as of the date so specified) and as of each Subsequent Transfer
Date: 
  
 (a) As to the Seller: 
  
 (i) The Seller (i) is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia and (ii) is qualified and in good standing as a foreign corporation to do business in each jurisdiction where such qualification is necessary, except where the failure to
so qualify would not have a material adverse effect on the Seller’s ability to enter into this Purchase Agreement and each Seller’s Subsequent Transfer Instrument and to consummate the transactions contemplated hereby and thereby;

  
 (ii) The Seller has the power and authority
to make, execute, deliver and perform its obligations under this Purchase Agreement and each Seller’s Subsequent Transfer Instrument and all of the transactions contemplated under this Purchase Agreement and each Seller’s Subsequent
Transfer Instrument, and has taken all necessary corporate action to authorize the execution, delivery and performance of this Purchase Agreement each Seller’s Subsequent Transfer Instrument; 
  
 (iii) The Seller is not required to obtain the consent of
any other Person or any consent, approval or authorization from, or registration or declaration with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Purchase
Agreement or any Seller’s Subsequent Transfer Instrument, except for such consents, approvals or authorization, or registration or declaration, as shall have been obtained or filed, as the case may be; 
  
 (iv) The execution and delivery of this Purchase Agreement
and each Seller’s Subsequent Transfer Instrument and the performance of the transactions contemplated hereby by the Seller will not violate any provision of any existing law or regulation or any order or decree of any court applicable to the
Seller or any provision of the certificate of incorporation or bylaws of the Seller, or constitute a material breach of any mortgage, indenture, contract or other agreement to which the Seller is a party or by which the Seller may be bound;

  
 (v) No litigation or administrative
proceeding of or before any court, tribunal or governmental body is currently pending, or to the knowledge of the Seller threatened, against the Seller or any of its properties or with respect to this Purchase Agreement or any Seller’s
Subsequent Transfer Instrument, the Certificates which in the opinion of the Seller has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Purchase Agreement or any Seller’s Subsequent
Transfer Instrument; 
  
 (vi) This Purchase
Agreement and each Seller’s Subsequent Transfer Instrument constitute the legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors’ rights in general and except as such enforceability may be limited by general principles of equity
(whether considered in a proceeding at law or in equity); 
  

 10 

 (vii) This Purchase Agreement constitutes a valid transfer and assignment to the Company
of all right, title and interest of the Seller in and to the Cut-off Date Principal Balance of the Initial Mortgage Loans, all monies due or to become due with respect thereto, and all proceeds of such Cut-off Date Principal Balance of the Initial
Mortgage Loans, and this Purchase Agreement and the related Seller’s Subsequent Transfer Instrument constitutes a valid transfer and assignment to the Trustee of all right, title and interest of the Seller in and to the Subsequent Cut-off Date
Principal Balance of the Subsequent Mortgage Loans, all monies due or to become due with respect thereto, and all proceeds of such Subsequent Cut-off Date Principal Balance of the Subsequent Mortgage Loans; 
  
 (viii) The Seller is not in default with respect to any
order or decree of any court or any order or regulation of any federal, state or governmental agency, which default might have consequences that would materially and adversely affect the condition (financial or other) or operations of the Seller or
its properties or might have consequences that would materially adversely affect its performance hereunder; and 
  
 (ix) The Servicer or any Subservicer who will be servicing any Mortgage Loan pursuant to the Pooling and Servicing Agreement or a
Subservicing Agreement is qualified to do business in all jurisdictions in which its activities as Servicer or Subservicer of the Mortgage Loans serviced by it require such qualifications except where failure to be so qualified will not have a
material adverse effect on such servicing activities. 
  
 (b) As
to each Initial Mortgage Loan as of the Closing Date and with respect to each Subsequent Mortgage Loan as of the Subsequent Transfer Date, except as otherwise expressly stated: 
  
 (i) The information set forth on the Mortgage Loan Schedule with respect to each Initial Mortgage Loan is
true and correct in all respects as of the Closing Date, and with respect to each Subsequent Mortgage Loan is true and correct in all respects as of the related Subsequent Transfer Date, and the information regarding the Initial Mortgage Loans and
the Subsequent Mortgage Loans on the computer diskette or tape delivered to the Trustee prior to the Closing Date or Subsequent Transfer Date, as applicable, is true and accurate in all respects and describes the same Mortgage Loans as the Mortgage
Loans on the Mortgage Loan Schedule; 
  
 (ii) The
Mortgage Loans are not being transferred with any intent to hinder, delay or defraud any creditors; 
  
 (iii) No more than 6.59% and 6.94% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) were secured by condominium units; and no more than 14.35% and 20.00% of the Initial Mortgage Loans in Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date
Principal Balance) were secured by properties in planned unit developments; 
  
 (iv) As of the Cut-off Date, the remaining term of each Group I Initial Mortgage Loan is not more than 359 months and not less than 118 months and the 

  

 11 

 
remaining term of each Group II Initial Mortgage Loan is not more than 359 months and not less than 176 months; 
  
 (v) No more than 59.73% and 59.77% of the Initial Mortgage
Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) have been the subject of cash-out refinances; 
  
 (vi) No more than 6.77% and 5.25% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) respectively, have been the subject of rate and term (no cash-out) refinances; 
  
 (vii) No fewer than 33.49% and 34.99% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) are purchase money loans; 
  
 (viii) No more than 20.62% and 33.39% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in
the State of California; no more than 19.92% and 10.83% of the Initial Mortgage Loans in Group I (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Florida; and no more than 5.29% of the Initial Mortgage
Loans in Group II (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Texas; and no more than 4.70% and 4.90% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II,
respectively, (by Cut-off Date Principal Balance) are located in any other state; 
  
 (ix) The outstanding Principal Balances of the Initial Mortgage Loans in Group I (by Cut-off Date Principal Balance) ranged from $39,518
to $449,624, the average outstanding Principal Balance of the Initial Mortgage Loans in Group I is approximately $145,621; the outstanding Principal Balance of the Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) ranged from
$9,927 to $1,030,000 and the average outstanding Principal Balance of the Initial Mortgage Loans in Group II is approximately $154,437; 
  
 (x) Approximately 72.32% and 69.72% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively (by
Cut-off Date Principal Balance) were secured by a first lien on a parcel of real property improved by a detached single family residence; no more than 5.34% and 2.67% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group
II, respectively, (by Cut-off Date Principal Balance) were secured by a first lien on a parcel of real estate improved by a multi-unit residence; 
  
 (xi) All points and fees related to each Mortgage Loan were disclosed in writing to the borrower in accordance with applicable state and
federal law and the borrower has executed a statement to that effect. No borrower was charged “points and fees” (whether or not financed) in an amount greater than 5% of the principal amount of any such loan originated by the Seller, such
5% limitation calculated in accordance with the Lender Letter. All fees and charges (including finance charges) and whether or not financed, assessed, collected or to be collected with the origination and servicing of each Mortgage Loan has been
disclosed in writing to the borrower in accordance with applicable state and federal law and regulation; 
  

 12 

 (xii) The Mortgage Rates borne by the adjustable rate Initial Mortgage Loans in Group I
as of the Closing Date range from 4.500% per annum to 10.300% per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the adjustable rate Initial Mortgage Loans in Group I was 7.244%, per annum; the Mortgage Rates
borne by fixed rate Initial Mortgage Loans in Group I as of the Closing Date range from 5.200% per annum to 11.800% per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the fixed rate Initial Mortgage Loans in
Group I was 7.284% per annum; the Mortgage Rates borne by adjustable rate Initial Mortgage Loans in Group II as of the Closing Date range from 4.500% per annum to 11.400% per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal
Balance) of the adjustable rate Initial Mortgage Loans in Group II was 7.838%, per annum; the Mortgage Rates borne by fixed rate Initial Mortgage Loans in Group II as of the Closing Date range from 4.875% per annum to 14.250% per annum, and the
weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the fixed rate Initial Mortgage Loans in Group II was 8.557% per annum. 
  
 (xiii) Approximately 54.46% and 61.36% of the Initial Mortgage Loans in the Initial Mortgage Loans in Group I and the Initial Mortgage
Loans in Group II, respectively, (by Cut-off Date Principal Balance) have a Loan-to-Value Ratio in excess of 80%; no Group I Initial Mortgage Loan or Group II Initial Mortgage Loan in the Mortgage Pool had a Loan-to-Value Ratio or combined
Loan-to-Value Ratio at origination in excess of 100%; and the weighted average Loan-to-Value Ratio (by Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II was equal to or less than
82.33% and 84.47%, respectively; 
  
 (xiv)
Approximately 100.00% and 92.22% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, are secured by first liens on the related Mortgaged Property; and approximately 7.78% of the Initial Mortgage Loans
in Group II are secured by second liens on the related Mortgaged Property; 
  
 (xv) The weighted average Loan-to-Value Ratio of the Initial Mortgage Loans secured by first liens in Group I is approximately 82.33%; the weighted average combined Loan-to-Value Ratio of the Initial Mortgage Loans
secured by first and second liens in Group II is approximately 84.47%; the weighted average combined Loan-to-Value Ratio of all of the Initial Mortgage Loans in Group I and Group II is approximately 82.77%; the gross weighted average coupon of the
Initial Mortgage Loans is approximately 7.397%; the maximum Loan-to-Value Ratio of all of the Initial Mortgage Loans in Group I and Group II is no greater than 100% 
  
 (xvi) There is no valid offset, right of rescission, defense, claim or counterclaim of any obligor under any
Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the unpaid principal of or interest on such Mortgage Note, and any applicable right of rescission has expired, nor will the operation of any of the terms of such Mortgage
Note or Mortgage, or the exercise of any right thereunder, render either the Mortgage Note or the Mortgage unenforceable, in whole or in part, or subject to any right of rescission, set-off, recoupment, counterclaim or defense, including, without
limitation, the defense of usury, and no such right of rescission, set-off, recoupment, counterclaim or defense has been asserted with respect thereto, and, to the best of Seller’s knowledge, no Mortgagor of the applicable Mortgage 

  

 13 

 
is or since the date of origination has been a debtor in any state or federal bankruptcy or insolvency proceeding and no Mortgaged Property has been subject
to any such proceeding; 
  
 (xvii) There are no
mechanics’ liens or any other similar liens or claims for work, labor or material affecting any Mortgaged Property which are or may be a lien prior to, or equal with, the lien of such Mortgage, except those which are insured against by the
title insurance policy referred to in clause (xix) below; 
  
 (xviii) As of the Closing Date in the case of a Cut-off Date Mortgage Loan or as of the related Subsequent Cut-off Date in the case of a Subsequent Mortgage Loan, each Mortgaged Property is free of material damage and
is in good repair and there is no proceeding pending or threatened for the total or partial condemnation of any Mortgage Property; 
  
 (xix) Each Mortgage is a valid and enforceable first or second lien on the Mortgaged Property including all improvements on the Mortgaged
Property securing the related Mortgage Note and each Mortgaged Property is owned by the Mortgagor in fee simple (except with respect to common areas in the case of condominiums, PUDs and deminimis PUTDs) subject only to (1) the lien of
nondelinquent current real property taxes and assessments, (2) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage, such exceptions appearing of record
being acceptable to mortgage lending institutions generally or specifically reflected in the appraisal made in connection with the origination of the related Mortgage Loan or referred to in the lender’s title insurance policy delivered to the
originator of the related Mortgage Loan and (3) other matters to which like properties are commonly subject that do not materially interfere with the benefits of the security intended to be provided by such Mortgage. Immediately prior to the sale of
such Mortgage Loan to the Company in the case of an Initial Mortgage Loan and to the Trustee in the case of a Subsequent Mortgage Loan pursuant to this Purchase Agreement, the Seller had full right to sell and assign the same to the Company or the
Trustee, as the case may be. Immediately following the sale of such Mortgage Loan to the Company and the Company’s assignment and sale thereof of such Mortgage Loan to the Trustee in the case of an Initial Mortgage Loan, the Trustee will have
good title thereto subject to no claims or liens, including delinquent tax or assessment liens. Immediately following the sale of such Mortgage Loan to the Company and the Company’s assignment and sale thereof to the Trustee in the case of a
Subsequent Mortgage Loan, the Trustee will have good title thereto subject to no claims or liens; 
  
 (xx) Each Mortgage Loan at origination complied with applicable local, state and federal laws, including, without limitation, usury, equal
credit opportunity, real estate settlement procedures, the Truth In Lending Act of 1968, as amended, all applicable predatory and abusive lending laws and disclosure laws and consummation of the transactions contemplated hereby, including without
limitation, the receipt of interest by the owner of such Mortgage Loan or the Holders of Certificates secured thereby, will not violate any such laws. Any and all statements or acknowledgments required to be made by the Mortgagor relating to such
requirements are and will remain in the Mortgage File. Each Mortgage Loan is being serviced in accordance with applicable state and federal laws, including, without limitation, the Truth In Lending Act of 1968, as amended, and other consumer
protection laws, 

  

 14 

 
real estate settlement procedures, usury, equal credit opportunity and disclosure laws and in a prudent and customary manner; 
  
 (xxi) Neither the Seller nor any prior holder of any
Mortgage has impaired, waived, altered or modified the Mortgage or Mortgage Notes in any material respect (except that a Mortgage Loan may have been modified by a written instrument which has been recorded, if necessary to protect the interests of
the owner of such Mortgage Loan or the Certificates, and which has been delivered to the Trustee); satisfied, canceled or subordinated such Mortgage in whole or in part; released the applicable Mortgaged Property in whole or in part from the lien of
such Mortgage; or executed any instrument of release, cancellation or satisfaction with respect thereto; 
  
 (xxii) A lender’s policy of title insurance (on an ALTA or CLTA form) or binder, or other assurance of title customary in the
relevant jurisdiction insuring the first lien priority of the Mortgage Loan in an amount at least equal to the original Principal Balance of each such Mortgage Loan or a commitment binder or commitment to issue the same was effective on the date of
the origination of each Mortgage Loan, each such policy is valid and remains in full force and effect, and each such policy was issued by a title insurer qualified to do business in the jurisdiction where the Mortgaged Property is located, which
policy insures the Seller and successor owners of indebtedness secured by the insured Mortgage as to the first priority lien of the Mortgage as applicable. The Seller is, and such successor owners will be, the sole insured under such lender’s
title insurance policy; no claims have been made under such mortgage title insurance policy; no prior holder of the applicable Mortgage, including the Seller, has done, by act or omission, anything which would impair the coverage of such mortgage
title insurance policy; and each such policy, binder or assurance contains all applicable endorsements; 
  
 (xxiii) All of the improvements which were included for the purpose of determining the Appraised Value of the Mortgaged Property lie
wholly within the boundaries and building restriction lines of such property and no improvements on adjoining properties encroach upon the Mortgaged Property; 
  

(xxiv) No improvement located on or being part of the Mortgaged Property is in violation of any applicable zoning law or regulation,
subdivision law or ordinance, except where the failure to comply would not have a material adverse effect on the market value of the Mortgaged Property. All inspections, licenses and certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the use and occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities and the Mortgaged Property is lawfully occupied under applicable
law except where the failure to comply would not have a material adverse effect on the market value of the Mortgaged Property; 
  
 (xxv) Each Mortgage Note and the applicable Mortgage are genuine, and each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws relating to creditors’ rights generally or by equitable principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law). All parties to the Mortgage Note and the Mortgage had legal capacity to 

  

 15 

 
execute the Mortgage Note and the Mortgage and each Mortgage Note and Mortgage has been duly and properly executed by such parties; 
  
 (xxvi) The proceeds of the Mortgage Loans have been fully
disbursed, there is no requirement for future advances thereunder and any and all requirements as to completion of any on-site or off-site improvements and as to disbursement of any escrow funds therefor have been complied with. All costs, fees and
expenses incurred in making, closing or recording the Mortgage Loans were paid and the Mortgagor is not entitled to any refund of amounts paid or due under the Mortgage Note; 
  
 (xxvii) Each Mortgage contains customary and enforceable provisions that render the rights and remedies of
the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security, including (i) in the case of a Mortgage designated as a deed of trust, by trustee’s sale, and (ii) otherwise by judicial foreclosure
or if applicable, non-judicial foreclosure. Upon default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee’s sale of, the Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage Loan will be able to
deliver good and merchantable title to the property, subject to any applicable rights of redemption; 
  
 (xxviii) With respect to each Mortgage constituting a deed of trust, either a trustee, duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is named in such Mortgage or if no duly qualified trustee has been properly designated and so serves, the Mortgage contains satisfactory provisions for the appointment of such trustee by
the holder of the Mortgage at no cost or expense to such holder, and no fees or expenses are or will become payable by the Certificateholders to the trustee under the deed of trust, except in connection with a trustee’s sale after default by
the Mortgagor; 
  
 (xxix) There exist no
deficiencies with respect to escrow deposits and payments, if such are required, for which customary arrangements for repayment thereof cannot be made, and no escrow deficits or payments of other charges or payments due the Seller have been
capitalized under the Mortgage or the applicable Mortgage Note; 
  
 (xxx) The Mortgage Note is not and has not been secured by any collateral, pledged account or other security other than real estate securing the Mortgagor’s obligations and no Mortgage Loan is secured by more
than one Mortgaged Property; 
  
 (xxxi) As of the
Closing Date in the case of an Initial Mortgage Loan and as of the related Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, the improvements upon each Mortgaged Property are covered by a valid and existing hazard insurance policy
substantially acceptable to FNMA and acceptable to the Seller which policy provides for fire extended coverage and such other hazards as are customary in the area where the Mortgaged Property is located representing coverage in an amount not less
than the lesser of (A) the maximum insurable value of the improvements securing such Mortgage Loan and (B) the outstanding Principal Balance of the related Mortgage Loan; if the improvement on the Mortgaged Property is a condominium unit, it is
included under the coverage afforded by a blanket policy for the condominium project. All individual insurance policies contain a standard mortgagee clause naming the Seller or the original holder of the Mortgage, and its successors in 

  

 16 

 
interest, as mortgagee, and the Seller has received no notice that any premiums due and payable thereon have not been paid; the Mortgage obligates the
Mortgagor thereunder to maintain all such insurance at the Mortgagor’s cost and expense, and upon the Mortgagor’s failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor’s cost
and expense and to seek reimbursement therefor from the Mortgagor. There has been no act or omission which would impair the coverage of any such policy, the benefits of the endorsement provided for herein, or the validity and binding effect of
either; 
  
 (xxxii) If the Mortgaged Property is
in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance policy in a form meeting the requirements of the current guidelines of the Flood Insurance Administration is
in effect with respect to such Mortgaged Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the outstanding Principal Balance of the Mortgage Loan, (B) the minimum amount required to
compensate for damage or loss on a replacement cost basis and (C) the maximum amount of flood coverage that is available under federal law; 
  
 (xxxiii) Except for the Mortgage Loans referred to in clause (xlii) as being delinquent, if any, there is no default, breach, violation or
event of acceleration existing under the Mortgage or the applicable Mortgage Note; and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or
event of acceleration, and neither the Seller, any of its affiliates nor any servicer or subservicer of any related Mortgage Loan has waived any default, breach, violation or event of acceleration; no foreclosure action is threatened or has been
commenced with respect to the Mortgage Loan; 
  
 (xxxiv) Each Mortgage Loan is being serviced by the Servicer in accordance with the terms of the Mortgage Note; 
  
 (xxxv) There is no obligation on the part of the Seller or any other party to make any payments with respect to the related Mortgage Loan
in addition to the Monthly Payments required to be made by the applicable Mortgagor; 
  
 (xxxvi) Any future advances made prior to the Cut-off Date in the case of an Initial Mortgage Loan and as of the related Subsequent
Transfer Date in the case of a Subsequent Mortgage Loan, with respect to any Mortgage Loan have been consolidated with the outstanding principal amount secured by such Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the Mortgage Loan Schedule. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan. The Mortgage Note with respect to any Mortgage Loan does not
permit or obligate the Servicer to make future advances to the Mortgagor at the option of the Mortgagor; 
  
 (xxxvii) The Seller has caused or will cause to be performed any and all acts required to preserve the rights and remedies of the Company
and the Trustee evidencing an interest in the Mortgage Loans in any insurance policies applicable to the Mortgage Loans including, without limitation, any necessary notifications of insurers, 

  

 17 

 
assignments of policies or interests therein, and establishments of coinsured, joint loss payee and mortgagee rights in favor of Trustee; 
  
 (xxxviii) Except as set forth in clause (xlii), there are no
defaults by the Mortgagor in complying with the terms of any Mortgage, and all taxes, governmental assessments, insurance premiums, water, sewer and municipal charges which previously became due and owing have been paid, or, if required by the terms
of the Mortgage Loan, an escrow of funds has been established in an amount sufficient to pay for every such item which remains unpaid and which has been assessed, but is not yet due and payable. Except for (A) payments in the nature of escrow
payments and (B) interest accruing from the date of the Mortgage Note or date of disbursement of the Mortgage proceeds to the day which precedes by one month the Due Date of the first installment of principal and interest, including, without
limitation, taxes and insurance payments, neither the Seller nor the Servicer has advanced funds, or induced, solicited or knowingly received any advance of funds by a party other than the Mortgagor, directly or indirectly, for the payment of any
amount required by the Mortgage; 
  
 (xxxix) At
the time of origination, each Mortgaged Property was the subject of an appraisal which conforms to the underwriting requirements of the related originator; and the Mortgage File contains an appraisal of the applicable Mortgaged Property; 

 
 (xl) None of the Mortgage Loans are graduated payment
Mortgage Loans or growth equity Mortgage Loans; 
  
 (xli) 7.61% and 10.55% of the adjustable rate Group I Initial Mortgage Loans and the adjustable rate Group II Initial Mortgage Loans, respectively, (by Cut-off Date Principal Balance) are Convertible Mortgage Loans; 
  
 (xlii) (a) None of the payments of principal of or interest
on or in respect of any Initial Mortgage Loans (by Cut-off Date Principal Balance) shall be 30 days or more but less than 60 days past due as of the Cut-off Date; none of the payments of principal or interest on or in respect of any Initial Mortgage
Loans shall be 60 days or more but less than 90 days past due as of Cut-off Date; and no Initial Mortgage Loan was 90 days or more past due as of Cut-off Date; (b) all payments required to be made by the Mortgagor under the terms of the Mortgage
Note have been made and credited; and (c) to the Seller’s knowledge, there was no delinquent recording, tax or assessment lien against the property subject to any Mortgage, except where such lien was being contested in good faith and a stay had
been granted against levying on the property; 
  
 (xliii) Upon payment of the Purchase Price for the Mortgage Loans by the Company or the Trustee, as applicable, pursuant to this Purchase Agreement, the Seller has transferred to the Company in the case of an Initial Mortgage Loan and to
the Trustee in the case of a Subsequent Mortgage Loan, good and marketable title to each Mortgage Note and Mortgage free and clear of any and all liens, claims, encumbrances, participation interests, equities, pledges, charges or security interests
of any nature and has or had full right and authority, subject to no participation of or agreement with any other person, to sell and assign the same, and following the sale of each Initial Mortgage Loan, the Company or the Trustee, as 

  

 18 

 
applicable, will own such Mortgage Loan free and clear of any encumbrance, equity interest, participation interest, lien, pledge, charge, claim or security
interest; 
  
 (xliv) The Seller acquired any
right, title and interest in and to the Mortgage Loans in good faith and without notice of any adverse claim; 
  
 (xlv) The Mortgage Note, the Mortgage, the related Assignment of Mortgage and any other documents required to be delivered by the Seller
have been delivered to the Custodian. The Custodian is in possession of a complete, true and accurate Mortgage File in accordance with Section 2.01 hereof. Substantially all the Mortgage Loans have monthly payments due on the first day of each month
and each Mortgage Loan had an original term to maturity of no greater than 30 years; 
  
 (xlvi) Each Mortgage Loan contains a due-on-sale provision, although each Mortgage Loan may be assumable if permitted by the Servicer
under certain circumstances; 
  
 (xlvii) Each of
the Mortgage and the Assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located; 
  
 (xlviii) The Mortgagor has not notified the Seller, and the Seller has no knowledge of any relief requested
or allowed to the Mortgagor under the Servicemembers Civil Relief Act other than as disclosed pursuant to the Prospectus Supplement; 
  
 (xlix) To the best of the Seller’s knowledge, there exists no violation of any local, state, or federal environmental law, rule or
regulation in respect of the Mortgaged Property which violation has or could have a material adverse effect on the market value of such Mortgaged Property. The Seller has no knowledge of any pending action or proceeding directly involving the
related Mortgaged Property in which compliance with any environmental law, rule or regulation is in issue; and, to the best of the Seller’s knowledge, nothing further remains to be done to satisfy in full all requirements of each such law, rule
or regulation constituting a prerequisite to the use and employment of such Mortgaged Property; 
  
 (l) Each Mortgage Loan conforms, and all such Mortgage Loans in the aggregate conform, to the description thereof set forth in the
Prospectus and Prospectus Supplement in all material respects; 
  
 (li) Each Mortgage Loan is in compliance with the anti-predatory lending eligibility requirements of Fannie Mae’s Selling Guide; 
  
 (lii) Immediately prior to the transfer to the Company or the Trustee, as applicable, the Seller had good
and marketable title thereto, and the Seller is the sole legal, equitable owner of beneficial title to and holder of the Mortgage Loan. The Seller is conveying the same to the Company or the Trustee, as applicable, free and clear of any and all
liens, claims, encumbrances, participation interests, equities, pledges, charges or security interests of any nature and has full right and authority to sell and assign the same pursuant to this 

  

 19 

 
Purchase Agreement, except for liens which will be released simultaneously with such conveyance; 
  
 (liii) For each Mortgage Loan, the related Mortgage File
contains a true, accurate and correct copy of each of the documents and instruments required to be included therein; 
  
 (liv) The Servicer meets all applicable requirements under the Pooling and Servicing Agreement, is properly qualified to service each
Mortgage Loan and has been servicing each Mortgage Loan prior to the Cut-off Date or the related Subsequent Cut-off Date, as the case may be; 
  
 (lv) No instrument of release or waiver has been executed in connection with the Mortgage Loans, and no Mortgagor has been released, in
whole or in part from its obligations in connection with a Mortgage Loan except in connection with an assumption agreement which has been delivered to the Trustee; 
  
 (lvi) On the basis of a representation by the Mortgagor at the time of origination of the Mortgage Loans, at
least 94.54% and 95.69% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) will be secured by Mortgages on owner-occupied primary residence properties; 
  
 (lvii) 0.09% and 6.20% of the Initial Mortgage Loans in
Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) provide for a balloon payment and each Mortgage Note with respect to each such Mortgage Loan requires monthly payments of principal based on 30
year amortization schedules and have scheduled maturity dates of 15 years from the due date of the first monthly payment; 
  
 (lviii) No Mortgage Loan was originated based on an appraisal of the related Mortgaged Property made prior to completion of construction
of the improvements thereon; 
  
 (lix) None of
the Mortgage Loans is a “buy down” mortgage loan; 
  
 (lx) [Reserved]. 
  
 (lxi) No Mortgage Loan is a “High Cost Home Loan” or “Covered Loan,” as applicable, (as such terms are defined in the then current Standard & Poor’s LEVELS Glossary which is now Version 5.6 Revised, Appendix E)
and no Mortgage Loan is a “High Cost Home Loan” as defined in the Georgia Fair Lending Act, as amended (the “Georgia Act”). No Mortgage Loan secured by owner occupied real property or an owner occupied manufactured home located
in the State of Georgia was originated (or modified) on or after October 1, 2002 through and including March 6, 2003; 
  
 (lxii) None of the Mortgage Loans are classified as (a) “high cost” loans under the Home Ownership and Equity Protection Act of
1994 or (b) “high cost,” “threshold,” 

  

 20 

 
“covered” or “predatory” loans under any other applicable federal, state or local law (including without limitation any regulation or
ordinance) (or a similarly classified loan using different terminology under a law imposing heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees); no proceeds from
any Mortgage Loan were used to finance any single premium credit insurance policies; none of the Mortgage Loans (by Cut-off Date Principal Balance) require a mortgagor to pay a Prepayment Charge if the mortgagor prepays a Mortgage Loan more than
five years after the date the Mortgage Loan was originated; 
  
 (lxiii) No Mortgage Loan is a “High-Cost Home Loan” as defined in New York Banking Law 6-1; 
  
 (lxiv) No Mortgage Loan is a “High-Cost Home Loan” as defined in the Arkansas Home Loan Protection Act effective July 16, 2003
(Act 1340 of 2003); 
  
 (lxv) No Mortgage Loan is
a “High-Cost Home Loan” as defined in the Kentucky high-cost home loan statute effective June 24, 2003 (Ky. Rev. Stat. Section 360.100); 
  
 (lxvi) No Mortgage Loan is a “High-Cost Home Loan” as defined in the New Jersey Home Ownership Act effective November 27, 2003
(N.J.S.A. 46:10B-22 et seq.); 
  
 (lxvii) No
Mortgage Loan is a “High-Cost Home Loan” as defined in the New Mexico Home Loan Protection Act effective January 1, 2004 (N.M. Stat. Ann. §§ 58-21A-1 et seq.); 
  
 (lxviii) No Mortgage Loan is a “High-Risk Home Loan” as defined in the Illinois High-Risk Home
Loan Act effective January 1, 2004 (815 Ill. Comp. Stat. 137/1 et seq.); 
  
 (lxix) No borrower was encouraged or required to select a Mortgage Loan product offered by the Mortgage Loan’s originator which is a higher cost product designed for less creditworthy borrowers, unless at the
time of the Mortgage Loan’s origination, such borrower did not qualify taking into account credit history and debt to income ratios for a lower cost credit product then offered by the Mortgage Loan’s originator or any affiliate of the
Mortgage Loan’s originator; 
  
 (lxx) The
methodology used in underwriting the extension of credit for each Mortgage Loan employs objective mathematical principles which relate the borrower’s income, assets and liabilities to the proposed payment and such underwriting methodology does
not rely on the extent of the borrower’s equity in the collateral as the principal determining factor in approving such credit extension. Such underwriting methodology confirmed that at the time of origination (application/approval) the
borrower had a reasonable ability to make timely payments on the Mortgage Loan; 
  
 (lxxi) Approximately 72.33% of the Initial Mortgage Loans are subject to prepayment penalty charges as of the Cut-off Date; 
  

 21 

 (lxxii) With respect to any Mortgage Loan that contains a provision permitting imposition
of a premium upon a prepayment prior to maturity: (i) prior to the loan’s origination, the borrower agreed to such premium in exchange for a monetary benefit, including but not limited to a rate or fee reduction, (ii) prior to the loan’s
origination, the borrower was offered the option of obtaining a mortgage loan that did not require payment of such a premium, (iii) the prepayment premium is disclosed to the borrower in the loan documents pursuant to applicable state and federal
law, and (iv) notwithstanding any state or federal law to the contrary, the Servicer shall not impose such prepayment premium in any instance when the mortgage debt is accelerated as the result of the borrower’s default in making the loan
payments; 
  
 (lxxiii) No borrower was required
to purchase any credit life, disability, accident or health insurance product as a condition of obtaining the extension of credit. No borrower obtained a prepaid single premium credit life, disability, accident or health insurance policy in
connection with the origination of the Mortgage Loan; No proceeds from any Mortgage Loan were used to purchase single premium credit insurance policies as part of the origination of, or as a condition to closing, such Mortgage Loan; 
  
 (lxxiv) All points and fees related to each Mortgage Loan in
Group I were disclosed in writing to the borrower in accordance with applicable state and federal law and regulation. Except in the case of a Mortgage Loan in Group I in an original principal amount of less than $60,000 which would have resulted in
an unprofitable origination, no borrower was charged “points and fees” (whether or not financed) in an amount greater than 5% of the principal amount of such loan, such 5% limitation is calculated in accordance with Fannie Mae’s
anti-predatory lending requirements as set forth in the Fannie Mae Selling Guide; 
  
 (lxxv) All fees and charges (including finance charges) and whether or not financed, assessed, collected or to be collected in connection
with the origination and servicing of each Mortgage Loan has been disclosed in writing to the borrower in accordance with applicable state and federal law and regulation; 
  
 (lxxvi) The Servicer will transmit full-file credit reporting data for each Mortgage Loan in Group I
pursuant to Fannie Mae Guide Announcement 95-19 and that for each Mortgage Loan in Group I, Servicer agrees it shall report one of the following statuses each month as follows: new origination, current, delinquent (30-, 60-, 90-days, etc.),
foreclosed, or charged-off; 
  
 (lxxvii) No Group
I Mortgage Loan secured by a single-family residence has a Principal Balance at origination in excess of $333,700; no Group I Mortgage Loan secured by a two-family residence has a Principal Balance at origination in excess of $427,150; no Group I
Mortgage Loan secured by a three-family residence has a Principal Balance at origination in excess of $516,300; and no Group I Mortgage Loan secured by a four-family residence has a Principal Balance at origination in excess of $641,650; 

 
 (lxxviii) No selection procedure reasonably believed by
the Seller to be adverse to the interests of the Certificateholders was utilized in selecting the Mortgage Loans; 
  

 22 

 (lxxix) The terms of the Mortgage Note related to each adjustable rate Mortgage Loan
provide that, following an initial period of two or three years following the month in which such Mortgage Loan was originated and semiannually or annually thereafter (each such date, an “Adjustment Date”), the Mortgage Rate on such
Mortgage Loan will be adjusted to equal the sum of (a) the related Index and (b) a fixed percentage amount specified in the related Mortgage Note (each, a “Gross Margin”); provided, however, that the Mortgage Rate
generally will not increase or decrease by the related Periodic Rate Cap, and will not increase above a specified maximum Mortgage Rate over the life of the Adjustable Rate Mortgage Loan (the “Maximum Mortgage Rate”) or decrease
below a specified minimum Mortgage Rate over the life of the Adjustable Rate Mortgage Loan (the “Minimum Mortgage Rate”); 
  
 (lxxx) None of the Initial Mortgage Loans (by Cut-off Date Principal Balance) are negative amortization loans, and none of the Subsequent
Mortgage Loans shall be negative amortization loans; 
  
 (lxxxi) No error, omission, negligence, misrepresentation, fraud or similar occurrence with respect to a Mortgage Loan has taken place on the part of the Seller, its affiliates or employees or any other person involved in the origination of
the Mortgage Loan or in the application for any insurance, including, but not limited to the MI Policy, in relation to such Mortgage Loan; 
  
 (lxxxii) Each Mortgage Loan was originated by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to Sections
203 and 211 of the Act, a savings and loan association, a savings bank, a commercial bank, credit union, insurance company or similar institution which is supervised and examined by a federal or state authority; 
  
 (lxxxiii) With respect to each Mortgage Loan secured by
manufactured housing, such manufactured housing is permanently affixed to a foundation and constitutes real estate under applicable state law; 
  
 (lxxxiv) No Mortgage Loans are date of payment or simple interest loans; 
  
 (lxxxv) The sale, transfer, assignment and conveyance of Mortgage Loans by the Seller pursuant to this
Purchase Agreement is not subject to and will not result in any tax, fee or governmental charge payable by the Company, the Custodian or the Trustee to any federal, state or local government (“Transfer Taxes”) other than Transfer Taxes
which have or will be paid by the Seller as due; 
  
 (lxxxvi) Each Mortgage Loan is a “qualified mortgage” within Section 860G(a)(3) of the Code; 
  
 (lxxxvii) Approximately 39.92 % of the Initial Mortgage Loans (by Cut-off Date Principal Balance) with a Loan-to-Value Ratio greater
than 60% are covered by an MI Policy issued by an MI Insurer; 
  

 23 

 (lxxxviii) Approximately 37.57% of the Initial Mortgage Loans that are identified on
Exhibit 1 hereto are covered by a MI Policy issued by the MI Insurer; 
  
 (lxxxix) All requirements for the valid transfer of each MI Policy, including any assignments or notices required in each MI Policy, have been satisfied; 
  
 (xc) As of the Closing Date with respect to each Initial Mortgage Loan that is subject to a MI Policy and as
of each Subsequent Transfer Date with respect to each Subsequent Mortgage Loan that is subject to a MI Policy, the Seller is unaware of any existing circumstances which would cause the MI Insurer to deny a claim with respect to such Mortgage Loan;

  
 (xci) All appraisals of the Mortgage Loans by
the Seller are full URAR/1004 appraisals; 
  
 (xcii) All Prepayment Charges are enforceable and were originated in compliance with all applicable federal, state, and local laws; 
  
 (xciii) With respect to mortgage loans that are more than 59 days delinquent as of the Cut-off Date, the Seller has made a specific review
of the Servicer’s data and records that reflect mortgagor communications and payment history, and has no actual knowledge of an event, condition or mortgagor communication which would cause the Seller to institute foreclosure proceedings;

  
 (xciv) At the time of origination of each
Mortgage Loan, the Seller or NovaStar Home Mortgage, Inc., as applicable, and the branch and processing center through which the Mortgage Loan was originated and/or brokered, as applicable, possessed a valid license (or documented exemption
therefor) for origination and/or brokering of such Mortgage Loan. All parties which have had any interest in the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such
interest, were) in compliance with any and all applicable “doing business” and licensing requirements of the laws of the state wherein the Mortgaged Property is located; 
  
 (xcv) The related Mortgaged Property is not a leasehold estate or, if such Mortgaged Property is a leasehold
estate, the remaining term of such lease is at least ten (10) years greater than the remaining term of the related Mortgage Note; 
  
 (xcvi) No Mortgage Loan contains provisions pursuant to which Monthly Payments are (a) paid or partially paid with funds deposited in any
separate account established by the Seller, the Mortgagor, or anyone on behalf of the Mortgagor or (b) paid by any source other than the Mortgagor; 
  
 (xcvii) No Mortgage Loan was made in connection with (a) the construction or rehabilitation of a Mortgaged Property or (b) facilitating
the trade-in or exchange of a Mortgaged Property; 
  
 (xcviii) There are no circumstances existing that could reasonably be expected to adversely affect the value or the marketability of any Mortgaged Property or 

  

 24 

 
Mortgage Loan or to cause the Mortgage Loans to prepay during any period materially faster or slower than similar mortgage loans held by Seller generally
secured by properties in the same geographic area as the related Mortgaged Property; 
  
 (xcix) If the residential dwelling on the Mortgaged Property is a condominium unit or a unit in a planned unit development (other than a
de minimis planned unit development) such condominium or planned unit development project meets the FNMA’s eligibility requirements; 
  
 (c) The Seller or the Servicer, as applicable, has no actual knowledge that there exist any hazardous substances, hazardous wastes or
solid wastes, as such terms are defined in the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act of 1976, or other federal, state or local environmental legislation, on any Property, and
no violations of any local, state or federal environmental law, rule or regulation exist with respect to any Property; 
  
 (ci) With respect to each second lien Mortgage Loan, (A) the related first lien mortgage loan is in full force and effect, and there is no
default, breach, violation or event which would permit acceleration existing under such first lien mortgage or mortgage note, and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event which would permit acceleration thereunder and (B) the related first lien mortgage contains a provision which provides for giving notice of default or breach to the mortgagee under such second lien
Mortgage Loan and allows such mortgagee to cure any default under the related first lien mortgage; and 
  
 (cii) The Seller has complied with all applicable anti-money laundering laws and regulations, including without limitation the USA Patriot
Act of 2001 (collectively, the “Anti-Money Laundering Laws”); the Seller has established an adequate anti-money laundering compliance program as required by the Anti-Money Laundering Laws, has conducted the requisite due diligence in
connection with the origination of each Mortgage Loan for purposes of the Anti-Money Laundering Laws, including with respect to the legitimacy of the applicable Mortgagor and the origin of the assets used by such Mortgagor to purchase the property
in question, and maintains, and will maintain, sufficient information to identify the applicable Mortgagor for purposes of the Anti-Money Laundering Laws. 
  
 Upon discovery by the Seller or upon notice from the Company, the Class A-1 Insurer, the Trustee, or the Custodian, as applicable, of a breach of any
representation or warranty (without regard to any knowledge qualifier) in subsection (a) of this Section which materially and adversely affects the interests of the Certificateholders or the Class A-1 Insurer, the Seller shall, within 45 days of its
discovery or its receipt of notice of such breach, either (i) cure such breach in all material respects or (ii) to the extent that such breach is with respect to a Mortgage Loan or a Related Document, either (A) repurchase such Mortgage Loan from
the Trustee at the Repurchase Price, or (B) substitute one or more Eligible Substitute Mortgage Loans for such Mortgage Loan, in each case in the manner and subject to the conditions and limitations set forth below. 
  

 25 

 Upon discovery by the Seller or upon notice from the Company, the Class A-1 Insurer, the Trustee, or the
Custodian, as applicable, of a breach of any representation or warranty without regard to any knowledge qualifier in paragraph (xciv) of this Section (which breach shall be deemed to materially and adversely affect the interests of the
Certificateholders and/or the Class A-1 Insurer), the Parent shall, within 45 days of its discovery or its receipt of notice of such breach repurchase such Mortgage Loan from the Trustee at the Repurchase Price plus any expenses, costs (including
penalties) or damages incurred by the Trust Fund, the Class A-1 Insurer or the Trustee relating to such licensing matters, and shall reimburse the Trust Fund, the Class A-1 Insurer and the Trustee following the date of repurchase for any such
expenses, costs (including penalties) or damages incurred after the date of repurchase. 
  
 Upon discovery by the Seller or upon notice from the Company, the Class A-1 Insurer, the Trustee, or the Custodian, as applicable, of a breach of any representation or warranty (without regard to any knowledge
qualifier) in this subsection (b) with respect to any Mortgage Loan or upon the occurrence of a Repurchase Event, which materially and adversely affects the value of the related Mortgage Loan or the interests of any Certificateholders or of the
Company, or the Class A-1 Insurer, or the Trustee in such Mortgage Loan (any breach of a representation or warranty relating to licensing, predatory lending or abusive lending shall be deemed to be adverse and material) (notice of which shall be
given to the Company and the Trustee by the Seller, if it discovers the same) the Seller shall, within 90 days after the earlier of its discovery or receipt of notice thereof, either cure such breach or Repurchase Event in all material respects or
either (i) repurchase such Mortgage Loan from the Trustee at the Repurchase Price, or (ii) substitute one or more Eligible Substitute Mortgage Loans for such Mortgage Loan, in each case in the manner and subject to the conditions set forth below.
The Repurchase Price for any such Mortgage Loan repurchased by the Seller shall be deposited or caused to be deposited by the Servicer in the Collection Account maintained by it pursuant to Section 3.06 of the Pooling and Servicing Agreement.

  
 In the event that the Seller elects to substitute an Eligible
Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this Section 3.01, the Seller shall deliver to the Custodian on behalf of the Trustee, with respect to such Eligible Substitute Mortgage Loan or Loans, the original Mortgage
Note and all other documents and agreements as are required by Section 2.01 hereof, with the Mortgage Note endorsed as required by such Section 2.01 hereof. No substitution will be made in any calendar month after the Determination Date for such
month. Monthly Payments due with respect to Eligible Substitute Mortgage Loans in the month of substitution shall not be part of the Trust Fund and will be retained by the Servicer and remitted by the Servicer to the Seller on the next succeeding
Payment Date. For the month of substitution, distributions to the Payment Account pursuant to the Pooling and Servicing Agreement will include the Monthly Payment due on a Deleted Mortgage Loan for such month and thereafter the Seller shall be
entitled to retain all amounts received in respect of such Deleted Mortgage Loan. The Servicer shall amend or cause to be amended the Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan and the substitution of the Eligible
Substitute Mortgage Loan or Loans and the Servicer shall deliver the amended Mortgage Loan Schedule to the Custodian and the Trustee. Upon such substitution, the Eligible Substitute Mortgage Loan or Loans shall be subject to the terms of this
Purchase Agreement and the Pooling and Servicing Agreement in all respects, the Seller shall be deemed to have made the representations and warranties with respect to the Eligible Substitute Mortgage Loan contained 

  

 26 

 
herein set forth in this Section 3.01(b), to the extent set forth in the definition of “Eligible Substitute Mortgage Loan”, as of the date of
substitution, and the Seller shall be obligated to repurchase or substitute for any Eligible Substitute Mortgage Loan as to which a Repurchase Event has occurred as provided herein. In connection with the substitution of one or more Eligible
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer will determine the amount (such amount, a “Substitution Adjustment Amount”), if any, by which (i) the Repurchase Price that would otherwise apply to such
Deleted Mortgage Loan, exceeds (ii) the principal balance of the related Eligible Substitute Mortgage Loan (after application of the principal portion of the Monthly Payments due in the month of substitution that are to be distributed to the Payment
Account in the month of substitution). The Seller shall pay the amount of such shortfall to the Servicer for deposit into the Collection Account on the day of substitution, without any reimbursement therefor. 
  
 Upon receipt by the Trustee of written notification, signed by a Servicing
Officer, of the deposit of such Repurchase Price or of such substitution of an Eligible Substitute Mortgage Loan and deposit of any applicable Substitution Adjustment Amount as provided above, the Custodian shall, on behalf of the Trustee, cause to
be released to the Seller the related Mortgage File for the Mortgage Loan being repurchased or substituted for and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Servicer, in each case without
recourse, as shall be necessary to vest in the Seller or its designee such Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan shall not be an asset of the Trustee. 
  
 It is understood and agreed that the obligation of the Seller to cure any breach with respect to or to repurchase or
substitute for, any Mortgage Loan as to which such a breach has occurred and is continuing shall, except to the extent provided in Section 6.01 of this Purchase Agreement, constitute the sole remedy respecting such breach available to the Company,
the Trustee, the Certificateholders, the Class A-1 Insurer or the Custodian against the Seller. 
  
 It is understood and agreed that the representations and warranties set forth in this Section 3.01 shall survive delivery of the respective Mortgage Files
to the Custodian on behalf of the Trustee. 
  
 Section 3.02
Company Representations and Warranties. 
  
 The Company
hereby represents and warrants to the Seller, the Class A-1 Insurer and the Trustee as of the date hereof and as of the Closing Date that: 
  
 (a) The Company is duly organized and validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority
to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted. 
  
 (b) The Company is duly qualified to do business as a foreign corporation in good standing and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of its property or the conduct of its business shall require such 

  

 27 

 
qualifications and in which the failure to so qualify would have a material adverse effect on the business, properties, assets or condition (financial or
other) of the Company and the ability of the Company to perform under this Purchase Agreement. 
  
 (c) The Company has the power and authority to execute and deliver this Purchase Agreement and to carry out its terms; the Company has full power and authority to purchase the property to be purchased from the Seller
and the Company has duly authorized such purchase by all necessary corporate action; and the execution, delivery and performance of this Purchase Agreement have been duly authorized by the Company by all necessary corporate action. 
  
 (d) The consummation of the transactions contemplated by this Purchase
Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of incorporation or bylaws of
the Company, or any indenture, agreement or other instrument to which the Company is a party or by which it is bound; nor result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument (other than pursuant to the Basic Documents); nor violate any law or, to the best of the Company’s knowledge, any order, rule or regulation applicable to the Company of any court or of any federal or state
regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Company or its properties. 
  
 (e) The Company (A) is a solvent entity and is paying its debts as they become due and (B) after giving effect to the transfer of the Mortgage Loans, will
be a solvent entity and will have sufficient resources to pay its debts as they become due. 
  
 ARTICLE IV 
  
 SELLER’S COVENANTS 
  
 Section 4.01
Covenants of the Seller. 
  
 The Seller hereby covenants as
of the date hereof and as of the Closing Date that, except for the transfer hereunder, on and after the Closing Date, the Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur or assume any Lien on, any
Mortgage Loan, whether now existing or hereafter created, or any interest therein; the Seller will notify the Custodian, the Class A-1 Insurer and the Trustee of the existence of any such Lien on any Mortgage Loan immediately upon discovery thereof;
and the Seller will defend the right, title and interest of the Trustee, on its own behalf and as assignee of the Company, in, to and under the Mortgage Loans, whether now existing or hereafter created, against all claims of third parties claiming
through or under the Seller. 
  
 In the event that the Custodian
or the Trustee receives actual notice of any Transfer Taxes arising out of the transfer, assignment and conveyance of the Mortgage Loans, on written demand by the Custodian, or upon the Seller’s otherwise being given notice thereof by the
Custodian, the Seller shall pay any and all such Transfer Taxes (it being understood that the 

  

 28 

 
Holders of the Certificates, the Company, the Custodian, the Class A-1 Insurer and the Trustee shall have no obligation to pay such Transfer Taxes).

  
 Section 4.02 Payment of Expenses. 
  
 (a) The Seller will pay on the Closing Date all expenses incident to the
performance of its obligations under this Purchase Agreement and the Underwriting Agreement, including (i) the preparation, printing and any filing of the preliminary prospectus, Prospectus Supplement and Prospectus (including any schedules or
exhibits and any document incorporated therein by reference) originally filed and of each amendment or supplement thereto, (ii) the preparation, printing and delivery to the Underwriters of this Purchase Agreement and the Underwriting Agreement, the
Pooling and Servicing Agreement and such other documents as may be required in connection with the offering, purchase, sale and delivery of the Certificates, (iii) the preparation, issuance and delivery of the certificates for the Class A
Certificates, Mezzanine Certificates and Class B Certificates to the Underwriters, including any charges of DTC, Clearstream Luxembourg and the Euroclear System in connection therewith; (iv) the qualification of the Class A Certificates, Mezzanine
Certificates and Class B Certificates under securities laws in accordance with the provisions of Section 3(f) of the Underwriting Agreement, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto for delivery to potential investors, (v) in addition to the initial printing and filing costs under (i) above, the printing and delivery to
the Underwriters of copies of each preliminary prospectus and of the Prospectus and any amendments or supplements thereto for delivery to potential investors, (vi) the fees and expenses of the Trustee, the Class A-1 Insurer and the Custodian,
including the fees and disbursements of counsel for the Trustee, the Class A-1 Insurer and the Custodian in connection with the Pooling and Servicing Agreement, the Purchase Agreement and the Certificates (vii) any premiums and expenses due to the
Class A-1 Insurer and (viii) any fees payable in connection with the rating of the Certificates. 
  
 (b) If the Underwriting Agreement is terminated by the Underwriters in accordance with the provisions of Section 5 or Section 9(a)(i) thereof, the Seller
shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. 
  
 ARTICLE V 
  
 CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE 
  
 Section 5.01 Conditions of Company’s Obligations. 
  
 The Company’s obligations to purchase the Initial Mortgage Loans which each accepts for purchase hereunder shall be subject to each of the following
conditions: 
  
 (i) the Mortgage File for each
Initial Mortgage Loan shall have been delivered in accordance with this Purchase Agreement; 
  
 (ii) the representations and warranties set forth in Section 3.01(b) hereof with respect to each Initial Mortgage Loan shall be true as of
the Closing Date; 
  

 29 

 (iii) the Underwriters or their affiliates shall have had an opportunity to perform a due
diligence review of each Mortgage Loan; and 
  
 (iv) the Seller shall have provided to the Underwriters or their affiliates such other documents which are then required to have been delivered under this Purchase Agreement or which are reasonably requested by the Underwriters or their
affiliates, which other documents may include UCC financing statements, a favorable opinion or opinions of counsel with respect to matters which are reasonably requested by the Underwriters, and/or an Officers’ Certificate. 
  
 ARTICLE VI 
  
 INDEMNIFICATION BY THE SELLER 
 WITH RESPECT TO THE MORTGAGE LOANS 
  
 Section 6.01 Indemnification With Respect to the Mortgage Loans. 
  
 The Seller shall indemnify and hold harmless the Company, Trustee, the Class A-1 Insurer and the Custodian from and against
any loss, liability or expense arising from the breach by the Seller of its representations and warranties in Section 3.01 of this Purchase Agreement which materially and adversely affects the value of any Mortgage Loan or the Company’s
assignees’ interest in any Mortgage Loan or from the failure by the Seller to perform its obligations under this Purchase Agreement in any material respect. 
  
 Section 6.02 Limitation on Liability of the Seller. 
  
 None of the directors, officers, employees or agents of the Seller shall be under any liability to the Company, it being
expressly understood that all such liability is expressly waived and released as a condition of, and as consideration for, the execution of this Purchase Agreement. Except as and to the extent expressly provided in the Basic Documents, the Seller
shall not be under any liability to the Trustee, the Custodian or the Certificateholders. The Seller and any director, officer, employee or agent of the Seller may rely in good faith on any document of any kind prima facie properly executed
and submitted by any Person respecting any matters arising hereunder. 
  
 ARTICLE VII 
  
 TERMINATION 
  
 Section 7.01 Termination. 
  
 (a) Except as provided in Section 7.01(b) hereof, the respective obligations
and responsibilities of the Seller, the Company, the Trustee and the Custodian created hereby shall terminate, except for the Seller’s indemnity obligations as provided herein, upon the termination of the Trust Fund pursuant to the terms of the
Pooling and Servicing Agreement. 
  

 30 

 (b) The Company may terminate this Purchase Agreement, by notice to the Seller, at any time at or prior
to the Closing Date: 
  
 (i) if the Underwriting
Agreement is terminated by the Underwriters pursuant to the terms of the Underwriting Agreement or if there has been, since the time of execution of this Purchase Agreement or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the financial condition, earnings, business affairs or business prospects of the Seller, whether or not arising in the ordinary course of business, or 
  
 (ii) if there has occurred any material adverse change in
the financial markets in the United States, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the judgment of the Underwriters, impracticable to market the Class A Certificates, Mezzanine Certificates and Class B Certificates or to enforce contracts for the sale of the
Class A Certificates, Mezzanine Certificates and Class B Certificates, or 
  
 (iii) if trading in any securities of the Seller has been suspended or limited by the Commission or the New York Stock Exchange, or if trading generally on the American Stock Exchange or the New York Stock Exchange or
in the NASDAQ National Market System has been suspended or limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission,
the National Association of Securities Dealers, Inc. or any other governmental authority, 
  
 (iv) if a banking moratorium has been declared by either federal or New York authorities, 
  
 (v) either (A) a change in control of the Seller shall have
occurred other than in connection with and as a result of the issuance and sale by the Seller or registered, publicly offered common stock; or (B) the Underwriters determine in their sole discretion that any material adverse change has occurred in
the management of the Seller, 
  
 (vi) there is
(A) a material breach by the Seller of any representation and warranty contained in this Purchase Agreement or the Underwriting Agreement other than a representation or warranty relating to particular Mortgage Loans, and the Underwriters have reason
to believe in good faith either that such breach is not curable within two (2) days or that such breach may not have been cured in all material respects at the expiration of two (2) days following discovery thereof by the Seller or (B) a failure by
the Seller to make any payment payable by it under this Purchase Agreement or (C) any other failure by the Seller to observe and perform in any material respect its material covenants, agreements and obligations with the Company, including without
limitation those contained in this Purchase Agreement, and the Company has reason to believe in good faith that such failure may not have been cured in all material respects at the expiration of two (2) days following discovery thereof by the
Seller, or 
  
 (vii) the Seller fails to provide
written notification to the Underwriters of any change in its loan origination, acquisition or appraisal guidelines or practices, or the Seller, without the prior consent of the Underwriters (which shall not be unreasonably withheld), 

  

 31 

 
amends in any material respect its loan origination, acquisition or appraisal guidelines or practices. 
  
 If this Purchase Agreement is terminated pursuant to this Section 7.01(b),
such termination shall be without liability of any party to any other party except as provided in Section 4.02 hereof. 
  
 ARTICLE VIII 
  
 MISCELLANEOUS PROVISIONS 
  
 Section 8.01 Amendment. 
  
 This Purchase Agreement may be amended from time to time, upon the consent of the Class A-1 Insurer, by the Seller, the Company, the Trustee and the Custodian by written agreement signed by the Seller, the Company, the Trustee and the
Custodian. 
  
 Section 8.02 Governing Law. 
  
 This Purchase Agreement shall be governed by and 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. 
  
 Section 8.03 Notices. 
  
 All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by
registered mail, postage prepaid, addressed as follows: 
  

	 	(i)	if to the Seller: 

  
 NovaStar Mortgage, Inc. 
 8140 Ward Parkway

 Suite 300 
 Kansas City,
Missouri 64114 
 Attention: Scott F. Hartman 
  
 or, such other address as may hereafter be furnished to the Company in writing by the Seller. 
  

	 	(ii)	if to the Company: 

  
 NovaStar Mortgage Funding Corporation 
 8140
Ward Parkway 
 Suite 300 
 Kansas
City, Missouri 64114 
 Attention: Matt Kaltenrieder 
  

or such other address as may hereafter be furnished to the Seller in writing by the Company. 
  

 32 

	 	(iii)	if to the Custodian: 

  
 Wachovia Bank, National Association 
 4527
Metropolitan Court, Suite C 
 Frederick, Maryland 21704 
 Attention: Edward Aquino 
  
 or such other address
as may hereafter be furnished to the Seller in writing by the Custodian. 
  

	 	(iv)	if to the Trustee: 

  
 JPMorgan Chase Bank 
 4 New York Plaza,
6th Floor 
 New York, NY 10004-2477 
 Attention: Institutional Trust Services (NovaStar Mortgage Funding Trust, Series 2004-2) 
  
 or such other address as may hereafter be furnished to the Seller in writing by the Trustee.

  

	 	(v)	if to the Class A-1 Insurer: 

  
 350 Park Avenue 
 13th Floor 
 New York, New York 10022 
  
 or such other address as may hereafter be furnished to the Seller in writing by the Class A-1 Insurer. 
  
 Section 8.04 Severability of Provisions. 
  
 If any one or more of the covenants, agreements, provisions or terms of this Purchase Agreement shall be held invalid for
any reason whatsoever, then such covenants, agreements, provisions or terns shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Purchase Agreement and shall in no way affect the validity or enforceability
of the other provisions of this Purchase Agreement. 
  
 Section
8.05 Relationship of Parties. 
  
 Nothing herein contained
shall be deemed or construed to create a partnership or joint venture between the parties hereto, and the services of the Seller shall be rendered as an independent contractor and not as agent for the Company. 
  
 Section 8.06 Counterparts. 
  
 This Purchase Agreement may be executed in two 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 and such counterparts together shall constitute one and the same agreement. 
  

 33 

 Section 8.07 Further Agreements. 
  
 The Company and the Seller each agree to execute and deliver to the other such additional documents, instruments or
agreements as may be necessary or appropriate to effectuate the purposes of this Purchase Agreement. Each of the Company and the Seller agrees to use its best reasonable efforts to take all actions necessary to be taken by it to cause the Class A-1
Certificates to be rated “Aaa” by Moody’s and “AAA” by S&P, the Class A-2 Certificates to be rated “Aaa by Moody’s and “AAA” by S&P, the Class A-3 Certificates to be rated “Aaa” by
Moody’s and “AAA” by S&P, the Class A-4 Certificates to be rated “Aaa” by Moody’s and “AAA” by S&P, the Class A-5 Certificates to be rated “Aaa” by Moody’s and “AAA” by
S&P, the Class M-1 Certificates to be rated “Aa2” by Moody’s and “AA+” by S&P, the Class M-2 Certificates to be rated “Aa3” by Moody’s and “AA” by S&P, the Class M-3 Certificates to be
rated “A1” by Moody’s and “AA-” by S&P, the Class M-4 Certificates to be rated “A2” by Moody’s and “A+” by S&P, the Class M-5 Certificates to be rated “A3” by Moody’s and
“A” by S&P, the Class B-1 Certificates to be rated “Baa1” by Moody’s and “A-” by S&P, the Class B-2 Certificates to be rated “Baa2” by Moody’s and “BBB+” by S&P, the Class B-3
Certificates to be rated “Baa3” by Moody’s and “BBB” by S&P and the Class P Certificates to be rated “AAA” by S&P, and each party will cooperate with the other in connection therewith. 
  
 Section 8.08 Intention of the Parties. 
  
 It is the intention of the parties that (i) the Company is purchasing on the
Closing Date, and the Seller is selling on the Closing Date, the Initial Mortgage Loans, rather than the Company providing to the Seller a loan secured by the Initial Mortgage Loans on the Closing Date, and (ii) the Trustee is purchasing on the
Closing Date, and the Company is selling on the Closing Date, the Initial Mortgage Loans, rather than the Trustee providing to the Company a loan secured by the Initial Mortgage Loans, (iii) the Company will be purchasing on each Subsequent Transfer
Date, and the Seller will be selling on each Subsequent Transfer Date, the related Subsequent Mortgage Loans, rather than the Company providing to the Seller a loan secured by the related Subsequent Mortgage Loans on each Subsequent Transfer Date,
and (iv) the Trustee will be purchasing on each Subsequent Transfer Date, and the Company will be selling on each Subsequent Transfer Date, the related Subsequent Mortgage Loans, rather than the Trustee providing to the Company a loan secured by the
related Subsequent Mortgage Loans on each Subsequent Transfer Date. Accordingly, the parties hereto each intend to treat these transactions as (i) a sale by the Seller, and a purchase by the Company, of the Initial Mortgage Loans on the Closing
Date, and (ii) a sale by the Company, and a purchase by the Trustee, of the Initial Mortgage Loans on the Closing Date, (iii) a sale by the Seller, and a purchase by the Company, of the related Subsequent Mortgage Loans on each Subsequent Transfer
Date, and (iv) a sale by the Company, and a purchase by the Trustee, of the related Subsequent Mortgage Loans on each Subsequent Transfer Date. 
  
 Section 8.09 Successors and Assigns; Assignment of Purchase Agreement. 
  
 This Purchase Agreement shall bind and inure to the benefit of and be enforceable by the Seller, the Company, the Trustee,
the Custodian, and their respective successors and assigns. The obligations of the Seller under this Purchase Agreement cannot be assigned or delegated to a third party without the consent of the Company, which consent shall be at the 

  

 34 

 
Company’s discretion. The parties hereto acknowledge that (i) the Company is acquiring the Initial Mortgage Loans for the purpose of selling them to the
Trustee, who will hold the Initial Mortgage Loans in trust for the benefit of the Certificateholders and (ii) the Company is acquiring the Subsequent Mortgage Loans for the purpose of selling them to the Trustee, who will hold the Subsequent
Mortgage Loans for the benefit of the Certificateholders. As an inducement to the Company and the Trustee to purchase the Mortgage Loans, the Seller acknowledges and consents to (i) the assignment by the Company to the Trustee of all of the
Company’s rights or remedies against the Seller pursuant to this Purchase Agreement and to (ii) the enforcement or exercise of any rights against the Seller pursuant to this Purchase Agreement by the Company and the Trustee. Such enforcement of
a right or remedy by the Trustee, shall have the same force and effect as if the right or remedy had been enforced or exercised by the Company directly. 
  
 Section 8.10 Survival. 
  
 The representations and warranties made herein by the Seller and the provisions of Article V hereof shall survive the purchase of the Mortgage Loans
hereunder. 
  
 Section 8.11 Third Party Beneficiary.

  
 The parties agree that the Class A-1 Insurer is intended and
shall have all rights of a third-party beneficiary of this Agreement. 
  
 Section 8.12 Liability of the Trustee. 
  
 The
Trustee is entering into the Basic Documents to which it is a party solely as Trustee, hereunder and thereunder, and not in its individual capacity, and all persons having any claim against the Trustee by reason of the transactions contemplated by
this Agreement or any other Basic Document shall look only to the Trust Fund for payment or satisfaction thereof. 
  

 35 

 IN WITNESS WHEREOF, the Seller, the Company, the Custodian and the Trustee have caused their names to be
signed to this Mortgage Loan Purchase Agreement by their respective officers thereunto duly authorized as of the day and year first above written. 
  

			
	 NOVASTAR MORTGAGE, INC. as Seller

		
	By:	 	/S/    MATT KALTENRIEDER
	 Name:
	 	Matt Kaltenrieder
	 Title:
	 	Vice President

  

			
	NOVASTAR MORTGAGE FUNDING CORPORATION as Company
		
	By:	 	/S/    MATT KALTENRIEDER
	 Name:
	 	Matt Kaltenrieder
	 Title:
	 	Vice President

  

			
	 WACHOVIA BANK, NATIONAL ASSOCIATION
 as
Custodian

		
	By:	 	/S/    EDWIN AQUINO
	 Name:
	 	Edwin Aquino
	 Title:
	 	Vice President

  

			
	 JPMORGAN CHASE BANK,
 not in its individual
capacity, but solely as Trustee

		
	By:	 	/S/    MICHAEL A. SMITH
	 Name:
	 	Michael A. Smith
	 Title:
	 	Vice President

  
 [Signature Page
to Mortgage Loan Purchase Agreement] 
  

			
	NOVASTAR FINANCIAL, INC., solely with respect to Section 3.01(b)
		
	By:	 	/S/    MATT KALTENRIEDER
	 Name:
	 	Matt Kaltenrieder
	 Title:
	 	Vice President

  
 [Signature Page
to Mortgage Loan Purchase Agreement] 
  

 EXHIBIT 1 
  

INITIAL MORTGAGE LOAN SCHEDULE 
  
 [On File with Dewey Ballantine LLP] 
  

 EXHIBIT 2(A) 
  
 SELLER’S SUBSEQUENT TRANSFER INSTRUMENT 
  
 Pursuant to this Seller’s Subsequent Transfer Instrument (the “Seller’s Instrument”), dated as of
June 1, 2004, between NovaStar Mortgage, Inc. as seller (the “Seller”), and NovaStar Mortgage Funding Corporation, as company (the “Company”), and pursuant to the Mortgage Loan Purchase Agreement, dated as of June
1, 2004 (the “Purchase Agreement”), among the Seller, the Company, Wachovia Bank, National Association, as Custodian (the “Custodian”) and JPMorgan Chase Bank, as Trustee (the “Trustee”), the Seller
and the Company agree to the sale by the Seller and the purchase by the Company of the subsequent Mortgage Loans listed on the attached Mortgage Loan Schedule (the “Subsequent Mortgage Loans”) and the related MI Policies.

  
 Capitalized terms used and not defined herein have their
respective meanings as set forth in the definitions contained in the Pooling and Servicing Agreement, dated as of June 1, 2004 (the “Pooling and Servicing Agreement”), between the Trustee, the Custodian, the Company and the
Seller/Servicer which definitions are incorporated by reference herein. All other capitalized terms used herein shall have the meanings specified herein. 
  
 Section 1. Conveyance of Subsequent Mortgage Loans. 
  
 (a) The Seller does hereby sell, transfer, assign, set over and convey to the Company, without recourse, all of its right, title and interest in and to
the Subsequent Mortgage Loans and the related MI Policies, all scheduled payments of principal and interest on the Subsequent Mortgage Loans due after the Subsequent Cut-off Date, and all other payments of principal and interest on the Subsequent
Mortgage Loans collected after the Subsequent Cut-off Date (minus that portion of any such payment which is allocable to the period prior to the Subsequent Cut-off Date); provided, however, that no scheduled payments of principal and interest due on
or before the Subsequent Cut-off Date and collected after the Subsequent Cut-off Date shall belong to the Company pursuant to the terms of this Seller’s Instrument. The Seller, contemporaneously with the delivery of this Seller’s
Instrument, has delivered or caused to be delivered to the Custodian, at the direction of the Company, each item set forth in Section 2.02(b) of the Purchase Agreement with respect to such Subsequent Mortgage Loans and the related MI Policies. The
transfer to the Company by the Seller of the Subsequent Mortgage Loans identified on the attached Mortgage Loan Schedule shall be absolute and is intended by the Seller, the Company, the Custodian, the Trustee, the Class A-1 Insurer and the
Certificateholders to constitute and to be treated as a sale by the Seller. 
  
 The parties hereto intend that the transactions set forth herein constitute a sale by the Seller to the Company on the Subsequent Transfer Date of all the Seller’s right, title and interest in and to the
Subsequent Mortgage Loans and the related MI Policies, and other property as and to the extent described above. In the event the transactions set forth herein shall be deemed not to be a sale, the Seller hereby grants to the Company as of the
Subsequent Transfer Date a security interest in all of the Seller’s right, title and interest in, to and under the Subsequent Mortgage Loans, and such other property, to secure all of the Seller’s obligations hereunder, and this Purchase
Agreement shall constitute a security agreement under applicable 

  

 
law, and in such event, the parties hereto acknowledge that the Custodian, in addition to holding the Subsequent Mortgage Loans and the related MI Policies
on behalf of the Trustee for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee and agent of the Company. The Seller agrees to take or cause to be taken such actions and to execute such
documents, including without limitation the filing of all necessary UCC-1 financing statements filed in the State of Maryland (which shall be submitted for filing as of the Subsequent Transfer Date), any continuation statements with respect thereto
and any amendments thereto required to reflect a change in the name or corporate structure of the Seller or the filing of any additional UCC-1 financing statements due to the change in the state of incorporation of the Seller as are necessary to
perfect and protect the interests of the Company and its assignees in each Subsequent Mortgage Loan, the related MI Policies and the proceeds thereof. 
  
 (b) The expenses and costs relating to the delivery of the Subsequent Mortgage Loans, this Seller’s Instrument and such other items required under
the Mortgage Loan Purchase Agreement shall be borne by the Seller. 
  
 (c) Additional terms of the sale are set forth on Attachment A hereto. 
  
 Section 2. Representations and Warranties; Conditions Precedent. 
  
 (a) The Seller hereby affirms the representations and warranties set forth in Section 3.01 of the Purchase Agreement that relate to the Seller and the
Subsequent Mortgage Loans as of the date hereof. The Seller hereby confirms that each of the conditions set forth in Section 2.02(b) of the Purchase Agreement are satisfied as of the date hereof and further represents and warrants that each
Subsequent Mortgage Loan complies with the requirements of this Seller’s Instrument and Section 2.02(c) of the Purchase Agreement. 
  
 (b) The Seller 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 this Seller’s Instrument or by the performance of its obligations hereunder nor is it aware of any pending insolvency; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the Seller prior to the date hereof; 
  
 (c) All terms and conditions of the Purchase Agreement are hereby ratified and confirmed; provided, however, that in the event of any conflict the provisions of this Seller’s Instrument shall control over the
conflicting provisions of the Purchase Agreement. 
  
 Section 3.
Recordation of the Seller’s Instrument. 
  
 To the
extent permitted by applicable law, this Seller’s Instrument, 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 properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Servicer, but only when accompanied by an
Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Certificateholders or is necessary for the administration or servicing of the Mortgage Loans. 
  

 2 

 Section 4. Governing Law. 
  
 This Seller’s Instrument 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 5. Counterparts. 
  
 This Seller’s Instrument 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 instrument. 
  
 Section 6. Successors and Assigns. 
  
 This Seller’s Instrument shall inure to the benefit of and be binding upon the Seller and the Company and their respective successors and assigns.
The Custodian and the Trustee shall be express third party beneficiaries hereto. 
  
 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Seller’s Instrument as of the day and year first written above. 
  

			
	 NOVASTAR MORTGAGE, INC., as Seller

		
	By:	 	 
	 Name:
	 	 
	 Title:
	 	 

  

			
	NOVASTAR MORTGAGE FUNDING CORPORATION, as Company
		
	By:	 	 
	 Name:
	 	 
	 Title:
	 	 

  

			
	FINANCIAL SECURITY ASSURANCE, INC., as the Class A-1 Insurer hereby consents to the foregoing Addition pursuant to Section 2.02 of the Purchase Agreement
		
	By:	 	 

  

 3 

 NOVASTAR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 2004-2 
  
 ATTACHMENT A TO SELLER’S SUBSEQUENT TRANSFER INSTRUMENT 
  
                          , 2004 
  

	A.	Profile of Subsequent Mortgage Loans: 

  
 1. Subsequent Cut-off Date:
                         , 2004 
  
 2. Subsequent Transfer Date:
                         , 2004 
  
 3. Aggregate Principal Balance of the Subsequent Mortgage Loans as of the Subsequent Cut-off Date:
$                     
  
 4. Purchase Price: 100.00% 
  

	B.	As to all the Subsequent Mortgage Loans the subject of this Instrument: 

  

						
	I.           	 	 Longest stated term to maturity:
	  	 	360 months
	II.          	 	 Minimum Mortgage Rate:
	  	 	      %
	III.        	 	 Maximum Mortgage Rate:
	  	 	      %
	IV.        	 	 WAC of all Mortgage Loans:
	  	 	      %
	V.          	 	 WAM of all Mortgage Loans:
	  	 	      %
	VI.        	 	 Largest Principal Balance:
	  	$	            
	VII.      	 	 Non-owner occupied Mortgaged Properties:
	  	 	      %
	VIII.     	 	 California zip code concentration:
	  	 	      %
	IX.        	 	 Condominiums:
	  	 	      %
	X.          	 	 Single-family:
	  	 	      %
	XI.        	 	 Weighted average term since origination:
	  	 	     month
	XII.      	 	 Mortgage Loans Covered by MI Policies:
	  	 	      %

  

 EXHIBIT 2(B) 
  
 COMPANY’S SUBSEQUENT TRANSFER INSTRUMENT 
  
 Pursuant to this Company’s Subsequent Transfer Instrument (the “Company’s Instrument”), dated as
of                              , 2004, between NovaStar Mortgage Funding Corporation, as
company (the “Company”), and JPMorgan Chase Bank, as trustee (the “Trustee”), and pursuant to the Mortgage Loan Purchase Agreement, dated as of June 1, 2004 (the “Purchase Agreement”), among
NovaStar Mortgage, Inc., as seller (the “Seller”), the Company, Wachovia Bank, National Association, as Custodian (“Custodian”), and JPMorgan Chase Bank, as Trustee (the “Trustee”), the Company and
the Trustee agree to the sale by the Company and the purchase by the Trustee of the subsequent Mortgage Loans listed on the attached Mortgage Loan Schedule (the “Subsequent Mortgage Loans”) and the related MI Policies, and the
pledge of the Subsequent Mortgage Loans by the Trustee. 
  
 Capitalized terms used and not defined herein have their respective meanings as set forth in the definitions contained in the Pooling and Servicing Agreement, dated as of June 1, 2004 (the “Pooling and Servicing
Agreement”), between the Custodian, the Trustee, the Company and the Servicer which definitions are incorporated by reference herein. All other capitalized terms used herein shall have the meanings specified herein. 
  
 Section 1. Conveyance of Subsequent Mortgage Loans. 
  
 (a) The Company does hereby sell, transfer, assign, set over and convey to
the Trustee, without recourse, (i) all of its right, title and interest in and to the Subsequent Mortgage Loans and the related MI Policies, all scheduled payments of principal and interest on the Subsequent Mortgage Loans due after the Subsequent
Cut-off Date, and all other payments of principal and interest on the Subsequent Mortgage Loans collected after the Subsequent Cut-off Date (minus that portion of any such payment which is allocable to the period prior to the Subsequent Cut-off
Date); provided, however, that no scheduled payments of principal and interest due on or before the Subsequent Cut-off Date and collected after the Subsequent Cut-off Date shall belong to the Trustee pursuant to the terms of this Company’s
Instrument and (ii) all of its right, title and interest in and to the Seller’s Subsequent Transfer Instrument, dated as of
                             , 2004 (the “Seller’s Instrument”), between the
Seller and the Company. The Company, contemporaneously with the delivery of this Company’s Instrument, has delivered or caused to be delivered to the Custodian each item set forth in Section 2.02(b) of the Purchase Agreement with respect to
such Subsequent Mortgage Loans. The transfer to the Trustee by the Company of the Subsequent Mortgage Loans identified on the attached Mortgage Loan Schedule and the related MI Policies shall be absolute and is intended by the Company, the Trustee,
the Custodian, the Class A-1 Insurer and the Certificateholders to constitute and to be treated as a sale by the Company. 
  
 The parties hereto intend that the transactions set forth herein constitute a sale by the Company to the Trustee on the Subsequent Transfer Date of all
the Company’s right, title and interest in and to the Subsequent Mortgage Loans and the related MI Policies, and other property as and to the extent described above. In the event the transactions set forth herein shall be deemed not to be a
sale, the Company hereby grants to the Trustee as of the Subsequent Transfer 

  

 
Date a security interest in all of the Company’s right, title and interest in, to and under the Subsequent Mortgage Loans, and such other property, to
secure all of the Company’s obligations hereunder, and this Company’s Instrument shall constitute a security agreement under applicable law, and in such event, the parties hereto acknowledge that the Custodian on behalf of the Trustee, in
addition to holding the Subsequent Mortgage Loans and the related MI Policies for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee and agent of the Trustee. The Company agrees to take
or cause to be taken such actions and to execute such documents, including without limitation the filing of all necessary UCC-1 financing statements filed in the State of Delaware (which shall be submitted for filing as of the Subsequent Transfer
Date), any continuation statements with respect thereto and any amendments thereto required to reflect a change in the name or corporate structure of the Company or the filing of any additional UCC-1 financing statements due to the change in the
state of incorporation of the Company as are necessary to perfect and protect the interests of the Trustee and its assignees in each Subsequent Mortgage Loan, the related MI Policies and the proceeds thereof. 
  
 (b) The expenses and costs relating to the delivery of the Subsequent
Mortgage Loans, this Company’s Instrument and such other items required under the Purchase Agreement shall be borne by the Company. 
  
 Section 2. Representations and Warranties; Conditions Precedent. 
  
 (a) The Company hereby affirms the representations and warranties set forth in Section 3.02 of the Purchase Agreement that
relate to the Company as of the date hereof. 
  
 (b) The Company
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 this Company’s Instrument or by the
performance of its obligations hereunder nor is it aware of any pending insolvency; no petition of bankruptcy (or similar insolvency proceeding) has been filed by or against the Company prior to the date hereof; 
  
 (c) All terms and conditions of the Purchase Agreement are hereby ratified
and confirmed; provided, however, that in the event of any conflict the provisions of this Company’s Instrument shall control over the conflicting provisions of the Mortgage Loan Purchase Agreement. 
  
 Section 3. Recordation of Instrument. 
  
 To the extent permitted by applicable law, this Company’s Instrument, 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 properties subject to
the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Servicer, but only when accompanied by an Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Certificateholders or is necessary for the administration or servicing of the Mortgage Loans. 
  

 Section 4. Governing Law. 
  
 This Company’s Instrument 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 5. Counterparts. 
  
 This Company’s Instrument 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 instrument. 
  
 Section 6. Successors and Assigns. 
  
 This Company’s instrument shall inure to the benefit of and be binding upon the Company, the Custodian and the Trustee and their respective
successors and assigns. 
  

 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Company’s Instrument as of
the day and year first written above. 
  

			
	NOVASTAR MORTGAGE FUNDING CORPORATION, as Company
		
	By:	 	 
	 Name:
	 	 
	 Title:
	 	 

  

			
	JPMORGAN CHASE BANK, not in its individual capacity but solely as Trustee
		
	By:	 	 
	 Name:
	 	 
	 Title:
	 	 

  

			
	WACHOVIA BANK, NATIONAL ASSOCIATION, as Custodian
		
	By:	 	 
	 Name:
	 	 
	 Title:
	 	 

  

			
	FINANCIAL SECURITY ASSURANCE, INC., as the Class A-1 Insurer hereby consents to the foregoing Addition pursuant to Section 2.02 of the Purchase Agreement
		
	By:License Agreement Dated May 31, 2000

 Exhibit 10.1 
 ** CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. 
  
 LICENSE AGREEMENT 
  
 THIS LICENSE AGREEMENT is made as of the 31st day of May, 2000 by and between
BENTLEY PHARMACEUTICALS, INC., a Delaware corporation, with offices at 65 Lafayette Road, 3rd Floor, North Hampton, New Hampshire 03862-2403 (hereinafter, “BENTLEY” or “Licensor”), and AUXILIUM A2, INC., a Delaware corporation
having a principal place of business at 160 W. Germantown Pike, Suite D-5, East Norriton, Pennsylvania 19401 (hereinafter, “AUXILIUM” or” Licensee”). BENTLEY and AUXILIUM may be referred to as a “Party” or,
collectively, as “Parties.” 
  
 RECITALS 
  
 WHEREAS AUXILIUM is engaged in the research, development, manufacture, marketing and sale of
pharmaceutical products; 
  
 WHEREAS BENTLEY is engaged in the development of
pharmaceutical formulations and drug delivery systems and has developed certain formulations which contain a therapeutic drug and drug delivery systems included under BENTLEY Patents and BENTLEY Technology; 
  
 WHEREAS under a Research Services Agreement of even date herewith (the “Research
Agreement”) BENTLEY will prepare and test topical pharmaceutical formulations, excluding patch applications, which contain the therapeutic drug testosterone and CPE-215 (hereinafter, the “Compound”) under BENTLEY Patents and BENTLEY
Technology; 
  
 WHEREAS AUXILIUM wishes to obtain a license under BENTLEY Patents
and BENTLEY Technology to undertake development of products containing the Compound which meet criteria set forth in the Research Agreement for commercialization in the Territory; and 
  
 WHEREAS BENTLEY is willing to grant such a license under certain terms and conditions. 
  
 NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and
INTENDING TO BE LEGALLY BOUND HEREBY, the Parties agree as follows: 
  
 ARTICLE I 
 DEFINITIONS 
  
 1.1 The following terms, as used herein, shall have the following meanings: 
  
 “Act” shall mean the United States Federal Food Drug and Cosmetic Act and applicable regulations. 
  
 “Affiliate” means, when used with reference to a Party, any person
directly or indirectly Controlling, Controlled by or under common Control with a Party. 
  
 ** CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. 
  

 “Bankruptcy Event” means the person in question becomes insolvent, or voluntary or involuntary
proceedings by or against such person are instituted in bankruptcy or under any insolvency law, or a receiver or custodian is appointed for such person, or proceedings are instituted by or against such person for corporate reorganization or the
dissolution of such person, which proceedings, if involuntary, shall not have been dismissed within one hundred eighty days after the date or filing, or such person makes an assignment for the benefit of creditors, or substantially all of the assets
of such person are seized or attached and not released within one hundred eighty days thereafter. 
  
 “BENTLEY Know-How” shall mean any and all present and future information and any materials, including, without limitation, formulations,
processes, techniques, formulas, biological, chemical, assay control and manufacturing data, methods, software, equipment designs, know-how, and trade secrets, patentable or otherwise, tangible or intangible, that are owned or controlled by Licensor
that relate to the preparation, purification, characterization, stabilization, processing, and formulation and/or use of a testosterone topical formulation containing CPE-215. 
  
 “BENTLEY Patents” shall mean United States Patent No. 5,023,252 and any and all continuations,
continuations-in-part, additions, divisions, renewals, extensions, re-examinations and reissues thereof and any and all foreign counterparts of the foregoing as set forth in Schedule A hereto and any other Bentley U.S. or foreign patent application
which is filed hereafter and which includes a claim that covers a testosterone topical formulation which contains CPE-215 and/or the preparation and/or use thereof and any U.S. or foreign patent issuing therefrom and any renewal, extension,
re-examination or reissue thereof. 
  
 “BENTLEY
Technology” means BENTLEY Know-How and Improvements. 
  
 “Calendar Quarter” means each three-month period, or any portion thereof, beginning on January 1, April 1, July 1 and October 1. 
  
 “Combination Products” means any and all pharmaceutical compositions which contain: (A) testosterone as an active ingredient in combination with
any other steroids, hormones, somatotropics, emollients, or therapeutic soy products; and (B) the Compound; and which fall within the scope of any composition, method, or article claim of the BENTLEY Patents and which is intended to be applied
topically to the user of the composition. 
  
 “Compound”
is defined above in the Recitals. 
  
 “Confidential
Information” means (i) BENTLEY Technology, (ii) any other information or material in tangible form that is confidential or proprietary to the furnishing Party at the time it is delivered to the receiving Party, (iii) proprietary information of
the furnishing party, (iv) information that is furnished orally if the furnishing party identifies such information as confidential or proprietary when it is disclosed, and (v) patent applications not yet in the public domain. 
  

 2 

 “Control”, “Controlling,” and “Controlled by” mean the direct or indirect
ownership of over 50% of the outstanding voting securities of an entity, or the right to receive over 50% of the profits or earnings of a person, or the right to control the policy decisions of a person. 
  
 “Effective Date” means the date of receipt by BENTLEY of written
notice from AUXILIUM pursuant to Section 9.1 of the Research Agreement that it wishes to proceed with development of Product. Such notice shall be provided on or before 30 September, 2000. 
  
 “Improvement” shall mean any formulations and/or any enhancement or
other desirable change to the technical/pharmacological characteristics of formulations of Product, whether patentable or not, which is useful for commercializing Product developed by BENTLEY during the term of this Agreement which may take the form
of, without limitation, new or improved methods of administration, manufacture, improved shelf life or packaging. 
  
 “IND” shall mean an Investigational New Drug Exemption application filed under the Act, or comparable filing in any major market in the
Territory the approval of which permits clinical investigation of Product in humans. 
  
 “NDA” means a New Drug Application submitted under the Act to permit commercial sale of Product in the United States or a comparable marketing license in another major market in the Territory. 
  
 “Net Sales Price” means the gross amount charged by Licensee for
the sale of a Product, net of returns and credits for rejected goods, and after deducting (i) trade and quantity discounts actually allowed, (ii) sales, use or value added taxes, the legal obligation of which is on Licensee, and (iii) freight
allowances, insurance and customs duties, to the extent any of the foregoing are identified on the invoice for the product. If a product is sold for consideration other than solely cash, the fair market value of such other consideration shall be
included in the Net Sales Price. If a Product is sold in a package or kit containing another product which is not a Product, the Net Sales price for purposes of calculating the royalty under Section 3.2 hereof shall be calculated by multiplying the
Net Sales Price of the combination product by the fraction of A/A+B, where “A” is the Net Sales Price of Product when sold separately “B” is the Net Sales Price of the other product or products when sold separately. If either the
Product or the other product is not sold separately, the Net Sales Price of the Product shall be negotiated in good faith by the Parties. 
  
 “Person” or “Persons” means any corporation, partnership, joint venture or natural person. 
  
 “Products” means any and all pharmaceutical compositions which
contain (A) testosterone as the single active drug ingredient; and (B) the Compound; and which fall within the scope of any composition, method or article claim of the BENTLEY Patents and which is intended to be applied topically to the user of the
composition. 
  
 “Sale” or any variation thereof means
the sale, assignment, lease or other disposition of a Product by Licensee to a non-Affiliate. A Product shall be deemed to have been sold for purposes of calculating royalties under Article III hereof upon the first to occur of the following: (i)
the transfer of title in the Product from Licensee to a non-Affiliate; or (ii) shipment of the Product from the manufacturing facilities of Licensee to a non-Affiliate. 
  

 3 

 “Territory” shall mean all countries and territories of the world except Spain. 
  
 “Use Patents” shall mean any patent granted in the Territory for
the use of the Product in a specific therapeutic indication. 
  
 ARTICLE II 
 GRANT OF LICENSE 
  
 2.1 Grant of License. Subject to the terms and conditions contained in this Agreement, the Licensor hereby grants to Licensee a sole and exclusive,
worldwide (except Spain), royalty-bearing license under BENTLEY Patents and BENTLEY Technology with the right to sublicense to make, have made, use and sell Products in the Territory pursuant to the terms and conditions of this License Agreement. In
addition, Licensee shall have the exclusive right to enter into another License Agreement with BENTLEY to acquire rights in BENTLEY Patents and BENTLEY Technology for the development of Combination Products, such right to expire upon the termination
of this Agreement. Licensor and Licensee agree to negotiate the terms of such License Agreement in good faith. 
  
 2.2 Disclosure of BENTLEY Know-How. Promptly following the Effective Date BENTLEY shall make available to Licensee any and all BENTLEY Know How not
disclosed under the Research Agreement to enable Licensee to develop Products. 
  
 ARTICLE III 
 PAYMENTS IN CONSIDERATION FOR LICENSE 
  
 3.1 Milestone Payments. In partial consideration for the license rights
granted hereunder, Licensee shall make the following non-refundable payments to Licensor within ten (10) days after the achievement of the following milestones in the development of the first Product: 
  
 Milestone One - On the date of execution of this Agreement: $[**].

  
 Milestone Two - On the Effective Date: $[**]. 
  
 Milestone Three - Three (3) months after first approval for commercialization
in any major market (United States, Germany, France or Japan): $[**]. 
  
 3.2 Royalties. In further consideration for the license rights granted under this Agreement Licensee shall also pay to Licensor the following royalty amounts on annual Net Sales of Products in those countries in the Territory in which

  
 (a) there is an enforceable BENTLEY Patent at
the time of sale: 
  
 ** CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN
OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. 
  

 4 

			
	The First $[**] Million of Annual Net Sales	  	[**]%
	The Next $[**] Million of Annual Net Sales	  	[**]%
	The Next $[**] Million of Annual Net Sales	  	[**]%
	Net Sales over the First $[**] Million of Annual Net Sales	  	[**]%

  
 (b)
there is no enforceable BENTLEY Patent in the country when there is an enforceable BENTLEY Patent in another country at the time of sale: 
  

			
	All Annual Net Sales over $[**]	  	[**]%

  
 (c)
there is no enforceable BENTLEY Patent in any country at the time of sale: 
  

			
	All Annual Net Sales over $[**]	  	[**]%

  
 3.3 Royalty Payments.
Royalties under this Agreement shall be paid within ninety (90) days in the case of no sublicense, and one hundred twenty (120) days, in the case of royalties received from a sublicensee, following the last day of the Calendar Quarter in which the
royalties and other amounts accrue. The last such payment shall be made within ninety (90) days after termination of this Agreement. Payments shall be deemed paid as of the day on which they are received by Licensor in the manner designated by
Section 3.4. Licensor and Licensee agree to negotiate in good faith any future implication on royalties caused by withholding taxes. 
  
 3.4 Currency, Place of Payment, Interest. 
  
 (a) All dollar amounts referred to in this Agreement shall be expressed in United States dollars. All payments to the Licensor under this
Agreement shall be made in United States dollars, as directed by the Licensor, by wire transfer to the Licensor or in such other manner as the Licensor may designate from time to time. 
  
 (b) If Licensee receives revenues from sales of Products in a currency other than United States dollars,
royalties shall be converted into United States dollars at a quarterly conversion rate for each foreign currency calculated as the average of the conversion rate for such currency published in the Exchange Rates table in the eastern edition of the
Wall Street Journal for the first business day of each month of the quarter. 
  
 (c) Amounts that are not paid when due shall accrue interest from the due date until paid, at an annual rate equal to the Prime Rate plus 1% as published in the eastern edition of the Wall Street Journal as of the due
date. The Licensor may treat unpaid payments as a breach of this Agreement in a manner consistent with Article XI notwithstanding the payment of interest. 
  
 3.5 Records. Licensee will maintain complete and accurate books and records which enable the royalties payable hereunder to be verified. The records for
each Calendar Quarter shall be maintained for three years. Upon reasonable prior notice to Licensee, the Licensor and its accountants shall have access to the books and records of Licensee necessary to enable Licensor to verify the royalties paid
hereunder. Such access shall be available during normal business hours from 
  

	**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

  

 5 

 time to time during the term of this Agreement, and, during the period from expiration or termination of this Agreement
until three years after such date, not more often than once each calendar year. If it is ultimately determined that Licensee has underpaid royalties by 10% or more, Licensee will pay the costs and expenses of the Licensor’s accountant in
connection with its review or audit of the sales records of the Product, together with any interest as provided in Section 3.4 (c) above. 
  
 3.6 Co-Marketing. In the event Licensee enters into a co-marketing or sub-license arrangement with a third-party, the royalty payments due to Licensor
will be calculated using Net Sales of Product of Licensee and Net Sales of Product of Licensee’s co-marketing partner combined. 
  
 3.7 Sales in Spain. Licensor shall pay to Licensee a royalty of [**]% on all annual Net Sales in Spain over $[**] Million. 
  
 ARTICLE IV 
 CERTAIN OBLIGATIONS OF LICENSEE 
  
 4.1 Government Approvals. Licensee will be responsible for obtaining, at its cost and expense, all governmental approvals required for marketing and sale of Products in the Territory. 
  
 4.2 Licensee Efforts. 
  
 (a) Licensee shall use its reasonable best efforts to
develop for commercial sale and to market Products in the Territory, and to continue to market Products as long as commercially viable, all in a manner consistent with sound and reasonable business practices. For purposes of this Agreement
reasonable best efforts in the case of Product development in any major market shall mean at least that diligence required on the part of an NDA applicant in undertaking the development of a drug product to qualify for the maximum patent term
extension under the Act. 
  
 (b) Licensee shall
notify Licensor within ten (10) days after the first commercial sale of a Product and of any formal written notice from the FDA or other equivalent regulatory authority (“Regulator”) in which CPE-215 is the Regulator’s primary focus,
apart from the use of CPE-215 in the Licensee’s Product. 
  
 4.3 Manufacture of Product. Prior to commercialization of the Product, the Parties may, if appropriate for both parties, negotiate in good faith a manufacturing and supply agreement to provide for Licensor to fulfill the manufacturing
requirements of Licensee for Product for sale in the European market. The cost of such manufacturing shall not be greater than * percent (*%) of the cost of any competitor cGMP contract manufacturing facility that proposes to manufacturer the
Product for Licensee. 
  

	**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

  

 6 

 ARTICLE V 
 WARRANTIES AND REPRESENTATIONS 
  
 5.1 Mutual Representations. Each of the Parties hereto represents, warrants and covenants: 
  
 (i) It is a corporation or entity duly organized and validly existing under the laws of the state or other jurisdiction of its incorporation or formation. 
  
 (ii) The execution, delivery and performance of this Agreement by such Party has been duly authorized by all requisite corporate action.

  
 (iii) It has the power and authority to execute and deliver this Agreement and
perform its obligations hereunder. 
  
 (iv) The execution, delivery and
performance by such Party of this Agreement does not and will not conflict with or result in breach of the terms and provisions of any other agreement or constitute a default under (a) a loan agreement, guaranty, financing agreement, affecting a
product or other agreement or instrument binding or affecting it or its property; (b) the provisions of its charter or operative documents or bylaws; or (c) any order, writ, injunction or decree of any court or governmental authority entered against
it or by which any of its property is bound. 
  
 (v) The execution, delivery and
performance of this Agreement by such Party does not require the consent, approval or authorization of, or notice, declaration, filing or registration with, any governmental or regulatory authority in the Territory and the execution, delivery and
performance of this Agreement does not violate any law, rule or regulation applicable to such Party. 
  
 (vi) This Agreement has been duly authorized, executed and delivered and constitutes such Party’s legal, valid, and binding obligation enforceable against it in accordance with its terms subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to the availability of particular remedies under general equity principles. 
  
 (vii) It shall comply with all applicable laws and regulations relating to its activities
under this Agreement. 
  
 (viii) Each warrants that it is not debarred and has not
and will not use in any capacity the services of any person debarred under subsections 306 (a) and (b), of the Generic Drug Enforcement Act of 1992. If at any time during the term of this Agreement this warranty is no longer accurate, the affected
party shall immediately notify the other. 
  
 5.2 BENTLEY
Warranties 
  
 (i) BENTLEY Patents. BENTLEY represents and warrants that: (a)
BENTLEY is the owner of all right, title and interest in and to the BENTLEY Technology and BENTLEY Patents; and (b) BENTLEY has not received any written notice that the Technology or Patents infringes the proprietary rights of any third-party nor is
the Licensor in any other way aware of any infringement of third-party proprietary rights; (d) except for those claims explained in detail in Schedule B hereto, 
  

 7 

 there are no claims, judgments or settlements against or owed by BENTLEY, or pending or threatened claims, or litigation,
relating to BENTLEY Patents. 
  
 ARTICLE VI 
 INSURANCE 
  
 6.1 Insurance Requirements for Licensee. Prior to commencing work with Product in human clinical trials under this Agreement and during the entire term of
this Agreement and for a period of three (3) years thereafter, AUXILIUM, at its sole expense, shall maintain in full force and effect with an insurance company or companies having an A. M. Best Rating of “A-: Class VII” or better and
supply a Certificate of Insurance to BENTLEY evidencing Product Liability insurance (including coverage for human clinical trials and contractual liability) coverage in the amount of three million dollars ($3,000,000) per each occurrence and in the
general aggregate, respectively, during the clinical trial phase and prior to commercialization of the Products and three million dollars ($3,000,000) per each occurrence and in the general aggregate, respectively. Endorsement shall be furnished
reflecting the inclusion of BENTLEY, its officers, directors and employees as additional insured. The policy providing the above insurance shall be endorsed to contain the following undertaking: “It is agreed that this insurance will not be
cancelled, materially changed or non-renewed without at least thirty (30) days notice to BENTLEY, by certified mail-Return Receipt Requested.” Any type of insurance or increase in liability limits not described in the foregoing which AUXILIUM
requires for its own protection shall be its own responsibility and at its sole expense. The minimum insurance amounts specified herein shall not be deemed a limitation on AUXILIUM’S indemnification liability under this Agreement. 

 
 6.2 Insurance Requirements for Licensor. Prior to commencing work with
Product in human clinical trials under this Agreement and during the entire term of this Agreement and for a period of three (3) years thereafter, BENTLEY, at its sole expense shall maintain in full force and effect with an insurance company or
companies having A. M. Best Rating of an “A-: Class VII” or better and supply a Certificate of Insurance to AUXILIUM evidencing Product Liability insurance (including coverage for human clinical trials and contractual liability) coverage
in the amount of three million dollars ($3,000,000) per each occurrence and in the general aggregate, respectively. The policy providing the above insurance shall be endorsed to contain the following undertaking: “It is agreed that this
insurance will not be cancelled, materially changed or non-renewed without at least thirty (30) days notice to AUXILIUM, by certified mail-”Return Receipt Requested”. Any type of insurance or increase in liability limits not described in
the foregoing which BENTLEY requires for its own protection shall be its own responsibility and at its sole expense. 
  
 ARTICLE VII 
 INDEMNIFICATION 
  
 7.1 Indemnification by BENTLEY. BENTLEY will indemnify and hold AUXILIUM, its
directors, officers, employees and agents harmless against any and all liability, damage, loss, cost or expense (including reasonable attorney’s fees) resulting from any third-party claims made or suits brought against AUXILIUM which arise from
an act or failure to act by BENTLEY or BENTLEY’s breach of its representations, warranties or agreements contained herein. 
  
 7.2 Indemnification by AUXILIUM. AUXILIUM will indemnify and hold BENTLEY, its directors, officers, employees and agents harmless against any and all
liability, damage, loss, cost or expense 
  

 8 

 (including reasonable attorney’s fees) resulting from any third-party claims made or suits brought against BENTLEY
which arise from the breach of any of AUXILIUM’s representations, warranties or agreements contained herein, or which arise out of the development, manufacture, promotion, distribution, use, testing or sale, distribution or other disposition of
Product, including, without limitation, any claims, express, implied or statutory, made as to the efficacy, safety or use to be made of Product, and claims made by reason of any Product labeling or any packaging containing Product. This
indemnification obligation shall not apply where the basis for the claim is the negligence or willful malfeasance of BENTLEY. 
  
 7.3 Limitations on Indemnification Obligations. BENTLEY AND AUXILIUM EACH AGREE THAT IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM A DEFAULT OR BREACH OF THIS AGREEMENT. 
  
 7.4 Procedures. The indemnified Party shall notify the indemnifying Party of any claim or action giving rise to a liability within fifteen (l5) days after
receipt of knowledge of the claim. If notice is not given within fifteen (15) days, the indemnifying Party shall maintain its obligation to indemnify unless such failure to timely notify has a material, adverse effect on the outcome of the claim.
The indemnifying Party shall control the defense or settlement of the claim. However, the indemnifying Party shall not settle or compromise any such claim or action in a manner that imposes any restrictions or obligations on the indemnified Party
without the indemnified Party’s written consent. The indemnified Party shall cooperate reasonably, assist and give all necessary authority and reasonably required information. 
  
 ARTICLE VIII 
 INTELLECTUAL PROPERTY 
  
 8.1 Intellectual Property
Rights. The inventorship of inventions developed under this Agreement and relating to Products (“Inventions”) shall be determined in accordance with U.S. Law. Inventions made solely by employees of BENTLEY or owned by BENTLEY
(“BENTLEY Inventions”) shall be the exclusive property of BENTLEY. Inventions made solely by employees of AUXILIUM (“AUXILIUM Inventions”) shall be the exclusive property of AUXILIUM, except that AUXILIUM Inventions that relate
to the use of Products shall be the joint property of AUXILIUM and BENTLEY, each with an undivided one-half interest. Inventions other than BENTLEY Inventions and AUXILIUM Inventions shall belong jointly to BENTLEY and AUXILIUM, each with an
undivided one-half interest. 
  

 9 

 ARTICLE IX 
 PATENTS, TRADEMARKS AND INFRINGEMENT 
  
 9.1 Prosecution of Patents. 
  
 (a) The
Licensor shall be solely responsible for preparing, prosecuting and maintaining the BENTLEY Patents. 
  
 (b) Each Party shall cooperate with the other Party to execute all required papers and instruments and to make all required oaths and
declarations as may be necessary in the preparation and prosecution of all such patents and other applications and protections referred to in this Section 9.1. 
  

9.2 Ownership. The Licensor shall retain all right, title and interest in and to the BENTLEY Patents and any patents, copyrights and other protections
related thereto, regardless of which party prepares, prosecutes or maintains the patents, copyrights or other protections related to the BENTLEY Technology, subject to the express license granted to Licensee under this Agreement. 
  
 (a) In the event of Licensor wishing to abandon any BENTLEY
Patents, Licensor will offer to assign to Licensee, free of charge, any such Patent prior to effectuating the abandonment. Licensee will bear the costs connected to any assignment hereunder. In the event that any of the BENTLEY Patents is assigned
to AUXILIUM and AUXILIUM decides thereafter to abandon the assigned Patent, AUXILIUM agrees that, at the request of BENTLEY, it will offer to assign the assigned Patent to a third-party licensee that is licensed by BENTLY under the assigned Patent
as such third-party licensee is identified by BENTLEY to AUXILIUM. 
  
 9.3 Trademarks. Licensee shall have the right, in its sole discretion and at its own expense, to select and register such trademarks as it wishes to employ in connection with the sale of the Products throughout the Territory and Licensee
shall have legal and equitable ownership of the entire right, title and interest in and to the trademarks and registrations Licensee elects to use. Licensee will acknowledge BENTLEY’S CPE-215 by adding “CPE-215(TM), BENTLEY” to its
listing of ingredients wherever such listing is appropriate or used by Licensee. It is hereby expressly agreed that this Section 9.3 shall survive the expiration or termination of this Agreement. 
  
 9.4 Infringement of Patents. If either Party has knowledge of any
infringement of BENTLEY Patents or BENTLEY Technology, the Party having such knowledge shall promptly inform the other of such infringement. The Parties shall thereafter discuss what action should be taken, including whether any legal proceeding
should be instituted. If the Parties mutually agree on the course of action to be taken in respect of any such infringement, they shall jointly select counsel and equally share any expenses. Any settlement or recovery shall be shared equally by the
Parties. If either party determines to take action, but the other Party does not desire to do so, the first Party may take action at its own expense and through counsel of its own choice, and any settlement or recovery shall in such case belong
solely to the Party taking action. 
  
 9.5 If one party institutes
and carries on a legal proceeding to enforce a BENTLEY Patent against an alleged infringing party, the other Party shall fully cooperate with and supply all assistance reasonably requested by the Party instituting and carrying or such proceeding.

  

 10 

 ARTICLE X 
 CONFIDENTIALITY 
  
 10.1
Confidentiality 
  
 (a) Licensee and Licensor
shall maintain in confidence and shall not disclose to any third-party the Confidential Information received pursuant to this Agreement, without the prior written consent of the other Party except that the Confidential Information may be disclosed
only to those third parties (x) who have a need to know the information in connection with the exercise of rights and obligations under this Agreement and who agree in writing to keep the information confidential to the same extent as is required of
each Party under this Section 10.1, or (y) to whom the Party is legally obligated to disclose the Information. The foregoing obligation shall not apply to: 
  
 (i) information that is known to the other Party or independently developed by the other Party prior to the time of disclosure, in each case, to the extent evidenced by
written records promptly disclosed to the other Party upon receipt of the Confidential Information; or 
  
 (ii) information that becomes patented, published or otherwise part of the public domain as a result of acts by a Party or a third person obtaining such information lawfully as a matter of right; or 
  
 (iii) information that becomes patented, published or otherwise part of the public domain as
a result of acts by the Licensor or a third person obtaining such information lawfully as a matter of right; or 
  
 (iv) information that is required by any law, rule, regulation, order, decision, decree, or subpoena or other judicial, administrative or legal process to be disclosed,
provided, however that each Party, as applicable, gives the other prompt written notice of such request/order to permit the other party to seek a protective order or other similar order with respect to such Confidential Information and thereafter
discloses only the minimum Confidential Information required to be disclosed in order to comply. 
  
 (b) Each Party will take all reasonable steps to protect the Confidential Information of the other Party with the same degree of care it
uses to protect its own confidential proprietary information. Without limiting the foregoing, each party shall ensure that all of its employees having access to the Confidential Information of the other Party are obligated in writing to keep such
information confidential to the same extent as is required of each Party under this Section 10.1. 
  
 10.2 Injunctive Relief. Because damages at law may be an inadequate remedy for breach of any of the covenants, promises and agreements contained in
Section 10.1 hereof, both the Licensor and Licensee shall be entitled to injunctive relief in any state or federal court located within the District of Delaware, including specific performance or an order enjoining the breaching Party from any
threatened or actual breach of such covenants, promises or agreements. Each of the Licensee and the Licensor hereby waives any objection it may have to the personal jurisdiction or venue of any 
  

 11 

 such court with respect to any such action. The rights set forth in this Section 10.2 shall be in addition to any other
rights which the Licensor and Licensee may have at law or in equity. 
  
 10.3 This Article X shall survive the expiration or termination of this Agreement. 
  
 ARTICLE XI 
 TERM AND TERMINATION 
  
 11.1 Term. This Agreement and the licenses granted herein shall commence on the Effective Date and shall continue in effect
in perpetuity subject to earlier termination under Section 11.2 hereof. 
  
 11.2 Termination by the Licensor or Licensee. 
  
 (a) Upon the occurrence of any of the events set forth below (“Events of Default”), the Licensor shall have the right to terminate this Agreement by giving written notice of termination, such termination effective with the giving
of such notice: 
  
 (i) In the event of nonpayment of any material
amount payable to the Licensor after completion of an audit provided for under Section 3.5 hereof, which nonpayment is continuing thirty (30) calendar days after the Licensor gives Licensee written notice of such non-payment. 
  
 (ii) In the event that Licensee fails to initiate clinical trials within two
(2) years of availability of final formulation in quantities adequate for clinical testing and associated documentation for clinical trials, unless such failure is outside of the control of Licensee. See Auxilium Development Plan attached as
Schedule C hereto. 
  
 (iii) In the event that Licensee does not
submit an application for marketing approval in a major market within a five (5) year period after the Effective Date unless such failure to submit is outside of the control of Licensee. 
  
 (iv) In the event that Licensee does not launch Product in a major market within six (6) months after marketing approval.

  
 (v) In the event that Licensee becomes subject to a Bankruptcy
Event provided, however, that so long as Licensor continues to receive royalty payments from Licensee under this Agreement, such Bankruptcy Event shall not be a basis for termination of this Agreement by Licensor. 
  
 (b) Upon the occurrence of any of the events set forth below
(“Events of Default”), Licensee shall have the right to terminate this Agreement by giving written notice of termination, such termination effective with the giving of such notice: 
  
 (i) breach by Licensor of any covenant or any representation or warranty
contained in this Agreement that is continuing thirty (30) calendar days after Licensee gives written notice of such breach; 
  

 12 

 (ii) Licensor fails to comply with the terms of the license granted hereunder and such noncompliance is
continuing thirty (30) calendar days after Licensee gives notice of such noncompliance; 
  
 (iii) Licensor becomes subject to a Bankruptcy Event; or 
  
 (iv) the dissolution or cessation of operations by Licensor. 
  
 (d) No exercise by the Licensor or Licensee of any right of termination shall constitute a waiver of any right of the Licensor or Licensee
for recovery of any monies then due to it hereunder or any other right or remedy the Licensor or Licensee may have at law or under this Agreement. 
  
 ARTICLE XII 
 FORCE MAJEURE 
  
 12.1 Either Party shall be relieved of its obligations under this Agreement
to the extent that fulfillment of such obligations shall be prevented by strikes, embargoes, riots, fires, floods, war, hurricanes, windstorms, acts or defaults of common carriers, governmental laws, acts or regulations, shortages of materials or
any other occurrence, whether or not similar to the foregoing, beyond the reasonable control of the Party affected thereby. 
  
 12.2 If either Party is prevented from fulfilling its obligations under this Agreement by reason of a circumstance covered by this Article 12, the Party
unable to fulfil its obligations shall, upon the occurrence of any such circumstances, promptly notify the other Party upon the cessation of such circumstance and of the likely duration thereof, and shall promptly notify the other party upon the
cessation of such circumstance. 
  
 ARTICLE XIII 
 ADDITIONAL PROVISIONS 
  
 13.1 Arbitration. 
  
 (a) All disputes arising between the Licensor and Licensee under this Agreement shall be settled by arbitration conducted in accordance
with the Rules of the American Arbitration Association. The Parties shall cooperate with each other in causing the arbitration to be held in as efficient and expeditious a manner as practicable. 
  
 (b) Licensee and Licensor each irrevocably and
unconditionally consents to the jurisdiction of any such proceeding and waives any objection that it may have to personal jurisdiction or the laying of venue of any such proceeding. 
  
 13.2 Assignment. No rights hereunder may be assigned by the Licensee, directly or by merger or other operation of law,
except assignment to an Affiliate, without the express written consent of the 
  

 13 

 other Party, such consent not to be unreasonably withheld; provided, however, without such consent, either Party may
assign this Agreement in connection with the sale of all or substantially all of its assets or business or its merger or consolidation with another company. Any prohibited assignment of this Agreement or the rights hereunder shall be null and void.
No assignment shall relieve Licensee or Licensor of responsibility for the performance of any accrued obligations which they have prior to such assignment. This Agreement shall inure to the benefit of permitted assigns. 
  
 13.3 No Waiver. A waiver by either Party of a breach or violation of any
provision of this Agreement will not constitute or be construed as a waiver of any subsequent breach or violation of that provision or as a waiver of any breach or violation of any other provision of this Agreement. 
  
 13.4 Independent Contractor. Nothing herein shall be deemed to establish a
relationship of principal and agent between the Licensor and Licensee, nor any of their agents or employees for any purpose whatsoever. This Agreement shall not be construed as constituting the Licensor and Licensee as partners, or as creating any
other form of legal association or arrangement which could impose liability upon one Party for the act of the other Party. 
  
 13.5 Notices. Any notice under this Agreement shall be sufficiently given if sent in writing by overnight courier, prepaid, first class, certified or
registered mail, return receipt requested, addressed as follows: 
  
 If to the Licensor, to: 
  
 BENTLEY PHARMACEUTICALS, Inc. 
 65 Lafayette Road, 3rd Floor 
 North Hampton, NH 03862-2403 
 Attention: President 
  
 If to the Licensee, to: 
  
 AUXILIUM
A(2), Inc. 
 160 W. Germantown Pike 
 Suite D-5, Norriton Office Center 
 Norristown, PA 19401 
 Attention: President 
 Copy to General Counsel 
  
 or to such other addresses as may be designated from time to time by notice given in accordance with the terms of this Section. 
  
 13.6 Severability. Any of the provisions of this Agreement which are
determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof or affecting the
validity or unenforceability of any of the terms of this Agreement in any other jurisdiction. 
  

 14 

 13.7 Headings and Titles. Any headings and titles used in this Agreement are for convenience or reference
only and shall not affect its construction or interpretation. 
  
 13.8 No Third Party Benefits. Nothing in this Agreement, express or implied, is intended to confer on any person other than the Parties hereto or their permitted assigns, any benefits, rights or remedies. 
  
 13.9 Governing Law. This Agreement shall be construed, governed, interpreted
and applied in accordance with the laws of the State of Delaware, without giving effect to conflict of law provisions. 
  
 13.10 Counterparts. This Agreement shall become binding when any one or more counterparts hereof, individually or taken together, shall bear the
signatures of each of the parties hereto. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the party whose signature appears thereon, but all of which taken together shall constitute
but one and the same instrument. 
  
 13.11 Entire Agreement. This
Agreement is the entire agreement between the parties regarding the subject matter herein, and supercedes all prior existing understandings between the Parties relating to the subject matter hereof. This Agreement may not be modified except in
writing signed by both Parties. 
  
 13.12 Press Releases. The
Parties will not disclose, via any press release or public announcement, the existence of this Agreement or the Research Agreement until the Effective Date. 
  
 IN WITNESS WHEREOF, the parties hereto have duly executed this License Agreement as of the date first above written. 
  

									
	 BENTLEY PHARMACEUTICALS, INC.
	 	 	 	 AUXILIUM A2, Inc.

					
	By:	 	/s/    JAMES R. MURPHY        	 	 	 	By:	 	/s/    GERALDINE A. HENWOOD         
	 	 	 James R. Murphy
 Chief Executive Officer
	 	 	 	 	 	 Geraldine A. Henwood
 Chief Executive
Officer

  

 15 

 SCHEDULE A/APPENDIX A 
 BENTLEY PATENTS 
  

							
	 COUNTRY

	 	 PATENT NO.

	 	 GRANT DATE

	 	 EXPIRATION DATE

	 Belgium
	 	248,885	 	Aug. 5, 1992	 	Nov. 28, 2006
	 Canada
	 	1,312,281	 	Jan. 5, 1993	 	Jan. 05, 2010
	 Denmark
	 	167,343	 	Oct. 18, 1993	 	Nov. 28, 2006
	 France
	 	248,885	 	Aug. 5, 1992	 	Nov. 28, 2006
	 Germany
	 	P3,690,626.3	 	May 15, 1997	 	Nov. 28, 2006
	 Great Britain
	 	2,192,134	 	Apr. 25, 1990	 	Nov. 28, 2006
	 Italy
	 	248,885	 	Aug. 5, 1992	 	Nov. 28, 2006
	 Japan
	 	2,583,777	 	Nov. 21, 1996	 	Nov. 28, 2006
	 Korea
	 	84,759	 	Nov. 29, 1994	 	Nov. 28, 2006
	 Luxembourg
	 	WO 873,473	 	Nov. 11, 1987	 	Nov. 28, 2006
	 Switzerland
	 	666,813	 	Aug. 31, 1988	 	Nov. 28, 2006
	 United States
	 	5,023,252	 	June 11, 1991	 	Jun. 11, 2008

  
 Other patents are filed as provisional
applications or are in the preparation or developmental stages and will be amended, if applicable, to this Agreement. 

 SCHEDULE B 
  
 Claims Made Against Bentley Pharmaceuticals, Inc. 
  
 In November 1999, Creative Technologies, Inc. (“Creative”) commenced a lawsuit against the Bentley Pharmaceuticals, Inc. and others in the Superior Court of New
Jersey, Essex County, asserting that the Bentley breached a brokerage or finder’s fee contract with Creative regarding its 1999 acquisition of permeation enhancement technology. Creative also asserts claims for breach of the implied covenant of
good faith and fair dealing and for tortious interference with contract. Bentley has made a motion to dismiss the complaint and each count therein for failure to state a cause of action and for lack of personal jurisdiction over Bentley. 

 AMENDMENT NO. 1 TO LICENSE AGREEMENT 
  
 THIS AMENDMENT NO. 1 TO LICENSE AGREEMENT (the “Amendment”) is made as of the 31st day of October 2000 by
and between BENTLEY PHARMACEUTICALS, INC., a Delaware corporation with offices at 65 Lafayette Road, Third Floor, North Hampton, New Hampshire 03862-2403 (hereinafter “Bentley” or “Licensor”) and AUXILIUM A2 , INC., a Delaware
corporation with offices at 160 W. Germantown Pike, Suite D-5, Norriton Office Center, Norristown, Pennsylvania 19401 (hereafter, “Auxilium” or “Licensee”). Bentley and Auxilium may be referred to as a “Party” or,
collectively, as “Parties.” 
  
 WHEREAS, the parties
have entered into that certain License Agreement dated May 31, 2000 relating to the grant by Bentley to Auxilium of a license of certain technology (the “License Agreement”); 
  
 WHEREAS, as reflected in the third recital of the License Agreement, the parties intended not to include patch applications
as part of the license; 
  
 WHEREAS, the parties wish to clarify
the definitions in the License Agreement to indicate that patch applications are not included in the scope of the license; 
  
 NOW THEREFORE, the parties hereby amend the License Agreement as follows: 
  
 1. The definition of “Combination Products” in Section 1.1 of the License Agreement is hereby modified in its
entirety to read as follows: 
  
 “Combination Products” means any and all pharmaceutical compositions, other than patch applications, which contain (A) testosterone as an active ingredient in combination with any other steroids, hormones, somatotropics,
emollients, or therapeutic soy products; and (B) the Compound; and which fall within the scope of any composition, method, or article claim of the BENTLEY Patents and which is intended to be applied topically to the user of the composition.

  
 2. The definition of “Products” in Section 1.1 of
the License Agreement is hereby modified in its entity to read as follows: 
  
 “Products” means any and all pharmaceutical compositions, other than patch applications, which contain (A) testosterone as the single active ingredient; and (B) the Compound; and which fall within the scope
of any composition, method, or article claim of the BENTLEY Patents and which is intended to be applied topically to the user of the composition. 

 3. As modified by this Amendment, the License Agreement remains in full force and effect. 
  
 IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized representatives as of the date set forth above. 
  

									
	 BENTLEY PHARMACEUTICALS, INC.
	 	 	 	 AUXILIUM A2 , INC.

					
	By:	 	 /s/    JAMES R. MURPHY
	 	 	 	 By:
	 	 /s/    JANE H. HOLLINGSWORTH

	 	 	 Name: James R. Murphy
 Title:   Chairman and CEO
	 	 	 	 	 	 Name: Jane H. Hollingsworth
 Title:   EVP

	**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

  
 AMENDMENT NO. 2 TO LICENSE AGREEMENT

  
 THIS AMENDMENT NO. 2 TO LICENSE AGREEMENT is made as of the
31st day of May, 2001 by and between BENTLEY PHARMACEUTICALS, INC., a Delaware corporation, with offices at 65 Lafayette Road, 3rd Floor, North Hampton, New Hampshire 03862-2403 (hereinafter, “BENTLEY” or “Licensor”), and
AUXILIUM A2, INC., a Delaware corporation having a principal place of business at 160 W. Germantown Pike, Suite D-5, East Norriton, Pennsylvania 19401 (hereinafter, “AUXILIUM” or “Licensee”). BENTLEY and AUXILIUM may be referred
to as a “Party” or, collectively, as “Parties.” 
  
 RECITALS 
  
 WHEREAS the parties have entered into that certain License
Agreement, dated May 31, 2000, relating to the grant by BENTLEY to AUXILIUM of a license of certain technology (the “License Agreement”); 
  
 WHEREAS the parties clarified the License Agreement by entering into Amendment No. 1 to the License Agreement, dated October 31, 2000 (“Amendment No. 1”); and

  
 WHEREAS the Parties wish to further amend the License Agreement to change
certain sections of the License Agreement; 
  
 NOW, THEREFORE, in consideration of
the promises and mutual covenants contained herein, and INTENDING TO BE LEGALLY BOUND HEREBY, the Parties further amend the License Agreement as follows: 
  
 ARTICLE I 
 DEFINITIONS 
  
 1.1 Except as amended below, the terms defined in the License Agreement, as
amended in Amendment No. 1, shall remain unchanged. 
  
 1.2
“Territory” shall mean all countries and territories of the world, including Spain. 
  
 ARTICLE II 
 GRANT OF LICENSE 
  
 2.1 The grant of license in Section 2.1 of the License Agreement shall include Spain. 
  
 ARTICLE III 
 PAYMENTS IN CONSIDERATION FOR LICENSE 
  
 3.1 Except as amended below, all payments set forth in Article III of the License Agreement shall remain unchanged. 
  

	**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 3.2 Section 3.2 (a) of the License Agreement shall be amended to read as follows: 
  
 (a) there is an enforceable BENTLEY Patent at the time of
sale: 
  

			
	 The First $[**] Million of Annual Net Sales
	  	[**]%
	 The Next $[**] Million of Annual Net Sales
	  	[**]%
	 The Next $[**] Million of Annual Net Sales
	  	[**]%
	 Net Sales over the First $[**] Million of Annual Net Sales
	  	[**]%

  
 IN WITNESS WHEREOF,
the parties hereto have duly executed this Amendment No. 2 to License Agreement as of the date first above written. 
  

									
	 BENTLEY PHARMACEUTICALS, INC.
	 	 	 	 AUXILIUM A2 , INC.

					
	By:	 	 /s/    JORDAN HORVATH
	 	 	 	 By:
	 	 /s/    GERALDINE A. HENWOOD

	 	 	 Name: Jordan Horvath
 Title:   Vice President & General Counsel
	 	 	 	 	 	 Name: Geraldine A. Henwood
 Title:   Chief Executive Officer

  

	**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

  

 2 

	**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

  
 AMENDMENT NO. 3 TO LICENSE AGREEMENT 

 
 THIS AMENDMENT NO. 3 TO LICENSE AGREEMENT is made as of the 6th day of
September, 2002 by and between BENTLEY PHARMACEUTICALS, INC., a Delaware corporation, with offices at 65 Lafayette Road, 3rd Floor, North Hampton, New Hampshire 03862-2403 (hereinafter, “BENTLEY” or “Licensor”), and AUXILIUM
PHARMACEUTICALS, INC. (formerly Auxilium A(2), Inc.), a Delaware corporation having a principal place of business at 160 W. Germantown Pike, Suite D-5, East Norriton, Pennsylvania 19401 (hereinafter, “AUXILIUM” or “Licensee”).
BENTLEY and AUXILIUM may be referred to as a “Party” or, collectively, as “Parties.” 
  
 RECITALS 
  
 WHEREAS the parties have entered into that certain License Agreement, dated May 31, 2000, relating to the grant by BENTLEY to AUXILIUM of a license of certain technology (the “License Agreement”); 
  
 WHEREAS the parties clarified certain aspects of the License Agreement by
entering into Amendments Nos. 1 and 2 to the License Agreement, dated October 31, 2000 and May 31, 2001, respectively (“Previous Amendments”); and 
  
 WHEREAS, BENTLEY would like to provide incentives to AUXILIUM to enter into sub-licenses for the Products in territories outside the United States; and

  
 WHEREAS, BENTLEY would like to provide further incentives to
AUXILIUM to extend the commercial life of the Products licensed under the License Agreement; and 
  
 WHEREAS the Parties wish to further amend the License Agreement to change certain sections of the License Agreement; 
  
 NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and INTENDING TO BE LEGALLY BOUND HEREBY, the Parties further amend the License Agreement as follows: 
  
 ARTICLE I 
 DEFINITIONS 
  
 1.1 Except as amended below, the terms defined in the License Agreement, as
amended by the Previous Amendments, shall remain unchanged. Unless otherwise defined in this Amendment, all capitalized terms in this Amendment shall have the meanings ascribed to them in the License Agreement, as amended by the Previous Amendments.

  

	**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 ARTICLE III 
 PAYMENTS IN CONSIDERATION FOR LICENSE 
  
 3.1 Except as amended below, all payments set forth in Article III of the License Agreement shall remain unchanged. 
  
 3.2 (a) of the License Agreement shall be amended to read as follows: 
  
 (a) there is an enforceable BENTLEY Patent at the time of sale: 
  

			
	All Annual Net Sales in the United States and Canada	  	[**]% beginning at Product launch and continuing for thirty-six full Calendar months thereafter; and [**]% thereafter
		
	All Annual Net Sales outside the United States and Canada	  	[**]% plus [**] of all “Product Royalties” (as defined below) paid to Auxilium which exceed [**]%

  
 “Product
Royalties” shall mean all payments received by Auxilium which are based on sales of Products, but shall not include milestone payments related to achievements which are not sales based. 
  
 ARTICLE IV 
 INTELLECTUAL PROPERTY 
  
 4.1 Article VIII of the License Agreement is amended in its entirety to read as follows: 
  
 8.1 Intellectual Property Rights. The inventorship of inventions developed under this Agreement and relating to Products
(“Inventions”) shall be determined in accordance with U.S. Law. Inventions made solely by employees of BENTLEY or owned by BENTLEY (“BENTLEY Inventions”) shall be the exclusive property of BENTLEY. Inventions made solely by
employees of AUXILIUM (“AUXILIUM Inventions”) shall be the exclusive property of AUXILIUM, except that AUXILIUM Inventions that relate to the use of Products shall be owned by BENTLEY and shall be included in the license granted under this
License Agreement and included in the definition of BENTLEY Patents. Inventions made by employees of BENTLEY and employees of AUXILIUM shall also be owned by BENTLEY and shall be included in the license granted under this License Agreement and
included in the definition of BENTLEY Patents. 
  

	**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

  
  

 2 

 IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment No. 3 to License Agreement as of
the date first above written. 
  

									
	 BENTLEY PHARMACEUTICALS, INC.
	 	 	 	 AUXILIUM PHARMACEUTICALS, INC.

					
	 By:
	 	 /s/    JAMES R. MURPHY
	 	 	 	 By:
	 	 /s/    GERALDINE A. HENWOOD

	 	 	 James R. Murphy
 Chief Executive Officer
	 	 	 	 	 	 Geraldine A. Henwood
 Chief Executive Officer

  
  

 3 

 AMENDMENT NO. 4 TO LICENSE AGREEMENT 
  
 THIS AMENDMENT NO. 4 TO LICENSE AGREEMENT is made as of the 25th day of March, 2004 by and between BENTLEY PHARMACEUTICALS,
INC., a Delaware corporation, with offices at Bentley Park, 2 Holland Way, Exeter, New Hampshire 03833 (hereinafter, “BENTLEY” or “Licensor”), and AUXILIUM PHARMACEUTICALS, INC. (formerly Auxilium A2, Inc.), a Delaware
corporation having a principal place of business at 160 W. Germantown Pike, Norristown, Pennsylvania 19401 (hereinafter, “AUXILIUM” or “Licensee”). BENTLEY and AUXILIUM may be referred to as a “Party” or, collectively,
as “Parties.” 
  
 RECITALS 
  
 WHEREAS the parties have entered into that certain License Agreement, dated May 31, 2000,
relating to the grant by BENTLEY to AUXILIUM of a license of certain technology (the “License Agreement”); 
  
 WHEREAS the parties clarified certain aspects of the License Agreement by entering into Amendment Nos. 1, 2 and 3 to the License Agreement, dated October 31, 2000, May
31, 2001 and September 6, 2002, respectively (“Previous Amendments”); and 
  
 WHEREAS, BENTLEY would like to provide incentives to AUXILIUM to enter into sub-licenses for the Products in territories outside the United States; and 
  

WHEREAS the Parties wish to further amend the License Agreement to clarify certain sections of the License Agreement; 
  
 NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, and
INTENDING TO BE LEGALLY BOUND HEREBY, the Parties further amend the License Agreement as follows: 
  
 ARTICLE I 
 DEFINITIONS 
  
 1.1 Except as amended below, the terms defined in the License Agreement, as amended by the Previous Amendments, shall remain
unchanged. Unless otherwise defined in this Amendment, all capitalized terms in this Amendment shall have the meanings ascribed to them in the License Agreement, as amended by the Previous Amendments. 
  
 “Net Sales Price” means, with respect to the
Product, the gross amount invoiced by Licensee for such Product, less deductions for: 
  
 (i) returned goods; (ii) trade and quantity discounts; (iii) rebates, including those in respect of any governmental subsidized program,
rebate payments given to wholesalers, buying groups, healthcare insurance carriers or other institutions; (iv) sales or other taxes actually paid by Licensee or its sublicensee or distributor, not including 

  

 17 

 
taxes assessed on the income resulting from such sales; and (v) freight allowances, insurance and customs duties, to the extent any of the foregoing are
identified on the invoice for the Product. If Product is sold for consideration other than cash, the fair market value of such other consideration shall be included in Net Sales. If a Product is sold in a package or kit containing another product
which is not a Product, the Net Sales price for purposes of calculating the royalty under Section 3.2 hereof shall be calculated by multiplying the Net Sales Price of the combination product by the fraction of A/A+B, where “A” is the Net
Sales Price of Product when sold separately “B” is the Net Sales Price of the other product or products when sold separately. If either the Product or the other product is not sold separately, the Net Sales Price of the Product shall be
negotiated in good faith by the Parties. 
  
 “Commercial Sale” means the sale of Product (as indicated by shipment of Product) to an unaffiliated third-party of the Licensee, or of its sublicensee or distribution partner, such as a wholesaler, managed care organization,
hospital or pharmacy and shall exclude (i) any transfer of Product by Licensee to its sublicensee, distribution partner or Affiliate and (ii) any distribution of Product for use in research, development, pre-clinical and clinical trials. 

 
 ARTICLE II 
 PAYMENTS IN CONSIDERATION FOR LICENSE 
  
 2.1 Except as amended below, all payments set forth in Article III of the License Agreement shall remain unchanged. 
  
 2.2 Section 3.2 of the License Agreement is hereby amended to include the following additional paragraph (d): 
  
 “(d) Notwithstanding any contrary provisions in this Section 3.2, the royalty payments
due under Sections 3.2 (a), (b) or (c) above shall be paid on a country-by-country basis only until the later of (i) the termination of Bentley Patent rights in such country or (ii) ten years from the date of first Commercial Sale of Product in such
country. 
  

 18 

 ARTICLE III 
 CERTAIN OBLIGATIONS OF LICENSEE 
  
 3.1 A new Section 4.4 shall be added to the License Agreement as follows: 
  
 4.4 Drug Master File. Licensee shall make certain data generated during the research and development of Testim accessible to
Licensor through the preparation and filing of one or more Drug Master Files (“DMF”). Such DMF shall (a) be filed by or on behalf of the Licensee with the United States Food and Drug Administration (“FDA”) on or before June 30,
2004 and (b) shall contain the data listed on the index attached as Exhibit A to this Amendment 4 to the License Agreement (the “Data Index”). Licensee will designate Licensor, or its licensee if requested in writing by Licensor, as having
a right of reference with the FDA to the DMF (the “Right of Reference”). Licensor shall treat the Data Index as confidential information of Licensee and may disclose the Data Index only to those persons or third parties who have agreed in
writing to maintain its confidentiality and to use the Data Index solely for purposes of evaluation of a potential business opportunity with Licensor. 
  
 ARTICLE IV 
 PATENTS, TRADEMARKS AND
INFRINGEMENT 
  
 4.1 Section 9.2(a) of the License Agreement shall
be deleted in its entirety and replaced with the following: 
  
 (a) In the event of Licensor wishing to abandon any BENTLEY Patents, Licensor will offer to assign to Licensee or a sublicense of Licensee, at Licensee’s option, free of charge, any such Patent prior to
effectuating the abandonment. Licensee will bear the costs connected to any assignment hereunder. 
  
 4.2 A new Section 9.6 shall be added to the License Agreement as follows: 
  
 9.6 Bentley Trademark. In cooperation with Licensee, Licensor shall register in the United States
Patent and Trademark Office and such other countries of the world where the trademark is registrable, a trademark to be used to describe the unique qualities of the technology contained in the Bentley Patents (the “New Trademark”).
Licensee shall have a perpetual, royalty free, worldwide, sole and exclusive license with the right to sublicense, to use the New Trademark in connection with the Product or any other product, patents, technology or similar rights licensed from
Licensor now or in the future which contain the ingredient pentadecalactone. Nothing in this Section 9.6 shall prevent Licensee from using or registering any trademark of its own in connection with the Product or any characteristic of or ingredient
in the Product. 
  
 ARTICLE V 
 TERM AND TERMINATION 
  
 5.1 Except as amended below, all provisions of Article XI Term and Termination of the License Agreement shall remain unchanged. 
  

 19 

 5.2 Section 11.1 of the License Agreement shall be deleted in its entirety and replaced with the
following: 
  
 11.1 Term. This Agreement
and the licenses granted herein shall commence on the Effective Date and shall continue until all royalty obligations of Licensee under Section 3.2 of this Agreement are ended, subject to earlier termination under Section 11.2 hereof. Once all such
royalty obligations of Licensee have ended Licensee shall have a fully paid up license under this Agreement. 
  
 5.3 Section 11.2 (a) of the License Agreement shall be deleted in its entirety and replaced with the following: 
  
 (a) Upon the occurrence of any of the events set forth below
(“Events of Default”), the Licensor shall have the right to terminate this Agreement by giving written notice of termination, such termination effective with the giving of such notice: 
  
 (i) In the event of nonpayment of any material amount
payable to the Licensor after completion of an audit provided for under Section 3.5 hereof, which nonpayment is continuing thirty (30) calendar days after the Licensor gives Licensee written notice of such non-payment. 
  
 (ii) In the event that Licensee fails to initiate clinical
trials within two (2) years of availability of final formulation in quantities adequate for clinical testing and associated documentation for clinical trials, unless such failure is outside of the control of Licensee. See Auxilium Development Plan
attached as Schedule C hereto. 
  
 (iii) In the
event that Licensee does not submit an application for marketing approval in a major market within a five (5) year period after the Effective Date unless such failure to submit is outside of the control of Licensee. 
  
 (iv) In the event that Licensee becomes subject to a
Bankruptcy Event provided, however, that so long as Licensor continues to receive royalty payments from Licensee under this Agreement, such Bankruptcy Event shall not be a basis for termination of this Agreement by Licensor. 
  
 ARTICLE VI 
 ADDITIONAL PROVISION 
  
 6.1 Section 13.5 of the License Agreement shall be deleted in its entirety and replaced with the following: 
  
 13.5 Notices. Any notice under this Agreement shall be sufficiently given if sent in writing by overnight courier, prepaid, first
class, certified or registered mail, return receipt requested, addressed as follows: 
  

 20 

 If to the Licensor, to: 
  
 BENTLEY PHARMACEUTICALS, INC. 
 Bentley Park 
 2 Holland Way 
 Exeter, New Hampshire 03833 
 Attention: President 
  
 If to the Licensee, to: 
  
 AUXILIUM
PHARMACEUTICALS, INC. 
 160 W. Germantown Pike 
 Norristown, PA
19401 
 Attention: President 
 Copy to General Counsel

  
 or to such other addresses as may be designated from time to time by notice
given in accordance with the terms of this Section. 
  
 IN WITNESS
WHEREOF, the parties hereto have duly executed this Amendment No. 4 to License Agreement as of the date first above written. 
  

									
	 BENTLEY PHARMACEUTICALS, INC.
	 	 	 	 AUXILIUM PHARMACEUTICALS, INC.

					
	By:	 	  /s/    James R. Murphy
	 	 	 	By:	 	  /s/    Geraldine A Henwood

	 	 	 James R. Murphy
 Chief Executive Officer
	 	 	 	 	 	 Geraldine A. Henwood
 Chief Executive
Officer

  

 21 

 Format and Proposed Contents of the 
 Drug Master File for CPD 
  
 Non-clinical 

	2.6.6	      Toxicology Written Summary 

	2.6.6.1    Summary	

	2.6.6.2    Repeat	Dose Toxicity 

	2.6.6.3    Genotoxicity	

	2.6.6.4    Reproductive	and Developmental Toxicity 

  
 Chemistry 
 3.2.S       Novel Excipient CPD (also known as oxacylcohexadecan-2-one;
CPE-215) 
  
 3.2.S.1    General Information 
 3.2.S.1.1         Nomenclature 
 3.2.S.1.2         Structure 
  
 3.2.S.3    Characterization 
 3.2.S.3.1         Elucidation of Structure and other
Characteristics 
 3.2.S.3.2         Impurities 
  
 3.2.S.4    Control of Novel Excipient 
 3.2.S.4.1         Specification 
 3.2.S.4.2
        Analytical Procedures 
 3.2.S.4.3         Validation of Analytical
Procedures 
  
 3.2.S.5    Reference Standards or Materials

  
 3.2.S.6    Container Closure System 
  
 3.2.S.7    Stability

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