Document:

exv10w68

 

Exhibit 10.68

EXECUTION COPY

COLLATERAL MANAGEMENT AGREEMENT

          This Collateral Management Agreement, dated as of December 20, 2006 (the “Agreement”), is
entered into by and between CAPITALSOURCE REAL ESTATE LOAN TRUST 2006-A, a Delaware statutory trust
(together with successors and assigns permitted hereunder, the “Issuer”), and CAPITALSOURCE FINANCE
LLC, a limited liability company organized under the laws of the State of Delaware (“CapitalSource”
and, together with its successors and assigns the “Collateral Manager”). Capitalized terms used
herein but not otherwise defined herein shall have the respective meanings ascribed thereto in the
Indenture, dated as of December 20, 2006 (the “Indenture”), by and among the Issuer, Wells Fargo
Bank, N.A., a national banking association, as trustee (in such capacity, the “Trustee”),
calculation agent, transfer agent, custodial securities intermediary, backup advancing agent and
notes registrar, and CapitalSource, as advancing agent.

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

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

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

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

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

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

          (d) negotiating with the issuers of Collateral Obligations as to proposed modifications or
waivers of the documentation governing such Collateral Obligations;

          (e) subject to clause (w), taking action, or advising the Trustee with respect to actions to
be taken, with respect to the Issuer’s exercise of any rights (including, without limitation,
voting rights, tender rights and rights arising in connection with the bankruptcy or insolvency of
an issuer or the consensual or non judicial restructuring of the debt or equity of an issuer) or
remedies in connection with the Collateral Obligations and Eligible Investments, as provided in the
related Underlying Instruments, including in connection with an Offer or a

 

 

default, and participating in the committees or other groups formed by creditors of an issuer, or
taking any other action with respect to Collateral Obligations and Eligible Investments which the
Collateral Manager determines in the reasonable exercise of the Collateral Manager’s business
judgment is in the best interests of the Noteholders and the Certificateholder in accordance with
and as permitted by the terms of the Indenture;

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

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

          (h) (i) monitoring the Assets on an ongoing basis and (ii) providing or causing to be provided
to the Issuer and/or the other applicable parties specified in the Indenture all reports, schedules
and certificates which relate to the Assets and which the Issuer is required to prepare and deliver
under the Indenture, which are not prepared and delivered by the Trustee on behalf of the Issuer
under the Indenture, in the form and containing all information required thereby (including, in the
case of the Monthly Reports and the Note Valuation Reports, providing to the Trustee the
information as specified in Section 10.12 of the Indenture in sufficient time for the Trustee to
prepare the Monthly Reports and the Note Valuation Reports) and, if applicable, in sufficient time
for the Issuer to review such required reports and schedules and to deliver them to the parties
entitled thereto under the Indenture;

          (i) managing the Issuer’s investments in accordance with the Indenture, including the
limitations relating to the Eligibility Criteria, the Coverage Tests, the Collateral Quality Tests,
the Replenishment Criteria and the other requirements of the Indenture, and taking any action that
the Collateral Manager deems appropriate and consistent with the Indenture, the Collateral Manager
Servicing Standard, the applicable provisions of the Servicing Agreement and the standard of care
set forth herein with respect to any portion of the Assets that does not constitute Collateral
Obligations or Eligible Investments;

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

          (k) providing notification promptly, in writing, to the Trustee and the Issuer upon receiving
actual notice that a Collateral Obligation is subject to an Offer or has become a Defaulted
Security, a Written Down Security or a Credit Risk Security in time for the next Monthly Report;
provided, however, that if such next Monthly Report is due within five (5) Business Days of the
Issuer receiving such actual notice, the Issuer shall deliver such notice as soon as reasonably
practicable following such delivery of such notice;

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

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

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

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

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

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

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

          (s) complying with such other duties and responsibilities as may be specifically required of
the Collateral Manager by the Indenture, this Agreement or the Class A-1R Note Purchase Agreement;

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

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

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          (v) upon reasonable request, assisting the Trustee or the Issuer with respect to such actions
to be taken after the Closing Date, as is necessary to maintain the clearing and transfer of the
Offered Notes (other than the Class A-1R Notes) through DTC; and

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

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

          The Collateral Manager does not hereby guarantee that sufficient funds will be available on
any Payment Date to satisfy any payment obligations of the Issuer. Notwithstanding anything to the
contrary in this Agreement, the Collateral Manager shall perform its obligations hereunder and
under the Indenture in accordance with the Collateral Manager Servicing Standard. In addition, the
Collateral Manager shall use commercially reasonable efforts to ensure that (i) inquiries are made,
to the extent practicable, from sources available to it, with respect to the occurrence of any
default or event of default in respect of any Collateral Obligation under any Underlying Instrument
and (ii) commitments to purchase Collateral Obligations and Eligible Investments are made by the
Collateral Manager only if, in the Collateral Manager’s commercially reasonable judgment at the
time of such commitment, payment at settlement in respect of any such purchase could be made
without any breach or violation of, or default under, the terms of the Indenture or this Agreement.
The Collateral Manager shall comply with and perform all the duties and functions that have been
specifically delegated to the Collateral Manager under the Indenture subject to the Collateral
Manager Servicing Standard. The Collateral Manager shall be bound to follow any amendment,

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supplement or modification to the Indenture of which it has received written notice at least ten
(10) Business Days prior to the execution and delivery thereof by the parties thereto; provided,
however, that, with respect to any amendment, supplement, modification or waiver to the Indenture
which may, in the reasonable judgment of the Collateral Manager, affect the Collateral Manager, the
Collateral Manager shall not be bound thereby (and the Issuer agrees that it will not permit any
such amendment, supplement, modification or waiver to become effective) unless the Collateral
Manager has been given prior written notice thereof and gives its written consent thereto (which
consent shall not be unreasonably withheld) to the Trustee, the Class A-1R Note Agent and the
Issuer prior to the effectiveness thereof. The Collateral Manager shall not be required to take
any action or cause any action to be taken hereunder or under the Indenture or Servicing Agreement
which is reasonably likely to result in the violation of any law, decree, order, rule or regulation
of any court or regulatory, administrative or governmental agency, body or authority.

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

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

          3. Purchase and Sale Transactions; Brokerage.

          (a) The Collateral Manager shall seek to obtain the best overall terms for all orders placed
with respect to the Assets that are Securities (which, for the avoidance of doubt, will not include
Loans originated or acquired by the Seller or an Affiliate of the Seller), considering all
reasonable circumstances, including, if applicable, the conditions or terms of early redemption of
the Securities, it being understood that the Collateral Manager has no obligation to obtain the
lowest prices available. Subject to the foregoing objective, the Collateral Manager may take into
consideration all factors the Collateral Manager reasonably determines to be relevant, including,
without limitation, timing, general relevant trends and research and other brokerage services and
support equipment and services related thereto furnished to the Collateral Manager or its
Affiliates by brokers and dealers in compliance with Section 28(e) of the Exchange Act or, if
Section 28(e) of the Exchange Act is not applicable, in accordance with the provisions set forth
herein and other relevant factors. Such services may be used in connection with the other advisory
activities or investment operations of the Collateral Manager and/or its Affiliates. In addition,
the Collateral Manager may take into account available prices, rates of brokerage commissions and
size and difficulty of the order, in addition to other relevant factors (such as, without
limitation, execution capabilities, reliability (based on total trading rather than individual
trading), integrity, financial condition in general, execution and operational capabilities of
competing brokers and/or dealers, and the value of the ongoing relationship with

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such brokers and/or dealers), without having to demonstrate that such factors are of a direct
benefit to the Issuer in any specific transaction. The Issuer acknowledges and agrees that (i) the
determination by the Collateral Manager of any benefit to the Issuer is subjective and represents
the Collateral Manager’s evaluation at the time that the Issuer will be benefited by relatively
better purchase or sales prices, lower brokerage commissions and beneficial timing of transactions
or a combination of any of these and/or other factors and (ii) the Collateral Manager shall be
fully protected with respect to any such determination to the extent the Collateral Manager acts in
good faith, and in accordance with the Collateral Manager Servicing Standard (to the extent
applicable), and without gross negligence, willful misconduct or reckless disregard of the
obligations of the Issuer hereunder or under the terms of the Indenture.

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

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

          All purchases and sales of Eligible Investments and Collateral Obligations by the Collateral
Manager on behalf of the Issuer shall be conducted in compliance with all applicable laws
(including, without limitation, Section 206(3) of the Advisers Act) and the terms of the Indenture.
After (and excluding) the Closing Date, the Collateral Manager shall cause any purchase or sale of
any Collateral Obligation or Eligible Investment to be conducted on an arm’s-length basis or, if
applicable, in compliance with Section 3(b) hereof. The parties hereto acknowledge and agree that
all purchases (including, without limitation, purchases from Affiliates of the Collateral Manager)
of Eligible Investments and Collateral Obligations by the Collateral Manager on behalf of the
Issuer on the Closing Date (including, without limitation, all such purchases from Affiliates of
the Collateral Manager) in a manner contemplated by the final Offering Memorandum, dated December
20, 2006 (the “Offering Memorandum”), related to the Classes of Notes offered thereby (or any
supplement thereto) are hereby approved.

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          (b) The Collateral Manager, subject to and in accordance with the Indenture, may effect direct
trades between the Issuer and the Collateral Manager or any of its Affiliates acting as principal
or agent (any such transaction, a “Related Party Trade”); provided, however, that a Related Party
Trade after (and excluding) the Closing Date may be effected only if the purchase price in respect
of any Collateral Obligation acquired by the Issuer from a Seller pursuant to such a direct trade
may not exceed the Principal Balance thereof plus accrued and unpaid interest thereon (or, in the
case of a Preferred Equity Security, all accrued and unpaid dividends or other distributions not
attributable to the return of capital by its governing documents).

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

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

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

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

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

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

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

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

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

          (b) the Collateral Manager is not in violation of any Federal or state securities law or
regulation promulgated thereunder that would have a material adverse effect upon the ability of the
Collateral Manager to perform its duties under this Agreement or the Indenture, and there is no
charge, investigation, action, suit or proceeding before or by any court or regulatory agency
pending or, to the best knowledge of the Collateral Manager, threatened against the Collateral
Manager which could reasonably be expected to have a material adverse effect upon the ability of
the Collateral Manager to perform its duties under this Agreement or the Indenture;

          (c) neither the execution and delivery of this Agreement nor the performance by the Collateral
Manager of its duties hereunder or under the Indenture conflicts with or will violate or result in
a breach or violation of any of the terms or provisions of, or constitutes a

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default under: (i) the certificate of formation or the limited liability company agreement of the
Collateral Manager, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement or other evidence of indebtedness or other agreement, obligation, condition, covenant or
instrument to which the Collateral Manager is a party or by which the Collateral Manager is bound,
(iii) any law, decree, order, rule or regulation applicable to the Collateral Manager of any court
or regulatory, administrative or governmental
agency, body or authority or arbitrator having jurisdiction over the Collateral Manager or its
properties, and which would have, in the case of any of (i), (ii) or (iii) of this subsection (c),
either individually or in the aggregate, a material adverse effect on the business, operations,
assets or financial condition of the Collateral Manager or the ability of the Collateral Manager to
perform its obligations under this Agreement or the Indenture;

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

          (e) the Section entitled “THE COLLATERAL MANAGER” in the Offering Memorandum, as of the date
thereof (including as of the date of any supplement thereto) and as of the Closing Date does not
contain any untrue statement of a material fact and does not omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading; and

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

          6. Expenses. Both parties hereto acknowledge and agree that a portion of the gross proceeds
received from the issuance and sale of the Securities will be used to pay certain organizational
and structuring fees and expenses of the Issuer, including the legal fees and expenses of counsel
to the Collateral Manager. The Collateral Manager shall pay all expenses and costs incurred by it
in the course of performing its obligations under this Agreement; provided, however, that the
Collateral Manager shall not be liable for, and (subject to the Priority of Payments set forth in
the Indenture and to the extent funds are available therefor) the Issuer shall be responsible for
the payment of, reasonable expenses and costs (including, without limitation, reasonable travel
expenses) of (i) independent accountants, consultants and other advisers retained by the Issuer or
by the Collateral Manager on behalf of the Issuer in connection with the services provided by the
Collateral Manager hereunder, (ii) legal advisers retained by the Issuer or by the Collateral
Manager on behalf of the Issuer in connection with the services provided by the Collateral Manager
hereunder and (iii) the Collateral Manager to the extent of reasonable expenses (A) incurred in
effecting or directing purchases of Collateral Obligations and sales of Collateral Obligations and
Eligible Investments, (B) incurred in negotiating with issuers of Collateral Obligations as to
proposed modifications or waivers, (C) incurred in taking action or advising the Trustee with
respect to the Issuer’s exercise of any rights or remedies in connection with the Collateral
Obligations and Eligible Investments, including in connection with an Offer or a default, (D)
incurred in participating in committees or other groups formed by creditors of an issuer of
Collateral Obligations, (E) incurred in consulting with and providing any Rating Agency with any
information in connection with its maintenance of the ratings of the

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Notes, (F) relating to the Special Amortization of the Notes (other than the Class K
Notes), (G) relating to the provision of information in order to render the Notes eligible for
resale pursuant to Rule 144A of the Securities Act, (H) disbursed or allocated in valuing the
Assets, (I) in connection with disbursed or allocated software and technology expenditures relating
to the monitoring and administration of the Assets, (J) for an allocable share of the cost of
certain credit databases used by the Collateral Manager in providing services to the Issuer under
this Agreement and (K) incurred by the Collateral Manager in connection with matters arising in the
performance of its duties under this Agreement.

          7. Fees. As compensation for the performance of its obligations as Collateral Manager
hereunder and under the Indenture, the Collateral Manager will be entitled to receive (i) a fee,
payable quarterly in arrears on each Payment Date in accordance with the Priority of Payments,
equal to 0.15% per annum of the Net Outstanding Portfolio Balance and the Aggregate Class A-1R
Undrawn Amount (without duplication) for such Payment Date (the “Senior Collateral Management Fee”)
and (ii) an additional fee, payable quarterly in arrears on each Payment Date in accordance with
the Priority of Payments, equal to 0.25% per annum of the Net Outstanding Portfolio Balance and the
Aggregate Class A-1R Undrawn Amount (without duplication) for such Payment Date (the “Subordinate
Collateral Management Fee” and, together with the Senior Collateral Management Fee, the “Collateral
Management Fee”). Each Collateral Management Fee will be calculated for each Interest Accrual
Period assuming a 360-day year with the actual number of days elapsed in such Interest Accrual
Period. The Collateral Management Fee will be calculated based on the Net Outstanding Portfolio
Balance and the Aggregate Class A-1R Undrawn Amount (without duplication) as of the first day of
the applicable Interest Accrual Period. If on any Payment Date there are insufficient funds to pay
such fees (and/or any other amounts due and payable to the Collateral Manager) in full, in
accordance with the Priority of Payments, the amount not so paid shall be deferred and such amounts
shall be payable on such later Payment Date on which funds are available therefor as provided in
the Priority of Payments set forth in the Indenture. Any accrued and unpaid Senior Collateral
Management Fee that is deferred due to the operation of the Priority of Payments shall accrue
interest at LIBOR in effect for the applicable Interest Accrual Period computed on an actual
360-day basis. Any accrued and unpaid Subordinate Collateral Management Fee that is deferred due to
the operation of the Priority of Payments shall accrue interest at LIBOR in effect for the
applicable Interest Accrual Period on an actual 360-day basis. Notwithstanding any other provision
hereof, the aggregate amount of all accrued but unpaid Subordinate Collateral Management Fee
payable on the final Payment Date or, if earlier, following the winding up of the Issuer shall be
equal to the lesser of (a) the nominal amount thereof and (b) the amount available for payment
under the Priority of Payments. The Collateral Manager hereby agrees not to cause the filing of a
petition in bankruptcy against the Issuer for the nonpayment to the Collateral Manager of any
amounts due it hereunder except in accordance with Section 18 hereof and, subject to the provisions
of Section 12, to continue to serve as Collateral Manager. If this Agreement is terminated pursuant
to Section 12 hereof or otherwise, the accrued fees payable to the Collateral Manager shall be
prorated for any partial periods between the Payment Dates during which this Agreement was in
effect and shall be due and payable on the first Payment Date following the date of such
termination, together with all expenses payable to the
Collateral Manager in accordance with Section 6 hereof, and subject to the provisions of the
Indenture and the Priority of Payments. Notwithstanding anything to the contrary herein, the
Collateral

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Manager may at any time, in its discretion, waive any portion of the Collateral Management Fees.

          8. Non-Exclusivity. Nothing herein shall prevent the Collateral Manager or any of its
Affiliates or any of their members, managers, officers, agents, employees, stockholders, interest
holders, partners or directors from engaging in any other businesses or providing investment
management, advisory or any other types of services to any other portfolios or Persons or entities,
including the Issuer, the Trustee and the Noteholders, to the fullest extent permitted by
applicable law; provided, however, that the Collateral Manager may not take any of the foregoing
actions which the Collateral Manager knows or reasonably should know (A) would require the Issuer
or the pool of Assets to register as an “investment company” under the Investment Company Act or
(B) would cause the Issuer or, with respect to the Issuer or the Assets, the Collateral Manager to
be in material violation of any law, rule or regulation applicable to the Issuer or the Assets.

          9. Conflicts of Interest.

          (a) After (but excluding) the Closing Date and the sales by Affiliates of the Collateral
Manager of Collateral Obligations to the Issuer on the Closing Date, the Collateral Manager will
not cause the Issuer to enter into any transaction to acquire Collateral Obligations with the
Collateral Manager or any of its Affiliates as principal unless the applicable terms and conditions
set forth in Section 3(b) are complied with.

          (b) The Collateral Manager shall perform its obligations hereunder in accordance with any
applicable requirements of the Advisers Act and the Indenture. The Issuer acknowledges that (i) the
Trust Depositor, an affiliate of the Collateral Manager, will acquire on the Closing Date 100% of
each of the Class J Notes, the Class K Notes and the Certificate, (ii) the Seller (or an Affiliate
of the Collateral Manager) and/or its Affiliates (including the Trust Depositor) will sell
Collateral Obligations to the Issuer on the Closing Date, and (iii) the Collateral Manager, its
Affiliates and funds or accounts for which the Collateral Manager or its Affiliates acts as
investment adviser may at times own Notes of one or more additional Classes. After the Closing
Date, the Collateral Manager agrees to provide to the Trustee written notice upon the acquisition
or transfer (after, but excluding, the Closing Date) of any Securities held by the Trust Depositor,
the Collateral Manager, any of their respective Affiliates or any fund managed or controlled by the
Collateral Manager or any Affiliate thereof, which written notice may, but need not be, in the form
of a subsequent Collateral Obligations Purchase Agreement among the Trust Depositor and the Issuer.

          (c) Nothing herein shall prevent the Collateral Manager or any of its Affiliates or any of
their members, managers, officers, agents, employees, stockholders, interest holders, partners or
directors from engaging in other businesses (including
financing, purchasing, owning, holding, originating or disposing of any assets or
investments), or from rendering services of any kind to the Issuer and its Affiliates, the Trustee,
the Holders or any other Person or entity, whether or not any of the foregoing may be competitive
with the business of the Issuer. Without prejudice to the generality of the foregoing, directors,
officers, members, partners, employees and agents of the Collateral Manager, Affiliates of the
Collateral Manager, and the Collateral Manager may, among other things:

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

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

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

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

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

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

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

          It is understood that the Collateral Manager and its Affiliates may engage in any other
business, whether or not any of the foregoing may be competitive with the business of the

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Issuer (including financing, purchasing, owning, holding, servicing, originating or disposing of
any assets or investments), and furnish investment management and advisory services to others,
including Persons that may have investment policies similar to those followed by the Collateral
Manager with respect to the Assets and that may own instruments of the same class, or of the same
type, as the Collateral Obligations or other instruments of the issuers of Collateral Obligations
and may manage portfolios similar to the Assets. The Collateral Manager and its Affiliates shall be
free, in their sole discretion, to make recommendations to others, or effect transactions on behalf
of themselves or for others, which may be the same as or different from those the Collateral
Manager causes the Issuer to effect with respect to the Assets.

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

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

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

          The Issuer further acknowledges that the Collateral Manager and its Affiliates are and intend
to continue to be in the business of originating and acquiring commercial loans, selling such loans
to affiliated issuers in connection with securitization, warehouse and other

- 13 -

 

financing facilities, servicing such loans in connection with the foregoing and servicing or
managing loans on behalf of certain of its Affiliates, including the Seller. In connection with
originating or acquiring such loans, the Collateral Manager or its Affiliates will often be
appointed in various agency capacities under such loans or, in instances when the Seller is
appointed to such agency roles with respect to loans it originates or acquires, the Seller may
contract with the Collateral Manager to perform such agency functions. With respect to some of
these loans a portion may be owned by the Issuer and a portion may be owned by the Collateral
Manager and/or one or more other Affiliates. The Issuer further acknowledges that various other
aspects of the Collateral Manager’s or its Affiliates’ business and existing or potential conflicts
related thereto are set forth in the Offering Memorandum. The Issuer expressly consents to the
Collateral Manager or its Affiliates serving in these various capacities and, subject to the terms
of this Agreement, waives any conflict of interest that may arise therefrom. Nothing in this
paragraph shall in any way limit the generality of the other provisions of this Section 9.

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

          10. Records; Confidentiality. The Collateral Manager shall maintain appropriate books of
account and records relating to services performed hereunder, and such books of account and records
shall be accessible for inspection by an authorized representative of the Issuer, the Trustee and
the Independent accountants appointed by the Issuer pursuant to the Indenture at a mutually
agreed-upon time during normal business hours and upon reasonable
prior notice; provided that the
Collateral Manager shall not be obligated to provide access to any non-public information if the
Collateral Manager in good faith determines that the disclosure of such information would violate
any applicable law, regulation or contractual arrangement. The Collateral Manager shall follow its
customary procedures to keep confidential all information obtained in connection with the services
rendered hereunder and shall not disclose any such information except (i) with the prior written
consent of the Issuer (which consent shall
not be unreasonably withheld), (ii) such information as the Rating Agencies shall reasonably
request in connection with their rating or evaluation of the Notes and/or the Collateral Manager,
as applicable, (iii) as required by law, regulation, court order or the rules, regulations, or
request of any regulatory or self-regulating organization, body or official (including any
securities exchange on which the Notes may be listed from time to time) having jurisdiction over
the Collateral Manager or its Affiliates or as otherwise required by law or judicial process, (iv)
such information as shall have been publicly disclosed other than in violation of this Agreement,
(v) to its members, officers, directors, and employees, and to its attorneys, accountants and other
professional advisers in conjunction with the transactions described herein, (vi) such information
as may be necessary or desirable in order for the Collateral Manager to prepare, publish and
distribute to any Person any information relating to the investment performance of the Assets,
(vii) in connection with the enforcement of the Collateral Manager’s rights hereunder or in any
dispute or proceeding related hereto, (viii) to the Trustee, (ix) to the extent required pursuant
to any Hedge Agreement of the Issuer, (x) to Holders and potential purchasers of any of the
Securities, (xi) in connection with establishing trading or investment accounts or otherwise in
connection with effecting transactions on behalf of the Issuer and (xii) such information as may

- 14 -

 

be obtained by the Collateral Manager other than in connection with the services rendered
hereunder.

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

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

          12. Termination. (a) The Collateral Manager may be removed without cause upon at least thirty
(30) days’ prior written notice if (A) Holders of at least 75% by Aggregate Outstanding Amount of
each Class of Notes (voting as a separate Class) and (B) the Certificateholder gives written notice
to the Collateral Manager, the Issuer, each Hedge Counterparty and the Trustee of such removal
(including in any such calculation any Collateral Manager Securities); provided that if the
Collateral Manager is removed pursuant to this clause (a), any successor Collateral Manager will
not be permitted to be a Holder of, or an Affiliate of any Holder of, Securities. Notice of any
such removal shall be delivered by the Trustee on behalf of the Issuer to the Holders of each Class
of Notes, the Certificateholder, each Rating Agency and each Hedge Counterparty.

          (b) This Agreement may be terminated, and the Collateral Manager may be removed, by the Issuer
or the Trustee for cause, upon thirty (30) days’ prior written notice by the Issuer, at the
direction of Holders of at least a majority by Aggregate Outstanding Amount of each Class of Notes
(excluding any Collateral Manager Securities), each voting as a separate Class); provided, however,
upon the occurrence of an event described in clause (iii) of this Section 12(b), termination of the
Collateral Manager will be automatic and without advance notice required from the Issuer, the
Trustee or any other Person. Notice of any such removal for

- 15 -

 

cause shall be delivered by or on behalf of the Issuer to each Rating Agency, each Hedge
Counterparty and the Noteholders and the Certificateholder. In no event will the Trustee be
required to determine whether or not cause exists for the removal of the Collateral Manager. As
used in this Section 12, “cause” means any of the following events:

     (i) the Collateral Manager (A) willfully breaches, or takes any action that it knows violates,
any provision of this Agreement or any term of the Indenture applicable to the Collateral Manager
(not including a willful breach or knowing violation that results from a good faith dispute
regarding alternative courses of action or interpretation of instructions or a failure to meet any
Coverage Test or Collateral Quality Test);

     (ii) the Collateral Manager breaches any provision of this Agreement or any terms of the
Indenture applicable to the Collateral Manager, which breach has a material adverse effect on the
Noteholders, and fails to cure such breach within 90 days after the first to occur of (A) notice of
such failure being given to the Collateral Manager or (B) the Collateral Manager having actual
knowledge of such breach;

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

     (iv) the occurrence of an act by the Collateral Manager or its Affiliates that constitutes
fraud or criminal activity in the performance of its obligations under this Agreement or the
indictment of the Collateral Manager or any of its officers or directors for a felony offense
materially related to advisory services similar to those provided pursuant to this Agreement or
employees (acting in such capacity) engaged in the provision of services under this Agreement and
such activities or indictment are directly related to the performance or provision of such or
similar services;

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

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

- 16 -

 

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

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

          (c) The Collateral Manager may resign, upon ninety (90) days’ prior written notice to the
Issuer, the Trustee, each Rating Agency, the Certificateholder and each Hedge Counterparty.
Notwithstanding the notice required above, the Collateral Manager shall have the right to resign
without prior notice if, due to a change in any applicable law or regulation or interpretation
thereof, the performance by the Collateral Manager of its duties under this Agreement would
adversely affect (A) CapitalSource Inc.’s (or any of its Affiliates, as the case may be) status as
a REIT or (B) subject the Issuer or any of its Affiliates (other than a taxable REIT Subsidiary) to
any U.S. federal, state or local income, profit or similar tax on a net income basis or (ii)
constitute a violation of any applicable law or regulation.

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

     (e) Upon any resignation or removal of the Collateral Manager while any of the Notes are
Outstanding, the Certificateholder shall have the right to instruct the Issuer to appoint an
institution identified by such Certificateholder as Replacement
Manager; provided that in the event
that 100% of aggregate outstanding notional amount of the Certificate is held by any one or more of
Collateral Manager, its Affiliates and funds managed or controlled by the Collateral Manager or any
Affiliate thereof and the proposed Replacement Manager is an Affiliate of the Collateral Manager,
the holders of at least a majority of the Aggregate Outstanding Amount of the most junior Class of
Notes not 100% owned by the Collateral Manager or an Affiliate of the Collateral Manager (excluding
any Notes held by the Collateral Manager or an Affiliate of the Collateral Manager to the extent
the Replacement Manager is an

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Affiliate of the Collateral Manager or the Collateral Manager has been removed for Cause) may
appoint an institution as Replacement Manager; provided, further, that (i) the Issuer provides to
the Noteholders and the Certificateholder notice of such appointment and a majority by Aggregate
Outstanding Amount of the Controlling Class (excluding any Notes owned by the Collateral Manager or
any of its Affiliates or any fund managed or controlled by the Collateral Manager or any Affiliate
thereof, each voting as a separate Class) does not object to such appointment within fifteen (15)
days, (ii) the Rating Agency Condition has been satisfied with respect to such appointment and
(iii) the requirements set forth in Section 12(d)(i) through (v) above have been satisfied.

          (f) In the event that the Collateral Manager resigns pursuant to Section 12(c) or is
terminated pursuant to Sections 12(a) or (b) hereof and the Issuer has not appointed a successor
prior to the day following the termination (or resignation) date specified in such notice, the
Collateral Manager will be entitled to propose a successor and will so appoint such proposed entity
as successor sixty (60) days thereafter, unless a majority of any Class of Notes objects to such
appointment within fifteen (15) days of notice of such appointment period in which case the
Controlling Class of Notes (excluding any Notes owned by the Collateral Manager or any of its
Affiliates or any fund managed or controlled by the Collateral Manager or any Affiliate thereof,
each voting as a separate Class) will be entitled to propose a successor and will appoint such
proposed entity as successor thirty (30) days thereafter unless a majority by Aggregate
Outstanding Amount of any other Class of Notes (excluding any Notes owned by the Collateral
Manager or any of its Affiliates or any fund managed or controlled by the Collateral Manager or any
Affiliate thereof, each voting as a separate Class) objects to such appointment within such thirty
(30) day period, in each case subject to the requirements set forth in Section 12(d) above. In the
event a proposed successor Collateral Manager is not appointed pursuant to the foregoing
procedures, the resigning or removed Collateral Manager may petition any court of competent
jurisdiction for the appointment of a successor Collateral Manager, which appointment will not
require the consent of, or be subject to the disapproval of, the Issuer, any Noteholder or the
Certificateholder.

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

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the proper payment of any amounts owing to such removed or resigning Collateral Manager hereunder.

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

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

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

          The Collateral Manager shall reasonably assist and cooperate with the
Trustee and the Issuer (as reasonably requested by the Trustee or the Issuer) in the
assumption of the Collateral Manager’s duties by any Replacement Manager as provided for in this
Agreement, as applicable. Notwithstanding such termination, the Collateral Manager shall remain
liable to the extent set forth herein (but subject to Section 13 hereof) for the Collateral
Manager’s acts or omissions hereunder arising prior to its termination as Collateral Manager
hereunder and for any expenses, losses, damages, liabilities, demands, charges and claims
(including reasonable attorneys’ fees) in respect of or arising out of a breach of the
representations and warranties made by it in Section 5 hereof or from any failure of the Collateral
Manager to comply with the provisions of this Section 12(g).

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

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

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

- 19 -

 

          13. Liability of Collateral Manager. (a) The Collateral Manager assumes no responsibility
under this Agreement other than to render the services called for from the Collateral Manager
hereunder and under the Indenture in the manner prescribed herein and therein. The Collateral
Manager, its members, managers, directors, officers, stockholders, partners, agents and employees
and any Affiliate of the Collateral Manager and its directors, officers, stockholders, partners,
members, managers, agents and employees (collectively, the “Collateral Manager Indemnified
Parties”) shall have no liability to the Noteholders, the Trustee, the Issuer, any Hedge
Counterparty, the Initial Purchaser, or any of their respective Affiliates, partners, shareholders,
officers, directors, employees, agents, accountants and attorneys, or any other Person, for any
error of judgment, mistake of law, or for any claim, loss, liability, damage, settlement, costs, or
other expenses (including reasonable attorneys’ fees and court costs and reasonable accountant’s
fees and expenses) of any nature whatsoever (collectively “Liabilities”) that arise out of or in
connection with any representation, warranty, covenant, or act or
omissions of the Collateral Manager or such other person in the performance of its duties
under this Agreement or the Indenture or for any decrease in the value of the Collateral
Obligations or Eligible Investments, except by reason of acts or omissions constituting bad faith,
willful misconduct or gross negligence in the performance of, or reckless disregard of, the duties
of the Collateral Manager hereunder and under the terms of the Indenture. The Issuer agrees that
the Collateral Manager Indemnified Parties shall not be liable for any consequential, special,
exemplary or punitive damages hereunder and that, as set forth more specifically in Section 18, any
liability of the Collateral Manager hereunder is solely a limited liability company obligation of
the Collateral Manager and not an obligation of any other Collateral Manager Indemnified Party. The
acts, failure to act or breaches described in this clause (a) for which the Collateral Manager
would have liability are collectively referred to for purposes of this Section 13 as “Collateral
Manager Breaches.”

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

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

- 20 -

 

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

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

     (ii) at the indemnifying party’s expense, provide the indemnifying party such information and
cooperation with respect to such claim as the indemnifying party may reasonably require, including
making appropriate personnel available to the indemnifying party at such reasonable times as the
indemnifying party may request;

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

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

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

     (vi) upon reasonable prior notice, afford to the indemnifying party the right, in such party’s
sole discretion and at such party’s sole expense, to assume the defense of such claim, including
the right to designate counsel reasonably acceptable to the Indemnified Party and to control all
negotiations, litigation, arbitration, settlements, compromises and appeals of such claim; provided
that, if the indemnifying party assumes the defense of such claim, it shall not be liable for any
fees and expenses of counsel for any Indemnified Party incurred thereafter in connection with such
claim except that, if such Indemnified Party reasonably determines that counsel designated by the

- 21 -

 

indemnifying party has a conflict of interest, such indemnifying party shall pay the reasonable
fees and disbursements of one counsel (in addition to any local counsel) separate from such
indemnifying party’s own counsel for all Indemnified Parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of the same general
allegations or circumstances; and provided, further, that the indemnifying party shall not have the
right, without the Indemnified Party’s written consent, to settle any such claim if, in a case
where the Issuer is the indemnifying party, the Issuer does not make available (in accordance with
the Priority of Payments), in a segregated account available only for this purpose, the full amount
required to pay any amounts due from the Indemnified Party under such settlement or, in any case,
such settlement (A) arises from or is part of any criminal action, suit or proceeding, (B) contains
a stipulation to, confession of judgment with respect to, or admission or acknowledgement of, any
liability or wrongdoing on the part of the Indemnified Party, (C) relates to any Federal, state or
local tax matters or (D) provides for injunctive relief, or other relief other than damages, which
is binding on the Indemnified Party.

          (e) In the event that any Indemnified Party waives its right to indemnification hereunder, the
indemnifying party shall not be entitled to appoint counsel to represent such Indemnified Party nor
shall the indemnifying party reimburse such Indemnified Party for any costs of counsel to such
Indemnified Party.

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

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

          (b) Unless otherwise required by any provision of the Indenture or this Agreement or by
applicable law, the Collateral Manager shall not take any action which it knows would , or acting
without gross negligence would know, (a) materially adversely affect the Issuer for purposes of
United States federal or state law or any other law known to the Collateral Manager to be
applicable to the Issuer, (b) not be permitted under the Issuer’s Certificate of Trust and Trust
Agreement, (c) require registration of the Issuer or the Assets as an “investment company” under
the Investment Company Act or (d) cause the Issuer to violate the terms of the Indenture, it being
understood that in connection with the foregoing the Collateral Manager will not be required to
make any independent investigation of any facts or laws not otherwise known to it in connection
with its obligations under this Agreement and the Indenture or the conduct of its business
generally. The Collateral Manager will perform its duties under this Agreement and

- 22 -

 

the Indenture in a manner reasonably intended not to subject the Issuer to U.S. federal or state
income taxation. The Collateral Manager shall use all commercially reasonable efforts to ensure
that no action is taken by it, and shall not intentionally or with reckless disregard take any
action, which the Collateral Manager knows or reasonably should know would have a materially
adverse United States federal or state income tax effect on the Issuer.

          (c) Notwithstanding anything to the contrary herein, the Collateral Manager or any of its
Affiliates may take any action that is not specifically prohibited by the Indenture, this Agreement
or applicable law that the Collateral Manager or any Affiliate of the Collateral Managers deems to
be in its (or in its portfolio’s) best interest regardless of its impact on the Collateral
Obligations; provided that when taking such action it is not acting in any capacity for the Issuer
and provided that the Collateral Manager or such Affiliate is not taking any action to prevent or
impede the Collateral Manager from performing its duties hereunder or under the Indenture,
including, without limitation, acting in accordance with the Collateral Manager Servicing Standard.

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

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

CapitalSource Real Estate Loan Trust 2006-A

c/o Wilmington Trust Company

1100 North Market Street,

Wilmington, Delaware 19890

Attention: Corporate Trust Administration

Fax No.: (302) 636-4140,

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

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

CapitalSource Finance LLC

4445 Willard Avenue, 12th Floor

Chevy Chase, Maryland 20815

Attention: Securitization Department

Fax No.: (301) 841-2380

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          17. Succession; Assignment. This Agreement shall inure to the benefit of, and be binding upon
the successors to, the parties hereto. Any assignment of this Agreement by operation of law or
otherwise to any Person, in whole or in part, by the Collateral Manager shall be deemed null and
void unless: (i) such assignment is consented to in writing by the Issuer and by the holders of
more than 66-2/3% of the
outstanding principal amount of the Controlling Class (or, in the case of the Certificate,
outstanding notional amount) (excluding in any such calculation any Securities held by the
Collateral Manager, any of its Affiliates or any fund managed or controlled by the Collateral
Manager or any Affiliate thereof) and (ii) the Rating Agency Condition is satisfied; provided,
however, that the Collateral Manager may assign all of its rights and responsibilities and/or
delegate its obligations under this Agreement to an Affiliate without the consent of the Issuer,
the Trustee or any Noteholder and without satisfaction of the Rating Agency Condition so long as
(a) the Collateral Manager gives notice to each Rating Agency that such assignment and/or
delegation has been made, (b) such Affiliate satisfies the conditions required for a Replacement
Manager hereunder and (c) such assignment is not effected by the transfer of control of a majority
of voting interests in the Collateral Manager to a person that is not an Affiliate of CapitalSource
Inc.; and (iii) the assignee has agreed in writing to assume all of the Collateral Manager’s duties
and obligations pursuant to this Agreement. Notwithstanding any such assignment, the Collateral
Manager’s obligations arising under Section 13 of this Agreement prior to such assignment and the
Collateral Manager’s obligations under the last sentence of Section 10 and Sections 7 and 12 hereof
shall survive any such assignment.

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

- 24 -

 

Manager, and the Issuer shall not have any recourse to any of the members, managers,
directors, officers, employees, shareholders or Affiliates of the Collateral Manager with respect
to any claims, losses, damages, liabilities, indemnities or other obligations in connection with
any transactions contemplated hereby. The provisions of this Section 18 shall survive the
termination of this Agreement for any reason.

          19. Miscellaneous. (a) this Agreement shall be construed in accordance with and governed by
the laws of state of New York applicable to agreements made and to be performed therein without
regard to conflict of laws principles. With respect to any suit, action or proceedings relating to
this Agreement (“Proceedings”), each party irrevocably (i) submits to the nonexclusive jurisdiction
of the courts of the State of New York and the United States District Court located in the Borough
of Manhattan in New York City and (ii) waives any objection that such party may have at any time to
the laying of venue of any Proceedings brought in any such court, waives any claim that such
Proceedings have been brought in an inconvenient forum and further waives the right to object, with
respect to such Proceedings, that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in any other
jurisdiction, nor shall the bringing of Proceedings in any one or more jurisdictions preclude the
bringing of Proceedings in any other jurisdiction. The Collateral Manager hereby irrevocably
consents to service of any and all process which may be served in any Proceeding to its address as
set forth in Section 16 and agrees that service of process upon it in accordance herewith shall be
deemed in every respect effective service of process upon it in any such suit, action or Proceeding
and shall be taken and held to be valid personal service upon it. The Issuer hereby irrevocably
consents to the service of any and all process which may be served in any Proceeding to its as
address set forth in Section 16 and agrees that service of process upon it in accordance herewith
shall be deemed in every respect effective service of process upon it in any such suit, action or
Proceeding and shall be taken and held to be valid personal service upon it. Each party hereto
agrees that a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

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

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

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

          (d) This Agreement may not be amended or modified or any provision thereof waived (i) except
by an instrument in writing signed by both of the parties hereto or, in the case of a waiver, by
the party waiving compliance and (ii) in each case, in
compliance with the Indenture, including with respect to satisfaction of the Rating Agency
Condition. This

- 25 -

 

Agreement may be modified without the prior written consent of the Trustee, any Hedge Counterparty
or the holders of Notes to correct any inconsistency or cure any ambiguity or mistake. Any other
amendment of this Agreement shall require the prior written consent of the Trustee, each Hedge
Counterparty and the holders of 66-2/3% of the outstanding principal amount of the Controlling
Class, which consent shall not be unreasonably withheld and is subject to the satisfaction of the
Rating Agency Condition.

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

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

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

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

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

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

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

          (l) The Collateral Manager hereby irrevocably waives any rights it may have to set off against
the Assets with respect to any obligations that are or may be due and owing to the Collateral
Manager by the Issuer.

          20. Regarding Notices Between Collateral Manager and CLO Servicer. Notwithstanding anything to
the contrary contained herein, to the extent the Collateral Manager and the CLO Servicer utilize
common information, information systems and/or
personnel in connection with their respective obligations hereunder then either such party’s
obligation to provide any notice, deliverable or communication to such other party hereunder shall
be deemed to be satisfied as long as (i) the party obligated to provide such notice, deliverable or

- 26 -

 

communication shall have notified the party entitled to receive it of the availability of the
information or materials which are the subject matter thereof and (ii) the other such party has
access to the information or materials that would be the subject of such notice, delivery or
communication, and if the notice described in clause (i) has been delivered, to the extent
otherwise required to be done as among such parties, either such party’s failure to provide
separate copies, make physical or electronic delivery or give specific notice in respect of any
such materials shall not be a default hereunder. Nothing contained in the foregoing shall alter or
diminish the Collateral Manager’s and the CLO Servicer’s obligations to provide delivery of
materials, notice or other information to any of the other parties to this Agreement.

- 27 -

 

EXECUTION
COPY

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

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 	 	CAPITALSOURCE REAL ESTATE LOAN	 	 
	 	 	 	 	TRUST 2006-A	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Wilmington Trust Company, not in its	 	 
	 	 	 	 	individual capacity, but solely as Owner	 	 
	 	 	 	 	Trustee	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ J. CHRISTOPHER MURPHY	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name: J. Christopher Murphy	 	 
	 

	 	 	 	 	 	Title: Financial Services Officer	 	 

 

 

EXECUTION
COPY

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

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	CAPITALSOURCE FINANCE LLC, as	 	 
	 

	 	 	 	Collateral Manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ NAV SWAMY	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Nav Swamy	 	 
	 

	 	 	 	Title: Director of Securitizationsexv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (“Agreement”) is entered into this 17th day of May,
2006 but effective as of the 23rd day of March, 2006 (the “Effective Date”), between HCC
Insurance Holdings, Inc., a Delaware corporation (the ”Company” or “HCC”) and John N. Molbeck, Jr.
(“Executive”). Executive and the Company are sometimes collectively referred to herein as the
“Parties” and individually as a “Party.”

RECITALS:

     WHEREAS, Executive is to be employed as the President and Chief Operating Officer of the
Company;

     WHEREAS, it is the desire of the Company to engage Executive as the President and Chief
Operating Officer of the Company; and

     WHEREAS, Executive is desirous of being employed by the Company on the terms herein provided.

     NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and
agreements set forth below, the Parties agree as follows:

AGREEMENT

     1. Term. Effective as of the Effective Date, the Company hereby employs Executive,
and Executive hereby accepts such employment, on the terms and conditions set forth herein, for the
period (the “Term”) commencing on the Effective Date and expiring at 11:59 p.m. on May 31, 2009
(unless sooner terminated as hereinafter set forth).

     2. Duties.

          (a) Duties as Executive of the Company. Executive shall, subject to the supervision
of the Chief Executive Officer of the Company (the “CEO”) or such other person designated by the
CEO, act as the President and Chief Operating Officer of the Company in the ordinary course of its
business with all such powers with respect to such management and control as may be reasonably
incident to such responsibilities. During normal business hours, Executive shall devote his full
time and attention to diligently attending to the business of the Company. During the Term,
Executive shall not directly or indirectly render any services of a business, commercial, or
professional nature to any other person, firm, corporation, or organization, whether for
compensation or otherwise, without the prior written consent of the CEO. However, Executive shall
have the right to engage in such activities as may be appropriate in order to manage his personal
investments and in educational, charitable and philanthropic activities so long as such activities
do not materially interfere or conflict with the performance of his duties to the Company
hereunder. The conduct of such activity shall not be deemed to materially interfere or conflict
with Executive’s performance of his duties until Executive has been notified in writing thereof and
given a reasonable period in which to cure the same.

1

 

          (b) Other Duties.

          (1) If elected, Executive agrees to serve as a member of such managerial committees of
the Company and of any of its direct or indirect parents or subsidiaries (collectively,
“Affiliates”) and in one or more executive offices of any of the Company’s Affiliates,
provided Executive is indemnified for serving in any and all such capacities in a manner
acceptable to the Company and Executive. If elected, Executive agrees that he shall not be
entitled to receive any compensation for serving as a director of the Company, or in any
capacities for the Company or the Company’s Affiliates other than the compensation to be
paid to Executive by the Company pursuant to this Agreement.

          (2) Executive acknowledges and agrees that he has read and considered the written
business policies and procedures of HCC as posted on HCC’s intranet and that he will abide
by such policies and procedures throughout the term of his employment with the Company.
Executive further agrees that he will familiarize himself with any amendments to the
policies and procedures and that he will abide by such policies and procedures as they may
change from time to time.

     3. Compensation and Related Matters.

          (a) Base Salary. Executive shall receive a base salary paid by the Company of
$750,000 per year for the period from the Effective Date through the end of the Term (the “Base
Salary”). The Base Salary shall be paid in substantially equal semi-monthly installments.

          (b) Bonus. In addition to the Base Salary, during the Term, Executive shall receive
an annual cash bonus of $125,000 if the annual after-tax net earnings per share of the Company
equal or exceed the approved budget for that calendar year, as such budget may be reestablished
during any year. Additionally, during the Term, Executive shall receive a cash bonus of $125,000
if the annual after-tax net earnings per share of the Company exceed the previous calendar year’s
after-tax net earnings per share by 10% or more. The annual bonus compensation payable to
Executive under the Section 3(b), if any, (the “Bonus”) shall be calculated by the Company
following the end of each calendar year and shall be paid to Executive not later than May 1 of the
next calendar year.

          (c) Stock Options. Executive shall receive options to acquire 200,000 shares of the
Company’s common stock (the “Stock Options”). Such Stock Options shall vest in three annual
installments commencing on the first anniversary of the date of grant and expire on the fifth
anniversary of the date of grant. The Stock Options shall be granted pursuant to the terms of the
Company’s 2004 Flexible Incentive Plan and the terms of a separate stock option agreement between
the Company and Executive.

          (d) Expenses. During the Term, Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by him (in accordance with the policies and
procedures established by the Company) in performing services hereunder, provided that Executive
properly accounts therefor in accordance with Company policy.

2

 

          (e) Other Benefits. Executive shall be entitled to participate in or receive benefits
(“Other Benefits”) under any compensation, employee benefit plan, or other arrangement made
generally available by the Company to its senior executive officers, subject to and on a basis
consistent with the terms, conditions, and overall administration of such plan or arrangement.
Nothing paid to Executive under any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the Base Salary payable to Executive hereunder.

          (f) Vacations. Executive shall be entitled to 30 days paid vacation per year during
the Term. There shall be no carryover of unused vacation from year to year. For purposes of this
Paragraph, weekends shall not count as vacation days, and Executive shall also be entitled to all
paid holidays and personal days given by the Company to its senior executive officers.

          (g) Perquisites. Executive shall be entitled to receive the perquisites provided for
on Appendix 1 hereof.

          (h) Proration. Expect with respect to the Bonus payable hereunder, any payments or
benefits payable to Executive hereunder in respect of any calendar year during which Executive is
employed by the Company for less than the entire year, unless otherwise provided in the applicable
plan or arrangement, shall be prorated in accordance with the number of days in such calendar year
during which he is so employed. Notwithstanding the foregoing, any payments pursuant to Sections
4(c) or 4(d) this Agreement shall not be subject to proration.

     4. Termination.

          (a) Definitions.

          (1) “Cause” shall mean:

          (i) Material dishonesty which is not the result of an inadvertent or innocent mistake
of Executive with respect to the Company or any of its Affiliates;

          (ii) Willful misfeasance or nonfeasance of duty by Executive;

          (iii) Violation by Executive of any material term of this Agreement; or

          (iv) Conviction of Executive of any crime other than a vehicular offense that could
reflect in some fashion unfavorably upon the Company or its Affiliates.

Executive may not be terminated for Cause unless and until there has been delivered to
Executive written notice from the CEO supplying the particulars of his acts or omissions
that the HCC Board of Directors believes constitute Cause, a reasonable period of time (not
less than 30 days) has been given to Executive after such notice to either cure the same or
to meet with the CEO with his attorney if so desired by Executive, and following which the
CEO reaffirms the previous decision of the HCC Board of Directors.

          (2) A “Change of Control” shall be deemed to have occurred if:

3

 

          (i) Any “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company becomes the “beneficial owner” (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of 50% or
more of the Company’s then outstanding voting common stock; or

          (ii) At any time during the period of three consecutive years (not including any period
prior to the date hereof), individuals who at the beginning of such period constituted the
Board (and any new director whose election by the Board or whose nomination for election by
the Company’s shareholders were approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any reason to
constitute a majority thereof; or

          (iii) The shareholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation (a) in which a majority of
the directors of the surviving entity were directors of the Company prior to such
consolidation or merger, and (b) which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being changed into voting securities of the surviving entity) more than
50% of the combined voting power of the voting securities of the surviving entity
outstanding immediately after such merger or consolidation; or

          (iv) The shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or substantially
all of the Company’s assets.

          (3) A “Disability” shall mean the absence of Executive from Executive’s duties
with the Company on a full-time basis for 180 consecutive days, or 180 days in a 365-day
period, as a result of incapacity due to mental or physical illness which results in
Executive being unable to perform the essential functions of his position, with or without
reasonable accommodation.

          (4) A “Good Reason” shall mean any of the following occurrences (without
Executive’s express written consent):

          (i) A material alteration in the nature or status of Executive’s duties or
responsibilities, or the assignment of duties or responsibilities inconsistent with the
Executive’s status, title, or other duties and responsibilities; provided, however, that a
change in the Executive’s title or a change in the Executive’s supervisor shall not
constitute a material alteration in the nature or status of the Executive’s duties
hereunder;

          (ii) The taking of any action by the Company that would adversely affect Executive’s
participation in, or materially reduce Executive’s benefits under, any employee benefit
plan, unless such failure or such taking of any action adversely affects persons similarly
situated in the Company generally;

4

 

          (iii) Executive’s involuntary relocation to any place, other than the executive offices
as a result of the Company relocating its executive offices, exceeding a distance of 50
miles from the place of Executive’s normal place of employment on the Effective Date, except
for reasonably required travel by Executive on the Company’s business;

          (iv) Any material breach by the Company of any material provision of this Agreement; or

          (v) Any failure by the Company to obtain the assumption and performance of this
Agreement by any successor (by merger, consolidation, or otherwise) or assign of the
Company.

Notwithstanding the foregoing provisions of this Section 4(a)(4), Good Reason shall exist
with respect to an above specified matter only if such matter is not corrected, or begun to
be corrected, by the Company within 30 days after the Company’s receipt of written notice of
such matter from Executive. In no event shall a termination by Executive occurring more
than 90 days following the date of the event described be a termination for Good Reason due
to such event, whether that event is corrected or not.

          (5) “Termination Date” shall mean the date Executive’s employment terminates or
is terminated for any reason pursuant to this Agreement.

          (b) Termination Without Cause or for Good Reason: Benefits. In the event there is a
termination by the Company without Cause or if Executive terminates for Good Reason or if either of
the Company or Executive terminate this Agreement for any reason other than Cause within 180 days
following a Change of Control (a “Termination Event”), this Agreement shall terminate and Executive
shall be entitled to the following severance benefits:

          (1) For the greater of (i) the remainder of the Term or (ii) a period of 12 months
after the Termination Date, Base Salary (as defined in Section 3(a)), at the rate in effect
immediately prior to the Termination Event, payable at the Company’s sole election, either
(i) at the same intervals as Executive was previously being compensated or (ii) within ten
days after the Termination Date in a lump sum, appropriately discounted to take into
consideration the lump sum early payment;

          (2) If the Termination Date occurs after October 1 of any calendar year during the
Term, Executive shall nonetheless be entitled to receive the Bonus compensation related to
such calendar year in accordance with Section 3(b).

          (3) Any Stock Options which Executive has been granted under this Agreement shall vest
immediately and shall remain exercisable throughout the remainder of their original term.

          (4) The medical insurance benefits provided to Executive and any consulting payments
due Executive under this Agreement shall continue as provided herein notwithstanding any
such Termination Event.

5

 

          (5) All unreimbursed expenses and Other Benefits through the Termination Date. Such
amounts shall be paid to Executive in a lump sum within 30 days after the Termination Date;

          (6) If Executive receives any payments pursuant to this Section 4(b) which are subject
to an excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended, or any similar tax imposed under federal, state, or local law (collectively,
“Excise Taxes”), the Company shall pay to Executive (on or before the date on which the
Company is required to withhold such Excise Taxes), (i) an additional amount equal to all
Excise Taxes then due and payable, and (ii) the amount necessary to defray Executive’s
increased (federal, state, and local) tax liability arising due to payment of the amount
specified in this Section 4(b) which shall include any costs and expenses, including
penalties and interest incurred by Executive in connection with any audit, proceedings, etc.
related to the payment of such Excise Taxes or this payment. For purposes of calculating
the amount payable to Executive under this Section 4(b), the federal and state income tax
rates used shall be the highest marginal federal and state rates applicable to ordinary
income in Executive’s state of residence, taking into account any federal income tax
deductions or credits available to Executive for state income taxes. The Company shall
cause its independent auditors to calculate such amount and provide Executive a copy of such
calculation at least ten days prior to the date specified above for payment of such amount.
It is the intent of the Parties that this Section 4(b)(6) shall place Executive in the same
net after-tax position Executive would have been in had no payment been subject to an Excise
Tax, and, notwithstanding anything to the contrary, it shall be construed to effectuate said
result; and

          (7) Executive shall be free to accept other employment during such period, and other
than as set forth herein, there shall be no offset of any employment compensation earned by
Executive in such other employment during such period against payments due Executive under
this Section 4(b), and there shall be no offset in any compensation received from such other
employment against the amounts payable hereunder, unless the Executive is employed in a
position of competing with the Company as described in Section 5 below.

          (c) Termination In Event of Death: Benefits. Except as otherwise provided herein, if
Executive’s employment is terminated by reason of Executive’s death during the Term, this
Agreement shall terminate without further obligation to Executive’s legal representatives under
this Agreement, other than for payment of all accrued Base Salary, unreimbursed expenses, and the
timely payment or provision of Other Benefits through the date of death and the amount of any Bonus
relating to a prior year unpaid as of the date of death. Such amounts shall be paid to Executive’s
estate or beneficiary, as applicable, in a lump sum in cash within 90 days after the date of death.
In the event that Executive’s death should occur after October 1 of any calendar year of the Term,
the Company shall pay to Executive’s estate or beneficiary, as applicable, the amount of any Bonus
compensation related to such year in accordance with Section 3(b). Any Stock Options which
Executive has been granted under this Agreement shall vest immediately and shall remain exercisable
throughout the remainder of their original term.

6

 

          (d) Termination In Event of Disability: Benefits. If Executive’s employment is
terminated by reason of Executive’s Disability during the Term, this Agreement shall terminate but
the Company shall pay the Executive the amount of any Bonus relating to a prior year unpaid as
of the date of disability and continue to pay the Base Salary for a period of 12 months and
thereafter shall make such additional payment for the Term so that the after tax effect of
Executive’s Base Salary compensation is equal to 50% of the amount of Base Salary before the
Disability. In the event that Executive’s disability should occur after October 1 of any calendar
year of the Term, the Company shall pay to Executive the amount of any Bonus compensation related
to such year in accordance with Section 3(b). Executive shall not be entitled to any subsequent
Bonuses. Any Stock Options which Executive has been granted under this Agreement shall vest
immediately and shall remain exercisable throughout the remainder of their original term.

          (e) Voluntary Termination by Executive and Termination for Cause: Benefits. Executive
may terminate his employment with the Company by giving written notice of his intent and stating an
effective Termination Date at least 90 days after the date of such notice; provided, however, that
the Company may accelerate such effective date by paying Executive through the proposed Termination
Date (but not to exceed 90 days) and also vesting any Stock Options that would have vested but for
the acceleration of the proposed Termination Date. Upon such a termination by Executive or upon
termination for Cause by the Company, this Agreement shall terminate and the Company shall pay to
Executive all accrued Base Salary compensation, unreimbursed expenses and Other Benefits through
the Termination Date. Such amounts shall be paid to Executive in a lump sum in cash within 30 days
after the Termination Date. Executive shall have no entitlement to any unpaid Bonus. All unvested
Stock Options shall terminate upon such termination of employment. All then vested Stock Options
shall remain exercisable for a period of 30 days after the Termination Date.

          (f) Director Positions. Executive agrees that upon termination of employment, for any
reason, at the request of the Chairman of the Board, Executive will immediately tender his
resignation from any and all Board positions held with the Company and/or any of its Affiliates.
If Executive remains a Director of the Company following such termination of employment, Executive
shall be compensated for such service as an “outside” director.

     5. Non-Competition, Non-Solicitation and Confidentiality. At the inception of this
employment relationship, and continuing on an ongoing basis, the Company and HCC agree to give
Executive access to Confidential Information (including, without limitation, Confidential
Information, as defined below, of the Company’s Affiliates) that Executive has not had access to or
knowledge of before the execution of this Agreement. At the time this Agreement is made, the
Company and HCC agree to provide Executive with initial and ongoing Specialized Training, which
Executive has not had access to or knowledge of before the execution of this Agreement.
“Specialized Training” includes the training the Company provides to its employees that is unique
to its business and enhances Executive’s ability to perform Executive’s job duties effectively.
Specialized Training includes, without limitation, orientation training; sales methods/techniques
training; operation methods training; and computer and systems training.

          (a) Non-Competition During Employment. Executive agrees that, in consideration for
the Company’s and HCC’s promise to provide Executive with Confidential

7

 

Information and Specialized
Training, during the Term, he will not compete with the Company by engaging in the conception,
design, development, production, marketing, or servicing of any product
or service that is substantially similar to the products or services which the Company
provides, and that he will not work for, in any capacity, assist, or become affiliated with as an
owner, partner, etc., either directly or indirectly, any individual or business which offers or
performs services, or offers or provides products substantially similar to the services and
products provided by Company; provided, however, Executive shall not be prevented from owning no
more than 2% of any company whose stock is publicly traded.

          (b) Conflicts of Interest. Executive agrees that during the Term, he will not engage,
either directly or indirectly, in any activity (a “Conflict of Interest”) that might adversely
affect the Company or its Affiliates, including ownership of a material interest in any supplier,
contractor, distributor, subcontractor, customer or other entity with which the Company does
business or accepting any material payment, service, loan, gift, trip, entertainment, or other
favor from a supplier, contractor, distributor, subcontractor, customer or other entity with which
the Company does business, and that Executive will promptly inform the CEO as to each offer
received by Executive to engage in any such activity. Executive further agrees to disclose to the
Company any other facts of which Executive becomes aware which in Executive’s good faith judgment
could reasonably be expected to involve or give rise to a Conflict of Interest or potential
Conflict of Interest.

          (c) Non-Competition After Termination. Executive agrees that in order to protect the
Company’s and HCC’s Confidential Information, it is necessary to enter into the following
restrictive covenant, which is ancillary to the enforceable promises between the Company and
Executive otherwise contained in this Agreement. Executive agrees that Executive shall not, at any
time during the Restricted Period (as hereinafter defined), within any of the markets in which the
Company has sold products or services or formulated a plan to sell products or services into a
market during the last 12 months of Executive’s employ or which the Company enters into within
three months thereafter, engage in or contribute Executive’s knowledge to any work which is
competitive with or similar to a product, process, apparatus, service, or development on which
Executive worked or with respect to which Executive had access to Confidential Information or
Specialized Training while employed by the Company; provided however, this Section 5(c) shall not
operate to prevent Executive from engaging in retail insurance or re-insurance activities during
such Restricted Period to the extent such activities do not compete or permit any other person or
entity to compete with any business the Company or its Affiliates were engaged in at the time of
such termination. Executive shall be precluded from service as a member of the Board of Directors
of any insurance company or insurance holding company during the Restricted Period. It is
understood that the geographical area set forth in this covenant is divisible so that if this
clause is invalid or unenforceable in an included geographic area, that area is severable and the
clause remains in effect for the remaining included geographic areas in which the clause is valid.
For the purpose of this Agreement, “Restricted Period” means a period of 24 months after
termination of Executive’s employment with the Company. The Restricted Period shall commence at
the time Executive ceases to be a full-time employee of the Company.

          (d) Confidential Information. Executive agrees that he will not, except as the
Company may otherwise consent or direct in writing, reveal or disclose, sell, use, lecture upon,

8

 

publish or otherwise disclose to any third party any Confidential Information or proprietary
information of the Company, or authorize anyone else to do these things at any time either during
or
subsequent to his employment with the Company. This Paragraph shall continue in full force
and effect after termination of Executive’s employment and after the termination of this Agreement.
Executive’s obligations under this Paragraph with respect to any specific Confidential Information
and proprietary information shall cease when that specific portion of the Confidential Information
and proprietary information becomes publicly known, in its entirety and without combining portions
of such information obtained separately. It is understood that such Confidential Information and
proprietary information of the Company include matters that Executive conceives or develops, as
well as matters Executive learns from other employees of the Company. “Confidential Information”
is defined to include information: (1) disclosed to or known by Executive as a consequence of or
through his employment with the Company; (2) not generally known outside the Company; and (3) that
relates to any aspect of the Company or their business, finances, operation plans, budgets,
research, or strategic development. “Confidential Information” includes, but is not limited to,
the Company’s trade secrets, proprietary information, financial documents, long range plans,
customer lists, employer compensation, marketing strategy, data bases, costing data, computer
software developed by the Company, investments made by the Company, and any information provided to
the Company by a third party under restrictions against disclosure or use by the Company or others.

          (e) Non-Solicitation. To protect the Company’s Confidential Information, and in the
event of Executive’s termination of employment for any reason whatsoever, whether by Executive or
the Company, it is necessary to enter into the following restrictive covenant, which is ancillary
to the enforceable promises between the Company and Executive otherwise contained in this
Agreement. Executive covenants and agrees that during Executive’s employment and for the
Restricted Period, Executive will not, directly or indirectly, either individually or as a
principal, partner, agent, consultant, contractor, employee or as a director or officer of any
corporation or association, or in any other manner or capacity whatsoever, except on behalf of the
Company, solicit business, or attempt to solicit business, and products or services competitive
with products or services sold by the Company, from the Company’s clients or customers, or those
individuals or entities with whom the Company did business during Executive’s employment,
including, without limitation, the Company’s prospective or potential customers or clients.
Executive further agrees that during Executive’s employment and for the Non-Solicitation Period,
Executive will not, either directly or indirectly, or by acting in concert with others, solicit or
influence any Company employee to leave the Company’s employment.

          (f) Return of Documents, Equipment, Etc. All writings, records, and other documents
and things comprising, containing, describing, discussing, explaining, or evidencing any
Confidential Information, and all equipment, components, parts, tools, and the like in Executive’s
custody or possession that have been obtained or prepared in the course of Executive’s employment
with the Company shall be the exclusive property of the Company, shall not be copied and/or removed
from the premises of the Company, except in pursuit of the business of the Company, and shall be
delivered to the Company, without Executive retaining any copies, upon notification of the
termination of Executive’s employment or at any other time requested by the Company. The Company
shall have the right to retain, access, and inspect all property of Executive of any kind in the
office, work area, and on the premises of the Company upon termination of Executive’s

9

 

employment
and at any time during employment by the Company to ensure compliance with the terms of this
Agreement.

          (g) Reaffirm Obligations. Upon termination of Executive’s employment with the
Company, Executive, if requested by Company, shall reaffirm in writing Executive’s recognition of
the importance of maintaining the confidentiality of the Company’s Confidential Information and
proprietary information, and reaffirm any other obligations set forth in this Agreement.

          (h) Prior Disclosure. Executive represents and warrants that Executive has not used
or disclosed any Confidential Information he may have obtained from the Company prior to signing
this Agreement, in any way inconsistent with the provisions of this Agreement.

          (i) No Previous Restrictive Agreements. Executive represents that, except as
disclosed in writing to the Company, Executive is not bound by the terms of any agreement with any
previous employer or other party to refrain from using or disclosing any trade secret or
confidential or proprietary information in the course of Executive’s employment by the Company or
to refrain from competing, directly or indirectly, with the business of such previous employer or
any other party. Executive further represents that Executive’s performance of all the terms of
this Agreement and Executive’s work duties for the Company does not and will not breach any
agreement to keep in confidence proprietary information, knowledge or data acquired by Executive in
confidence or in trust prior to Executive’s employment with the Company, and Executive will not
disclose to the Company or induce the Company to use any confidential or proprietary information or
material belonging to any previous employer or other party.

          (j) Breach. Executive agrees that any breach of Sections 5(a) through (f) above
cannot be remedied solely by money damages, and that in addition to any other remedies Company may
have, Company are entitled to obtain injunctive relief against Executive. Nothing herein, however,
shall be construed as limiting the Company’s right to pursue any other available remedy at law or
in equity, including recovery of damages and termination of this Agreement and/or any termination
or offset against any payments that may be due pursuant to this Agreement; provided, no payments to
Executive under Section 9 shall be offset for any purpose, so long as Executive continues to
provide the Consulting Services.

          (k) Right to Enter Agreement; Payment of Loans. Executive represents and covenants to
the Company that he has full power and authority to enter into this Agreement and that the
execution of this Agreement will not breach or constitute a default of any other agreement or
contract to which he is a party or by which he is bound. Executive further acknowledges that he
has repaid all outstanding loans from the Company prior to entering into this Agreement.

          (l) Enforceability. The agreements contained in this Section 5 are independent of the
other agreements contained herein. Accordingly, failure of the Company to comply with any of its
obligations outside of this Section does not excuse Executive from complying with the agreements
contained herein.

          (m) Survivability. The agreements contained in this Section 5 shall survive the
termination of this Agreement for any reason.

10

 

          (n) Reformation. If a court concludes that any time period or the geographic area
specified in Sections 5(c) or (e) of this Agreement are unenforceable, then the time period will be
reduced by the number of months, or the geographic area will be reduced by the elimination of
the overbroad portion, or both, so that the restrictions may be enforced in the geographic area and
for the time to the fullest extent permitted by law.

     6. Offsite Work Location. Upon request to the CEO, Executive shall be permitted to
work from an offsite location as home-base for two months each year subject to the following:

          (a) Executive shall at his sole cost and expense remain in continuous contact with the Houston
corporate office and the Company’s other office locations by both telephone and email during such
period through communication systems that meet the remote communication and data security
requirements established by the Company’s Information Technology Department.

          (b) Executive shall be available to attend corporate meetings in Houston or elsewhere upon
reasonable notice, as required by the CEO, during this period.

          This period shall not be considered vacation time for purposes of this Agreement.

     7. Assignment. This Agreement cannot be assigned by Executive. The Company may
assign this Agreement only to a successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and assets of the Company
provided such successor expressly agrees in writing reasonably satisfactory to Executive to assume
and perform this Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession and assignment had taken place. Failure of the
Company to obtain such written agreement prior to the effectiveness of any such succession shall be
a material breach of this Agreement.

     8. Binding Agreement. Executive understands that his obligations under this Agreement
are binding upon Executive’s heirs, successors, personal representatives, and legal
representatives.

     9. Consulting Agreement.

          (a) Effective upon Executive’s termination of employment for any reason, HCC hereby retains
Executive as a consultant (an independent contractor and not as an employee) for a period of six
years and nine months (the “Consulting Period”). Termination of the Term shall not affect the
Parties’ rights and obligations under this Section 9. Subject to the following, Executive agrees
to provide services as a consultant to the Company (the “Consulting Services”), if requested, a
minimum of 200 hours of service per year (or prorated portion thereof), or, as requested by the
Company, up to a total of 600 hours during any one year of the Consulting Period; provided,
however, that the total number of hours to be worked over the duration of the Consulting Period
shall not exceed 1,350.

          (b) The Consulting Services to be provided shall be commensurate with Executive’s training,
background, experience and prior duties with the Company. Executive agrees to make himself
reasonably available to provide such Consulting Services during the Consulting

11

 

Period; provided,
however, the Company agrees that it shall provide reasonable advance notice to Executive of its
expected consulting needs and any request for Consulting Services hereunder shall
not unreasonably interfere with Executive’s other business activities and personal affairs as
determined in good faith by Executive. In addition, Executive shall not be required to perform any
requested Consulting Services which, in Executive’s good faith opinion, would cause Executive to
breach any fiduciary duty or contractual obligation Executive may have to another employer.

          (c) The Consulting Period shall run concurrently with the Restricted Period provided for in
Section 5. Unless waived by Executive, Executive shall not be required to perform Consulting
Services for more than four days during any week or for more than eight hours during any day.
Executive’s travel time shall constitute hours of Consulting Services for purposes of this Section
9. The Parties contemplate that, when appropriate, the Consulting Services shall be performed at
Executive’s office, residence or at the Company’s executive offices in Houston, Texas and may be
performed at such other locations only as they may mutually agree upon. Executive shall be
properly reimbursed for all travel and other expenses reasonably incurred by Executive in rendering
the Consulting Services.

          (d) HCC shall pay Executive a consulting fee at a rate of $200,000 per year (the “Consulting
Fee”) during the Consulting Period, payable monthly in arrears. Executive may elect to delay
payment for the Consulting Services but not the Consulting Services themselves. Subject to
Executive providing the Consulting Services in accordance with this Section 9, Executive’s right to
receive the Consulting Fee shall be deemed fully vested as of the Effective Date of this Agreement.
Except as set forth in Sections 9(e) hereof, if Executive fails to provide the Consulting Services
and the hours requested by the Company in any 24-month period, Executive’s rights to receive any
further Consulting Fee (including any Additional Consulting Fee (as hereinafter defined)) shall
immediately terminate. During the Consulting Period, except as otherwise provided for in this
Agreement, Executive shall receive no employment benefits from HCC.

          (e) If Executive dies or becomes Disabled during the Term (or as an employee of the Company
following the Term) or during the Consulting Period, he (or, on his death, his beneficiary or
estate) shall receive or continue to receive as the case may be, the Consulting Fee, including any
Additional Consulting Fee (as hereinafter defined), during the remainder of the Consulting Period
as if such death or Disability had not occurred.

          (f) The Consulting Fee payable to the Executive hereunder shall be increased by an additional
amount of $350,000 (the “Additional Consulting Fee”) for each year of the Term completed prior to
the termination of Executive’s employment pursuant to the terms hereof. Such Additional Consulting
Fee shall be paid ratably over the Consulting Period.

     10. Notices. All notices pursuant to this Agreement shall be in writing and sent
certified mail, return receipt requested, addressed as set forth below, or by delivering the same
in person to such party, or by transmission by facsimile to the number set forth below (which shall
not constitute notice). Notice deposited in the United States Mail, mailed in the manner described
hereinabove, shall be effective upon deposit. Notice given in any other manner shall be effective
only if and when received:

12

 

	 	 	 	 	 
	 

	 	If to Executive:
	 	John N. Molbeck, Jr.
	 

	 	 	 	11111 Claymore Road
	 

	 	 	 	Houston, Texas 77024
	 

	 	 	 	Fax: (832) 358-9529
	 
	 	 	 	 
	 

	 	If to Company:
	 	HCC Insurance Holdings, Inc.
	 

	 	 	 	13403 Northwest Freeway
	 

	 	 	 	Houston, Texas 77040
	 

	 	 	 	Attn: General Counsel
Fax: (713) 744-9648
	 
	 	 	 	 
	 

	 	with a copy (which shall not	 	 
	 

	 	constitute notice) to:
	 	Arthur S. Berner, Esq.
	 

	 	 	 	Haynes and Boone, L.L.P.
	 

	 	 	 	1 Houston Center
	 

	 	 	 	1221 McKinney, Suite 2100
	 

	 	 	 	Houston, Texas 77010
	 

	 	 	 	Fax: (713) 236-5417

     11. Waiver. No waiver by either party to this Agreement of any right to enforce any
term or condition of this Agreement, or of any breach hereof, shall be deemed a waiver of such
right in the future or of any other right or remedy available under this Agreement.

     12. Severability. If any provision of this Agreement is determined to be void,
invalid, unenforceable, or against public policy, such provisions shall be deemed severable from
the Agreement, and the remaining provisions of the Agreement will remain unaffected and in full
force and effect.

     13. Entire Agreement. The terms and provisions contained herein shall constitute the
entire agreement between the parties with respect to Executive’s employment with Company during the
time period covered by this Agreement. This Agreement replaces and supersedes any and all existing
Agreements entered into between Executive and the Company relating generally to the same subject
matter, if any, including without limitation that certain Employment Agreement dated January 5,
2000, as amended, and any continuing obligations of the parties thereunder. This Agreement shall
be binding upon Executive’s heirs, executors, administrators, or other legal representatives or
assigns.

     14. Modification of Agreement. This Agreement may not be changed or modified or
released or discharged or abandoned or otherwise terminated, in whole or in part, except by an
instrument in writing signed by Executive and an officer or other authorized executive of Company.

13

 

     15. Understand Agreement. Executive represents and warrants that he has read and
understood each and every provision of this Agreement, and Executive understands that he has the
right to obtain advice from legal counsel of his choice, if necessary and desired, in order to
interpret any and all provisions of this Agreement, and that Executive has freely and voluntarily
entered into this Agreement.

     16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.

     17. Jurisdiction and Venue. Subject to Section 18, with respect to any litigation
regarding this Agreement, Executive agrees to venue in the state or federal courts in Harris
County, Texas, and agrees to waive and does hereby waive any defenses and/or arguments based upon
improper venue and/or lack of personal jurisdiction. By entering into this Agreement, Executive
agrees to personal jurisdiction in the state and federal courts in Harris County, Texas.

     18. Arbitration. In the event any dispute arises out of Executive’s employment with
or by the Company, or separation/termination therefrom, whether as an employee or as a consultant
which cannot be resolved by the Parties to this Agreement, such dispute shall be submitted to final
and binding arbitration. The arbitration shall be conducted in accordance with the National Rules
for the resolution of Employment Disputes of the American Arbitration Association (“AAA”). If the
Parties cannot agree on an arbitrator, a list of seven arbitrators will be requested from AAA, and
the arbitrator will be selected using alternate strikes with Executive striking first. The cost of
the arbitration will be shared equally by Executive and Company; provided, however, the Company
shall promptly reimburse Executive for all costs and expenses incurred in connection with any
dispute in an amount up to, but not exceeding 20% of Executive’s Base Salary (or, if the dispute
arises during the Consulting Period, Executive’s Base Salary as in effect immediately prior to the
beginning of the Consulting Period) unless such termination was for Cause in which event Executive
shall not be entitled to reimbursement unless and until it is determined he was terminated other
than for Cause. Arbitration of such disputes is mandatory and in lieu of any and all civil causes
of action and lawsuits either party may have against the other arising out of Executive’s
employment with Company, or separation therefrom. Such arbitration shall be held in Houston,
Texas.

     19. Tolling. If Executive violates any of the restrictions contained in Section 5,
the Restricted Period will be suspended and will not run in favor of Executive from the time of the
commencement of any violation until the time when Executive cures the violation to the Company’s
satisfaction.

[remainder of this page intentionally left blank]

14

 

     IN WITNESS WHEREOF, the Parties have executed this Agreement in multiple copies, effective as
of the date set forth above.

	 	 	 	 	 
	 

	 	 	 	 
	EXECUTIVE :	 	 
	 
	 	 	 	 
	John N. Molbeck, Jr.	 	 
	 
	 	 	 	 
	  /s/ John N. Molbeck, Jr.	 	 
	 	 	 
	 
	 	 	 	 
	COMPANY:	 	 
	 
	 	 	 	 
	HCC Insurance Holdings, Inc.	 	 
	 
	 	 	 	 
	By:

	 	  /s/ Stephen L. Way	 	 
	 

	 	 	 	 
	 

	 	STEPHEN L. WAY,	 	 
	 

	 	Chairman and Chief Executive Officer	 	 

Signature Page

Employment Agreement — Molbeck

 

 

APPENDIX 1

PERQUISITES

	1.	 	The Company shall pay for Executive’s preparation of estate planning and wealth preservation
documents during the course of Executive’s employment under this Agreement up to a maximum of
$50,000 in the aggregate.
	 
	2.	 	Car allowance of $3,000 per month.
	 
	3.	 	First class domestic business travel and club class international business travel using
upgrades through Company Travel Department.
	 
	4.	 	Executive shall receive a term life insurance policy in the amount of $1,000,000, in addition
to the Company’s group life insurance program in effect for its senior executive officers.
	 
	5.	 	In addition to the other benefits provided in this Agreement, Executive shall be entitled to
receive medical insurance as currently provided under the Company’s group program, as such
group program may be changed from time-to-time in the future, and Executive shall be entitled
to continue to be covered by such group program or, if not permitted under the terms of the
group program, then the Company shall provide Executive with a medical insurance policy
providing substantially similar benefits as to the group program, for the period ending on the
date of the later to die of Executive or, if Executive is married on the date of his death,
Executive’s spouse or the date all of Executive’s children complete college (as defined in the
Company’s group program). Executive shall be entitled to receive the medical benefits set
forth herein at no cost to the Executive.
	 
	6.	 	Such additional perquisites as shall be determined by the Compensation Committee of the
Company’s Board of Directors.

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